INNOVA Gaming Group Announces Q2 Financial Results

219 terminals deployed, Revenue +13% to $5.5 million, Adjusted EBITDA +33% to $1.4 million

LOS ANGELES, CA, Aug. 13, 2015 /CNW/ - INNOVA Gaming Group Inc. ("INNOVA" or the "Company") (TSX: IGG), today announced financial results for the three and six months ended June 30, 2015.

All figures in this press release are in U.S. dollars, unless otherwise noted.

Highlights – Operations

• Deployed 219 LT-3 terminals in Q2-2015 compared to 101 in Q1-2015. 1,695 terminals deployed as of the end of Q2. 1,703 terminals deployed to date.
• Commenced trial of new local progressive jackpot and multi-denomination functionality in Ontario.
• Received manufacturer license and approval for the LT-3 in New Hampshire subsequent to the end of Q2.
• Obtained a new United States patent for the "player's choice" feature on the LT-3. The patent provides important protection for this key feature, which enables a player to choose between redeeming a winning ticket at the terminal or at a cashier.

Highlights – Financials

• Revenue in Q2-2015 of $5.5 million, compared to $4.8 million in Q2-2014
• Adjusted EBITDA¹ of $1.4 million in Q2-2015, compared to $1.0 million in Q2-2014
• Adjusted basic and diluted earnings per share² of $0.03 in Q2-2015, compared to $0.02 in Q2-2014

"During our first 100 days as a public company, we have significantly increased our business development efforts, added key management team members to spur innovation and growth and enlarged the LT-3 installed base," said Richard Weil, Chairman and CEO of INNOVA. "Since INNOVA's acquisition of Diamond Game, I have visited most of our key LT-3 customers and the feedback has reinforced my view that INNOVA is on track to deliver the growth we promised shareholders at the time of our initial public offering ("IPO"). We are currently engaged in late-stage discussions with a number of parties and expect to continue to deploy additional machines through the end of the year. We are in a good position to meet or exceed the high end of our target deployment range of 25 to 30 units per month on average in 2015."

Selected Unaudited Condensed Consolidated Interim Financial Information

		For the three month periods ended June 30,		For the six month periods ended June 30,
		2015 $	2014 $	2015 $	2014 $
Revenue		5,477,505	4,838,397	10,121,629	9,582,849
Gross profit		4,823,377	4,025,627	9,267,306	8,020,249
Net earnings (loss)		(1,337,719)	8,639,222	(1,297,194)	7,891,739
Total Assets				34,217,749	20,435,351
Total Long Term Financial Liabilities				10,321,681	5,416,652
Basic and diluted earnings (loss) per share		(0.07)	0.52	(0.07)	0.47
Adjusted EPS^(2)		0.03	0.02	0.08	0.04
Weighted average number of basic and diluted common shares		19,200,000	16,700,000	17,950,000	16,700,000
Reconciliation of net earnings (loss) to adjusted EBITDA
Net earnings (loss)		(1,337,719)	8,639,222	(1,297,194)	7,891,739
Interest and financing costs (net of interest income)		91,332	(8,291)	159,667	77,381
Income taxes		(128,891)	(8,217,426)	(74,056)	(8,111,573)
Depreciation and amortization		613,418	629,562	1,099,081	1,273,993
Audit adjustments		-	-	95,807	-
IPO discretionary bonus		1,125,204	-	1,125,204	-
Acquisition related costs		485,039	-	896,881	820,757
Unrealized foreign exchange loss		297,868	(30,381)	563,941	(885)
Standard inventory adjustment		211,086	-	211,086	-
Adjusted EBITDA^(1)		1,357,337	1,012,686	2,780,417	1,951,412

(1)	Adjusted EBITDA is a non-IFRS measure. See "Non-IFRS Measures and Financial Indicators" in the Company's Management's Discussion and Analysis, dated August 13, 2015.
(2)	Adjusted EPS is a non-IFRS measure. See "Non-IFRS Measures and Financial Indicators" in the Company's Management's Discussion and Analysis, dated August 13, 2015.

