HONG KONG--(BUSINESS WIRE)--Iao Kun Group Holding Company Limited (“IKGH”) (NASDAQ:IKGH), which operates through its subsidiaries and related promotion entities that act as VIP room gaming promoters and collaborator, today announced unaudited financial results for the three months and year ended December 31, 2013. All currency amounts are stated in United States dollars. Please refer to the Annual Report on Form 20-F that will be filed with the Securities and Exchange Commission in April 2014 for the full audited financial statements and related disclosures for the year ended December 31, 2013.
Fourth Quarter 2013 Highlights
- Rolling Chip Turnover (a metric used by casinos to measure the aggregate amount of players’ bets and overall volume of VIP gaming room business transacted, which is further defined below) for the three months ended December 31, 2013 was $4.4 billion, an increase of 7.3% compared to $4.1 billion for the three months ended December 31, 2012
- Net loss, including the change in fair value of contingent consideration of $2.1 million related to the King’s Gaming, Bao Li Gaming and Oriental VIP Room acquisitions, was $5.5 million, or ($0.09) per share (fully diluted), in the fourth quarter of 2013 compared to net income of $10.1 million, or $0.22 per share (fully diluted), in the same period of 2012.
- Non-GAAP income, which is operating income (loss) before amortization of intangible assets and the change in fair value of contingent consideration related to the acquisitions of King’s Gaming, Bao Li Gaming and Oriental VIP Room, was a loss of $3.5 million, or ($0.06) per share (fully diluted), for the three months ended December 31, 2013 as compared to income of $12.6 million, or $0.28 per share (fully diluted), for the three months ended December 31, 2012.
- IKGH’s annual dividend payment policy equates to an amount per outstanding ordinary share equal to (i) 15% of IKGH’s non-GAAP net income for the most recently completed fiscal year less the amount paid pursuant to the six month dividend, divided by (ii) the number of ordinary shares outstanding on the record date for such dividend (the “Annual Dividend”). However, because 15% of IKGH’s full year 2013 non-GAAP net income equates approximately to $4.65 million and because IKGH has already paid $4.8 million pursuant to the 2013 six-month dividend, IKGH will not declare an Annual Dividend for 2013. However, going forward, IKGH is maintaining its overall dividend payment policy.
- In November and December 2013, IKGH repurchased 732,900 shares at an average price per share of $3.10. From January 1, 2014 to March 15, 2014, an additional approximate 1.4 million shares were repurchased, at an average price of $2.94, for a total of nearly 2.14 million shares repurchased during the past four months.
For the three months ended December 31, 2013, IKGH recorded revenue of $50.2 million, an 11.0% decrease from the same period of 2012. The decrease in revenue was primarily a result of a lower than normal win rate of 2.35%, partially offsetting the profits derived from the Oriental VIP Room which IKGH acquired in June 2013.
The decrease in net income and Non-GAAP income for the three months ended December 31, 2013 was due primarily to higher commissions as a result of greater non-marker commissions paid, the upward adjustment to commission rates as a result of the company compensating its third-party agents for no longer providing complimentary hotel and casino services, increased market competition, and a smaller percentage of direct business. IKGH also incurred higher selling, general and administrative expenses for the three months ended December 31, 2013, including $1.3 million of additional costs related to Hong Kong Listing expenses, additional management fees paid as a result of the acquisition of the Oriental VIP Room in June 2013, and an increase in the number of employees due to direct employment of some employees from Pak Si and the acquisition of the Oriental VIP Room.
“We had a challenging fourth quarter; however, thus far in 2014, we have seen an improvement in the VIP market in Macau, and we believe we are beginning to turn a corner, as evidenced by our recent Rolling Chip Turnover results,” said Mr. Man Pou Lam (Mr. Lam), Chairman of IKGH. “Further, we are continuing our marketing campaign to augment our non-marker agent base. The cornerstone of our strategy remains unchanged; we are committed to expanding our business presence in the Macau VIP gaming market and increase our market share while prudently managing our capital to create long-term value for our shareholders.”
