Codere Online Luxembourg, S.A. (CDRO) on Q1 2023 Results - Earnings Call Transcript
Operator: Hello and welcome to Codere Online First Quarter 2023 Financial Results. All participants are in a listen-only mode. After the speakers' presentation, we will conduct a question-and-answer session. To [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Guillermo Lancha, Head of Investor Relations. Thank you. Please go ahead.
Guillermo Lancha: Thanks, operator, and welcome everyone to Codere Online's earnings call for the first quarter of 2023. Today you will hear from our CEO, Aviv Sher; and CFO, Oscar Iglesias; our Former CEO and Executive Vice Chairman, Moshe Edree, who continues to be involved in the business and is supporting the team on a daily basis, will be participating 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 gaming 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 our 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 onto Aviv.
Aviv Sher: Thank you, Guillermo, and thanks to everyone for joining the call. I'm very happy to be addressing all of you today for the first time from taking over as CEO of the company. In my new role, I'm fully committed to building upon the significant progress made under Moshe's leadership and to drive sustained growth and value for our shareholders in what is now our second year as a public company. Jumping straight into the highlights of the first quarter of 2023, on Page 7, we have delivered an impressive 55% net gaming revenue growth versus Q1 of 2022 to nearly €40 million. This was also a sequential increase of 5% quarter-on-quarter, which is no small achievement considering the staff comparison with the World Cup in the previous quarter. As we anticipated in our last call, a trend of increased contribution from Casino continued into 2023 with Casino generating 53% of our net gaining revenue this quarter. This was driven by not only progress in our cross selling of the Casino product to our sports betting customers, but also and more importantly, the strong contribution from our acquisition focus on Casino oriented players. This significant growth in net gaming revenue was driven by a 22% increase in our active customer base to nearly 124,000 together with 27% increase in average monthly spend per customer to €106. Mexico drove most of the increase in active customers with a 48% more than last year. And together with Spain, we achieved the higher spend per customer. Our customer acquisition numbers remained relatively flat compared to last year with 80,000 first time depositors in the quarter. The sequential decline in acquisition was primarily driven by the lower marketing spend in the quarter as we took our foot off the pedal a bit following the heavy investments made prior and during the World Cup. As a result and giving the – given the still strong number of customer acquired, our blended CPA across all markets fell by 21% versus Q1 last year to €161. In terms of recent developments, we were one of five operators awarded a license to operate in the Province of Mendoza in Argentina, where we were working to launch operation in the back half of this year though our priority in Argentina continues to be obtaining a license in the Province of Buenos Aires. in regards to the Province of Córdoba where we were one of eight groups to be pre-awarded the license, we took a decision to withdraw from the tender process, given the lack of viable tax structure and given the significant upfront licensing fee made operating in that region not feasible from an economic standpoint. Finally, we're happy to announce today the appointment of Debbie Guivisdalsky as COO succeeding me in my former role. Debbie brings a wealth experience in fraud payments, VIP and CRM areas both at Codere Online and with other industry leaders such as Ladbrokes. I am sure she will continue to play meaningful role in the future success of this company and we all wish her the best of luck. With that I will return it over to Oscar to cover the financial highlights of the quarter.
