管理層發言
Thank you for joining us for the Codere Online Third Quarter 2024 Financial Results Conference Call. I will now hand it over to Guillermo Lancha, Head of Investor Relations. You may 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 e-mail alerts. With that, I will go ahead and pass the call on to Aviv.
Thanks, Guillermo, and thank you everyone for joining us today. Before we discuss the highlights of the quarter, I would like first to 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 so as 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 hard. 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, and 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%. 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 a 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 with 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.
分析師問答
Your first question today comes from 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 peso-denominated. So there is a natural hedge between the revenue from our customers and Mexican business with 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 operating cash flow.
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, 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 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, or four small ones. 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, Copa America not World Cup. I'm already thinking 2026.
Very good. On Copa America, you acquired a bunch of new customers which is really good for the industry and for you guys. With those customers, anything surprised you from the ability to cross-sell into the casino as far as retention and engagement, I guess, now that we have a little bit more time from when those events happened? Anything surprise you or...
We are putting a significant effort into cross-promoting the casino alongside our sports offerings. Interestingly, we’re seeing an increase in casino customers, and they are also engaging with sports, which is somewhat unexpected. Overall, we are improving in this area. Customers are increasingly seeking more casino content and are playing more casino games during times with less sports activity. Currently, with the MLB season ending in Mexico and the NFL starting, things are a bit quieter, but we expect activity to ramp up in the first quarter of next year. Overall, I believe we are successfully cross-promoting and getting better at it.
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, thanks for taking our questions. To start, I appreciate the details you provided about the hearing schedule related to the NASDAQ listing notification from last week. Aviv or Oscar, could you give us an update on the 20-F filing process and any remaining tasks that could help clarify the timeline as you aim to complete it successfully before the hearing in about seven weeks? Any additional context would be appreciated. Thank you.
Yes, that's a good question. We'd love to provide a specific timeline for investors and analysts regarding our filing. However, I can say that we are doing everything possible on our end to complete the audit process, which is crucial for us to file the 20-F. The major work is mostly done; it's really about finalizing details and handling certain procedural aspects since this is our auditor's first-time audit. We can't offer something that we don't have. All I can assure you of is that this is our top priority right now, and we are working diligently to get it finalized as quickly as we can.
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 were included 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.
I will begin by addressing the question, and I know Oscar has a similar perspective. Essentially, we are observing an increase in prices. As competition intensifies, both digital and traditional media prices rise, which ultimately leads to a higher cost per acquisition and possibly a slower return on investment until we can manage these acquisition costs. Over time, we expect this trend as the market matures, making price a significant factor in acquiring customers. We're pleased that we began investing in Mexico three years ago instead of waiting until now. A new competitor entering the market now will face significantly higher prices than those we encountered when we launched our online business and when our largest competitor began, as prices were much lower back then. Consequently, if we examine the key performance indicators, we may notice an increase in cost per acquisition and potentially a lower or slower return on investment from those expenditures.
However, as we improve operationally, as Oscar mentioned, we're better at retaining customers. As we develop our brand and continue to invest, despite the higher costs, clients choose to remain with us longer. We also believe that by paying a higher cost per acquisition for a particular segment, we are attracting better players, which suggests that the return on investment will be realized over time. It’s not exactly a zero-sum situation; while costs are rising and acquisition expenses are higher, we are witnessing an increase in player value, albeit at a slower rate than we had anticipated, especially given the unexpectedly rapid return on investment we experienced earlier.
Yes, Jeff, I would just add that this is just for the balance of those on the call. This is really a dynamic that we're seeing on the back of, as you mentioned, the rollback of certain restrictions that were otherwise included in the advertising decree that's been in place since early 2021. So I think the most important aspect there is the reintroduction of the welcome bonus in the market, which, as you indicated, I think on the margin, it makes for all else being equal, a more competitive landscape. It's one that we've obviously adapted to, and we've reintroduced as have, I think, all of our competitors, a welcome bonus. So it does impact, again, on the margin, the unit economics, and the return profile in the market. But as Aviv says, we have been successful in mitigating that. We have to say that the unit economics in Spain still are very, very good. So this is something that is on the margin versus the environment when we were operating without a welcome bonus, which really favored the top five, six, or seven incumbents.
In this new context, you have an additional tool for either new competitors or existing competitors who might be looking to grab share from others to be a little bit more aggressive. But again, this is something that we and I think all online operators deal with in all jurisdictions. It's just in Spain, we've had three years of, let's say, a relatively benign competitive landscape. The other point I wanted to make is on these rollbacks. And again, we're operating under the assumption that the rollbacks will continue, but there are initiatives underway where there could be legislation next year by other means to reinstitute some of these restrictions that would basically take us back to where we were by way of what they call a Royal Decree and executive decree to achieve the same legislative initiatives. So we very well could be here a year from now back to where we were prior to whatever was April 10 constitutional rollback of some of these limitations. But again, we're not counting on that. We're operating on the assumption that this will continue, and this is the new operating environment in which we have to compete.