Full Year 2013 Highlights
- Rolling Chip Turnover for the year ended December 31, 2013 was $17.0 billion, a decrease of 6.1% compared to $18.1 billion for the year ended December 31, 2012.
- Net income, including the change in fair value of contingent consideration of $12.4 million related to the King’s Gaming, Bao Li Gaming and Oriental VIP Room acquisitions, was $5.4 million, or $0.10 per share (fully diluted), for the year ended December 31, 2013, compared to $70.1 million, or $1.53 per share (fully diluted), for the year ended December 31, 2012.
- Non-GAAP income before amortization of intangible assets and the change in fair value of contingent consideration related to the acquisitions of King’s Gaming, Bao Li Gaming and Oriental VIP Room was $31.0 million, or $0.58 per share (fully diluted), for the year ended December 31, 2013, as compared to income of $61.6 million, or $1.34 per share (fully diluted) for the year ended December 31, 2012.
Outlook for 2014
For the first two months of 2014, IKGH’s Rolling Chip Turnover was US$3.02 billion (an average of $1.51 billion per month), up 18% year-over-year, compared to US$2.55 billion (an average of $1.28 billion per month) for the first two months of 2013.
The Company is providing 2014 Rolling Chip Turnover guidance for its five existing VIP rooms in Macau of US$17 billion to US$19 billion.
Repurchase Program
At the end of 2013, the Board of Directors extended its share repurchase program for IKGH on an open-ended basis to purchase up to four million of its ordinary shares on the open market at prices to be determined by IKGH’s management. Purchases pursuant to the program may be made from time to time in accordance with SEC rules and regulations through open market transactions, subject to market conditions, IKGH’s share price and other factors. The repurchase program may be modified, suspended or discontinued at any time.
Conference Call and Replay Information
IKGH will conduct a conference call to discuss the financial results today at 9:00AM EDT/9:00PM Macau. To participate, please dial one of the following numbers at least 10 minutes prior to the scheduled start of the call:
| 1-888-504-7963 (United States/Canada) |
| 10-800-714-0940 (North China) |
| 10-800-140-0915 (South China) |
| 800-968-149 (Hong Kong) |
| 800-101-1739 (Singapore) |
| 0800-404-7655 (United Kingdom) |
| 1-719-785-1765 (Other International) |
Interested parties may also access the live call on the Internet at www.ikghcl.com (select Events and Presentations). Following its completion, a replay of the call can be accessed on the Internet at the above link or for one week by calling either 1-877-870-5176 (U.S. callers) or 1-858-384-5517 (International callers) and providing conference ID 7621799.
Definition of Rolling Chip Turnover
Rolling Chip Turnover is used by casinos to measure the volume of VIP business transacted and represents the aggregate amount of non-negotiable chips players purchased. Bets are wagered with “non-negotiable chips” and winning bets are paid out by casinos in so-called “cash” chips. “Non-negotiable chips” are specifically designed for VIP players to allow casinos to calculate the commission payable to VIP room gaming promoters. Commissions are paid based on the total amount of “non-negotiable chips” purchased by each player. VIP room gaming promoters therefore require the players to “roll,” from time to time, their “cash chips” into “non-negotiable” chips for further betting (hence the term “Rolling Chip Turnover”). Through the promoters, “non-negotiable chips” can be converted back into cash at any time. Betting using rolling chips, as opposed to using cash chips, is also used by the DICJ to distinguish between VIP table revenue and mass market table revenue.
All IKGH VIP rooms are on a revenue sharing remuneration model. On a win/loss split basis, the VIP room gaming promoter receives an agreed percentage of the “win” in the VIP gaming room (plus certain incentive allowances), and is required to also bear the same percentage of losses that might be incurred.
About Iao Kun Group Holding Company Limited
IKGH is a holding company which operates through its subsidiaries and related promotion entities that act as VIP room gaming promoters and collaborator, and is entitled to receive all of the profits of the VIP gaming promoters from VIP gaming rooms. IKGH’s VIP room gaming promoters currently participate in the promotion of five major luxury VIP gaming facilities in Macau, China, the largest gaming market in the world. One VIP gaming room is located at the top-tier 5-star hotel, the StarWorld Hotel & Casino in downtown Macau, and another is located in the luxury 5-star hotel, the Galaxy Macau™ Resort in Cotai, each of which is operated by Galaxy Casino, S.A. Additional VIP gaming rooms are located at the Sands Cotai Central and City of Dreams Macau, both in Cotai, and Le Royal Arc Casino, located in NAPE, Downtown Macau.
