Asia Entertainment & Resources Ltd. (AERL) (NASDAQ:
AERL, AERLW), which operates through its subsidiaries
and related promoter companies as a VIP room gaming promoter, today
announced unaudited and not reviewed financial results for the
quarter and nine months ended September 30, 2010. All currency
amounts are stated in United States dollars.
Financial Highlights for the Three and Nine Months Ended
September 30, 2010
- Rolling Chip Turnover (a metric used by
casinos to measure the aggregate amount of players’ bets and
overall volume of VIP gaming room business transacted that is
defined below) for the three and nine months ended September 30,
2010 in our two VIP gaming rooms in Macau was $2.4 billion and
$6.7 billion, respectively, up 49% and 105% year-over-year,
compared to $1.6 billion and $3.3 billion in the same periods of
2009.
- Revenue for the three and nine months
ended September 30, 2010 was $28.5 million and $83.9 million,
respectively, up 105% and 114% from $13.9 million and
$39.2 million in the same periods of 2009.
- Net Income (including pre-acquisition
profit) grew 1,847% to $7.3 million and 172% to $26.7 million,
respectively, in the three and nine months ended September 30,
2010 from $0.4 million and $9.8 million in the same periods of
2009, due primarily to the shift toward a more
commission-based business and the overall low win rate during the
quarter ended September 30, 2009.
- Non-GAAP earnings per share (EPS)
derived from net income (including pre-acquisition profit) for
the nine months ended September 30, 2010 was $2.15, based
on a basic weighted average share count of 12,378,633, and $1.24
based on a fully diluted weighted average share count of
21,523,430.
- GAAP EPS for the three and nine months
ended September 30, 2010 (based on net income after deduction of
$4.3 million pre-acquisition profit) was $0.57 and $1.80,
respectively, based upon the basic weighted average share counts of
12,810,908 and 12,378,633, respectively, and $0.40 and $1.04,
respectively, based upon fully diluted weighted average share
counts of 18,345,903 and 21,523,430, respectively.
- Total available cage capital at the end
of the third quarter was approximately $90.7 million, up 23.7% from
$73.3 million at the end of the second quarter of 2010.
AERL Chairman Lam stated, “The third quarter of 2010 was our
second consecutive quarter of triple-digit revenue growth,
primarily due to our ability to increase the Rolling Chip Turnover
for our two VIP gaming rooms in Macau. For the nine months ended
September 30, 2010, AERL generated 114% year-over-year revenue
growth, exceeding the overall growth in Macau of 60% according to
the DICJ, while our income including pre-acquisition profit
increased 172% from the same period last year. In addition, for the
first nine months of 2010, there was approximately $6.7 billion in
Rolling Chip Turnover, representing 105% year-over-year growth. We
believe the absolute growth of Rolling Chip Turnover will
continue through the remainder of the year; however, monthly
year-over-year improvement for the last three months of 2010 could
be moderated when measured against the highly successful months
during the last quarter of 2009.”
Mr. Lam further stated, "Compared to the previous two quarters,
the overall performance of this quarter was below expectations
mainly due to the low win rate at the Iao Kun VIP Room at the MGM
Grand Hotel and Casino – which was 1.94% for the three months ended
September 30, 2010 – and the higher than average commission paid to
non-marker agents in July. Assuming the Iao Kun VIP room at the MGM
Hotel and Casino had a normal win rate of 2.90%, which is
equivalent to the fixed commission of 1.25%, and the commission
paid to agents on Rolling Chips Turnover remained at the average
rate of 0.74% (year–to-date is 0.74%), earnings for the third
quarter 2010 would have increased by approximately $2.1 million
which would have resulted in total earnings of approximately $9.3
million for the quarter."
Subsequent Event
On October 12, the Company announced it had entered into a
non-binding Memorandum of Understanding to acquire another VIP
gaming promoter, which operates in the Venetian Resort on the Cotai
Strip and earns revenues based upon the fixed commission rate of
1.25%. Currently, the Company's VIP gaming rooms are located in
Downtown Macau. The Company believes that this acquisition will
offer an alternative for its current patrons and be accretive to
both gross revenues and net earnings. As a result of this
acquisition, the Company believes that approximately 90% of its
revenues will be generated under the 1.25% fixed commission, which
would further reduce monthly earnings volatility.
