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spk03: Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the BRAG Gaming Group third quarter 2022 earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Yaniv Spielberg, Chief Strategy Officer. Please go ahead.
spk05: Thank you, Operator. Good morning, everyone, and thank you for joining our third quarter 2022 earnings conference call. I'm Yaniv Spielberg, Chief Strategy Officer for Bragg Gaming Group. I'll be hosting today's call alongside my colleague, Chief Executive Officer Yaniv Sherman, who will comment on our third quarter performance, and Renan Kanor, our CFO, who will review and discuss our third quarter results. If you have not already done so, you can follow our Q3 earnings call presentation from our website at investors.brag.games in the section called Events and Presentations under Media. On this call, we'll review Brag's financial and operating results for the third quarter of 2022. Following our prepared remarks, we'll open the conference call to a question and answer session. I'll start the call with some brief cautionary remarks regarding certain statements that may be made on this call. Certain statements made on this conference call and our responses to various questions may constitute forward-looking information or future-oriented financial information within the meaning of applicable security law. Statements about expected growth, prospective results, strategic outlooks and financial and operational expectations, opportunities and projections rely on a number of assumptions concerning future events, including market and economic conditions, business prospects or opportunities, future plans and strategies, technological developments and anticipated events, trends and regulatory changes that may affect the corporation and its subsidiaries and their respective customers and industries. While we believe these assumptions to be reasonable, they're subject to a number of risks, uncertainties and other factors, many of which are outside the company's control and which could cause the actual results, performance or achievement of the company to be materially different. There could be no assurances that these assumptions or estimates are accurate. or that any of these expectations will prove accurate. For a complete discussion of these factors, please refer to our recently filed press release and other publicly available disclosures. With that behind us, I'd like to turn the call to our CEO, Yaniv Sherman. Yaniv?
spk02: Thanks, Yaniv. Good morning, everyone, and welcome to our 2022 third quarter results presentation. I'm Yaniv Sherman, BRAC Gaming CEO. Thanks for joining us today. Moving straight into some notable highlights for the quarter. BRAG generated record quarterly revenues of €20.9 million, gross profit of €10.4 million, and adjusted EBITDA of €2.2 million, all up considerably in 2021. While these percentages are presented against a favorable comparable, when the business was exiting the German market and just ahead of launching into new ones, it demonstrates impressive growth over the previous year. These results also represent our continued investment into the business and specifically our proprietary tech and content to solidify our competitive edge. As for our various operational and commercial activities, we continue to diligently execute against our content-led game plan. Exclusive content development deals were secured with leading gaming entertainment brands, which provide us with the much-needed differentiation in a growing yet highly competitive global iGaming market. We're pressing on with our North American new content rollout in various states, aiming to increase our share and footprint in the market. We've launched our turnkey solution in the new market, the Czech Republic, while enhancing our existing position in the Netherlands with two new partners, making Bragg the leading B2B platform in this recently regulated and growing market. I'll share more about our business and operational activities later in the presentation. Now I'd like to hand it off to Oned for our financials review.
spk09: Thank you, Yaniv. Good morning, everyone. I'll begin my comments on slide seven. Third quarter revenue was up 62.3% year-over-year to €20.9 million, and up to 0.5% from the previous quarter, representing an all-time record for BRAC. The group's year-over-year revenue growth was mainly organic to its existing customer base. The onboarding of new customers in various jurisdictions, particularly in the Netherlands, and a strong revenue performance from the Wild Street Game Studio and Spin Games' existing US customer base. From a KPI perspective, the total wagering generated by games and content offered by Bragg was up 42.4% from the prior quarter to $4.6 billion, and up by 8.9% from the previous quarter. As you can see from the wagering chart on the right-hand side, we have seen a positive momentum since the onset of the German regulatory restrictions on gameplay in Q3 2021. The gross profit increased by 57.6% to 10.4 million euros, with gross profit margin seeing a slight decrease to 50%. The margin reduction is primarily due to the change in the composition of revenue derived from our iGaming platform and managed services, partially offset by increase in revenue from proprietary game studios, which has no cost of sales compared to the third-party games and content, which have associated third-party costs. Adjusted EBITDA for the quarter was up by 51.6% to 2.2 million euros, with