PopReach Reports First Quarter 2021 Financial Results

Positive performance from growth franchises led to mobile revenue growing 14% sequentially quarter over quarter, with ongoing operating cost reductions improving gross profit margin to 62%

TORONTO, May 31, 2021 /CNW/ - PopReach Corporation ("PopReach" or the "Company") (TSXV: POPR) (OTCQX: POPRF), a free-to-play game publisher focused on acquiring and optimizing proven game franchises, today announced financial results for the three months ended March 31, 2021.

(All figures in US dollars, unless otherwise indicated)

Q1 2021 Financial Highlights

• Revenue from mobile platforms (Apple, Google and Amazon) was $3.0 million (72.8% of total revenue), compared to $2.6 million in Q4 2020 (63.7%), and $3.2 million in Q1 2020 (67.6%), driven by the roll out of successful improvements to growth franchises
• Revenue of $4.1 million, compared to $4.1 million in Q4 2020, and $4.7 million in Q1 2020; overall revenue was impacted by the end of life of Adobe Flash technology on December 31, 2020, which has led to an industry wide decline in Facebook Canvas platform game activity
• Gross profit margin increased to 62.0%, from 61.3% in Q4 2020, and 48.8% in Q1 2020, driven by the ongoing execution of operating cost reductions
• Operating expenses of $2.6 million, compared to $2.9 million in Q4 2020, and $2.6 million in Q1 2020
• EBITDA¹ of $0.4 million (10.8% of revenue), compared to $0.8 million (18.6%) in Q4 2020, and $0.7 million (14.9%) in Q1 2020
• Adjusted EBITDA¹ of $0.9 million (20.9% of revenue), compared to $0.7 million (18.1%) in Q4 2020, and $0.9 million (18.4%) in Q1 2020
• Net income of $2.2 million ($0.03 per basic and diluted share), compared to a net loss of $3.3 million (($0.05) per basic and diluted share) in Q4 2020, and a net loss of $0.7 million (($0.02) per basic and diluted share) in Q1 2020
• Cash generated by operating activities in Q1 2021, net of working capital changes, was $0.4 million, compared to $0.6 million in Q4 2020, and $0.7 million in Q1 2020
• Cash at the end of March 31, 2021 was $14.8 million, compared to $18.1 million from the end of 2020, and debt outstanding on the bank credit facility was $5.9 million, compared to $6.0 million from the end of 2020; the decrease in cash is due to payments relating to the Company's Q1 2021 M&A activities

¹ Please refer to "Non-GAAP Measures" section of this press release

Q1 2021 Operating Highlights

• On March 18, 2021, the Company acquired substantially all of the assets relating to the award winning "Peak – Brain Training" app for aggregate cash consideration of $5 million, increasing the number of monthly active users in its portfolio to over 1.9 million at the end of Q1 2021; although it did not contribute meaningfully to Q1 2021 due to having closed so late in the quarter, the Company will recognize a full quarter of Peak revenue in Q2 2021, which it expects to be material
• In Q4 2020, the Company undertook new investments in the improvement of its mobile growth game franchises, including War of Nations, Kitchen Scramble, and Smurfs' Village, which it successfully started rolling out in Q1 2021, and which will continue through the back half of the year; these investments are expected to drive revenue growth in the coming quarters

Subsequent Highlights

• On April 13, 2021, the Company acquired all right and title to the existing "PAYDAY Crime War" source code and game assets for cash consideration of $0.25 million, and entered into a five-year licensing agreement to commercialize the game worldwide; the transition of these assets is complete, and the Company is pleased that it is on target for its soft launch of the only mobile version of one of the world's most successful first person shooter franchises later this year

Management Commentary

"We are thrilled to see our investments in growth franchises begin to yield fruit, with mobile game revenue growing 14% sequentially from the fourth quarter," said Jon Walsh, Co-founder and CEO of PopReach. "PopReach continues to be cash and EBITDA positive, and is committed to executing its growth initiatives on an ROI positive basis.  Although revenue from the Facebook Canvas platform was down, this reflects industry wide declines attributable to Adobe Flash technology's end of life at the end of 2020; however, our Facebook games are expected to continue to be cash positive, and prove our investment thesis, having already paid back our original 2018 investment on a net cash basis."

Added Christopher Locke, Co-founder and President of PopReach "Looking to the rest of the year, we have a number of drivers of growth we're excited about. The integration of Peak is complete and will contribute meaningfully to our second quarter numbers.  Based on results to date, we're optimistic that our initiatives around War of Nations, Kitchen Scramble, and Smurfs' Village, will drive revenue growth in the second half of the year. Finally, our team is hard at work on the first ever mobile PAYDAY game, which we expect to soft launch late this year, while our acquisition pipeline remains robust with a number of opportunities available."

