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Iao Kun Group Holding Company Limited Announces Third Quarter and Nine Months 2015 Financial Results

2015-11-25 09:58
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HONG KONG--()--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 a collaborator, today announced unaudited financial results for the three and nine months ended September 30, 2015. All currency amounts are stated in United States dollars. Please refer to the Form 6-K that will be filed with the Securities and Exchange Commission for the full unaudited financial statements and related disclosures for the three and nine months ended September 30, 2015.

Third Quarter 2015 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 September 30, 2015 was $1.3 billion, a decrease of 71%, compared to $4.3 billion for the three months ended September 30, 2014.
  • Net loss, including gain from the change in fair value of contingent consideration of $1.5 million related to the King’s Gaming, Bao Li Gaming and Oriental VIP Room acquisitions, was $0.3 million, or $0.01 net loss per share (basic and diluted), for the third quarter of 2015, compared to a net loss of $12.2 million, or $0.20 net loss per share (basic and diluted), for the same period of 2014.
  • Non-GAAP income, which is operating income before amortization of intangible assets, impairment of goodwill 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 $2.3 million, or $0.04 earnings per share (basic and diluted), for the three months ended September 30, 2015, compared to a non-GAAP loss of $1.1 million, or $0.02 loss per share (basic and diluted), for the three months ended September 30, 2014.

Third Quarter 2015 Results

For the three months ended September 30, 2015, IKGH recorded revenue of $22.4 million, a 57% decrease from the same period of 2014, primarily due to lower rolling chip turnover during the quarter, as well as (i) a decrease of players for VIP baccarat, consistent with the overall decline of gaming revenue in Macau; (ii) the economic downturn and ongoing anti-corruption campaign in mainland China, where the majority of IKGH’s VIP gaming patrons reside, and (iii) the continued tightening of government policies in mainland China.

The improved net loss for the three months ended September 30, 2015 as compared to the three months ended September 30, 2014 was primarily a result of the change in contingent consideration, which was a gain of $1.5 million for the third quarter of 2015 compared to a loss of $7 million for the same period of 2014, as well as lower commissions to junket agents for the three months ended September 30, 2015 as a result of lower Rolling Chip Turnover compared to the prior-year period. IKGH also incurred lower selling, general and administrative expenses for the three months ended September 30, 2015, primarily due to the costs incurred in 2014 in connection with IKGH’s application to list on the Hong Kong Stock Exchange. IKGH does not anticipate additional listing costs.

“We continue to carefully navigate the VIP market in Macau and manage our capital as the ongoing macro environment continues to be challenging,” said Mr. Lam Man Pou, Chairman of IKGH. “With the macro environment in Macau still being difficult, we continue to be on the lookout for additional VIP opportunities in overseas markets to complement our Australian interests and to further diversify our current sources of revenue. We remain committed to finding appropriate opportunities to expand our presence and ultimately generate long-term value for our shareholders.”

Nine Month 2015 Highlights

  • Rolling Chip Turnover for the nine months ended September 30, 2015 was $5.2 billion, a decrease of 62% compared to $13.8 billion for the nine months ended September 30, 2014.
  • Net loss, including gain from the change in fair value of contingent consideration of $14.8 million related to the King’s Gaming, Bao Li Gaming and Oriental VIP Room acquisitions, was $7.0 million, or $0.11 net loss per share (basic and diluted), for the nine months ended September 30, 2015, compared to a net loss of $65.8 million, or $1.09 net loss per share (basic and diluted), for the same period of 2014. During the nine months ended September 30, 2015, IKGH incurred a one-time $17.8 million impairment of goodwill.
  • Non-GAAP income was $8.2 million, or $0.13 earnings per share (basic and diluted), for the nine months ended September 30, 2015, compared to income of $9.2 million, or $0.15 earnings per share (basic and diluted), for the nine months ended September 30, 2014.

Outlook for 2015

For the first ten months of 2015, IKGH’s Rolling Chip Turnover was US$5.67 billion (an average of $0.57 billion per month), down 62% year-over-year, compared to US$14.87 billion (an average of $1.49 billion per month) for the first ten months of 2014.

The Company is maintaining its 2015 Rolling Chip Turnover guidance for its five existing VIP rooms in Macau of US$6.0 billion to US$7.0 billion.

Conference Call and Replay Information

IKGH will conduct a conference call to discuss the financial results today at 8:30AM EST/9:30PM Macau. To participate, please dial one of the following numbers at least 10 minutes prior to the scheduled start of the call:

1-800-967-7185 (United States/Canada)
10-800-714-1202 (North China)
10-800-140-1181 (South China)
800-901-111 (Hong Kong)
800-101-2003 (Singapore)
0808-101-1147 (United Kingdom)
1-719-457-2714 (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 through December 3, 2015 by calling either 1-877-870-5176 (U.S. callers) or 1-858-384-5517 (International callers) and providing conference ID 3417662.

