Codere Online Luxembourg, S.A.

Thank you for standing by and welcome to the Cordair online first quarter 2025 results conference call. 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 star followed by the number one on your telephone keypad. If you would like to withdraw your question again, press star one. Thank you. I'd now like to turn the call over to Guillermo Lancha, head of investor relations. You may begin.

Thanks, operator, and welcome everyone to Codere Online's earnings call for the first quarter of 2025. 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, 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-ifrs preliminary on an audited financial metrics such as net gaming revenue adjusted EBITDA and constant currency figures for which you can find reconciliations or disclaimers in the appendix of the presentation these non-ifrs financial measures should be considered in addition to and not as a substitute for our IFRS results. 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 Euro unless expressed otherwise. During this call, we will make forward-looking statements, including those related to our net gaming revenue and adjusted video outlooks, which are subject to numerous risks and uncertainties, including those discussed in our earnings press release and other documents filed with the SEC, and which could cause actual results to differ materially from those anticipated by these statements. These forward-looking statements reflect our current expectations based on our beliefs, assumptions, and information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Finally, please note that a replay and transcript of this call will be available on our website at CoderreOnline.com, where you can also sign up for our investor email alerts. With that, I will go ahead and pass the call on to Aviv.

Thanks, Guillermo, and thanks, everyone, for joining us today. Before we dive into first quarter earnings, let me please provide a quick update on where we stand in regards to our NASDAQ compliance issue. First and foremost, we filed our 2023 annual report on Form 20F on May 1st. that is, within the extended deadline granted to us by NASDAQ, and thereby regain compliance with applicable listing requirements. This was formally confirmed in a letter we received yesterday from NASDAQ. As you know, since engaging Malone Bailey as our new auditor on December 31st, we have been working on both our 2023 and 2024 audits in parallel. But in the back half of April, decided to focus most of our efforts on completing the 2023 audit to ensure that we met NASDAQ deadline a NASDAQ deadline for filling our 2023 annual report, which was both the source of our compliance issue and, as you would expect, our top priority. As a consequence, however, we have not yet been able to complete the work on 2024 audit. And as a result, we are not able to file our 2024 annual report by May 15, that is, within the 15-day grace period provided. Unlike last year, however, in which NASDAQ first issued a delinquency notice and provided us with the time to submit a plan to regain compliance, and given that we are currently under one-year mandatory monitoring period, we understand that Nasdaq will be sending us a new delisting notice over the coming days, shortly following receipt of the total delisting notice. We will be appealing this new delisting determination and requesting both a new hearing panel and further stay of any trading suspension. That said, and as already disclosed to the market, we expect to file our 2024 annual report by the end of May, so would expect to regain compliance with NASDAQ listing requirements ahead of any hearing actually taking place. In short, while we may still have a couple noisy weeks ahead of us giving the communication we are required to make to the market we expect to finally be putting this issue behind us soon as always we appreciate the patience and understanding that all of you have shown us through throughout this process and look forward to getting back to business as usual Moving now to the highlights of the first quarter of 2025. On page 8, we delivered 57 million in net gaming revenue, 8% above Q1 2024. As in prior two quarters, net gaming revenue was negatively impacted by a weaker Mexican peso. In constant currency terms, net gaming revenue would have been 62 million in the first quarter, 17% above prior year period. In terms of product mix, the contribution from our casino segment came in at 61% of our total net gaming revenue in the first quarter, due to not only focus have placed on this segment in the recent years, but also to a lower sports margin in Mexico. This growth in net gaming revenue was driven by a 13% increase in the number of average monthly active users while the average monthly spend per active customer dropped 5% to €118. In regards to customer acquisition, we had a very strong quarter with 91,000 first-time depositors, 21% above the 75,000 acquired in the prior year period and 25% higher than in Q4 2024. This increase resulted in an average CPA in the quarter of approximately 200 euros, making two consecutive quarters of moderation in our CPA level, which are back to the levels we had in 2023. Finally, as announced last quarter, we put in place a one-year share buyback plan for up to $5 million. That was approved by our shareholder on March 3rd. Through May 15, we have repurchased around 68,000 shares for approximately half a million dollars under this plan. With this, I will now turn the call over to Oscar to cover the financial highlights of the quarter.

