Thank you for joining us for the Codere Online Third Quarter 2024 Financial Results Conference Call. I will now hand the call over to Guillermo Lancha, Head of Investor Relations. Please proceed.

Thanks, operator, and welcome, everyone, to Codere Online's earnings call for the third quarter of 2024. 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 preliminary and unaudited financial metrics such as net gaming revenue or adjusted EBITDA, 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 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 us today. Before we discuss the highlights of the quarter, I would like to first address and provide a quick update on where we stand with respect to the delisting process with NASDAQ. As you may have seen in our press release, the hearing panel where we would be requesting additional time to file our annual report has been scheduled for January 16. As you know, the delisting of our shares and warrants is currently stayed and will continue to be stayed through the duration of the hearing process. In practical terms, we now have seven weeks until the hearing in which we will continue working to file our annual report to regain compliance with the NASDAQ listing recovery requirements, thereby eliminating the need for the hearing. Now diving into the highlights of the third quarter of 2024 on Page 8. We delivered €52 million in net gaming revenue, €8.5 million or 20% above Q3 2023. Third quarter net gaming was negatively impacted by about $3.5 million as a result of a weaker Mexican peso versus the prior year period. Excluding this impact, net gaming revenue would have been €55 million in the third quarter, a 32% increase over the prior year and an improvement over what was a record NGR in the second quarter. In terms of product mix, the contribution from our casino segment is increasing and more or less in line with the level achieved in the second quarter due to seasonal decline in sports betting during the summer months. This growth in net gaming revenue was driven by a 4% increase in average monthly spend per active customer to €120, together with a 15% increase in the number of average monthly active customers. With regard to customer acquisitions, we had 67,000 first-time depositors at an average CPA of €250. For those of you that have been with us for some time, you will recall that since mid-2023, our average customer acquisition cost has been on an upward trend, primarily due to the mixed effect that is more investment in Spain and Mexico versus Colombia, Panama and Argentina, and both in Mexico and Spain and increased focus on acquiring what we call casino-first customers, which generally requires a higher upfront investment. With this, I will now turn the call over to Oscar to cover the financial highlights of the quarter and to our current expectation with respect to the full year of 2024.

Thanks, Aviv. Turning now to the financial performance for the quarter on Page 10. Consolidated net gaming revenue grew by 20% to $52 million. This was driven primarily by our Mexican business, where revenue grew 27% to €27 million. In Spain, meanwhile, net gaming revenue grew 11% to nearly €21 million. Adjusted EBITDA was positive €1.5 million in the third quarter and included a contribution of approximately €6 million from our Spanish business and €1 million from Mexico. As a reminder, our country-level results now include certain expenses that in 2023 were classified as undistributed B2B expenses, so the comparison versus prior year periods is challenging. In Spain, for example, third quarter adjusted EBITDA includes approximately €1 million in what previously would have been undistributed B2B expenses and is otherwise negatively impacted by a higher allocation of platform expenses versus the prior year period. This, together with a higher level of total marketing investment in the third quarter, explains the year-on-year decline in adjusted EBITDA in Spain. Looking now at our P&L on Page 11, the €1.5 million improvement in adjusted EBITDA in the third quarter was primarily driven by the €8.5 million increase in net gaming revenue, partially offset by a higher level of marketing spend in the quarter as well as higher platform and content fees. Turning now to Page 12. The 20% increase in net gaming revenue is being driven by both an increase in active customers from Spain and Mexico, together with a higher spend per active. I will discuss in more detail later, but given the significant devaluation of the Mexican peso since the presidential election took place in June, we thought it would be helpful to also provide growth, assuming constant currency for Mexico, which would have been 32% instead of the reported 20%. FTDs, meanwhile, dropped 3% in the quarter and 8% sequentially, mostly driven by declines in both Colombia and Argentina. Still, we had a 15% increase in active customers in the quarter, primarily due to improved retention of existing customers. Turning to the Spanish operating and financial metrics. Net gaming revenue in the third quarter increased 11% versus the prior year, driven by the 18% increase in the number of active customers to 49,000, partially offset by a decrease in spend per active. In Mexico, net gaming revenue was €27 million in the third quarter, an increase of 27% year-on-year. The Mexican peso devalued by more than 12% in the third quarter of 2024, resulting in a €3 million headwind to our net gaming revenue in Mexico. On a constant currency basis, our net gaming revenue would have grown 43%. So the underlying trend we have seen throughout this year in Mexico remains intact. This strong performance was driven by a 23% increase in the number of active customers. On Page 15, we wanted to provide some context on the Mexican peso and its recent performance against the euro, our reporting currency. As you can see, comparing yesterday's closing exchange rate against pre-election levels, the Mexican peso has devalued by 18%. From a reporting standpoint, in the third quarter, the peso devaluation was around 12%. And looking ahead to the fourth quarter, you should expect a similar headwind with the peso having already devalued approximately 14% in the quarter-to-date period versus the prior year period. Turning to the balance sheet on Page 17. As of September 30, we had €44 million of total cash on the balance sheet, of which approximately €38 million was available, €3.5 million more than where we ended the second quarter. In terms of our net working capital position, we ended the quarter with negative €23 million, or around 11% of LTM net gaming revenue, which is both in line with prior quarters and continues to reflect relatively restrictive trade terms from suppliers. Looking at our cash flow on Page 18. In the first nine months of the year, we generated €4.4 million of available cash, partially offset by a €2.4 million negative FX impact on ending cash balances, primarily due to the devaluation of the Mexican peso in the year-to-date period. With regards to our 2024 outlook on Page 20, we are reiterating current guidance, but expect that we will finish the year in the upper part of the range for both net gaming revenue and adjusted EBITDA. That's all from my end. I will now hand it back over to Aviv for closing remarks.

