Entertainment Gaming Asia Inc. (NASDAQ: EGT) (“Entertainment
Gaming Asia” or “the Company”), a leading gaming company focused on
emerging gaming markets in Pan-Asia, today reported operating
results for the first quarter ended March 31, 2013 and reviewed
recent corporate progress.
Highlights:
- Total consolidated revenue of $6.7
million for the first quarter of 2013
- Total revenue from gaming operations of
$5.3 million for the first quarter of 2013
- Average consolidated win per unit per
day (WUD) for the slot operations of $139 for the first quarter of
2013
- Dreamworld Pailin, the Company’s first
casino development project which opened in May 2012, contributed
$1.1 million to gaming revenue for the first quarter of 2013
- Gaming chips and plaques sales of $1.4
million for the first quarter of 2013
- Adjusted EBITDA (earnings from
continuing operations before interest, taxes, depreciation,
amortization and non-cash charges) of $1.9 million for the first
quarter of 2013
- Cash balance of $4.5 million as of
March 31, 2013
- Zero debt as of March 31, 2013
- Company is preparing to implement a
junket program intended to increase premium and VIP player traffic
at Dreamworld Pailin
- Grand opening of Dreamworld Poipet, a
slot hall developed by the Company in an established gaming market
near the Thailand border, held on May 9, 2013
- Successful divestiture of the legacy
non-gaming products business
- New Dolphin gaming chips and plaques
manufacturing plant in Hong Kong is operational with attractive
near-term order pipeline
Clarence Chung, Chairman and Chief Executive Officer of
Entertainment Gaming Asia, commented, “Our consolidated revenue was
up 22% for the first quarter of 2013 compared to the prior year
period driven by significantly higher sales of gaming chips and
plaques and incremental revenue from Dreamworld Pailin.
“Our gaming chips and plaques benefited from strong reorder flow
due to our growing customer base. We incurred high labor costs in
Australia for these operations during the quarter as we accelerated
the fulfillment of existing orders to expedite the relocation of
the manufacturing plant from Australia to Hong Kong to accommodate
our near-term order pipeline of over $1.0 million. Dreamworld
Pailin contributed $1.1 million revenue in the quarter. While
Dreamworld Pailin revenue was down slightly from the prior
sequential quarter, we continue to refine our marketing programs
and believe that we are making progress toward improving the
quality of the player base.
“Top-line gains were partially offset by lower slot revenue,
primarily from our operations at Nagaworld, compared to the prior
year period due to lower player traffic as a result of both the
subdued atmosphere during the mourning period for the deceased King
of Cambodia and the NagaWorld employee strike. Average net wins for
these operations declined to $217 per machine for the quarter.
However, net wins for our operations at NagaWorld have since
climbed to $276 per machine for the month of April 2013.
“We made great progress during the first quarter and to-date in
further refining our business operations. We sold a non-core legacy
business, opened our new Dreamworld Poipet property, took steps to
implement our junket program to further increase high-quality
player traffic at Dreamworld Pailin and completed the relocation of
our gaming chips and plaques operations to a high-security,
lower-cost plant in Hong Kong.
“With solid recurring cash flow anticipated from our business
divisions and planned capital expenditures largely concentrated
early in the year, we are focused on building our resources in
preparation for new potential growth opportunities.”
Q1 2013 Financial Review
The Company effected a 1:4 reverse stock split of its common
shares on June 12, 2012. All historical share amounts and share
information presented have been proportionally adjusted to reflect
the impact of this reverse stock split, including basic and diluted
weighted-average shares and shares issued and outstanding.
On March 28, 2013, the Company sold the portion of its
subsidiary Dolphin Products Pty Limited business dedicated to the
manufacture and sale of non-gaming plastic products, mainly
automotive parts. All historical revenues and expenses associated
with its non-gaming plastic products operations for the periods
presented have been reclassified as discontinued operations.
Revenues of these non-gaming products and gaming chips and plaques
were previously consolidated under the reporting segment “Other
Products.” After the sale, the Company renamed “Other Products” as
“Gaming Products,” which comprises its gaming chips and plaques
operations.
Entertainment Gaming Asia’s first quarter of 2013 consolidated
revenue was $6.7 million, an increase of 22% compared to $5.5
million in the first quarter of 2012. The increase was due to
improvements in both of the Company’s gaming operations and gaming
products business divisions.