Thanks, Aviv. Turning now to the financial performance for the quarter on page 10, consolidated net gaming revenue grew by 8% to $57 million. This was driven primarily by our Mexican business, where revenue grew 15% to $30 million. In Spain, net gaming revenue was roughly flat versus the prior year period at $22 million. Adjusted EBITDA, meanwhile, was positive $1.8 million in the first quarter and included a contribution of $5.5 million from our Spanish business and $1.8 million from Mexico, its best performance to date. This marks our fifth consecutive quarter of positive adjusted EBITDA at the consolidated level. Looking now at our P&L on page 11, adjusted EBITDA was in line with the first quarter of 2024, despite the 4 million increase in net gaming revenue due to a higher level of marketing investment in the quarter, together with other investments made in the business in furtherance of future growth. Turning now to the consolidated figures on page 12, the 8% increase in net gaming revenue was driven by a 13% increase in active customers, primarily in Mexico. On a constant currency basis, net gaming revenue would have grown 17% in the quarter instead of the reported 8%. As Aviv mentioned, we had a significant uptick in FTEs, which grew 21% to 91,000 in the quarter and were driven mostly by Mexico, where in recent months we've been testing a number of new customer acquisition channels. Turning to the Spanish operating and financial metrics, net gaming revenue in the first quarter was nearly flat at 22 million, driven by a lower spend per active. On a positive note, we managed to increase the number of active customers by 4% versus the prior year and 7% sequential, getting back to 52,000 average monthly actives, the level we had prior to the reintroduction of welcome bonuses in the second quarter of 2024. While adapting our promotional activity to this new competitive landscape in Spain has been challenging, we have made significant progress in regards to improving the quality that customers require, both in terms of player value and retention. In Mexico, net gaming revenue was 30.5 million in the first quarter, 15% above the prior year period. The Mexican BISO devalued by more than 16% in the first quarter of 2025, resulting in a $5 million headwind to our net gaming revenue, an even higher impact than the $3 million we had in both the third and fourth quarters of 2024. On a constant currency basis, our net gaming revenue in Mexico would have grown 34%, so the underlying growth trend in this market is still very impressive. As in the fourth quarter, the sports betting margin was a bit lower than our target, this time equivalent to about one percentage point. which impacted NGR by about 1.5 million. As mentioned before, we had a significant increase in average monthly active customers to 82,000, 31% above Q1 2024 and 19% above the prior quarter, albeit with lower player values than what we had seen previously, but also with lower acquisition costs. Going forward, We will continue to explore and optimize all sources of customer traffic and otherwise continue to believe that the opportunity to invest and grow in Mexico is still very compelling. On page 15, we are including again the evolution of the Mexican BISO against the Euro, which had been relatively stable throughout the first quarter, but more volatile since April on the back of trade tensions and other uncertainties. When compared to the first quarter of 2024, the Mexican PISO weakened by 6% in the first quarter of 2025. Looking ahead, the exchange rate headwind will continue, but should begin to lessen after the second quarter, as we begin to lap the significant devaluation of the PISO following federal elections in Mexico in mid-2024. In short, we are expecting a difficult comparison for the second quarter results, but less of an impact thereafter. Turning to the balance sheet on page 16, as of March 31st, we had 42 million euros of total cash on the balance sheet, of which approximately 37 million was available. In terms of our network and capital position, we ended the quarter with negative 18 million, or around 8% of our LTM net giving rate. which continues to reflect the longer-term trend that we've spoken about of more restrictive trade terms with suppliers, notwithstanding that we believe that we are currently operating with a normalized level of working capital. Looking at our cash flow on page 17, in the first quarter of 2025, we generated 2.2 million of available cash, partially offset by a 0.9 million negative FX impact on ending cash balances, due to the devaluation of both the Mexican peso and the U.S. dollar on cash we hold in both currencies. Touching briefly on our outlook for 2025 on page 19, we are reiterating our expectation to generate net gaming revenue of between $220 and $230 million and adjusted EBITDA in the range of $10 to $15 million. Despite generating only $1.8 million in adjusted EBITDA in the first quarter, we are confident that our operating investment plan for the remainder of the year, including around the Club World Cup taking place from mid-June to mid-July, will allow us to meet our four-year guidance. That's all from my end. I will now hand it back over to Aviv for closing remarks.

