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 second quarter ended June 30, 2013 and reviewed
recent corporate progress.
Highlights:
- Total consolidated revenue of $5.8
million for the second quarter of 2013
- Total revenue from gaming operations of
$5.7 million for the second quarter of 2013
- Average consolidated win per unit per
day (WUD) from slot operations of $135 for the second quarter of
2013
- Dreamworld Pailin, the Company’s first
casino development project, contributed $907,000 to gaming revenue
for the second quarter of 2013
- Adjusted EBITDA (earnings from
continuing operations before interest, taxes, depreciation,
amortization and non-cash charges) of $1.9 million for the second
quarter of 2013
- Net loss from continuing operations of
$385,000 for the second quarter of 2013
- Cash balance of $4.8 million and zero
debt as of June 30, 2013
- The Company is preparing to implement a
strategic plan to refocus the gaming operations of Dreamworld
Pailin with the goal of improving its bottom-line performance
- Dreamworld Poipet, a slot hall
developed by the Company in an established gaming market near the
Cambodia-Thailand border, officially opened in May 2013 and
achieved positive EBITDA for the month of July 2013
- The new high-security Dolphin gaming
chips and plaques manufacturing plant in Hong Kong is fully
operational with attractive growth potential, including a near-term
order pipeline of approximately $2 million in revenue as of June
30, 2013
Clarence Chung, Chairman and Chief Executive Officer of
Entertainment Gaming Asia, commented, “It has been an eventful
quarter for the Company with the opening of our new Dreamworld
Poipet slot club, the completion of the relocation and
repositioning of our gaming products division and the formulation
of a strategic plan to drive improved earnings performance for
Dreamworld Pailin.
“Quarterly performance benefited from strong contribution from
our operations in NagaWorld. However, overall results were
negatively impacted by lower revenue and high non-recurring costs
for the gaming products division primarily due to the relocation of
the manufacturing facilities from Australia to Hong Kong during the
quarter and a gross margin loss for Dreamworld Pailin.
“In addition to strong performance from NagaWorld, slot
operations revenue benefited from Dreamworld Poipet. Our targeted
marketing efforts have helped to begin building a quality player
base for these operations and the achievement of positive EBITDA
for the month of July. Slot operations performance in the quarter
was negatively impacted by a decrease in revenue for our operations
in the Philippines. This market is experiencing increasing
competition from the development of major integrated casino resorts
in Manila. With a solid local player base and proactive approach to
marketing to our target customers, we are focused on improving
customer loyalty. Further, this increasing competition is likely to
bring consolidation at the slot club level and, we believe, this
could provide an opportunity for us.
“For Dreamworld Pailin, we are preparing to implement efforts to
refocus these operations that we believe will better allow us to
capitalize on the existing market conditions and substantially
reduce operating costs. We intend to introduce a new operating
model with an increased focus on VIP players and a shift in the mix
of gaming offerings, with the goal of improving the earnings
potential for these operations.
“In addition to our gaming operations, our gaming products
provide a diversified revenue stream with attractive earnings
potential. With the production plant relocation behind us, we
entered the third quarter of 2013 with a gaming chip and plaque
order pipeline of approximately $2 million in revenue expected to
be recorded during the third quarter, a more normalized operating
cost structure and a focus on expanding our product offerings and
customer base.
“We believe we have developed a business model that provides the
ability to generate quality recurring cash flow. This has allowed
us to invest in and grow our operations and pay down all of our
debt. We are focused on growing our existing businesses and
building our resources as we actively seek new growth opportunities
in the high-growth economies of Indo-China.”
Q2 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 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 second quarter of 2013 consolidated
revenue was $5.8 million, a decrease of 5% compared to $6.2 million
in the second quarter of 2012. The decrease was primarily due to
lower sales of gaming products partially offset by higher gaming
operations revenue.
Revenue from gaming operations, which included slot and casino
operations, was $5.7 million in the second quarter of 2013, an
increase of 9% compared to $5.2 million in the second quarter of
2012. The increase was attributed to incremental revenue from the
Dreamworld Pailin casino, which opened in May 2012, partially
offset by lower slot operations revenue.
The Company recorded $4.8 million in revenue for slot operations
in the second quarter of 2013, a decrease of 4% compared to $5.0
million in the second quarter of 2012 mainly attributable to the
Philippine operations. The decrease in Philippine slot revenue was
due to higher jackpot payouts and increasing competition in the
market. Despite the revenue decline, Philippine average WUD
improved slightly compared with the prior year quarter due to a
lower installed base with higher performing machines.
