Good afternoon. My name is Ralph and I'll be your conference operator today. At this time, I would like to welcome everyone to the Codere Online Third Quarter 2022 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session.

[Operator Instructions] Thank you. Guillermo Lancha, you may begin your conference..

Thanks, operator, and welcome everyone to Codere Online’s earnings call for the third quarter of 2022. Today you will hear from our CEO, Moshe Edree and CFO, Oscar Iglesias.

Before turning the call over to Moshe, I’d like to remind everyone that during this call we will be referring to a presentation that we uploaded to our website earlier today, which includes non-GAAP financial metrics such as Net Gaming Revenue or Adjusted EBITDA, for which you can find reconciliations in the appendix of the presentation.

Let me also remind you that Codere Online is Luxembourg based and as a European company our accounting information is prepared under IFRS Accounting Standards and our functional currency is the euro. As such 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 over to Moshe..

Thanks, Guillermo and thanks everyone for joining the call. For those of you are less familiar with the company, we have a quick overview on Page 6 we jump straight into the highlights of quarter on Page 7.

We've been able to deliver a strong set of results in this quarter, in the third quarter with the net gaming growth accelerating significantly to 54% versus last year to nearly €31 million a 5% sequential increase versus the third quarter despite the usualQ3 headwinds from seasonality on the sports betting side of the business.

This growth was the result of both significant increase in average monthly active customers to nearly 104,000 and a 15% increase in average monthly spend per active to €98. Mexico again drove most of this growth in active customer with a 62% increase in the period.

In terms of customer acquisition, the strong return of the main football league and other sporting events in the quarter allowed us to increase our first time deposits to €86,000 with increase of 62% versus last year and a significant uplift versus last quarter.

We did so in the average cost of €200 per customer, which is higher than the third quarter, given the increased in marketing efforts to attract customer ahead of the start of the season, but also due to the timing differences in marketing spend in Mexico, which we discussed in our second quarter earnings call.

This has been our fourth consecutive quarter of strong performance and the year-to-date trend that we anticipated earlier in the year in terms of an acceleration in revenue growth throughout the year.

And while the third quarter comparison was an easy one, in particular due to the impact of newly implemented advertising and promotional restriction in Spain in the period year period.

We see the trend continuing to the fourth quarter and with the World Cup beginning in a few weeks, we believe that we are in a good position to meet the higher end of our full year net gaming revenue guidelines, which we are tightening between €115 million to €120 million.

In terms of recent developments, we continue to be very active on the licensing front. After several months of hard work with the team, we were successful in extending our online gaming license in Colombia by an additional three years to November, 2025.

Also, during September, we were pre-awarded an online gaming license in the Province of Cordoba in Argentina, ranking first among eight operators who were selected to be licensed. Cordoba is the second most populated region in Argentina, and represents a great opportunity for us to continue building a relationship position in the country.

We expect the final granting of the license to take place before year end and operations to start early next year.

In addition to the Province of Cordoba, we are also pursuing a license in the Province of Buenos Aires, the most populated in the country, and where the parent company is the leading retail operators with 13 gaming halls and above a 40% share of the market.

We also remain attentive to other regions with our process of becoming regulated like the Province of Mendoza we are expected to participate in the tender process scheduled for January. With that, I will turn it over to Oscar to cover the financial highlights of the quarter. Oscar, it's your call..

Thanks Moshe. Turning to Page 9 of the presentation, consolidated net gaming revenue grew 54% to €31 million in the third quarter, driven by an 82% growth in Mexico to nearly €13 million and a 29% growth in Spain to €15 million. In both cases, on the back of higher average spend per active.

Columbia also performed well with €2 million of net gaming revenue in the third quarter, more than doubled that of last year. Adjusted EBITDA in the quarter was negative 1€2.7 million, and in line with our expectations.

As we discussed on our prior earnings call, Q2, EBITDA benefited from timing differences related to certain marketing expenditures in Mexico. That is part of the Mexican marketing investment we had earmarked for Q2 fell into Q3.

