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Iao Kun Group Holding Company Limited Announces Fourth Quarter and Full Year 2015 Financial Results

2016-03-14 10:24
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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 fourth quarter and year ended December 31, 2015. 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 March 2016 for the full audited financial statements and related disclosures for the year ended December 31, 2015.

Fourth 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 December 31, 2015 was $1.2 billion, a decrease of 57%, compared to $2.9 billion for the three months ended December 31, 2014.
  • Net income, including gain from the change in fair value of contingent consideration of $15.4 million related to the King’s Gaming, Bao Li Gaming and Oriental VIP Room acquisitions, was $12.2 million, or $0.19 net income per share (basic and diluted), for the fourth quarter of 2015, compared to net income of $5.7 million, or $0.09 net income 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 $0.9 million, or $0.01 earnings per share (basic and diluted), for the three months ended December 31, 2015, compared to non-GAAP income of $8.0 million, or $0.13 earnings per share (basic and diluted), for the three months ended December 31, 2014.

Fourth Quarter 2015 Results

For the three months ended December 31, 2015, IKGH recorded revenue of $19.0 million, a 64% 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, including restrictions on credit card usage.

The improved net income for the three months ended December 31, 2015 compared to the prior-year period was primarily a result of the change in contingent consideration, which was a gain of $15.4 million for the fourth quarter of 2015 compared to a gain of $1.8 million for the same period of 2014, as well as lower commissions to junket agents for the three months ended December 31, 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 December 31, 2015, primarily due to costs incurred in the prior-year period in connection with IKGH’s application to list on the Hong Kong Stock Exchange that did not recur in the fourth quarter of 2015, reduced management fees and lower overall VIP Gaming Room operating expenses.

“With a difficult 2015 behind us and with the expectation that 2016 will also be a challenging year for VIP gaming in Macau, we continue to prudently manage our capital to ensure we will be appropriately positioned when the market turns around,” said Mr. Lam Man Pou, Chairman of IKGH. “At the same time, we continue to source additional VIP opportunities in overseas markets to allow us to further diversify our revenue streams. We remain committed to finding suitable opportunities to expand our presence and ultimately generating long-term value for our shareholders.”

Full Year 2015 Highlights

  • Rolling Chip Turnover for the year ended December 31, 2015 was $6.4 billion, a decrease of 61%, compared to $16.6 billion for the year ended December 31, 2014.
  • Net income, including gain from the change in fair value of contingent consideration of $30.2 million related to the King’s Gaming, Bao Li Gaming and Oriental VIP Room acquisitions, was $5.1 million, or $0.08 net income per share (basic and diluted), for the year ended December 31, 2015, compared to a net loss of $60.1 million, or $0.99 net loss per share (basic and diluted), for the year ended December 31, 2014. During the year ended December 31, 2015, IKGH incurred a one-time $17.8 million impairment of goodwill.
  • Non-GAAP income was $9.0 million, or $0.14 earnings per share (basic and diluted), for the year ended December 31, 2015, compared to income of $17.2 million, or $0.28 earnings per share (basic and diluted), for the year ended December 31, 2014.

Outlook for 2016

For the first two months of 2016, IKGH’s Rolling Chip Turnover was US$0.81 billion (an average of $0.41 billion per month), down 44% year-over-year, compared to US$1.44 billion (an average of $0.72 billion per month) for the first two months of 2015.

The Company is providing 2016 Rolling Chip Turnover guidance for its five existing VIP rooms in Macau of between US$3.5 billion and US$4.5 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:

1-888-556-4997 (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)
1-719-325-2454 (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 March 28, 2016 by calling either 1-877-870-5176 (U.S. callers) or 1-858-384-5517 (International callers) and providing conference ID 1450876.

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 Gaming Inspection and Coordination Bureau (“DICJ”) to distinguish between VIP table revenue and mass market table revenue.

All of 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 to be filed in March 2016, 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.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

 
     

 

 

 

   

 

 

 

 
     

For the Three

Months Ended

December 31, 2015

 

For the Three

Months Ended

December 31, 2014

   

For the Year

Ended

December 31, 2015

 

For the Year

Ended

December 31, 2014

 
Revenue from VIP Gaming Operations     $ 19,035,871     $ 52,273,694     $ 105,002,184     $ 233,822,859    
Total Revenues       19,035,871       52,273,694       105,002,184       233,822,859    
                       
Expenses                      
- Commission to Agents       14,124,464       36,813,086       76,979,677       188,448,178    

- Selling, General and

Administrative Expenses

      3,971,264       7,160,189       18,351.625       26,506,299    
- Special Rolling Tax       122,076       286,652       642,268       1,662,714    
- Impairment of Goodwill       -       -       17,757,113       -    
- Amortization of Intangible Assets       4,093,318       4,090,625       16,369,467       16,365,034    
Total Expenses       22,311,122       48,350,552       130,100,150       232,982,225    
                       

Operating (loss) income

attributable to ordinary

shareholders before change in

fair value of contingent

consideration

      (3,275,251 )     3,923,142       (25,097,966 )     840,634    
                       

Change in Fair Value of

Contingent Consideration for

the Acquisitions of King's

Gaming, Bao Li Gaming and

Oriental

      15,425,409       1,783,134       30,215,735       (60,918,569 )  

Net Income (Loss) Attributable

to Ordinary Shareholders

      12,150,158       5,706,276       5,117,769       (60,077,935 )  
                       
Other Comprehensive Income (Loss)                      
Foreign Currency                      
- Translation Adjustment       (13,960 )     391,040       89,182       65,092    
Total Comprehensive Income (Loss)     $ 12,136,198     $ 6,097,316     $ 5,206,951     $ (60,012,843 )  
                       
Net Income (Loss) Per Share                      
Basic     $ 0.19     $ 0.09     $ 0.08     $ (0.99 )  
Diluted     $ 0.19     $ 0.09     $ 0.08     $ (0.99 )  
Weighted Average Shares Outstanding                      
Basic       62,416,761       61,396,667       62,116,749       60,781,915    
Diluted       62,959,381       61,478,528       62,292,834       60,781,915    
 
   
   

IAO KUN GROUP HOLDING COMPANY LIMITED

F/K/A ASIA ENTERTAINMENT & RESOURCES LTD.

