Entertainment Gaming Asia Reports Second Quarter 2010 Results and Provides Market Update

- Record Gaming Participation Revenue and Continued Strict Cost Control Drive Strong Positive Cash Flow for the Quarter -

HONG KONG--()--Entertainment Gaming Asia Inc. (NYSE Amex: EGT) (“Entertainment Gaming Asia” or “the Company”), formerly known as Elixir Gaming Technologies, Inc., a leading provider of electronic gaming machines on a participation basis to the Pan-Asian gaming industry, today reported operating results for the second quarter ended June 30, 2010 and reviewed recent corporate progress.

Highlights:

  • Consolidated adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and non-cash charges) was $1.4 million for the second quarter of 2010, up from $1.3 million in the prior quarter.
  • Total net revenue from gaming machines on participation for the second quarter of 2010 was a record $3.5 million, an increase of 24% on a quarterly sequential basis, reflecting both a higher average win per unit per day (WUD) and gaming machine installed base at the Company’s operations in Cambodia and the Philippines.
  • Average consolidated WUD for the second quarter of 2010 was $115, an increase of 7% on a quarterly sequential basis on an increasing gaming machine installed base.
  • As of August 1, 2010, total installed gaming machine seats in operation were 1,544 in seven venues, comprised of six venues in the Philippines with a total of 888 seats and one venue in Cambodia with a total of 656 seats.
  • Cash selling, general and administrative (SG&A) expense was $1.5 million for the second quarter of 2010, which was at the low end of the guidance range of $1.5 to $1.8 million and down 24% from the same period last year.
  • Cash was $6.4 million as of June 30, 2010, up from $4.2 million as of December 31, 2009.
  • In May 2010, the Company amended the terms of its unsecured promissory note due to EGT Entertainment Holding Limited, formerly called Elixir Group Limited, effective as of July 1, 2010 to defer the repayment of principal on the outstanding principal balance on the note of $9.2 million until July 1, 2011.
  • In May 2010, the Company unveiled its plans to expand its gaming operations to include the ownership and operation of its own casinos. In May 2010, the Company was granted a casino license by the Cambodian government and in June 2010, it acquired the title to over seven acres of land in the Takeo Province near the Vietnam border where it intends to build and operate its own casino hotel, Dreamworld Casino and Resort (“Dreamworld Casino”).
  • In July 2010, the Company changed its name to Entertainment Gaming Asia Inc. to reflect the material transformation of its operations and more suitably reflect its expanded gaming business model.

Clarence Chung, Chairman and Chief Executive Officer of Entertainment Gaming Asia, commented, “I am proud to announce that Entertainment Gaming Asia has posted continued gains in sequential gaming machine participation revenue and adjusted EBITDA for the second quarter of 2010. Our operations in both our gaming markets of Cambodia and the Philippines and our continued strict cost control efforts were primary contributors to our financial performance for the quarter. We have made remarkable progress over the last year and a half. With continued improvements in our core gaming participation operations, a leaner and more efficient operating structure, and a new name and exciting expansion plans to become a regional casino owner and operator in select emerging gaming markets in Asia, Entertainment Gaming Asia is better positioned to grow long-term earnings and enhance shareholder value.”

Continued Improvement in Gaming Participation Revenue

Total net revenue from gaming machines on participation for the second quarter of 2010 was a record $3.5 million, an increase of 25% on a quarterly sequential basis, reflecting a higher installed gaming machine base and slightly improved consolidated average WUD.

During the second quarter of 2010, Entertainment Gaming Asia increased its total gaming machine seats in operation by 9% to 1,502 seats in a total of seven venues in operation, comprised of six venues in the Philippines with a total of 878 seats and one venue in Cambodia with a total of 624 seats as of June 30, 2010.

The Company’s machine placements at NagaWorld, the Company’s sole venue in operation in Cambodia, have increased dramatically since its first placements in this venue in January 2009. As of August 1, 2010, Entertainment Gaming Asia had a total of 656 gaming machine seats in operation at NagaWorld. The Company expects to reach 670 seats in operation during the month of August, which will fulfill the total number of gaming machine seats under contract. In the Philippines, the Company continues to refine and redeploy its gaming assets in order to focus on higher-performing venues. As of August 1, 2010, Entertainment Gaming Asia had 888 gaming machine seats in operation in six venues in this market.

Consolidated average WUD for the second quarter of 2010 was $115, up 7% from $107 in the first quarter of 2010 and up 21% from $95 in the second quarter last year. The increase was driven by improvement in WUD in both the Cambodia and Philippines markets and the continuously rising percentage contribution from the Company’s machine placements at NagaWorld.

