Good afternoon. My name is Abby and I'll be your conference operator today. At this time, I would like to welcome everyone to the Codere Online Fourth Quarter and Full Year 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. Mr. Guillermo Lancha, Head of Investor Relations, you may begin your conference.

Thanks, operator, and welcome everyone to Codere Online’s earnings call for the fourth quarter and full year 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 our accounting information is prepared under IFRS Accounting Standards and that 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. Starting with the highlights of the quarter on Page 7, we've been able to deliver a strong set of results in the fourth quarter with an impressive 70% net gaming revenue growth versus last year to nearly 38 million, confirming the acceleration of revenue growth trend that we anticipated when providing our initial outlook for 2022. From a mix point of view, our full year revenue was split 50/50 between sports betting and casino games versus higher 56% contribution from sports betting in 2021. We expect that the trend toward increased relative contribution from casino will continue into 2023 as we continue to leverage opportunities to both cross-sell our casino product to sports betting customers, but also to target and acquire higher value customers in casino. Turning back to the fourth quarter with a significant growth in the net gaming revenue was driven by 54% increase in our active customer to nearly 142,000 together with a 10% increase in average monthly spend per customer to €88 to €89. This goes inactive customer was mainly due to Mexico where we almost doubled our customer base. In terms of customer acquisition, the World Cup brought a vast global audience in generated better than expected interest in our offering, allowing us to increase first time deposits 222,000 in a quarter, an increase of 90% versus the year before. And while we stepped up our marketing spending a quarter to over 30 million in a versus an average quarterly span of about 22 million, the 179 U.S. average cost per new customer in the quarter was below that achieved in the first three quarters of that year. As we close out our first year as a public company, we have achieved better than expected result…

Thanks Moshe. Turning to Page 9, consolidated net gaming revenue grew 70% to nearly 38 million in the fourth quarter driven by our Mexican business, which more than doubled in the period to over 16 million, together with a 42% growth in Spain to nearly 18 million. Colombia also performed well with over 2 million of net gaming revenue in the fourth quarter 56% higher than last year. The World Cup played an important role in our revenue uplift in the quarter, not only because of the engagement for both existing and new customers, but also because of a better than expected sports betting margin realized throughout the tournament. Adjusted EBITDA was negative $14. 6 million in the quarter and in line with our expectations given the higher level of planned investment around the World Cup as discussed by Moshe earlier in the call. The negative EBITDA generated in Latin America in the quarter, mainly from Mexico was partially offset by Spain, which generated 3.7 million of positive EBITDA in the fourth quarter. For the full year, our net gaming revenue increased 48% to nearly 123 million almost 40 million more than in 2021. From a mix point of view, Mexico represented 42% of our revenue up from 34% last year, while Spain contributed 49% down from 60% in the prior period. Turning to Page 10 and taking a brief look at our P&L, the adjusted EBITDA loss in the quarter was mainly driven by the $31 million in marketing investment, together with increases in other operating investments made in platform and content. We will discuss later our outlook for 2023. But as a reminder, our marketing spend is highly discretionary and can be adjusted or curtailed at any point to reduce losses and cash burn to ensure that the…

2022 was a year in which we deployed a significant portion of our proceeds raised in our public listing in which primary focus was revenue growth throughout significant increase in marketing investment. We believe we are successful in doing what we set out to achieve. In 2023 however, we will slowly but surely begin shifting our focus toward profitability. This transition is driven by current investor preference for cash flow generating business, or the high growth less making ones and such in 2023 we will be taking our foot off the pedal with the pedal summit in terms of marketing investment, giving priority to certain geographies over others. With that, we expect that our revenue growth will slow in 2023 to around 20% resulting in between $114 million and $150 million of net gaming revenue. But perhaps more importantly, we expect to reduce our EBITDA loss by half to between 20 million or 30 million. This will allow us to turn the corner to 2020 for a year in which we expect to be both EBITDA and cash flow positive, and we are comfortable that we have the balance sheet to get us there. Let me finish my remarks by stressing again our strong performance in the fourth quarter of the year and we believe it demonstrates our ability to execute our plan deliver growth, and we're confident that we'll be up to the task of turning coder online into a profitable company. With that said, we'll turn it back to the operator to open up the call to Q&A.

