PokerTek Announces Third Quarter 2009 Financial Results

• Press Release
• Source: PokerTek, Inc.
• On 4:31 pm EST, Tuesday November 3, 2009

MATTHEWS, N.C.--(BUSINESS WIRE)--PokerTek, Inc. (NASDAQ: PTEK - News) today reported financial results for the third quarter and year-to-date periods ended September 30, 2009.

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Symbol	Price	Change
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Third Quarter and Year-to-Date Highlights

• Net loss improved 27% for the quarter and 19% year-to-date
• Loss per share improved by 31% for the quarter and 21% year-to-date
• EBITDAS improved 60% for the quarter and 41% year-to-date. EBITDAS of $(0.2) million for the third quarter approaching breakeven
• Cash used in operating activities improved 30% for the quarter and 64% year-to-date
• Operating expenses declined 41% for the quarter and 35% year-to-date.
• PokerPro table count decreased from 272 at September 30, 2008 to 255 at September 30, 2009
• 144 Heads-Up Challenge units placed on recurring revenue programs.

Recent Announcements and Events

• Debt conversion completed
• Credit facilities renewed with Silicon Valley Bank
• Private Placement and Share Purchase transactions completed
• New PokerPro locations:
  • Silver Legacy Resort Casino in Reno, Nevada
  • Red Shores at Summerside Raceway in Summerside, New Brunswick
  • Dooly’s Elmwood in Moncton, New Brunswick
  • Legends in St. John, New Brunswick
  • Emotion Casino in Puerto Vallarta, Mexico

Management Comments

“Our goals entering the third quarter were aimed squarely at driving our expenses lower and strengthening our balance sheet. With clear progress in these areas, we now look forward to shifting focus from cost reduction to revenue growth,” said Mark Roberson, Acting Chief Executive and Chief Financial Officer.

“During the quarter, we expanded into the Atlantic provinces of Canada, representing our first installations in non-traditional bar environments with our first lottery customer. In addition, rule changes were recently enacted in Mexico allowing electronic table games for the first time and we placed our first table in Puerto Vallarta this quarter. These are both examples of new market opportunities that play directly to the strengths of PokerPro.”

Revenues

Revenues declined overall as our business shifted from a product sale focus, which produces larger up-front revenues, to a business with heavier emphasis on recurring license revenues which are spread over time. Total revenue for the third quarter of 2009 was $1.6 million, a decrease of 64% from the third quarter of 2008, and $5.2 million for the first nine months of 2009, a decrease of 54% from the comparable period of 2008.

Revenue from recurring licensing and servicing fees totaled $1.3 million for the third quarter, a decrease of $0.2 million or 12% from the comparable period of 2008. For the first nine months of 2009, recurring license and service fees totaled $3.9 million, a decrease of $0.5 million or 12% from the first nine months of 2008. Heads-Up Challenge transitioned from product sale to a recurring revenue model with 144 units placed. Recurring revenues as a percent of total revenues increased from 39% for the first nine months of 2008 to 75% for the comparable period of 2009.

Revenues from one-time product sales totaled $0.2 million for the third quarter, a decrease of $2.5 million or 92% from the third quarter of 2008. For the first nine months of 2009, product sales totaled $1.3 million, a decrease of $5.6 million or 81% from the first nine months of 2008.

Product sales of Heads-Up Challenge contributed $0.2 million for the third quarter, down from $1.5 million in the third quarter of 2008 due to the transition from product sale through distribution to an operator-direct recurring revenue model in mid-2009. We sold no new PokerPro systems to Aristocrat during 2009, which had accounted for $1.2 million and $2.8 million during the third quarter and first nine months of 2008, respectively.

Direct Cost of Revenue

Direct cost of revenue for the third quarter of 2009 was $0.9 million, a decrease of 68% from the comparable period of 2008. For the first nine months of 2009, direct cost of revenue was $3.1 million, a decrease of 55% from the comparable period of 2008. As a percent of total revenue, direct cost of revenue was 57% of revenue for the third quarter of 2009 as compared to 64% for the comparable period of 2008, and 59% for the first nine months of 2009 as compared to 61% for the first nine months of 2008.

The decline in direct costs is directly attributable to the lower unit product sales of both PokerPro and Heads-Up Challenge, partially offset by higher depreciation of leased PokerPro products.

Operating Expenses

Operating expenses were $1.9 million for the third quarter of 2009, a decrease of $1.3 million, or 41% from the third quarter of 2008. For the first nine months of 2009, operating expenses were $6.5 million, a decrease of $3.5 million or 35% from the comparable period of 2008.

The decline in operating expenses is primarily attributable to cost reduction initiatives to reduce our cash spending and to align the operating structure with current revenues, providing a more effective base from which to grow our revenues moving forward. In addition, non-cash stock compensation expenses declined due to increased forfeitures.

Operating Results

Net loss per common share was $0.11 for the third quarter, an improvement of 31% from $0.16 for the third quarter 2008. Net loss was $1.3 million for the third quarter of 2009, an improvement of 27% from $1.8 million for the third quarter of 2008. For the first nine months of 2009, net loss per common share was $0.42, an improvement of 21% from $0.53 for the comparable period of 2008. Net loss was $4.7 million for the first nine months of 2009, an improvement of 19% from $5.8 million for the first nine months of 2008.