Thanks, Oskar. Before we move to Q&A, I want to thank Coderre Online Team, as always, for their dedication and hard work in the recent months. As always, thank you to our investors, analysts, and market participants.

It's okay. I can just deliver closing remarks. Am I off mute?

Yes.

Before moving to Q&A, I want to thank the Coderre Online Team, as always, for their dedication and hard work in recent months. As always, thank you to our investors, analysts, and market participants for your support and interest. We look forward to speaking with you again soon. With that said, we'll 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 would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. Your first question comes from a line of Jeffrey Stanchel from Stiefel.

Your line is open. Hey, Greg. Good morning, guys. Thanks for taking our questions. Starting off, it looks like CAC was down 6% quarter-on-quarter, even though, as you touched on, user acquisition was up quite nicely. Could you just talk about the competitive environment a bit more? That's not really what's driving that. Just what is allowing you to continue to acquire more users at lower cost? Thanks.

Can you hear me? Can you hear me? We can hear you. OK. So basically, as you know, we are always testing new traffic sources and trying all kinds of experiments. We had some good experiments on one of our channels, and we tested it for, let's say, one quarter, more or less. It resulted in reduced CPAs. and a higher amount of players. Those players eventually, in terms of spend per customer, were with a lower value. And there are always more sources like that. So we tested that and We didn't find it so compelling. Eventually, the supporting of those players to the revenue and the new revenue and our predicted future revenue from those customers was not as high as expected. So it resulted a little bit of those numbers to be lower. in terms of CPA and higher in terms of amount of FTDs. But eventually in revenue impact, the revenue impact was a little bit low. My assumption is that in the next quarter or so, we will be back to our plan with the amount of players that we are acquiring and with the values that we already know.

Hi, Aviv. Can you hear us now? We got disconnected there for a few seconds. Can you hear us now?

Yes.

Okay, great.

sorry about that that's great just to confirm yeah we can hear we can hear dave on our end as well um okay perfect that's next jeff that's helpful thank you for that and then just turning to to stain slattish net revenue growth in the quarter that's obviously a bit of a deceleration quarter quarter you know both both on a year and year end on a two-year stack basis i just want to confirm oscar is that mostly higher competition coming back in the market after You know, some of the restrictions paired back off or if there's something else driving that. And then as a corollary to that, are you hearing anything in terms of efforts to bring back some of those marketing restrictions via more formal legislation this time? Thanks.

Yeah. Yeah. As you point out, the first quarter comparison is difficult because the reintroduction of the welcome bonus happened in April of last year. So this is the last quarter where we have this difficult comparison with the prior year period. So, yes, it's the impact. of the new competitive landscape on the reintroduction of the welcome bonus and some other promotional strategies that now are permitted that previously were part of the prohibited activities. So yeah, I think that's the primary driver. I can say that even though the first quarter flat or slightly down, we are seeing some positive trends. We've made some changes, especially in the first quarter. focusing our promotional strategies where it needs to be focused on our higher value customers. And it's showing good results in April and in the first few days of May. It's still a little bit too early to say with conviction, but within what is a more competitive landscape in Spain, I think increasingly we're going to find better ways to compete. And to your second question, there are Our understanding is that the government continues to pursue avenues to put the restriction back into place that were there pursuant to the original executive decree. But but they yet haven't found a way of doing that. So this is various legislative initiatives, one that we thought was close back in in February through a health care law. that we thought would go through ultimately didn't. But our understanding is the current government continues to work, and it really requires the cooperation with its coalition partners, its minority coalition partners, to get any legislation passed. So that obviously would be upside for us. We're not counting on it, at least not in our, let's say, short, medium term. We're assuming that the current environment is the one we have TO OPERATE IN. BUT OBVIOUSLY THE REINTRODUCTION OF THAT RESTRICTION ON WELCOME BONUSES WOULD BE GOOD FOR US AND GOOD FOR THE WHOLE SECTOR.

