PopReach Reports Third Quarter 2021 Financial Results

Q3 year over year mobile platform revenue growth of 22%, and positive Adjusted EBITDA1of $0.4 million for the quarter

TORONTO, Nov. 29, 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 and nine months ended September 30, 2021.

(All figures in US dollars, unless otherwise indicated)

Q3 2021 Financial Highlights

• Revenue from mobile platforms (Apple, Google and Amazon) was $3.4 million (80.1% of total revenue), compared to $3.5 million in Q2 2021 (78.3%), and an increase from $2.7 million in Q3 2020 (63.8%)
• Revenue of $4.2 million, compared to $4.4 million in Q2 2021, and $4.3 million in Q3 2020; overall revenue was impacted by an industry wide decline in Facebook Canvas platform game activity
• Gross profit margin decreased to 64.6%, from 65.3% in Q2 2021, and improved from 61.8% in Q3 2020, driven by the ongoing execution of operating cost reductions
• Operating expenses of $3.5 million, compared to $3.1 million in Q2 2021, and $2.7 million in Q3 2020; the increase in operating expenses is due to increased user acquisition spend, and professional fees associated with the proposed business combination with 2810735 Ontario Inc. d/b/a Federated Foundry ("Federated")
• EBITDA1 of $(0.1) million (-1.9% of revenue), compared to $0.4 million (9.4%) in Q2 2021, and $0.9 million (20.8%) in Q3 2020
• Adjusted EBITDA1 of $0.4 million (9.9% of revenue), compared to $0.6 million (13.3%) in Q2 2021, and $0.8 million (18.7%) in Q3 2020
• Net loss of $1.1 million (($0.01) per basic and diluted share), compared to a net income of $1.1 million ($0.01 per basic and diluted share) in Q2 2021, and a net loss of $0.5 million (($0.01) per basic and diluted share) in Q3 2020
• Cash used in operating activities in Q3 2021, net of working capital changes, was $0.1 million, compared to cash generated from operating activities of $0.5 million in Q2 2021, and $1.0 million in Q3 2020
• Cash at September 30, 2021 was $11.6 million, compared to $18.1 million at the end of 2020, and debt outstanding on the bank credit facility was $5.4 million, compared to $6.0 million at the end of 2020; the decrease in cash is due to payments relating to the Company's 2021 M&A activities, including professional fees associated with the proposed business combination with Federated

Q2 2021 and Subsequent Highlights

• On August 16, 2021, the Company entered into a letter of intent ("LOI") with Federated, an acquirer and operator of digital technology companies, for a proposed business combination, pursuant to which the Company and Federated will combine to form a leading, publicly-listed technology and media enterprise through a reverse takeover of the Company by Federated and its shareholders
• On October 18, 2021, the Company entered into a definitive agreement in relation to its proposed business combination with Federated, and announced that it had voting support agreements in place with shareholders holding in the aggregate approximately 50.5% of the issued and outstanding PopReach Shares
• On November 12, 2021, the Company soft launched the significant rebuild of Smurfs Magic Match, with the game to be updated and improved in the coming months
• Also on November 12, 2021, the Company announced a closed beta for PAYDAY Crime War which is on track to go live in December 2021; the Company is pleased that it has more than doubled the expected number of sign-ups for the closed beta, representing an important milestone for the game expected to launch globally in 2022

Management Commentary

"The 22% year over year growth we generated in mobile platform revenue during the third quarter did not entirely offset the decline in revenue from Facebook Canvas games, but as we head into 2022 with our primary mobile growth initiatives well underway, these Facebook games that are in maintenance mode will become less significant," said Jon Walsh, Co-founder and CEO of PopReach. "We are making good progress on key mobile growth initiatives, with the rebuilt version of Smurfs Magic Match now in soft launch, and our planned release of the PAYDAY Crime War closed beta coming in December. For PAYDAY, the initial response and pre-registrations to date have far exceeded our expectations, and we are excited about the potential for these products to generate outsized returns."

Added Christopher Locke, Co-founder and President of PopReach "In addition, the proposed transaction with Federated Foundry is progressing well, with the business combination expected to close in late January/early February of 2022. Combining Federated's strong EBITDA and cash flow generation with PopReach's solid financial foundation will allow us to invest in multiple growth catalysts across the combined businesses, and we are excited to move forward on opportunities that lie ahead, which include a broadened M&A purview."

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.

Financial Statements and MD&A

PopReach's Financial Statements for the three and nine months ended September 30, 2021, and Management's Discussion and Analysis (the "MD&A") for the three and nine months ended September 30, 2021, are posted on the corporate website at https://www.popreach.com/financial-information/ and 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 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, changes in deferred revenues, and other extraordinary one-time expenses.

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:

Adjusted EBITDA was $416,440 for the three months ended September 30, 2021 compared to $810,899 for the three months ended September 30, 2020, which represents a decrease of $394,459 or 49%.

Non-operating items

Fair value loss on financial liabilities was $286,398 for the three months ended September 30, 2021 compared to a fair value loss of $514,027 for the three months ended September 30, 2020, and a fair value gain of $3,314,998 for the nine months ended September 30, 2021 compared to a fair value loss of $2,154,081 for the nine months ended September 30, 2020.

The full amount of the fair value gain of $3,314,998 nine months ended September 30, 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.

Of the $2,154,081 loss for the nine months ended September 30, 2020, a gain of $16,993 was related to the change in fair value of contingent consideration for certain game acquisitions, with the remaining loss also related to the fair value loss of the conversion feature and warrant liability. As the probability of the completion of the Qualifying Transaction 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:

The decrease in bookings for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 was due to the industry wide decline of the Facebook Canvas platform, which the Company does not view as a driver of growth, as discussed in the Growth Platforms section of "Summary of Significant Developments" of the MD&A. The company also continues to experience uncertainties around the impact of COVID-19 in general but particularly in India, which has resulted in delayed content updates and bug fixes relating to the live operations of the Company's entire portfolio of games, and the ongoing uncertainty around paid user acquisition costs resulting from Apple's IDFA policy change. Additionally, management now believes that Q2 2020 was subject to an industry wide "COVID lift", as discussed in "Seasonality" section in the MD&A.

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

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