Revenue from gaming operations, which included slot and casino
operations, was $5.3 million in the first quarter of 2013, an
increase of 6% compared to $5.0 million in the first quarter of
2012. The increase was attributed to incremental revenue from
Dreamworld Pailin and the Company’s slot operations in Thansur
Bokor, both of which officially opened in May 2012, partially
offset by lower revenue from slot operations.
The Company recorded $4.2 million in revenue for its slot
operations in the first quarter of 2013, a decrease of 16% compared
to $5.0 million in the first quarter of 2012. The decrease was
primarily a result of lower average WUD from the Company’s
operations at NagaWord and lower revenue for its slot operations in
the Philippines. Average WUD for the Company’s operations in
NagaWorld were $217 in the first quarter of 2013 compared to $260
in the prior year period. The decline was due to normal
fluctuations and lower player traffic levels in February 2013 as a
result of the second observed week-long mourning period for
Cambodia’s King, which occurred at the beginning of the month and
the strike by NagaWorld workers for a couple of days, which
occurred at the end of the month. In the Philippines, while revenue
declined in the quarter due to a lower machine base, the Company’s
WUD improved significantly as the Company increased returns on
existing assets.
Slot Operations
Net Revenue to EGT (in
millions)
Q1:13
Q1:12
Y/Y ∆
Cambodia (1) $3.3 $3.9 -15% Philippines
$0.9 $1.1 -18% Consolidated $4.2 $5.0
-16%
WUD (2)
Q1:13
Q1:12
Y/Y ∆
Cambodia (1) $176 $239 -26% Philippines
$86 $73 18% Consolidated $139 $154
-10%
EGM Seats in Operation
3/31/13
3/31/12
Y/Y ∆
Cambodia (1) 1,008 799 26% Philippines
573 761 -25% Consolidated 1,581 1,560
1%
(1) Includes slot revenue from Dreamworld Poipet, which operates
under a machine operation and participation agreement. Dreamworld
Poipet soft opened on March 28, 2013 with 166 EGM seats and grand
opened on May 9, 2013 with approximately 300 EGM seats.
(2) Represents WUD for the Company’s slot machine operations. It
excludes EGM seats in operation during venue soft launch opening
periods, if applicable, and applies revenue recognized on a cash
basis in the calculation of WUD for venues for which revenues are
recognized on a cash basis. During the first quarter of 2013, one
venue in Cambodia operated during a soft launch. During the first
quarter of 2012, one venue in Cambodia operated during a soft
launch and one venue in the Philippines recognized revenue on a
cash basis. There were no material differences to average WUD
figures for these periods had these seats been included in the WUD
calculations.
Casino operations, which comprised Dreamworld Pailin,
contributed $1.1 million to total gaming revenue in the first
quarter of 2013. This was a slight decline from $1.2 million in the
fourth quarter of 2012 due to the refinement of marketing
strategies during the first quarter of 2013, which resulted in the
Company utilizing fewer promoters during the period.
Revenue from gaming products, which comprised the manufacture
and sale of gaming chips and plaques, was $1.4 million in the first
quarter of 2013, up substantially from $532,000 in the first
quarter of 2012. The increase was due to higher reorders from
existing customers as the Company benefited from its growing
customer base. However, higher non-recurring labor costs resulted
in a gross loss for these operations during the first quarter of
2013. The higher labor costs were primarily a result of increased
overtime by the Australian workers due to the expedited fulfillment
of orders as the Company fast-tracked the relocation of the plant
from Australia to Hong Kong as well as their absenteeism following
the announcement of the relocation of the gaming products business
and their severance.
Entertainment Gaming Asia reported adjusted EBITDA of $1.9
million in the first quarter of 2013 compared to $3.1 million in
the prior year period. The decrease in adjusted EBITDA for the
first quarter of 2013 was primarily the result of: lower revenue
from the Company’s slot operations; higher gaming division costs
primarily due to its casino operations, which had operating
expenses of approximately $1.3 million; and higher non-recurring
labor costs for the gaming products division compared to the prior
year period.
The Company reported a net loss from continuing operations of
$329,000, or $0.01 per share, on a weighted average diluted share
count of approximately 30.0 million in the first quarter of 2013.
This compared to net income from continuing operations of $881,000,
or $0.03 per share, on a weighted average diluted share count of
approximately 30.2 million for the first quarter of 2012.
