Innova Gaming Group announces Q1 financial results

Revenue +16% to $5.4 million

LOS ANGELES, May 12, 2016 /CNW/ - INNOVA Gaming Group Inc. ("INNOVA" or the "Company") (TSX: IGG), today announced financial results for the three months ended March 31, 2016. All figures in this press release are in U.S. dollars, unless otherwise noted.

Highlights – Operations

• Deployed 63 LT-3 ticket dispensers ("LT-3") in Q1-2016. 1,940 LT-3 terminals were deployed as of the end of Q1. 1,984 terminals are currently deployed.
• Initiated a normal course issuer bid to leverage our strong balance sheet and free cash flow to purchase shares for cancellation in support of the fair market valuation of INNOVA Gaming shares.
• Received approval from the World Lottery Association for Diamond Game Enterprises ("Diamond Game"), a wholly owned subsidiary of INNOVA, to join as an Associate Member.
• Announced INNOVA's sponsorship of the Public Gaming Research Institute's Smart-Tech 2016 Conference, held in New York City from April 6-8 as part of a commitment to growing our industry leading reputation within the global lottery sector.

Highlights – Financial

• Revenue in Q1-2016 of $5.4 million, compared to $4.6 million in Q1-2015
• Average LT-3 WPU³ (win-per-unit) and ARPU³ (average revenue per unit) of $133 and $29, respectively
• Adjusted EBITDA¹ of $1.1 million in Q1-2016, compared to $1.4 million in Q1-2015
• Adjusted EPS² of $0.02 in Q1-2016, compared to $0.05 in Q1-2015

"Since our initial public offering twelve months ago, we have not only delivered on the goals we set for growth but have matured to become an established leader in our space," said Richard Weil, Chairman and CEO of INNOVA. "Although the timing of some deployments originally slated for Q1 2016 shifted to Q4 2015 in response to revised customer directives, we still generated strong revenue growth of over 16% compared to Q1 2015 and continued to roll out LT-3 terminals across our network.

Our solid reputation and demand for LT-3 terminals position us well to deliver on our target deployment range of 300 to 360 units over the course of 2016."

Selected Unaudited Condensed Consolidated Interim Financial Information

				For the three month
				period ended March 31,
				2016	2015
				$	$
Revenue				5,365,088	4,644,123
Gross profit				4,753,471	4,265,471
Net income				863,768	34,143
Total assets				36,254,666	35,109,394
Total long term financial liabilities				4,178,627	4,127,883
				2016	2015
				$	$
Adjusted earnings per share
Basic and diluted earnings per Common Share				0.04	0.00
Acquisition related costs				0.00	0.02
Audit adjustment				0.00	0.01
Stock based compensation				0.01	0.00
Unrealized foreign exchange (gain) loss				(0.03)	0.02
Adjusted EPS^(2)				0.02	0.05
Weighted average number of basic and diluted Common Shares				20,450,000	16,700,000
Reconciliation of net earnings to adjusted EBITDA
Net income				863,768	34,143
Interest and financing costs (net of interest income)				40,186	68,335
Income taxes				(38,063)	62,284
Depreciation and amortization				618,249	485,663
Acquisition related costs				7,090	411,842
Audit adjustment				-	95,807
Stock based compensation				177,259	-
Unrealized foreign exchange (gain) loss				(542,235)	265,006
Adjusted EBITDA^(1)				1,126,254	1,423,080

^(1)	Adjusted EBITDA is a non-IFRS measure. See "Non Non-IFRS Measures".
^(2)	Adjusted EPS is a non-IFRS measure. See "Non Non-IFRS Measures".
^(3)	Win-per-Unit and Average Revenue per Unit are non-IFRS measures. See "Non-IFRS Measures".

Revenue

LT-3 revenue grew by $1.3 million or 34% compared to the same period in 2015. This was partially offset by a decrease in AGP revenue of $0.6 million or 64%.  LT-3 revenue growth was primarily attributable to 464 additional machine deployments relative to the previous year, most significantly in Ontario, Missouri, and Maryland (Veterans' program), as well as a full quarter of operation for the Michigan Lottery which was only in the process of being rolled out in Q1 2015. Average LT-3 WPU increases reflect the maturation of WPU and ARPU in more established LT-3 install locations, as well as the result of new game features introduced in the Ontario market in Q4 2015. The significant increase in AGP WPU is primarily due to the removal of the lower WPU AGP machines in Texas. Total AGP revenue was lower due mainly to machine reductions in Texas.

The machine reductions in Texas resulted from the termination of an equipment lease agreement between Diamond Game and Blue Stone Entertainment LLC ("Blue Stone") on January 5, 2016. Prior to the termination, Blue Stone operated donation-based terminals leased from Diamond Game ("Terminals") at the Ysleta del Sur Pueblo's (the "Pueblo") two entertainment centers in Texas, pursuant to a separate agreement between Blue Stone and the Pueblo. The Terminals, which have been removed from the Pueblo's entertainment centers, are part of a class of products previously referred to in the Company's communications as alternative gaming products, or AGPs.

In connection with the Company's initial public offering, the Company entered into an EBITDA support agreement with Amaya Inc. having a term of up to five years from its effective date which the Company believes will substantially mitigate any adverse financial impact resulting from the abovementioned development in Texas. Accordingly, the Company recognized $380,850 of EBITDA support compensation as part of other non-operating income.  A copy of the EBITDA support agreement is available on SEDAR at www.sedar.com.

Cost of products

Cost of products was higher by $0.2 million or 62% compared to the same period in 2015 due mainly to higher machine service and data line expenses related to additional machine deployments. 

Selling expenses

Selling expenses were relatively flat as compared to the same period in 2015.

