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Entertainment Gaming Asia Inc. Reports Fourth Quarter And 2016 Fiscal Year Results

Apr 10, 2017

HONG KONG, April 10, 2017 /PRNewswire/ -- Entertainment Gaming Asia Inc. (NASDAQ: EGT) ("Entertainment Gaming Asia" or "the Company"), a gaming company focused on markets in Pan-Asia, today reported operating results for the fourth quarter and fiscal year ended December 31, 2016 and reviewed recent corporate developments. 

Key Financial Metrics

  • Consolidated revenue from continuing operations of $357,000 for the fourth quarter and $2.0 million for the 2016 fiscal year
  • Net losses from continuing operations of $2.4 million for the fourth quarter and $5.3 million for the 2016 fiscal year
  • Cash balance of $33.6 million and zero debt as of December 31, 2016

In the 2016 fiscal year, the Company sold the principal assets related to the gaming products operations and all the gaming assets in Cambodia and exited both these businesses. As a result, all revenue and expenses associated with the gaming products operations and Cambodia gaming operations have been reclassified as discontinued operations for the periods presented.

Financial Performance

The Company's fourth quarter and 2016 fiscal year consolidated revenue from continuing operations comprised the Philippines gaming operations.

Consolidated revenue was $357,000 for the fourth quarter of 2016, a decrease of 47% compared to $676,000 in the fourth quarter of 2015. Consolidated revenue was $2.0 million for the 2016 fiscal year, a decrease of 26% compared to $2.6 million in the prior year. The decreases were due to a reduced operating base of electronic gaming machines (EGMs) as a result of the expiration of the EGM leasing agreement with Leisure World VIP Slot Club on June 30, 2016 and lower average daily net win per unit due to increased competition.

Selling, general and administrative (SG&A) and research and development (R&D) expenses totaled $2.3 million for the fourth quarter of 2016 compared to $1.4 million in the prior year period.  SG&A and R&D expenses totaled $5.6 million for the 2016 fiscal year compared to $4.4 million in the prior year. The increases primarily related to the ramping up of the social gaming operations, which comprised $1.0 million and $2.0 million of the total combined SG&A and R&D expenses for the fourth quarter and 2016 fiscal year, respectively.

In accordance with relevant accounting standards for software development, the Company capitalizes certain software development costs for the social gaming products. Therefore, SG&A and R&D expenses are not indicative of total costs related to social gaming. Total combined cash operating expenses and capitalized costs related to the social gaming operations were $1.1 million for the fourth quarter of 2016, $3.8 million in the 2016 fiscal year and $410,000 in the 2015 fiscal year. The rising costs are primarily due to salaries as a result of the increasing headcount and higher marketing and technology expenses since the test launch of the social gaming app, City of Games, in August 2016.

The Company reported adjusted LBITDA from continuing operations of $2.2 million in the fourth quarter of 2016 compared to $978,000 in the fourth quarter of 2015. Adjusted LBITDA from continuing operations was $4.4 million in the 2016 fiscal year compared to $2.5 million in the 2015 fiscal year.

Net loss from continuing operations was $2.4 million, or $0.17 per share, for the fourth quarter of 2016 compared to a loss of $1.3 million, or $0.09 per share, for the fourth quarter of 2015. The Company reported a net loss from continuing operations of $5.3 million, or $0.37 per share, for the 2016 fiscal year compared to a loss of $3.9 million, or $0.27 per share, for the 2015 fiscal year. The weighted average diluted share count was 14.5 million shares for all periods. The increases in net losses from continuing operations were primarily due to lower gaming operations revenue, higher operating expenses (mainly related to the social gaming operations) and higher taxes due to an income tax provision and movement in the deferred tax assets for the Philippines operations. This was partially offset by lower depreciation and amortization expenses related to the gaming operations. For the 2016 fiscal year, the increase in net loss was also partially offset by a $369,000 gain on the July 2016 disposition of 154 EGM seats that were placed in Leisure World VIP Slot Club in the Philippines.