adjusted EBITDA margins reaching 10.7%, a slight decline of 80 base points from the same period in the previous year. The change in margins was mainly the result of the scale and changes of product mix of iGaming and managed services, along with high investment in salaries and subcontractors' costs as part of the group's strategy to expand its software development and product portfolio, all with a focus of margin control. Other highlights. During the quarter, we completed an $8.7 million convertible debt facility to strengthen our working capital and our investment and development needs. We ended the quarter with 17.2 million euros of cash and positive cash flow from operations. Our current trading is strong. From guidance perspective, we are reiterating guidance for full-year 2022 revenue and adjusted EBITDA. And our initial 2023 expectation is for full-year revenue growth in the low double-digit percentage range and adjusted EBITDA growth of at least 20%. Now turning to slide eight. As I mentioned earlier, our entry into new markets, particularly in the Netherlands, has been exceptionally strong. This, coupled with new client swings and the ramping up with operators launched earlier this year, has given us significant momentum in the current financial year. During the quarter, revenue from legacy customers grew consistently, rising 2.3% from previous quarter and 9.2% from the first quarter of 2022. Revenue from new customers launched in 2021 and 2022 has also grown consistently, driven by the Dutch market. Total Wall Street and spin revenue was up by 27.8% from the previous quarter as a result of a strong performance of our proprietary games. It is important to note that underpinning our financial 2022 and financial year 2023 revenue targets are Bragg's new business pipelines. a new market entry, and more focused sales efforts. Slide 9. As you can see from Slide 9, gross profit margins have been in a growing trajectory since Q3 2020 due to an ongoing shift in product mix. We're targeting gross profit margins of 60% by financial year 2024. We are scaling up our business in line with both of our revenue growth and the continued movement in product mix, as indicated on the right-hand side of the slide. Product mix has changed noticeably since last year's third quarter. It is trending towards spam, turnkey solutions, and proprietary content, leading to improving gross profit margins and profitability. As we indicated in the past, spam, turnkey solutions, and proprietary content products have no third-party costs, resulting in a material increase in gross profit margins. Please note that Q3 2022 margins benefited from our PAM and thank you solutions, which delivered some strong performance from our new touch customers. On slide 10, we're highlighting our efforts to maintain margins while growing revenues. Total operational costs, excluding costs of goods associated to third-party content providers, have declined since Q3 2021 and amounted to 39.2%. as a proportion of total revenue. At the same time, the group continues to invest in developing its technology, products, and games in a measured way. Total salaries and subcontractors' costs as a proportion of revenue have declined since Q3 2021 to 21.7%, and it's targeted to scale in line with future growth. Professional fees amounted to 3.8% of total revenue and were mainly related to entering new jurisdictions licensing, legal, and audit costs. IT and hosting costs were 4.9% of the total revenue as a result of the U.S. expansion and organic revenue growth. All other costs are targeted to scale in line with future growth. Ultimately, we expect Bragg's operating leverage to increase over time, given limited growth in employees' IT and hosting and professional services and other costs. Moving to slide 11. Adjusted EBITDA amounted to 2.2 million euros against an operating loss of 1.6 million. The gap was driven by the following non-cash and exceptional items. Depreciation and amortization and increase in intangible amortization as part of the Wall Street and spin acquisitions in June 2021 and June 2022 respectively. Share-based payments. New awards were granted to senior management in the first quarter and the third quarter composed of DSUs and RSUs, and transaction acquisition costs in the third quarter, cost mainly associated with the convertible debt financing, and for the nine months ended September 2022, were attributed to the wild streak and spin acquisitions. As you'll see on slide 12, we ended the quarter with a cash balance of 17.2 million euros compared to the 16 million euros as of December 31st, 2021, with a 10 million of convertible debt facility. Net working capital was 4.5 million euros compared to 11.6 million at the beginning of the year. The main difference between the periods was the 9.1 million consideration paid upon the spin acquisitions and the 8.3 million net proceeds from the convertible debt offering completed in September 2022. We continue to project positive free cash flow from operations, and as a reminder, our business strategy requires a little capex related to technology. From a cash flow perspective, in the nine months ended September 2022, we generated 7.7 million euros from operating activity while investing 14.4 million euros of acquisition of spin games and software development as part of the investment in our technology. We're also receiving proceeds of 8.3 million euros post the completion of the new convertible facility. With that, I'll turn the call back to Yaniv.
