Thank you for standing by, and welcome to the Codere Online Third Quarter 2023 Financial Results Call. I would now like to welcome Guillermo Lancha, Head of Investor Relations to begin the call. Guillermo, please go ahead.

Thanks, operator, and welcome, everyone, to Codere Online's earnings call for the third quarter of 2023. Today, you will hear from our CEO, Aviv Sher; and CFO, Oscar Iglesias. Our Executive Vice Chairman, Moshe Edree, 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 financial metrics, such as net revenue or adjusted EBITDA, for which you can find reconciliations in the appendix of the presentation. 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. 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 Aviv.

Thanks, Guillermo, and thanks, everyone, for joining the call today. I'm thrilled to be sharing our third quarter 2023 earnings and dive into yet another record-setting quarter for our company. During this quarter, we continued to focus on enhancing both our Sport and Casino product offerings and providing our customers the best experience, enabling us to once again surpass expectations. But we are not stopping here and remain fully focused on sustaining, if not improving upon this momentum, especially now that we have a clear line of sight to becoming a profitable company next year. Jumping into the highlights of the third quarter of 2023. On Page 7, we delivered $43 million in net gaming revenue, a 41% growth versus the prior year quarter despite a lower-than-usual sector-wide sports betting margin toward the end of the quarter, which for us, was partially offset by a higher level of amounts wagered by our customers. In the quarter, we also continued to see further increase in the contribution from the Casino segment, which accounted for 58% of our net gaming revenue this quarter. This growth was driven by both our recent effort to acquire more casino-first players and continued focus on managing our existing portfolio of casino customers, along with the usual seasonal slowdown in store during the quarter. The growth in net gaming revenue was driven by a 19% increase in our active customers to nearly 124,000 together with a significant 19% increase in average monthly spend per customer to €116. Mexico drove most of the increase in active customers with 38% more than in the third quarter of 2022. In terms of customer acquisitions, first-time deposits declined by 20% versus last year, with 69,000 in the quarter. This decrease was driven by a substantial decline, both in Colombia and in Argentina. However, as we have discussed with you in the past, this is a result of our decision to prioritize investment in our core Spanish and Mexican markets, which combined contributed 11,000 FTDs more than in Q3 last year. But beyond the impressive top-line growth, we continue to see very attractive return on investment across the markets. In terms of CPA, we had a blended €200 CPA per player, flat versus the prior year quarter, and largely consistent with our average cost since 2022. Perhaps what is most relevant about this set of earnings is that everything we have done and continue to do is coming together in a way that will allow us to continue delivering on the plan we set out almost two years ago. Also this quarter, we are posting, for the first time since going public, breakeven adjusted EBITDA compared with a negative €13 million we had last year. With these results, we take yet another meaningful step in our path to profitability. With this, I will now turn the call over to Oscar to cover the financial highlights of this quarter.