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

Moshe, thank you for everything these past couple years and of you congratulations looking forward to working together more closely moving forward. Just a handful of questions from me here. Why don't we start off on guidance, net gaming revenue $140 million to $150 million, the midpoint is about $10 million below. The last guidance previously disclosed, I believe, is that Q2 earnings. Could you just talk a bit more on the drivers of variance between the two is that pretty much just a function of prioritizing profitability more Italy sale and they're just any color helping bridge the two would help on?

No, I was just going to say for starters, on the just to make it apples-to-apples, though the 155 would have included Italy, I think looking back at prior three year plans that we have, it was probably $4 million to $5 million of Italy, and that $155 million number for 2023. So, I think the apples to apples number would be more like 150, the high end of the range that we've put out to the market. But I'll defer to Moshe to talk a little bit more about what he's seen in the business.

That is correct. I mean, it's part of it, and the other part of it is that we are starting Argentina later than we thought we will be able to start working in the province earlier this year. But we won't see the impact of the revenue from the other province until the third quarter of this year. So, we'll have only like six months of revenues coming from Argentina. And that's I think the majority of the decrease in revenues.

And then maybe just a follow-up on that just to be crystal clear here. So I guess between those two, you're fully accounted for the variance implying that, any revenue impact from marketing reinvestment coming in was already contemplated in your prior guidance. Is that fair to say?

Yes, I think that's fair Jeff. I think if Argentina would have come online, if some of the other regions in Argentina would have come online earlier, I think we would be more -- we would probably wrapping more around that 150 number, but getting some of the timing delays and getting launched in other regions in Argentina versus what we would have thought, let's say a year ago, and what our expectations would have been our objectives would have been. I think it's a fair statement, what your just said.

And then if I can squeeze a couple more in here. The World Cup, is there any way to kind of quantify how much of a tailwind that was during Q4?

That's probably also can I think that he can we can put the numbers better than me, but I just can say that, although the World Cup was strong, to everyone. That's not just true to our brands I know that it was from all over the industry because it was a very successful tournament. I think that we came to the last quarter we had a very strong tailwind from the first three quarters. So, it's not just last quarter, but it definitely supported the overall year. But I think that in all overall in 2022, we saw that we are able to achieve the growth and contribution per customer that we anticipated by the beginning of the year. Specifically about how much the World Cup contributed maybe Oscars, better than me. I mean, in the last two months of the year?

Yes, well, I think that in general, Jeff, we were always planning on having a heavier, a significantly greater investment in the fourth quarter leading up to and during the World Cup and we did. So, I think the EBITDA performance, even though the 14.5 million negative is a little bit, a little bit more negative than what we were tracking throughout the first three quarters, which was more on average, something like $12 million negative. It still was better than what we were expecting. And the last comment that I would make is that we are seeing some benefit here in the first month and a half, two months of up 2023 from some of that investment that we made in the fourth quarter. It is benefiting us a little bit stronger than what we would have otherwise expected in terms of performance starting off 2023.

Okay, great. That's helpful. Thank you. And then moving to the same region, I believe some incremental marketing restrictions came online around year-end, if that's correct, have you noticed any impact thus far year-to-date? Is there anything in guidance or no real impact?

Sorry Jeff, what market? I didn't catch the market that you're referring to? Do you say Spain?

In Spain, yes.

Yes, are you referring to the safer gambling regulation that is, it will be in place here shortly or something else?

I believe there's a couple I think, yes, there's the one coming up and I thought there were some other restrictions that came into play earlier this year, but perhaps those were deferred out as well.