spk02: Thanks, Oled. Moving into our operational update on slide 14. One of our key focuses over the passing quarter has been the continued integration of the SPIN and WildStreak U.S. businesses with BRAG's existing operations. We have complemented the technical integration, which has been completed earlier in the year, connecting the Oryx tech stack with SPIN's distribution and WildStreak's premium content with a unified brand identity. We are BRAG. This unified brand helps us create a joint mission and identity across our various sites, from Slovenia through Malta, London, U.S., and India. While this is an ever-evolving process and only part of our overall strategy, it marks an important milestone in our journey. I'd like to take this opportunity and thank our Braggers around the world for supporting this effort, empowering our growth. On slide 15, we put some focus on the Netherlands, where Bragg continues to be an online partner of choice. for both full turnkey and content solutions. Based on recent data, we believe we are now the leading B2B platform in the market. This is a great case study and another testimony of our team's ability to offer a scalable and customizable solution to a wide range of brands in a highly regulated and competitive environment. Our Fuse innovative player engagement tool has taken another step in its evolution and now supports both sport and casino. offering players a variety of events and incentives across the entire product suite, helping our partners improve retention, lifetime value, and return on investment, key elements in their online success. This was also deployed in perfect timing as we are heading into the 2022 World Cup tournament in Qatar. It has been an overwhelming vote of confidence by our partners so far. Some are local and some global brands, as we help them build digital value and monetize their assets, powered by the Bragg tech stack, products, and supporting operations. Moving into the heart of our proposition on slide 16, we've been extremely busy growing our content ecosystem. Alongside our ongoing development of market-focused proprietary titles, led by our U.S. and Slovenia in-house game studios, we have also struck exclusive deals with Bollies Interactive, which include the King Show Games and Gaming Arts titles, Incredible Technologies, and Sega Sammy Creations. These partners join our existing stable of studios, like Gamamot and Blueberry, and will allow us to complement our fully-owned titles with highly recognizable gaming brands, some catering to specific markets and some with a global footprint. The games are powered by Bragg's modern tech stack and developed through an analytical-based process, leveraging our growing data set derived from hundreds of partners and operators. We aim to offer our customers a unique content suite, in addition to our successful aggregation platform, which includes thousands of games from all leading providers. Content is indeed king, and it is a central pillar in our growth strategy. It will create differentiation for the BRAC proposition in a crowded marketplace. Our clear goal is to become the content partner of choice for leading iGaming operators in North America, Europe, and future markets like Latin America and Africa. In this slide, we're focusing on North America, specifically the U.S. The U.S. remains a highly concentrated iGaming market, both from a state and operator perspective. We are seeing a clear shift from top line sports betting-led growth to the proverbial path to profitability, which is best represented by an iGaming agenda. There is a clear and consistent demand for high-quality casino content, with differentiation and positioning becoming the key success factors especially on mobile devices. We continue to religiously develop our games and products with our partners' needs in mind, as we aim to support them in engaging their players. We continue rolling out our new games and making good progress. Once an initial batch of new Bragg Develop games is rolled out, we then focus on further expanding our proprietary and exclusive portfolio with these operators, leveraging the game's performance to extend our distribution into additional partners stateside. These efforts require persistence as they yield results over time, but once successful, it will serve us as an effective moat, creating sustainable value for the business in the long term. We're also encouraged by the latest discussions in several sports betting states, like Illinois and Indiana, around the potential regulation of iGaming. We firmly believe it will serve both the states and the players to develop and enact iGaming legislation to ensure a safe and regulated experience to its constituency. The recently regulated Ontario market has demonstrated healthy early indicators as it continues its licensing rollout. We're looking to further enhance our presence in this market during 2023. Lastly, I'd like to summarize and leave you with a few key points on slide 19 before we open the floor for questions. We're marking another growth quarter in a volatile microenvironment and a competitive landscape. Now one company, Bragg Gaming, is executing against our content-led strategy with focus on our North American rollout effort while we leverage our recent successes in Europe. We're on track to meet our 2022 revenue and adjusted EBITDA guidance. Looking into 2023, given strong performance in 2022, Our initial expectation is to deliver low double-digit revenue and at least 20% adjusted EBITDA growth, respectively. We're taking into account our ongoing investment into BRAG's content and tech development, aiming to meet our long-term revenue and margin goals. I wanted to thank our shareholders, board, and BRAG team members for their ongoing support and to you for your time. We'll be happy to take questions now.
spk03: Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll go first. I apologize. We'll go first to Gianluca Tucci at Haywood Securities.
