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Bragg (NASDAQ:BRAG) announced its Q4 revenue and EBITDA were even above its preannounced levels. In Q4 the main reason for the outperformance was success in the new Dutch market where Bragg unexpectedly has had very limited competition and strict enforcement that wiped out the black market due to high fines. Bragg has hopes that the same phenomena there, could occur in Canada, as the markets are similar sizes and competition is expected to be limited. The variable is enforcement. Will Canada be like The Netherlands with strict enforcement or Germany, where there has been none? We will fine out in April when the operations go live. Canada has a huge black market operating there now. For further insight on Canada we expect to hear from DraftKings chronologically before Bragg; DraftKings is a Bragg customer.
2022 Guidance
Bragg full year 2022 revenue guidance remains at €68-72 million (US $78-80 million), with adjusted EBITDA guidance of EUR €9.5-10.5 million (USD $10.8-12.0 million). Guidance is extremely conservative and each quarter the company has been raising it. The company has factored very little in for Canada and expects Germany to remain virtually flat from Q4 results until proven otherwise. This leaves good upside potential to estimates.
The key to 2022 growth is the huge markets the company has recently entered that have greatly expanded its total addressable market (TAM.) Its TAM is going from $13.5 billion in Q1 2022 to $43.1 billion by 2026 as show in the chart below. Since March 2021, ORYX has gone live with its popular content in regulated markets in Switzerland, Germany, Greece, the Netherlands, the United Kingdom, and the Czech Republic and soon the Bahamas, Canada and the US. The acquisition of Wild Streak Gaming, and the imminent acquisition of Spin Games, will help Bragg further penetrate the US market.
Q4 2021 Earnings
For the quarter ending December 31, 2021, affected by the transition to German regulation, Bragg generated €15.8 million in revenues versus €13.8 million in Q4 2020, growth of 14.4%. Of the €15.8 million, €2.1 million came from Wild Streak, which was acquired on June 2, 2021. This growth was despite the huge decline in revenue from the German market from Q2 to Q4 due to regulation.
Gross profit margin was 51.0% versus 43.8% in Q4 2020 due to higher proportion of revenue derived from platform and managed services, and the addition of Wild Streak Gaming revenue which has no cost of sale, compared to games and content which have associated third party costs.
Operating expense decreased to €9.9 million from €10.4 million a year ago. The biggest decrease was in salaries, of which share based compensation was €1.3 this year compared to €3.0 million last. Last year the company had €1.7 million in one-time transaction and acquisition costs compared to almost none this year.
Operating income was a loss of €1.9 million in Q4 2021 compared to a loss of €5.3 million in Q4 2020. Without one-time expenses the company would have had operating loss of €1.9 million this year compared to €3.6 million loss last.
The company had a return of €324,000 in taxes compared with a return of €89,000 in Q4 2020. The company paid taxes as a percent of EBITDA at a rate of -21.1% compared to paying at a rate of -7.1% last year.
On an IFRS basis, loss from continuing operations was €1.6 million versus a loss of €5.3 million a year ago. IFRS EPS loss was €0.08 versus a loss of €0.46. On a continuing operations non-IFRS basis, taking out charges and stock-based compensation, Bragg had a fully diluted profit of €0.01 per share versus a loss of €0.10 in Q4 2020. In Q4 2021 the share count increased 72% year over year to 20.0 million primary shares. Adjusted EBITDA in Q4 2021 was €1.5 million compared to €1.3 million in Q4 2020.
Balance Sheet
Bragg ended December 31, 2021 with €16.0 million in cash and no debt. Its working capital was €11.6 million and its quick ratio increased to 1.8 times. Cash flow and free cash flow were both €1.1 million for the quarter and €2.0 and €1.8 million for the year.
During the Quarter
In August Bragg was certified in the Dutch market and went live in the first day of regulation in October with its partner Holland Casino. It has added other operators since.
After the Quarter Ended
On January 5, 2021 Bragg launched its content in the UK for the first time after going live with 888casino. It received its supplier license in the country on November 22nd.
On February 14, 2022 Bragg launched its exclusive igaming content in the Czech Republic.
On March 1, 2022 Bragg announced it has been approved for a license to supply its content and services in the Bahamas but has not yet launched there.
On March 8, 2022 Bragg announced that it had been granted a license by the AGCO, the regulatory agency responsible igaming and sports betting market in Ontario. Bragg is now allowed to supply local igaming and sports betting operators with its player account management (PAM) platform, igaming content, and managed services when the market opens on April 4. Ontario is the first province in Canada to license private operators. The combined iCasino and Online Sports Betting market in Canada is estimated at over US $2 billion in 2022 according to H2 Gambling Capital. Ontario is expected to become one of the largest igaming markets in North America.
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