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 fourth quarter and 2013 fiscal year ended December
31, 2013 and reviewed recent corporate progress.
Overview:
- Total consolidated revenue of $6.1
million for the fourth quarter of 2013 and $24.3 million for the
2013 fiscal year
- Total revenue from gaming operations of
$5.4 million for the fourth quarter of 2013 and $20.9 million for
the 2013 fiscal year
- Adjusted EBITDA (earnings before
interest, taxes, depreciation, amortization and non-cash charges)
of $704,000 for the fourth quarter of 2013 and $6.2 million for the
2013 fiscal year
- Net loss from continuing operations,
excluding non-cash impairment charge of $2.6 million primarily
related to Dreamworld Pailin, of $1.6 million for the fourth
quarter of 2013 and $2.6 million for the 2013 fiscal year
- Gaming products sales of $729,000 for
the fourth quarter of 2013 and $3.4 million for the 2013 fiscal
year
- Cash balance of $5.3 million as of
December 31, 2013
- Zero debt as of December 31, 2013
- Dolphin subsidiary is in final
negotiations to supply gaming chips and plaques to a new casino
resort in the Philippines
Q4 and 2013 Fiscal Year Financial Review
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 fourth quarter of 2013 consolidated
revenue was $6.1 million, a decrease of 32% compared to $9.0
million in the fourth quarter of 2012. The decrease was due to
declines in both the Company’s gaming operations and gaming
products divisions. Consolidated revenue was $24.3 million for the
2013 fiscal year, a decrease of 9% compared to $26.8 million in the
2012 fiscal year. The decrease was due primarily to a decline in
the Company’s gaming products division.
Revenue from gaming operations, which included slot and casino
operations, was $5.4 million for the fourth quarter of 2013, a
decrease of 7% compared to $5.8 million in the fourth quarter of
2012. Revenue from gaming operations was $20.9 million for the 2013
fiscal year, an increase of 2% compared to $20.4 million in the
2012 fiscal year.
The Company recorded $5.1 million in slot operations revenue for
the fourth quarter of 2013, an increase of 13% compared to $4.5
million in the fourth quarter of 2012. Revenue from slot operations
was $18.1 million for the 2013 fiscal year, a decrease of 2%
compared to $18.6 million in the 2012 fiscal year. The fourth
quarter of 2013 slot operations revenue included $900,000 in
service revenue related to the reimbursement of net shared costs
from casino operators, which was grossed up for accounting
purposes. Given the related expenses have also been grossed up,
this adjustment has no impact on net income results.
Excluding the service revenue adjustment, slot operations
revenue for the fourth quarter of 2013 decreased 7% compared to the
prior year period primarily as a result of organized political and
labor protests in Phnom Penh, which negatively impacted player
traffic and average net wins for the Company’s operations in
NagaWorld. The decrease was also due to lower revenue from the
Philippines operations due to higher jackpot payouts and increasing
competition in the market. Excluding the aforementioned service
revenue adjustment, slot operations revenue for the 2013 fiscal
year decreased 8% compared to the prior year primarily as a result
of lower average net wins from NagaWorld due to the reasons stated
above and the week-long official mourning period for Cambodia’s
former king and the strike by NagaWorld workers, both of which
occurred in February 2013. The declines for both the fourth quarter
of 2013 and the 2013 fiscal year were partially offset by
incremental revenue from Dreamworld Poipet, which officially opened
in May 2013, and an improvement in average net wins from Thansur
Bokor.
Slot Operations Net Revenue to EGT (in millions)
Q4:13
Q4:12 Y/Y ∆ FY13
FY12 Y/Y ∆ Cambodia $3.4 $3.5
-3% $13.9 $14.7 -5% Philippines
$0.8 $1.0 -20% $3.3 $3.9 -15%
Service revenue(1) $0.9 - NA $0.9
- NA Consolidated(1) $5.1 $4.5
13% $18.1 $18.6 -2%
WUD(2)
Q4:13 Q4:12 Y/Y
∆ FY13 FY12 Y/Y ∆
Cambodia(3) $127 $189 -33% $144
$203 -29% Philippines $76 $83 -8%
$77 $75 3% Consolidated $110
$145 -24% $121 $145 -17%
EGM Seats
in Operation
12/31/13 12/31/12 Y/Y ∆
Cambodia 1,109
824 35% Philippines
563 581 -3% Consolidated
1,672 1,405
19%
(1) Consolidated slot operations revenue for
the 2013 periods include an accounting re-characterization of
service revenue related to the reimbursement of net shared costs
from casino operators. Given the related expenses have also been
grossed up, this adjustment has no impact on net income
results.