spk01: Hey, good morning, guys, and congrats on a good Q3. I was just wondering if you can speak to organic growth witnessed in the quarter. Is there a jurisdiction that is outperforming others? And secondly, in your early days in the U.S. market, how are things shaking out there for you guys?
spk02: I'll comment on both. First of all, in terms of organic growth, we're seeing good, healthy growth across the board. But as we are a dominant player in the Dutch market, then that market over-indexes naturally for us. It's also a relatively new one, so growth there is more apparent. But we are seeing good growth in our other markets as well. As far as the North American market and the U.S. market, we've recently deployed in three out of the top five operators in Michigan. Our new content suite, early signs demonstrate the games are doing well. We've deployed the same games, by the way, in Europe, and they're also showing some initial signs of good performance. that we're looking to leverage on. So far, we've been very focused on the initial rollout of the new content, and that is undergoing. We're looking to ramp this up considerably into next year, but the initial signs of games are performing well against their competition, and in some cases, over-indexing existing incumbents.
spk01: Okay, that's great. Thanks. And just lastly, from uh our end here in terms of the world cup happening in a q4 this year and casino being the high margin product when compared to sportsbook um how are you guys positioned for that in your uh operator relationships that you have uh um overseas and on our side of the atlantic
spk02: Well, it's a good question. This is the first time we've seen the World Cup in Q4. That's typically a summer event that coincides with seasonality, so it will be interesting. It's also typically more an acquisition-prone event that then is monetized over cross-sale into next year, which in this case is good because it's leading into the Q1, which is traditionally strong. As far as the operators are concerned, our PAM relationships, some of them have very successful sportsbooks. We offer some of the leading products in the market overseas in Europe, and we're geared up. We've deployed our player engagement tool, FUSE, Is now connected over sports book with great timing so some of the operators can can offer player engagement tournaments and live events. Through sport and casino, we hope that that will create a long lasting effect on the proposition. So in short, we're well prepared that the tech stack is ready and partners are very excited about. They've already started their marketing push and I hope everyone will have a great tournament, mostly overseas. In the U.S. market, soccer is less apparent in the betting pattern, typically a number five or six event, but we're focusing on our content deployment through the quarter and into the holiday season there. So I think it'll have a lesser effect across the Atlantic.
spk01: Okay, thanks for the color, guys.
spk00: Thank you.
spk03: We'll move next to Sid Delawary at Cormark Securities.
spk08: All right, guys, thanks for taking my question and congrats on a great quarter. So, you know, during the quarter, you know, you went live in Connecticut and Ontario. Just wanted to get your thoughts on so far, how was your performance in these markets versus your expectations? And, you know, just in general, how do these two markets sort of stack up against other European markets you currently serve?
spk02: Hi, thanks. These are two very different markets. First of all, the spin acquisition and the wild three acquisitions really put us front and center. The content was, the spin content is already available in all key gaming states. So it's predominantly introducing new content into the states that serves as the growth driver. As far as Connecticut and Ontario, Ontario is a re-regulated market. It behaves very differently. It's a lot more competitive. Connecticut is a duopoly, but it's fair to say that both sort of demonstrate growth in their own way. Connecticut has a very high GDP per capita, and you can actually see it from some of the initial signs of performance and the operators there, the total addressable market. Ontario, we believe it's still early days because the market's not just rolling out its new licensing regime, but it's also stepping into or leaning into enforcement. So these two forces will probably see accelerated growth into next year. Again, the games, a small batch of or a small group of games was deployed into Ontario, and so far we're pleased with their performance, but it's also a game of numbers, so we'll be looking to ramp up The pace, as far as content in Europe versus the US, some of the games translate well across the pond and some to a lesser extent, that's the main reason or the logic behind creating separate in-house studios. Part of them like Indigo Magic and Oryx are more focused on the European market precisely for that reason. It's all managed by a central content production and development organization, but the games are developed with, I believe we're one of the only, if not the only, studios that actually has different math models and an analytic approach that separates European players from North American ones, and we're looking to start leveraging that this year and into next. But these are very different crowds, different markets that will be developing content towards some of the games over index in some of the European markets. But overall, the focus is develop bespoke North American content and then focused on European territories. Even inside Europe, there's a clear distinction between different markets, Central Europe, Western Europe, Northern Europe. And we have a great deal of data. that we're now looking to leverage to and translating to game development. So, but again, a lot of investments are going to games and the initial science for the new content suite is we're very pleased with it.