Thanks, Aviv. Before diving into the numbers for the quarter, I wanted to remind everyone that as we anticipated in our call last quarter, we are now reflecting on a pro forma basis the impact from the nondeductible value-added taxes in Colombia, which have resulted in a reduction in the reported adjusted EBITDA for 2022 of approximately $1 million. Turning now to the financial performance. Consolidated net gaming revenue grew 41% to over $43 million in the third quarter, driven primarily by our Mexican business, which grew by an impressive 63% to €21 million, together with an equally impressive 27% growth in Spain to nearly €19 million. With these results, Mexico has now firmly established itself as our largest business by revenue. Adjusted EBITDA was breakeven in the third quarter and included a record high quarterly contribution of €8 million from Spain, 71% more than in Q3 last year. Mexico also showed a meaningful improvement with an adjusted EBITDA loss of €2.6 million versus the negative $8.1 million in the prior year period. Colombia and the rest of the markets also reduced their losses materially, thanks to the reduced level of investment as commented earlier. All in all, this breakeven adjusted EBITDA represents a €13 million improvement versus the prior year quarter and reflects the significant progress we are making in furtherance of our sustainable growth objective. Looking now at our P&L on Page 10. The €13 million improvement in adjusted EBITDA in the quarter was driven by the combination of significant growth in gaming revenue along with a nearly €5 million reduction in marketing investment in the quarter, together with slower growth in certain other operating expenses as compared to the growth in revenue. Turning to the Spanish operating and financial metrics. Net gaming revenue in the third quarter increased 27% compared to the prior year, driven by a 17% increase in the number of active customers and a 9% increase in spend per active, based on a strong casino business, which accounted for 55% of our revenue in the quarter. In Mexico, net gaming revenue reached €21 million in the third quarter, ahead of Spain for the second consecutive quarter, and an increase of 63% year-on-year and 17% sequentially. This strong performance was driven by a 38% increase in the number of active customers and an 18% higher spend per active customer. Moving to Colombia, net gaming revenue remained around the €2 million mark in the third quarter. We continue to focus our efforts in Colombia on improving both the quality of our customer acquisitions and our portfolio of active customers without deploying significant marketing investment. Turning to the balance sheet. As of September 30, we had €43 million in total cash on the balance sheet, of which approximately €37 million was available. In terms of our net working capital position, we ended the quarter with a negative €19 million or around 12% of our last 12 months net gaming revenue, which we believe reflects a normalized level of working capital for this business. On Page 16, you have our cash flow statement for the first nine months, together with further details regarding the variation in net working capital. In the first nine months of 2023, we have utilized approximately €10 million of available cash, and the year-to-date FX impact on cash balances has reduced our position in euro terms by €1 million. Turning now to our 2023 outlook on Page 18. We are increasing the net gaming revenue and adjusted EBITDA guidance we provided in August when we reported Q2 earnings. We now expect to generate between €155 million and €165 million in net gaming revenue, reflecting a 10% improvement in our guidance at the midpoint compared to the initial 2023 outlook provided in February. For adjusted EBITDA, we now expect a range of negative €10 million to negative €18 million and otherwise continue to expect that we will be adjusted EBITDA and cash flow positive for the full year in 2024. Regarding specific net gaming revenue and adjusted EBITDA guidance for 2024, we will provide that information when we report Q4 earnings in February. That's all from my end. I will now hand it back over to Aviv for closing remarks.

Thanks, Oscar. Before we turn to Q&A, I would like to thank the Codere Online team for their hard work and unwavering commitment to the business. I would also like to express our support and gratitude to our colleagues in Israel, who are working under extremely difficult conditions, and especially to our four employees who have been called up to military duty. As always, thanks to the analysts, investors, and other participants for your interest in Codere Online. We look forward to speaking with you again soon. With that said, we'll turn it back to the operator to open up the call to Q&A.

Our first question comes from Pat McCann with Noble Capital Markets. Please go ahead.

Hey, guys. Congrats on the quarter. A couple of questions here. First of all, just looking at the detailed figures you released for EBITDA. It appears there was a bit of a drop-off in the distributed/headquarter operating expenses, and that had an important impact on EBITDA being breakeven for the quarter. So I was wondering if you could just help me understand the components of that and why the loss associated with that line item was down so significantly in Q3?

Hi, Pat. Are you referring specifically to the quarter, the €600,000 below the prior year period? or some other figure? I imagine you're on Slide 9 in the segment reporting distributed B2B and HQ OpEx? Or are you referring to something else?

Yes, that's correct.

Yes. Look, I think that increasing over time, where we can, and I think this is something that since we lease back, we've been looking at any undistributed expenses that over time, we have the ability to identify specifically what B2C units they relate to. We seek to push that into the business units themselves. So I can't give you a specific answer on that €0.5 million improvement versus the prior year quarter. But generally, that's what would be the case; we are increasingly able to have that reflected otherwise in the B2C and the segment-level adjusted EBITDA for years.

Got you. Okay. And then with Spain, you mentioned that the increase in spend per active as well as active users contributing to the strong performance. I'm just wondering, do you have a sense on the factors driving that strong performance in Spain? And has it changed your expectations for Spain given the restrictions. I'm just trying to understand the situation there with how Spain seems to continue to grow and contribute meaningfully to the overall business?

Aviv, do you want to answer...