(2) Represents WUD for the Company’s slot
machine operations. It excludes EGM seats in operation during venue
soft launch opening periods and includes cash payments for venues
for which revenue is recognized on a cash basis. Had such
applicable seats been included and all revenue recognized on an
accrual basis for the above periods, it would not have had a
material impact on the WUD for these periods.
(3) The decline in Cambodia WUD is due, in
part, to the addition of approximately 300 EGM seats at Dreamworld
Poipet, which have lower average net wins. Dreamworld Poipet
officially opened in May 2013.
Casino operations comprised one property, Dreamworld Pailin,
which opened in May 2012. These operations contributed $305,000 to
total gaming revenue in the fourth quarter of 2013 compared to $1.3
million in the prior year period. The decline was due to lower
player traffic as the Company decreased the use of high-cost tour
group promoters during the third quarter of 2013 and operated under
a lower-cost leasing model for its table games during the fourth
quarter of 2013. Casino operations contributed $2.7 million to
total gaming revenue for the 2013 fiscal year compared to $1.8
million in the prior year due to a full year of operation in the
2013 fiscal year compared to approximately eight months in the 2012
fiscal year. Operating expenses for Dreamworld Pailin were $365,000
for the fourth quarter of 2013, down from $703,000 in the third
quarter of 2013 and from $1.2 million in the second quarter of 2013
due to cost reduction initiatives under the new operating model and
lower player traffic.
Revenue from gaming products was $729,000 in the fourth quarter
of 2013, a decrease of 77% compared to $3.2 million in the fourth
quarter of 2012. Revenue from gaming products was $3.4 million in
the 2013 fiscal year, a decrease of 47% compared to $6.5 million in
the 2012 fiscal year. The fourth quarter of 2013 and 2013 fiscal
year were comprised solely of reorders from existing customers
while the fourth quarter of 2012 and the 2012 fiscal year gaming
products revenue included large one-time orders of $1.9 million and
$3.5 million, respectively. Operating results during the 2013
fiscal year for the gaming products division were negatively
impacted by the plant relocation and set up, which resulted in
one-off start-up costs of approximately $300,000, production
inefficiencies due to certain machine and tooling issues and
further efforts to enhance production capacity and response time
for potential large future orders. As a result, the Company does
not believe that these results are representative of the potential
of these operations. The Company expects to achieve a normalized
cost structure for the gaming products business in the 2014 fiscal
year.
Entertainment Gaming Asia reported adjusted EBITDA of $704,000
in the fourth quarter of 2013 compared to $2.6 million in the prior
year period. Adjusted EBITDA was $6.2 million in the 2013 fiscal
year compared to $10.5 million in the 2012 fiscal year.
The Company reported a net loss from continuing operations of
$4.2 million, or $0.14 per share, on a weighted average diluted
share count of approximately 30.0 million shares in the fourth
quarter of 2013. The fourth quarter of 2013 net loss from
continuing operations included a $2.6 million non-cash impairment
charge associated with the write-down of building infrastructure
and certain gaming assets primarily related to the Dreamworld
Pailin operations. Excluding the non-cash impairment charge, the
net loss from continuing operations was $1.6 million, or $0.05 per
share, for the fourth quarter of 2013. This compares to net income
from continuing operations of $297,000 for the fourth quarter of
2012, or $0.01 per share, on a weighted average diluted share count
of approximately 31.0 million shares in the fourth quarter of 2012.
The fourth quarter of 2012 net income from continuing operations
included a $226,000 non-cash impairment charge associated with the
write-down of certain gaming machines and systems related to the
closure of under-performing slot venues during the year. Excluding
the non-cash impairment charge, net income from continuing
operations was $523,000, or $0.02 per share, for the fourth quarter
of 2012.
