Mr. Richard Weil reports
INNOVA ANNOUNCES Q4 AND FULL YEAR 2016 FINANCIAL RESULTS
Innova Gaming Group Inc. has released its financial results for the three- and 12-month periods ended Dec. 31, 2016. All figures in this press release are in U.S. dollars, unless otherwise noted.
2016 operational highlights:
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The company deployed 185 new LT-3 ticket dispensers in the 12 months ending Dec. 31. Two thousand sixty-two LT-3s were deployed at Dec. 31, 2016, and 1,968 LT-3s were deployed at March 22, 2017. The reduction in LT-3s from Dec. 31, 2016, to March 22, 2017, is primarily related to removals from Missouri liquor-by-the-drink locations. The company believes that accommodating the Missouri Lottery with the withdrawal of the company's machines from liquor-by-the-drink locations will facilitate the continuation of the company's pilot program in fraternal and veteran halls in the state of Missouri, and potentially allow the company to redeploy some of the removed machines in fraternal and veteran halls in the state.
- Innova's wholly owned subsidiary Diamond Game Enterprises signed an agreement with Tonk Group to distribute LT-3s in New Hampshire under a charitable program regulated by the New Hampshire Lottery.
- Diamond Game was approved to join the World Lottery Association as an associate member, recognizing Diamond Game's success as a provider of unique local, extended-play gaming solutions to North American lotteries and the company's growing influence within the global lottery community.
- Diamond Game unveiled NexPlay -- a suite of innovative lottery products -- at the North American State and Provincial Lottery Conference in October, 2016. The conference is the largest lottery show in North America.
2016 financial highlights:
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Revenue was $22.7-million in 2016, compared with $21.2-million in 2015.
- LT-3 revenue grew 19.1 per cent in 2016, compared with 2015.
- Average LT-3 WPU (win per unit per day) and ARPU (average revenue per unit per day) were $142 and $29, respectively.
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Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $5.8-million in 2016, compared with $4.6-million in 2015.
- Adjusted EPS (earnings per share) was 15 cents in 2016, compared with nine cents in 2015.
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The company instituted a normal course issuer bid (NCIB) on March 29, 2016, and as of Dec. 31, 2016, the company had purchased and cancelled an aggregate of 369,500 common shares under this program.
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The company recognized $1,342,763 of EBITDA support compensation as part of other non-operating income, of which $638,839 was received in cash.
"We continued to drive solid revenue and earnings growth in 2016 despite some specific challenges from a new deployment perspective," said Richard Weil, chairman and chief executive officer of Innova. "The reality of dealing with heavily regulated customers is that approval for new deployments can take longer than desired. However, once installed, the units generate strong recurring revenue that benefits Innova, lotteries and the charities they support. In the almost two years since going public, we have assembled the team and established the infrastructure required to maintain our business and drive growth. In 2017, with the bulk of near-term product and new feature spending behind us, we expect to continue to generate earnings growth on our current base while working with existing and potential customers to drive deployment upside."
Subsequent highlights
On March 10, 2017, Innova received an unsolicited proposal from Pollard Banknote Ltd. to acquire all of the outstanding common shares of Innova for cash consideration of $2.10 per share. On the same day, Pollard Banknote and Amaya entered into an agreement pursuant to which Amaya has agreed to support the Pollard proposal. Amaya indirectly owns 8.18 million shares, representing approximately 40.45 per cent of the outstanding shares on a non-diluted basis. The support agreement (i) contains covenants restricting Amaya's ability to solicit or in any manner assist with any proposal for a transaction involving Innova other than the Pollard proposal, (ii) may be terminated by Amaya in order to accept a proposal superior to the Pollard proposal, subject to Pollard Banknote's ability to match any such superior proposal, (iii) requires that any acquisition agreement entered into between Pollard Banknote and Innova in connection with the Pollard proposal include customary fiduciary-out, right-to-match and termination provisions, and (iv) may be terminated by Amaya if Pollard Banknote has not entered into an acquisition agreement with Innova or commenced a formal takeover bid that has not been withdrawn prior to May 8, 2017.