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’s Macau 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. Revenue from VIP operation in Australia is based upon a mutually-agreed percentage of the rolling chip turnover.

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 a collaborator, and is entitled to receive all of the profits of the VIP gaming promoters and a 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. IKGH recently started trial operations to the Australian casinos (Crown Perth Casino in Perth, Australia and the Crown Melbourne Casino in Melbourne, Australia) to gain a greater understanding of the preferences of its junket agents and VIP players and the logistics of the market.

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 2015, 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 Ended

 

For the Three

Months Ended

   

For the Nine

Months Ended

 

For the Nine

Months Ended

 
      September 30, 2015   September 30, 2014     September 30, 2015   September 30, 2014  
Revenue from VIP Gaming Operations     $ 22,395,298     $ 51,916,783       $ 85,966,313     $ 181,549,165    
Total Revenues       22,395,298       51,916,783         85,966,313       181,549,165    
                       
Expenses                      
- Commission to Junket Agents       15,603,525       47,136,322         62,855,213       151,635,092    
- Selling, General and Administrative Expenses       4,346,655       5,485,447         14,383,338       19,346,110    
- Special Rolling Tax       126,929       432,097         520,192       1,376,062    
- Impairment of Goodwill       -       -         17,754,136       -    
- Amortization of Intangible Assets       4,092,788       4,093,158         12,276,149       12,274,409    
                                       
Total Expenses       24,169,897       57,147,024         107,789,028       184,631,673    
                       

Operating loss attributable to ordinary shareholders before

change in fair value of contingent consideration

      (1,774,599 )     (5,230,241 )       (21,822,715 )     (3,082,508 )  
                       

Change in Fair Value of Contingent Consideration for the Acquisitions of

King's Gaming, Bao Li Gaming and Oriental VIP Room

      1,464,512       (7,018,014 )       14,790,326       (62,701,703 )  
Net Loss Attributable to Ordinary Shareholders       (310,087 )     (12,248,255 )       (7,032,389 )     (65,784,211 )  
                       
Other Comprehensive Income                      
Foreign Currency                      
- Translation Adjustment       50,151       (407,653 )       103,142       (325,948 )  
Total Comprehensive Loss     $ (259,936 )   $ (12,655,908 )     $ (6,929,247 )   $ (66,110,159 )  
                       
Net Loss Per Share                      
Basic     $ (0.01 )   $ (0.20 )     $ (0.11 )   $ (1.09 )  
Diluted     $ (0.01 )   $ (0.20 )     $ (0.11 )   $ (1.09 )  
Weighted Average Shares Outstanding                      
Basic       62,307,794       61,056,662         62,015,647       60,574,745    
Diluted       62,307,794       61,056,662         62,015,647       60,574,745    
 
   
   

 IAO KUN GROUP HOLDING COMPANY LIMITED

F/K/A ASIA ENTERTAINMENT & RESOURCES LTD.

CONSOLIDATED BALANCE SHEETS

 
                 
        September 30, 2015     December 31, 2014  
        (Unaudited)        
ASSETS                
CURRENT ASSETS                
Cash and Cash Equivalents       $ 9,207,637     $ 11,146,534  
Accounts Receivable, Net         6,737,595       1,529,052  
Markers Receivable         175,413,220       188,549,136  
Prepaid Expenses and Other Assets         503,976       348,777  
Total Current Assets         191,862,428       201,573,499  
                 

Intangible Assets (net of accumulated amortization of $54,408,216 and $42,105,966 at

September 30, 2015 and December 31, 2014, respectively)

        109,748,966       121,968,648  
Goodwill         -       17,753,907  

Property and Equipment (net of accumulated depreciation of $171,588 and $108,913 at

September 30, 2015 and December 31, 2014, respectively)

        262,316       322,149  
Other Assets         23,232       23,427  
TOTAL ASSETS       $ 301,896,942     $ 341,641,630  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
CURRENT LIABILITIES                
Lines of Credit Payable       $ 56,515,400     $ 32,392,020  
Accrued Expenses         6,572,836       11,682,653  
Dividend Payable         870,745       -  
Bao Li Gaming Acquisition-Contingent Purchase Price Obligation         14,711,631       22,662,750  
Oriental VIP Room Acquisition-Contingent Purchase Price Obligation         14,947,026       13,738,762  
Loan Payable, Shareholders, current         2,870,765       2,612,490  
Total Current Liabilities         96,488,403       83,088,675  
                 
Bao Li Gaming Acquisition-Contingent Purchase Price Obligation, net of current portion         -       19,628,881  

Oriental VIP Room Acquisition-Contingent Purchase Price Obligation, net of current portion

        -       27,665,264  
Total Liabilities         96,488,403       130,382,820  
                 
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; 62,196,064 and 60,452,314 issued and outstanding at

September 30, 2015 and December 31, 2014, respectively.

