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

Guía de Regalos

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 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