Selected Quarterly Information

Below is selected quarterly information from the Company's consolidated financial statements for each of the quarterly periods indicated. The Company's functional and presentation currency is US Dollars. Except where indicated, the following financial data is reported in accordance with IFRS.

		Three months ended March 31 2021		Three months ended December 31 2020		Three months ended March 31 2020
In-app purchases	$	3,938,807	$	3,957,439	$	4,451,628
Advertising		137,722		137,370		224,674
Other		1,371		377		242
Total revenue	$	4,077,900	$	4,095,186	$	4,676,544
Net Income (Loss)		2,161,299		(3,282,834)		(677,742)
Comprehensive Income (Loss)		2,184,484		(3,354,148)		(636,638)
Earnings (loss) per share (basic and diluted)		0.03		(0.05)		(0.02)
Non-GAAP^1:
Bookings		4,115,915		4,026,525		4,714,885
EBITDA		440,276		761,775		695,861
Adjusted EBITDA		851,647		742,536		860,065

¹ Please refer to "Non-GAAP Measures" section of this press release

		March 31, 2021		December 31, 2020
Cash and cash equivalents	$	14,736,180	$	18,097,649
Current assets		17,229,062		20,079,201
Total assets		29,033,708		25,934,531
Current liabilities		8,737,884		7,879,809
Non-current liabilities		5,463,780		5,534,564

		Three months ended March 31 2021		Three months ended December 31 2020		Three months ended March 31 2020
Apple	$	1,779,882	$	1,639,606	$	2,005,458
Facebook		1,110,453		1,485,551		1,517,493
Google		970,001		781,622		854,970
Amazon		65,655		50,660		73,707
Other mobile		12,816		-		-
Total in-app purchases		3,938,807		3,957,439		4,451,628

Conference Call

Management will host a conference call on Monday, May 31, 2021 at 8:30 am ET to discuss these first quarter 2021 results.

To access the conference call, please dial 416-764- 8659 or 1-888-664-6392 or access the webcast at https://bit.ly/3ttVxHJ. An archived recording of the conference call will be available until June 3, 2021 and for 90 days on our website at https://www.popreach.com/investor-relations/ . To listen to the recording, call 416-764-8677 or 1-888-390-0541 and enter passcode 589988.

Financial Statements and MD&A

PopReach's Financial Statements for the three months ended March 31, 2021, and Management's Discussion and Analysis (the "MD&A") for the three months ended March 31, 2021, are available on the company's profile on SEDAR at www.sedar.com.

Non-GAAP Measures

The Company prepares its financial statements in accordance with IFRS. However, the Company considers certain non-GAAP financial measures as useful additional information to assess its financial performance. These measures, which it believes are widely used by investors, securities analysts and other interested parties to evaluate its performance, do not have a standardized meaning prescribed by GAAP and therefore may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to financial measures determined in accordance with IFRS. Non-GAAP measures include "Bookings", "EBITDA" and "Adjusted EBITDA".

EBITDA and adjusted EBITDA

Earnings before interest, taxes, depreciation and amortization ("EBITDA") and consolidated adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") are non-IFRS measures of financial performance. The presentation of these non-IFRS financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with IFRS, and may be different from non-IFRS financial measures used by other companies. Company management defines EBITDA as follows:  IFRS Net income (loss) adding back accretion and interest expenses (including amortization of deferred financing fees), income taxes, amortization, gain/loss on disposal of assets, and fair value gain/loss on financial liabilities.  Adjusted EBITDA is calculated as EBITDA and excludes discontinued operations and the effects of significant items of income and expenditure which may have an impact on the quality of earnings, such as restructuring costs, legal expenses, and impairments where the impairment is the result of an isolated, non-recurring event. It also excludes the effects of equity-settled share-based payments, and changes in deferred revenues.

Management believes EBITDA and Adjusted EBITDA are useful financial metrics to assess its operating performance on a cash basis before the impact of non-cash items.