Yes, I think the big one is really the legislation that we're expecting here probably over the next month or month and a half in terms of safer gambling regulation, there's a number of different impacts that will have on our business in Spain, that largely, that we think we will be able to mitigate. But this is legislation that will come into effect, there's some provisions that will be enforced immediately, even though I as I understand it, there'll be a three month grace period. The balance of the provisions established, there'll be up to a 12-month phasing period to comply with those additional rules and requirements. But we feel comfortable that that we can, we've been preparing for this for some time. It's some work that we've done, especially on the development front in terms of making sure our systems are prepared to manage and to comply with the new regulations, but we think that we were expecting to be able to mitigate the impact of this on our business. So that would be baked into our guidance for the year and our expectations for Spain going forward.

Okay, great. And if I could just close with one quick housekeeping item, which new market launches are factored in, specifically into your guidance for kind of timing to get to either profitability? And then if more markets launch, is there any way to think about implications there?

Yes, the two that we have in our internal planning, although are still both, both are still a work in progress are really two additional regions in Argentina first and probably most importantly, the province of Province of Buenos Aires. And the second is the Province of Cordoba, where we we've been pre awarded a license but still working through the process to get that license issued and to get up and operating. So, those are the two that we have baked into our internal plan and that otherwise would be contributing partially to the numbers our guidance for 2023, but beyond that, we don't have any additional expansion markets included.

Your next question comes from the line of Michael Kupinski from Noble. Your line is open.

Thank you. First of all congratulations on your quarter and a successful 2022. A couple of questions. I was wondering if you could talk a little bit about Brazil because I know that you were thinking about entering that market and seeing some success there, but in terms of legislative issues. Can you just kind of give us an update on that market? And how that might play into maybe 2023 or 2024?

Hi, Mike, it's Moshe. As I mentioned in the previous calls, we definitely as Latin American brand, we are looking carefully about the market, and about the legislation in the market. Obviously, there is any substantial development in terms of the regulation. And therefore, both in terms of the legislation difficulties, and both in terms of our focus right now, in the next couple of, in the next, the same 2023. But I think that also in the beginning of 2024. To turn inward, cash flow positive and EBITDA positive. We will remain focusing on the core market, which is Spain, Mexico and Argentina. Having said that, we do looking of what's happening in the market in terms of the condition between the different brands. We are talking to those that are operating there and see that right now Dhoni big brands operating in the market on under the.com license, they are definitely able to acquire players, but they're not seeing any, at the moment any ROI on those investments. So it's not something that it's right now with our agenda. We are in a very, very low profile looking to enter the market maybe with a local partner, preferably a marketing agency or something that will help us to accelerate the marketing. But as I said in the next year or so we're focusing on the core market.

And of course, there's been a restriction of capital for a lot of companies in your industry and they've been burning through cash. Have you noticed that your competition has kind of backed off on certain markets that you're extremely competitive in and I was just wondering, if you can kind of give us the competitive landscape? Are you seeing companies pull out at some markets and make it obviously more beneficial to you? Any thoughts there?

So, we definitely see some transitions in Spain, I mean, some of the brands, the legislation is getting tighter and tighter and harder to advertise. So, we see reducing marketing spend, especially with those that were international brands that invested in Spain such as William Hill and so on. In Mexico, we see that our main competitor Caliente keep investing massively on marketing so we don't see any reduction in that sense. But we see that the other brands side of Caliente having some challenges to grow which is good from our sense I mean if you're not local brand with without a local presence, without the retail for the omni-channel, we see the challenge to grow. In Colombia, we do see some changes in the some changes in the landscape of the brands that operating there is more challenging. It's a market that it's harder to create player value with more fraudulent activity. So, we see that some that started last year in 2022 to invest in the market and to try to build the brand. Some of them will grow. So just to summarize to say that, I think that the good news is that not just that we are maintaining our market share, in some markets, we are increasing the market share, and we see that that doesn't translate important.

[Operator Instructions] Your next question comes from the line of Mike Hickey from The Benchmark. Your line is open.

Thanks guys for taking my questions here. Just a few. If you guys could, I know you talked about sort of more focus on profitability here. Just curious when you expect to be profitable and how you're thinking about your cash balance. I think you ended around €54 million year-end. I think you've burned about 46 million in cash from operations in '22. Just curious, where you think you're going to end up in '23 on your cash position, how you're thinking about being cash flow positive, and if you think you're going to need to raise capital here?