The Company reported a net loss of $2.5 million, or $0.08 per
share, for the first quarter of 2013. This included a net loss from
discontinued operations, net of tax, of $2.2 million related to the
sale of the Company’s non-gaming products operations on March 28,
2013. The net loss from discontinued operations included $1.3
million in cash restructuring costs, which included severance,
relocation charges and contract termination fees, and approximately
$962,000 in non-cash charges for the loss on disposal of assets
primarily related non-gaming equipment and inventory. This compared
to net income of $972,000, or $0.03 per share, for the first
quarter of 2012, which included net income from discontinued
operations, net of tax, of $91,000.
Dolphin Gaming Chips and Plaques Provide Attractive Growth
Potential
The Company completed the relocation of its manufacturing
facilities for Dolphin gaming chips and plaques from Australia to
Hong Kong and began commercial operations of the new plant in early
May 2013. This high-security facility is located in the Shatin
district of Hong Kong and also serves as the Company’s new
corporate headquarters.
The Company expedited the move in order to accommodate its
near-term order pipeline. With confirmed re-orders for over $1.0
million in revenue from existing customers, the new plant will be
working double shifts for the next several months to fulfill these
orders. The Company is also evaluating opportunities to expand its
product offerings to include other gaming products, such as chip
trays, playing cards and dice. Adding to the product mix further
deepens the Company’s existing customer relationships and increases
its marketability to new customers. Further, given the operation’s
proximity to low-cost manufacturing countries, the production of
certain non-security items could be outsourced with attractive
margin potential for the Company.
With expected significant labor cost savings (average hourly
casual labor rate in Australia is approximately $20 compared to $5
in Hong Kong), production efficiencies and the ability to
consolidate certain support functions as a result of the
relocation, the Company expects to achieve meaningful improvements
in profitability for this division. This combined with the
opportunities to improve revenues by expanding the customer base
and adding new products, provide the potential to make the
Company’s gaming products division a meaningful contributor to
earnings.
Clarence Chung, Chairman and Chief Executive Officer of
Entertainment Gaming Asia, added, “The restructuring and relocation
of our Dolphin operations is the last step in our plans to
re-strategize our legacy businesses and it has been successfully
completed. We are excited about the potential of our gaming
products division. With a strong existing customer base and
relationships, a comprehensive suite of products and high-security
production facilities located in the heart of the growing Asian
gaming markets, we believe that we have all the right and necessary
elements to best serve our target markets and are poised to benefit
from the major casino development anticipated over the next several
years in Asia.”
Dreamworld Pailin Focuses on Improving Player Quality
In May 2012, the Company opened its first casino development
project, Dreamworld Pailin. Dreamworld Pailin is located in an
emerging gaming market at the Cambodia-Thailand border on a growing
trade route connecting the two countries. It houses 26 popular
table games such as baccarat and dice games and an attractive suite
of 52 EGM seats.
The Company is focused on improving the financial performance of
Dreamworld Pailin and continues its efforts to refine and broaden
its marketing strategies to attract higher quality players and,
where possible, identify and implement cost reduction
initiatives.
To-date, the Company’s marketing initiatives have included, but
have not been limited to, the use of fixed fee promoters, such as
bus programs. These programs have been helpful in increasing mass
market player traffic. In addition, the Company is preparing to
launch its junket program and is in the final due diligence stage
of signing agreements with potential operators. By utilizing junket
operators, the Company expects to improve high net worth player
traffic for its premium and VIP facilities while minimizing the
downside risk and volatility as the junket operators typically
share in wins and losses and assume the credit risk.
Dreamworld Poipet Opens
The Company held the grand opening for Dreamworld Poipet, a slot
hall developed by the Company in the established gaming market of
Poipet at the Cambodia-Thailand border, on May 9, 2013. This $7.5
million project, which the Company exclusively operates as a
stand-alone extension to an existing casino owned by a local
Cambodian company, houses approximately 300 premium quality EGM
seats. It has been operating under a soft open since March 28,
2013.
Clarence Chung, Chairman and Chief Executive Officer of
Entertainment Gaming Asia, concluded, “Our efforts over the last
several years have improved our ability to generate quality
recurring cash flow from continuing operations. This has allowed us
to invest in and grow our operations and pay down all of our
debt.
“We are a stronger company today and we look to the future with
a focus on growing our existing businesses and building our
resources as we actively seek new growth opportunities in the
high-growth economies of Indo-China.