Entertainment Gaming Asia reported a net loss from continuing
operations of $5.2 million, or $0.17 per share, on a weighted
average diluted share count of approximately 30.0 million shares in
the 2013 fiscal year. Excluding the above-mentioned non-cash
impairment charge of $2.6 million, the net loss from continuing
operations was $2.6 million, or $0.09 per share, for the 2013
fiscal year. This compares to net income from continuing operations
of $1.5 million, or $0.05 per share, on a weighted average diluted
share count of approximately 30.8 million shares in the 2012 fiscal
year. The 2012 fiscal year net income from continuing operations
included $339,000 in non-cash impairment charges primarily
associated with the write-down of certain gaming machines and
systems, as discussed above. Excluding these non-cash impairment
charges, net income from continuing operations was $1.8 million, or
$0.06 per share, for the 2012 fiscal year.
The increases in net loss from continuing operations, excluding
non-cash impairment charges, were primarily the result of: lower
slot operations operating income; lower revenue, one-off factory
start-up costs and production inefficiencies for the gaming
products division; pre-operating costs for Dreamworld Poipet;
higher SG&A expenses primarily due to a one-time accrued tax
liability of approximately $480,000 related to the Philippines
operations; tax expenses compared to tax benefits resulting from
foreign entities in the prior year periods; and foreign currency
losses compared to gains in the prior year periods. The negative
differentials in foreign exchange of approximately $107,000 and
$606,000 for the fourth quarter of 2013 and the 2013 fiscal year
compared to the prior year respective periods were due to the
strengthening of the U.S. dollar compared to foreign currencies in
the markets in which the Company operates. The increases in net
loss from continuing operations were partially offset by a higher
gross margin for the Philippines slot operations due to an increase
in fully depreciated gaming assets and a decreased operating loss
for Dreamworld Pailin.
The Company reported a net loss of $4.2 million, or $0.14 per
share, for the fourth quarter of 2013. This included a net loss
from discontinued operations, net of tax, of $55,000 related to the
sale of the Company’s non-gaming products operations in March 2013.
This compared to net income of $268,000, or $0.01 per share, for
the fourth quarter of 2012, which included a net loss from
discontinued operations, net of tax, of $29,000. The Company
reported a net loss of $7.3 million, or $0.24 per share, for the
2013 fiscal year. This included a net loss from discontinued
operations, net of tax, of $2.1 million. 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 to non-gaming
equipment and inventory. This compared to net income of $1.8
million, or $0.06 per share, for the 2012 fiscal year, which
included net income from discontinued operations, net of tax, of
$263,000.
Clarence Chung, Chairman and Chief Executive Officer of
Entertainment Gaming Asia, commented, “The 2013 operating results
were not satisfactory but we remain steadfast in our efforts to
improve performance. We continue proactive marketing strategies at
NagaWorld to minimize the impact of political and labor tensions in
Phnom Penh. We are focused on continuing to ramp up performance at
Dreamworld Poipet, which made a meaningful contribution to revenue
for the 2013 fiscal year.
“For the gaming products division, we are optimistic about the
future potential. With efforts to improve efficiency and capacity,
we are preparing for anticipated large new orders. With the
potential for a major gaming chip and plaque order for a new casino
resort in the Philippines combined with our typical reorder flow,
the expected sales pipeline for 2014 is attractive.
“We are focused on building our resources and deepening our
established market presence and relationships in our markets to
capitalize on potential growth opportunities. We are exploring new
potential gaming projects located in more established gaming
markets that can add meaningful scale to our operations and drive
long-term growth for the Company.”