Average WUD for the second quarter of 2010 for Cambodia was $196, up 1% from $194 in the first quarter of 2010. Average WUD for Cambodia continued to post strong gains in July 2010 reaching $227. The improvement in average WUD was despite an increasing gaming machine installed base and the typical ramp up period of new placements.

Average WUD for the second quarter of 2010 for the Philippines was $59, up 5% from $56 in the first quarter of 2010 and up 2% from $58 in the second quarter last year.

Continued Success in Cost Reduction Initiatives

While executing measures to improve average WUD and expand the Company’s installed gaming machine base, Entertainment Gaming Asia continued to focus on strict cost containment and benefit from the successful implementation of its aggressive cost reduction initiatives over the last one and half years. Cash SG&A expense for the second quarter of 2010 was $1.5 million, which was at the low end of the Company’s guidance range of $1.5 to $1.8 million for the quarter and down 24% from $2.0 million in the same period last year.

Q2 2010 Financial Review

Historical revenues and expenses from the Company’s portfolio of automated card verification machines and electronic card shuffling systems, which were sold to Shuffle Master, Inc. in April 2009, have been reclassified as discontinued operations.

Entertainment Gaming Asia’s second quarter of 2010 consolidated revenue was $5.1 million compared to $4.4 million in the first quarter of 2010 and $5.8 million for the second quarter of 2009. Revenue from gaming machines on participation was $3.5 million in the second quarter of 2010 compared to revenue of $2.8 million in the first quarter of 2010 and $1.7 million in the second quarter of 2009. The year-over-year decline in consolidated revenue was driven by the Company’s table game business due to a large gaming chip order delivered during the second quarter of 2009, which was partially offset by strong performance in its gaming machine participation operations and improvement in non-gaming product sales.

Based on the Company’s solid revenue performance and the successful execution of its cost reduction initiatives, Entertainment Gaming Asia posted positive adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and non-cash charges) for the second quarter of 2010, marking the fifth consecutive quarter of achieving this important milestone since the Company enacted its new business model in September 2007. Second quarter of 2010 adjusted EBITDA was $1.4 million compared to $1.3 million for the first quarter of 2010 and $1.5 million for the second quarter of 2009.

Entertainment Gaming Asia reported a net loss of $1.5 million for the second quarter of 2010, or $0.01 per share, on a weighted average share count of approximately 115.9 million shares compared to a net loss for the first quarter of 2010 of $1.7 million, or $0.01 per share, on a weighted average share count of approximately 115.0 million shares. This compared to a second quarter of 2009 net loss of $133,000, or $0.00 per share, on a weighted average share count of approximately 115.0 million shares. The second quarter of 2009 net loss included non-recurring items such as net income from discontinued operations of approximately $1.8 million, or $0.02 per share, related to the sale of the shuffler business and a one-time gain of $656,000 related to the settlement of a legacy legal suit.

The second quarter increase in net loss over the net loss in the second quarter last year was primarily due to a substantial decline in table game products revenue and gross profit and the non-recurring items discussed above, which provided a total benefit of $2.4 million, or $0.02 per share, to the second quarter 2009 period. These factors were partially offset by higher gaming participation revenues driven by a higher number of operating gaming machines and improving consolidated average WUD, substantially reduced operating expenses, and lower depreciation expense as a result of impairment charges incurred in the fourth quarter of 2009.

Expanded Gaming Operations

On May 27, 2010, the Company announced its intention to expand its gaming operations to include the ownership and operation of its own casinos under the Dreamworld brand in emerging gaming markets in Pan Asia with a focus on Indo-China. This is an incremental leg to the Company’s gaming growth strategy, which provides the long-term potential for higher returns and greater operational control.

In furtherance of this strategy, in May 2010 the Company was granted a casino license by the Cambodian government and in June 2010 acquired title of over seven acres (30,000 square meters) of land in the Takeo Province of Cambodia strategically located near the Vietnam border upon which to build and operate a casino resort. Total consideration was $1.76 million, which was paid in installments of $850,000 in May and $910,000 in July. Entertainment Gaming Asia has assembled a project management team for its casino development operations and begun conceptual project design discussions with architects.

The Company continues to actively pursue additional casino development projects with a focus on the Indo-China market where it can leverage it existing market presence and relationships and capitalize on the attractive economic and socio-demographic trends in these markets. In the event Entertainment Gaming Asia were to commit to additional and concurrent projects, it could require the Company to reallocate resources and adjust project timelines in order to give priority to the highest potential return project.