The financial figures included in this announcement cover AERL’s
financial results for the entire nine months ended September 30,
2010, including results for the period through February 2, 2010,
the date on which it acquired all of the stock of Asia Gaming &
Resort Limited (“AGRL”) unless otherwise noted. Prior to the
acquisition, the owners of the promoter companies were entitled to
all of the net earnings from the operation of the VIP gaming rooms.
As a result of the acquisition, AERL became entitled to all of such
earnings. During the nine months ended September 30, 2010, net
income of $4.3 million was attributable to the pre-acquisition
period ended February 2, 2010.
The assets, liabilities and the historical operations that are
reflected in the financial statements are those of AGRL and
the promoter companies and are recorded at the historical cost
basis of AGRL and the promoter companies. AERL’s assets,
liabilities and results of operations are consolidated with the
assets, liabilities and results of operations of AGRL subsequent to
the acquisition.
Third Quarter 2010 Compared to Third Quarter 2009
The following table sets forth certain information regarding
AERL’s results for the third quarter of 2010 and the third quarter
of 2009 (all figures are in thousands, except ratios and
percentages):
3Q2009
3Q 2010 3Q 2010 to
3Q 2009
Rolling Chip Turnover $ 1,611,467 $ 2,394,052 49 % Revenue
from VIP gaming operations $ 13,926 $ 28,533 105 % Commission to
agents $ 11,982 $ 18,492 54 % Selling, general and administrative
expenses $ 1,408 $ 2,521 79 % Income including pre-acquisition
profit $ 374 $ 7,281 1,847 % Revenue from VIP gaming
operations/Rolling Chip Turnover 0.86 % 1.19 % Commission to
agents/Rolling Chip Turnover 0.74 % 0.77 % Selling, general and
administrative expenses/Rolling Chip Turnover 0.09 % 0.11 % Income
(including pre-acquisition profit)/Revenue from VIP gaming
operations 2.68 % 25.52 % Income (including pre-acquisition
profit)/Rolling Chip Turnover 0.02 % 0.30 %
The 49% increase in Rolling Chip Turnover was primarily due to
the overall growth of the Macau gaming markets and the reinvestment
of accumulated earnings as additional working capital at the cage,
which has enabled AERL to increase the availability of Rolling
Chips and accommodate additional patrons.
Revenue for the third quarter of 2010 was $28.5 million, a 105%
increase from $13.9 million in the same period of 2009. Third
quarter of 2010 net revenue as a percent of Rolling Chip Turnover
was 1.19%, increasing from 0.86% in the third quarter of 2009, and
up from 1.16% for the full year of 2009 due primarily to the mix
shift toward a more commission-based business and the overall
low win rate during the quarter ended September 30, 2009. Gross win
rates at the Iao Kun VIP room in the MGM Hotel and Casino for the
three-month periods ended September 30, 2010 and 2009 were 1.94%
and 1.74%, respectively, versus the historical average win rate of
2.90%.
AERL’s primary expense is commissions to agents, which was $18.5
million in the third quarter of 2010, up 54% from $12.0 million in
the third quarter of 2009. The commissions to agents, as a
percentage of Rolling Chip Turnover, was 0.77% in the third quarter
of 2010, up from 0.74% in the third quarter of 2009 and 0.75% for
the full year 2009 as a result of a higher percentage of
commissions paid to non-marker agents in July. Selling, general and
administrative expense, as a percentage of Rolling Chip Turnover,
was 0.11% in the third quarter of 2010, an increase from 0.09% in
the third quarter of 2009 as a result of additional operating
costs.
Net income (including pre-acquisition profit) grew 1,847% to
$7.3 million in the third quarter of 2010 from $0.4 million in the
same period of 2009 due primarily to the mix shift toward a
more commission-based business and the overall low win rate during
the quarter ended September 30, 2009.
Net income (including pre-acquisition profit) margin as a
percentage of total revenue was 25.5% in the third quarter of 2010,
up from 2.7% in third quarter of 2009 and down slightly from 25.7%
for the full year 2009. Net income (including pre-acquisition
profit) margin as a percentage of Rolling Chip Turnover was 0.30%
for the third quarter of 2010, up from 0.02% in third quarter of
2009, and comparable with the full year 2009 due primarily to the
mix shift toward a more commission-based business and the
overall low win rate during the quarter ended September 30,
2009.