Yes, I will take it. So a few things around this question. First of all, we saw because the regulator is publishing the numbers that organically, the market is growing in double figures quarter-on-quarter and year-on-year. So organically, there is growth in the online betting business, and we are enjoying this organic growth as well because I think we are strongly positioned with our brand, whether it's in the street or that we have been operating with for the last few years. Plus, we are continually improving our platform, stability, and offering, mainly on the casino part where we see the growth. So I think those two things are the ones that are driving a higher level of customer engagement. Maybe the third thing that's worth mentioning is that because of the regulation and the harsh conditions in the market, some small to medium-level companies are pulling out, and we are enjoying more activity with our current players because they are not playing in other places, but this is just an assumption. The first two parts that I mentioned, whether it's organic growth or improvement to the products, are driving the higher level of engagement.

Great. Thank you. I will pass it on.

Our next question comes from the line of Jeff Stantial with Stifel. Please go ahead.

Good morning. Thanks for taking the questions. Maybe starting to go off here on guidance revisions. It looks like the midpoint implies about €38 million for Q4 NGL translating to about €6 million in adjusted EBITDA losses. That does imply some moderation quarter-on-quarter, where I believe the sports calendar tends to favor Q4. So Aviv, could you just provide some color there? And then this might be included in your answer, but EBITDA margins for the Spanish business were well over 40% in the quarter. Were there any one-time benefits bolstering this? Or is this just kind of purely a function of mix?

Yes. On the directional guidance for Q4, as you know, and this is not just last year because of the World Cup, Q4 is typically a quarter where we take advantage of opportunities to spend a little bit more than, let's say, the run rate throughout the year in addition to it being a strong quarter from a sports standpoint. I think that will be the same this year; we've been spending just shy of €20 million per quarter in the first 9 months. I think going into Q4, we'll probably spend a little bit more than that. Our overall objective this year, without providing specific numbers, is to bring total marketing spend to something like 50% of total NGR. So we're on track to do that. But we will be spending a little bit more than usual in Q4, which is part of what you're seeing in the adjusted EBITDA guidance. In terms of the EBITDA margin in Spain, as you know, our business is domiciled in Malta, where we benefit from favorable tax rates, not just on the gaming tax front but also in terms of VAT and corporate income tax. So what you're really seeing is the benefit of two things: one, that relatively low, I think, on an effective basis, including some upfronts we pay, something like 12% to 13% on NGR in gaming taxes, plus some operating leverage we have in different parts of the business and the platform. So when we went out to the market before we listed, we had kind of a long-term blended objective of something like a 25%. But Spain, given the lower tax rate, obviously, targets a higher EBITDA margin. There were no real nonrecurring items in the quarter other than good trading results and performance on both sports and casino, notwithstanding some of the weakness we had in the sports margin, especially in September. The business is performing well, for all the reasons I've mentioned, and it's one that we're focused on, which is no longer our top market by revenue but by value, obviously.

Great. That's helpful. I'd encourage - and then maybe sticking with the Spanish business for a follow-up. I believe there is a draft proposal for some potential incremental deposit limits for iCasino as well as potential restrictions for operators who are not domiciled in Europe. Can you just update us on these latest changes being considered? Any thoughts on profitability? And if this comes to promotion, what potential impact do you see on your business, whether positive or negative?

Of course, any more regulation, we see as mostly a negative influence. What we are aware of is some restrictions that will come to time sessions over the roulette and the Blackjack, which didn't exist before. Other than that, the royal decree is still not published, and we are still waiting to see how they are going to manage or impose those new things they are considering. They still have technological barriers that they need to pass and create some kind of central platform and so on. We don't see it coming, I don’t think, in the next year. But for sure, there are discussions that will make the environment more hostile for the regulated business. Of course, we always say that overregulation puts players in the black market, and eventually, the country loses tax revenues and control over the players. So in terms of position, we think it might have some impact. So far, all the regulations and barriers we've faced so far, we haven't seen a significant impact. We are not sure that in the coming year, we will see any impact based on that.

Okay. Great. And if I could just squeeze in a couple more here and shift gears over to Mexico. It appears your largest competitor there is currently in a legal dispute with their technology provider, who is also your provider for that market. Just curious if you're seeing any sort of market share spillover as a result of this? Or if not, if there is potentially a medium-term opportunity here?