NEW SPEAKER OKAY. PERFECT. IF I COULD JUST SQUEEZE IN ONE MORE, OSCAR. I THINK YOU TALKED ABOUT AVERAGE REVENUE PER ACTIVE BEING DOWN ON MY MESSAGE ABOUT 5%. SOME OF THAT IS GOING TO BE MIXED SHIFT FROM SPAIN TO So Mexico, given the lower player values there, but it looks like if you just evaluate each of those individually, average revenue per player was down on a market level. So can you just, you know, expand a bit further on what's driving that?

Yeah, I think in Spain, it's the issues that we talked about that our existing portfolio, the spend per active is a bit lower than obviously what it would have been before the reintroduction of welcome bonus, as well as the lower player values given the competitive, you know, bonusing and promotional environment that we have. The player values for new acquisitions are also lower. So that's the Spain impact. In Mexico, it's a little bit what we discussed, and maybe Aviv already touched on this, but it's really, especially in the first quarter, the last month, I think, of 24 into the first quarter of 25, where we were testing out some new acquisition channels. Those were with lower acquisition costs, but also, at least initially, what we're seeing is lower player value. So that contributes, let's say, incrementally contributes and brings down the average spend per active player. uh in the period we have we don't have enough data points to know conclusively whether what we found there again it's a higher or lower what we said customer acquisition cost is neither good nor bad it's a function of them the strength of the customer the average customer that you're acquiring and the player values and the revenue that you're expecting to generate over longer terms So we're only three, four, five months in some cases in. So the verdict is still out, but that's part of what you're seeing in terms of at a consolidated level, the lower spend per active in the period.

That's great. Thank you both for all the color. I'll pass it on.

Your next question comes from a line of Michael Kapinski from Noble. Your line is open.

Thank you, and thanks for taking my questions. I just have a couple here. I was just wondering, in terms of your investments, it seems like you're getting still very favorable returns in Mexico. Are there market dynamics that are starting to improve in other markets to where you may step up investment spend, you know, whether it be Argentina or wherever it might be? I just wanted to get your color on other potential markets that you might invest in.

Aviv, you want to jump in?

Yeah. So basically, we started to see good results in Colombia. And I think everybody knows what happened in Colombia in the past few months with the VAT regime that they introduced. So we had to stop our efforts over there. um we do see some improvement in panama in recent months so we have some expectations to mitigate some of the issues that we have in colombia with panama and probably in the coming months we will see our investment increase a little bit uh with mexico in order to reach our targets in terms of new markets or new big investment currently we are let's say staying defensive with our business plan maybe just to mitigate a little bit with colombia to see what's going on over there because it's hurting us a little bit and and i think going forward to to next year with the World Cup, we will have a more aggressive budget to be able to capitalize on this large event and to continue and maintain our position in Mexico.

Yeah, I would just add one point on Spain that even though since April of last year, the unit economics, the player values have weakened directionally in that market, that the unit economics are still very attractive. So the level of investment that we've made in that market, even even at the higher levels this year versus last year, are in our mind still very justified in terms of a return profile that customers were acquiring. So it's still a very good market. It just went from a great market to a very good market.

Gotcha. And that was kind of leading into my next question. In terms of your guidance for the full year, obviously you're anticipating some sporting events to kind of kickstart that in the back half. But I was just wondering if you were looking at Just the continuation, I was just wondering in terms of how you look at the segment of those numbers. Would Spain then start to kick in? Mexico can kind of continue to perform as well as it has. And then maybe you start to get a little pickup from some of these other markets to drive your full year expectations. I was just wondering if you can add some color on how geographically you expect to reach your target for the year.

