Bragg Gaming Group Inc

TSX:BRAG

Earnings Call Transcript 2022-Q3

[Operator]

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 Bragg Gaming Group's Third Quarter 2022 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions]

At this time, I would like to turn the conference over to Yaniv Spielberg, Chief Strategy Officer. Please go ahead.

[Yaniv Spielberg, executive]

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 Ronen Kannor, 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.bragg.games in the section called Events & Presentations under Media.

On this call, we'll review Bragg'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 securities 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 the subsidiaries and their respective customers and industries.

While we believe these assumptions to be reasonable, they are 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 can 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 disclosure.

With that behind us, I'd like to turn the call to our CEO, Yaniv Sherman. Yaniv?

[Yaniv Sherman, executive]

Thanks, Yaniv. Good morning, everyone, and welcome to our 2022 third quarter results presentation. I'm Yaniv Sherman, Bragg Gaming's CEO. Thanks for joining us today.

Moving straight into some notable highlights for the quarter. Bragg generated record quarterly revenues of EUR 20.9 million, gross profit of EUR 10.4 million and adjusted EBITDA of EUR 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 2 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 Ronen for our financial review.

[Ronen Kannor, executive]

Thank you, Yaniv. Good morning, everyone. I'll begin my comments on Slide 7. Third quarter revenue was up 62.3% year-over-year to EUR 20.9 million and up to 0.5% from the previous quarter, representing an all-time record for Bragg. 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 Streak game studio and Spin games existing U.S. customer base.

From a KPI perspective, the total wagering generated via games and content offered by Bragg was up 42.4% from the prior quarter to EUR 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 EUR 10.4 million, 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 EUR 2.2 million, with adjusted EBITDA margins reaching 10.7%, a slight decline of 80 basis points from the same period in the previous year. The change in margin was mainly the result of the scale and changes of product mix of iGaming and managed services, along with high investments in salaries and subcontractors costs as part of the Group strategy to expand its software development and product portfolio, all with the focus of margin control.

Other highlights. During the quarter, we completed an $8.7 million convertible debt facility to strengthen our working capital in our investment and development needs. We ended the quarter with EUR 17.2 million 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 expectations 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 8. As I mentioned earlier, our entry into new markets, particularly in the Netherlands, has been exceptionally strong. This, coupled with new client wins, and the ramping up with operators launched earlier this year is giving 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 Wild Streak 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 target are Bragg's new business pipeline, our 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 margin 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 this slide. Product mix has changed noticeably since last year's third quarter. It is trending towards PAM, turnkey solutions, and proprietary content, leading to improving gross profit margins and profitability. As we indicated in the past, PAM, turnkey solutions, and proprietary content product have no third-party cost, resulting in a material increase in gross profit margins. Please note that Q3 2022 margins benefited from our PAM and turnkey solutions, which delivered some strong performance from our new Dutch customers.

On Slide 10, we're highlighting our efforts to maintain margins, while growing revenues. Total operational costs, excluding cost of goods associated with 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, product 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 in 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 EUR 2.2 million against an operating loss of EUR 1.6 million. The gap was driven by the following non-cash and exceptional items. Depreciation, amortization and increase in intangible amortization as part of the Wild Streak 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, costs mainly associated with a convertible debt financing, and for the 9 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 EUR 17.2 million compared to the EUR 16 million as of December 31, 2021, with a EUR 10 million of convertible debt facility. Net working capital was EUR 4.5 million compared to EUR 11.6 million at the beginning of the year. The main difference between the periods was the EUR 9.1 million consideration paid upon the Spin acquisitions and the EUR 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 9 months ended September 2022, we generated EUR 7.7 million from operating activity, while investing EUR 14.4 million of acquisition of Spin Games and software development as part of the investment in our technology. We're also receiving proceeds of EUR 8.3 million post the completion of the new convertible facility.

With that, I'll turn the call back to Yaniv.

[Yaniv Sherman, executive]

Thanks, Ronen. 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 Wild Streak U.S. businesses with Bragg's existing operation. We have complimented a technical integration, which has been completed earlier in the year, connecting the Oryx tech stack with Spin distribution and Wild Streak's premium content with a unified brand identity, We Are Bragg.

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 FUZE 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, product 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 Bally's Interactive's, which include the King Show Games and Gaming Arts titles, incredible technologies, and Sega Sammy Creation. These partners join our existing stable of studios like GAMOMAT and Bluberi and will allow us to complement our fully owned titles with highly recognizable gaming brand, some catering to specific markets and some with a global footprint. The games are powered by Bragg's modern tech stack and developed through 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 the central pillar in our growth strategy. It will create differentiation for the Bragg 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 are 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're seeing a clear shift from top-line sport betting led growth to the proverbial path to profitability, which is best represented by iGaming agenda. There is a clear consistent demand for high-quality casino content with differentiation and positioning becoming the key success factor 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 and engaging their players. We continue rolling out our new games and making good progress. Once an initial batch of new Bragg developed games is rolled out, we can focus on further expanding our proprietary and exclusive portfolio with these operators, leveraging the games performance to extend our distribution into additional partners stateside. These efforts require persistent as they yield results over time. But once successful, it will serve us as an effective mode, creating sustainable value for the business in the long-term.