The board of directors of Innova has formed a special committee comprising Paul van Eyk and Edward Stanek, each an independent director of the company, to review and evaluate the Pollard proposal and to consider any strategic alternatives to the Pollard proposal that might be available to the company. The special committee has engaged Davies Ward Phillips & Vineberg LLP to act as its legal adviser and Raymond James Ltd. to act as financial adviser.
There can be no assurance that the Pollard proposal or any strategic alternatives to the Pollard proposal that might be available to the company will result in a formal takeover bid or offer for the shares or that any such takeover bid or offer will ultimately result in a completed transaction. Innova's shareholders do not need to take any action with respect to the Pollard proposal at this time. The company intends to continue provide updates if and when necessary in accordance with applicable securities laws.
SELECTED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the three-month period For the year
ended Dec. 31, ended Dec. 31,
2016 2015 2016 2015 2014
Revenue $5,771,057 $5,796,418 $22,677,196 $21,229,051 $18,525,902
Gross profit 4,981,115 5,151,763 19,975,654 18,756,288 16,043,291
Net income (loss) (33,771) 1,290,020 1,335,417 (395,326) 6,813,068
Total assets 34,407,809 35,109,394 22,939,203
Total long-term financial liabilities 1,949,635 4,127,883 3,957,978
Reconciliation of basic to adjusted EPS
Basic and diluted earnings
(loss) per common share - 0.06 0.07 (0.02) 0.41
Income taxes (loss) 0.01 (0.08) 0.04 (0.09) (0.39)
Acquisition and related costs - - - 0.05 0.05
Audit adjustment - - - 0.01 -
IPO discretionary bonus - - - 0.06 -
Office shutdown costs - - - - 0.01
Related-party payable write-off (loss) - - - (0.01) -
Inventory adjustment - - - 0.01 -
Stock-based compensation 0.01 0.03 0.03 0.03 -
Severance and related cost 0.02 - 0.02 - 0.01
Unrealized foreign exchange (gain) loss 0.01 (0.01) (0.01) 0.05 (0.01)
--------- --------- --------- --------- ---------
Adjusted EPS 0.05 - 0.15 0.09 0.08
For the three-month period For the year
ended Dec. 31, ended Dec. 31,
2016 2015 2016 2015 2014
Reconciliation of net income
(loss) to adjusted EBITDA
Net income (loss) ($33,771) $1,290,020 $1,335,417 ($395,326) $6,813,068
Interest and financing costs
(net of interest income) 24,354 46,960 142,166 268,245 223,532
Income tax expense (recovery) 222,061 (1,673,435) 848,002 (1,690,540) (6,518,657)
Depreciation and amortization 697,418 909,343 2,629,733 2,598,536 2,377,646
Acquisition and related (costs) 4,262 (450) 11,352 894,362 820,757
Audit adjustment - - - 95,807 -
IPO discretionary bonus - - - 1,125,204 -
Office shutdown costs - - - - 138,000
Related-party payable
write-off (loss) - - - (98,113) -
Standard inventory adjustment - - - 211,086 -
Stock-based compensation 111,637 630,289 575,580 630,289 -
Severance and related cost 488,213 - 488,213 - 153,000
Unrealized foreign exchange
(gain) loss 201,392 (278,667) (245,876) 944,879 (97,951)
Adjusted EBITDA 1,715,566 924,060 5,784,587 4,584,429 3,909,395
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 Innova's wholly owned subsidiary, Diamond Game Enterprises, the company 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. The company's primary product is its third-generation Lucky Tab machine, an instant ticket vending machine that dispenses tickets while simultaneously displaying the results of each ticket on a video monitor in an entertaining fashion.
We seek Safe Harbor.
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