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

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