We are also encouraged by the latest discussion in several sports betting states like Illinois and Indiana, around the potential regulation of iGaming. We firmly believe it will serve both the state 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 roll out. 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 micro environment in a competitive landscape. Now one company, Bragg gaming is executing against our content-led strategy which focused on our North America roll out 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 Bragg's content and tech development aiming to meet our long-term revenue and margin goals.

I wanted to thank our shareholders, Board, and Bragg team members for their ongoing support, and to you for your time. We'll be happy to take questions now.

[Operator]

[Operator Instructions] We'll go first to Gianluca Tucci at Haywood Securities.

[Gianluca Tucci, analyst]

Congrats on the 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?

[Yaniv Sherman, executive]

Gianluca. it's Yaniv. Thanks. Yes, 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 and 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 3 out of the top 5 operators in Michigan, a new content suite.

Early signs demonstrates 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, 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, in some cases overindexing existing incumbents.

[Gianluca Tucci, analyst]

Okay. That's great. And just lastly from 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, how are you guys positioned for that in your operator relationships that you have overseas and on our side of the Atlantic?

[Yaniv Sherman, executive]

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's coincide with seasonality, so it'll be interesting. It's also typically an -- 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 sportsbook. 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 FUZE, is now connected over sportsbook with great timing. So the -- some of the operators can offer player engagement tournaments and live events through sports and casino. And we hope that that will create a long lasting effect on the proposition.

So in short, we're well prepared. The tech stack is ready. And partners are very excited by, 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 number 5 or 6 event. But we're focusing on our content deployment through the quarter and into the holiday season there. So I think it will have a lesser effect across the Atlantic.

[Operator]

We'll move next to Sid Dilawari at Cormark Securities.

[Siddhant Dilawari, analyst]

Congrats on a great quarter. So during the quarter, 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 just in general, how do these 2 markets sort of stack up against all of the other European markets you currently serve?

[Yaniv Sherman, executive]

Thanks. So these are 2 very different markets. First of all, the Spin acquisition and the Wild Streak acquisition has 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 a growth driver. As far as Connecticut and Ontario, Ontario is a reregulated market, 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 deep of 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 on -- not just rolling out its new licensing regime, but it's also stepping into or leaning into enforcement. So these 2 forces will probably see accelerated growth into next year. Again, the games small batch of or 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 the Europe versus the U.S., the game -- 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 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-indexed in some of the European markets. But overall the focus is develop bespoke North American content and then focus 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 into games and the initial science for the new content suite is we're very pleased with it.

[Siddhant Dilawari, analyst]

Okay. That's great. That's very helpful. And then just a quick follow-up on Netherlands here. You guys continue to put up good market share gains on a sequential and an annual basis. 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 just now that it's been some time since the market went light, 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?

[Yaniv Sherman, executive]

That's a great question. I think that what we are seeing is typical reregulation 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 re-launched 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 identities. So each one of the brands that we power has 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 shares. 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 with its 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.

[Siddhant Dilawari, analyst]

All right. Okay. And then -- sorry, just one last one for me. 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 customer's wagering activity at all or still too early to say anything about that?

[Yaniv Sherman, executive]

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 span 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 are seeing the near mid-term that shift should service us. We're well-positioned on 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 markets. So I would say that we're less susceptible to it at this point.

[Operator]

Well go next to Jack Vander Aarde at Maxim Group.

[Jack Vander Aarde, analyst]

Congrats on the solid results and strong initial 2023 outlook. Maybe, Yaniv, as for your initial outlook for 2023, low-double-digit revenue growth and adjusted EBITDA margins of 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 baked into your plan?

[Yaniv Sherman, executive]

Sure. Yes, thanks. So again, as we mentioned, it's our initial guidance as we go get closer to 2023, we'll be able to hone in, our guiding still a few moving parts there, but the rationale behind it is quite simple. I mean, we're looking to leverage a strong year. Naturally, as I mentioned, the 2022 had strong performance. The business has repositioned itself through that period over 12 months 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 for -- sort of forecasting that trend to continue. Again, it's not a trivial task. The idea is to expand through more proprietary and exclusive content that has naturally -- no -- the proprietary one at no cost of good. So it's 100% upside.

But that does take time in growing stable of titles and content that starts performing. We're -- as I said, we're seeing some good initial signs, but the devil is 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 we are -- the main message is that we are conscious that that is something we are 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.

[Jack Vander Aarde, analyst]

Great. That's helpful. That's helpful color. Maybe just a 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 your Dragon Power, Egyptian Magic, some of your other successful titles?

