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Tapinator Releases Q3 2016 Results

11/14/2016

New York, NY, November 14, 2016 - Tapinator, Inc. (OTC: TAPM), a publisher of mobile games on the iOS, Google Play and Amazon platforms, today announced financial results and the filing of its quarterly report for the period ended September 30, 2016.  The quarterly report and unaudited financial statements may be found at http://www.otcmarkets.com/stock/TAPM/filings.

“Tapinator demonstrated strong growth in the third quarter of 2016,” stated Tapinator CEO, Ilya Nikolayev.  “Driven by more than 21 million average monthly active users, our third quarter revenues grew 49% year-over-year to approximately $1,083,000, representing our ninth consecutive quarter of at least double-digit year-over-year revenue growth.   Our revenue expansion can be attributed primarily to the broadening of our Rapid-Launch Games portfolio and, within our Full-Featured Games division, to the late Q2 launch of Combo Quest 2 on iOS and the continued growth of our Video Poker Classic title across all major mobile platforms.  In addition to our strong revenue growth, Tapinator is also pleased to announce adjusted EBITDA (a non-GAAP earnings measure) of approximately $277,000 in the third quarter of 2016, an increase of 276% year-over-year, and our tenth consecutive quarter of positive adjusted EBITDA. 

We were very pleased with our third quarter results as we saw significant year-over-year growth in player engagement, revenue and adjusted EBITDA, combined with increased diversification of our revenue base.  However, within our Rapid-Launch business, new player downloads on the Google Play platform slowed, beginning midway through the third quarter, causing us to take a more cautious outlook toward our upcoming fourth quarter performance as more fully described in our Forward Guidance below."

Financial Highlights

  • Quarterly revenues of $1,083,176; up 49% year-over-year
  • Nine-month year-to-date revenues of $2,994,262; up 71% year-over-year
  • Quarterly adjusted EBITDA* (a non-GAAP measure) of $277,869; up 276% year-over-year
  • Nine-month year-to date adjusted EBITDA* (a non-GAAP measure) of $740,490; up 98% year-over-year
  • $750,976 in cash and cash equivalents as of September 30, 2016

* A table has been included later in this press release with non-GAAP adjustments to the Company's net loss, resulting in positive adjusted EBITDA for the relevant periods.

Product Highlights

The Company ended Q3 with 272 active games, of which 28 were released during the quarter.  As of September 30, 2016, Tapinator had 81 titles within its portfolio that had each achieved at least one million downloads, up from 66 games that had reached this milestone at the end of Q2 2016.  Within our Rapid-Launch Games business, Whirlpool Car Derby 3D, Multi-Storey Car Parking 3D, and City Car Stunts 3D performed especially well in Q3, achieving over 4.5 million combined downloads and 90,000 combined daily active unique (DAU) players in Q3. These leading titles also illustrate the diversity of the Company’s portfolio maturity as these games were released in July 2016, March 2016 and January 2015, respectively.

The Company continues to dedicate substantial resources to its Full-Featured Games business and is making larger, more concentrated investments into games that management believes have ‘evergreen’ characteristics and/or major ‘hit’ potential.  To that end, the Company did not release any new Full-Featured Games in Q3, but instead focused on important upcoming game releases for Q4 2016 and Q1 2017.

On December 8, 2016, the Company will be releasing its ROCKY mobile game. The title, built in partnership with MGM, is based on the legendary movie franchise and is being released in conjunction with the 40th anniversary of the original motion picture. The game, currently in soft-launch in Canada and Australia, will feature multiplayer functionality, collectible fighter cards, and time-tap mechanics. The Company believes that these systems will equip the ROCKY mobile game with best-in-class monetization and player engagement.

Also in Q4, the Company will launch Combo Quest 2, the freemium sequel to our original paid game, Combo Quest, on the Google Play platform.  The sequel, which was featured as a ‘Best New Game’ on iOS and has generated in excess of 500,000 installs to date, was well received by players who have given the game a 4.5 (out of 5.0) average review score.   The Google Play version will feature additional improvements to the game that are designed to increase both player monetization and enjoyment.

Looking beyond this year, in Q1 2017 we will be launching Big Sport Fishing 2017 (BSF 2017) in partnership with RocketMind.  BSF 2017, currently in soft-launch in Canada, was originally scheduled for a 2016 release, but based on initial player feedback, was delayed to allow for further game improvements prior to global launch.  This product-centric decision was taken in the context of what management believes to be the enormous size and long-term opportunity of the virtual fishing market on mobile.  Also in Q1 2017, we will be launching a unique Solitaire game, the name of which has not yet been disclosed.  Solitaire, according to App Store and Google Play leaderboards, is the most popular category of card games on mobile and, recently, several themed solitaire games have proven out the category’s top grossing potential. Our new solitaire title will combine the classic game with a theme that we believe will resonate widely, across age groups and geographic regions.