        6,219       6,044  
Additional Paid-in Capital         133,036,666       130,048,153  
Retained Earnings         71,711,089       80,653,190  
Accumulated Other Comprehensive Income         654,565       551,423  
Total Shareholders' Equity         205,408,539       211,258,810  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $ 301,896,942     $ 341,641,630  
 
   
   

Cash flow information (in thousands) (unaudited)

 
                   
        For the nine
months
ended September
30, 2015
      For the nine
months 
ended September
30, 2014
 
                   
Net cash provided by operating activities       $ 35,119       $ 58,559  
Net cash used in investing activities         (3 )       (304 )
Net cash used in financing activities         (37,052 )       (52,124 )
Net (decrease) increase in cash and cash equivalents       $ (1,936 )     $ 6,131  
                       
 

Non-GAAP Financial Measures

The Company’s calculation of Non-GAAP income (operating income before amortization of intangible assets, impairment of goodwill and change in fair value of contingent consideration) and Non-GAAP EPS differs from EPS based on net income because it does not include amortization of intangible assets, impairment of goodwill 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 users of the Company’s financial information with additional useful information in evaluating operating performance for the periods and is more consistently comparable to the prior periods. 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 GAAP. The following is a reconciliation of the Company’s net income to Non-GAAP income and GAAP EPS to its Non-GAAP EPS:

      For the Three 
Months 
Ended September 
30, 2015
  For the Three 
Months 
Ended September 
30, 2014
    For the Nine 
Months 
Ended September
30, 2015
  For the Nine 
Months 
Ended September 
30, 2014
                     
Net loss attributable to ordinary shareholders     $ (310,087 )   $ (12,248,255 )     $ (7,032,389 )   $ (65,784,211 )
                     
Amortization of intangible assets       4,092,788       4,093,158         12,276,149       12,274,409  
                     
Impairment of goodwill       -       -         17,754,136       -  
                     
Change in fair value of contingent consideration       (1,464,512 )     7,018,014         (14,790,326 )     62,701,703  
                     

Non-GAAP income (loss) (before amortization of intangible assets,

impairment of goodwill and change in fair value of contingent consideration)

    $ 2,318,189     $ (1,137,083 )     $ 8,207,570     $ 9,191,901  
                     
Weighted Average Shares Outstanding                    
                     
Basic       62,307,794       61,056,662         62,015,647       60,574,745  
Diluted       62,307,794       61,056,662         62,068,211       60,841,526  
 
               
               
      For the Three Months
Ended September 30, 2015
    For the Three Months
Ended September 30, 2014
 
      Basic   Fully Diluted     Basic   Fully Diluted  
                       
Net loss per share attributable to ordinary shareholders     $       (0.01 )   $ (0.01 )     $       (0.20 )   $ (0.20 )  
                       
Amortization of intangible assets             0.07       0.07               0.07       0.07    
                       
Impairment of goodwill             -       -               -       -    
                       
Change in fair value of contingent consideration             (0.02 )     (0.02 )             0.11       0.11    
                       

Non-GAAP income (loss) per share (before

amortization of intangible assets, impairment

of goodwill and change in fair value of

contingent consideration)

    $       0.04     $ 0.04       $       (0.02 )   $ (0.02 )  
                       
                       
      For the Nine Months 
Ended September 30, 2015
    For the Nine Months 
Ended September 30, 2014
 
      Basic   Fully Diluted     Basic   Fully Diluted  
                       
Loss per share attributable to ordinary shareholders     $       (0.11 )   $ (0.11 )     $       (1.09 )   $ (1.08 )  
                       
Amortization of intangible assets             0.20       0.20               0.20       0.20    
                       
Impairment of goodwill             0.28       0.28               -       -    
                       
Change in fair value of contingent consideration             (0.24 )     (0.24 )             1.04       1.03    
                       

Non-GAAP Earnings per share (before amortization

of intangible assets, impairment of goodwill and

change in fair value of contingent consideration)

    $       0.13     $ 0.13       $       0.15     $ 0.15    
 

 

Contacts

Iao Kun Group Holding Company Limited
James Preissler, +1 646-450-8808
preissj@ikghcl.com