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 and six months ended June 30, 2014. All currency amounts are stated in United States dollars.
Second Quarter 2014 and Subsequent 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 June 30, 2014 was $4.7 billion, an increase of 5% compared to $4.5 billion for the three months ended June 30, 2013.
- Net loss, including the change in fair value of contingent consideration of $45.1 million related to the King’s Gaming, Bao Li Gaming and Oriental VIP Room acquisitions, was $56.7 million, or $(0.94) per share, in the second quarter of 2014 compared to net loss of $3.0 million, or $(0.06) per share, in the same period of 2013.
- Non-GAAP loss, which is operating 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 $7.5 million, or $(0.12) per share (fully diluted), for the three months ended June 30, 2014 as compared to non-GAAP income of $9.1 million, or $0.20 per share (fully diluted) for the three months ended June 30, 2013.
- In July 2014, the Hong Kong Stock Exchange completed its initial three-day review of the Company’s Form A1 application and the application was accepted for detailed vetting.
Six Month Dividend Update
IKGH’s Board of Directors had authorized a regular dividend each year after the release of the Company's financial results for the six months ending June 30 (the “Six Month Dividend”). Beginning with the Six Month Dividend payable for 2014, the Board of Directors has changed the Six Month Dividend from $0.08 per share to: (i) 15% of IKGH’s non-GAAP net income for the most recently completed six months ended June 30, divided by (ii) the number of ordinary shares outstanding on the record date for such dividend. For the Six Month Dividend payable for 2014, this is expected to equate to a dividend of approximately $0.026 per share, a reduction from the prior year.
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”). IKGH is maintaining its overall annual dividend payment policy.
Second Quarter 2014 Results
For the three months ended June 30, 2014, IKGH recorded revenue of $49.7 million, a 22% decrease from the same period of 2013, primarily due to: (i) a win rate of 2.18% for the three months ended June 30, 2014 (well below the statistical average win rate range), compared to a win rate of 3.06% for the three months ended June 30, 2013; (ii) slower revenue growth of VIP baccarat compared to the overall growth of gaming revenue in Macau; and (iii) the economic downturn and tightening of credit in mainland China, from where the majority of IKGH’s VIP gaming patrons reside.
The decrease in net income for the three months ended June 30, 2014 was caused by lower revenue, a net increase to the contingent consideration liability for Bao Li Gaming and the Oriental VIP Room due primarily to an increase in the forecasted Rolling Chip Turnover performance based on past performance, and higher commissions as a result of a higher commission rate offered to non-credit agents, partially offset by super agents sharing in the lower win rate. IKGH also incurred higher selling, general and administrative expenses for the three months ended June 30, 2014, primarily due to additional costs associated with IKGH’s application to list on the Hong Kong Stock Exchange and additional VIP gaming room costs as a result of the acquisition of the Oriental VIP Room, including the additional gaming table rental costs for the Oriental VIP Room.
“Although our Rolling Chip Turnover improved from the prior-year quarter, our second quarter performance was clearly affected by the low win rate, which was well below the statistical average,” said Mr. Man Pou Lam (Mr. Lam), Chairman of IKGH. “We were pleased that the Hong Kong Stock Exchange completed the initial review of our application for listing and the application is currently being comprehensively vetted. Overall, we remain committed to expanding our business presence in the Macau VIP gaming market and increasing our market share while prudently managing our capital to create long-term value for our shareholders.”
Six Month 2014 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 six months ended June 30, 2014 was $9.4 billion, an increase of 10% compared to $8.6 billion for the six months ended June 30, 2013.
- Net loss, including the change in fair value of contingent consideration of $55.7 million related to the King’s Gaming, Bao Li Gaming and Oriental VIP Room acquisitions, was $53.5 million, or $(0.89) per share, in the six months ended June 30, 2014 compared to net income of $4.0 million, or $0.09 per share (fully diluted), in the same period of 2013.
- Non-GAAP income, which is operating 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 $10.3 million, or $0.17 per share (fully diluted), for the six months ended June 30, 2014 compared to income of $24.4 million, or $0.54 per share (fully diluted), for the six months ended June 30, 2013.
Outlook for 2014
For the first seven months of 2014, IKGH’s Rolling Chip Turnover was US$11.0 billion (an average of $1.6 billion per month), up 10% year-over-year, compared to US$10.0 billion (an average of $1.4 billion per month) for the first seven months of 2013.
The Company is maintaining its 2014 Rolling Chip Turnover guidance for its five existing VIP rooms in Macau of US$17 billion to US$19 billion.
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:
1-888-430-8691 (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)
1-719-325-2308 (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 6006812.
