Tapinator Releases Third Quarter 2017 Results

NEW YORK, Nov. 14, 2017 /PRNewswire/ -- Tapinator, Inc. (OTCQB: TAPM), a leading developer and publisher of mobile games on the iOS, Google Play and Amazon Platforms, today announced quarterly financial results and the filing of its quarterly report for the period ended September 30, 2017.  The quarterly report and unaudited financial statements may be found at:

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

The Company ended Q3 with 333 active mobile games, of which 29 were released in the quarter.  As of September 30, 2017, Tapinator had 89 titles within its active portfolio that had each achieved more than one million player downloads.

Financial Highlights

• Nine-month year-to-date revenues of $2.28m; down 24% from $2.99m year-over-year
• Quarterly revenues of $850k; down 22% from $1.08m year-over-year, and up 37% sequentially
• Nine-month year-to-date bookings (a non-GAAP measure*) of $2.62m; down 13% from $2.99m year-over-year
• Quarterly bookings (a non-GAAP measure*) of $899k; down 17% from $1.08m year-over-year, and up 20% sequentially
• Full-Featured Games year-over-year revenue growth of 148% and 133% and bookings growth of 183% and 255%, for the three months and nine months ended September 30, 2017, respectively.
• Nine-month year-to-date operating income (loss) of ($550k); down from $61k year-over-year
• Quarterly operating income (loss) of ($105k); down from $53k year-over-year
• Nine-month year-to date adjusted EBITDA (a non-GAAP measure*) of $127k; down 83% from $740k year-over-year
• Quarterly adjusted EBITDA (a non-GAAP measure*) of $124k; down 56% from $278k year-over-year, and up 427% sequentially

Financial Results(unaudited)

* A table has been included later 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.

Summary of Results

Tapinator recorded bookings of $898,775, revenue of $849,787 and a net loss of $506,511 for the three-month period ended September 30, 2017.  This compares to bookings and gross revenue of $1,083,176 and a net loss of $1,090,761 for the same period in 2016.  The bookings decrease is attributable primarily to decreases in DAUs and ABPU across our Rapid-Launch Games portfolio, which was partially offset by an increase in our Full-Featured Games bookings, resulting primarily from growth in player engagement and monetization within our Video Poker Classic title, and to the successful launches of Solitaire Dash, Dice Mage 2, and Big Sport Fishing 2017 between the comparable periods.  The revenue decrease can be attributed to the decrease in bookings and a growing contribution of durable virtual goods to our overall revenue mix (primarily from our Full-Featured Games), resulting in a $48,988 increase in net deferred revenue during the third quarter of 2017.  The decrease in our net loss was primarily due to a non-cash debt extinguishment charge of $770,526 related to the refinancing of our Senior Secured Convertible Debenture during the third quarter of 2016.

Tapinator recorded bookings of $2,618,109, revenues of $2,282,677 and a net loss of $2,922,885 for the nine-month period ended September 30, 2017.  This compares to bookings and gross revenue of $2,994,262 and a net loss of $1,901,011 for the same period in 2016.  The bookings decrease is attributable primarily to decreases in DAUs and ABPU across our Rapid-Launch Games portfolio, which was partially offset by an increase in our Full-Featured Games bookings, resulting primarily from growth in player engagement and monetization within our Video Poker Classic title and to the successful launches of Solitaire Dash and Dice Mage 2 between the comparable periods.  The revenue decrease can be attributed to the decrease in bookings and a growing contribution of durable virtual goods to our overall revenue mix (primarily from our Full-Featured Games), resulting in a $335,432 increase in net deferred revenue during the nine-month period ended September 30, 2017.  The increase in our net loss was primarily due to the revenue decrease during the nine-month period and increased interest expense and debt discount amortization related to the refinancing of our Senior Secured Convertible Debenture during the second quarter of 2017.

For the three-month period ended September 30, 2017, the Company incurred an operating loss of $104,775, as compared to operating income of $53,233 for the comparable three-month period in 2016.  The operating loss was primarily due to the lower revenues for the three months ended September 30, 2017. 

For the nine-month period ended September 30, 2017, the Company incurred an operating loss of $550,493, as compared to operating income of $60,821 for the comparable nine-month period in 2016.  The operating loss was primarily due to the lower revenue for the nine months ended September 30, 2017. 

For the three-month period ended September 30, 2017, the Company achieved adjusted EBITDA (a non-GAAP measure of earnings discussed below) of $123,566, as compared to adjusted EBITDA of $277,868 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 nine-month period ended September 30, 2017, the Company achieved adjusted EBITDA (a non-GAAP measure of earnings discussed below) of $127,081, as compared to adjusted EBITDA of $740,487 for the comparable nine-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.

Management Commentary on Results

Tapinator showed year-over-year declines but sequential growth in its top-line revenue and bookings* and adjusted EBITDA* in the third quarter of 2017.  The topline slowdown can be attributed to a broad based year-over-year decline in our Rapid-Launch Games business that began in the fourth quarter of 2016 and peaked during the second quarter of 2017.   This slowdown was partially offset by strong gains in our Full-Featured Games business.  Beginning with our second quarter 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, especially as we have shifted our focus to the Full-Featured Games opportunity.