spk08: Okay, that's great. That's very helpful. And then, you know, just a quick follow-up on MesoLens here. You guys continue to put up good market share games on a sequential and an annual basis. You know, initially we expected... personally, for that to slow down a little bit as some of the operators that initially exited the market were expected to sort of enter the market back. So, you know, just now that it's been some time since the market went white, are you seeing any competitive pressures in the market where you see your sort of market share gain growth to slow down in the next few quarters, maybe?
spk02: That's a great question. I think that what we're seeing is a typical re-regulation of a market that sort of reopened and the catapult was very much stretched to its limits. So there was a lot of pent-up demand in the market. I think what you're seeing is there are competitive pressures like incumbents that have relaunched in the market on the back of local brands that were there first. But when other dominant brands launch, they also grow the market. So the market continues to grow. The total pie continues to grow. Having said that, I have to say that the operators, our partners in the market have been very effective in customizing the technology and product to create separate brand identity. So each one of the brands that we power has a very different angle, marketing philosophy, player base. And I think that helps for them to grow and compete with other brands, but also defend their market share. So overall, we've seen growth on our platform and our existing partners have grown very nicely. And also the brands that we've recently launched into the market are showing good initial momentum. That's the reason why we believe we are taking share from competitors. I think, again, it's a testimony of the tech's ability to scale. and also differentiate, because it's very important for the different operators and partners to be able to offer something different, each one of them with his own assets. But overall, the market, at some point, it will naturally, the growth would subside, but you want to get to that point when you have the biggest market share. Naturally, as we can see, scale matters also from a B2B perspective.
spk08: All right. Okay, and then sorry, just one last one for me. You know, just on the general macroeconomic trends, are you seeing some of your iGaming operators starting to feel the pullback in discretionary spending and the impact of that on your customers' wagering activity at all, or is it still too early to say anything about that?
spk02: I would say it's a bit early from our end, and also because we are very much focused, we're very much B2B focused, or solely B2B, but also on the iGaming side, I think what we're actually seeing is even operators that are opting to scale back on either marketing spend or their players, but the shift is, as we mentioned on the presentation, the initial shift is towards casino or iGaming. as the higher margin products. So right now we actually see in the near midterm that shift should service us. We're well positioned in that regard. Naturally, if discretionary income subsides worldwide, it will have an effect, but we're sort of twice removed from it in the sense that we're focused on the more lucrative addressable market. So I would say that we're less susceptible to it at this point.
spk08: Okay, thanks. I'll pass the line now.
spk10: Thank you.
spk03: We'll go next to Jack VanderAard at Maxim Group.
spk06: Okay, great. Good morning, guys. Congrats on the solid results and strong initial 2023 outlook. Maybe, Yaniv, as for your initial outlook for 2023, low double-digit outlook, Low double-digit revenue growth and adjusted EBITDA margins are at least 20%. That's good to see, very positive. Can you maybe just walk us through the key puts and takes here? What are the potential drivers of even further upside relative to what's facing your plan?
spk02: Sure. Yeah, thanks. So again, as we mentioned, it's our initial guidance as we get closer to 2023, we'll be able to hone in. Our guidance still a few moving parts there, but the rationale behind it is quite simple. I mean, we're looking to leverage a strong year. And naturally, as I mentioned, the 2022 had strong performance. The business has repositioned itself through that period, over a 12-month period, from a mostly pre-regulated facing business into a regulated one. And we've done so, again, a testimony to the team and the tech, but we've done so while continuing growth and also margin expansion, and we're sort of forecasting that trend to continue. Again, it's not a trivial thing. task. The idea is to expand through more proprietary and exclusive content that has naturally no, the proprietary one has no cost of goods, so it's 100% upside. But that does take time in growing a stable of titles and content that starts performing. As I said, we're seeing some good initial signs, but the devil's in the details there and we need more of those games, and that's what we're very much focused on. So that's our sort of thought process to ramp up and accelerate, lean into this strategy and accelerate the content production so we can expand those margins even faster. But the main message is that we are conscious that that is something we're expected to do. And we also want to make sure that we're consistent in that approach. We'd rather see a long-term consistent trend than a pretty erratic one. I think everyone would prefer that.
spk06: Great. That's helpful. That's helpful, Collar. Maybe just to follow up to your content strategy, can you just remind us, I'm not sure if things have changed, can you remind us how many new games you plan to roll out and how many of those games are still under development. And then just a follow-up to that, do you expect any of these new upcoming games to be as popular or successful as, you know, Dragon Power or Egyptian Magic, some of your other successful titles?