Thanks, Oscar. Before we turn to the Q&A, I would like to thank the Codere Online team, as always, for their hard work to deliver these results. As we approach the end of the year, I'm pleased to continue delivering upon our commitment and also excited about what lies ahead for the next year and beyond. As always, thanks to the investors, analysts, and other market participants for your interest, support and patience, especially with respect to our 2023 20-F filing. With that said, I will turn it back to the operator to open up the call to Q&A.

Your first question today comes from the line of Ryan Sigdahl from Craig-Hallum Capital Group. Your line is open.

Hi. Good day, guys. I want to start with the Mexican peso. You quantified the revenue impact. What's the flow-through to EBITDA either overall or I guess, on that segment and country?

Yes. Ryan, good question. I think that as a generic response, I would say that in Mexico, our cost structure is overwhelmingly also Mexican peso-denominated. So there's a natural hedge between the revenue from our customers and the cost structure. That said, there are a few exceptions. We have some centralized costs, for example, streaming expenses that are hard currency denominated and largely fixed expenses for us, some of which get pushed down into the different operating businesses. So there is a slight amount of mismatch there in terms of the cost structure, but overwhelmingly, the cost structure is peso-denominated. So what would affect revenue typically would also affect the operating cash flow level.

And then just staying on Mexico, anything surprising or to be aware of kind of from a proposed expected legislation regulation, it feels like an ongoing discussion there? And then just on the promotional environment with new competitors in the recent months and strong market growth, I guess, has that changed any of the competitive intensity in Mexico?

Aviv?

Yes. So far, no change in legislation. Several people have been, let's say, replaced by the new government. We are in contact with them. But no surprises so far. We continue to work with them, and we are getting responses. So it seems that nothing currently has dramatically changed. We don't feel anything like that. In terms of competitors, we saw competitors coming into the market, especially around the Copa America during the summer. I think now, again, it's stabilized between, let's say, four to six main competitors and maybe another two, three, four small ones. And so overall, I think now going into, let's say, winter, it's more or less the same environment, a little bit more pricey because of the inflation prior to the Copa America. So again, there are also no big surprises over there as well.

Aviv, you're referring to Copa America, correct?

Yes, I'm talking about Copa America, not the World Cup. I'm already considering 2026.

Very good. On Copa America, the euros acquired a bunch of new customers really good for the industry and for you guys. With those customers, anything surprised you from ability to cross-sell into El Casino as far as retention engagement, I guess, now that we have a little bit more time from when those events happened. Anything surprise you or...

