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Tapinator Releases Q2 2017 Results

08/14/2017

New York, NY – August 14th, 2017Tapinator, Inc. (OTCQB: TAPM), a developer and publisher of mobile games, today announced financial results and the filing of its quarterly report for the period ended June 30, 2017.  The quarterly report and unaudited financial statements may be found at:

http://www.otcmarkets.com/stock/TAPM/filings

Tapinator showed year-over-year declines in its top-line revenue and bookings* in the second quarter of 2017, resulting in an operating loss and adjusted EBITDA* loss for the period.  The slowdown can be attributed to a broad based decline in our Rapid-Launch Games business during the period.   This slowdown was partially offset by strong gains in our newer, Full-Featured Games business.  Beginning with our current period quarterly report, we have begun to break out operating and financial results between these two businesses to give investors greater transparency into the Company’s performance and future prospects.

Reflecting on the second quarter performance, Tapinator’s CEO Ilya Nikolayev stated, “While we were disappointed with our second quarter results, we previously anticipated that the growth of our Rapid-Launch business would slow, and this was consistent with what we actually experienced during the first half of the year. We have also anticipated that the most significant opportunity in the mobile gaming industry is the creation of a select number of best-in-class Full-Featured Games. Accordingly, in early 2017, we announced a strategic shift to focus more of our investment and management resources into our Full-Featured Games business.  We believe that the potential size, quality and sustainability of earnings from the Full-Featured Games business is significantly greater than that of our existing Rapid-Launch Games business. Our goal in terms of our Full-Featured Games is to create franchise-type titles that have product lifespans of at least five years. In order to accomplish this, we believe that we need to achieve player LTVs that exceeds customer acquisition cost, at scale. To date, the Company has been able to achieve this, at certain player volumes, for two products: Video Poker Classic and Solitaire Dash.”

(*Non-GAAP Measures.) 

Current Outlook

Reflecting on the Company’s current outlook, Tapinator’s President Andrew Merkatz stated, “As demonstrated by our strategic shift, we are confident in our ability to continue to drive strong year-over-year growth in key operating and financial metrics within our Full-Featured Games business.  This growth is expected to be derived from a combination of existing games such as Video Poker Classic and Solitaire Dash, games that we have recently launched (subsequent to the end of our second quarter) such as Big Sport Fishing 2017 and Dice Mage 2, and games that we plan to launch later this year such as Divide & Conquer and Fusion Heroes.

In terms of our Rapid-Launch Games business, we have experienced declines in our second quarter year-over-year results in key operating and financial metrics, and we expect to show declines in our third quarter year-over-year results as well.  These declines are a result of low success rates of Rapid-Launch Games launched during the first half of this year, combined with challenging year-over-year comparisons due to a significant but un-sustained strengthening in the 2016 comparative periods.  We believe that the slowdown in the Rapid-Launch Games business has abated, however, as third quarter key operating and financial metrics are currently trending to show modest sequential increases in key operating and financial metrics.  We are encouraged by the launch performance of two recent Rapid-Launch Games in particular, Fidget Spinner Superhero and Scary Shark Evolution 3D.

We are not, at this time, offering specific guidance for fiscal 2017 but we do plan to do so as soon as we are able to predict our annual results with significant certainty.  However, we continue to remain confident in our ability to achieve the three-year annualized bookings growth target of 30%, as communicated in our annual shareholder letter that we released in February 2017.”

Financial Highlights

  • Six-month year-to-date revenues of $1.43m; down from $1.91m year-over-year
  • Quarterly revenues of $620k; down from $1.06m year-over-year
  • Six-month year-to-date bookings (a non-GAAP measure*) of $1.72m; down from $1.91m year-over-year
  • Quarterly bookings (a non-GAAP measure*) of $750k; down from $1.06m year-over-year
  • Six-month year-to-date operating income (loss) of ($445k); down from $8k year-over-year
  • Quarterly operating income (loss) of ($267k); down from $1k year-over-year
  • Six-month year-to date adjusted EBITDA (a non-GAAP measure*) of $4k; down from $463k year-over-year
  • Quarterly adjusted EBITDA (a non-GAAP measure*) of -$37k; down from $242k year-over-year

* A table has been included in this press release with non-GAAP adjustments to the Company’s revenue resulting in bookings (a non-GAAP measure) and non-GAAP adjustments to the Company's net loss, resulting in positive adjusted EBITDA (a non-GAAP measure) for certain relevant periods.

Product Highlights

The Company ended Q2 with 304 active games, of which 27 were released in the quarter.  As of June 30, 2017, Tapinator had 82 titles within its active portfolio that had each achieved at least one million player downloads.

