PopReach Reports Third Quarter 2020 Financial Results

Revenue of US$4.3 million, Gross Profit margin of 58.1%, and significant year-over-year improvement in Adjusted EBITDA¹ and Net Loss

TORONTO, Nov. 30, 2020 /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 and nine months ended September 30, 2020.

Q3 2020 Operating Highlights
(All figures in US dollars)

• Revenue of $4.3 million, a seasonal decrease of 11.5% compared to $4.9 million in Q2 2020, but an increase of 3.0% compared to $4.2 million in Q3 2019
• Gross profit margin improved to 58.1%, from 56.6% in Q2 2020, and 42.9% in Q3 2019, driven by reductions in hosting fees and other expenses
• Operating expenses of $2.5 million, compared to $2.3 million in Q2 2020, and $2.7 million in Q3 2019
• Adjusted EBITDA¹ of $0.8 million (18.7% of revenue), a decrease of $0.7 million from Q2 2020 Adjusted EBITDA of $1.5 million (31.0% of revenue), but an increase of $0.2 million from Q3 2019 Adjusted EBITDA of $0.6 million (13.7% of revenue)
• Adjusted EBITDA of $3.2 million (22.9% of revenue) for the first nine months of 2020, doubling the $1.6M (12.5% of revenue) for the same nine-month period in 2019
• Net loss of $0.5 million, or ($0.01) per basic and diluted share, a 72% improvement versus the Q2 2020 net loss of $1.8 million, or ($0.05) per basic and diluted share, and half of the Q3 2019 net loss of $1.0 million, or ($0.03) per basic and diluted share

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

Highlights Subsequent to Quarter-End

• On October 2, 2020, the Company entered into a new non-revolving term facility of $6,500,000 with a leading Canadian Schedule I bank in order to refinance its prior bank credit facility on significantly improved terms, and entered into an operating line of credit of $1,000,000 with the same lender.
• On November 5, 2020, the Company closed a non-brokered private placement of C$5,000,000 with New Insight Incentive Plan Company, a 100% owned subsidiary of eWTP Tech Innovation Fund LP, the global investment arm of Alibaba Group.
• On November 27, 2020, the Company completed a public offering with Beacon Securities Limited, on behalf of a syndicate of underwriters, for the purchase on a bought deal basis, including the exercise of an over-allotment option, of 13,800,000 common shares at a price of C$1.25 per share for aggregate total gross proceeds to the Company of C$17,250,000.

Management Commentary

"Adjusted EBITDA for the nine months year to date has already surpassed our 2019 full year total as we successfully executed on cost reductions against our acquired assets while still investing profitably in future growth initiatives," said Jon Walsh, Co-founder and CEO of PopReach. "Our teams have been putting capital to work within our key franchises with new game prototypes, testing user acquisition campaigns and metrics, and building a game development leadership team in Vancouver. All of these initiatives help to set a strong foundation for revenue, Adjusted EBITDA and cash flow growth in 2021."

Added Mr. Walsh, "We also achieved a number of key milestones after the quarter-end to significantly strengthen our balance sheet, including the refinancing of our debt, a strategic investment from Alibaba's global investment arm, and the closing of an oversubscribed bought deal. PopReach is now in a strong position to continue to execute on our strategy of acquiring proven game franchises that will bring further accretive cash flows into the business."

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 September 30 2020		Three months ended June 30 2020		Three months ended September 30 2019
In-app purchases			$	4,185,045	$	4,706,106	$	3,970,133
Advertising				150,936		195,894		160,530
Other				248		326		80,844
Total revenue			$	4,336,229	$	4,902,326	$	4,211,507
Net Loss				(518,459)		(1,822,189)		(1,001,663)
Comprehensive Loss				(485,231)		(1,848,562)		(967,560)
Loss per share (basic and diluted)				(0.01)		(0.05)		(0.03)
Non-GAAP^1:
Bookings				4,156,652		4,793,186		4,248,239
EBITDA				902,669		702,487		348,028
Adjusted EBITDA				810,899		1,519,290		575,490

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

						Nine months ended September 30, 2020		Nine months ended September 30, 2019
In-app purchases					$	13,342,779	$	12,401,389
Advertising						571,505		480,480
Other						815		263,952
Total revenue					$	13,915,099	$	13,145,821
Net Loss						(3,018,390)		(3,040,910)
Comprehensive Loss						(2,970,431)		(3,030,658)
Loss per share (basic and diluted)						(0.07)		(0.08)
Non-GAAP^1:
Bookings						13,664,723		13,659,146
EBITDA						2,301,017		721,382
Adjusted EBITDA						3,190,254		1,649,654