No. I think we are putting a lot of effort into cross-promoting the casino from sports. Surprisingly, we are seeing more and more casino customers, and we are also attracting customers from the casino to sports, which is more unexpected in that area. Overall, we are improving in this regard. Additionally, customers are seeking more casino content and are engaging in more casino activities when there is less sports action. Right now, as I mention Mexico, MLB has finished and NFL has started, so it's a bit quieter, but it’s beginning to pick up and will likely increase during the first quarter of next year. Overall, I believe we are succeeding in this cross-promotion and we are improving.

Good. Thanks guys. Good luck and look forward to getting started behind us. Thanks.

Great. Thanks, Ryan.

Your next question comes from the line of Jeff Stantial from Stifel. Your line is open.

Hi, good morning, Aviv, Oscar. Thank you for addressing our questions. To start, I appreciate the insights you shared regarding the hearing schedule related to the NASDAQ listing notification from last week. Aviv or Oscar, could you provide some additional details about your progress with the 20-F filing process? Any context on what tasks remain would help to clarify the timeline as you aim to file successfully ahead of the hearing in approximately seven weeks. Any information you can share would be appreciated. Thank you.

Yes, it's a good question. We would love to provide a specific timetable to investors and analysts regarding our filing. The only thing I can say now is that we are doing everything we can to complete the audit process, which is the critical issue for us to file the 20-F. The majority of the work is already done. It mainly comes down to final details and certain procedural aspects since this is a first-time audit for our auditor. However, we cannot provide a timeline we do not have. All I can tell you is that this is our top priority right now, and we are working diligently to get this completed as soon as possible.

Day and night. Day and night to close this issue.

Perfect. That's helpful. And I recognize not predicting timing is tricky here. Turning to maybe a follow-up on one of the questions Ryan just asked in terms of the competitive landscape, you talked about some new competition coming into Mexico around Copa. I understand there's also been some entrants coming back into Spain, following the pairback of some of the restrictions that we're including in the Royal Decree. Can you just help me think about a bit mechanically, how you feel that competitive impact flowing through the P&L? Is it mostly higher CAC? Is it sort of a lower piece of user acquisition? Is there a pullback in sort of retention or engagement on the platform? In particular, I'm curious on the retention piece because I think Oscar you said earlier that retention has been improving, which is a bit counterintuitive if you think about more competition coming in. So just any color there on how this is kind of flowing through the P&L would be helpful.

Yes, I'll begin, and I know Oscar has prepared for a similar question. Essentially, we are observing that prices are rising. With increased competition, prices are going up in both digital and traditional media, which eventually results in higher customer acquisition costs and possibly a slower return on investment until we manage to offset those customer acquisition costs. As time progresses, we are noticing these increases, and it is anticipated due to the market becoming more mature, which heightens the significance of prices in the acquisition process. We are pleased that we made investments in Mexico over the last three years rather than waiting. I believe that a new competitor entering the market now will encounter significantly higher prices than we did when we launched our online business or when our primary competitor entered, when prices were considerably lower. Therefore, if you analyze the key performance indicators, you will likely notice an increase in customer acquisition costs and a potentially slower return on investment for these investments. Nonetheless, as we improve our operations, which Oscar mentioned in his remarks, we are achieving better retention and keeping players engaged for longer. We also maintain the belief that if we invest in more expensive customer acquisition costs within a certain range, we are acquiring better players, which suggests that the return on investment will ultimately be there. I hesitate to claim it's a zero-sum game given the rising costs and more expensive customer acquisition, but we are seeing an improvement in player value, albeit with a potentially slower return on investment than before, not necessarily less than we expected, considering the unexpectedly fast returns we have been witnessing.