EPS for the third quarter of 2010 was $0.57 based on a basic
weighted average share count of 12,810,908, and $0.40 based on a
fully diluted weighted average share count of 18,345,903. The fully
diluted share count includes 4,210,000 shares that will be issued
upon the filing by AERL of its Annual Report on Form 20-F for the
fiscal year ending December 31, 2010. It also includes ordinary
share equivalents for the issuance of a total of 10,643,145 shares
upon the exercise of the outstanding public warrants, 3,608,000
warrants held by insiders and former insiders that were privately
issued at the time of its initial public offering, 1,440,000 shares
and warrants issuable upon the exercise of a unit purchase option
granted to the representative of the underwriters of its initial
public offering and shares issuable upon exercise of the warrants
included in such option. If all of such securities are exercised
for cash, AERL could receive additional capital of $81,208,000. To
the extent that such securities are exercised on a cashless basis,
the amount of cash received by AERL and the number of ordinary
shares AERL would be required to issue could both be reduced and
the pro forma earnings per share on a fully diluted basis may be
increased.
Nine Months Ended September 30, 2010 Compared to Nine Months
Ended September 30, 2009
Revenue for the nine months ended September 30, 2010 was $83.9
million, a 114% increase from $39.2 million in the same period of
2009, mainly due to the increase in Rolling Chips Turnover. Net
revenue as a percent of Rolling Chip Turnover was 1.25%, up from
1.19% in the nine months ended September 30, 2009, and up from
1.16% for the full year of 2009 due primarily to the mix shift
toward more commission-based business and the overall low win rate
of 2.49% during the nine months ended September 30, 2009. The
actual win rate for the full year 2009 was 2.38%.
Commissions to agents were $49.5 million for the nine months
ended September 30, 2010, up 94% from $25.5 million in the
prior-year period. The commissions to agents, as a percentage of
Rolling Chip Turnover, was 0.74% in the nine months ended September
30, 2010, down from 0.78% in the prior-year period and 0.75% for
the full year 2009 as a result of Macau government policy to cap
the commission that the casinos offer to the promoters. Selling,
general and administrative expense, as a percentage of Rolling Chip
Turnover, was 0.10% in the nine months ended September 30, 2010, a
slight decrease from 0.11% in the prior-year period as a result
of increased economies of scale.
Net income (including pre-acquisition profit) grew 172% to $26.7
million in the nine months ended September 30, 2010 from
$9.8 million in the same period of 2009, including $4.3
million attributable to the owners of the VIP room gaming promoters
for the period of January 1, 2010 to February 2, 2010, due
primarily to the mix shift toward more commission-based business,
the overall low win rate of 2.49% during the nine months ended
September 30, 2009 and the high commission rate to agents of 0.78%
during the nine months ended September 30, 2009.
Net income (including pre-acquisition profit) margin as a
percentage of total revenue was 31.8%, increasing from
25.1% in the nine months ended September 30, 2009 and up from
25.7% for the full year 2009. Net income (including pre-acquisition
profit) margin as a percentage of Rolling Chip Turnover
was 0.40% for the nine months ended September 30, 2010, an
increase from 0.30% in the nine months ended September 30, 2009 and
the full year 2009, respectively. The net income margin increased
mainly due to the transition to a more fixed commission business
and the overall low win rate during the nine months ended September
30, 2009.
Non-GAAP EPS derived from net income (including pre-acquisition
profit) for the nine months ended September 30, 2010 was $2.15
based on a basic weighted average share count of 12,378,633 and
$1.24 based on a fully diluted weighted average share count of
21,523,430. For the nine months ended September 30, 2010, on GAAP
net income of $22.3 million (excluding $4.3 million pre-acquisition
profit), AERL had basic EPS of $1.80 and fully diluted EPS of
$1.04.
Cash Flow and Balance Sheet Highlights
As of September 30, 2010, AERL had a total cash balance of $26.0
million. Cash used in operations as a result of the implementation
by the Promoter Companies to fund the marker system with agents was
$32.7 million for the nine months ended September 30, 2010. Prior
to the acquisition, the Promoter Companies did not extend credit to
junket agents. Previously, the operations of the cage, which is
where cash, non-negotiable and cash chips transactions and
extension of credit occur, were owned by the individual owners of
the Promoter Companies. Subsequent to the acquisition of AGRL by
AERL, the operations and extension of credit by the cage became
controlled by the Group through the Promoter Companies. Cash used
for markers was $67.0 million during the period ended September 30,
2010.
