Dear Zippy, thank you for your highly interesting write up on TBTC. It makes me think of GLXZ. I was looking at the TBTC Q2 report ( not a lot of detail there in terms of business context) and noted they also sell systems via distributors? Did you get to understand the economics of such sales? Are they just one off worse( margin) and later on better ( license?) or not? I noted a worsening of the gross margin in Q2 vs 2020 and wondered what you thought about it. Also the company mentioned that they have now 12 systems in backlog compared to 9 the previous quarter. So that seems better than your expectation, Thank you Robert
Hi Robert - Great question. Based on my understanding, TBTC has an "exclusive supplier" in Australia so revenues from installations in that market are considered sales via distributors. The Australian market is quite fragmented with over 5,000 locations (clubs, hotels, etc) with slot machines throughout the country (called "pokies").
Per the latest 10-Q: "During the three months ended June 30, 2021, the Company delivered two new systems, expanded one existing customer and our exclusive supplier installed our system in multiple locations in Australia".
I also noticed that Q2 system sales gross margin was much lower vs historical (and even Q1). Revenues and margins from each installation can vary based on casino size and they only had 2 system installs in Q2 so I am not going to read too much into the GM % decline. I don't believe the distributor sales are margin dilutive given they had a significant amount of sales via the supplier in Australia in Q1 and system sales gross margin was 84% in that Q). I believe the system sales GM is likely more correlated with the number of completed installations.
Looking ahead to Q3, the company seems confident that they will be able to clear a lot (or all) of the backlog - which is a very bullish signal.
Dear Zippy, thank you for your highly interesting write up on TBTC. It makes me think of GLXZ. I was looking at the TBTC Q2 report ( not a lot of detail there in terms of business context) and noted they also sell systems via distributors? Did you get to understand the economics of such sales? Are they just one off worse( margin) and later on better ( license?) or not? I noted a worsening of the gross margin in Q2 vs 2020 and wondered what you thought about it. Also the company mentioned that they have now 12 systems in backlog compared to 9 the previous quarter. So that seems better than your expectation, Thank you Robert
Hi Robert - Great question. Based on my understanding, TBTC has an "exclusive supplier" in Australia so revenues from installations in that market are considered sales via distributors. The Australian market is quite fragmented with over 5,000 locations (clubs, hotels, etc) with slot machines throughout the country (called "pokies").
Per the latest 10-Q: "During the three months ended June 30, 2021, the Company delivered two new systems, expanded one existing customer and our exclusive supplier installed our system in multiple locations in Australia".
I also noticed that Q2 system sales gross margin was much lower vs historical (and even Q1). Revenues and margins from each installation can vary based on casino size and they only had 2 system installs in Q2 so I am not going to read too much into the GM % decline. I don't believe the distributor sales are margin dilutive given they had a significant amount of sales via the supplier in Australia in Q1 and system sales gross margin was 84% in that Q). I believe the system sales GM is likely more correlated with the number of completed installations.
Looking ahead to Q3, the company seems confident that they will be able to clear a lot (or all) of the backlog - which is a very bullish signal.