The Company reported a net loss of $6.7 million for the fourth quarter of 2016 compared to a loss of $2.7 million for the fourth quarter of 2015. The fourth quarter of 2016 net loss included a net loss of $4.3 million from the discontinued Cambodia gaming operations. The fourth quarter of 2015 net loss included a net loss of $1.3 million from the discontinued gaming products and Cambodia gaming operations.

The Company reported a net loss of $9.7 million for the 2016 fiscal year compared to income of $820,000 for 2015 fiscal year. The 2016 fiscal year net loss included a net loss of $4.4 million from the discontinued gaming products and Cambodia gaming operations. The 2015 fiscal year net income included net income of $4.8 million from the same discontinued operations.

Clarence Chung, Chairman and Chief Executive Officer of Entertainment Gaming Asia, commented, "During 2016, we disposed of all of our gaming assets in Cambodia, certain gaming assets in the Philippines and the principal assets of the gaming products business. These sales have provided cash proceeds of $10.3 million and the potential for earn-outs on certain gaming chip and plaque sales related to the now discontinued gaming products business. To date, we have received $8.1 million of the sales proceeds and no earn-outs on gaming chip and plaque sales.

"Our reduced base of operations coupled with the expenses related to the social gaming operations, which remain in the testing phase, and corporate overhead, presently have a negative impact on our cash flow. We currently have approximately $32 million in cash and are exploring avenues to apply these resources in ways to enhance value for our shareholders."

About Entertainment Gaming Asia Inc.

Entertainment Gaming Asia Inc. (NASDAQ: EGT), an indirect, majority-owned subsidiary of Melco International Development Limited, is a gaming company engaged in the leasing of electronic gaming machines to the gaming industry in the Philippines.  The Company is also developing a free-to-play online social gaming platform focused on Asian markets.  

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 ability to develop and successfully launch a social gaming platform and fund this initiative; expectations for the viability of the social gaming platform and its revenue model; and the Company's expectations for deploying its resources to improve enhance shareholder value. 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 identify and successfully develop new projects; acquire additional capital as and when needed; adapt to potential changes in gaming policies and political stability in the countries in which the Company operates; the ability to successfully commercialize its social gaming platform and operate in the social gaming market; and, those other risks set forth in the Company's annual report on Form 10-K for the year ended December 31, 2015 filed with the SEC on March 30, 2016 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 (Loss)/Income









Three-Month Period

Ended December 31,



Year Ended

December 31,

(amounts in thousands, except per share data)


Unaudited
2016



Unaudited
2015



2016



 

2015

Revenue:












   Gaming operations


350



676



1,951



2,641

   Social gaming


7





8



Total revenue


357



676



1,959



2,641













Operating costs and expenses:












   Cost of gaming operations












           Gaming property and equipment 

           depreciation


69



113



351



452

           Casino contract amortization




94



187



387

           Other gaming related intangibles amortization




63



96



252

           Other operating costs


177



182



762



696

Cost of social gaming


120





197



Selling, general and administrative expenses


1,998



1,175



4,710



4,098

Gain on disposition of assets






(369)



Research and development expenses


340



263



887



271

Depreciation and amortization


22



24



88



94

Total operating costs and expenses


2,726



1,914



6,909



6,250













Loss from operations


(2,369)



(1,238)



(4,950)



(3,609)













Other (expenses)/income:












Interest expense and finance fees








(3)

Interest income


22



3



29



13

Foreign currency losses


(47)



(53)



(86)



(147)

Other


5



4



20



15

Total other expenses


(20)



(46)



(37)



(122)













Loss from continuing operations before income tax


(2,389)



(1,284)



(4,987)



(3,731)













Income tax expenses


43



51



357



217













Net loss from continuing operations


(2,432)



(1,335)



(5,344)



(3,948)

Net (loss)/income from discontinued operations, net of tax


(4,317)



(1,323)



(4,391)



4,768













Net (loss)/income attributable to EGT stockholders

$

(6,749)


$

(2,658)


$

(9,735)


$

820













Other comprehensive (loss)/income:












   Defined benefit pension plan


(5)



3



(5)