				September 30, 2020		December 31, 2019
Cash and cash equivalents				1,914,969		1,126,160
Current assets				4,075,616		3,532,277
Total assets				11,088,570		12,617,436
Current liabilities excluding borrowings				4,360,133		5,952,882
Total non-current liabilities including borrowings				6,805,868		9,398,135

Financial Statements and MD&A

PopReach's Financial Statements for the third quarter ended September 30, 2020, and Management's Discussion and Analysis (the "MD&A") for the three and nine months ended September 30, 2020, 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 September 30 2020		Three months ended June 30 2020		Three months ended September 30 2019
Net loss	$	(518,459)	$	(1,822,189)	$	(1,001,663)
Add:
Interest and accretion expenses		207,941		354,426		358,368
Loss on disposal of assets		6,750		–		(62,285)
Current taxes (recovery)		(13,058)		34,092		44,561
Deferred tax recovery		(37,846)		–		954,637
Amortization		743,314		734,124		54,410
Fair value loss on financial liabilities		514,027		1,402,034
EBITDA		902,669		702,487		348,028
Add:						–
Share-based compensation expense		59,692		38,946		27,211
Change in deferred revenue		(179,577)		(109,140)		36,732
Reverse takeover listing expense		28,115		886,997		163,519
Acquisition legal expenses		–		–		–
Adjusted EBITDA		810,899		1,519,290		575,490
Adjusted EBITDA/Revenue %		19%		31%		14%

						Nine months ended September 30 2020		Nine months ended September 30 2019
Net loss					$	(3,018,390)	$	(3,040,910)
Add:
Interest and accretion expenses						939,065		883,384
Loss (gain) on disposal of assets						6,750		(62,285)
Income taxes						45,125		146,707
Deferred tax recovery						(37,846)		–
Amortization						2,212,232		2,733,441
Fair value loss on financial liabilities						2,154,081		61,045
EBITDA						2,301,017		721,382
Add:
Share-based compensation expense						130,779		116,503
Change in deferred revenue						(250,376)		513,325
Reverse takeover listing expense						1,008,834		–
Acquisition legal expenses						–		298,445
Adjusted EBITDA						3,190,254		1,649,655
Adjusted EBITDA/Revenue %						23%		13%

The increase in Adjusted EBITDA for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was largely related to the acquisition of the Smurfs Portfolio, along with efforts to reduce server cost expenses as mentioned in the "Summary of Significant Developments" in the MD&A.  The decrease in Adjusted EBITDA for the three months ended September 30, 2020 compared to the three months ended June 30, 2020 was related to a decrease in MAU, resulting in lower revenues, as well as increased professional fees relating to the Company's public listing.

The increase in Adjusted EBITDA for the nine months ended September 30, 2020 compared to nine months ended September 30, 2019 was largely related to the acquisition of the Smurfs Portfolio, along with efforts to reduce hosting and other fees as mentioned in the "Summary of Significant Developments" in the MD&A, as well as lower research and development salaries and benefits expenses as a result of the restructuring efforts at PR Tech during Q4 2019.

Decreases in amortization was due to the impairment charge recorded in Q4 2019. As a result of the impairment charge, the carrying values of the intangible assets were decreased, resulting in a lower amortization per period moving forward. Increases in interest and accretion expenses were due to the increase in convertible debt during the first half of 2020.

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 September 30 2020		Three months ended June 30 2020		Three months ended September 30 2019
Revenue			$	4,336,229	$	4,902,326	$	4,211,507
Add: Increase (decrease) in deferred revenue				(179,577)		(109,140)		36,732
Total bookings				4,156,652		4,793,186		4,248,239

					Nine months ended September 30 2020		Nine months ended September 30 2019
Revenue				$	13,915,099	$	13,145,821
Add: Change in deferred revenue					(250,376)		513,325
Total bookings					13,664,723		13,659,146

The decrease in bookings for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 is related to a decrease in average monthly users relative to the same period in the prior year, along with the absence of other revenues in the current year related to a revenue share agreement, which was terminated on July 31, 2019.  The decrease in bookings for the three months ended September 30, 2020 compared to the three months ended June 30, 2020 was due to seasonality.

Bookings for the nine-month period ended September 30, 2020 compared to the nine-month period ended September 30, 2019 are slightly higher as monthly average users were higher over the same comparative nine-month period offset by the absence of revenues related to a revenue share agreement, which was terminated on July 31, 2019.

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 mobile game publisher focused on acquiring and optimizing proven game franchises. The Company has acquired 12 successful game franchises competing mainly in the North American game market, including Smurfs' Village (IP under license), Kitchen Scramble, Gardens of Time, City Girl Life, War of Nations and Kingdoms of Camelot. The Company's games are enjoyed by over 1.2 million unique players a month. PopReach, headquartered in Toronto, employs a team of over 120 experts in Toronto, Vancouver, and Bangalore.

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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]