Yeah, Mike, I think that's fair that we're expecting a pickup from most markets. I think Columbia is still a TBD in terms of what we do there to mitigate the tax on deposits. But incrementally, Panama is performing well, and we've made some product changes. There's been some new developments there that have helped us make our product more attractive for customers in that market, and we're starting to show results. In Argentina, I think it's less a question of the top line, especially with the lifting of the capital controls, the new, whatever it was, 15, 20% step devaluation of the BISO. It's a challenge. But we, without the sponsorships, whatever it would have been, end of March, end of April, we no longer are sponsors of the River Plate Club in Argentina. So at the EBITDA level, where it seems like we have the biggest hill to climb to meet guidance that that's, you know, that that's a couple of million of expense that we won't have starting in the second quarter, partially starting in the second quarter, but definitely into the back half of the year. So I think it's, you know, primarily given the expectations we have for Spain and Mexico, but then on the margin, both in Panama and Argentina, we're seeing support for that conviction that we have that will make the four-year guidance.

Gotcha. Well, you've got a good start to the year. Congratulations.

Thanks, Mike.

That's all I have.

Thank you.

Your next question comes from a line of Ryan Siegel from Craig Hallam. Your line is open.

Hey, good day, guys. I want to stay on kind of the topic of new market potentially. It doesn't sound like in the near term, but parent company Grupo Correre just made an acquisition in Italy of an Italian land-based operator. Curious, you guys exited the Italian operations a few years ago. Curious how you think about new markets in the construct of maybe what your parent company is doing and specifically as it relates to Italy.

Yeah, hi. Let me take it. It's Moshe here. Hi, how are you? So, yeah, look, first and foremost, I think that in regard to Italy, so it's true. I mean, a few years ago, we had kind of like an experiment that was, I believe, before we went public. And we try to do something in that market, mainly based on our previous operational experience in Italy, based on the strong player value. But as a non-brand in Italy, we find it quite hard and quite difficult to enter this market. And therefore, we decided to withdraw, especially when it wasn't our core business and not with our own technology. And we didn't have a license back then. The reason that now the group decided that they're going for a partnership and a license, it's more about the strategy of the group and less of the strategy of the online market. our company. We are very focused, as I've mentioned in the previous question, we are very, very focused to keep our position in Mexico. We believe that this is our core market. We believe that we have still a lot of growth potential, and it's important that we'll be focused about keeping our, I would say, market share, and especially due to the fact that there's a lot of new competitors that are trying to get to the market. And we better keep the position rather than, you know, to try to put some effort in other markets. In Mexico, we still benefit from some of the omnichannel activity with the group. So that's good. But aside of that, we see that as KPIs, we manage to increase the marketing spend and to keep the same ratio between the CPA and the player value. So that's a good sign of potential growth.

Then just switching back to Spain specifically, appreciate kind of all of the moving pieces there. Are you willing to comment specifically within your guidance if you expect that market to return to revenue growth for the rest of the year?

I mean, that's our objective, yes. If you're talking about year-on-year growth, yes, we would be expecting to resume growth in Spain, yes.

The signals that we are getting from the KPIs are, I can't say back to normal, but positive enough to make us confident with the results that we will deliver.

Excellent. Thanks, guys. Good luck.

Great. Thanks.

Our next question comes from a line of Arthur Rulak from 3Court. Your line is open.

Hey, guys. Good morning. A couple questions first would be you mentioned some I guess additional investments in one queue on the marketing front for those sort of one time in nature, or is something else that you're doing that's I guess ongoing.

