INNOVA Gaming Group Announces Q3 Financial Results

Revenue +19% to $5.3 million, Adjusted EBITDA +52% to $1.0 million

LOS ANGELES, Nov. 11, 2015 /CNW/ - INNOVA Gaming Group Inc. ("INNOVA" or the "Company") (TSX: IGG), today announced financial results for the three and nine months ended September 30, 2015. All figures in this press release are in U.S. dollars, unless otherwise noted.

Highlights – Operations

  • Deployed 34 LT-3 ticket dispensers ("LT-3") in Q3-2015. 1,729 terminals were deployed as of the end of Q3. 1,744 terminals are currently deployed.
  • Announced a one-year extension to the current pilot agreement with the Missouri Lottery. The Agreement enables Diamond Game to continue installing its LT-3 terminals in veterans and fraternal clubs in the state and to begin installing LT-3s in 100 "liquor-by-the-drink" locations.
  • Received approval from the Ontario Lottery and Gaming Corporation ("OLG") to expand the pilot of local progressive jackpot and multi-price features to all 30 of the Charitable Gaming locations where TapTix LT-3 break open ticket dispensers are currently installed in the province.
  • Participated as a sponsor and exhibited new product features and innovations at the North American Association of State and Provincial Lotteries (NASPL) annual conference in October.

Highlights – Financial

  • Revenue in Q3-2015 of $5.3 million, compared to $4.5 million in Q3-2014
  • Adjusted EBITDA1 of $1.0 million in Q3-2015, compared to $0.6 million in Q3-2014
  • Adjusted EPS2 of $0.02 in Q3-2015, compared to $0.00 in Q3-2014

"Q3 is a seasonally slow period for deployments, however the leverage of the business model was apparent in the quarter as adjusted EBITDA grew by over 50% compared to Q3 2014 due to LT-3 installations in prior quarters," said Richard Weil, Chairman and CEO of INNOVA. "During the quarter, we made significant headway in our Missouri and Ontario markets as well as with a number of key customers and prospects at NASPL in October. Our entrance into bars and taverns in Missouri opens a high-potential vertical for INNOVA and enables us to demonstrate the broad appeal of the LT-3 in non-traditional locations. We are in the process of rolling these machines out, and we expect to have approximately 200 units deployed by the end of February 2016. We are engaged in various stages of discussion with a number of parties and will exceed the high end of our target deployment range of 25 to 30 units per month on average this year."


Selected Unaudited Condensed Consolidated Interim Financial Information







For the three month

periods ended September 30,

For the nine month

periods ended September 30,


2015

$

2014

$

2015

$

2014

$

Revenue

5,311,004

4,453,370

15,432,633

14,036,219

Gross profit

5,017,791

3,797,507

14,285,096

11,817,755

Net earnings (loss)

(381,770)

(219,778)

(1,678,966)

7,671,962

Total Assets



33,657,019

21,061,226

Total Long Term Financial Liabilities



10,249,338

6,202,070






Basic and diluted earnings (loss) per share

(0.02)

(0.01)

(0.09)

0.46

Adjusted EPS(2)

0.02

(0.00)

0.10

0.03

Weighted average number of basic and diluted common shares

20,450,000

16,700,000

18,783,333

16,700,000






Reconciliation of net earnings (loss) to adjusted EBITDA





Net earnings (loss)

(381,770)

(219,778)

(1,678,966)

7,671,962

Interest and financing costs (net of interest income)

61,618

26,299

221,286

103,680

Income taxes

56,951

119,429

(17,105)

(7,992,145)

Depreciation and amortization

590,111

657,825

1,689,193

1,931,817

Audit adjustments

-

-

95,807

-

IPO discretionary bonus

-

-

1,125,204

-

Acquisition related costs

(2,069)

-

894,812

820,757

Unrealized foreign exchange loss

653,223

61,392

1,217,164

60,508

Standard inventory adjustment

-

-

211,086

-

Adjusted EBITDA(1)

978,065

645,167

3,758,481

2,596,579








(1)

Adjusted EBITDA is a non-IFRS measure. See "Non-IFRS Measures" in the Company's Management's Discussion & Analysis for the three and nine month periods ended September 30, 2015.

(2)

Adjusted EPS is a non-IFRS measure. See "Non-IFRS Measures" in the Company's Management's Discussion & Analysis for the three and nine month periods ended September 30, 2015.

Revenue

Three months ended September 30, 2015

For the three month period compared to prior year, LT-3 revenue grew by $1.2 million or 33%, partially offset by a decrease in AGP revenue of $0.3 million or 28%.  LT-3 revenue growth was primarily attributable to 449 additional machines deployments on a year-over-year basis and strong gains in the Missouri market. Average LT-3 WPU and ARPU decreases relative to the prior year period reflect the ramp up of machine deployments into new markets which typically start at a lower WPU and ARPU than established markets. ARPU was additionally impacted by the transition to a more price-efficient paper ticket in Ontario.  This decrease in ARPU was accompanied by cost savings; see "Cost of Products" section below.  The LT-3 revenue growth in the quarter was partially offset by decreases in our AGP business, due largely to a reduction in AGP machines in Alabama, Oklahoma and Arkansas as a result of the strategic decision to focus on our core LT-3 business. 