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 and collaborator. 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 and collaborator receive 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 and collaborator from VIP gaming rooms. IKGH’s VIP room gaming promoters and collaborator 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 promotion entities’ 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 promotion entities’ 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 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 | |||||||||||||
| (Unaudited) | |||||||||||||
| For the Three Months | For the Three Months | For the Six Months | For the Six Months | ||||||||||
| Ended | Ended | Ended | Ended | ||||||||||
| June 30, 2014 | June 30, 2013 | June 30, 2014 | June 30, 2013 | ||||||||||
| Revenue from VIP Gaming Operations | $ | 49,693,760 | $ | 63,544,865 |
$ |
129,632,382 |
$ | 125,663,364 | |||||
| Total Revenues | 49,693,760 | 63,544,865 | 129,632,382 | 125,663,364 | |||||||||
| Expenses | |||||||||||||
| - Commission to Junket Agents | 49,433,571 | 47,651,409 | 104,498,770 | 90,392,261 | |||||||||
| - Selling, General and Administrative Expenses | 7,321,562 | 6,325,662 | 13,860,663 | 9,981,531 | |||||||||
| - Special Rolling Tax | 467,118 | 446,199 | 943,965 | 855,794 | |||||||||
| - Amortization of Intangible Assets | 4,092,313 | 2,548,542 | 8,181,251 | 4,977,454 | |||||||||
| Total Expenses | 61,314,564 | 56,971,812 | 127,484,649 | 106,207,040 | |||||||||
| Operating income (loss) attributable to ordinary shareholders before change in fair value of contingent consideration | (11,620,804) | 6,573,053 | 2,147,733 | 19,456,324 | |||||||||
| Change in Fair Value of Contingent Consideration for the Acquisitions of King's Gaming, Bao Li Gaming and Oriental VIP Room | (45,094,840) | (9,551,634) | (55,683,689) | (15,481,200) | |||||||||
| Net Income (Loss) Attributable to Ordinary Shareholders | (56,715,644) | (2,978,581) | (53,535,956) | 3,975,124 | |||||||||
| Other Comprehensive Income | |||||||||||||
| Foreign Currency | |||||||||||||
|
- Translation Adjustment |
176,984 |
208,433 |
81,705 |
(163,706) | |||||||||
|
Total Comprehensive Income (Loss) |
$ |
(56,538,660) |
$ |
(2,770,148) |
(53,454,251) |
$ | 3,811,418 | ||||||
| Net Income (Loss) Per Share | |||||||||||||
| Basic | $ | (0.94) | $ | (0.06) | $ | (0.89) | $ | 0.09 | |||||
| Diluted | $ | (0.94) | $ | (0.06) | $ | (0.89) | $ | 0.09 | |||||
| Weighted Average Shares Outstanding | |||||||||||||
| Basic | 60,258,015 | 45,936,661 | 60,329,793 | 44,945,080 | |||||||||
| Diluted | 60,258,015 | 45,936,661 | 60,329,793 | 45,186,102 | |||||||||
| IAO KUN GROUP HOLDING COMPANY LIMITED | ||||||
| F/K/A ASIA ENTERTAINMENT & RESOURCES LTD. | ||||||
| CONSOLIDATED BALANCE SHEETS | ||||||
| June 30, 2014 | December 31, 2013 | |||||
| (Unaudited) | ||||||
| ASSETS | ||||||
| CURRENT ASSETS | ||||||
| Cash and Cash Equivalents | $ | 9,012,310 | $ | 7,563,097 | ||
| Accounts Receivable, Net | 2,606,378 | 5,182,352 | ||||
| Markers Receivable | 214,400,733 | 242,350,301 | ||||
| Prepaid Expenses and Other Assets | 139,179 | 502,017 | ||||
| Total Current Assets | 226,158,600 | 255,597,767 | ||||
| Intangible Assets (net of accumulated amortization of $33,938,905 and $25,739,786 at June 30, 2014 and December 31, 2013, respectively) | 130,214,040 | 138,336,945 | ||||
| Goodwill | 17,762,382 | 17,754,136 | ||||
| Property and Equipment (net of accumulated depreciation of $72,693 and $38,654 at June 30, 2014 and December 31, 2013, respectively) | 386,496 | 116,419 | ||||
| Other Assets | 23,438 | 23,423 | ||||
| TOTAL ASSETS | $ | 374,544,956 | $ | 411,828,690 | ||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
| CURRENT LIABILITIES | ||||||
| Lines of Credit Payable | $ | 32,080,794 | $ | 42,670,573 | ||
| Accrued Expenses | 16,068,876 | 15,701,756 | ||||
| Bao Li Gaming Acquisition-Contingent Purchase Price Obligation | 25,069,009 | 16,837,500 | ||||
| King's Gaming Acquisition-Contingent Purchase Price Obligation | - | 9,000,000 | ||||
| Oriental VIP Room Acquisition-Contingent Purchase Price Obligation | 29,875,000 | 21,650,051 | ||||
| Loan Payable, Shareholders, current | 2,649,637 | 5,809,075 | ||||
| Total Current Liabilities | 105,743,316 | 111,668,955 | ||||
| Bao Li Gaming Acquisition-Contingent Purchase Price Obligation, net of current portion | 19,230,478 | 16,189,550 | ||||