As of September 30, 2010, total available cage capital was
approximately $90.7 million. The total available cage capital is
comprised of markers receivable of $67.0 million and cash, cash
chips and non-negotiable chips of $23.7 million. AERL’s related
parties have increased financing from $48.9 million as of June 30,
2010 to $58.0 million for the quarter ended September 30, 2010, an
increase of $9.1 million, which was in preparation for the National
Day Golden Week holidays and further demonstrates the continuing
commitment from the principals to the success of the
operations.
Outlook for 2010
For the first nine months of 2010, AERL’s Rolling Chip Turnover
averaged $748 million per month. The Company’s Rolling Chip
Turnover year-to-date through September 2010 in Macau was $6.734
billion, an increase of 105% year-over-year, compared to $3.284
billion for 2009.
Chairman Lam further stated, “While the monthly percentage
year-over-year growth rates may decline for the remainder of 2010
due to the highly successful last quarter of 2009, we continue to
forecast growth. For 2009, the average monthly Rolling Chip
Turnover was $433 million. We are maintaining Rolling Chip Turnover
guidance for our two existing VIP rooms in Macau to average $700
million to $725 million per month, which equates to a total of $8.4
billion to $8.7 billion for full year 2010, up from $5.19 billion
in 2009.”
“We continue to believe that for the remainder of 2010, the
majority of the business will be on a fixed commission basis. We
are adjusting our income (including pre-acquisition profit)
guidance to $36 million to $39 million for 2010 based on the
current performance of our existing two VIP gaming rooms in Macau,”
concluded Chairman Lam.
Casino Revenue Compensation Methods
In Macau, two remuneration methods are used to compensate VIP
room gaming promoters. On a fixed commission basis, VIP room gaming
promoter revenues are based on an agreed percentage of Rolling Chip
Turnover. On a win/loss split basis, the VIP room gaming promoter
receives an agreed percentage of the “win” in the VIP gaming room
(plus certain incentive allowances), and is required to also bear
the same percentage of loss that might be incurred. Compared to the
fixed commission basis, the win/loss split basis subjects the VIP
room gaming promoter to the risk of losses from the gaming patron’s
activity and greater volatility.
In the nine months ended September 30, 2009, all of AERL’s
business was on a win/loss split basis. However, to reduce the
risks of losses and volatility, in the last quarter of 2009, AERL
successfully transitioned the VIP room in the Galaxy Star World in
Downtown Macau to a fixed 1.25% commission on Rolling Chip
Turnover. During the nine months ended September 30, 2010, AERL
conducted the majority of business on a fixed commission
basis. The VIP room at the MGM Grand Hotel and Casino
continued to operate at an approximate 43% (including certain
incentive allowances) win/loss split basis. At this rate, and
assuming a win rate (the statistical percentage of the
total amount bet that a casino wins) of 2.90%, AERL would have
the same revenues at the MGM Grand Hotel and Casino as if it
operated under a 1.25% fixed commission basis. However, if the win
rate exceeded 2.90%, AERL would have more revenues than if it
operated on the 1.25% fixed commission basis. Because the larger
part of AERL’s revenues is now directly related to Rolling Chip
Turnover, the Company is concentrating its marketing efforts to
increase the number of patrons and the amount of play at its VIP
gaming room that operates under the 1.25% fixed commission
basis. Consequently, in order to increase the Rolling Chip
Turnover, the Company reinvests its net income to increase the
amount of cage capital available to finance increased patron
activity.
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, formerly known as CS China Acquisition Corp., acquired
AGRL on February 2, 2010. The principal business activities of
AGRL’s wholly owned subsidiaries are to hold Profit Interest
Agreements with its VIP room gaming promoters that provide AGRL
with 100% of the profit streams from the operations of the VIP room
gaming promoters. AGRL’s VIP room gaming promoters currently
participate in the promotion of two major luxury VIP gaming
facilities in Macau, China, the largest gaming market in the world.
One of the VIP gaming rooms is located at the top-tier MGM
Grand Macau Casino in downtown Macau that is operated by the MGM
Grand Paradise S.A. The other Macau VIP gaming facility is located
in the luxury 5-star hotel, the Star World Hotel & Casino in
downtown Macau, which is operated by Galaxy Casino, S.A.
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.