In Q2, the Company's Full-Featured Games business focused on three areas: 

1) New Game Launches: 

Tapinator optimized its Big Sport Fishing 2017 and Dice Mage 2 titles in anticipation of global launch in Q3. BSF2017 was released globally on July 20th and Dice Mage 2 launched on August 10th. Both were recognized as "New games we love" on Apple's iOS platform. During its first seven days after global release, BSF2017 received over 520,000 player downloads and we expect DM2 to have similar performance. Given the numbers that the Company saw during DM2's soft launch in Q2, we expect the game to contribute significantly to our Q3 Full-Featured games bookings. 

2) Ongoing Game Development:

The Company has achieved strong lifetime value (LTV) metrics, that at certain download volumes exceed user acquisition costs, for two games: Video Poker Classic and Solitaire Dash. We continue to optimize each product so as to drive higher retention and higher average bookings per user (ABPU) numbers. As these metrics increase, we expect LTV to do the same, thereby allowing us to scale each product. 

In particular, we have released several updates to Solitaire Dash over the last several months and will continue to execute upon our product roadmap in Q3. Our upcoming updates will bring significantly more content into the game thus providing reengagement and monetization opportunities to a substantial number of the game's existing "hardcore" players. 

3) Development of Future Games: 

Tapinator has three games in development that it expects to launch in the second half of 2017: Divide & Conquer, Shadowborne and Fusion Heroes. The formula for each game is combining proven gameplay elements with best-in-class monetization systems and adding Tapinator's creative sauce. 

The Company is particularly enthused about the significant potential of Divide & Conquer, an arena-style multiplayer strategy game. We believe that synchronous multiplayer battles will create gameplay that hooks player while systems for long-term progress will support strong retention over time. The Company believes that Divide & Conquer will be a meaningful contributor to Full-Featured games bookings in Q4 2017 and beyond.

Player & Game Metrics

  • Average DAUs – 625,000 in Q1 2017; down 42% year-over-year
  • Average MAUs – 11.1 million in Q1 2017; down 39% year-over-year
  • Cumulative Player Downloads – 423 million as of June 30, 2017; up 6% year-over-year
  • Game Library – 304 active titles as of June 30, 2017; up from 244 year-over-year
  • Game Diversification – No single game accounted for more than 25% of total revenues during the six-month period ended June 30, 2017

Financial Results (unaudited) 

Quarterly Summary of Results

Tapinator recorded bookings of $750,489, revenue of $620,096 and a net loss of $1,862,119 for the three-month period ended June 30, 2017.  This compares to bookings and gross revenue of $1,062,474 and a net loss of $407,430 for the same period in 2016.  The bookings decrease is attributable primarily to decreases in DAUs and ABPU across our Rapid-Launch Games portfolio and is partially offset by the increase in Full-Featured Games bookings, which is attributable primarily to growth in player engagement and monetization within Video Poker Classic, and to the successful launches of Solitaire Dash and ROCKY™ between the comparable periods.  The revenue decrease can be attributed to the decrease in bookings and the growing contribution of durable virtual goods (primarily from our Full-Featured Games) to our overall revenue mix, resulting in a $130,393 increase in net deferred revenue during the three month period.  The net loss increase was primarily due to the revenue decrease during the three month period and a non-cash debt extinguishment charge of $830,001 related to the refinancing of our Senior Secured Convertible Debenture during the second quarter. 

Tapinator recorded bookings of $1,719,334, revenues of $1,432,890 and a net loss of $407,430 for the six-month period ended June 30, 2017.  This compares to bookings and gross revenue of $1,911,086 and a net loss of $810,250 for the same period in 2016.  The bookings decrease is attributable primarily to decreases in DAUs and ABPU across our Rapid-Launch Games portfolio and is partially offset by the increase in Full-Featured Games bookings, which is attributable primarily to growth in player engagement and monetization within Video Poker Classic, and to the successful launches of Solitaire Dash and ROCKY™ between the comparable periods.  The revenue decrease can be attributed to the decrease in bookings and growing contribution of durable virtual goods (primarily from our Full-Featured Games) to our overall revenue mix, resulting in a $286,444 increase in net deferred revenue during the six months period.  The net loss increase was primarily due to the revenue decrease during the six month period and a non-cash debt extinguishment charge of $830,001 related to the refinancing of our Senior Secured Convertible Debenture during the second quarter. 

For the three-month period ended June 30, 2017, the Company incurred an operating loss of $267,377, as compared to operating income of $694 for the comparable three-month period in 2016.  The operating loss was primarily due to the lower revenues for the three months ended June 30, 2017. 