As we have discussed in the past, negative EBITDA relative to 2021 levels remains high due to the significant marketing and other operational investments we are making to deliver significant net gaming revenue growth that you are seeing in our numbers.

At the country level, the negative EBITDA in Latin America was partially offset by Spain, which generated €4.8 million of positive EBITDA in the quarter, its highest level ever, and reflecting up 32% margin on net gaming revenue.

We understand that the market is focused on both the underlying profitability of this business and our pathway to that profitability, and while we are still finalizing our annual budget and operating plan for 2023 and beyond, our plan remains largely unchanged from what we set out to do when we raised capital almost exactly one year ago.

That said, our focus right now is continuing to prepare for the World Cup and finishing the year on a strong note. As such, we expect to provide further details regarding our expectations for 2023 on our Q4 earnings call early next year.

As we have discussed in the past, our marketing spend is highly discretionary, so we can dial back investment at any point to reduce cash burn and generate positive cash flow earlier if needed, and our strategic priority will continue to be Spain, Mexico, and increasingly Argentina.

In all of these markets, our focus will be building scale and improving return on marketing investment and ultimately generating value for our shareholders.

Turning to the Spanish operating and financial metrics, we see net gaming revenue in the third quarter increased 29% versus the prior year quarter, despite only having 4% more active customers due to the increase in spend per active.

On an LTM basis, we are 6% above in revenue levels, despite 5% fewer average monthly actives in the period, again reflecting the higher spend per active partially driven by strong results in our online casino business.

Growing our casino business has been a strategic priority for us in Spain for some time, not only to dampen the impact of seasonality on the sports betting side of the business, but also given attractive unit economics we are seeing on the casino side in recent quarters.

Over the last few years, our net gaming revenue mix has shifted from about 40% casino, 60% sports to around 50-50 recently, a level we expect to maintain going forward. In Mexico, net gaming revenue reached €13 million in the quarter, an increase of 82% year-on-year, and 8% [ph] sequentially.

This strong performance is driven by both a substantial increase in the number of active customers and a higher spend per active. Moving to Columbia, net gaming revenue more than doubled versus last year reaching €2 million in the quarter.

This was mostly driven by, again, higher spend per active, but also by the number of active customers, which grew 21% despite a sequential decline as we continue working to improve the overall quality of both customer acquisitions and our portfolio of actives in the market.

Turning to the balance sheet, as of September 30, we had approximately €66 million in available cash on the balance sheet having utilized approximately €25 million in the first nine months of the year.

In terms of our net working capital position, we ended the third quarter at a normalized level of negative €23 million having gotten caught up in terms of accounts payable with third party providers and Codere Group throughout the third quarter.

Okay, on Page 16, you have further details regarding the cash flow statement and the variation in net working capital in the quarter. Please note that the €6 million in foreign exchange impact on cash balances in the year-to-date period reflects unrealized gains.

We had an additional €2 million of realized gains that are reflected in the net income figure. In both cases, due to the strength of the U.S. dollar in the year-to-date period versus the euro on the U.S. dollar net proceeds received in the leaseback transaction last November. That's all from my end. I will now hand it over to Moshe for closing remarks..

Thanks, Oscar. Again, we are pleased with our strong performance in the third quarter and believe that we will continue to stay focused on hard work. We'll deliver on our plans for the shareholders. We look forward to speaking with you early next year when we'll be publishing our fourth quarter and our full year results.

In the meantime, I wish you, everyone happy holidays. With that, said, I will turn it back to the operator to open up the call for Q&A..

[Operator Instructions] Your first question comes from a line of Jeff Stantial from Stifel. Your line is open..

Great, thanks. Good morning, Moshe and Oscar. Thanks for taking our questions. Starting off, I wanted to unpack spending patterns by country a bit more. If you look at average revenue per monthly active, it looks like Spain was up double digit percentage quarter-on-quarter while Mexico was down high single digits.

Is this essentially just a function of customer mix or are you seeing any noteworthy change in, call it, same player wagering behavior from Q2 into Q3? Thanks..

Hi, Jeff. How are you? Thank you for the question. I think that it's a normal behavior of, I would say, a semi-mature market like Spain on a growing market for us like Mexico.

