April 1, 2015

Iao Kun Group Holding Company Limited Announces Fourth Quarter and Full Year 2014 Financial Results

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 fourth quarter and the year ended December 31, 2014. 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 2015 for the full audited financial statements and related disclosures for the year ended December 31, 2014.

Fourth 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 December 31, 2014 was $2.9 billion, a decrease of 34% compared to $4.4 billion for the three months ended December 31, 2013.
  • Net income, including the change in fair value of contingent consideration of $1.8 million related to the King's Gaming, Bao Li Gaming and Oriental VIP Room acquisitions, was $5.7 million, or $0.09 per share (fully diluted), for the fourth quarter of 2014 compared to a net loss of $5.5 million, or $(0.09) per share (basic and diluted), for 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 $8.0 million, or $0.13 per share (fully diluted), for the three months ended December 31, 2014 as compared to a non-GAAP loss of $3.5 million, or $(0.06) per share (basic and diluted), for the three months ended December 31, 2013.
  • In February 2015, the Hong Kong Stock Exchange declared it was unable to proceed with its review of the Company's Form A1 application and the Company has elected to not continue with the application process at this time.

Fourth Quarter 2014 Results

For the three months ended December 31, 2014, IKGH recorded revenue of $52.3 million, a 4% increase from the same period of 2013, primarily due to a win rate of 3.95% for the three months ended December 31, 2014 (above the statistical average win rate range), compared to a win rate of 2.39% for the three months ended December 31, 2013. The win rate increase was partially offset by (i) slower revenue growth of VIP baccarat, consistent with the overall decline of gaming revenue in Macau; and (ii) the economic downturn and tightening of credit in mainland China, from where the majority of IKGH's VIP gaming patrons reside.

The increase in net income for the three months ended December 31, 2014 was primarily due to increased revenue, a net decrease to the contingent consideration liability for Bao Li Gaming and the Oriental VIP Room, due primarily to lower share prices, and lower commissions as a result of lower Rolling Chip Turnover, partially offset by higher commission rates offered to non-credit agents. IKGH also incurred higher selling, general and administrative expenses for the three months ended December 31, 2014, primarily due to additional costs associated with IKGH's application to list on the Hong Kong Stock Exchange.

"In the fourth quarter, we experienced a win rate above the statistical average, which more than offset the impact of the ongoing VIP baccarat volatility and our Rolling Chip Turnover decline from the prior-year quarter," said Mr. Man Pou Lam (Mr. Lam), Chairman of IKGH. "Despite current Macau VIP market conditions, we remain committed to expanding our presence and market share in the VIP gaming market while continuing to prudently manage our capital to create long-term value for our shareholders."

Full Year 2014 Highlights

  • Rolling Chip Turnover for the year ended December 31, 2014 was $16.6 billion, a decrease of 2% compared to $17.0 billion for the year ended December 31, 2013.
  • Net loss, including the change in fair value of contingent consideration of $60.9 million related to the King's Gaming, Bao Li Gaming and Oriental VIP Room acquisitions, was $60.1 million, or $(0.99) per share (basic and diluted), for the year ended December 31, 2014 compared to net income of $5.4 million, or $0.10 per share (fully diluted), for the year ended December 31, 2013.
  • Non-GAAP income was $17.2 million, or $0.28 per share (fully diluted), for the year ended December 31, 2014 compared to $31.0 million, or $0.58 per share (fully diluted), for the year ended December 31, 2013.

Outlook for 2015

For the first two months of 2015, IKGH's Rolling Chip Turnover was US$1.44 billion (an average of $0.72 billion per month), down 52% year-over-year, compared to US$3.02 billion (an average of $1.51 billion per month) for the first two months of 2014.

The Company is providing 2015 Rolling Chip Turnover guidance for its five existing VIP rooms in Macau of between US$8.5 billion and US$10.0 billion.

Conference Call and Replay Information

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

1-888-438-5448 (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)
1-719-457-2661 (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 1781917.

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 to be 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.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

         
For the For the

 

 

Three Months Ended Three Months Ended

For the

Year Ended

For the Year Ended

December 31,
2014

December 31,
2013

December 31,
2014

December 31,
2013

 
 
Revenue from VIP Gaming Operations $ 52,273,694 $ 50,225,431   $ 233,822,859   $ 236,850,159  
Total Revenues   52,273,694   50,225,431     233,822,859     236,850,159  
 
Expenses
- Commission to Agents 36,813,086 46,901,559 188,448,178 182,639,067
- Selling, General and Administrative Expenses 7,160,189 6,401,807 26,506,299 21,485,944
- Special Rolling Tax 286,652 437,105 1,662,714 1,704,851
- Amortization of Intangible Assets   4,090,625   4,091,494     16,365,034     13,187,006  
Total Expenses   48,350,552   57,831,965     232,982,225     219,016,868  
 
Operating income (loss) before change in fair value of contingent consideration 3,923,142 (7,606,534 ) 840,634 17,833,291
Change in Fair Value of Contingent Consideration for the Acquisitions of King's Gaming, Bao Li and Oriental   1,783,134   2,089,468     (60,918,569 )   (12,445,789 )
Net Income (Loss)   5,706,276   (5,517,066 )   (60,077,935 )   5,387,502  
 
Other Comprehensive Income (Loss)
Foreign Currency
- Translation Adjustment   391,040   48,334     65,092     (76,610 )
Total Comprehensive Income (Loss) $ 6,097,316 $ (5,468,732 ) $ (60,012,843 ) $ 5,310,892  
 
Net Income (Loss) Per Share
Basic $ 0.09 $ (0.09 ) $ (0.99 ) $ 0.10  
Diluted $ 0.09 $ (0.09 ) $ (0.99 ) $ 0.10  
Weighted Average Shares Outstanding
Basic   61,396,667   61,005,495     60,781,915     53,030,405  
Diluted   61,478,528   61,005,495     60,781,915     53,210,572  
 
 

IAO KUN GROUP HOLDING COMPANY LIMITED

F/K/A ASIA ENTERTAINMENT & RESOURCES LTD.

