Codere Online Luxembourg, S.A.

to welcome everyone to the Codare online first quarter 2024 financial results investor conference call please note that this call 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 please press star followed by the number one on your telephone keypad to withdraw your question please press star one again I will now turn today's call over to Guillermo Lancha, Head of Investor Relations. Please go ahead.

Thanks, operator, and welcome everyone to Codere Online's earnings call for the first quarter of 2024. Today, you will hear from our CEO, Aviv Sher, and CFO, Oscar Iglesias. Our Executive Vice Chairman, Moshe Edre, will also join us in the Q&A section. Before turning the call over to Aviv, I'd like to remind everyone that during this call, we will be referring to a presentation we uploaded to our website earlier today, which includes non-GAAP preliminary unaided financial metrics, such as net gaming revenue or adjusted BDA, for which you can find reconciliations in the appendix of the presentation. Please note that all growth rates discussed during this call are year-on-year comparisons, unless noted otherwise. Let me also remind you that our accounting information is prepared under IFRS accounting standards and that throughout this presentation, all monetary figures will be in euros unless expressed otherwise. Finally, please note that a replay and transcript of this call will be available on our website at codereonline.com, where you can also sign up for our investor email alerts. With that, I will go ahead and pass the call on to Abib.

Thanks, Guillermo, and thanks to everyone for joining us today. I'm happy to share our first quarter 2024 earnings, which have again exceeded our expectations, and to discuss the trends we are seeing in what is shaping up to be another great year for our company. Our first quarter results are also a significant step towards achieving our 2024 profitability targets, which we will cover later. So jumping straight into the highlights of first quarter 2024 on page eight, we delivered 53 million euros in net gaming revenue, almost 14 million euros or 34% above Q1 2023. As we have discussed it in the past, The increasing contribution from our casino segment, which accounted for 56% of our net gaming revenue in this quarter, is a key driver behind our growth as we continue to optimize the mix of acquired customers toward this segment, in addition to crossing our sport betting customers over to the casino to maximize overall player yield. This growth in net gaming revenue was driven by a 16% increase in average monthly spend per customer to 123 euros, together with a similar increase in the number of average monthly active customers. In terms of customer acquisition, we have had 75,000 first-time depositors at an average CPA of €216, reflecting an increased focus on the casino first acquisition, which comes at a higher upfront cost, but also with significantly higher levels of players' spend. Moving on to the business developments, We are now very close to launching our operation in the province of Mendoza in Argentina, which we expect will happen soon. While we continue pursuing a license in the province of Buenos Aires, Mendoza is a fairly sizable province that we believe will benefit from and otherwise complement to our existing operation in the city of Buenos Aires. Finally, during March, we have renewed our front of the shared sponsorship with Rayadas in Mexico for the next four seasons, also increasing its scope to now include the women's teams, Rayadas. This has been one of the pillars behind our recent success in Mexico, and we expect it will continue to contribute to further success in the future. With this, I will now turn the call over to Oscar to cover the financial highlights of the quarter and our revised 2024 outlook. Oscar. Thanks, David.