That's really helpful context. Could you provide some insight into the gross profit payback period for the users acquired in the last quarter or two, especially considering their higher customer acquisition cost? Is it around 18 months or 24 months? Any details about the payback period would be appreciated. Also, can you clarify if there's a specific investment level you target when planning your spending, like 18 or 24 months, and how you approach the returns you expect from that investment?
It's an excellent question and critical for understanding our business. Operating online involves grasping unit economics, specifically the relationship between initial investments and the anticipated player value or revenue from that cohort, as well as the contribution margin and cash flow. We dedicate significant time to this analysis. While we don’t disclose details at a segment or country level, I can mention that in Spain, we've noticed a slight decline in the return profile due to certain impacts. However, the overall dynamic remains strong. From a revenue perspective, particularly in net gaming revenue, paybacks are still typically within a year. Each market is unique, and we approach Mexico differently. There is no single investment threshold; it significantly depends on our long-term objectives. For instance, in Mexico, after the leaseback, we had considerable work during the first 1.5 years with a focus on brand reinforcement through advertising channels like TV and radio.
We are starting to see positive results from those early investments in recent quarters, and the return profile is improving in Mexico. Today, we share the optimism we had two or three years ago, albeit with more experience. We remain confident that our Mexican operations will continue to perform well, as the relationship between upfront investment and returns is enhancing. While we can consider providing some insights during the full-year earnings, we are not ready to disclose specific numbers at this moment.
I appreciate the additional qualitative information; it’s very helpful. Oscar, can I ask one last clerical question? Was there a significant hold impact or any negative outcome from sports in Q3? I know the finals of the Euros extended into Q3 with Spain winning, and there has been some notable impact recently. Was there anything specific on the hold front that you could mention?
I'll start by highlighting that we focused a lot on Spain, particularly because of the Euro Cup, which was a four-week tournament with two weeks at the end of June and the other two at the beginning of July. There was a slight increase in activity during the first two weeks of the tournament compared to the latter two weeks. Generally, the start of tournaments like the Euro Cup and Copa America tends to draw more games and engagement, while the elimination rounds see fewer games. This led to a slight increase in activity for the second quarter that positively influenced our results, but it did come at the cost of reduced activity and revenue in the third quarter for Spain. Additionally, Spain's home team winning the Euro Cup, which occurred in the third quarter, had a marginal effect on July revenues and sports betting in Spain. In September, we also saw some favorites win, although it wasn't anything significant. We usually avoid highlighting fluctuations in sports betting margins since they tend to balance out over time. However, there was some impact on our revenue in Spain in July and September, and Aviv can add his thoughts if he wishes.
No, I think it summarizes. 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 are just beginning to achieve profitability and generate operating cash flow in Mexico. Prior to this, we did not implement any hedging strategies, particularly because the strengthening of the Mexican peso benefited us during the time surrounding the elections and COVID. Given that our revenue matches well with the local operating costs, we have not felt the need for hedges. In the medium and long term, as our business in Mexico grows and profitability increases, we may explore the option of cash flow hedges to improve the visibility of upstreaming funds to our headquarters in hard currency. However, this is not a near-term focus. It is something we will consider with the Board as our business develops, especially since there is a vibrant derivative market available for hedging against the dollar or euro.
Got you. That makes sense. My other question may not be the most pressing at this time. However, regarding the license expirations in the new world markets, the first one coming up will be Colombia in late next year. I know that this is not a market you are focusing on for growth at the moment, as you are more concentrated on Mexico and the opportunities there. I am curious whether you would consider renewing that license to maintain a presence in that market for potential investment growth in the future. How do you view the secondary markets in relation to the licenses going forward?
Yes. So I think definitely, we look at all our licenses as assets. 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 parliamentary discussion about advertising them. So we need to look closely into 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 additional web inquiries.
Yes. So we have a couple of questions on the webcast. The first one is around the 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, brings 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. 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. I think in general, we plan to expand whether it's into other LatAm markets or find good use of our cash. We are building cash slowly. One of the things we are considering is some kind of M&A or entering a new market growth market. So we are definitely looking at it. Nothing in the short term that we can announce or share. But I think in the medium term, we will see how we are going to use this cash to create some inorganic growth or maybe invest more heavily in our current 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 to ensure 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 in 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. I mean it comes up from time to time. It's something we have discussed in the past with the Board. It's something we will, in the future, discuss with the Board. I think it's something that especially as we move forward and to the extent that we continue building cash, that discussion needs to happen. That said, we'll see what happens. Our focus today is continuing to invest in what's been working for us and what we've been executing over the last two, three years, which is investment in our primary core markets, primarily Spain and Mexico. I think it's a discussion that will continue to take place 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 can only observe the intentions of the SPAC sponsor based on the filings they make. Recently, they submitted a 144 filing for a relatively small number of shares, around 200 or 300. Aside from what is publicly available in SEC filings on EDGAR, we do not have insight into their intentions regarding 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.