Hi, Mike. Thanks for the question. Yes, so Mike, I think as Moshe mentioned in the prepared remarks, what we're expecting is for full year 2024 to be both EBITDA positive and cash flow positive, so that that's, that's, that's a little bit different than maybe what we've said in the past, where we've said, we would be turning the corner and '24 would be generating positive cash flow, but really never committed to being EBITDA positive in 2024. So that is new and that does reflect a little bit of pivot toward on balance toward profitability versus growth. In terms of 2023, I think, I would just say in terms of where we think we would end the year in terms of cash that the EBITDA guidance that we're giving is a good proxy for what we would actually be expecting in the year for cash burn. So, depending on where you think and how you think will be performing over the course of the year, then that's -- on the adjusted EBITDA upfront, that'd be a good proxy for utilization of cash throughout the year.

And then Moshe, I guess, can you just talk about your transition here a little bit? Whether or not the Board considered an external search versus internal how that sort of shake out if you thought of strategic alternatives for the Company at all, maybe a potential sale. I know you've sold your tie in business, but just curious, has the process that you and your board went through in terms of your transition and then as a working chairman, it sounds like you're going to be sort of where you're going to be focusing your time moving forward?

Yes, hi. So yes, look, we could already five years and those are like, quite tough five years, including the COVID-19 and the shutdown of the mother's company's retail and the merger and so on. And that comes after like another like almost like 15 years in the industry. So, I thought that it's time for me to step up more for vice president position that they will have the Company more strategically then running the day-to-day operation. And on top of that, have a lot of confidence in Aviv and the team that they know. And I brought with me for, you know, we working like 10 years and more of the managerial team. So, I felt quite comfortable that it's time to let Aviv to step up as a CEO to allow myself to work with the Chairman and Oscar about strategic about more about, I would say, the overview about where are we taking this Codere Online for the next five years and to create value for the investors. We spoke before about Brazil. We spoke about going Argentina. That required a lot of strategic alliances and research and looking deeper into what are the opportunities assuming that we at the same time we're trying to turn it…

Moshe, I think you cut out. Are you still there? Mike, are you hearing us?

I'm hearing you. It looks like we lost.

Yes, I think the line is disconnected.

Okay.

Mike, why don't go onto one of other questions you have and then when Moshe reconnects…

Yes, absolutely. Last question. From us here is just any updates on what you're seeing with your consumer given macro conditions obviously continue to be challenging, particularly, I think some of the reasons that you do business and just curious as much as you can objectively give us a view of what you're seeing from your players and any impact on the macro and spend?

It's a good question, Mike. I think that the experience that we had throughout the year last year and especially into the back half of the year is that we were in the investment, the market investment that we were making, not only helped us acquire customers and build that portfolio of customers that obviously will be benefiting from into this year. But also more importantly, I think it's the quality of the customer that we have, on average, spend per active per period, pretty much across all geographies has improved. Some of that is mixed because I think in general when you have let's say customers, even sports first customers but then you're crossing them over to the casino product or customers that from day one are more casino focused customers, that helps. So, we were doing more casino business than what we have done in the past. I think it throughout 2022 we did there was a balance was about 50/50 for the year between sports betting NGR and casino NGR. I think that trend will continue although it won't ever get you know it terribly disjointed. I think we did potentially into 2023. We may do a little bit more casino overall than then sports betting, but again it's going to be a balanced portfolio you need the sports to drive the casino and to drive the attractive unit economics acquiring sports first customers and crossing them to casino. But I think it to your question, we're seeing strength in the portfolio of customers that we had were increasing, spend proactive. But of course, we're mindful of both what our competitors are doing and the, what's happening with our customers throughout these geographies, each of which is a little bit different in terms of the macro, how the macro has impacted in terms of consumer spends and let's say consumer habits. But so far our customers holding up.

Your next question comes from the line [indiscernible].

Couple of questions. In '23, if you can maybe augment the guide a little bit what type of total marketing spend the you guys budgeting if you'll share that with us?

