Codere Online Luxembourg SA (CDRO) 2025 Q3 法說會逐字稿

Ladies and gentlemen, thank you for joining us and welcome to the Codere Online third quarter 2025 financial results. (Operator Instructions)

I will now hand the conference over to Guillermo Lancha, Head of Investor Relations at Codere Online. Please go ahead.

Thanks, operator, and welcome everyone to Codere Online's earnings call for the third quarter of 2025. 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. Our new CFO, Marcus Arildsson, who has joined the company today, is also here with us.

Please note that the figures reflected in today's presentation are preliminary and unaudited and include certain non-IFRS financial metrics which should be considered in addition to our IFRS results. Reconciliations and further details are available in the appendix. During this call, we will make forward-looking statements which are subject to risks and uncertainties. While these statements reflect our current expectations, we undertake no obligation to update them after this call. A replay and transcript will be available at codereonline.com, where investors can also sign up for email alerts.

With that, I will go ahead and pass the call on to Aviv.

Thanks, Guillermo, and thanks to everyone for joining us today. First of all, I would like to welcome Marcus. who is joining Codere Online as new chief financial officer. Marcus brings with him 25 years of experience in investment banking and corporate finance, and we are confident that his expertise and international background will be great addition to our management team and support the continued success of the company.

Moving now to the highlights of the third quarter of 2025 on page eight, we delivered EUR52 million in net gaming revenue, which was flat versus prior year period, despite the versus headwinds we faced in the quarter. More importantly, we are seeing encouraging recent trends with a re-acceleration of net gaming revenue in the fourth quarter through November 15 to 17% above last year, including a 29% growth in Mexico and 14% growth in Spain, which make us confident that the business is on track to return to double-digit top-line growth in the fourth quarter and which we hope will continue into next year.

In terms of product mix, the contribution from our casino segment was 65% of our total net gaming revenue in the third quarter, around 5% points above normal levels, and was largely driven by the decline in sports betting margin in September, which impacted sport betting net gaming revenue throughout the sector in the third quarter.

Net gaming revenue performance in the quarter was driven by an 11% increase in average monthly active customers, which was offset by a 10% decrease in average monthly spend per active customer, primarily due to the weaker Mexican peso and lower sport betting margin. On the acquisition front, we continue to grow our portfolio of customer with 85,000 FTDs, 26% above those acquired in the third quarter last year, at an average CPA of EUR167.

This is the lowest CPA since Q1 '23, which is largely reflects the efforts made by our acquisitions team throughout 2025 to explore new sources of traffic in Mexico. However, we are expecting that average CPA in Mexico will increase going forward as the team works to optimize further its acquisition strategy. Finally, and in regards to our share buyback plan, to date we have repurchased around 249,000 shares under the plan for a total investment of approximately $1.7 million.

Given where the shares are currently trading and our increased confidence in the outlook of the business, our board has authorized an increase in the total investment under the plan from $5 million to $7.5 million. Additionally, in our upcoming shareholder meeting, we will be seeking approval to extend the term of the plan from its current expiration in March to December 2026, which will give us more time to acquire shares which we believe are significantly undervalued at the moment.

With this, I will now turn the call over to Oscar to cover the financial highlights of this quarter.

Thanks, Aviv. Looking at the financial performance for the quarter on page 10, consolidated net gaming revenue was EUR52 million. flat versus the prior year due to an unfavorable FX impact in Mexico, a very low sports betting margin in September, that is, customer-friendly results in the month, and a significantly lower contribution from Colombia due to the impact from the evaluated tax on deposits, which has been in place since February.

For illustrative purposes, if we were to exclude these three impacts, our net gaming revenue would have been around EUR57 million, or 11% above the prior year period. Breaking it down by country, net gaming revenue in Spain was 5% above the prior year period, while Mexico was flat.

In our other segment, which includes Colombia, Panama, and the city of Buenos Aires, net gaming revenue was EUR1.3 million lower in the third quarter, driven by a decline in Colombia and Argentina of EUR1.4 million and EUR0.4 million, respectively, partially offset by a EUR0.4 million in higher net gaming revenue in Panama, which continues to show positive momentum on the back of certain product enhancements implemented in April.