Turning now to the financial performance for the quarter on page 10, consolidated net gaming revenue grew by 34% to $53 million. This growth was driven primarily by our Mexican business, which continued to outperform with growth of 51% to $27 million, together with a 21% growth in Spain to over 22 million. Adjusted EBITDA was positive 1.7 million in the first quarter, nearly 5 million better than in Q1 2023, and included a contribution of almost 7 million euros from Spain, about 1 million above last year's result, notwithstanding that our country-level results now include certain expenses that in prior periods were classified as undistributed B2B expenses. More importantly, Mexico has also contributed to this improvement, posting for the first time positive adjusted EBITDA in the quarter versus the negative 2 million in the prior year period. Other markets, which now include Colombia, in addition to Panama and Argentina, reduced losses by half and contributed nearly 1 million to the overall improvement. Looking now at our P&L on page 11, The $5 million improvement in adjusted EBITDA in the first quarter was primarily driven by the combination of a $13.5 million improvement in net gaming revenue, though partially offset by a higher marketing investment in the first quarter to take advantage of the continued strong performance in our two main markets. Looking ahead, we are expecting a similar level of marketing investment in the second quarter as a result of the strong sports calendar that we have this summer. with the Euro Cup starting on June 14th and the Copa America on June 20th, in addition to the Summer Olympics starting in late July. While we typically do not address the consolidated numbers on page 12, there are a couple of important points to make here. First, the increase in active customers once again is benefiting from significant growth in both Spain and Mexico, and not just driven by growth in Mexico. Second, the decline in FTDs in the quarter, which is a consequence of our focus on improving the quality of our acquired customers, which, as we have seen in recent quarters and expect will be the case going forward, leads to an improvement in the quality of our active portfolio of customers. Turning to the Spanish operating and financial metrics, net gaming revenue in the first quarter increased 21% versus the prior year, driven by a significant 25% increase in the number of active customers to 50,000. This is a very relevant milestone for our Spanish market, where expanding our active customer base in the face of advertising restrictions has been a challenge over the last few years. In Mexico, meanwhile, net gaming revenue was $27 million in the first quarter, an increase of 51% year-on-year and 6% sequentially. This strong performance was driven by a 26% increase in the number of active customers and a 20% higher per active customer, spend per active customer. Turning to the balance sheet on page 15, as of March 31st, we had 38 million euros of total cash on the balance sheet, of which approximately 33 million was available. In terms of our net working capital position, we ended the quarter with negative 18 million or around 10% of LTM net gaming revenue, which other than the increase in restricted cash position that we would be discussing on our next slide, overall reflects a normalized level of working capital for our business. Looking at our cash flow on page 16, in the first quarter, we have utilized approximately 4 million of available cash. partially offset by a positive $0.7 million impact from FX on our ending cash balance, primarily due to the strengthening of the U.S. dollar in the quarter. Please note that this cash consumption was driven almost entirely by an increase in cash in transit, which we have reflected in the balance sheet as part of short-term financial assets. And this was due to the timing of Easter. In short, we advanced more funds than usual to our payment service providers, primarily in Spain and Mexico, to ensure that we would have more than sufficient balance going into the four-day break at the end of March. Turning to our 2024 outlook on page 18, and given the strong performance we have seen in the first quarter and that we continue to see in the current quarter, we are increasing our net gaming revenue outlook by 10 million euros. That is from a range of 185 to 200 to 195 to 210 million euros. At the mid, this would imply an 18% growth versus 2023 results. In terms of adjusted EBITDA, we are maintaining our target to be adjusted EBITDA and cashflow positive for the year. As we discussed last quarter, We would like to have better visibility and ability to make additional opportunistic marketing investments in and around the Euro Cup, Copa America, and to a lesser extent the Olympics, all of which are taking place this summer. We expect that once we are past these high-profile tournaments, we'll be in a position to commit to a more specific range in regards to adjusted EBITDA performance for the year. That's all from my end. I will now hand it back over to Aviv for closing remarks.

Thanks, Oskar. Before we turn to the Q&A, I would like to thank the Coderre online team as always for their hard work and their contribution to delivering these strong results. This is a very exciting time for this company with no shortage of opportunities to grow the business and create value for our shareholders. And I'm confident we will continue to deliver. As always, thanks to the analysts, investors, and other market participants for your interest and support. We look forward to speaking with you again soon. With that said, I will turn it back to the operator to open the call to Q&A.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. To withdraw your question, please press star one a second time. Our first question comes from Jeff Stantial with Stifel. Please go ahead.

Great. Good morning, Evita, Oscar. Thanks for taking our questions. Vivi, starting off on the Spanish business, I believe about a month ago, the Spanish Supreme Court overturned some of the restrictions put in place around the Spanish royal decree. Evita, I'm just curious to get your thoughts on how you think this might impact your business both directly in terms of user acquisition returns and strategy, as well as more indirect if you think this could bring some competitive investment back to the market.

Thanks. Okay, thanks for the question. We are monitoring it closely. I would start maybe from the end is that we think that this restrictions is going to be lift up only for something like one year going forward. And then probably the government will change it back under a royal decree or a different law. So it's quite a short term change. We try to adjust to the market with different offers and evaluating other possibilities. We are also looking at some kind of self-regulation, maybe to make the regulator more happy with the actions that we are taking. Directly, we are not taking any actions. We did shift some funds towards media that were prohibited before. So I think it will take us maybe another quarter to be able to answer this question correctly. What we do see that in the market currently in the last couple of weeks since this push from the Supreme Court, we don't see major, major changes, but we will continue to follow up. Everything is very, very close to this decision. So probably next call, I can answer that better.