UNAUDITED CONSOLIDATED BALANCE SHEETS

     
December 31, 2014 December 31, 2013
 
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 11,146,534 $ 7,563,097
Accounts Receivable, Net 1,529,052 5,182,352
Markers Receivable 188,549,136 242,350,301
Prepaid Expenses and Other Assets   348,777   502,017
Total Current Assets 201,573,499 255,597,767
 
Intangible Assets (net of accumulated amortization of $42,105,966 and $25,739,786 at December 31, 2014 and December 31, 2013, respectively) 121,968,648 138,336,945
Goodwill 17,753,907 17,754,136
Property and Equipment (net of accumulated depreciation of $108,913 and $38,654 at December 31, 2014 and December 31, 2013, respectively) 322,149 116,419
Other Assets   23,427   23,423
TOTAL ASSETS $ 341,641,630 $ 411,828,690
 
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Lines of Credit Payable $ 32,392,020 $ 42,670,573
Accrued Expenses 11,682,653 15,701,756
Bao Li Gaming Acquisition-Contingent Purchase Price Obligation 22,662,750 16,837,500
King's Gaming Acquisition-Contingent Purchase Price Obligation - 9,000,000
Oriental VIP Room Acquisition-Contingent Purchase Price Obligation 13,738,762 21,650,051
Loan Payable, Shareholders, current   2,612,490   5,809,075
Total Current Liabilities 83,088,675 111,668,955
 
Bao Li Gaming Acquisition-Contingent Purchase Price Obligation, net of current portion 19,628,881 16,189,550
Oriental VIP Room Acquisition-Contingent Purchase Price Obligation, net of current portion   27,665,264   14,878,218
Total Liabilities   130,382,820   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; 60,452,314 and 59,306,824 issued and outstanding at December 31, 2014 and December 31, 2013, respectively.
6,044 5,930
Additional Paid-in Capital 130,048,153 126,329,321
Retained Earnings 80,653,190 142,270,385
Accumulated Other Comprehensive Income   551,423   486,331
Total Shareholders' Equity   211,258,810   269,091,967
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 341,641,630 $ 411,828,690
 
 

Cash Flow Information

(in thousands)

    For the Year Ended   For the Year Ended
December 31, 2014 December 31, 2013
 
Net cash provided by operating activities $ 60,602 $ 37,906
Net cash used in investing activities (291 ) (20,127 )
Net cash used in financing activities   (56,929 )   (30,845 )
Net increase (decrease) in cash and cash equivalents $ 3,382 $ (13,066 )

Non-GAAP Financial Measures

IKGH'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, 2014 and 2013 differs from EPS based on net income because it does not include amortization of intangible assets 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 unaudited net income to Non-GAAP income and GAAP EPS to its Non-GAAP EPS:

    For the Three Months Ended   For the Three Months Ended
December 31, 2014 December 31, 2013
 
Net Income (Loss) attributable to ordinary shareholders $ 5,706,276 $ (5,517,066 )
 
Amortization of intangible assets 4,090,625 4,091,494
 
Change in fair value of contingent consideration   (1,783,134 )   (2,089,468 )
Non-GAAP income (loss) (before amortization of intangible assets and change in fair value of contingent consideration) $ 8,013,767   $ (3,515,040 )
 
Weighted Average Shares Outstanding
Basic   61,396,667     61,005,495  
Diluted   61,478,528     61,005,495  
 
  For the Three Months Ended   For the Three Months Ended
December 31, 2014 December 31, 2013
Basic   Fully Diluted Basic   Fully Diluted
 
Earnings (Loss) per share attributable to ordinary shareholders $ 0.09 $ 0.09 $ (0.09 ) $ (0.09 )
 
Amortization of intangible assets 0.07 0.07 0.07 0.07
 
Change in fair value of contingent consideration   (0.03 )   (0.03 )   (0.03 )   (0.03 )
 
Non-GAAP Earnings (Loss) per share (before amortization of intangible assets and change in fair value of contingent consideration) $ 0.13   $ 0.13   $ (0.06 ) $ (0.06 )
 
   

For the Year Ended

 

For the Year Ended

December 31, 2014

December 31, 2013

 
Net Income (Loss) attributable to ordinary shareholders $ (60,077,935 ) $ 5,387,502
 
Amortization of intangible assets 16,365,034 13,187,006
 
Change in fair value of contingent consideration   60,918,569     12,445,789
 
Non-GAAP income (before amortization of intangible assets and change in fair value of contingent consideration) $ 17,205,668   $ 31,020,297
 
Weighted Average Shares Outstanding
Basic   60,781,915     53,030,405
Diluted   61,002,086     53,210,572
 
   

For the Year Ended

   

For the Year Ended

December 31, 2014

December 31, 2013

Basic

   

Fully Diluted

Basic

   

Fully Diluted

Earnings (Loss) per share attributable to ordinary shareholders $ (0.99 ) $ (0.99 ) $ 0.10 $ 0.10
 
Amortization of intangible assets 0.27 0.27 0.25 0.25
 
Change in fair value of contingent consideration   1.00     1.00     0.23   0.23
 
Non-GAAP Earnings per share (before amortization of intangible assets and change in fair value of contingent consideration) $ 0.28   $ 0.28   $ 0.58 $ 0.58

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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