Yeah, I think it's a little bit of a mix of, on the margin, additional investments that we've made in terms of growing the team, personnel, as well as on the platform front. There's a number of initiatives. As you know, we operate on the Clodere platform in all jurisdictions other than Mexico, and things that we're doing there to increase stability performance, but also give us more functionality on the product front, especially, you know, payments that's critical in Latin America. So a little bit on that front, I think on the personnel front, the team has grown as well. We're always mindful of, of the, you know, keeping, you know, personnel expense growth below the growth of top line of the business. But there, there have been some areas that we've had to invest in and, and, Some savings we see medium term from greater automation as it relates to certain aspects of our business, customer verification, and some of the other things we do. But today, given the scale and the growth of the business that we've had in the last year or two, there were some areas that we needed to reinforce. So that's the type of investment. But nothing major there. It's really on the margin.

Marginal, yeah. I agree. Marginal. It's a marginal investment.

Uh, in, from a straight marketing perspective, I think last year you guys spent, I think it was like high eighties in a, in a Euro perspective. Yep. The first quarter was sort of run rating at 95 and change. Would we expect that number to step back down into the high eighties, especially in light of the devaluation in Mexico, meaning that I guess your Euro.

dollar effectively is going further from a buy perspective there yes so you know that we are we are forecasting a full year but the spend on each quarter is not divided equally usually in the summer we are lowering our marketing investment so probably we will be More of the same of what we had last year, maybe a little bit higher. Of course, we are generating more revenues and we have the, let's call it the constraints of our EBITDA guidance. So within those perimeters, which are very small fluctuations, we should spend more or less as expected. Similar levels. Yes, similar level plus the third quarter usually is a little bit with less investment because of the summer and the lack of sporting events. It's not a straight line going from first quarter to the fourth in terms of how to look at our marketing investment.

Got it. I think I may miss this, I guess, The River Plate sponsorship maybe is like rolling off. And you said that might be some a few million or I don't know, a million cost savings in the back half of the year. Is that accurate? Correct. Yes. Yes. Yes. And then on another thing I may have missed, did you say that there is like sort of like a negative sport outcome in one queue that was like about a million and a half dollar hit? Was that? Focused in Spain or Mexico?

Specifically Mexico. It wasn't a major. I think last quarter it was about two percentage points of margin. It was a little bit more significant. One percentage point is within the band of a normal margin. But yes, that's equivalent to about a million and a half of NGR in Mexico.

We saw, we saw, and other competitors also reported NFL season was very favorable with a very low margin. It impacted, I can't say the whole industry, but any sport betting bookie that has some focus in the United States was impacted by NFL results during the first quarter.

Yeah, no, it's been consistent across the group. I just have two more and then I'll let someone else jump on. The one thing I was confused about is this dynamic with regard to the share repurchase. Thank you for putting it in and thank you for beginning to execute it. But I guess the shareholders have approved a $10 million share repurchase and the board has approved five. Is there a reason sort of like that? I'm not sure that I've seen that dynamic before as to why that was put in place like that.

Yeah, I mean, what we were trying to do there is the shareholder authorization is a broader authorization. What the board then decides in terms of the execution, the implementation of that broader authorization can change over time. And initially, what the board approved was an up to 5 million US dollar share buyback program. So that's the one that we actually announced the market, but it sits within the broader shareholder authorization. So the board could tomorrow decide to do something different, to do more, to do less. But again, what we try to do with, it's a similar to the authorization of share issuance, right? The shareholders offer us something broader and then the board has remit to execute in the best interest of all shareholders. So today we're operating as a management team. We have marching orders and under a $5 million USD buyback plan from the board of directors.

Got it. My final question, and then I will stop. Has there been any progress in this Argentina license acquisition, or does it sort of remain sort of stymied over price of license?

Yeah, more of the latter. More of the latter. We're still open to the opportunity, but nothing that's developed currently. Got it. Thank you guys very much. Thanks, Art. Talk soon.

And there are no further questions at this time. Guillermo, I turn the call back over to you.

Okay. We have no questions coming in through the webcast either. So unless anybody else would like to ask a question, I guess we can leave it here. We will be speaking again towards the end of July with our Q2 earnings. And anyone, feel free to reach out if you have any follow-ups. Thank you.

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