“We are positioning ourselves for larger projects that would add
meaningful scale to our operations. In addition to expanding our
market presence, we believe larger projects will allow us to better
leverage operating costs and provide the opportunity for higher net
returns for shareholders.”
Entertainment Gaming Asia is hosting a conference call and
simultaneous webcast at 8:30 a.m. ET today, May 10, 2013, both of
which are open to the general public. The conference call number is
800/732-5617 or 212/231-2933. Questions and answers will be
reserved for call-in analysts and investors. Interested parties may
also access the live call on the Internet at www.EGT-Group.com.
Please allow 15 minutes to register and download and install any
necessary software. Following its completion, a replay of the call
can be accessed for thirty days on the Internet at
www.EGT-Group.com
About Entertainment Gaming Asia Inc.
Entertainment Gaming Asia Inc. (NASDAQ: EGT) is a
leading gaming company in Pan-Asia engaged in the
development and operation of casinos and gaming venues in the
Indo-China region under its “Dreamworld” brand as well as the
leasing of electronic gaming machines on a revenue sharing basis to
the gaming industry. The Company also manufactures and sells RFID
and traditional gaming chips and plaques to major casinos under its
“Dolphin” brand. For more information please visit
www.EGT-Group.com.
Forward Looking Statements
This press release contains forward-looking statements
concerning Entertainment Gaming Asia within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. Those
forward-looking statements include statements regarding
expectations for the Company’s slot operations business model, the
earnings of the Pailin and Poipet gaming projects, growth of the
gaming industry in Asia, the Company’s ability to secure new casino
and gaming projects and fund those projects, expectations for the
Company’s gaming chips and plaques operations, the expected
benefits from the relocation of the gaming chips and plaques
operations to Hong Kong, the ability to expand its table game
product offerings and the prospects for the expanded customer base
for the Company’s gaming chips and plaques. Such statements are
subject to certain risks and uncertainties, and actual
circumstances, events or results may differ materially from those
projected in such forward-looking statements. Factors that could
cause or contribute to differences include, but are not limited to,
risks related to the Company’s ability to place gaming machines at
significant levels and generate the expected amount of net win from
the gaming machines placed, obtain the gaming license and building
permits for gaming development projects on a timely basis or at
all, complete construction and development of the casino and gaming
projects on budget and in a timely manner, identify and implement
successful marketing and promotional strategies at each of the
Company’s casino projects and identify and successfully develop
additional projects in the Indo-China region, acquire additional
capital as and when needed, adverse weather conditions that cause
delays to casino and gaming projects timelines, ability to obtain
the needed approval by certain customers from local gaming
authorities to continue their purchase of gaming chips and plaques
from the Hong Kong facility on a timely basis or at all, identify
and implement successful marketing and promotional strategies and
obtain and fulfill significant purchase orders from the customers
for the Company’s gaming chips and plaques and those other risks
set forth in the Company’s annual report on Form 10-K for the year
ended December 31, 2012 filed with the SEC on March 28, 2013 and
subsequently filed quarterly reports on Form 10-Q. The Company
cautions readers not to place undue reliance on any forward-looking
statements. The Company does not undertake, and specifically
disclaims any obligation to update or revise such statements to
reflect new circumstances or unanticipated events as they
occur.