Second Half of 2010 Guidance and Future Outlook

The Company has the following expectations for its second half of 2010.

  • Quarterly sequential improvement in both total gaming machine participation revenue and consolidated adjusted EBITDA for the third and fourth quarters of 2010 driven by the continued strength of its NagaWorld operations, an increasing gaming machine installed base, and strict cost controls.
  • Based on its cost containment initiatives and current scale of operations, quarterly SG&A cash expense at the low end of the range of $1.5 to $1.8 million.
  • Achieve breakeven GAAP (Generally Accepted Accounting Principles) earnings by the fourth quarter of 2010.
  • Positive cash flow from operations plus the remaining amount of approximately $1.0 million in commitment fees paid to NagaWorld as of August 1, 2010 to be recouped by September 2010. 

Clarence Chung concluded, “We are excited about our future growth plans. With an improved operating structure, strong cash flow from our core gaming participation business, and enhanced financial flexibility due to the deferment of principal repayments on our outstanding note until July 2011, Entertainment Gaming Asia is rapidly building cash resources which can be deployed for future expansion and we are focused on selectively pursuing gaming projects that offer the potential to maximize the Company’s long-term returns. We aim to leverage our strong market presence, relationships, and the Dreamworld brand name with the goal of becoming the leading regional casino operator in select emerging gaming markets in Asia. We look forward to providing more details to the market as these projects develop.”

Entertainment Gaming Asia is hosting a conference call and simultaneous webcast at 8:30 a.m. ET today, August 5, both of which are open to the general public. The conference call number is 800/908-1487 or 212/231-2926. 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. (NYSE Amex: EGT), formerly known as Elixir Gaming Technologies, Inc., is a leading provider of electronic gaming machines on a participation basis to the Pan-Asian gaming industry. The Company secures long-term contracts to provide electronic gaming machines and related systems to premier hotels and other well-located gaming venues in Asia. The Company retains ownership of the gaming machines and systems and receives recurring daily fees based on an agreed upon percentage of the net gaming win per machine and provides on-site maintenance. Entertainment Gaming Asia Inc. also holds a casino license in Cambodia and intends to build and operate Dreamworld Casino and Resort, a casino hotel in the Takeo Province near the Vietnam border. For more information please visit www.EGT-Group.com.

Forward Looking Statements

This press release contains forward-looking statements concerning Entertainment Gaming Asia, formerly known as Elixir Gaming Technologies, 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 business of Entertainment Gaming Asia, its working capital requirements and future revenue and profitability, the project schedule for its Dreamworld Casino and Resort and Entertainment Gaming Asia’s ability to fund the Dreamworld Casino project. 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 costs incurred by Entertainment Gaming Asia in defending shareholder litigation and the outcome of any judgment or settlement with respect to such litigation, Entertainment Gaming Asia’s inability to place gaming machines at significant levels, whether the gaming machines placed generate the expected amount of net win, Entertainment Gaming Asia’s ability to successfully execute its plans to build and operate a casino hotel, the ability of Entertainment Gaming Asia to acquire additional capital as and when needed, the ability of Entertainment Gaming Asia to collect revenue and protect its assets and those other risks set forth in Entertainment Gaming Asia’s annual report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 30, 2010 and subsequently filed quarterly reports on Form 10-Q. Entertainment Gaming Asia cautions readers not to place undue reliance on any forward-looking statements. Entertainment Gaming Asia 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 Operations
(Unaudited)
   

Three Months Ended
June 30,

Six Months Ended
June 30,

(amounts in thousands, except per share data) 2010   2009 2010   2009
Revenues:
Gaming machine participation $ 3,539 $ 1,743 $ 6,374 $ 2,689
Table game products 232 3,191 353 3,269
Non-gaming products 1,294 839 2,705 1,517
5,065 5,773 9,432 7,475
Operating costs and expenses:
Cost of gaming machine participation:
Machine depreciation 1,970 2,425 3,857 4,816
Write-off of gaming assets 75 191 379
Other operating costs 206 175 432 515
Cost of table game products 173 1,891 263 1,873
Cost of non-gaming products 1,320 995 2,721 1,751
Selling, general and administrative 1,762 2,075 3,477 4,873
Product development expenses 372 75 456 129
Depreciation and amortization 229 255 458 565
Restructuring charges 210 89 247 588
Total operating costs and expenses 6,317 7,980 12,102 15,489
 
Loss from operations (1,252) (2,207) (2,670) (8,014)
 