Entertainment Gaming Asia is hosting a conference call and
simultaneous webcast at 8:30 a.m. ET today, March 6, 2014, both of
which are open to the general public. The conference call number is
800/741-3792 or 212/231-2906. 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 Poipet gaming operations, 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 products
operations, and the expected benefits from the relocation of the
gaming products operations to Hong Kong. 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, identify and implement successful
marketing and promotional strategies at the Company’s casino and
gaming 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 products, adapt
to potential changes in gaming policies and political stability in
the countries in which the Company operates 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-Month Periods
Ended December 31,
Years Ended
December 31,
(amounts in thousands, except per share data) 2013
2012 2013 2012 Revenues: Gaming
operations, gross $ 5,365 $ 5,756 $ 20,870 $ 20,389 Less:
promotional allowances — — — — Gaming operations, net 5,365 5,756
20,870 20,389 Gaming products 729 3,225 3,424 6,454 Total revenues
6,094 8,981 24,294 26,843 Operating costs and expenses: Cost
of gaming operations Gaming equipment depreciation 1,032 1,219
4,612 4,736 Casino contract amortization 613 619 2,464 2,466 Other
gaming related intangibles amortization 63 63 252 252 Other
operating costs 1,837 1,678 6,509 4,203 Cost of gaming products
1,023 2,431 4,195 5,187 Selling, general and administrative
expenses 2,528 2,274 7,142 6,986 Stock-based compensation expenses
235 164 789 840 Loss/(gain) on dispositions of assets 88 (13) 88
(44) Impairment of assets 2,567 226 2,567 339 Product development
expenses 55 123 261 395 Depreciation and amortization 51 164 179
333 Total operating costs and expenses 10,092 8,948 29,058 25,693
(Loss)/income from continuing operations (3,998) 33 (4,764) 1,150
Other (expense)/income: Interest expense and finance fees
(2) — (7) (108) Interest income — 12 4 43 Foreign currency
(losses)/gains (66) 42 (295) 311 Other income/(expense) (3) 5 8 26
Total other (expense)/income (71) 59 (290) 272 (Loss)/income
from continuing operations before income tax expense (4,069) 92
(5,054) 1,422 Income tax (expense)/benefit (103) 205 (141)
81 Net (loss)/income from continuing operations (4,172) 297
(5,195) 1,503 Net (loss)/ income from discontinued operations, net
of tax (55) (29) (2,135) 263 Net (loss)/income $ (4,227) $
268 $ (7,330) $ 1,766 Basic and diluted earnings per share:
(Loss)/earnings from continuing operations $ (0.14) $ 0.01 $ (0.17)
$ 0.05 (Loss)/earnings from discontinued operations, net of tax
$
— $ —
$
(0.07) $ 0.01 (Loss)/earnings $ (0.14) $ 0.01 $ (0.24) $ 0.06
Weighted average common shares outstanding Basic 30,025
29,942 30,024 29,922 Diluted 30,025 31,023 30,024 30,807
Entertainment Gaming Asia Inc. Consolidated Balance
Sheets December 31, December
31, 2013 2012 (amounts in thousands, except
per share data) (Unaudited) ASSETS Current
assets: Cash and cash equivalents $ 5,301 $ 10,365 Accounts
receivable, net 922 1,841 Amounts due from related company 108 —
Other receivables 453 112 Inventories 1,663 2,047 Prepaid expenses
and other current assets 443 387 Total current assets 8,890 14,752
Gaming equipment, net 8,171 9,724 Casino contracts 5,429
7,982 Property and equipment, net 7,857 6,170 Goodwill 353 380
Intangible assets, net 899 1,253 Contract amendment fees 234 342
Deferred tax assets — 201 Prepaids, deposits and other assets 1,797
2,914 Total assets $ 33,630 $ 43,718
LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $
840 $ 3,636 Amounts due to a related party 19 — Accrued expenses
2,366 2,619 Customer deposits and other current liabilities 457 656
Total current liabilities 3,682 6,911 Other liabilities 742
1,078 Deferred tax liability 199 137 Total liabilities 4,623 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 33,156 32,224 Accumulated other comprehensive
income 742 929 (Accumulated losses)/retained earnings (4,922) 2,408
Total EGT stockholders’ equity 29,006 35,591 Non-controlling
interest 1 1 Total stockholders’ equity 29,007 35,592 Total
liabilities and stockholders’ equity $ 33,630 $ 43,718
Entertainment Gaming Asia Inc. Adjusted EBITDA from
Continuing Operations (Unaudited)
Three-Month Periods Years Ended Ended
December 31, December 31, (amounts in thousands)
2013 2012 2013 2012 Net
(loss)/income from continuing operations – GAAP $ (4,172) $ 297 $
(5,195) $ 1,503 Interest expense and finance fees 2 — 7 108
Interest income — (12) (4) (43) Income tax expense/(benefit) 103
(205) 141 (81) Depreciation and amortization 1,881 2,107 7,856
7,892 Stock-based compensation expenses 235 164 789 840 Impairment
of assets 2,567 226 2,567 339 Loss/(gain) on dispositions of assets
88 (13) 88 (44) EBITDA from continuing operations, as adjusted
$
704
$
2,564
$
6,249
$
10,514
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.
Entertainment Gaming Asia Inc.Traci Mangini,
312-867-0848tracimangini@EGT-Group.com
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