Nine months ended September 30, 2015

For the nine month period compared to prior year, LT-3 revenue grew by $2.7 million or 26%, partially offset by a decrease in AGP revenue of $1.4 million or 36%.  As stated above, the LT-3 revenue growth was primarily attributable to new installations in Maryland, Michigan and Quebec as well as strong performance in Missouri.  LT-3 revenue growth was partially offset by decreases in our AGP business, including significant reductions in the AGP footprint in Alabama, Arkansas and Oklahoma.  Additionally, during this period in 2014, there was a transition in Texas from a revenue share agreement with Ysleta Del Sur Pueblo to a flat fee arrangement with Blue Stone Entertainment LLC that had a modest impact on AGP revenue and ARPU.

Cost of products

For the three and nine month period compared to prior year, cost of products was lower by $0.4 million or 55% and $1.1 million or 48%, respectively. The decrease was driven by a combination of factors including the strategic decision made in 2014 to focus on our core LT-3 business and a substantial reduction in the cost of our paper tickets realized through the transition from a large third party two-ply, break open ticket to a smaller, more price-efficient in-house single-ply barcode ticket.  2015 also reflects the full benefit of the investment made in late-2014 to upgrade the printing press imagers which has improved printing efficiencies and costs across all LT-3 markets.     

Selling expenses

For the three month period compared to prior year, selling cost was flat. For the nine month period compared to prior year, selling cost was increased by $0.1 million or 9%, respectively due mainly to the incremental LT-3 machines deployed during the first half of the year.

General and administrative expenses

Three months ended September 30, 2015

For the three month period compared to prior year, general and administrative expenses increased by $0.9 million or 26%. The increase was largely driven by higher salaries and wages expense of $0.5 million, resulting from hiring of senior management personnel; $0.2 million of increased public company cost, including higher audit and legal fees, directors and investor relations expenses; and machine service cost of $0.1 million.

Nine months ended September 30, 2015

For the nine month period compared to prior year, general and administrative expenses increased by $2.5 million or 23% due mainly to a one-time IPO related discretionary bonus of $1.1 million (offset by a commensurate $1.0 million of paid in capital); higher salaries and wages expense of $0.6 million, resulting from hiring of senior management personnel; outside services, data line and machine installation of $0.4 million related to the increases in machines deployed; and increased public company cost of $0.2 million.

Financial expenses

For the three and nine month periods compared to prior year, financial expenses increased by $0.6 million and $1.2 million, respectively due mainly to higher foreign exchange loss.

Income taxes

For the three month period compared to prior year, income tax expense increased by $0.1 million due to increased taxable earnings. For the nine month period compared to prior year, income tax expense increased by $8.0 million due mainly to recognition of deferred income tax recovery in the prior year driven primarily by a one-time tax election increasing the tax basis of assets acquired in the acquisition by Amaya Americas.

Conference Call

INNOVA will host a conference call later today, Wednesday, November 11, 2015 at 11:30 a.m. ET to discuss its 2015 third quarter financial results. Richard Weil, Chairman & Chief Executive Officer of INNOVA and Stephen Koo, Chief Financial Officer, will chair the call.


Participant Dial-in

Webcast

Reference Number

Conference Call

 

647-427-7450; or

1-888-231-8191

http://bit.ly/1NYBDOv

 


Replay

(available for 2 weeks)

416-849-0833; or

1-855-859-2056


67559843

INNOVA's interim consolidated financial statements and management's discussion and analysis for the quarter ended September 30, 2015 will be available on SEDAR at www.sedar.com.


About INNOVA Gaming Group Inc.

INNOVA develops unique games and products for the global gaming industry, with particular focus on state and provincial lotteries. Through the Company's wholly owned subsidiary, Diamond Game, INNOVA focuses on enhancing the revenues of government-sponsored lotteries and other regulated operators by offering its unique "stay-and-play" products in traditional and non-traditional gaming venues. Its primary product is the LT-3, an instant ticket vending machine that dispenses tickets while simultaneously displaying the results of each ticket on a video monitor in an entertaining fashion. For more information, please visit www.innovagaminggroup.com.

Forward-Looking Statements

Certain statements included herein, including those that express management's expectations or estimates of our future performance or future events, including with respect to the deployment of additional machines and the creation of higher sales volumes and ongoing revenue, constitute "forward-looking statements" within the meaning of applicable securities laws. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management at this time, are inherently subject to significant business, economic, regulatory and competitive uncertainties, contingencies and risks that could cause actual results or events to differ materially from those expressed or implied in such statements. Applicable risks and uncertainties include those identified under the heading "Risk Factors" in INNOVA's final prospectus dated April 28, 2015, available on SEDAR at www.sedar.com, and in other filings that INNOVA has made and may make with applicable securities authorities in the future. Investors are cautioned not to put undue reliance on forward-looking statements. The forward-looking statements contained herein reflect INNOVA's current views with respect to future events, and except as required by law, INNOVA does not intend, and undertakes no obligation, to update any forward-looking statements to reflect, in particular, new information or future events, or otherwise.