Other income/(expense):
Interest expense and finance fees (84) (112) (206) (248)
Interest income 25 26 38 64
Foreign currency (loss)/gain (69) 64 (60) (63)
Legal settlement gain 656 656
Gain/(loss) of disposition of assets 5 (94) 4 (94)
Other 61 70 152 83
Total other (expense)/income (62) 610 (72) 398
 
Loss before income tax and discontinued operations (1,314) (1,597) (2,742) (7,616)
 
Income tax expense (220) (296) (455) (299)
 
Net loss from continuing operations (1,534) (1,893) (3,197) (7,915)
Net profit from discontinued operations, net of tax 1,760 1,542
 
Net loss $ (1,534) $ (133) $ (3,197) $ (6,373)
 
Loss per share:
Loss from continuing operations $ (0.01) $ (0.02) $ (0.03) $ (0.07)
Income from discontinued operations 0.02 0.01
Basic and diluted loss per share $ (0.01) $ (0.00) $ (0.03) $ (0.06)
 
Weighted average common shares outstanding 115,879 114,957 115,426 114,957
 
Entertainment Gaming Asia Inc.
Consolidated Balance Sheets
   
June 30, 2010 December 31, 2009
(amounts in thousands, except per share data) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 6,364 $ 4,190
Accounts receivable, trade, net 2,003 2,670
Due from a related party 7 12
Other receivables 152 195
Inventories 818 621
Assets held for sale 805 930
Prepaid commitment fees 2,082 4,838
Deferred tax assets 90 90
Prepaid expenses and other current assets 888 770
Total current assets 13,209 14,316
Accounts receivable, trade, net of current portion 27 106
Gaming equipment and systems, net 24,114 26,507
Property and equipment, net 4,775 3,322
Intangible assets, net 2,823 3,026
Goodwill 84 84
Contract amendment fees 1,299 688
Prepaids, deposits, and other assets 410 408
Total assets $ 46,741 $ 48,457
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,209 $ 1,125
Amount due to a related party 15 46
Accrued expenses 2,530 2,325
Notes payable to a related party, current portion 458 3,128
Capital lease obligations, current portion 145 187
Customer deposits and other current liabilities 389 78
Total current liabilities 4,746 6,889
 
Notes payable to a related party, net of current portion 9,164 6,265
Capital lease obligations, net of current portion 328 414
Other liabilities 759 604
Deferred tax liability 1,063 877
Total liabilities 16,060 15,049
 
Stockholders’ equity:
Common stock, $.001 par value, 300,000,000 shares authorized; 115,879,394 and 114,956,667 shares issued and outstanding 116 115
Additional paid-in-capital 415,403 414,864
Accumulated other comprehensive losses (715) (645)
Accumulated deficit (384,123) (380,926)
Total stockholders’ equity 30,681 33,408
Total liabilities and stockholders’ equity $ 46,741 $ 48,457
   
Entertainment Gaming Asia Inc.
Adjusted EBITDA
(Unaudited)
 

Three Months Ended
June 30,

Six Months Ended
June 30,

(amounts in thousands, except per share data) 2010   2009 2010   2009
Net loss – GAAP $ (1,534) $ (133) $ (3,197) $ (6,373)
Income from discontinued operations (1,760) (1,542)
Interest expense and finance fees 84 112 206 248
Interest income (25) (26) (38) (64)
Income tax expense 220 296 455 299
Depreciation and amortization 2,316 2,745 4,546 5,556
Stock option expense 246 244 540 446
Write down of gaming assets 75 191 379
EBITDA/(LBITDA), as adjusted $ 1,382 $ 1,478 $ 2,703 $ (1,051)

Adjusted EBITDA/(LBITDA)” is earnings before interest, taxes, depreciation, amortization, stock-based compensation, and other non-cash operating income and expenses. Adjusted EBITDA/(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 EBITDA/(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 EBITDA/(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 EBITDA/(LBITDA) as a supplement to financial measures in accordance with generally accepted accounting principles in the United States (“GAAP”). Adjusted EBITDA/(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 EBITDA/(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 EBITDA/(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, interest payments, debt principal repayments, taxes and other non-recurring charges, which are not reflected in Adjusted EBITDA/(LBITDA). Entertainment Gaming Asia’s calculation of Adjusted EBITDA/(LBITDA) may be different from the calculation methods used by other companies and, therefore, comparability may be limited.

Contacts

Entertainment Gaming Asia Inc.
Traci Mangini
tracimangini@EGT-Group.com
312/867-0848

Contacts

Entertainment Gaming Asia Inc.
Traci Mangini
tracimangini@EGT-Group.com
312/867-0848