Okay, great. Thanks for that. It's great, Khalid. And then, 32, I think earlier in the prepared remarks, you made a comment on Strategically, you focus more of your user acquisition efforts on iCasino-led players, which carry a higher acquisition cost, but also higher spending behavior. I guess just in terms of the mechanics of that, what specifically are you doing to target these players, both from a marketing and a user acquisition strategy standpoint, as well as on the product development front? Thanks.

Okay, so basically what we are doing is, in the past, we were only launching campaigns towards sports acquisition and sports branding. Now we are launching campaigns also focused on casino. We are buying media in different areas, not only on sports games or sports events. So we are trying to go more to a broad audience that might be more relevant for casino players. Also from the digital perspective, we are targeting casino sites and casino keywords and on Facebook casino players. So I think the mix has changed. Our approach to the product has changed. Instead of marketing one product, we are looking at it now from a two-product perspective. And wherever we continue with the same approach, wherever we see better ROI, we continue to invest there. So we see better ROI in those casino players. So we continue shifting our investment there until it will balance out. And if it will not balance, we'll shift all the investment into casino. But just theoretically, right? But we will continue to invest where we see the ROI and continue to push the the investment through there and through more casino marketing efforts. But we continue to develop our sports strategy, especially towards the summer, where we are going to have a few big tournaments that traditionally are helping to push our acquisition up, not necessarily our revenue, but to introduce the product to new customers and new audiences. So I think the shift that we've done to the casino really helped us deliver the results that we are seeing here, especially from the EBITDA and the return on investment point of view.

Aviv, on the product side, the focus on casino or new introductions, anything you want to comment on there?

Yeah, from the product side also, we are making a lot of investment into the technology related to casino, whether it's more content, more technology and gamification technology, and the ability to filter and to have the best gaming experience. And it depends on the territory. We see also good support from the product side to those efforts.

Okay, great. That's great, Colin. Thanks for that. And then if I could just squeeze in one more question on the Mexico business. What are you seeing in terms of the competitive landscape? Are you seeing new competitors enter the market in terms of the incumbents? Are you seeing any changes in marketing investment or strategy or anything along those lines? And that's all for me. Thanks.

Yes, well, we do see competitors coming in As they said that they will do during this year, we see Betano coming in very, very strong with a lot of marketing investment into Mexico in some kind of partnership with Azteca, a local TV station. So, yes, I think the competitive landscape in Mexico changes. We know our main competitor keeps growing, same as we keep growing. So the market is growing, but more and more competitors are coming in. For now, especially it's Betano, but we know that other brands are looking to make huge investments. So we'll keep monitoring. But for now, I think our market share, we are able to defend it going forward.

Okay, great. That's very helpful. Thanks for all the color. I'll pass it on.

Thanks, Jeff.

Our next question comes from Pat McCann with Global Capital Markets. Please go ahead.

Hey, thanks for taking my question and congrats on the quarter. My first question has to do with the Argentina application process. So you mentioned the approval in the province of Mendoza and I'm wondering when you compare the provinces, are there similarities in the application process and the hurdles you have to get past that would lead us to think that the positive news in Mendoza would also be sort of a positive sign for your efforts in the province of Buenos Aires? Is there anything we can take from this news and kind of apply that to your efforts in the province of Buenos Aires?

Oscar?

Yeah, I can take that. Hi, Pat, and thanks for the question. I think the important thing beyond the basic fact that in Argentina you don't have national online licenses but regional licenses is the fact that in the province that process has already played out. So that was a few years back. We participated in that process. Unfortunately, we're not awarded a license. We're not one of the seven that were awarded. So anything we've done in the past or continue doing in terms of finding our way into a license in the province would really be by partnership or other corporate development activity, M&A, acquiring a license, or otherwise partnering with someone that has a license. So there's some opportunities to do so, given the global context or the macro context. in Argentina with the elections last year and all the reforms that have been implemented. It's not an easy environment to get a deal done, but we continue working on that. So in the interim, We continue focusing on what we have there, the city of Buenos Aires, now the launch in Mendoza, which we think is going to be a nice business for us over time. But ultimately, stitching together more of a national strategy with the province of Buenos Aires, maybe in the future Santa Fe, maybe a few other smaller regions, we think could be attractive for us. But again, in the context of a very noisy country, uh, time in, in Argentina with all the, the impact of all the reforms, uh, following the elections and, and, you know, inflation and all the rest. So we'll have to see how all that plays out, but we're still, it's still a market that we're focused on. It's still a market that we're interested in. Uh, and we'll see how that plays out over time.