Adjusted EBITDA, meanwhile, was positive EUR2.9 million in the third quarter and included a contribution of EUR5.8 million from our Spanish business and EUR2 million from Mexico, resulting in an overall growth in adjusted EBITDA from our business units of 30%. which was only partially offset by a 9% increase in our undistributed and corporate costs, leading to a nearly doubling of adjusted EBITDA versus the prior year.

Turning to our P&L on page 11, adjusted EBITDA was EUR1.4 million above that of the third quarter of 2024, on the back of a EUR4 million reduction in marketing spend, partially offset by higher platform and content costs. This EUR18 million in total marketing spend in the quarter represents our lowest level of quarterly investments since listing this business and is consistent with the guidance we gave on our second quarter earnings call in regards to lower level of spend going into year end.

In the fourth quarter specifically, we are expecting a similar or perhaps slightly higher level of marketing investment resulting in strong EBITDA contribution in the period. Looking now at our consolidated figures on page 12, the flat net gaming revenue reflects an 11% increase in active customers, offset by a lower overall spend per active. On a constant currency basis, net gaming revenue would have grown 3%.

As Aviv mentioned, we had a significant increase in FTDs, which grew 26% to 85,000 in the quarter, and were mostly driven by Mexico, where we acquired a substantially higher amount of FTDs than in the prior year quarter and where we continue to build upon an already sizable portfolio of customers.

Turning to Spain on page 13, net gaming revenue in the third quarter was 5% above the prior year at EUR22 million as a result of a slightly higher spend per active and a 4% increase in the number of active customers. In recent months, we have seen positive momentum from both our existing and acquired customers in Spain as we fine-tune our operating model in the face of the more competitive landscape in Spain on the back of the reintroduction of welcome bonuses in 2024.

Moving to Mexico on page 14, net gaming revenue was EUR27 million in the third quarter, flat against the prior year period. The Mexican PISO devalued by nearly 5% in the third quarter of 2025, resulting in a EUR1.3 million negative impact to net gaming revenue in the quarter. On a constant currency basis, our net gaming revenue would have grown 5%.

And as Aviv mentioned earlier, we have seen a re-acceleration of growth in the fourth quarter now that we have lapped the PISO devaluation on the back of the June 24 federal election. And are otherwise expecting a continuation of the more benign evolution we have seen recently for the Bessel going into year end. Our portfolio of average monthly active customers, meanwhile, reached 88,000, 39% above Q3 2024.

As discussed last quarter, player values from customers acquired throughout 2025 have been lower than in prior years, but they have also come with a lower upfront acquisition cost. And we are confident that overall we will continue to optimize both the existing portfolio and new acquisitions to drive overall returns from our investment in Mexico, and are also positioned well to benefit meaningfully from the World Cup next year, which will be co-hosted by Mexico.

Finally on Mexico, and as many of you have already seen, the federal government has included in its 2026 budget an increase in the gaming tax rate from 30% to 50%, which we expect will be in effect on January 1st. Other sectors have also been affected by similar increases in their respective excise or consumption taxes, which is part of the government's effort to reduce its budgetary deficit for next year. For now, all we can say is that we are working to analyze not only the full impact of this tax increase, but also any and all measures available to us to mitigate the impact of said increase.

Also, and while it is difficult to know how other operators will react, we are expecting that this tax increase may have a chilling effect on both new market entrants in regards to their appetite for further investment in the Mexican market and on those not yet operating in Mexico, but with near or medium-term plans or ambitions to enter the market. And while it is difficult to quantify the impact of that chilling effect, we would at least directionally expect a more benign competitive landscape in Mexico going forward, which we believe will be to our and other incumbents' benefit.

Turning to the balance sheet on page 16, As of September 30th, we had EUR48 million of total cash on the balance sheet, of which approximately EUR43 million was available. These figures include the impact of EUR1.1 million in share repurchases completed in the year-to-date period through September 30th. In terms of our net working capital position, we ended the quarter with negative EUR24 million, or around 11% of our LTM net gaming revenue. which is in line with prior quarters and reflects a normalized level of working capital.