Forward-Looking Statements
This press release includes forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Forward-looking statements are statements that are not historical facts. Such forward-looking statements, based upon the current beliefs and expectations of IKGH’s management, are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements. The gaming industry is characterized by an element of chance. Theoretical win rates for IKGH’s VIP room gaming promoters’ VIP gaming room operations depend on a variety of factors, some beyond their control. In addition to the element of chance, theoretical win rates are also affected by other factors, including gaming patrons’ skill and experience, the mix of games played, the financial resources of gaming patrons, the spread of table limits, the volume of bets placed by IKGH’s VIP room gaming promoters’ gaming patrons and the amount of time gaming patrons spend on gambling — thus VIP gaming rooms’ actual win rates may differ greatly over short time periods, such as from quarter to quarter, and could cause their quarterly results to be volatile. These factors, alone or in combination, have the potential to negatively impact the VIP gaming rooms' win rates. Investors and potential investors should consult all of the information set forth herein and should also refer to the risk factors set forth in IKGH’s Annual Report on Form 20-F to be filed in April 2014, and other reports filed or to be filed from time-to-time with the Securities and Exchange Commission.
| IAO KUN GROUP HOLDING COMPANY LIMITED | |||||||||||||
| F/K/A ASIA ENTERTAINMENT & RESOURCES LTD. | |||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||
| AND COMPREHENSIVE INCOME | |||||||||||||
| For the | For the | For the | For the | ||||||||||
| Three Months Ended | Three Months Ended | Year Ended | Year Ended | ||||||||||
| December 31, 2013 | December 31, 2012 | December 31, 2013 | December 31, 2012 | ||||||||||
| Revenue from VIP Gaming Operations | $ | 50,225,431 | $ | 56,423,329 | $ | 236,850,159 | $ | 236,300,623 | |||||
|
- |
- |
- |
- |
||||||||||
| Total Revenues | 50,225,431 | 56,423,329 | 236,850,159 | 236,300,623 | |||||||||
| Expenses | |||||||||||||
|
- Commission to Agents |
46,901,559 | 38,410,863 | 182,639,067 | 154,569,837 | |||||||||
|
- Selling, General and Administrative Expenses |
6,401,807 | 4,987,288 | 21,485,944 | 18,340,972 | |||||||||
|
- Special Rolling Tax |
437,105 | 405,262 | 1,704,851 | 1,815,034 | |||||||||
|
- Amortization of Intangible Assets |
4,091,494 | 2,429,703 | 13,187,006 | 6,622,238 | |||||||||
| Total Expenses | 57,831,965 | 46,233,116 | 219,016,868 | 181,348,081 | |||||||||
| Operating income before change in fair value of contingent consideration | (7,606,534) | 10,190,213 | 17,833,291 | 54,952,542 | |||||||||
| Change in Fair Value of Contingent Consideration for the Acquisition of King’s Gaming, Bao Li & Oriental | 2,089,468 | (79,883) | (12,445,789) | 15,166,700 | |||||||||
| Net Income (Loss) | (5,517,066) | 10,110,330 | 5,387,502 | 70,119,242 | |||||||||
| Other Comprehensive Income | |||||||||||||
| Foreign Currency | |||||||||||||
|
- Translation Adjustment |
48,334 | 94,923 | (76,610) | 669,109 | |||||||||
| Total Comprehensive Income | $ | (5,468,732) | $ | 10,205,253 | $ | 5,310,892 | $ | 70,788,351 | |||||
| Net Income (Loss) Per Share | |||||||||||||
| Basic | $ | (0.09) | $ | 0.22 | $ | 0.10 | $ | 1.53 | |||||
| Diluted | $ | (0.09) | $ | 0.22 | $ | 0.10 | $ | 1.53 | |||||