spk02: Yeah, first of all, those titles are, again, a testimony of our content team's ability to create quality content. I mean, Doug Fallon and his team in Nevada have done an amazing job in creating deep and sticky content that resonates with players over a long period of time. That's exactly what we're looking to bolster and accelerate. Right now, we're still developing in final stages, developing next year's content strategy. The main reason is we wanted to, again, ramp it up. The recent deals that we've signed are being worked into those roadmaps over the past couple of few weeks. You know, the SEGA semi-creation, the Bally's Interactive, and Incredible Technologies, just to name a couple. They're all being worked into the roadmap. I can say that we're looking to at least a few dozens of games from a proprietary level and a larger number. from an exclusive and proprietary state of mind. We're also looking to focus on top tier operators and deploy the content through them. We don't just dump 20 or 30 games at a time into the market. There's also a very well thought of release plan, a rollout plan behind it to create the effect, the continuous effect. So that's the level. We're not going to produce hundreds of games over next year. We believe in the quality there and the depth rather than quantity. So those are sort of, we will share more accurate numbers there that roadmap takes shape over the next few weeks. But these are the sort of scale of development that we're looking to produce over the next 12 to 18 months.
spk06: And if I could just ask one more question. In terms of your U.S. growth ramp and expansion strategy, slide 17 provides a great illustration of this. Where else do you see opportunity in the U.S. outside of these markets? Maybe just get your thoughts on Ohio specifically, because that's supposed to be a pretty near-term big market launch as well.
spk02: Well, right now these are sports-only states. So we do, if any of these states are relevant, it's probably through a full turnkey solution, which right now we're sort of considering on a case-by-case basis. But right now we're very focused on the content element, which are the iGaming states. I've mentioned that we see some progressive and good discussions in some states to add iGaming to its existing legislation. That hasn't happened to date. The states that you see today are states that enacted or legalized all the iGaming suite and not one by one, so we're sort of looking for the first and the second one to do that. And I think any state that adds casino, whether it's a smaller state like Iowa or a big state like Illinois or Ohio, for that matter, is about to launch sports betting. will have a net positive effect and basically double or even more that addressable market. So, I mean, that's the apparent upside. I think 31 sports betting states versus six gaming states, you can see the potential runway there. But we're being very cautious in that because it has been a while. So we're just addressing these top three or four states. Any additional state there, just as any other Canadian province, is a pure upside from our perspective because distributing those games into additional states mainly requires certification. The partners will already be there. Technology is going to be there. So it's mostly that gearing effect that kicks in once a new market opens.
spk06: Makes sense. Fantastic. I appreciate the color. Thank you.
spk10: Thank you.
spk03: And as a reminder, press star 1 if you would like to ask a question. We'll go next to Edward Engel at Roth Capital.
spk07: Hi. Thanks for taking my question, and congrats on a nice set of results. If I recall, during the quarter, you had an off-site where everyone from the combined business got together for the first time and kind of reviewed the strategy. Can you give any color on what some of the takeaways were from that review process?
spk02: Sure. Hi, Ed. Yeah, we had, naturally, the team got together for the first time physically earlier in the quarter in Slovenia, ran through a very intensive two-day workshop, sort of rehoning or recalibrating the business's strategy. I think we came out with a very clear understanding of what the task in hand is. As I mentioned, you now see it translated into a streamlined, cohesive structure and strategy and also a unified company behind it. And the strategy is, again, is a content-led one. The business, we have the prerogative or the ability to deliver content through a variety of channels, whether our proprietary content directly or using powering proposition through our PAM, our player account management system, or through our aggregation capabilities. So we have a variety of channels or means to deliver content, but it's all a matter of At the end of the day, how much proprietary content can we deploy with our partners? I think that will bolster or accelerate our success. The various markets, it serves as a key differentiator. So that was the main result behind it, and then naturally a variety of other Both decisions and action items, but that's that in a gist. I mean, the team today is very much, as I mentioned, team building in such a rapid growth environment is always a challenge, but I think the team today is very much united in getting behind this strategy and excited to execute on it. But it was a great exercise. It's always great to also meet in person after a long time.
spk07: Great. Appreciate it. And then just a quick question on the 2022 guidance. The full year guidance kind of implies that the fourth quarter does dip a bit sequentially. Just kind of curious. I mean, in terms of seasonality, is 4Q typically the lightest quarter in terms of seasonality for your customers? I'm just kind of wondering what the kind of driver is.