EBITDAS, a non-GAAP financial measure, was $(0.2) million for the third quarter, an improvement of 60% from $(0.5) million for the third quarter of 2008. For the first nine months of 2009, EBITDAS was $(1.6) million, an improvement of 41% from $(2.6) million for the comparable period of 2008.

Balance Sheet and Cash Flow Information

During the third quarter, the company completed several transactions to strengthen the balance sheet:

• $2.5 million credit facility renewed with Silicon Valley Bank
• $0.5 million investments from ICP Electronics
• $0.5 million Private Placement
• $1.2 million conversion of long-term debt to common equity. Term of remaining $0.8 million long-term debt extended to 2012 with reduced cash interest rate and option for payments in common stock

Cash and cash equivalents were $1.1 million as of September 30, 2009. Cash used in operations improved for the third quarter to $0.5 million from $2.0 million during 2008. For the first nine months of 2009, cash used in operating activities improved from $5.1 million to $1.8 million.

Conference Call

PokerTek will host a conference call to discuss its third quarter results on Tuesday, November 3, 2009 at 5:30 p.m. EST. Interested parties may listen to and participate in the conference call by dialing (888) 680-0890 (U.S./Canada) or (617) 213-4857 (Other) and entering passcode 52324639. A live webcast of the conference call will be available through a link on our website, www.pokertek.com, under the heading “Investors,” as well as at www.earnings.com and www.streetevents.com. For those unable to participate in the live call, an archived replay will be made available for one year on our website. A replay of the conference call will also be available approximately two hours after the conclusion of the call for approximately 24 hours by dialing (888) 286-8010 (U.S./Canada) or (617) 801-6888 (Other) and entering passcode 94293535.

Use of Non-GAAP Measures

PokerTek, Inc. prepares its consolidated financial statements in accordance with United States generally accepted accounting principles (“GAAP”). In addition to disclosing financial results prepared in accordance with GAAP, the Company discloses information regarding EBITDAS, which differs from the term EBITDA as it is commonly used. In addition to adjusting net loss to exclude taxes, interest, and depreciation and amortization, EBITDAS also excludes noncash charges and share-based compensation expense. EBITDA and EBITDAS are not measures of performance defined in accordance with GAAP. However, EBITDAS is used internally by PokerTek’s management and by its lenders in planning and evaluating the company’s operating performance. Accordingly, management believes that disclosure of this metric offers investors, lenders and other stakeholders with an additional view of the Company’s operations that, when coupled with the GAAP results, provides a more complete understanding of the Company’s financial results.

EBITDAS should not be considered as an alternative to net loss or to net cash used in operating activities as a measure of operating results or of liquidity. It may not be comparable to similarly titled measures used by other companies, and it excludes financial information that some may consider important in evaluating the Company’s performance. A reconciliation of GAAP net loss to EBITDAS is included in the accompanying financial schedules.

About PokerTek, Inc.

PokerTek, Inc. (NASDAQ:PTEK - News), headquartered in Matthews, NC, develops and markets products for the casino and amusement industries. PokerTek developed PokerPro® automated poker tables and related software applications to increase casino revenue, reduce expenses, and attract new players into poker rooms by offering interactive poker that is fast, fun and mistake-free. Heads-Up Challenge™ is a two-player table that allows bar and restaurant patrons to compete head-to-head in various games for amusement purposes. Heads-Up Challenge increases earnings for game operators and provides patrons unique and challenging on-site entertainment. Both products are installed worldwide.

For more information, please visit the Company's website at www.pokertek.com or contact Mark Roberson, the Company’s Acting Chief Executive Officer and Chief Financial Officer, at 704.849.0860 x101.

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are made in accordance with the Private Securities Litigation Reform Act of 1995. The forward-looking statements herein include, but are not limited to, the expected adoption of the PokerPro systems by casinos and other customers, the expected adoption of the Heads-Up Challenge product by bars, restaurants and other customers, and the expected acceptance of the PokerPro systems and Heads-Up Challenge product by players. Our actual results may differ materially from those implied in these forward-looking statements as a result of many factors, including, but not limited to, the impact of global macroeconomic and credit conditions on our business and the business of our suppliers and customers, overall industry environment, customer acceptance of our products, delay in the introduction of new products, further approvals of regulatory authorities, adverse court rulings, production and/or quality control problems, the denial, suspension or revocation of permits or licenses by regulatory or governmental authorities, termination or non-renewal of customer contracts, competitive pressures, and our financial condition, including our ability to maintain sufficient liquidity to operate our business. These and other risks and uncertainties are described in more detail in our most recent annual report on Form 10-K and other reports filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made. We undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, except as required by applicable laws, and you are urged to review and consider disclosures that we make in the reports that we file with the Securities and Exchange Commission that discuss other factors germane to our business.

PokerTek, Inc.
Tracy Egan, 704-849-0860 x106