Entertainment Gaming Asia Inc. Consolidated Statements of
Comprehensive Income (Unaudited) Three Months
Ended March 31, (amounts in thousands, except per
share data) 2013 2012 Revenues: Gaming
operations, gross $ 5,274 $ 4,956 Less: promotional allowances — —
Gaming operations, net 5,274 4,956 Gaming products 1,427 532 Total
revenues 6,701 5,488 Operating costs and expenses: Cost of gaming
operations: Gaming equipment depreciation 1,142 1,109 Casino
contract amortization 620 615 Other gaming related intangibles
amortization 63 63 Other operating costs 1,760 524 Cost of gaming
products 1,496 421 Selling, general and administrative expenses
1,864 1,850 Gain on disposition of assets — (12) Product
development expenses 120 100 Depreciation and amortization 30 31
Total operating costs and expenses 7,095 4,701 (Loss)/income
from operations (394) 787 Other income/(expense): Interest
expense and finance fees (4) (53) Interest income 4 12 Foreign
currency gains 103 189 Other 3 — Total other income 106 148
(Loss)/income before income tax expense and discontinued operations
(288) 935 Income tax expense (41) (54)
Net (loss)/income from continuing
operations
(329) 881 Net (loss)/income from discontinued operations, net of
tax (2,178) 91 Net (loss)/ income $ (2,507) $ 972
Basic and diluted earnings per share: (Loss)/earnings from
continuing operations $ (0.01) $ 0.03 (Loss)/earnings from
discontinued operations, net of tax $ (0.07) $ — (Loss)/earnings $
(0.08) $ 0.03 Weighted average common shares outstanding
Basic 30,024 29,900 Diluted 30,024 30,190
Entertainment
Gaming Asia Inc. Consolidated Balance Sheets
March 31, December 31, 2013 2012
(amounts in thousands, except per share data)
(Unaudited) ASSETS Current assets: Cash and cash
equivalents $ 4,485 $ 10,365 Accounts receivable, net 566 1,841
Other receivables 1,652 112 Inventories 769 2,047 Prepaid expenses
and other current assets 326 387 Total current assets 7,789 14,752
Gaming equipment, net 10,901 9,724 Casino contracts 7,372
7,982 Property and equipment, net 7,937 6,170 Goodwill 382 380
Intangible assets, net 1,184 1,253 Contract amendment fees 315 342
Deferred tax assets — 201 Prepaids, deposits and other assets 2,546
2,914 Total assets $ 38,435 $ 43,718
LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $
1,487 $ 3,636 Accrued expenses 2,438 2,619 Income tax payable 8 —
Customer deposits and other current liabilities 178 656 Total
current liabilities 4,111 6,911 Other liabilities 729 1,078
Deferred tax liability 137 137 Total liabilities 4,977 8,126
Stockholders’ equity: Common stock, $.001 par value, 75,000,000
shares authorized; 30,024,662 and 29,974,662 shares issued and
outstanding, respectively 30 30 Additional paid-in-capital 32,614
32,224 Accumulated other comprehensive income 912 929 Retained
(losses)/earnings since January 1, 2011 ($386.1 million accumulated
deficit eliminated upon quasi-reorganization) (99) 2,408 Total EGT
stockholders’ equity 33,457 35,591 Non-controlling interest 1 1
Total stockholders’ equity 33,458 35,592 Total liabilities and
stockholders’ equity $ 38,435 $ 43,718
Entertainment
Gaming Asia Inc. Adjusted EBITDA from Continuing
Operations (Unaudited) Three-Months
Ended March 31, (amounts in thousands)
2013 2012
Net (loss)/income from continuing
operations – GAAP
$ (329) $ 881 Interest expense 4 53 Interest income (4) (12) Income
tax expense 41 54 Depreciation and amortization 1,902 1,835
Stock-based compensation expense 247 265 Gain on disposition of
assets — (12)
EBITDA, as adjusted from continuing
operations
$ 1,861 $ 3,064
Adjusted EBITDA is earnings before interest, taxes,
depreciation, amortization, stock-based compensation, and other
non-cash operating income and expenses. Adjusted EBITDA is
presented exclusively as a supplemental disclosure because
management believes that it is widely used to measure the
performance, and as a basis for valuation, of gaming companies.
Management uses Adjusted EBITDA as a measure of the operating
performance of its segments and to compare the operating
performance of its operations with those of its competitors. The
Company also presents Adjusted EBITDA because it is used by some
investors as a way to measure a company’s ability to incur and
service debt, make capital expenditures and meet working capital
requirements. Gaming companies have historically reported EBITDA as
a supplement to financial measures in accordance with generally
accepted accounting principles in the United States (“GAAP”).
Adjusted EBITDA should not be considered as an alternative to
operating income as an indicator of the Company’s performance, as
an alternative to cash flows from operating activities as a measure
of liquidity, or as an alternative to any other measure determined
in accordance with GAAP. Unlike net income/(loss), Adjusted EBITDA
does not include depreciation or interest expense and, therefore,
does not reflect current or future capital expenditures or the cost
of capital. The Company compensates for these limitations by using
Adjusted EBITDA as only one of several comparative tools, together
with GAAP measurements, to assist in the evaluation of operating
performance. Such GAAP measurements include operating income, net
income/(loss), cash flows from operations and cash flow data. The
Company has significant uses of cash flows, including capital
expenditures, interest payments, debt principal repayments, taxes
and other non-recurring charges, which are not reflected in
Adjusted EBITDA. Entertainment Gaming Asia’s calculation of
Adjusted EBITDA may be different from the calculation methods used
by other companies and, therefore, comparability may be
limited.
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