| Weighted Average Shares Outstanding | |||||||||||||
| Basic | 61,005,495 | 45,375,322 | 53,030,405 | 45,752,743 | |||||||||
| Diluted | 61,006,155 | 45,376,034 | 53,210,572 | 45,752,922 | |||||||||
| IAO KUN GROUP HOLDING COMPANY LIMITED | |||||||
| F/K/A ASIA ENTERTAINMENT & RESOURCES LTD. | |||||||
| CONSOLIDATED BALANCE SHEETS | |||||||
| December 31, 2013 | December 31, 2012 | ||||||
| ASSETS | |||||||
| CURRENT ASSETS | |||||||
| Cash and Cash Equivalents | $ | 7,563,097 | $ | 20,644,296 | |||
| Accounts Receivable, Net | 5,182,352 | 2,480,961 | |||||
| Markers Receivable | 242,350,301 | 241,706,663 | |||||
| Prepaid Expenses and Other Assets | 502,017 | 303,570 | |||||
| Total Current Assets | 255,597,767 | 265,135,490 | |||||
| Intangible Assets (net of accumulated amortization of $25,739,786 and $12,553,039 at December 31, 2013 and 2012, respectively) | 138,336,945 | 94,451,063 | |||||
| Goodwill | 17,754,136 | 17,037,761 | |||||
| Property and Equipment (net of accumulated depreciation of $38,654 and $14,366 at December 31, 2013 and 2012, respectively) | 116,419 | 13,698 | |||||
| Deferred Offering Costs |
- |
807,401 | |||||
| Other Assets | 23,423 | 21,592 | |||||
| TOTAL ASSETS | $ | 411,828,690 | $ | 377,467,005 | |||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
| CURRENT LIABILITIES | |||||||
| Lines of Credit Payable | $ | 42,670,573 | $ | 34,799,982 | |||
| Accrued Expenses | 15,701,756 | 14,091,723 | |||||
|
Bao Li Gaming Acquisition-Contingent Purchase Price Obligation |
16,837,500 |
- |
|||||
|
King's Gaming Acquisition-Contingent Purchase Price Obligation |
9,000,000 | 9,000,000 | |||||
|
Oriental VIP Room Acquisition-Contingent Purchase Price Obligation |
21,650,051 |
- |
|||||
| Loan Payable, Shareholders, current | 5,809,075 | 2,214,078 | |||||
| Total Current Liabilities | 111,668,955 | 60,105,783 | |||||
| Loan Payable, Shareholders |
- |
60,000,000 | |||||
|
Bao Li Gaming Acquisition-Contingent Purchase Price Obligation, net of current portion |
16,189,550 | 32,294,981 | |||||
|
Oriental VIP Room Acquisition-Contingent Purchase Price Obligation, net of current portion |
14,878,218 |
- |
|||||
|
King's Gaming Acquisition-Contingent Purchase Price Obligation, net of current portion |
- |
9,000,000 | |||||
| Total Liabilities | 142,736,723 | 161,400,764 | |||||
| COMMITMENTS AND CONTINGENCIES | |||||||
| SHAREHOLDERS' EQUITY | |||||||
| Preferred Shares, $0.0001 par value Authorized 1,150,000 shares; none issued |
- |
- |
|||||
|
Ordinary Shares, $0.0001 par value, Authorized 500,000,000 shares; 59,306,824 issued and outstanding at December 31, 2013, and Authorized 200,000,000 shares; 41,177,217 issued and outstanding at December 31, 2012, respectively. |
5,930 | 4,118 | |||||
|
Additional Paid-in Capital |
126,329,321 | 69,670,922 | |||||
| Retained Earnings | 142,270,385 | 145,828,260 | |||||
| Accumulated Comprehensive Income | 486,331 | 562,941 | |||||
| Total Shareholders' Equity | 269,091,967 | 216,066,241 | |||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 411,828,690 | $ | 377,467,005 | |||
| Cash Flow Information | |||||||
| For the Year Ended December 31, | |||||||
| 2013 | 2012 | ||||||
| Net cash provided by operating activities | $ | 37,906,358 | $ | 46,428,105 | |||
| Net cash used in investing activities | $ | (20,126,974) | $ | (15,146,032) | |||
| Net cash used in financing activities | $ | (30,844,943) | $ | (27,390,634) | |||
| Net (decrease) increase in cash and cash equivalents | $ | (13,065,559) | $ | 3,891,439 | |||