The following table presents the Company's calculation of EBITDA and Adjusted EBITDA for each period: 

		Three months ended March 31 2021		Three months ended December 31 2020		Three months ended March 31 2020
Net loss	$	2,161,299	$	(3,282,834)	$	(677,742)
Add:
Interest and accretion expenses		138,140		477,959		376,698
Current taxes (recovery)		31,392		81,951		24,091
Deferred tax recovery		(1,198)		(21,638)		-
Amortization		400,576		682,556		734,794
Fair value loss (gain) on financial liabilities		(2,289,933)		2,823,781		238,020
EBITDA		440,276		761,775		695,861
Add:
Share-based compensation expense		73,939		49,422		-
Change in deferred revenue		38,015		(68,661)		32,141
Change in deferred cost of sales		(35,973)		-		38,341
Extraordinary one-time expenses		335,390		-		93,722
Adjusted EBITDA		851,647		742,536		860,065
Adjusted EBITDA/Revenue %		21%		18%		18%

Adjusted EBITDA was $851,647 for the three months ended March 31, 2021 compared to $860,065 for the three months ended March 31, 2020, which represents a decrease of $8,418 or 1%.

The decrease in amortization was due to certain intangible assets being fully amortized during 2020. Decreases in interest and accretion expenses were due to the restructuring of the credit facility mentioned in "Summary of Significant Developments" in the MD&A.

Non-operating items

Fair value gain on financial liabilities was $2,289,933 for the three months ended March 31, 2021 compared to a fair value loss of $238,020 for the three months ended March 31, 2020. The full amount of the fair value gain of $2,289,933 for the three months ended March 31, 2021 related to the change in fair value of the warrant liability. As the share price of the Company increases, the fair value of the warrant liability increases. Conversely, if the share price of the Company decreases, the fair value of the warrant liability decreases. The entire $238,020 loss for the three months ended March 31, 2020 also related to the fair value loss of the conversion feature and warrant liability.  As the probability of the Transaction mentioned in the "Summary of Significant Developments" increased, along with the valuation of the Company, the fair value of the conversion feature and warrants also increased.

Bookings

Bookings is a non-GAAP financial measure that is equal to revenue recognized plus or minus the change in deferred revenue during the period. The following table is the reconciliation from revenue to bookings for each period:

		Three months ended March 31 2021		Three months ended December 31 2020		Three months ended March 31 2020
Revenue	$	4,077,900	$	4,095,186	$	4,676,544
Add: Increase (decrease) in deferred revenue		38,015		(68,661)		38,341
Total bookings		4,115,915		4,026,525		4,714,885

The decrease in bookings for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, are due to the industry wide decline of the Facebook Canvas platform, as discussed in the Growth Platforms section of "Summary of Significant Developments" in the MD&A.  The company also continues to experience COVID-19 related delays in the launch of growth game features designed to increase engagement and monetization, delayed content updates and bug fixes relating to the live operations of the Company's entire portfolio of games, and the delay of planned new user growth marketing initiatives due to inflated user acquisition costs resulting from Apple's IDFA policy change.

About PopReach Corporation

PopReach, a Tier 1 Issuer on the TSX Venture Exchange, with shares also trading on OTCQX® Best Market, is a free-to-play game publisher focused on acquiring and optimizing proven franchises. The Company has to date acquired successful game franchises enjoyed by over 1.9 million unique players a month, including Smurfs' Village (IP under license), PAYDAY Crime War (IP under license), Peak - Brain Training, Kitchen Scramble, Gardens of Time, City Girl Life, War of Nations and Kingdoms of Camelot. PopReach, headquartered in Toronto, employs a team of over 130 experts in Toronto, Vancouver, London, UK, and Bangalore, India.

Additional information about the Company is available at www.sedar.com  

Forward-looking Information

Certain information in this news release constitutes forward-looking statements and forward-looking information under applicable Canadian securities legislation (collectively, "forward-looking information"). Forward-looking information include, but are not limited to, statements with respect to and the business, financials and operations of the Company. Statements containing forward-looking information are not historical facts but instead represent management's expectations, estimates and projections regarding future events. Forward looking information is necessarily based on a number of opinions, assumptions and estimates that, while considered reasonable by the Company as of the date of this news release, are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements and future events to be materially different from those expressed or implied by such forward-looking information, including but not limited to the factors described in greater detail in the public documents of the Company available at www.sedar.com. Although the Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially, there may be others that cause results not to be as anticipated, estimated or intended. Investors are cautioned undue reliance should not be placed on any such information, as unknown or unpredictable factors could have material adverse effects on future results, performance or achievements of the Company. The Company does not intend, and does not assume any obligation, to update this forward-looking information except as otherwise required by applicable law.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

SOURCE PopReach Corporation

Dennis Fong, Investor Relations, [phone], [email protected]; PopReach Corporation, www.popreach.com, Christopher Locke, [email protected]