News Column

Iao Kun Group Holding Company Limited Announces Second Quarter and Six Months 2014 Financial Results

August 28, 2014

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/9:00PMMacau. 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 MonthsFor the Three MonthsFor the Six MonthsFor the Six Months
    EndedEndedEndedEnded
    June 30, 2014June 30, 2013June 30, 2014June 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, 2014December 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,

    Authorized 500,000,000 shares; 57,891,524 and 59,306,824 issued and outstanding at June 30, 2014 and December 31, 2013, respectively.

    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 ThreeFor the ThreeFor the SixFor the Six
    Months EndedMonths EndedMonths EndedMonths Ended
    June 30, 2014June 30, 2013June 30, 2014June 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 MonthsFor the Three Months
    Ended June 30, 2014Ended June 30, 2013
    BasicFully DilutedBasicFully 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 MonthsFor the Six Months
    Ended June 30, 2014Ended June 30, 2013
    BasicFully DilutedBasicFully 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
     





    Iao Kun Group Holding Company Limited

    James Preissler, +1 646-450-8808

    preissj@ikghcl.com

    Source: Iao Kun Group Holding Company Limited


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