Non-GAAP Financial Measures
The Company’s calculation of Non-GAAP income (operating income before amortization of intangible assets and change in fair value of contingent consideration) and Non-GAAP EPS for the three months and years ended December 31, 2013 and 2012 differs from net income and EPS based on net income because it does not include amortization of intangible assets and change in fair value of contingent consideration. The Company uses this information internally in evaluating its operations and believes this information is important to investors because it provides a complete picture of its operations for the entire period and is more accurately comparable to the prior-year period. Notwithstanding the foregoing, Non-GAAP income and EPS should not be considered an alternative to, or more meaningful than, net income and EPS as determined in accordance with U.S. GAAP. The following is a reconciliation of the Company’s unaudited net income to Non-GAAP income and GAAP EPS to the Company’s Non-GAAP EPS (total EPS may not sum due to rounding):
| For the | For the | ||||||
| Three Months Ended | Three Months Ended | ||||||
| December 31, 2013 | December 31, 2012 | ||||||
| Net income (loss) attributable to ordinary shareholders | $ | (5,517,066) | $ | 10,110,330 | |||
| Amortization of intangible assets | 4,091,494 | 2,429,703 | |||||
| Change in fair value of contingent consideration | (2,089,468) | 79,883 | |||||
| Non-GAAP income (loss) (before amortization of intangible assets and change in fair value of contingent consideration) | $ | (3,515,040) | $ | 12,619,916 | |||
| For the Three Months Ended | For the Three Months Ended | |||||||||||
| December 31, 2013 | December 31, 2012 | |||||||||||
| Fully | Fully | |||||||||||
| Basic | Diluted | Basic | Diluted | |||||||||
| Earnings (Loss) per share attributable to ordinary shareholders | $ | (0.09) | $ | (0.09) | $ | 0.22 | $ | 0.22 | ||||
| Amortization of intangible assets | 0.07 | 0.07 | 0.05 | 0.05 | ||||||||
| Change in fair value of contingent consideration | (0.03) | (0.03) | 0.00 | 0.00 | ||||||||
| Non-GAAP Earnings (Loss) per share (before amortization of intangible assets and change in fair value of contingent consideration) | $ | (0.06) | $ | (0.06) | $ | 0.28 | $ | 0.28 | ||||
| For | For | |||||||
| the Year Ended | the Year Ended | |||||||
| December 31, 2013 | December 31, 2012 | |||||||
| Net income attributable to ordinary shareholders | $ | 5,387,502 | $ | 70,119,242 | ||||
| Amortization of intangible assets | 13,187,006 | 6,622,238 | ||||||
| Change in fair value of contingent consideration | 12,445,789 | (15,166,700 | ) | |||||
| Non-GAAP income (before amortization of intangible assets and change in fair value of contingent consideration) | $ | 31,020,297 | $ | 61,574,780 | ||||
| For the Year Ended | For the Year Ended | |||||||||||||
| December 31, 2013 | December 31, 2012 | |||||||||||||
| Fully | Fully | |||||||||||||
| Basic | Diluted | Basic | Diluted | |||||||||||
| Earnings per share attributable to ordinary shareholders | $ | 0.10 | $ | 0.10 | $ | 1.53 | $ | 1.53 | ||||||
| Amortization of intangible assets | 0.25 | 0.25 | 0.14 | 0.14 | ||||||||||
| Change in fair value of contingent consideration | 0.23 | 0.23 | (0.33 | ) | (0.33 | ) | ||||||||
| Non-GAAP Earnings per share (before amortization of intangible assets and change in fair value of contingent consideration) | $ | 0.58 | $ | 0.58 | $ | 1.34 | $ | 1.34 | ||||||