Unaudited Condensed Consolidated Interim Statements of Financial Position  






September

December


30

31


2015

2014


$

$




ASSETS



Current



Cash

12,614,990

3,136,182

Accounts receivable

2,128,053

1,923,222

Inventories

1,806,200

2,158,688

Prepaid expenses and deposits

1,182,326

440,725

Current deferred income taxes

445,982

-


18,177,551

7,658,817




Property, equipment, and intangibles

8,139,263

8,065,612

Deferred income taxes

7,340,205

7,214,774


33,657,019

22,939,203




LIABILITIES



Current



Accounts payable and accrued liabilities

2,757,188

2,357,605

Customer deposits

7,250

11,425

Income taxes payable

745,010

359,972

Deferred revenue

1,034,075

1,243,430

Current portion of equipment financing

1,337,451

1,083,970


5,880,974

5,056,402




Deferred revenue

2,416,553

1,780,984

Equipment financing

1,609,473

1,795,358

Deferred income taxes

342,338

381,636


10,249,338

9,014,380




Commitments and contingency






SHAREHOLDERS' EQUITY



Share capital

21,735,909

10,567,704

Accumulated other comprehensive loss

(6,381)

-

Retained earnings

1,678,153

3,357,119


23,407,681

13,924,823


33,657,019

22,939,203






 

Unaudited Condensed Consolidated Interim Statements of Comprehensive Income (Loss)





For the three month

period ended September 30,

For the nine month

period ended September 30,


2015

2014

2015

2014


$

$

$

$






Revenue

5,311,004

4,453,370

15,432,633

14,036,219

Cost of products

293,212

655,863

1,147,537

2,218,464

Gross Profit

5,017,792

3,797,507

14,285,096

11,817,755






Selling

435,292

474,960

1,275,190

1,167,325

General and administrative

4,187,737

3,330,295

13,269,347

10,750,844

Profit (loss) from operations

394,763

(7,748)

(259,441)

(100,414)






Other non-operating expenses

15,600

8,833

38,348

58,930

Financial, net

703,982

83,768

1,401,884

160,839

Earnings (loss) before income taxes

(324,819)

(100,349)

(1,699,673)

(320,183)






Provision for (recovery of) income taxes

56,951

119,429

(20,707)

(7,992,145)

Net earnings (loss)

(381,770)

(219,778)

(1,678,966)

7,671,962






Other Comprehensive loss

-

60,235

(6,381)

33,413

Comprehensive Income (loss)

(381,770)

(159,543)

(1,685,347)

7,705,375






Basic and diluted earnings (loss) per share

(0.02)

(0.01)

(0.09)

0.46

 

Unaudited Condensed Consolidated Interim Statements of Cash Flows





For the nine month

period ended September 30,



2015

2014



$

$






Cash flows from operating activities




Net earnings (loss)

(1,678,966)

7,671,962


Adjustments to reconcile net earnings to net cash provided

by operating activities:





Loss on sale of property and equipment

38,348

14,233



Depreciation and amortization expense

1,689,192

1,931,817



Unrealized foreign exchange (gain) loss

1,210,783

93,921



Interest on equipment financing loans

179,815

90,497


(Increase) decrease in inventory

352,488

(140,404)


(Increase) decrease in deferred income taxes

(610,711)

(8,194,504)


Increase in deferred revenue

426,214

335,131


(Increase) in trade and other receivable

(946,432)

(1,322,946)


(Decrease) in trade and other payable

780,446

(879,399)



1,441,177

(399,692)


Cash flows from financing activities




Proceeds from issuance of common stock

12,351,443

-


Proceeds from shareholder injection

1,000,000

7,561,496


Transaction costs related to the issuance of common stock

(2,162,879)

-


Dividend paid

-

(94,338)


Repayment of debt

-

(5,351,342)


Proceeds from equipment financing loans

1,247,097

1,114,396


Repayment of equipment financing loans

(1,192,577)

(180,612)



11,243,084

3,049,600


Cash flows from investing activities




Purchase of property and equipment

(2,527,599)

(2,497,456)


Proceeds from sale of property and equipment

50,810

370,264



(2,476,789)

(2,127,192)


Increase in cash

10,207,472

522,716


Cash – beginning of period

3,136,182

175,719


Unrealized foreign exchange gain (loss) difference in cash

(728,664)

64,217


Cash – end of period

12,614,990

762,652















SOURCE INNOVA Gaming Group

For further information: Jonathan Ross, CFA, LodeRock Advisors, INNOVA Investor Relations, jon.ross@loderockadvisors.com, Tel: (905) 334-0095


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