Maybe I can jump in here. So I think we're a little bit hesitant to give guidance specifically on our marketing spend, even at a on an aggregate or a consolidated basis. It's sensitive information, but I think it's safe to say that versus what was a 97 million and total marketing spend that we had in 2022. It'll be materially lower than that, but it'll still be consistent with the plan we set out to deliver in terms of especially as it relates to some of the higher growing or emerging markets where we operate or will be operating to still a significant investment, so well above what we would normally consider to be a maintenance level of marketing investment. But it's not the levels that we were investing in 2022. It will be a lower amount but we're hesitant to give a specific guide on the total marketing spend.

And then in light of the model shifting around a little bit in '23 versus '22, I guess obviously, no World Cup in 4Q. Can you share with us or like the cadence from a EBITDA perspective, our losses is going to be larger and shrinking throughout the years are going to be more flat, et cetera?

Yes, that's a good question. We were looking at it at an earlier anticipating the question. I think it's safe to say that the losses in the front half from an adjusted EBITDA standpoint, we'll be greater than the second half. But it won't be it won't be significant. It'll be a gradual decline over the course of the year. I know that in some of our larger competitors in this space, they've given specific guides as it relates to for example, what they thought they could deliver on the fourth quarter of '23. We're not going to be delivering over the course of next year. I wouldn't expect based on how we sent the see things today and our cadence of investment over the course of next year that we would be EBITDA positive in any of the four quarters. But that would be a -- there would be a steady decline over the course of the year and the first half would be bigger losses in the second.

And then [indiscernible] guidance and '24 is the thought that EBITDA would be positive in the first half of the year or would have been negative and then turning more positive in the back half giving a full year a positive EBITDA number for '24?

I think right now we're comfortable only sharing that we will be positive for the full year. So to get into specifically, what quarter do we are we expecting to the EBITDA positive over the course of 2024? I think that's something that possibly as we move through '23, and we have greater visibility on how the business is passing this year, we would start thinking about guiding more into '24. But the idea is that for full year 2024 EBITDA positive for the full year.

Can you share at all the parent company, their retail side of the business, how they're thinking about online and how it fits in its capital needs going forward versus, I guess, continuing to build versus some sort of monetization?

Yes. Moshe, do you want to tackle that or do you want me to do it?

Look, it probably no, I mean, the mother company could there retails holding around 60% of the online, and they have a representative on the board. At the moment, we are operating completely independent and financially and will not depend on the mother company and vice versa. So, we are running our operation and the overall business completely separated independently of what's happening in the topical. So, we don't see any impact side of the relationship that we have toward the omni-channel and the platform and the services that we get into the service agreements to them.

There are no further questions at this time. I would like to turn the call back over to the presenters.

Thank you. So we have a few questions coming in from the webcast. I'll start. I mean, this one, we have already touched upon a little bit, but they're asking a discus burn rate. One could think that the cash on balance sheet gives us a little bit more of over one year of run rate. I understand that your marketing expenditure is somewhat discretional. What other levers besides decreasing marketing? Do you have to increase liquidity?

Yes. That's a good question. I think that as things stand today and given how choppy the capital markets are, I don't think we can plan around any external fundraise over the next year or two. So that's the way we're managing this business. I think that we have the balance sheet and the cash on balance sheet to execute the plan that we have in mind for the next two years. And that's reflected in the guidance that we've shared for 2023. And obviously, that plan includes some minimum level of cash that we would like to maintain on a go forward basis to allow for as is always the case on unforeseen issues in one or more markets. So, I think we have a balance sheet that we need to execute the plan. The plan is to get to both EBITDA and cash flow positive for year 2024. And as a course of '23 goes on and we see how the capital markets in the markets in general respond well we'll see if there's other opportunities to raise capital externally, but today our plan is focus on the resources we have on balance sheet and execute EBITDA and cash flow positive by 2024.

Another question coming in from the webcast. What can we expect for capital allocation initiatives given the economic environment and our outlook position under very low share price, or any cash M&A to stock buyback plans or investments in the core business being considered as a priority?

