BRAG: Bragg Announces Q1 Revenue Beat Due to Strong Results in The Netherlands

By Lisa Thompson



Bragg (NASDAQ:BRAG) reported that its Q1 revenue and EBITDA were above expectations. This was primarily due to its exceptional performance in the Dutch market. By geography, that country represented 49% of total Q1 revenues. We are raising estimates because of this beat and expectations for sequential revenues to come in above forecast. The company has not yet raised guidance as it is early in the year but sees it as a possibility given the current results. Bragg has hopes that the same phenomena in The Netherlands, 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 find out in a few months. On April 4th, Canada gave everyone who had applied for a license a pass to operate while it processes all the applications. We expect that will take a couple of months after which we should see how strict enforcement is. Canada has a huge black market operating there now.

2022 Guidance

Despite handily beating numbers in Q1, Bragg is maintaining full year 2022 revenue guidance 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). Since March 2021, ORYX has gone live with its popular content in regulated markets in Switzerland, Germany, Greece, the Netherlands, the United Kingdom, the Czech Republic, the Bahamas, Canada, and soon, the US. Wild Streak Gaming and the imminent acquisition of Spin Games (possibly June 1), will help Bragg further penetrate the US market.

Q1 2021 Earnings Results

For the quarter ending March 31, 2021, the company has still been affected by the transition to German regulation. Despite requiring licenses, as of July 1 2021, the first license to operate was only granted days ago. Bragg is optimistic that revenues will ramp from Germany once licenses are granted as almost all, if not all, of the legal sites in Germany are its customers. Bragg generated €19.3 million in revenues versus €14.2 million in Q1 2021, growth of 36%. Of the €19.3 million, €1.2 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 which started in Q3 2021 due to regulation. Once the German revenue decline is anniversaried, year over year growth is expected to accelerate.

Gross profit margin was 51.8% versus 46.8% in Q1 2021 due to the 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. Gross margin dollars were 50.7% higher.

Operating expense increased to €10.3 million from €7.2 million a year ago. The biggest increase was in salaries and subcontractors which rose $1.3 million. Depreciation and amortization rose $740,000 with the acquisition of Wild Streak and increased content development. Sales and marketing also rose $600,000.

The operating loss was €228,000 in Q1 2022 compared to a loss of €499,000 in Q1 2021. 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 paid €425,000 in taxes compared with €507,000 in Q1 2021 despite losses. The company paid taxes as a percent of EBITDA at a rate of 14.4% compared to paying at a rate of 21.6% last year.

On an IFRS basis, the loss from operations was €720,000 versus a loss of €1.1 million a year ago. IFRS EPS loss was €0.04 versus a loss of €0.06.

On a continuing operation non-IFRS basis, taking out charges and stock-based compensation, Bragg had a fully diluted profit of €0.04 per share versus a profit of €0.02 in Q1 2021. In Q1 2022 the share count increased 10.5% year over year to 20.0 million primary shares. Adjusted EBITDA in Q1 2022 was €3.0 million compared to €2.3 million in Q1 2021.

Balance Sheet

Bragg ended March 31, 2022 with €18.4 million in cash and no debt. Its working capital was €12.7 million and its quick ratio was 1.7 times. Cash flow and free cash flow were both €2.1 million for the quarter.

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