[Yaniv Sherman, executive]

Yes. First of all, those titles are again the 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, the Sega Sammy 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 -- but we will share more accurate numbers as that roadmap takes shape over the next few weeks. But just these are the sort of scale of development that we're looking to produce over the next 12 months to 18 months.

[Jack Vander Aarde, analyst]

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.

[Yaniv Sherman, executive]

Well, these are -- right now these are sports only states. So we do -- if any of these states are relevant, it's probably through a full -- 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 some 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 the -- that addressable market. So I mean, that's the apparent upside, I think 31 sports betting states versus 6 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 3 or 4 states. Any additional state there, just as any other Canadian province is pure upside from our perspective because distributing build games into additional states mainly requires certification. The partners will already be there, technology is going to be there. So it's mostly that, that gearing effect that kicks in once a new market opens.

[Operator]

[Operator Instructions] We'll go next to Edward Engel at ROTH Capital.

[Edward Engel, analyst]

Congrats on a nice set of results. If I recall during the quarter, you had an offsite where everyone from the combined business got together and for the first time they kind of reviewed the strategy. Could you give any color on what some of the takeaways were from that review process?

[Yaniv Sherman, executive]

Sure. We had a -- naturally, the team got together for the first time physically earlier in the quarter. And Slovenia ran through a very intensive 2-day workshop, sort of re-honing or recalibrating the business' strategy. I think we came out with a very clear understanding of what we -- what the task in hand is. As I mentioned, you now see translated into a streamlined cohesive structure and strategy and also a unified company behind it. And the strategy 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 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 is how much proprietary content can we deploy with our partners? I think that will bolster or accelerate our success in 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 very -- was a great exercise. It's always great to also meet in-person after a long time.

[Edward Engel, analyst]

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.

[Yaniv Sherman, executive]

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 2 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 world -- this year's World Cup for once when 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 -- of that range. We just -- we didn't feel that the current trading warranted another update. We may be slightly higher, but I don't think there'll be a material dip. It's just we couldn't accurately forecast with all these moving parts another aggressive growth quarter, but it -- these are, I don't think they're material deviations.

[Edward Engel, analyst]

Perfect. And I could just kind of squeeze one more or less in the cost side. Gross margins quarter-over-quarter were down a bit, but if I kind of look at your revenue segment, everything was generally pretty flat. Just kind of wondering seasonally is 3Q typically your kind of one-time event in 3Q, every year that kind of happened that kind of dampen that? Or just kind of wondering what that kind of sequential dip is from?

[Yaniv Sherman, executive]

Yes. Sure. Happy. I'll let Ronen take this one.

[Ronen Kannor, executive]

Hi, Ed. So I think the best way to look at the gross profit one is that, of course, we are 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 that, gross profit was dipped by a couple of percentages to about 50%. I call it pure accounting and revenue recognition IFRS. We are dealing with aggregation, we're dealing with suppliers and we deal with customers, it's -- we are buying and the selling, sometime you have revenue recognition movement.

I think the best way to look at it, I mean, of course, we probably going to go back to our 52%-ish, 53% that we -- the average in normalized rate we have from Q1 to Q2 and Q3. The best way to look at that is you look at the year-to-date. So last year same period was 47%. Now it's 52.6%. We are hitting -- we are heading towards 2024 number, which is 60%. I don't think we're going to see those -- I'll would say movement from one quarter to another. It might happen. It's always happened when we true-up, when we have to release our numbers. But I think it's just a particular accounting adjustment we have to do from particular suppliers that we charge them later, not earlier. That's -- it's not something -- we analyze it, we realize there's going to be a questions around that, but we are confident that we are going to go back to the 52%-ish, 53%-ish gross profit margins, and the more proprietary content we're going to rollout 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.

[Edward Engel, analyst]

Perfect. And then if I can just squeeze one last in here. The kind of core operating or operating costs or fixed costs have been really stable with the past 1 to 2 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 guidance -- in OpEx or not?

[Ronen Kannor, executive]

So I think the best way to look in our OpEx is that we keep investing. We can -- we keep, as Yaniv mentioned, before we moving from the pre-regulated markets to proper regulated markets, we have more compliance, product development and of course, sales team we ramping up. So I think what we're going to see is that the more revenue 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 percentage perspective. So I think from all the overheads, we will see, how to say, scaling down or scaling up percentage wise, not necessarily nominal value. But we definitely we're 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 lag -- how to say a gap between when our -- when revenue will be derived from particular content we are building and investment we're doing in our technology and the capitalization rate that it's cost -- that it's starting at the period and the first period, 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 as a percentage wise will start scaling there. That's the trend. That's what we're seeing and I think we're going to deliver that.

[Operator]

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.

[Yaniv Spielberg, executive]

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.

[Operator]

And that concludes today's conference call. Thank you for your participation. You may now disconnect.