General and administrative expenses

General and administrative expenses increased by $1.0 million or 28% compared to the same period in 2015. The increase was largely driven by: higher salaries and wages expense of $0.5 million, resulting from hiring of senior management personnel; $0.4 million of increased public company cost, including higher audit and legal fees, consulting, directors and investor relations expenses; and stock based compensation expense of $0.2 million.

Financial expenses

Financial expenses decreased by $0.8 million due mainly to a foreign exchange gain of $0.5 million compared to a foreign exchange loss of $0.3 million for the same period in 2015.

Income taxes

Income taxes decreased by $0.1 million due mainly to adjustments in the temporary differences arising mainly from deferred revenue and prepaid costs.

Auditor

Effective April 19, 2016, the Corporation accepted the resignation of MNP LLP, Chartered Accountants, Toronto, Ontario ("MNP"), as the auditor of the Corporation, and appointed PricewaterhouseCoopers LLP, Chartered Accountants, Toronto, Ontario, as the new auditor of the Corporation. MNP was first appointed auditor of the Corporation on April 19, 2015.

Conference Call

INNOVA will host a conference call later today, Thursday, May 12, 2016 at 10:00 a.m. ET to discuss its 2016 first 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/1SqPTAu
Replay (available for 2 weeks)	416-849-0833; or 1-855-859-2056		1930897

INNOVA's interim consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2016 are available on SEDAR at www.sedar.com.

Non-IFRS Measures

INNOVA's financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). In this press release, as a complement to results provided in accordance with IFRS, INNOVA discloses and discusses certain non‐IFRS financial measures, including EBITDA, Adjusted EBITDA, Adjusted EPS, WPU and ARPU as well as other measures discussed elsewhere in this release. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of INNOVA's results of operations from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of INNOVA's financial information reported under IFRS. These measures are used to provide investors with supplemental measures of INNOVA's operating performance. For a full description of these measures and, where applicable, a reconciliation to the most directly comparable measure calculated in accordance with IFRS, please refer to the "Non‐IFRS Measures and Financial Indicators" section in INNOVA's Management's Discussion and Analysis for the three-month period ended March 31, 2016, 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 "extended 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 result 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, the creation of higher sales volumes and ongoing revenue and the expected mitigation of adverse financial impact as a result of the EBITDA support agreement, 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 annual information form dated March 28, 2016, 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

	March 31 2016 $	December 31 2015 $
ASSETS
Current
Cash	10,666,250	11,098,280
Accounts receivable	2,548,841	2,305,545
Inventories	1,968,584	1,910,159
Prepaid expenses and deposits	1,286,670	901,220
Income taxes receivable	325,173	409,492
	16,795,518	16,624,696
Property, equipment, and intangibles	10,613,607	10,174,121
Deferred income taxes	8,845,541	8,310,577
	36,254,666	35,109,394
LIABILITIES
Current
Accounts payable and accrued liabilities	2,548,521	2,707,467
Customer deposits	4,550	5,900
Deferred revenue	1,153,468	1,263,022
Current portion of equipment financing	1,519,366	1,307,678
Current portion of long term debt	375,992	369,442
	5,601,897	5,653,509
Deferred revenue	2,061,722	2,214,173
Equipment financing	1,395,988	1,380,293
Deferred income taxes	283,991	-
Long term debt	436,926	533,417
	9,780,524	9,781,392
SHAREHOLDERS' EQUITY
Share capital	21,841,033	21,735,920
Share issuance reserve	807,548	630,289
Retained earnings	3,825,561	2,961,793
	26,474,142	25,328,002
	36,254,666	35,109,394

Unaudited Condensed Consolidated Interim Statements of Income and Comprehensive Income

			For the three month
			period ended March 31,
			2016	2015
			$	$
Revenue			5,365,088	4,644,124
Cost of products			611,617	378,653
Gross Profit			4,753,471	4,265,471
Selling			349,245	370,611
General and administrative			4,454,928	3,482,611
Income (loss) from operations			(50,702)	412,249
Financial (gain) loss, net			(495,070)	311,322
Other non-operating (income) expenses			(381,337)	4,500
Income before income taxes			825,705	96,427
Current income tax provision expense (recovery)			107,795	(226,085)
Deferred income tax expense (recovery)			(145,858)	288,369
Net income and comprehensive income			863,768	34,143
Basic and diluted earnings per share (note 16)			0.04	0.00

Unaudited Condensed Consolidated Interim Statements of Cash Flows

		For the three month
		period ended March 31,
		2016	2015
		$	$
Cash flows (used in) from operating activities
Net income		863,768	34,143
Adjustments to reconcile net earnings to net cash provided
by operating activities:
	(Gain) / loss on sale of property and equipment	(487)	4,500
	Depreciation and amortization expense	618,249	485,663
	Share-based compensation	177,259	-
	Unrealized foreign exchange loss / (gain)	(512,380)	493,383
	Deferred income tax expense (recovery)	(145,858)	288,369
	Increase (decrease) in deferred revenue	(152,451)	363,640
Changes in non-cash operating elements of working capital		(872,702)	22,973
		(24,602)	1,692,671
Cash from (used in) investing activities
Purchase of property and equipment		(542,762)	(421,057)
Proceeds from sale of property and equipment		487	4,792
		(542,275)	(416,265)
Cash flows (used in) financing activities
Repayment of debt		(89,941)	-
Repayment of equipment financing		(332,185)	(382,428)
		(422,126)	(382,428)
Increase (decrease) in cash		(989,003)	893,978
Cash – beginning of period		11,098,280	3,136,182
Effects of foreign exchange on cash		556,973	28,108
Cash – end of period		10,666,250	4,058,268

SOURCE INNOVA Gaming Group

Jonathan Ross, CFA, LodeRock Advisors, INNOVA Investor Relations, [email protected], Tel: [phone]