Thanks. And then I was, I was wondering, it's sort of a followup to Jeff's question. Uh, when it comes to the, uh, of a trade-off between or the comparison i guess between the casino and the sports betting customer i know that that you've uh you know you try to get as much cross crossover between those uh between those cohorts as possible i'm wondering what you're seeing there how those efforts have have played out recently to to get customers to sort of be uh dual customers on both sides

I can take that I think in terms of crossing players from sports to casino We are getting better on that, but it's not one of our main efforts. Let's call it a secondary effort. It's happening constantly. The rates are improving, nothing dramatically. So it's kind of stable, maybe improving a little bit. I think we concentrate more efforts bringing casino-first players and managing to do so. Later, we are trying to convert and to get some more cross between the two customers. By the way, we didn't mention here Omnichannel, which we are also putting a lot of efforts into those kind of customers. But the main effort still remains the acquisition, the casino first ones. Later on, the cross. I think we are getting better, but it's quite stable right now on a double figures percentage. I think we will continue like that. And if we are able to preserve this ratio, I think it will be very good.

Yavi, if I could just add that on the casino side, especially in a market like Mexico where our retail... a retail parent is leader in the market. Something between 85 and 90% of that retail business is slot focused. It's a relatively smaller contribution from sports betting and other and other products, Bingo and the rest. So there, there is a greater opportunity on the casino side to leverage, probably I would say less so, less so crossing them over to sports because I think there's less crossover in that direction than there is sports to casino and more leveraging by offering them games that they're familiar with and leveraging that retail footprint of a comprehensive omni-channel offer.

Thanks. Very helpful. And then final question, you know, you mentioned the competition, the increasing competition in Mexico. But, of course, you know, where you stand today with the cash balance that you have and profitability, you know, on a full year basis sort of on the horizon, you know, I'm wondering, when it comes to being aggressive with marketing spend throughout this year, and I know there are a lot of sporting events that could be opportunities, are there any steps you might take that would be different from the ways you've been aggressive in the past? Or would it be more of the same? And I know, you know, would it be more sponsorships of sports teams? Or are there any other more aggressive steps that you haven't taken in the past that now sort of become options since you're so close to achieving, you know, you're looking like you're going to achieve a full year cash flow positive generation?

Hi, Jeff. It's Moshe here, the vice chairman. How are you? No, look, we have a very concrete plan about Mexico, which is part of the long-term plan. And as I said earlier, we already suggested last quarter that we are about to turn into a cash-positive EBITDA next year. So we will continue with the strategy as it is. But at the same time, we are looking for further sponsorship. It works very well for us in the north, in Rialdos, while we took this team. So we're definitely looking for another sponsorship. But I would not say that that's going to be an acceleration of our business plan. It's part of the plan. Other than that, there isn't any other aggressive, I would say, marketing plan that we are right now planning other than the – the normal or the formal track that we have about keeping on modifying and enhance our ability to recruit more players with a lower value and to gain more in terms of player value by enhancing our content, enhancing our CRM activity, and the VIP treatment.

Pat, I would say that two and a half years out of the D-SPAC and given... We've now delivered a positive EBITDA quarter. Were it not for some of the monies that we had to, let's say, advance to our PSP partners going into the end of the quarter, it would have been a quarter where we would have generated cash. I think we definitely are in a position where we're starting to explore more things. So that is now part of what we're doing on a day-to-day basis. But there's nothing there that I would say where we're looking to take any aggressive steps. I think what we're doing is working in these two core markets together. If anything, the debate internally is around the edges on marketing spend across Mexico, Spain, you know, how much we want to do this year. But finding that balance between obviously continuing to deliver strong growth, but also the profitability that we've got here for this year. Great.

Thanks so much. And congrats again on the quarter. Thanks for the questions, Pat.

Our next question comes from Michael Kupinski with Noble Capital Markets. Please go ahead.

Thank you. And just to follow up to Pat's question, regarding the fact that you now have this very attractive cadence of adjusted EBITDA cash flow, I was just wondering, since you've throttled back some investments in some of your developing markets, I was wondering if now that you're seeing this trajectory kind of improve, is it do we start to see that you kind of move into and maybe step on the accelerator a little bit on the development of additional markets outside of, you know, maybe the development of Argentina, for instance?