Yes, Jeff, I would like to add that this is relevant for those on the call. We are witnessing a change due to the lifting of certain restrictions that have been part of the advertising regulations since early 2021. The key factor is the return of the welcome bonus in the market, which, as you noted, makes the competition slightly more intense. We have adjusted to this, reintroducing our welcome bonus, as have our competitors. This does have an effect on the economics and return profile in the market. However, as Aviv mentioned, we have managed this well. The unit economics in Spain remain very strong. This situation is a slight alteration compared to the previous context where we operated without a welcome bonus, which primarily benefited the top incumbents. In this new environment, new or existing competitors seeking to gain market share have an additional strategy to be more aggressive. This is a challenge that we, along with all online operators, face across different markets. In Spain, we have experienced a relatively mild competitive landscape for three years. I also want to emphasize that while we are hopeful about the continuation of these rollbacks, there are efforts that could lead to new legislation next year, potentially reinstating some restrictions, taking us back to the previous regulations through a Royal Decree or executive decree. Therefore, we may find ourselves in a similar situation a year from now as we were before the April 10 constitutional rollback. However, we are not relying on that and are proceeding with the assumption that this new operating environment will persist.

That's really useful information. As a follow-up, could you provide some insight into what the gross profit payback period looks like for the users acquired in the last quarter or two, especially considering the higher customer acquisition cost? Is it around 18 months, 24 months? Any context on what you're observing in the payback period would be appreciated. Also, could you remind us if you have a target investment level? Philosophically, how do you determine how much you're willing to spend in relation to the returns you're expecting?

It's a great question and crucial for understanding our business. It’s important to recognize the relationship between the initial investment and the expected player value and revenue generation from that group, as well as its impact on contribution margin and cash flow. We focus extensively on this, but we don’t disclose segment-level or country-level details. In Spain, we have observed a slight weakening in the return profile due to certain factors, but the overall dynamics remain robust. From a revenue perspective, the net gaming revenue paybacks are still typically within a year. However, each market is unique. For instance, we approach Mexico differently, so there's no singular limit on our investment level. It largely depends on our multi-year objectives. After our leaseback in Mexico, we needed to focus heavily on brand reinforcement during the first year and a half, including investments in television and radio. We're starting to see the rewards from those early investments in recent quarters, and the return profile is improving in Mexico. We remain optimistic and confident in the future performance of our Mexican operations, similar to our outlook from two or three years ago, which was less certain. The relationship between our initial investments and revenue generation continues to strengthen. While we don't provide specific figures, we may offer insights during full-year earnings about what might be helpful for the market and investors. However, we are not ready to share numbers at this time.

I appreciate that more qualitative detail. Oscar, if I could ask one final clerical question. Was there a significant impact from holds or negative sports outcomes in Q3? The finals of the Euros extended into Q3 with Spain winning, and [Alcaraz] has been performing very well recently. Was there any notable impact on the holds that you would like to mention?

I can jump in and then I'll let Aviv add his thoughts. In Spain, we examined the situation closely because the Euro Cup was a four-week tournament, with two weeks at the end of June and two weeks in early July. There were slight changes on the margins, but we noticed a bit of an increase in activity during the first two weeks of the tournament compared to the final two weeks. Generally, the beginning of a tournament like the Euro Cup or Copa America features more games and higher engagement, while the elimination phases have fewer games. This led to some activity in the second quarter that positively influenced our results but may have affected third-quarter activity and revenue in Spain. Additionally, as a unique situation, Spain's victory in the Euro Cup final, which occurred in the third quarter, also had a marginal impact on our betting revenue in July. In September, there were some favorites that won, but we typically don't highlight margins in sports betting as they tend to balance out over time. We strive to be objective, acknowledging when the margin works against us and being silent when it works in our favor. However, there was some impact in July and September that slightly affected our revenue in Spain. Aviv, feel free to add anything you'd like.

No, I think it summarized. I don't have anything to add.

Perfect. That's all for me. I'll pass it on. Thanks for the color and nice quarter. Thank you.

Thanks, Jeff.

Your next question comes from the line of Pat McCann from NOBLE Capital Markets. Your line is open.

Hey guys, thanks for taking my question. I just have a couple here. Firstly, I was wondering, when it comes to the movement in the peso, have you looked at the possibility of any mechanisms to hedge currency risk there? Just curious if you have any opinion about that.