Looking at our cash flow on page 17, in the first nine months of 2025, we generated EUR11.5 million of available cash, partially offset by a EUR2.6 million negative FX impact on ending cash balances. Due to the devaluation of both the Mexican peso and the US dollar, and as already mentioned, by the EUR1.1 million in share repurchases, resulting in total period cash flow generation of nearly EUR8 million.

In regards to our outlook for 2025, on page 19, we are reiterating our expectation to meet both our net gaming revenue guide of between EUR220 million and EUR230 million and adjusted EBITDA on the range of EUR10 million to EUR15 million. In regards to 2026, meanwhile, we will be providing our initial outlook together with our Q4 earnings in February. That's all from my end.

With this being my last earnings call as CFO, I'd just like to take a moment to thank Moshe, Aviv, my team, and all of my colleagues here at Codere for their hard work, and to thank our investors and analysts for the continued support over the years. I wish Marcus every success, and I look forward to continuing to support the company as a member of the board of directors.

With that said, I will turn it back to the operator to open the call to Q&A.

(Operator Instructions) Jeff Stantial Stifel.

Great, good morning. Can you guys hear me all right?

Yes.

Perfect. Good morning, everyone. Welcome, Marcus and Oscar. Thanks for all your help and support over these past few years. Maybe if we could start off on Mexico and the tax rate. I recognize it sounds like it's still early in terms of your process of analyzing, ability to mitigate.

Based on the work you've done so far, whether it's comping to other markets who have gone through this experience or what have you, Oscar, could you just share any thoughts on sort of the opportunity to mitigate some of the higher taxes, whether that's through promos, over-rounds, just anything on strategy and opportunity, and then more philosophically, how does the higher tax rate factor into your capital allocation strategy when you think about the two core markets as well as potential to lean into some other markets?

Thanks. Yeah, it's a good question, and thanks for that, Jeff. Look, I think as a starting point this hasn't yet come into effect. I think this still, it should be days from now, but this hasn't yet been signed by the president. This budget bill as part of the 26th budget hasn't yet been approved, but our expectation is that it will be approved and it'll be in place on January 1.

So I think as a starting point, it's reaching out to all our partners, whether they be media partners, other suppliers, and just taking a look at our agreements, how they're structured and how we best as a sector can help mitigate the impact or share in the impact of what is obviously a meaningful increase in gaming taxes.

The discussions around capital allocation, I think, is a broader one, and it's in the context of the discussions we're having at the board level and with respect to our 26 budget and our, let's say, medium-term plan as a company. And the tax obviously factors into that in terms of our appetite and willingness to invest into the market because it has an impact on the unit economics, the flow-through of every dollar of NGR to EBITDA in the business.

The return profile of our acquisitions, all else being equal, does change and that's what we're working through. But I can't say, it's still a little bit early to say what that means in terms of our plans for next year to invest in Mexico. I think that's something we'll have to dive into in the Q4 call when we all get together in February. But directionally, obviously a tax increase is not good.

We always are looking for governments to look to increase compliance with anyone operating offshore, operating in the gray or black markets. That's the first place we prefer for governments to look for additional revenues. But we're partnered with the Mexican government, we're partnered with governments in every market in which we operate, and we're going to find a way through this and continue to be confident that the Mexican market is going to be a winner for us over the short, medium, and long term.

That's great. Thanks for that, Oscar. Maybe actually sticking on Mexico, there were some reports, I think it was late last week, of some AML crackdown in the market that sounds like it impacted several of your peers or the ability for players to get onto the platforms for some of your peers. Can you just add a little bit of color in terms of what you're seeing from this on the ground, maybe clarify for us whether you've specifically been impacted in any way, and with some of these competitors shutting down at least temporarily, is there a bit of a market share opportunity here?

Thanks. Aviv, do you want to take that one?