Revenue

Three months ended June 30, 2015

On a year-over-year basis, LT-3 revenue in the three month period grew by $1.2 million or 32%, partially offset by a decrease in alternative gaming products ("AGP") revenue of $0.5 million or 40%.  LT-3 revenue growth was primarily attributable to (i) the expansion of our footprint in three new Lottery markets (Maryland, Michigan and Quebec), and (ii) continued strong performance in the existing markets of Ontario and Missouri.  Average LT-3 WPU and ARPU decreased relative to the prior period reflecting the ramp up of machines deployments in our new 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. 

Six months ended June 30, 2015

On a year-over-year basis, LT-3 revenue for the six month period grew by $1.6 million or 23%, partially offset by a decrease in AGP revenue of $1.0 million or 39%.  As stated above, the LT-3 revenue growth was primarily attributable to new installations in Maryland, Michigan and Quebec as well as the expansion of our deployed footprint in Ontario.  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 Bluestone Entertainment that had a modest impact on AGP revenue and APRU.

Cost of products

For the three and six month period compared to prior year, cost of products was lower by $0.2 million or 20% and $0.7 million or 45%, 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 3rd-party 2-Ply Break Open Ticket to a smaller, more price-efficient in-house 1-Ply Barcode Ticket.  2015 also reflects the full benefit of the investment made in late-2014 to upgrade the press imagers which has improved printing efficiencies and costs across all LT-3 markets.     

Selling expenses

For the three and six month period compared to prior year, selling cost increased by $0.1 million or 27% and $0.2 million or 21%, respectively due mainly to the additional incremental LT-3 machines deployed during the first half of this year as compared to 2014.

General and administrative expenses

Three months ended June 30, 2015

For the three month period compared to prior year, general and administrative expenses increased by $2.2 million or 66%. The increase was largely driven by a one-time IPO related discretionary bonus of $1.1 million (offset by a commensurate $1.0 million of paid in capital), higher professional and legal fees of $0.5 million relating to the IPO, higher salaries and wages expense of $0.3 million, resulting from hiring of senior management personnel, higher outside service fees of $0.2 million due mainly to the increases in machines deployed and higher audit fees of $0.1 million.

Six months ended June 30, 2015

For the six month period compared to prior year, general and administrative expenses increased by $1.7 million or 22% due mainly to one-time IPO related discretionary bonus of $1.1 million, higher outside service fees of $0.3 million due mainly to the increases in machines deployed, higher audit fees of $0.1 million and higher professional and legal fees of $0.1 million relating to the IPO. 

Financial expenses

Three months ended June 30, 2015

For the three month period compared to prior year, financial expenses increased by $0.4 million due mainly to higher foreign exchange loss of $0.3 million and higher interest on equipment financed of $0.1 million.

Six months ended June 30, 2015

For the six month period compared to prior year, financial expenses increased by $0.6 million due mainly to higher foreign exchange loss of $0.5 million and higher interest on equipment financed of $0.1 million.

Income taxes

For the three and six month period compared to prior year, recovery of income taxes decreased by $8.1 million and $8.0 million, respectively 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, Thursday, August 13, 2015 at 11:00 a.m. ET to discuss its 2015 second 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 August 13, 2015 at 11:00AM	647-427-7450; or 1-888-231-8191	http://bit.ly/1Imp77k
Replay (available for 2 weeks)	416-849-0833; or 1-855-859-2056		94595603

INNOVA's interim consolidated financial statements and management's discussion and analysis for the quarter ended June 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

		June 30 2015 $	December 31 2014 $
ASSETS
Current
Cash		13,825,752	3,136,182
Accounts receivable		2,327,093	1,923,222
Inventories (note 4)		1,667,256	2,158,688
Prepaid expenses and deposits		414,110	440,725
Current deferred income taxes		132,999	-
		18,367,210	7,658,817
Property, equipment, and intangibles (note 5)		8,645,162	8,065,612
Deferred income taxes		6,859,079	7,214,774
		33,871,451	22,939,203
LIABILITIES
Current
Accounts payable and accrued liabilities		2,394,811	2,357,605
Customer deposits		8,650	11,425
Income taxes payable		126,438	359,972
Deferred revenue		1,253,137	1,243,430
Current portion of equipment financing (note 6)		1,343,431	1,083,970
		5,126,467	5,056,402
Deferred revenue		2,620,276	1,780,984
Equipment financing (note 6)		1,995,617	1,795,358
Deferred income taxes		372,397	381,636
		10,114,757	9,014,380
Commitments and contingency (note 7)
SHAREHOLDERS' EQUITY
Share capital (note 8)		21,842,524	10,567,704
Accumulated other comprehensive loss		(6,381)	-
Retained earnings		1,920,551	3,357,119
		23,756,694	13,924,823
		33,871,451	22,939,203
See notes in INNOVA's Unaudited Condensed Consolidated Interim Financial Statements for the three and six month periods ended June 30, 2015 and 2014

