Asia Entertainment & Resources Ltd. Announces Third Quarter and Nine Month 2012 Financial Results

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Asia Entertainment & Resources Ltd. Announces Third Quarter and Nine Month 2012 Financial Results

HONG KONG--(BUSINESS WIRE)-- Asia Entertainment & Resources Ltd. ("AERL" or the "Company") (NASDAQ: AERL), which operates through its subsidiaries and related promoter companies as VIP room gaming promoters, today announced unaudited financial results for the third quarter and nine-month periods ended September 30, 2012. All currency amounts are stated in United States dollars.

Third Quarter 2012 Highlights

  • On September 12, 2012, the Company completed the acquisition of Bao Li Gaming Promotion Limited ("Bao Li"), a Macau-based VIP room gaming promoter that operates one room with five tables at City of Dreams Macau. As a result of the acquisition closing on September 12, and in accordance with the terms of the purchase agreement, AERL obtained the right to all of the profit interest of Bao Li dating back to September 1.
  • Rolling Chip Turnover for the three months ended September 30, 2012 in the Company's VIP gaming rooms was $4.0 billion, down 32% year-over-year, compared to $6.0 billion in the same period of 2011.
  • Net income, which includes a gain of $9.4 million for the change in fair value of contingent consideration related to the acquisition of King's Gaming and Bao Li, declined 16% to $22.6 million, or $0.53 per share (fully diluted), in the three months ended September 30, 2012, from $26.9 million, or $0.68 per share (fully diluted). in the same period of 2011.
  • Non-GAAP income before amortization of intangible assets and the change in fair value of contingent consideration related to the acquisition of King's Gaming and Bao Li was $14.9 million, or $0.35 per share (fully diluted), in the three months ended September 30, 2012, a 34% decrease as compared to $22.5 million, or $0.57 per share (fully diluted), for the three months ended September 30, 2011.
  • In the third quarter 2012, the Company repurchased and retired 262,347 shares at an average price of $3.67 per share. The share repurchase program, which expires June 30, 2013, authorizes the Company to further purchase up to an additional 1,737,653 of its ordinary shares on the open market at prices to be determined by the Company's management.
  • On August 31, 2012, the Company paid its 2012 Six Month Dividend of $0.12 per outstanding ordinary share.
  • Beginning September 1, 2012, the Company changed its remuneration model to a revenue sharing model for all of its VIP rooms.

"Despite the lower year-over-year results we believe we managed our business appropriately to reduce exposure to undue risk that can impair longer-term growth," said Mr. Man Pou Lam (Mr. Lam), Chairman of AERL. "The tightening of credit to junket agents had a near-term impact on our overall performance that we expect will reverse over the mid-to-longer term. To that end, in the quarter, we shifted our remuneration model away from a fixed commission structure to a share of win/loss revenue model, which should allow us to grow our Rolling Chip Turnover and hopefully help to reduce volatility as our base of business broadens. We also implemented a new program for large VIP agents who do not require credit from AERL to participate in our revenue sharing model and thus incentivize them to partner with AERL. We remain committed to growing our business presence in the Macau VIP gaming market and create value for our shareholders."

Nine Month 2012 Highlights

  • Rolling Chip Turnover for the nine months ended September 30, 2012 in the Company's VIP gaming rooms was $14.1 billion, down 2% year-over-year, compared to $14.4 billion in the same period of 2011.
  • Net income, which includes a gain of $15.2 million for the change in fair value of contingent consideration related to the acquisition of King's Gaming and Bao Li, declined 1% to $60.0 million, or $1.41 per share (fully diluted), in the nine months ended September 30, 2012 from $60.9 million, or $1.61 per share (fully diluted), in the same period of 2011.
  • Non-GAAP income before amortization of intangible assets and the change in fair value of contingent consideration related to the acquisition of King's Gaming and Bao Li was $49.0 million, or $1.15 per share (fully diluted), for the nine months ended September 30, 2012, a 13% decrease as compared to Non-GAAP income of $56.3 million, or $1.49 per share (fully diluted), for the nine months ended September 30, 2011.

Outlook for 2012

For the first nine months of 2012, AERL's monthly average Rolling Chip Turnover was $1.6 billion. The Company's Rolling Chip Turnover year-to-date through October 31, 2012 in Macau was $15.6 billion, a decrease of 5% year-over-year, compared to $16.5 billion for the first ten months of 2011.

"Given the volatility of our results and the broader macroeconomic trends over the last few months, we are suspending our guidance on Rolling Chip Turnover for the year but we are maintaining our previous Non-GAAP income guidance of $68 million to $80 million for the full year," concluded Chairman Lam.

Conference Call and Replay Information

AERL will conduct a conference call to discuss the financial results today at 10:00AM EST/11:00PM Macau. To participate, please dial one of the following numbers at least 10 minutes prior to the scheduled start of the call:

1-888-389-5988 (United States/Canada)
10-800-714-0940 (North China)
10-800-140-0915 (South China)
800-968-149 (Hong Kong)
800-101-1739 (Singapore)
0800-404-7655 (United Kingdom)
1-719-457-2083 (Other International)

Interested parties may also access the live call on the Internet at www.aerlf.com (select Events and Presentations). Following its completion, a replay of the call can be accessed on the Internet at the above link or for one week by calling either 1-877-870-5176 (U.S. callers) or 1-858-384-5517 (International callers) and providing conference ID 9724053.

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 bets players make. 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. 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 so that they may receive their commissions (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 (Macau Gaming Control Board) to distinguish between VIP table revenue and mass market table revenue.

About Asia Entertainment & Resources Ltd.