UNAUDITED CONSOLIDATED BALANCE SHEETS

 
                 
        December 31, 2015     December 31, 2014  
ASSETS                
CURRENT ASSETS                
Cash and Cash Equivalents       $ 3,052,694     $ 11,146,534  
Accounts Receivable, Net         1,460,251       1,529,052  
Markers Receivable         170,892,037       188,549,136  
Prepaid Expenses and Other Assets         1,448,155       348,777  
Total Current Assets         176,853,137       201,573,499  
                 

Intangible Assets (net of accumulated amortization of $58,496,618 and $42,105,966 at

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

        105,645,737       121,968,648  
Goodwill         -       17,753,907  

Property and Equipment (net of accumulated depreciation of $169,798 and $108,913 at
December 31, 2015 and December 31, 2014, respectively)

        241,927       322,149  
Other Assets         -       23,427  
TOTAL ASSETS       $ 282,740,801     $ 341,641,630  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
CURRENT LIABILITIES                
Lines of Credit Payable       $ 41,908,984     $ 32,392,020  
Accrued Expenses         6,030,996       11,682,653  
Bao Li Gaming Acquisition-Contingent Purchase Price Obligation         14,228,500       22,662,750  
Oriental VIP Room Acquisition-Contingent Purchase Price Obligation         -       13,738,762  
Loan Payable, Shareholders, current         2,827,584       2,612,490  
Total Current Liabilities         64,996,064       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         64,996,064       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; 62,307,794 and 60,452,314 issued and outstanding at
December 31, 2015 and December 31, 2014, respectively.

        6,230       6,044  
Additional Paid-in Capital         133,236,655       130,048,153  
Retained Earnings         83,861,247       80,653,190  
Accumulated Other Comprehensive Income         640,605       551,423  
Total Shareholders' Equity         217,744,737       211,258,810  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $ 282,740,801     $ 341,641,630  
 
   
   

Cash flow information (in thousands) (unaudited)

 
                   
       

For the year
ended December
31, 2015

      For the year
ended December
31, 2014
 
                   
Net cash provided by operating activities       $ 29,883       $ 60,602  
Net cash used in investing activities         (3 )       (291 )
Net cash used in financing activities         (37,966 )       (56,929 )
Net (decrease) increase in cash and cash equivalents       $ (8,086 )     $ 3,382  
 
             
             

Non-GAAP Financial Measures

           
 
IKGH’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. IKGH uses this information internally in evaluating its operations and believes this information is important to investors because it provides users of IKGH’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 IKGH’s net income to Non-GAAP income and GAAP EPS to IKGH’s Non-GAAP EPS:
 
                           
      For the Three 
Months 
Ended December 
31, 2015
   

For the Three 
Months 
Ended 
December 
31, 2014

   

For the Year
Ended 
December
31, 2015

   

For the Year
Ended December

31, 2014

 
                           

Net Income (Loss) attributable to ordinary
shareholders

    $ 12,150,158     $ 5,706,276     $ 5,117,769     $ (60,077,935 )
                                   
Amortization of intangible assets       4,093,318       4,090,625       16,369,467       16,365,034  
                                   
Impairment of goodwill       -       -       17,757,113       -  
                                   

Change in fair value of contingent
consideration

      (15,425,409 )     (1,783,134 )     (30,215,735 )     60,918,569  
                                   

Non-GAAP Income (before amortization of
intangible assets, impairment of goodwill
and change in fair value of contingent
consideration)

    $ 818,067     $ 8,013,767     $ 9,028,614     $ 17,205,668  
                                   
Weighted Average Shares Outstanding                                  
                                   
Basic       62,416,761       61,396,667       62,116,749       60,781,915  
Diluted       62,959,381       61,478,528       62,292,834       61,002,086  
 
               
     

For the Three Months Ended 
December 31, 2015

   

For the Three Months

Ended December 31, 2014

 
           
      Basic  

Fully

Diluted

    Basic  

Fully

Diluted

 
                       

Net income per share attributable to
ordinary shareholders

    $ 0.19     $ 0.19       $ 0.09     $ 0.09    
                       
Amortization of intangible assets       0.07       0.07         0.07       0.07    
                       

Change in fair value of contingent
consideration

      (0.25 )     (0.25 )       (0.03 )     (0.03 )  
                       

Non-GAAP income per share (before
amortization of intangible assets and
change in fair value of contingent
consideration)

    $ 0.01     $ 0.01       $ 0.13     $ 0.13    
               
               
     

For the Year Ended 
December 31, 2015

   

For the Year Ended 
December 31, 2014

 
           
      Basic  

Fully 
Diluted

    Basic  

Fully 
Diluted

 
                       

Net income (loss) per share
attributable to ordinary shareholders

    $ 0.08     $ 0.08       $ (0.99 )   $ (0.99 )  
                       
Amortization of intangible assets       0.26       0.26         0.27       0.27    
                       
Impairment of goodwill       0.29       0.29         -       -    
                       

Change in fair value of contingent
consideration

      (0.49 )     (0.49 )       1.00       1.00    
                       

Non-GAAP income per share (before
amortization of intangible assets,
impairment of goodwill and change in fair
value of contingent consideration)

    $ 0.14     $ 0.14       $ 0.28     $ 0.28    
 

 

Contacts

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