For the six-month period ended June 30, 2017, the Company incurred an operating loss of $445,718, as compared to operating income of $7,588 for the comparable six-month period in 2016.  The operating loss was primarily due to the lower revenue for the six months ended June 30, 2017. 

For the three-month period ended June 30, 2017, the Company achieved adjusted EBITDA (a non-GAAP measure of earnings discussed below) of -$37,823, as compared to adjusted EBITDA of $242,110 for the comparable three-month period in 2016.  The decrease in adjusted EBITDA is primarily due to an operating loss incurred during the period, as compared to operating income generated in the comparable period in 2016.

For the six-month period ended June 30, 2017, the Company achieved adjusted EBITDA (a non-GAAP measure of earnings discussed below) of $3,516, as compared to adjusted EBITDA of $462,620 for the comparable six-month period in 2016.  The decrease in adjusted EBITDA is primarily due to an operating loss incurred during the period, as compared to operating income generated in the comparable period in 2016.

About Tapinator

Tapinator develops and publishes mobile games on the iOS, Google Play, and Amazon platforms.  Tapinator’s portfolio includes over 300 mobile gaming titles that, collectively, have achieved over 400 million player downloads, including notable games such as ROCKY™, Video Poker Classic, Solitaire Dash and Dice Mage. Tapinator generates revenues through the sale of branded advertisements and via consumer app-store transactions. Founded in 2013, Tapinator is headquartered in New York, with product development teams located in the United States, Germany, Pakistan, Indonesia, Russia and Canada.  Consumers can find high-quality mobile entertainment wherever they see the ‘T’ character logo, or at http://tapinator.com.

Tapinator (OTCQB: TAPM) trades on the OTCQB Venture Market for early stage and developing U.S. and international companies. Companies are current in their reporting and undergo an annual verification and management certification process. Investors can find Real-Time quotes and market information for the company on www.otcmarkets.com.

Key Operating Metrics

We manage our business by tracking various non-financial operating metrics that give us insight into user behavior in our games. The three metrics that we use most frequently are Daily Active Users (“DAUs”), Monthly Active Users (“MAUs”) and Average Bookings Per User (“ABPU”).

DAUs. We define DAUs as the number of individuals who played a particular smartphone game on a particular day.  An individual who plays two different games on the same day is counted as two active users for that day when we aggregate DAU across games.  In addition, an individual who plays the same game on two different devices during the same day (e.g., an iPhone and an iPad) is also counted as two active users for each such day when we average or aggregate DAU over time.  Average DAU for a particular period is the average of the DAUs for each day during that period.  We use DAU as a measure of player engagement with the titles that our players have downloaded.

MAUs.  We define MAUs as the number of individuals who played a particular smartphone game in the month for which we are calculating the metric.  An individual who plays two different games in the same month is counted as two active users for that month when we aggregate MAU across games.  In addition, an individual who plays the same game on two different devices during the same month (e.g., an iPhone and an iPad) is also counted as two active users for each such month when we average or aggregate MAU over time.  Average MAU for a particular period is the average of the MAUs for each month during that period.  We use the ratio between DAU and MAU as a measure of player retention.

ABPU.  We define ABPU as our total bookings in a given period, divided by the number of days in that period, divided by, the average DAUs during the period. We believe that ABPU provides useful information to investors and others in understanding and evaluating our results in the same manner as our management and board of directors. We use ABPU as a measure of overall monetization across all of our players through the sale of virtual goods and advertising.

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,” “goal,” “feel,” "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. 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.   All forward-looking statements in this press release reflect Tapinator’s current analysis of existing trends and information and represent Tapinator’s judgment only as of the date of this press release.  Actual results may differ materially from current expectations based on a number of factors affecting Tapinator’s business, including, among other things, Tapinator’s belief that the current slowdown in the Rapid-Launch Games has stabilized and that Tapinator will be able to implement its Full-Featured Games strategy.  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, see Tapinator's Risk Factors which are available within the disclaimers section of Tapinator.com.

Non-GAAP Financial Measures

We have provided in this release the non-GAAP financial measures of Bookings and 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 Bookings and adjusted EBITDA internally in analyzing our financial results to assess operational performance and liquidity. The presentation of Bookings and 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 Bookings and adjusted EBITDA in assessing our performance and when planning, forecasting and analyzing future periods. We believe Bookings and 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 Bookings and adjusted EBITDA to the most directly comparable GAAP financial measures below.  Some limitations of Bookings and adjusted EBITDA are as follows:

  • Bookings does not reflect that we defer and recognize online game revenue over the estimated life of durable virtual goods;
  • 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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