The Company maintained strong revenue for Cambodia slot
operations. NagaWorld operations contributed $3.7 million in
revenue and $256 in average WUD to the second quarter of 2013,
consistent with the same period last year. Dreamworld Poipet
provided incremental revenue, which was offset by a decline in
Thansur Bokor operations. Cambodia average WUD declined for the
second quarter of 2013 compared to the prior year period due to the
addition of machines in Dreamworld Poipet, which officially opened
in May 2013, and to a lesser extent, Thansur Bokor, which
officially opened in May 2012.
Slot Operations
Net Revenue to EGT (in
millions)
Q2:13
Q2:12
Y/Y ∆
Cambodia (1) $4.0
$4.0 - Philippines
$0.8 $1.0 -20%
Consolidated $4.8
$5.0 -4%
WUD (2)
Q2:13
Q2:12
Y/Y ∆
Cambodia (1) $169
$215 -21% Philippines
$74 $72 3%
Consolidated $135
$147 -8%
EGM Seats in Operation
6/30/13
6/30/12
Y/Y ∆
Cambodia (1) 1,062
818 30% Philippines
570 623 -9%
Consolidated 1,632
1,441 13%
(1) Includes 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 open periods 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 second
quarter of 2013, one venue in Cambodia operated during a soft open.
Had these seats been included in the WUD calculation, Cambodia and
consolidated WUD for this period would have been $157 and $129,
respectively. During the second quarter of 2012, one venue in
Cambodia operated during a soft open and one venue in the
Philippines recognized revenue on a cash basis. There were no
material differences to average WUD figures for this period had
these seats been included in the WUD calculations.
Casino operations, which comprised Dreamworld Pailin,
contributed $907,000 to total gaming revenue in the second quarter
of 2013, down from $1.1 million in the first quarter of 2013. The
decline was due to lower player traffic levels. Operating expense
for Dreamworld Pailin was $1.2 million for the second quarter of
2013, down from $1.3 million in the first quarter of 2013 due to
the lower player traffic and cost reduction initiatives.
Revenue from gaming products, which comprised the manufacture
and sale of gaming chips and plaques, was $162,000 in the second
quarter of 2013, down from $978,000 in the second quarter of 2012.
The decrease was mainly the result of the short production period
given the strategic relocation of the manufacturing facilities from
Australia to Hong Kong during the quarter. The relocation commenced
in March and was completed in May 2013. However, final set-up
including new personnel training, consultants and equipment testing
resulted in approximately $166,000 in non-recurring operating costs
and lower production efficiencies. As a result, the Company
incurred a gross margin loss of $384,000 for these operations
during the second quarter.
Entertainment Gaming Asia reported adjusted EBITDA of $1.9
million in the second quarter of 2013 compared to $2.8 million in
the prior year period.
The Company reported a net loss from continuing operations of
$385,000, or $0.01 per share, on a weighted average diluted share
count of approximately 30.0 million in the second quarter of 2013.
This compared to net income of $429,000, or $0.02 per share, on a
weighted average diluted share count of approximately 31.3 million
for the second quarter of 2012.
The decrease in adjusted EBITDA and the increase in net loss
from continuing operations were primarily the result of the gross
margin loss for the casino operations, lower revenue and high
non-recurring costs for the gaming products division and foreign
currency losses of approximately $292,000 compared to gains of
approximately $25,000 in the prior year period. This negative
differential in foreign exchange of approximately $317,000 was due
to the strengthening of the U.S. dollar compared to foreign
currencies in the markets in which the Company operates. The
decrease in adjusted EBITDA and the increase in net loss from
continuing operations were partially offset by lower operating
expenses, including selling, general and administrative expenses,
which were $1.4 million in the second quarter of 2013 compared to
$1.6 million in the prior year period.
Refocusing Dreamworld Pailin to Improve Bottom-Line
Performance
The Company is formulating a strategic change in the operating
model for Dreamworld Pailin located at the Cambodia-Thailand
border. Dreamworld Pailin opened in May 2012 and presently houses
26 table games and 58 EGM seats.
Dreamworld Pailin’s financial performance has been slow to ramp
up and these operations are not yet profitable. After a thorough
analysis of the operating results and market trends, the Company
has formulated a new operating plan which it anticipates will
better capitalize on the market conditions and allow for a
substantial reduction in operating expenses.