Yes, so basically we are following the news, the same as you probably. From our perspective on the company level, we have not seen anything or heard anything officially that came to us. We continue to operate within all the standards that the local regulator is demanding for us, whether it's an AML or any other thing related to that. And so we are not aware of anything that has any impact on us and we are following closely the news but for now we have no other source than the news themselves.

Jeff, the news sometimes isn't the best source of information so I think we're still figuring out what's happening and we'll see where that takes us further down the road but we've seen the same articles or following the events but it's too early to say what what's there and what impact this might have on the sector or us.

Sure. Okay. Great. Thanks. If I can just squeeze in one more here, I think also sticking on Mexico, CAC of 167 is the lowest I think you've seen since the first quarter of 2023. Aviv, you talked about it a little bit, and I think this has been a trend for several quarters now in terms of leaning into lower CPA, the lower LTV players. Could you just remind us, I guess, sort of who are these players? What are the channels you're sort of leaning into more aggressively to acquire them?

What gives you comfort that sort of that LTV prediction is going to hold up and the LTV to CAC is going to sort of hold up versus the higher CPA platform players that you've kind of gone after in the past. And then when you talk about CPA drifting higher moving forward, I guess, just to be clear, is this strategically moving away from some of these channels and some of these players, or is this more a function of market rate cap drifting higher into World Cup.

Thanks. Yes, so basically I think we always see a correlation between the level of CPA and the lifetime value of the player. I know it's a little bit weird, but when you buy cheap, you get lower player value. And when we are saying that it will shift higher is that we are optimizing the sources to find better player value and better returns than what we are seeing now.

It's ongoing. It's like waves. In Spain, we had a similar situation. We managed to flip it over. In Mexico, we tried new sources. They brought a lot of FTDs with low value, so it's constant optimizing. I'm sure that the decisions that we are making, we have a very powerful BI behind it, so the decisions that we are making are relevant, and this is one of our strengths as a company.

That's great. That's all from us. I'll pass it on. Thanks very much, and thanks for everything.

Thanks again, Jeff.

Thank you, Jeff.

Ryan Sigdahl, Craig-Hallum Capital Group.

Hey, guys. Can you hear me?

Yes. Hi, Ryan.

Hi. Very good. Oscar, I will reiterate Jeff's comments as well. It's a pleasure working with you. Marcus, welcome. I want to kind of stay on the optimization, so helpful comments on Mexico. I want to shift over to Spain. Obviously, we're well past the year kind of from changing that market. I'm curious how you feel about your kind of marketing, EPA optimization, just go-to-market strategy now that we're kind of getting well past the changes in that market.

So I think, thanks for the question. I think it's already shown in the numbers. We are already seeing growth in our KPIs as well. All the bars are back to similar levels at the first quarter or even the end of last year. So I think going forward, we will continue to see this trend. We are aware that some regulation changes are about to happen. As always, we don't know the direction that it will influence us.

So we are in Spain again following closely the news and the demands that will come from the regulator. Last time that certain restrictions came into the market, it actually benefited us a little bit since we are a very strong brand in Spain, at least still top of mind of the players. So restrictions might benefit us a little bit, but we are following closely the news as well over there. But currently the KPIs that we are seeing in Spain are very encouraging.

I would say, I would just add very, very quickly that we're probably a little bit more constructive or positive on the business now than we were last quarter. And again, this is since the reintroduction of the welcome bonus, this has gone from a great business to a very good business.

So we continue to be positive in the outlook, but I would say even more so than we were in Q2 when we were still working through that optimization, given the competitive landscape, the impact of the welcome bonus and finding the right solution for us given how we're positioning our brand, our operating model, and all the rest. So good news in Spain in terms of how we're tracking.

Staying on regulation, let's shift to Colombia. So recently passed their budget. They do still need a tax reform bill, which is separate but being debated right now. What do you guys expect or what are you hearing from the VAT tax? Do you expect it to be removed to extend to next year? Any thoughts, I guess, in kind of real time on what's going on in Columbia? And then is it a sustainable market going forward for you guys if the VAT continues?