ASIA ENTERTAINMENT
& RESOURCES LTD CONDENSED CONSOLIDATED BALANCE
SHEETS September 30, 2010 December 31,
2009 (Unaudited) (A) Total Assets, all current $
100,412,944 $ 6,250,170 Total Liabilities, all current $
74,905,656 7,775,322 Total Shareholders' Equity
(Deficit) 25,507,288 (1,525,152 ) Total
Liabilities And Total Shareholders’ Equity (Deficit) $ 100,412,944
$ 6,250,170 (A) Represents the combined balance
sheets of AGRL, its subsidiaries and VIP Gaming Promoters, the
Accounting Acquirer.
ASIA ENTERTAINMENT & RESOURCES LTD
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
For the Three For the Three For the Nine
For the Nine Months Ended Months Ended
Months Ended Months Ended
September 30,
2010
September 30,
2009(A)
September 30,
2010
September 30,
2009(A)
Revenue from VIP gaming operations $ 28,533,177 $ 13,925,683
$ 83,941,149 $ 39,161,015 Expenses - Commission to agents
18,491,782 11,982,306 49,509,822 25,468,812 - Selling, general and
administrative expenses 2,520,821 1,408,413 6,961,674 3,554,954 -
Special Rolling Tax 239,418 161,137 673,595 325,858 - NASDAQ
listing expenses - - 140,000 -
Total Expenses 21,252,021 13,551,856
57,285,091 29,349,624 Net income (including
pre-acquisition profit) 7,281,156 373,827 26,656,058 9,811,391
Prior owners' interest in pre-acquisition profit -
(387,509 ) (4,329,385 ) (9,825,073 ) Net
Income (Loss) Attributable To Ordinary Shareholders $ 7,281,156 $
(13,682 ) $ 22,326,673 $ (13,682 ) Other Comprehensive
Income (Loss) Foreign Currency - Translation adjustment
65,775 - 41,519 - Total Other
Comprehensive Income (Loss) $ 7,346,931 $ (13,682 ) $ 22,368,192 $
(13,682 )
Net Income Per Share Basic $ 0.57 $ * $
1.80 $ * Diluted $ 0.40 $ * $ 1.04 $ *
Weighted average
shares outstanding Basic 12,810,908 10,350,000
12,378,633 10,350,000 Diluted 18,345,903
10,350,000 21,523,430 10,350,000 *-Less than
$0.01 per share (A) Represents the combined
statements of operations of AGRL, its subsidiaries and VIP Gaming
Promoters, the Accounting Acquirer.
Non-GAAP Financial Measure
Our calculation of non-GAAP earnings per share derived from net
income (including pre-acquisition profit) for the nine months
ended September 30, 2010, differs from earnings per share based on
net income because it includes all income derived from the
operations for the entire period presented (the period prior to the
acquisition of the operating business is excluded from our
financial statements). We use this information internally in
evaluating our operations and believe this information is important
to investors because it provides a complete picture of our
operations for the entire period, and is more accurately comparable
to the prior-year period. Notwithstanding the foregoing, however,
earnings per share derived from net income (including
pre-acquisition profit) should not be considered an alternative to,
or more meaningful than, earnings per share as determined in
accordance with GAAP. The following is a reconciliation of our GAAP
EPS to our Non-GAAP EPS derived from income (including
pre-acquisition profit) as well as a reconciliation of our
GAAP income and our income including pre-acquisition profit:
For the Nine Months Ended
September 30, 2010
Basic Fully Diluted GAAP
earnings per share $ 1.80 $ 1.04 Impact of pre-acquisition
profit 0.35 0.20 Earnings per share (including
pre-acquisition profit) $ 2.15 $ 1.24
For the Nine
Months Ended
September 30, 2010
GAAP Net Income $ 22,326,673 Impact of
pre-acquisition profit 4,329,385 Net Income
(including pre-acquisition profit) $ 26,656,058
Conference Call and Replay Information
AERL will conduct a conference call to discuss the financial
results for the three and nine-month periods ended September 30,
2010 on Wednesday, October 20, 2010 at 11:00AM EDT/ 11:00PM Macau.
To participate, please dial one of the local access numbers, listed
below, ten minutes prior to the scheduled start of the call.
The conference call identification number is 18502100.
International Toll Dial-In Number: + 61288236760
Local Dial-In Number(s)
China, Domestic 4006988166
China, Domestic 8008700816
Hong Kong 85227598661
Singapore 6567226342
United States +1 866 242 1388
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