The new strategy entails a shift in the primary focus to the VIP
market. As a result, the Company intends to reduce the number of
tables in operation from 26 to approximately 16. The Company has
recently expanded its new junket program to include five VIP
promoters and is focused on adding more quality promoters to the
program. In place of the removed tables, the Company intends to add
semi-live electronic gaming tables with approximately 30 seats,
which are intended to appeal to visiting individual mass market
players. With its strong relationships with gaming suppliers, the
Company plans to obtain these machines on a revenue sharing basis
resulting in minimal capital investment.
By decreasing the emphasis on the higher-cost, mass market tour
groups and increasing the focus on the VIP market, the Company’s
goal is to significantly reduce operating costs by approximately
30-40% while increasing the dollar level of play. Under this
refocused operating model, the Company estimates Dreamworld Pailin
will achieve break-even to positive EBITDA within the next two
quarters.
Clarence Chung, Chairman and Chief Executive Officer of
Entertainment Gaming Asia, commented, “As our first casino
development project, Dreamworld Pailin has provided us a valuable
learning experience with relatively low capital investment. The
challenges we have faced in our first year of operations have
provided us a firm understanding of this market and we are
proactively taking steps to enhance the earnings potential for this
project.
“Casino development remains a primary component of our growth
strategy and this experience has provided us deeper operational
expertise, which better prepares us for success in future projects.
We are actively pursuing new projects in existing ready player
markets that we believe will add meaningful scale to our
operations.”
Dreamworld Poipet Ramping Up
The Company held the grand opening for Dreamworld Poipet, a slot
hall 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 developed and operates as a
stand-alone extension to an existing casino, houses approximately
300 premium quality EGM seats.
With eight existing casinos in operation, Poipet is an
established and growing regional gaming market. Given Dreamworld
Poipet’s prominent location in the area and targeted marketing
programs, the Company’s goal is to ramp up these operations and
capture a meaningful share of the market.
Dreamworld Poipet has a low operating cost structure and
requires average WUD of only approximately $25 to achieve breakeven
EBITDA. In July 2013, the Company achieved solid improvement in
operating performance and these operations contributed positive
EBITDA. The Company continues to refine and expand its marketing
programs and has already established a meaningful and growing
quality player base.
Strong Potential for Dolphin Gaming Products
The Company entered the third quarter of 2013 with a strong
order pipeline of approximately $2 million in revenue and a more
normalized cost structure for the new gaming chips and plaque
manufacturing facility in Hong Kong. The plant is working double
shifts (24 hours/day) to fulfill these orders from existing
customers and expects to book this revenue in the third quarter of
2013.
With a strong existing customer base and relationships, a
comprehensive suite of products and high-security production
facilities located amidst the growing Asian gaming markets, the
Company believes it is well positioned to benefit from the major
casino development anticipated over the next several years in Asia.
This combined with the ability to meaningfully reduce operating
expenses in this relatively lower cost market, provides the
potential to make the Company’s gaming products division a
meaningful contributor to future earnings.
In addition, the Company is actively working on opportunities to
expand its product offerings to include other gaming products.
Adding to the product mix should further deepen the Company’s
existing customer relationships and increase its marketability to
new customers.
Clarence Chung, Chairman and Chief Executive Officer of
Entertainment Gaming Asia, concluded, “We are committed to
increasing shareholder value. We believe that our business model
offers growth potential and the ability to generate quality
recurring cash flow. This combined with our established presence
and strong relationships in our markets provide us a solid
foundation from which to capitalize on the growth opportunities in
our target markets in Asia.”
Entertainment Gaming Asia is hosting a conference call and
simultaneous webcast at 8:30 a.m. ET today, August 8, 2013, both of
which are open to the general public. The conference call number is
800/905-9496 or 212/231-2937. 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, the ability to
reduce operating expenses for its casino operations in Pailin and
otherwise realize the intended benefits of the strategic refocusing
of its operations in Pailin, 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 the Company’s casino
projects and identify and successfully develop additional projects
in the Indo-China region, acquire additional capital as and when
needed, 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.
- financial tables follow -
Entertainment Gaming Asia Inc.