3

   Foreign currency translation


(61)



32



(119)



(47)

Total other comprehensive (loss)/income, net of tax


(66)



35



(124)



(44)













Comprehensive (loss)/income attributable to EGT stockholders

$

(6,815)



(2,623)


$

(9,859)


$

776













Per share data (basic and diluted):












   (Loss)/earnings

$

(0.47)


$

(0.18)


$

(0.67)


$

0.06

   Loss from continuing operations

$

(0.17)


$

(0.09)


$

(0.37)


$

(0.27)

   (Loss)/earnings from discontinued operations, net of tax

$

(0.30)


$

(0.09)


$

(0.30)


$

0.33













    Weighted basic and diluted average    common shares outstanding


14,464



14,460



14,464



14,457















 

Entertainment Gaming Asia Inc.
Consolidated Balance Sheets








December 31,

  2016


December 31,
2015

(amounts in thousands, except per share data)





ASSETS





Current assets:





Cash and cash equivalents

$

33,599

$

30,681

Accounts receivable, net


128


724

Amounts due from related parties


-


257

Other receivables


1,051


78

Inventories


21


2,378

Prepaid expenses and other current assets


235


295

Contract amendment fees


-


18

Total current assets


35,034


34,431






Gaming equipment, net


389


2,985

Casino contracts


-


528

Property and equipment, net


915


5,919

Goodwill


315


332

Intangible assets, net


1,512


391

Deferred tax asset


59


274

Prepaids, deposits and other assets


1,204


425

Total assets

$

39,428


45,285






LIABILITIES AND STOCKHOLDERS' EQUITY





Current liabilities:





Accounts payable

$

79

$

288

Amounts due to related parties


160


239

Accrued expenses


1,118


1,755

Income tax payable


161


2

Deferred revenues, current portion


2


9

Customer deposits and other current liabilities


54


529

Total current liabilities


1,574


2,822






Other liabilities


441


880

Deferred tax liabilities


5,654


29

Total liabilities


7,669


3,731






Stockholders' equity:





Common stock, $.001 par value, 250,000,000 (2015: 38,000,000) shares authorized;14,464,220 shares issued and outstanding


14


14

Additional paid-in-capital


47,827


47,763

Accumulated other comprehensive income


585


709

Accumulated losses


(16,668)


(6,933)

Total EGT stockholders' equity


31,758


41,553

Non-controlling interest


1


1

Total stockholders' equity


31,759


41,554

Total liabilities and stockholders' equity

$

39,428

$

45,285

 

Entertainment Gaming Asia Inc.
Adjusted LBITDA from Continuing Operations
(Unaudited)








Three-Month Period
Ended December 31,




Year Ended
December 31,













(amounts in thousands)


2016



2015



2016



2015

Net loss from continuing operations – GAAP basis

$

(2,432)


$

(1,335)


$

(5,344)


$

(3,948)

Interest expense and finance fees








3

Interest income


(22)



(3)



(29)



(13)

Income tax expenses


43



51



357



217

Depreciation and amortization


188



293



883



1,184

Stock-based compensation expenses


3



16



64



83

Gain on disposition of assets






(369)



Adjusted LBITDA from continuing operations

$

(2,220)


$

(978)


$

(4,438)


$

(2,474)















 

Adjusted LBITDA is losses before interest, taxes, depreciation, amortization, stock-based compensation, gain on disposition of assets and other non-cash operating income and expenses. Adjusted LBITDA 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 LBITDA 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 LBITDA 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 LBITDA as a supplement to financial measures in accordance with generally accepted accounting principles in the United States ("GAAP"). Adjusted LBITDA 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 LBITDA 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 LBITDA 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, taxes and other non-recurring charges, which are not reflected in Adjusted LBITDA. Entertainment Gaming Asia's calculation of Adjusted LBITDA may be different from the calculation methods used by other companies and, therefore, comparability may be limited.

 

SOURCE Entertainment Gaming Asia Inc.

For further information: Entertainment Gaming Asia Inc., Traci Mangini, tracimangini@EGT-Group.com, 872/802-4227

 
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