AERL is a holding company which operates through its subsidiaries and related promoter companies as a VIP room gaming promoter, and is entitled to receive all of the profits of the VIP gaming promoters from VIP gaming rooms. AERL's VIP room gaming promoters currently participate in the promotion of four 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 Star World 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 Venetian Macao-Resort-Hotel and City of Dreams Macau, both in Cotai.

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 AERL'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 AERL's VIP room gaming promoters' 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 AERL's VIP room gaming promoters' 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 AERL's Annual Report on Form 20-F filed on March 16, 2012, and other reports filed or to be filed from time-to-time with the Securities and Exchange Commission.

 
ASIA ENTERTAINMENT & RESOURCES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
    
For theFor theFor theFor the
Three Months EndedThree Months EndedNine Months EndedNine Months Ended
September 30, 2012September 30, 2011September 30, 2012September 30, 2011
Revenue from VIP Gaming Operations$54,028,116$74,413,996$179,877,294$180,870,093
 
Expenses
- Commission to Agents34,535,62147,198,390116,158,974111,481,366
- Selling, General and Administrative Expenses4,142,3974,100,58913,353,68411,640,203
- Special Rolling Tax403,110595,2241,409,7721,435,767
- Amortization of Intangible Assets 1,655,700 1,263,069 4,192,535 3,792,795
Total Expenses 40,736,828 53,157,272 135,114,965 128,350,131
 
Operating income before change in fair value of contingent consideration13,291,28821,256,72444,762,32952,519,962
Change in Fair Value of Contingent Consideration for the Acquisition of King's Gaming and Bao Li 9,352,152 5,606,357 15,246,583 8,377,040
Net Income 22,643,440 26,863,081 60,008,912 60,897,002
 
Comprehensive Income
Foreign Currency
- Translation Adjustment 66,291 (153,735) 574,186 (256,495)
Total Comprehensive Income$22,709,731$26,709,346$60,583,098$60,640,507
 
Net Income Per Share
Basic$0.53$0.69$1.41$1.63
Diluted$0.53$0.68$1.41$1.61
Weighted Average Shares Outstanding
Basic 42,386,032 38,824,025 42,442,746 37,436,113
Diluted 42,386,032 39,229,556 42,442,746 37,910,394
 
 
ASIA ENTERTAINMENT & RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS
  
September 30, 2012December 31, 2011
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents$27,343,699$16,718,565
Accounts Receivable, Net12,768,2601,240,142
Markers Receivable237,749,378240,131,089
Prepaid Expenses and Other Assets 363,000 292,559
Total Current Assets278,224,337258,382,355
 
Intangible Assets (net of accumulated amortization of $10,117,927 and $5,902,419 at September 30, 2012 and December 31, 2011, respectively)96,837,87654,983,937
Goodwill17,030,07114,992,009
Property and Equipment (net of accumulated depreciation of $11,046 and $1,101 at September 30, 2012 and December 31, 2011, respectively)17,00626,855
Other Assets 21,582 22,158
TOTAL ASSETS$392,130,872$328,407,314
 
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Lines of Credit Payable$54,812,330$46,270,563
Accrued Expenses11,822,42616,157,439
Payable-King's Gaming Acquisition-Contingent Purchase Price Obligation9,000,00012,057,600
Loan Payable, Shareholders, current 6,234,512 2,641,619
Total Current Liabilities81,869,26877,127,221
 
Loan Payable, Shareholders60,000,00060,000,000
Bao Li Gaming Acquisition-Contingent Purchase Price Obligation32,196,364-
King's Gaming Acquisition-Contingent Purchase Price Obligation, net of current portion 9,000,000 32,492,985
Total Liabilities 183,065,632 169,620,206
 
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 200,000,000 shares; issued and outstanding 42,188,817 at September 30, 2012 and 38,804,064 at December 31, 20114,2193,881
Additional Paid-in Capital72,875,07352,581,098
Retained Earnings135,717,930106,308,297
Accumulated Comprehensive Income (Loss) 468,018 (106,168)
Total Shareholders' Equity 209,065,240 158,787,108
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$392,130,872$328,407,314
 
 

Cash Flow Information

For the Nine Months Ended September 30,

(Unaudited)

   
 2012 2011
Net cash provided by (used in) operating activities$45,067,313$(1,697,501)
Net cash (used in) investing activities(15,146,032)-
Net cash (used in) financing activities (19,333,497) (864,367)
Net increase (decrease) in cash and cash equivalents$10,587,784 $(2,561,868)

 

  • Condensed from financial statements
 

Non-GAAP Financial Measure

Our calculation of non-GAAP income (operating income before amortization of intangible assets and change in fair value of contingent consideration) and Non-GAAP earnings per share ("EPS") for the three and nine months ended September 30, 2012 and 2011, differs from EPS based on net income because it does not include amortization of intangible assets and change in fair value of contingent consideration. We use this information internally in evaluating our operations and believe this information is important to investors because it provides a more complete picture of our operations for the entire period and is more accurately comparable to the prior-year period. Notwithstanding the foregoing, however, 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 our unaudited net income to Non-GAAP income and GAAP EPS to our Non-GAAP EPS:

  
For theFor the
ThreeThree
MonthsMonths
Ended SeptemberEnded September
30, 201230, 2011
Net Income attributable to ordinary shareholders$22,643,440$26,863,081
 
Amortization of intangible assets1,655,7001,263,069
 
Change in fair value of contingent consideration (9,352,152) (5,606,357)
 
Non-GAAP income (before amortization of intangible assets and change in fair value of contingent consideration)$14,946,988$22,519,793
 
  
For the Three Months EndedFor the Three Months Ended
September 30, 2012September 30, 2011
 Fully Fully
BasicDilutedBasicDiluted
 
Earnings per share attributable to ordinary shareholders$0.53$0.53$0.69$0.68
 
Amortization of intangible assets0.040.040.030.03
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