Consolidated Statements of
Comprehensive Income
(Unaudited)
Three-Month PeriodsEnded June
30,
Six-Month PeriodsEnded June
30,
(amounts in thousands, except per share
data)
2013 2012 2013 2012 Revenues:
Gaming operations, gross $ 5,685 $ 5,198 $ 10,959 $ 10,154
Less: promotional allowances — — — —
Gaming operations, net
5,685 5,198 10,959 10,154 Gaming products 162 978 1,589 1,509 Total
revenues 5,847 6,176 12,548 11,663 Operating costs and
expenses: Cost of gaming operations Gaming equipment depreciation
1,262 1,180 2,404 2,289 Casino contract amortization 617 615 1,238
1,230 Other gaming related intangibles amortization 63 63 126 126
Other operating costs 1,730 950 3,491 1,474 Cost of gaming products
546 810 2,041 1,230 Selling, general and administrative expenses
1,440 1,637 3,057 3,222 Stock-based compensation expenses 198 287
445 552 Gain on dispositions of assets — (17) — (29) Impairment of
assets — 71 — 71 Product development expenses 35 86 155 186
Depreciation and amortization 47 59 77 90 Total operating costs and
expenses 5,938 5,741 13,034 10,441 (Loss)/income from operations
(91) 435 (486) 1,222 Other (expense)/income: Interest
expense and finance fees (1) (36) (5) (89) Interest income — 14 4
26 Foreign currency (losses)/gains (292) 25 (188) 214 Other income
7 26 10 26 Total other (expense)/income (286) 29 (179) 177
(Loss)/income from continuing operations before income tax expense
(377) 464 (665) 1,399 Income tax expense (8) (35) (49) (89)
Net (loss)/income from continuing operations (385) 429 (714)
1,310 Net income/(loss) from discontinued operations, net of tax 99
55 (2,080) 146 Net (loss)/income $ (286) $ 484 $ (2,794) $
1,456 Basic and diluted earnings per share: (Loss)/earnings
from continuing operations $ (0.01) $ 0.02 $ (0.02) $ 0.05
(Loss)/earnings from discontinued operations, net of tax
$
— $ —
$
(0.07) $ — (Loss)/earnings $ (0.01) $ 0.02 $ (0.09) $ 0.05
Weighted average common shares outstanding Basic 30,025 29,918
30,024 29,909 Diluted 30,025 31,329 30,024 30,717
Entertainment Gaming Asia Inc.
Consolidated Balance Sheets
June 30,
2013
December 31,2012
(amounts in thousands, except per share data)
(Unaudited) ASSETS Current assets: Cash and cash
equivalents $ 4,789 $ 10,365 Accounts receivable, net 404 1,841
Other receivables 692 112 Inventories 1,108 2,047 Prepaid expenses
and other current assets 526 387 Total current assets 7,519 14,752
Gaming equipment, net 9,874 9,724 Casino contracts 6,682
7,982 Property and equipment, net 8,751 6,170 Goodwill 362 380
Intangible assets, net 1,065 1,253 Contract amendment fees 288 342
Deferred tax assets — 201 Prepaids, deposits and other assets 2,558
2,914 Total assets $ 37,099 $ 43,718
LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $
844 $ 3,636 Amount due a related party 21 — Accrued expenses 1,625
2,619 Customer deposits and other current liabilities 564 656 Total
current liabilities 3,054 6,911 Other liabilities 738 1,078
Deferred tax liability 137 137 Total liabilities 3,929 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 32,813
32,224 Accumulated other comprehensive income 712 929 (Accumulated
losses)/retained earnings since January 1, 2011 ($386.1 million
accumulated deficit eliminated upon quasi-reorganization) (386)
2,408 Total EGT stockholders’ equity 33,169 35,591 Non-controlling
interest 1 1 Total stockholders’ equity 33,170 35,592 Total
liabilities and stockholders’ equity $ 37,099 $ 43,718
Entertainment Gaming Asia Inc.
Adjusted EBITDA from Continuing
Operations
(Unaudited)
Three-Month PeriodsEnded June
30,
Six-Month PeriodsEnded June
30,
(amounts in thousands) 2013 2012
2013 2012 Net (loss)/income from continuing
operations – GAAP $ (385) $ 429 $ (714) $ 1,310 Interest
expense and finance fees 1 36 5 89 Interest income — (14) (4) (26)
Income tax expense 8 35 49 89 Depreciation and amortization 2,064
1,936 3,966 3,770 Stock-based compensation expenses 198 287 445 552
Impairment of assets — 71 — 71 Gain on dispositions of assets —
(17) — (29) EBITDA from continuing operations, as adjusted
$
1,886
$
2,763
$
3,747
$
5,826
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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