Okay. Yeah. The straight answer is what I've said before, that we keep continuing to invest where we see the best ROI. Unfortunately, at the other three markets right now, the ROI is not amazing. We need still to continue and invest into building a better technology and seeing better ROIs over there. So I think right now we are in a junction where we either decide to invest more in the current markets or we are looking for more business developments in order to be able to facilitate better our current cash that we have. So we are kind of internally negotiating about that and seeing what options and what kind of investment plan we can show going forward in order to create more value for the cash that we currently have. I don't think that we will develop... more on the current structure that we have. On the other markets, we kind of try to keep them on a cash flow positive, EBITDA positive or cash flow zero in order to see how to maybe get a better approach, I think, towards next year. This year, I don't think that we will continue to focus where we are seeing the EBITDA in order to deliver our promise.

And by the way, Colombia and Panama, both on the margin, have been improving. So the business there over the last six months and the ROIs are improving versus where we were. But they're still both subscale businesses and ones that were not just quite ready to really put the foot on the pedal to invest heavily. It's competing with Mexico for that same, let's say, that same marketing investment.

Yes, exactly.

And in Mexico, we see the returns faster and bigger.

Yeah.

Yep. Gotcha. That's all I have. Congrats on the quarter.

Great. Thanks, Mike.

Again, if you would like to ask a question, please press star 1 now. Seeing no other questions in our queue, I will now turn the call back to the management team for any additional webcast questions and closing remarks.

Yeah, so we have a few questions coming in through the webcast. The first one is around Easter holiday. If there is any seasonal impact worth mentioning in Q124 versus Q123?

It's a good question. When did, I forget, when Easter last year, when did it fall this year, it fell?

End of March. It was mid-April, I think.

Right.

Go ahead.

No, I think, Oscar, this question is, I think in a marginal way, maybe there is a small impact. We have a little bit more games during the first quarter, but it's not enough to justify the increase that we have. Maybe marginal. We didn't see anything seasonal.

Mostly on the cash front, what I pointed out, which was the Thursday-Friday holidays here. in Spain as well as Mexico. And then the 30th, 31st were Saturday, Sunday. So it was a four-day, let's say, long weekend, bank holidays. So earlier that week, we topped up with all our PSPs and had quite a bit of cash in transit that affected our working cap position. But other than that, I didn't see anything meaningful in terms of the year-on-year seasonal impact from Easter.

OK. The next one on the webcast is around Mexico. and if we had seen any impact from the issues that our retail parent company has faced in some of its gaming halls.

No, we don't see any impact there. It doesn't affect us at this point.

Okay. Another question in terms... of insight into the split of the new revenue guidance, what we expect in Spain and Mexico, and in terms of adjusted EBITDA in both countries, I guess the answer is we don't provide.

Yeah, we don't provide segment level or country level guidance, but I think what we're seeing already is at least versus internal expectations that people don't necessarily have, but we're spending a little bit more already this year, year to date, than let's say what we initially expected. But that's only because we're seeing kind of outsized performance in terms of growth. And as a result of that, those good returns on investment in each of those two core markets. So we're going to continue this path, sustainable growth. We're not going to come off the four-year guide of being positive. And hopefully we'll get through the second quarter when we come back to report Q2. we can not only give a better view on what we're expecting in terms of net gaming revenue for the year, but something specific, a specific guide on the adjusted users. We would hope to come back with that in our Q2 call later this year.

Okay, and the final one we have on the webcast is around the TAM expansion market of $5.5 billion on slide 7. how much does Brazil represent?

And the answer to that is 3.4.

And then also in terms of how many of those countries have legislation in place. I think it's in most of them.

I mean, Brazil, there's legislation there in the process of regulating. Chile and Uruguay, not yet. Peru just legislated and is regulating licenses. Mexico, Colombia already regulated national licenses. Argentina, we discussed, is regional. And there still is a development process going. where additional regions within Argentina are evaluating and launching processes. I think Santa Fe is going to be the next one that probably comes over the next few months. And I'm outregulated as well as Puerto Rico as well. But Uruguay and Chile are still analyzing what they want to do as it relates to regulating the online gaming space in their jurisdictions.

Okay. That's it on the webcast. And I don't see any further questions on the phone line either. So if there are no further questions, I guess we will leave it here. Thank you, everyone, for joining us. And we will see you with our Q2 earnings later on this year.