Yes, I can address that. Up until now, we have just started to become profitable and generate operating cash flow in Mexico. We have not gotten to this point previously, and especially during the period from the COVID pandemic up to the recent Mexican elections, we saw a strengthening of the Mexican peso. Thus far, we haven’t implemented any hedges because the revenue and operating cost structure naturally match. In the medium to long term, while it's not an immediate focus, as our business in Mexico grows and becomes more profitable, we may consider analyzing cash flow hedges to better manage the upstreaming of funds and gain improved visibility from here at headquarters. However, this is not something we are currently working on in the near term. Depending on the evolution of our business in the future, it may become a discussion point with the Board of Directors, especially given that there is an active derivative market for hedging against either the dollar or the euro.

Got you. That makes sense. My other question is regarding the license expiries in the new world markets. I think the first one to come up will be in Colombia late next year. I know that's not a market where you have emphasized growth for now and are really more focused on Mexico and the opportunities there. I'm curious if you would consider renewing that license to maintain that market for potential investment growth in the future, or how do you view the secondary markets in terms of licenses going forward?

Yes. So I think definitely, we look at all our licenses as assets. And Colombia is one of them, and it's an asset, and we would like to maintain it at least until we are able to grow it. By the way, we didn't talk here about Colombia a lot, but we are seeing better results. It's slightly better and a little bit positive EBITDA. So I don't think that we can disregard this market that generates around €1 million almost a month. So for sure, if the terms will allow it, and it's not something crazy, we will renew the Colombian license. And maybe in the future, not so far, medium term, we will look deeply into this market for more opportunities there. I also saw that in the written questions here asking about Argentina, and I think Argentina is a little bit different, especially today that there is a parliament discussion about advertising them. So we need to look closely at this market, how it evolves.

Great. Thanks guys. And congrats again on the quarter.

Thanks, Pat.

While we wait for any further questions, I will turn the call back over to Guillermo for any additional web inquiries.

Yes. So we have a couple of questions on the webcast. The first one is around growth trajectory in 2025, if we can comment on that.

Yes. I think this is one where right now, we're focused on executing through the balance of what's left of the year. So we have December in front of us, and we want to make sure that December, which historically is a strong month for us, lots of activity on the sports betting and typically also engagement in the casino side of the business. So we want to make sure we close the year as strong as possible. And then going into our full year call, which hopefully we'll have as we typically do at the end of February, we'll be able to bring some guidance in terms of both revenue and adjusted EBITDA for 2025. But we don't have any guidance just yet to share in regards to 2025.

Okay. And the second question is around expansion into other Latin American markets, if we have any plans to expand?

Yes. We generally intend to expand, whether into other Latin American markets or by finding effective uses for our cash. We are gradually accumulating cash, and one option we are considering is some form of mergers and acquisitions or entering a new growth market. We are actively exploring this. However, there is nothing immediate that we can announce. In the medium term, we will determine how to utilize this cash for inorganic growth or possibly increase our investment in our existing markets.

Yes. I think now three years, the benefit of three years post de-SPAC, what we're not going to change is our approach to capital allocation and being very disciplined and ensuring that any money we put to work obviously has to compete if not do better than the return profile of the investments we're making in Spain and Mexico. So I think we're always open to new opportunities. We're analyzing a number of different opportunities in existing and new markets. But ultimately, we're not going to change our approach as it relates to disciplined capital allocation.

Related to that, another question is with the cash position that we are building, has management considered with the Board any share buybacks?

Yes. This topic comes up from time to time. We have talked about it in the past with the Board and will continue to do so in the future. As we move forward and build cash, this discussion is necessary. That said, we'll see what unfolds. Our primary focus today is on continuing to invest in what has been successful for us over the last two to three years, specifically in our core markets of Spain and Mexico. However, this will remain a topic of discussion at the Board level.

Okay. I don't think we have any more questions on the webcast. So operator, unless there are any more questions...

Someone is asking about the same guy, Steve, about seller in the equity over the last few months. Is the sponsor selling their position? I think Oscar can answer better, but I don't think we know who is selling.

Yes, we only have insight into the intentions of the SPAC sponsor based on their public filings. Recently, there was a 144 filing that involved a relatively small number of shares, possibly around 200 or 300. Aside from what is available publicly in SEC filings, we have no information regarding their intentions concerning their ownership in the company.

Okay. So if there are no further questions, thank you, everyone, for joining, and feel free to reach out if you have any follow-ups. Thanks a lot.

Thank you.

Thank you.

This concludes today's conference call.