spk02: Well, typically the summer months used to be the seasonal hiatus, but we've seen all sorts of funny or unusual events over the past two years. Seasonality giving way with COVID at first, and then we saw seasonality, some effect during the summer months this year, people were traveling. But again, the reason why it's a moving target is this year's World Cup, for once, where there's a lot of sports focus behind it, And also, we do see strong trading at this point. We've already updated our guidance, and we're sort of expecting to hit the upper range of that range. We didn't feel that the current trading warranted another update. We may be slightly higher, but I don't think there will be a material update. Dip, it's just we couldn't accurately forecast with all these moving parts another aggressive growth quarter, but these are, I don't think they're material deviations.
spk07: Perfect, thanks. And I could just kind of squeeze one more left on the cost side. Gross margins quarter over quarter were down a bit, but if I kind of look at your revenue segments, everything was generally pretty flat. Just kind of wondering seasonally, Is 3Q typically your kind of one-time events in 3Q every year that kind of happen that kind of dampen that or just kind of wondering what that kind of sequential dip is from?
spk09: Yeah.
spk02: Sure, Javi. I'll let the owner take this one.
spk09: Hi, Javi. How are you doing? Good morning. So I think the best way to look at the gross profit one is that, of course, we're trying to keep on a quarterly basis the growth from quarter to quarter. You're right, this particular quarter the revenue remained flat compared to the previous quarter, having said the gross profit was dipped by a couple of percentages to about 50%. I call it pure accounting and revenue recognition, IFRS. We're dealing with aggregation, we're dealing with suppliers, and we're dealing with customers. We are buying and selling. Sometimes you have revenue recognition movements. I think the best way to look at it, I mean, of course, we're probably going to go back to our 52-ish, 53%. That's the average and normal rate we have for Q1, Q2, and Q3. The best way to look at it is you look at the year-to-date. So last year, same period, it was 47%. Now we're 52.6%. We are heading towards our 2024 numbers, which is 60%. I don't think we're going to see those, I would say, movement from one quarter to another. It might happen. It's always happened when we threw up, when we have to release our numbers. But I think it's just a particular accounting adjustment we had to do from particular suppliers that we charge them later and not earlier. That's, it's not something, we analyze it, we realize, we realize there's going to be questions around that, but we're confident that we're going to go back to the 52-ish, 53-ish percent cross-profit margins And the more proprietary content we're going to roll out this quarter and the beginning of next quarter in the U.S., mostly, we will see the gross profits increasing. So I'm less concerned about that.
spk07: Perfect. Thanks. And then if I can just squeeze one last in here, the kind of core operating costs or fixed costs have been really stable the past one to two quarters. If I look at your guidance for 2023, it kind of implies a decent uptick in your core OpEx. I guess, is that kind of due to a hiring ramp sometime during the year in terms of content? Or I guess, how should we read some sort of uptick in OpEx or not?
spk09: So I think the best way to look at our OpEx is that we keep investing. We keep, as Yaniv mentioned before, we're moving from the pre-regulated markets to proper regulated markets. We have more compliance, product development, and, of course, sales team, we're ramping up. So I think what we're going to see is that the more revenue we're going to generate, of course, from our proprietary content, when we're going to be fully operational with our content in the U.S., we will see this cost scaling up from percent... percentage perspective. So I think from all the overheads, we will see, how to say, a scaling down or scaling up percentage-wise. Not necessarily nominal value, but we definitely were looking inside. We're very, very focused on our cost control. We're trying to do any ROI analysis on every single investment we're doing in the business. Also, we just need to remember that we always have a gap between when revenue will be derived from particular content we're building and investment we're doing in our technology and the capitalization rate and cost that it's starting at the period, in the first period, and then a couple of months later, you can see the return. So I think in 2023, we will see even further decline in our margins In other words, from cost margins, in other words, we will see that we're increasing revenue and the cost will, percentage-wise, will start scaling down. That's the trend. That's what we're seeing, and I think we're going to deliver that. Perfect. Thank you.
spk03: And that does conclude our question and answer session. At this time, I'd like to turn the call back to management for any concluding remarks.
spk04: Thank you, everyone, for joining the call. It was great having you all, and we'll see you all on our next call. Enjoy the rest of your day.
spk03: And that concludes today's conference call. Thank you for your participation. You may now disconnect.
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