Reflecting on our third quarter performance, Tapinator's CEO Ilya Nikolayev stated, "In 2017, Tapinator is showing the results of the transition that we had previously anticipated and communicated to our shareholders – the shift from our Rapid-Launch Games business to our Full-Featured Games business. Although all transitions are difficult, we are encouraged by two important trends. First, our Full-Featured Games bookings grew by 255% for the nine-month period ended September 30, 2017 and certain games including Video Poker Classic and Solitaire Dash are showing metrics that, we believe, will allow us to achieve greater scale in 2018. Second, after a decline earlier this year, we are seeing our Rapid-Launch Games business stabilize and are seeing growth within certain new categories. Overall, we believe and are confident that the potential size, quality and sustainability of earnings from the Full-Featured Games business is significantly greater than that of our Rapid-Launch Games business. Accordingly, we will continue to invest in our Full-Featured Games business – both existing winners, including Video Poker Classic and Solitaire Dash, as well as new games with home run and/or evergreen potential. Our goal in terms of our Full-Featured Games is to create franchise-type titles that have product lifespans of five to ten years. In 2018, we anticipate that (1) several titles from our existing Full-Featured portfolio will grow significantly as we optimize these titles for content and monetization; and (2) we will achieve scale with several new game launches that are currently in development.  

(*Non-GAAP Measures.) 

Player & Game Metrics

• Average DAUs – 692 thousand in Q3 2017; down 42% year-over-year, and up 10% sequentially
• Average MAUs – 11.7 million in Q3 2017; down 46% year-over-year, and up 5% sequentially
• ABPU - $0.01 in Q3 2017; unchanged year-over-year, and unchanged sequentially
• Cumulative Player Downloads – 451 million as of September 30, 2017; up 39% year-over-year, and up 7% sequentially
• Number of Titles that have achieved at least 1.0 million player downloads – 89 as of September 30, 2017
• Full-Featured Games Average DAUs – 44 thousand in Q3 2017; up 63% year-over-year, and up 76% sequentially
• Average MAUs – 11.7 million in Q3 2017; down 46% year-over-year, and up 5% sequentially
• Full Featured Games ABPU - $0.10 in Q3 2017; up 74% year-over-year, and down 22% sequentially

Product Highlights

After a decline earlier this year, we are currently seeing our Rapid-Launch Games business stabilize, as demonstrated by sequential improvement in our third quarter key operating and financial metrics, and we are seeing strength in certain new categories, such as our roleplaying, horror, and robot-themed games. We are also working on new game engines with unique themes in the roleplaying and simulation categories that, we believe, will restart growth in 2018.

Overall, we believe that our Full-Featured games business offers significantly greater potential than our historical Rapid-Launch Games business. In Q3, the Company's Full-Featured Games business focused on three areas: 

1) New Game Launches: 

Tapinator released its Big Sport Fishing 2017 and Dice Mage 2 titles globally in Q3. BSF2017 was released 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 Dice Mage 2 has generated over 600,000 player installs to date. On iOS, Dice Mage 2 reached #52 in Top Grossing for the Adventure Games category in the United States and generated over $135,000 in gross bookings during the first 30 days after global launch.

2) Improvements to Existing Games:

The Company has achieved strong player 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. 

Over the next month, we will be releasing a major content update for Solitaire Dash that represents the most significant addition to the title to date. This update will include a new challenge mode for each level in the game and the ability to unlock bonus levels by completing these challenges. We believe that this update will have a significant positive impact on long-term player retention and monetization. It will also offer an extensive amount of content to our existing and future "whale" players. Solitaire Dash is already a game that has best-in-class metrics and we are excited to further improve upon these numbers. 

3) Development of Future Games: 

Tapinator has three Full-Featured Games in development:
ColorFill: launching December 2017
Fusion Heroes: launching Q1 2018
Divide & Conquer: launching Q2 2018

The formula for each game is combining proven gameplay elements with best-in-class monetization systems and adding Tapinator's creative sauce. Overall, the Company is investing in a select number of games with what we believe to have home run and/or evergreen potential and it anticipates launching 1-2 such games per quarter. For each game, the Company will employ the live operations approach that it uses for titles such as Solitaire Dash to improve and scale these products over time.

Current Outlook

Reflecting on the Company's current outlook, Tapinator's President Andrew Merkatz stated, "As demonstrated by our strategic shift, we believe and 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 such as Big Sport Fishing 2017 and Dice Mage 2, and games that we plan to launch later this year and early next year such as ColorFill, Fusion Heroes and Divide & Conquer.

In terms of our Rapid-Launch Games business, we have experienced year-over-year declines but sequential improvement in our third quarter key operating and financial metrics. We believe this business has stabilized and we are currently working on developing new game engines that we hope can serve to restart growth moving into 2018.  We are encouraged by the launch performance of two recent Rapid-Launch Games in particular, Scary Clown: Halloween Night and Virtual Dad: Ultimate Family Man.

In thinking about additional growth avenues for Tapinator, we're excited by how AR has captured the imagination of game developers and players around the world.  Apple's ARKit and Google's ARCore will allow the teams at Tapinator to create innovative augmented reality experiences.  We look forward to making specific additional announcements about our activities within the AR market in the very near future.

We are confirming the guidance we issued on October 2^nd 2017, a copy of which can be found here.  We would like to qualify this guidance, however, in that we believe that the achievement of our 2018 guidance will be contingent upon the successful completion of the $3.0 million common stock capital raise that we announced on September 7^th, 2017, a copy of which announcement may be found here."

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 450 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, which is designed for early-stage and developing U.S. and international companies. The OTCQB market features companies that are current in their reporting and must undergo an annual verification and management certification process. For more information about Tapinator and complete investor materials such as investor presentations and recent filings, please visit: www.Tapinator.com/Investors. 

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. Our statements regarding our financial outlook for the remainder of the fiscal year 2017 and the full fiscal year 2018 incorporated by reference to this press release are 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
+1(914)930-6232

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SOURCE Tapinator, Inc.