Unaudited Condensed Consolidated Interim Statements of Comprehensive Income (Loss)

	For the three month periods ended June 30,		For the six month periods ended June 30,
	2015 $	2014 $	2015 $	2014 $
Revenue	5,477,505	4,838,397	10,121,629	9,582,849
Cost of products	654,128	604,875	854,323	1,208,340
Gross Profit	4,823,377	4,233,522	9,267,306	8,374,509
Selling	465,803	366,094	839,897	692,365
General and administrative	5,423,124	3,466,677	9,088,155	7,774,808
Profit (loss) from operations	(1,065,550)	400,751	(660,746)	(92,664)
Other non-operating expenses	18,249	5,400	22,748	50,097
Financial expense, net (note 14)	393,294	(26,445)	698,239	77,073
Earnings (loss) before income taxes	(1,477,093)	421,796	(1,381,733)	(219,834)
Provision for (recovery of) income taxes	-	(8,217,426)	54,835	(8,111,573)
Net earnings (loss)	(1,477,093)	8,639,222	(1,436,568)	7,891,739
Other Comprehensive loss	-	(26,822)	(6,381)	(26,822)
Comprehensive Income (loss)	(1,477,093)	8,612,400	(1,442,949)	7,864,917
Basic and diluted earnings (loss) per share (note 15)	(0.08)	0.52	(0.08)	0.47

	See notes in INNOVA's Unaudited Condensed Consolidated Interim Financial Statements for the three and six month periods ended June 30, 2015 and 2014

 

Unaudited Condensed Consolidated Interim Statements of Cash Flows

		For the six month periods ended	For the six month periods ended
		June 30 2015 $	June 30 2014 $
Cash flows from operating activities
Net earnings (loss)		(1,436,568)	7,891,739
Adjustments to reconcile net earnings to net cash provided by operating activities:
	Loss on sale of property and equipment	22,748	-
	Depreciation and amortization expense	1,099,081	1,273,993
	Unrealized foreign exchange (gain) loss	557,896	(27,707)
	Interest on equipment financing loans	122,230	-
	Transfer of inventory to property and equipment	(699,862)	-
(Increase) decrease in inventory		491,432	(608,294)
(Increase) decrease in deferred income taxes		213,457	(8,391,957)
Increase in deferred revenue		848,999	312,244
(Increase) in trade and other receivable		(377,256)	(586,717)
(Decrease) in trade and other payable		(199,103)	(650,598)
		643,054	(787,297)
Cash flows from financing activities
Proceeds from issuance of common stock		12,393,044	-
Proceeds from shareholder injection		1,000,000	7,561,496
Transaction costs related to the issuance of common stock		(2,097,865)	-
Dividend paid		-	(94,338)
Repayment of debt		-	(5,351,342)
Proceeds from equipment financing loans		1,060,877	28,981
Repayment of equipment financing loans		(818,240)	-
		11,537,816	2,144,797
Cash flows from investing activities
Purchase of property and equipment		(1,526,609)	(495,295)
Proceeds from sale of property and equipment		54,111	-
		(1,472,498)	(495,295)
Increase in cash		10,708,372	862,205
Cash – beginning of period		3,136,182	175,719
Unrealized foreign exchange gain (loss) difference in cash		(18,801)	886
Cash – end of period		13,825,752	1,038,810
	See notes in INNOVA's Unaudited Condensed Consolidated Interim Financial Statements for the three and six month periods ended June 30, 2015 and 2014

SOURCE INNOVA Gaming Group

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