In Spain, because of the advertising ban, we see that there is higher quality of players that participate and they're registered and they deposit, since those, that manage to come, they're coming organically. They're stronger player with, I think that with more capability of spend. While in Mexico, we are harvesting more players.

We are buying more kind of like mixed media. So just by nature, the blended quality of the players in general will be with a lower player value. I think this is the main reason.

And also in Spain, as Oscar mentioned in the call, we invested more in casino side, while we know that for the short-term casino are performing a bit better than sports in terms of spend per customer..

Okay, understood. That makes sense. Thank you.

And then moving on to more of the competitive landscape, could you just talk through maybe focusing on Spain, Mexico, and perhaps Columbia, how you're seeing the competitive landscape evolve? Are operators pulling investment out of Spain in light of the restrictions? Are you seeing more competition enter Mexico as some of the growth that you're showing and some of your peers are showing kind of be getting from more competition? Just any color there would be helpful.

Thanks..

Yes, I think that you are absolutely right. I think that in Spain, as you mentioned, we see some, withdraw from the market of an existing brand. Obviously, again because of the regulation landscape, because of the advertising ban, because of a lot of, say development and changes and restrictions that added to the regulations.

So by nature international brand that doesn't have local brand, that the brand is not strong enough that they're not by nature facing the Spanish market, already or still in process to withdraw.

We saw that in like other public companies like William Hill and [indiscernible] we saw that they are decreasing their marketing span in Spain and obviously Codere is being like a local hero with retail operation, with a strong brand, with the back of years of the sponsorship of Real Madrid, we are harvesting more of this, I would say traffic or at least the market share that those operators are living behind..

Caliente:.

Jeff, I would also add just in Spain that we're also seeing some of the smaller players that didn't have a brand established in the market or, or a meaningful share in the market are struggling to do so in the face of the new promotional advertising restrictions.

So there's limited ways in the current environment to build share and to develop and build brand and recognition in the market. So I think some of the smaller players are also struggling in addition to what Moshe mentions in regard to some of the bigger players perhaps pulling back a little bit..

Okay, understood. That's, that's very helpful. Thank you both. If I could just squeeze in one more that kind of follows along with what you mentioned Oscar, as I understand the Spain's Senate passed a new law back in October, potentially putting forth some additional restrictions on marketing.

Based on what I'm seeing in the public sphere it seems like these will likely prove much less impactful than to the broader market than what we've seen so far.

But could you just talk a bit on how you're seeing these and what you see as the potential impact, whether negative or favorable? And then just remind us kind of the timing and what needs to happen for some of these incremental changes to come into play? Thanks,.

Moshe do you want me to tackle that or do you want to jump in?.

Yes, you can have it. You can have it..

Yes, so Jeff, this is the legislation that's been working through over the course this year in terms of additional, the way we look at a protective measures that the government wants to put in place to protect, let's say vulnerable segments of the population as it relates to the online gambling space.

So these are a number of different measures, but we're still working through and analyzing the impact these would have and what it's going to be or what the requirements are going to be primarily from a technology standpoint in terms of development needs. But in terms of how this is going to affect our business, it's still a little bit early to say.

Obviously we're monitoring this.

We understand that these measures are going to come into force more towards the end of 2023, but obviously we're already starting to think through, to the extent that there's additional operating limitations, limits as it relates to player activity or sensitivities regarding certain age segments that there's work to be done on our side from a technology standpoint and make sure that we're compliant with all those requirements.

But too early to say whether this is going to be good, bad or otherwise for this business. But obviously, we're analyzing that, and we'll keep you posted, as we have better visibility over how this is going to impact us longer term..

Perfect. That's very helpful. Thank you both. I'll pass it on..

Thanks, Jeff..

[Operator Instructions] And there are no phone questions at this time. I will now turn the call back over to Guillermo Lancha for any closing remarks..

Okay. So we have no more questions on the website either. So if anyone would like to reach out after the call to ask any additional ones, please feel free to do so, and if not, we look forward to speaking with you again for our Q4 call in early next year. Okay? Thank you..

Thanks everyone..

Thank you..

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