Player & Game Metrics

  • Average DAUs – 1.2 million; up 100% year-over-year
  • Average MAUs – 21.5 million; up 110% year-over-year
  • Average New Daily Downloads – 626,000; up 51% year-over-year
  • Cumulative Player Downloads – 324 million as of September 30, 2016; up 140% year-over-year
  • Game Library – 272 active titles as of September 30, 2016; up from 158 year-over-year
  • Game Diversification – No single game accounted for more than 7% of total revenues during the nine-month period ended September 30, 2016

Financial Results* (unaudited)

*Certain reclassifications have been made to the 2015 data to conform to the current year presentation.  These reclassifications had no effect on reported income (losses).

Quarterly Summary of Results

Tapinator, Inc. recorded gross revenues of $1,083,176 and a net loss of $1,090,762 for the three-month period ended September 30, 2016.  This compares to gross revenue of $728,128 and net loss of $582,390 for the same period in 2015.  The net loss increase was primarily attributable to non-cash financing related charges associated with the refinancing of the Company’s Senior Secured Convertible Debenture which was completed during the third quarter of 2016.

For the nine-month period ended September 30, 2015, the Company recorded gross revenues of $2,994,262 and a net loss of $1,901,009.  This compares to gross revenue of $1,755,369 and net loss of $875,541 for the same period in 2015.  The net loss increase was primarily attributable to non-cash financing related charges associated with the refinancing of the Company’s Senior Secured Convertible Debenture which was completed during the third quarter of 2016, together with increased general and administrative, and marketing and public relations costs.

For the three-month period ended September 30, 2016, the Company generated operating income of $53,232, as compared to an incurred operating loss of $173,038 for the comparable three-month period ended September 30, 2015.  The increase in operating income is primarily due to operating leverage on the higher level of revenues achieved during the period.

For the nine-month period ended September 30, 2016, the Company generated operating income of $60,822, as compared to an incurred operating loss of $254,118 for the comparable nine-month period ended September 30, 2015.  The increase in operating income is primarily due to operating leverage on the higher level of revenues achieved during the period.

For the three-month period ended September 30, 2016, the Company achieved adjusted EBITDA (a non-GAAP earnings measure discussed below) of $277,869 (25.6%), as compared to adjusted EBITDA of $73,914 (10.2%) for the comparable three-month period ended September 30, 2015.  The increase in adjusted EBITDA is primarily due to operating leverage on the higher level of revenues achieved during the period.

For the nine-month period ended September 30, 2016, the Company achieved adjusted EBITDA (a non-GAAP earnings measure discussed below) of $740,490 (24.7%), as compared to adjusted EBITDA of $373,188 (21.3%) for the comparable nine-month period ended September 30, 2015.  The increase in adjusted EBITDA is primarily due to operating leverage on the higher level of revenues achieved during the period.

Tapinator’s cash balance decreased to $750,976 as of September 30, 2016 from the period ended December 31, 2015, when the cash balance was $1,487,196.  The decrease in cash is primarily due to a principal repayment of $560,000 and interest payments of $89,600 related to the Company’s Senior Secured Convertible Debenture.  As previously disclosed in a press release issued on August 2, 2016, the Company successfully refinanced this Debenture in July 2016, resulting in a new Senior Secured Convertible Debenture that matures in May 2018.

Forward Guidance

As a result of certain changes in the Google Play store that occurred during Q3 2016, the discoverability of the Company’s Rapid-Launch games was and continues to be adversely affected, resulting in a corresponding decline in new player downloads.  Historically, the Company has evolved its game product and marketing strategies to adapt to the changing marketplaces as governed by the platform operators, and we expect to continue to do so in the future.  However, given the current uncertainty regarding the effects of these most recent platform changes, combined with the global launch delays of BSF 2017 and Solitaire from Q4, 2016 to Q1, 2017, we believe a more cautious outlook toward our upcoming fourth quarter performance is merited.  Accordingly, Tapinator now expect revenue results in the range of $3.7 million - $4.3 million for 2016, representing an annualized organic revenue growth rate range of 50%-75%, down from previously issued guidance of $4.0 million - $4.5 million.  The Company continues to expect operating income for the year to be between breakeven and $300,000, and continues to target an adjusted EBITDA (a non-GAAP measure) percentage range of 23%-27% for 2016.  The Company continues to expect net losses in 2016 of $2.0 million - $2.3 million, primarily as a result of financing charges related to the recent successful refinancing of the Company’s $2.4 million Convertible Debenture, including approximately $2.1 million in expected non-cash charges.