Moshe, do you want to tackle that you want me to? Yes, I think the focus. The focus is Moshe said is really on the core markets. It's really the inorganic opportunity that we have. We think there's on the margin. And I think what we've learned in 2022, is there's still opportunities, especially given that it's our home market. And it's still our largest market here in Spain. But obviously, opportunity in Mexico is we continue to see as attractive, and it's a significant opportunity. So we're going to stay focus there. And then Argentina is really the emerging opportunity, we're going to be cautious initially in terms of the capital, the investment we make in Argentina. And once we see, especially as we're up and operating in some of the other regions outside the city, once we see how those unit economics are coming in, we'll take decisions in terms of, of accelerating or otherwise our investment in that market. But we're not, I think today, it's fair to say that we're not evaluating any share buybacks or other let's say in or inorganic activities, given the priorities, we have the opportunities, we have to grow this business organically.

Okay. We have a few more. In terms of reaching profitability, are there any updates on the timeframe? I think this one we already discussed? What are you looking at on turn rates, any important variations given the economic environment?

Churn rates? So Moshe, the question was as it relates to what we're seeing in the customer portfolio from a trial retention standpoint or churn rate standpoint, we're seeing. I mean, from my standpoint, I would just say that, again, this is obviously information from KPIs that we don't share that that that's highly sensitive. And we don't share, especially in a market by market basis. But I would say that the second half of last year, we did see improvements across our core markets in terms of retention. I think a lot of it has to do with all the hard work, especially since the business combination, we have the resources, and the team's been able to focus on all the things that matter when it comes to retention, which is another way of saying improving churn, product, customer service user, user experience. So, I think, there has been improvements that are reflected in the internal numbers, we're seeing some of the core KPIs that we follow from the standpoint of portfolio retention and churn, yes.

Okay. We mentioned in the presentation that we see a trend of shifting weight from the sports to the casino. While we know that the casino the retention is it's longer and higher than the sports. So, I think that that's one of the things that we are focusing on.

Good point. Next question. So around social media during the World Cup, there were some noise, the vehicle their app crashed, while other competitors apparently didn't have these problems. What can you expect going forward around these issues? Are they been addressed as a priority? Or was it due to the high volume exclusively?

So I don't know specifically what they're referring about, the app was crashed. But again, we I think that we specified that in previous calls that in Mexico, we were working on the political platform exactly like Caliente. Some of the issues that we had was due to massive DDoS attack that was on Playtex third parties hosting. So, it wasn't something that was in our hand and that was recovered. And I think that they managed to recover quite quickly. Other than that, we didn't see or we weren't aware of any of crashes during the World Cup. So, they probably refer to the DDoS attack that wasn't on Caliente, on Playtex platform.

Final question. Given the plan reduction in marketing, spending 2023, what makes you confident about retaining and growing the active customers versus having them migrate to competitors?

Can anyone pick please?

So, Moshe, the question is given the reduced level of marketing investment throughout 2023. Why are we confident that we can continue to grow to acquire customers efficiently and continue to grow that base of active customers and maintain that spend practice for what are we doing to improve the operations of the business over the course of the year?

No, I don't think that we need to do any improvement in the in the operational side. And in terms of acquisition, we are adjusting the spend according to the capacity that we have to spend, obviously that will have some impact on the top-line revenue. But at the same time, we are entering to 2024, which with much bigger customer base, which bigger market share in some of the countries and with the proposition in Argentina, that we are accelerating that market to omni channel strategy and sponsorship that we already have with River Plate. So obviously, we will spend less, but we'll optimize the omni-channel strategy. We assume that in we believe that our overall retention program toward the countries will be more efficient, just based on the experience that we have. And therefore we believe that in terms of cost per acquisition, that will not increase the customer acquisition per customer and simplify the lifetime spend per customer. In terms of amount of multiples, we definitely will acquire less, that's for sure.

So that's it and we don't have any more questions on the phone or on the webcast. So thank you everyone for joining us today. And if you have any further questions, feel free to reach out to the team. Otherwise we will speak to you for our Q1 earnings in May. Thank you very much.

Thank you for attending today's conference call. You may now disconnect.