Aviv, do you want me to start or do you want to go? Yes. Yeah, I would say that if they do nothing in terms of the tax legislation or the budget bill going forward in this respect, in theory, this extraordinary measure falls away at year-end. We continue operating under the assumption that this will continue, that this will get legislated in a more permanent way, and that's how we're, that's governing the discussions that we're having internally as it relates to next year or appetite to invest in our perspectives on the market.

That said, that may not necessarily be the case. And if it's not the case, then we will rethink what it is we want to do. And obviously, that's a game changer. fixes the primary problem in Colombia, which is the unit economics are not good in the context of a tax on customer deposits. So it's a situation we're monitoring and you also have elections next year. So in May of 26, you also have elections.

Unclear what direction that those elections will go, but that's another possibility here is even if it gets legislated that somehow you have more centrist right-leaning parties come into power and unwind what has been a tax that has not been helpful in terms of reaching that objective of actually generating additional tax revenues for the government coffers. So I think it was a little bit counterproductive and we're monitoring developments. But as you say, as things stand today, it's a tough market for us to find a way forward that makes sense for us.

Good luck, guys.

Thanks, Ryan. Go ahead, Moshe.

No, no. I just want to say that any of our plan, like three years and five years plan, does not include Colombia. I mean, we just monetize it as it is. So we're not going to invest any further unless the tax was changed.

That's it for me. Good luck.

Okay. Thanks, Ryan.

(Operator Instructions) There are no further questions at this time. I will now turn the call back to Guillermo Lancha.

Okay, so we have a few questions that came in through email. So the first one is about the customer acquisition in Panama and Argentina, and generally performance in those two markets, if we can mention.

Yeah, I think in general, Oscar correct me if I'm wrong, but we are not reporting them separately. In general, in both countries, we see good trends. I think you can see it in the results, some mitigation to Colombia. But other than that, I don't think it's right for us to comment on it further. We see good trends, both in Argentina and in Panama, without going into too much details.

We mentioned in the prepared marks that we've made some product improvements in Panama, and obviously that's taken that's being reflected in some of the improvement that we're seeing in that market. Obviously the customer likes the things we're doing and we're going to continue leaning into that.

You have a question? Yeah, I have another two. One is about AI tools. If we are personalizing the customer experience with the use of AI,

Yes, well, we've done a few sessions trying to understand the AI in versus aspects of the company, whether internally for the employees, which currently is being facilitated either through a co-pilot of Microsoft or ChatGPT, of course. I think most of, if not all, the employees are using it on a daily basis. Customer-facing solutions, at the moment, we have tried a few solutions that should replace, let's say, some of the customer service or maybe some of the outbound calls. At the moment, not with great success.

We are examining other product lines related to sports and maybe related to casino recommendation engine. And still not with a big success around that. But we are keeping monitoring the market and looking for new innovations around it. I think it will come. At the moment, we didn't find or we didn't see any relevant product that actually works. We see a lot of products that are close or... are delivering close results to what we want, but still not being able to replace any human interaction.

Yeah, I would just add that all of that with the backdrop of their significant regulation that's coming to place at the EU level that I think everyone is still, us and other digital operators, still working through in terms of how to ensure that we don't breach any requirements that we have, but obviously mindful of the commercial interests that we have in the business to deploy any tools that can benefit us and improve the customer experience. We're trying to find that balance, but I think up till now, we've taken a fairly conservative approach in this regard.

One final question that came in through email. Given that there is such a large Hispanic population in the US and that the US will be hosting the World Cup, Would it be a good time to introduce Codere to the US markets?

It would be a great time. Yes, Moshe, continue.

No, we discussed it a few times in the past. I mean, obviously, the US market, North American markets, it's a huge market. And it's correct that it has a big population of Latin Americans and Spanish speakers. But at the moment, we're very much focused, as we delivered and as we promised in the D-SPAC process, to the core countries, and that's the plan for the next, for seniors.

Okay, so that's it on email. So operator, unless there are any other questions coming through the line, I think we can leave it here. So thanks everyone for joining us today. Feel free to reach out if you have any follow-ups, and otherwise we will be speaking again with our Q4 earnings at the end of February.

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