About Tapinator

Tapinator (OTC: TAPM) develops and publishes mobile games on the iOS, Google Play, and Amazon platforms.  Tapinator's portfolio includes more than 250 mobile gaming titles that have achieved over 300 million cumulative player downloads, primarily within the Simulation, Arcade, Role Playing, Casino and Sports genres.  Tapinator generates revenues through the sale of branded advertising, paid downloadable games and premium in-game content.  Founded in 2013, Tapinator is headquartered in New York, with product development teams located in Germany, Canada, Indonesia, Pakistan, and the United States.  For a full listing of Tapinator game titles and to view the Company’s most recent investor presentation, please go to http://tapinator.com/.

Key Operating Metrics

We manage our business by tracking several operating metrics: ‘DAUs,’ which measure daily active users of our games, ‘MAUs,’ which measure monthly active users of our games, ‘Downloads,’ which measure non-unique downloads of our games, each of which is recorded by third party systems and our internal analytics system. The numbers for these operating metrics are calculated using internal company data, based on tracking of user account activity. We believe that the numbers are reasonable estimates of our user base for the applicable period of measurement; however, factors relating to user activity and systems may impact these numbers.

Forward Looking Statements

To the extent that statements contained in this press release are not descriptions of historical facts regarding Tapinator, they are forward-looking statements reflecting the current beliefs and expectations of management made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “believe,” "may," "will" "expect," "anticipate," "estimate," "intend," and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements. Our statements regarding our financial outlook for the full fiscal year 2016 contained in this press release are forward-looking statements.  Additional examples of forward-looking statements contained in this press release include, among others, statements regarding our ability to to continue to deliver strong growth during the second half of this year, and our expectations regarding consumer acceptance and monetization of our mobile games. Forward-looking statements in this release involve substantial risks and uncertainties that could cause the development and monetization of our mobile games, future results, performance or achievements to differ significantly from those expressed or implied by the forward-looking statements. Such risks and uncertainties include, among others, the uncertainties inherent in the hits nature of the mobile gaming business. Tapinator undertakes no obligation to update or revise any forward-looking statements. The quoting and trading of the company's common stock on the OTC Market Group's OTC Link quotation system is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with the company's operations or business prospects. As a result, there may be volatility in the market price of the shares of the company's common stock for reasons unrelated to operating performance. Moreover, the OTC Market Group's OTC Link quotation system is not a stock exchange, and trading of securities on it is often more sporadic than trading of securities listed on the NASDAQ Stock market or another securities exchange. Accordingly, stockholders may have difficulty reselling any of their shares. For a further description of the risks and uncertainties that could cause actual results to differ from those expressed in these forward-looking statements, as well as risks relating to the business of the company in general, see Tapinator's Risk Factors which are available at http://www.tapinator.com/disclaimers.

Non-GAAP Financial Measure

We have provided in this release the non-GAAP financial measure of adjusted EBITDA, as a supplement to the consolidated financial statements, which are prepared in accordance with United States generally accepted accounting principles ("GAAP"). Management uses adjusted EBITDA internally in analyzing our financial results to assess operational performance and liquidity. The presentation of adjusted EBITDA is not intended to be considered in isolation or as a substitute for the financial information prepared in accordance with GAAP. We believe that both management and investors benefit from referring to adjusted EBITDA in assessing our performance and when planning, forecasting and analyzing future periods. We believe adjusted EBITDA is useful to investors because it allows for greater transparency with respect to key financial metrics we use in making operating decisions and because our investors and analysts use them to help assess the health of our business. We have provided reconciliations between our historical 2016 and 2015 adjusted EBITDA to the most directly comparable GAAP financial measures below. Some limitations of adjusted EBITDA:

  • Adjusted EBITDA does not include the impact of stock-based expense, impairment of intangible assets previously acquired, acquisition-related transaction expenses, contingent consideration fair value adjustments and restructuring expense;
  • Adjusted EBITDA does not reflect income tax expense;
  • Adjusted EBITDA does not include other income or expense, which includes foreign exchange gains and losses and interest income or expense;
  • Adjusted EBITDA excludes depreciation and amortization of intangible assets.  Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future; and
  • Other companies, including companies in our industry, may calculate adjusted EBITDA differently or not at all, which will reduce their usefulness as a comparative measure.

Because of these limitations, you should consider adjusted EBITDA along with other financial performance measures, including revenue, net income (loss), diluted net income (loss) per share, cash flow from operations, GAAP operating expense, GAAP operating margin and our other financial results presented in accordance with GAAP. See the GAAP to non-GAAP reconciliations below for further details:

Reconciliation of GAAP to Non-GAAP Results (unaudited)

CONTACT

Tapinator Investor Relations

investor.relations@tapinator.com

(914) 930-6232

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