Oscar Iglesias: Thanks, Aviv. Turning to Page 9, consolidated net gaming revenue grew 55% to nearly €40 million in the first quarter driven primarily by our Mexican business, which grew 75% to nearly €18 million, together with a 40% growth in Spain to over €18 million. Columbia also contributed to this increase with over €2 million of net gaming revenue in the quarter, 55% higher than last year. Engagement from both existing and new customers following the World Cup and the relative strength of our Casino business played a significant role in this increase in the first quarter. Adjusted EBITDA meanwhile was negative €2.3 million in the first quarter, including a record €6.1 million positive contribution from Spain. This negative €2.3 million represents a significant improvement versus the negative €13.2 million in the prior year quarter, and reflects the pivot we have made to sustainable growth and profitability as discussed in our prior call. And while our focus for this year will continue to be finding a balance between the two, we continue to see significant opportunities to invest and grow in both Spain and Mexico and expect over time to establish ourselves as a leading and profitable operator in Argentina. Looking now at our P&L on Page 10, we have €11 million improvement in adjusted EBITDA in the quarter was not only driven by the significant net gaming revenue growth and consequent flow through to EBITDA, but also by the lower investments in marketing that Aviv mentioned earlier. Turning to the Spanish operating and financial metrics, net gaming revenue in the first quarter increased 40% versus the prior year quarter, despite a fat customer base due to the significant increase in spend proactive in the quarter. This improvement was driven by both growth in our Casino business where spend proactive is typically higher than sports betting, but also due to a higher than normal sports betting margin in the month of March. In Mexico, net gaming revenue was nearly €18 million in the quarter, an increase of 75% year-on-year, and 8% sequentially. This strong performance was driven by both a 48% increase in the number of active customers together with a higher spend per customer, again, driven by the relative strength on the Casino side of our business on the back of an improved product offering, promotional strategy and strong brand recognition in the market. Moving to Columbia, net gaming revenue increased 55% in the first quarter, slightly above the €2 million mark. As we have outlined in prior calls, our business in Columbia subscale and given the substantial opportunities we are seeing in other core markets, we have decided to reduce marketing spend in this market in an effort to reduce losses. As a result, our portfolio of active customers in the quarter grew only 5% versus the prior year quarter. But despite the lower level of investment made in Columbia in the first quarter, we have delivered significant growth in net gaming revenue driven by higher spend per customer. In short, going forward, our focus will continue to be on improving the quality of our customer acquisitions and a result our portfolio of active customers as opposed to growth for growth sake. Turning to the balance sheet, as of March 31st, we had over €49 million of total cash on the balance sheet of which approximately €45 million was available and utilized over the course of the first quarter approximately €4 million. In terms of our net working capital position, we ended the quarter with negative €23 million or around 17% on LTM net gaming revenue. This figure included about €2 million of extended accounts payables for services provided by Codere Group, which were subsequently paid in the month of April. On Page 16, you have our cash flow statement for the quarter together with further details regarding the variation in networking capital. The weakening of the U.S. dollar throughout the first quarter resulted in a small negative FX impact, but the strong operating results in the quarter resulted in a better ending cash position than we originally expected. Turning to our 2023 outlook on Page 17, we are maintaining the net gaming revenue and adjusted EBITDA guidance we provided in our Q4 earnings call. Given the strong performance in the first quarter, we expect to be in the upper part of the ranges provided, but would like to have more visibility over the second quarter before deciding a provision to this outlook is warranted. As we look out beyond 2023, we are well on track to deliver positive EBITDA and cash flow for the full year in 2024, and our Q1 performance is yet another step in that direction. That's all from my end. I will now hand it back over to Aviv for closing remarks.
Aviv Sher: Thanks, Oscar. Before we go into the Q&A, I would just like to thank the investors and the analysts that have joined us on this call and who have otherwise continue to support us, throughout what has been turbulent times in the market. I also want to reiterate that this management team is not only committed to delivering sustainable growth, but also very excited about what we believe is the significant opportunity to create value for our shareholders. With that said, I will turn it back to the operator to open up the call to Q&A.
Operator: Thank you. [Operator Instructions] Our first question comes from Jeff Stantial from Stifel. Please go ahead. Your line is open.
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Operator: Our next question comes from Pat McCann from Noble Capital Markets. Please go ahead. Your line is open.
Operator: We have no further questions over the phone. I would like to turn a call back over to Guillermo for any web questions.
Operator: [Operator Instructions]
Operator: [Operator Instructions] I'm showing no further questions over the phone lines.
Guillermo Lancha: Okay. Okay, thanks. So thank you everyone for joining us today. If you want to follow up on any of the subjects we discussed, you know where to reach us. And if not, we will talk again in the back half of August with our Q2 earnings. Thank you everyone.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