| Oriental VIP Room Acquisition-Contingent Purchase Price Obligation, net of current portion | 38,127,000 | 14,878,218 | ||||
| Total Liabilities | 163,100,794 | 142,736,723 | ||||
| COMMITMENTS AND CONTINGENCIES | ||||||
| SHAREHOLDERS' EQUITY | ||||||
| Preferred Shares, $0.0001 par value Authorized 1,150,000 shares; none issued | - | - | ||||
|
Ordinary Shares, $0.0001 par value, |
5,788 |
5,930 |
||||
| Additional Paid-in Capital |
122,135,909 |
126,329,321 |
||||
| Retained Earnings |
88,734,429 |
142,270,385 |
||||
| Accumulated Comprehensive Income | 568,036 |
486,331 |
||||
| Total Shareholders' Equity |
211,444,162 |
269,091,967 |
||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
$ |
374,544,956 |
$ |
411,828,690 |
||
|
Cash Flow Information |
||||
|
(in thousands) |
||||
| For the six months ended | ||||
| June 30, | ||||
| (Unaudited) | ||||
| 2014 | 2013 | |||
| Net cash provided by operating activities | $31,103 | $16,800 | ||
| Net cash (used in) investing activities | (304) | (10,065) | ||
| Net cash (used in) provided by financing activities | (29,355) | 12,488 | ||
| Net increase in cash and cash equivalents | $1,444 | $19,223 | ||
Non-GAAP Financial Measures
The Company’s calculation of Non-GAAP income(loss) (operating income(loss) before amortization of intangible assets and change in fair value of contingent consideration) and Non-GAAP EPS for the three and six months ended June 30, 2014 and 2013 differs from EPS based on net income(loss) 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 their operations and believes this information is important to investors because it provides a complete picture of their operations for the entire period and is more accurately comparable to the prior-year period. Notwithstanding the foregoing, Non-GAAP income(loss) and EPS should not be considered an alternative to, or more meaningful than, net income and EPS as determined in accordance with GAAP. The following is a reconciliation of the Company’s unaudited net income to Non-GAAP income(loss) and GAAP EPS to their Non-GAAP EPS:
| For the Three | For the Three | For the Six | For the Six | ||||||||||
| Months Ended | Months Ended | Months Ended | Months Ended | ||||||||||
| June 30, 2014 | June 30, 2013 | June 30, 2014 | June 30, 2013 | ||||||||||
| Net (Loss) Income attributable to ordinary shareholders | $ | (56,715,644) | $ | (2,978,581) | $ | (53,535,956) | $ | 3,975,124 | |||||
| Amortization of intangible assets | 4,092,313 | 2,548,542 | 8,181,251 | 4,977,454 | |||||||||
| Change in fair value of contingent consideration | 45,094,840 | 9,551,634 | 55,683,689 | 15,481,200 | |||||||||
| Non-GAAP (loss) income (before amortization of intangible assets and change in fair value of contingent consideration) | $ | (7,528,491) | $ | 9,121,595 | $ | 10,328,984 | $ | 24,433,778 | |||||
| Weighted Average Shares Outstanding | |||||||||||||
| Basic | 60,258,015 | 45,936,661 | 60,329,793 | 44,945,080 | |||||||||
| Diluted | 60,258,015 | 46,416,057 | 60,591,430 | 45,186,102 | |||||||||
| For the Three Months | For the Three Months | ||||||||||||||||
| Ended June 30, 2014 | Ended June 30, 2013 | ||||||||||||||||
| Basic | Fully Diluted | Basic | Fully Diluted | ||||||||||||||
| Loss per share attributable to ordinary shareholders | $ | (0.94) | $ | (0.94) | $ | (0.06) | $ | (0.06) | |||||||||
| Amortization of intangible assets | 0.07 | 0.07 | 0.06 | 0.05 | |||||||||||||
| Change in fair value of contingent consideration | 0.75 | 0.75 | 0.21 | 0.21 | |||||||||||||
| Non-GAAP (Loss) earnings per share (before amortization of intangible assets and change in fair value of contingent consideration) | $ | (0.12) | $ | (0.12) | $ | 0.21 | $ | 0.20 | |||||||||
| For the Six Months | For the Six Months | |||||||||||
| Ended June 30, 2014 | Ended June 30, 2013 | |||||||||||
| Basic | Fully Diluted | Basic | Fully Diluted | |||||||||
| (Loss) earnings per share attributable to ordinary shareholders | $ | (0.89) | $ | (0.89) | $ | 0.09 | $ | 0.09 | ||||
| Amortization of intangible assets | 0.14 | 0.14 | 0.11 | 0.11 | ||||||||
| Change in fair value of contingent consideration | 0.92 | 0.92 | 0.34 | 0.34 | ||||||||
| Non-GAAP Earnings per share (before amortization of intangible assets and change in fair value of contingent consideration) | $ | 0.17 | $ | 0.17 | $ | 0.54 | $ | 0.54 | ||||