No, we are not dealing with this dispute. We saw in the newspaper what the dispute is about. We don't believe we are seeing our business growing, whether it’s still from our competitors or from the organic market growth. It's hard for us to say because we see their results, and they are also growing significantly. So from our position, I think we are increasing market share, but I don't believe it is at the expense of our competitors. Regarding the dispute they have with their platform provider, we have nothing to do with that, nor do we have any information beyond what you have in the news. I don't think it affects any of our business or theirs; it's just a dispute they want to resolve in court for some reason.

Okay. Great. Understood. That's helpful. One more, if I may. Could you just provide an update on the planned Mendoza launch as well as the path to a potential province-wide license for Baatar?

Yes. Yes. Look, in terms of the province of Mendoza, consistent with what we said in the past, we're still actively pursuing a license to launch and operate in the province, nothing to report today. In Mendoza, as you know, we've been awarded a license but are not yet up and running, but expect to be operational in the first half of next year. So it's taking us a little bit more time than we would have initially expected, especially given some of the other priorities we have related to other regulations we've faced in Spain and other platform technology ports we had in our business. But we have a dedicated team working on that and expect to be operational shortly.

Our next question comes from the line of Arthur Roulac. Please go ahead.

Hi, guys. Thank you for taking my questions. Can you maybe pull back a little bit from the details and look a little bit further out? We're two years into being a public company, and it looks like the company should flip to free cash flow positive next year and probably somewhat meaningful relative to market cap. What are the uses of free cash flow going forward? Or what are you guys thinking about at the board level in terms of what you may use that for?

Do you guys want to take this to...

In terms of cash flow, given the good results we are achieving, both in Spain and Mexico, I expect our plan to continue to invest any excess cash we generate next year into marketing spend in these markets. So basically, we are continuing to focus on those two markets. We see good return on investment on the marketing investment we are doing there, and we are able to maintain or even grow our market share. So any free cash flow will be used for that. This is mainly the plan.

Well, if you use all your free cash flow to reinvest in the business, you have no free cash flow. So if your EBITDA positive, that means you're producing cash flow, which is moving to the balance sheet. And that, in turn, would start building on the balance sheet over time unless you're going to reinvest 100% of what you make driving the business to EBITDA neutral. I know that's not the case. So I'll ask again. And really, it's around the fact that you have a stock price that's trading at $3. You'll have perhaps more cash than market cap on the company in the next 12 months - is there a thought about the valuation and have you guys at the Board level looked at and said, hey, we are probably the least expensive online gaming business that has the potential to be materially EBITDA positive and free cash flow positive. What are we going to do with that free cash flow? And what are our views about where the public equity is, as it's not a private business and there’s a public equity outstanding?

Yes. Art, just if I can just chime in. Look, I think we all agree that the share price of $3 a share is undervalued. But our view is, management, and the discussions we're having at the Board level, there's broad consensus that the best use of cash going forward is given the opportunities and the strength we're seeing in these two core markets is to continue investing into that strength and building on that momentum. We expect to maintain similar levels of marketing investment next year compared to this year. Obviously, as we continue growing top line, that is actually decreasing from a percentage of sales standpoint. This year, we spent something like 50% of NGR in marketing. That will continue. Our plan is to have that trend down to a more normalized level, setting aside any expansion markets that may emerge in the future that may be of interest to us. On a relative basis, the level of investment will decline. You've seen this year the decision to lift our foot on sustainable growth. Nothing has changed there. We're finding that balance given that at least versus internal expectations, the business is performing better than we thought would be at the beginning of the year here, almost 11 months in. Given the opportunities we're observing and the unit economics, particularly the strength in the casino side of the business, we believe the best use of cash right now is investing in Spain and Mexico while keeping a prudent minimum cash reserve on the balance sheet in case things go wrong going forward.

There are no further questions at this time. I would now like to turn the call over to Guillermo Lancha for closing remarks.

Thank you. So there are no further questions on the webcast either. So we can leave it here. As always, feel free to reach out to the team if you want to follow up on any questions or topics. If not, we will be speaking again at the end of February with our full year 2023 results. Thank you, everybody, for connecting.

I'd like to thank our speakers for today's presentation, and thank you all for joining us. This now concludes today's call, and you may now disconnect.