Thanks, operator, and welcome everyone to Codere Online's earnings call for the second 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, 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 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 Aviv.
Thanks, Guillermo, and thanks for everyone joining the call today. I'm excited to be presenting the second quarter earnings and unpacking what has been another solid quarter for us. Our team's unwavering commitment to improving both our product offering and customer experience has allowed us to continue exceeding our expectations during this period. While we are very pleased with this performance, we continue working to build upon this positive momentum and to ensuring that we meet our goal of being a profitable company in 2024. Let's get into the details and discuss the road ahead. Jumping into the highlights of the second quarter of 2023 on page seven, we delivered EUR 39 million in Net Gaming Revenue, a 34% growth versus the prior year quarter.
This was more or less flat with the first quarter and better than we expected, especially considering the first quarter benefit from the World Cup tailwind and the seasonal decline in sporting event in the second quarter, in particular, the European football leagues. What is now becoming a recurring theme in our earnings, the contribution from casino continued to increase this quarter, with 54% of our net gaming revenue being generated by this segment. This was driven by our continued relative focus on both acquiring casino-oriented players and managing our portfolio of existing casino customers, together with the slowdown in sport in this quarter. The growth in net gaming revenue was driven by a 20% increase in our active customers to nearly 126,000, together with a 12% increase in our average monthly spend per customer to 104 EUR.
Mexico drove most of the increase in active customers, with 54% more actives than in the second quarter of 2022. Customer acquisition declined 18% in the quarter versus last year, with 69,000 first-time depositors in the quarter. This decrease was primarily driven by the substantial declines both in Colombia and Argentina, which combined contributed 25,000 FTDs less than in Q2 last year. As we have discussed in our prior earnings calls, we have been and will continue to prioritize investment in our core Spanish and Mexican market, where we are seeing not only strong overall growth, but also attractive unit economics, with our blended CPA across all markets, more or less in line with our average cost throughout 2022.
In terms of recent development, we are pleased to see our hard work being recognized with three nominations in the upcoming SBC Awards in Barcelona. These awards, now in their tenth edition, celebrate the main achievements in the industry, and it's an honor to be nominated. Finally, we are announcing today the appointment of Gonzaga Higuero as a new member of the board, replacing Daniel Valdez. Gonzaga recently became CEO of Codere Group, and we wish him much success in that endeavor. This appointment follows the naming of Michal Elimelech in June, who replaced Oscar Iglesias on the board of directors. Michal previously held multiple position at 888, including Head of U.S. Marketing, Head of Bingo, and Head of Developed Markets for EMEA.
We welcome these new additions, which will contribute significant operating and marketing expertise to our board, and look forward to working with them, and would like to thank both Daniel and Oscar for their valuable contribution and unwavering support during their term as board members. As you know, Oscar will continue in his role as CFO, and I will now turn the call over to him to cover the financial highlights of the quarter.
Thanks, Aviv. Before diving into the numbers for the quarter, wanted to quickly walk everyone through a few items impacting the figures that we have presented in prior periods. Related to changes in our accounting for value-added taxes in Colombia, which resulted in a reduction to the previously reported Adjusted EBITDA of approximately EUR 1 million in 2022, and EUR 0.8 million in the first quarter of 2023. In regards to the first quarter of 2023, this EUR 0.8 million of non-deductible VAT was previously included in provision for corporate income taxes, but has been reclassified as gaming and other taxes. That is, as an above the line operating expense. We are reflecting this change in the earnings deck on a pro forma basis.
That is a -EUR 3.1 million in Q1 2023 of Adjusted EBITDA versus the EUR 2.3 million we reported to the market in May. In regards to 2022, the approximately EUR 1 million in Colombian VAT was capitalized to the balance sheet and not expensed, as at the time, there was an expectation of recovery of this amount. However, this amount will not be recovered and should be expensed as non-deductible VAT, which will be recorded here in the third quarter. Please note, however, that we have not made any pro forma adjustments to the 2022 figures reflected in our earnings deck. Turning now to the financial performance.
Consolidated net gaming revenue grew 34% to nearly EUR 39 million in the first quarter, driven primarily by our Mexican business, which grew 51% to EUR 18 million, together with a 24% growth in Spain to over EUR 17.5 million. Adjusted EBITDA, meanwhile, was -EUR 4.5 million in the second quarter, including a nearly EUR 6 million positive contribution from Spain, 58% more than in Q2 last year. Mexico also improved its contribution meaningfully with an adjusted EBITDA loss of EUR 1.7 million, less than half of last year's loss. All in all, this -EUR 4.5 million represents a 55% reduction of the EUR 10 million adjusted EBITDA loss in the prior year quarter, and reflects the progress we continue to make towards sustainable growth and cash flow generation.
Looking now at our P&L on page 10, the EUR 5 million in improvement in Adjusted EBITDA in the quarter was driven not only by the EUR 10 million Net Gaming Revenue growth, but also significant efforts made by the team to keep operating expenses in line. Notwithstanding a higher level of gaming taxes in the period due to both mix effect, with a higher contribution by Mexico to total Net Gaming Revenue, and the impact of the non-deductible VAT in Colombia. Turning to the Spanish operating and financial metrics, Net Gaming Revenue in the second quarter increased 24% versus the prior year, driven by an increase in both number of active customers and spend per active, on the back of a stronger than expected casino business.
In Mexico, net gaming revenue reached EUR 18 million in the quarter, surpassing Spain for the first time, an increase of 51% year-on-year and 3% sequentially. This strong performance was driven by a 54% increase in the number of active customers, driven by increased engagement, particularly on the casino front. Moving to Colombia, net gaming revenue remained just above the EUR 2 million mark in the second quarter. As mentioned on prior earnings calls, our focus on Colombia is, and for the time being, will continue to be on improving the quality of our customer acquisitions and our portfolio of active customers. Turning now to the balance sheet. As of June 30, we had over EUR 45 million of total cash on the balance sheet, of which approximately EUR 40 million was available, having utilized about EUR 9 million throughout the first half of 2023.
In terms of our net working capital position, we ended the quarter with EUR -23 million or around 16% of our LTM Net Gaming Revenue, which included about EUR 5 million of extended accounts payable, which have already been paid in the third quarter. On page 16, you have our cash flow statement for the first half, together with further details regarding the variation in net working capital. Please note that a EUR 350,000 net worth tax was paid in Luxembourg in the period, and while reflected in the P&L and provision for corporate income tax, the cash impact of this payment is reflected in variation in net working capital. Turning to our 2023 outlook on page 18, we are increasing the Net Gaming Revenue and Adjusted EBITDA guidance we provided earlier this year when we reported Q4 earnings.
Given the strong performance in the first half, we now expect to generate between EUR 150 million and EUR 160 million in net gaming revenue, which reflects a 7% improvement in guidance at the mid versus the prior range. For adjusted EBITDA, we now expect a range of EUR 15 million-EUR 25 million, a EUR 5 million improvement versus our prior outlook, and otherwise feel increasingly comfortable that we will meet our goal of delivering positive EBITDA and cash flow for the full year in 2024. That's all from my end. I will now hand it back over to Aviv for closing remarks.
Thanks, Oscar. Before we turn to Q&A, I would like to thank the Codere Online team for their hard work day in and day out. As always, thanks to the analysts, investors, and other participants for your interest in Codere Online. We look forward to speaking with you again soon. With that said, we'll turn it back to the operator to open up the call to Q&A.
Thank you. At this time, I would like to remind everyone that in order to ask a question, press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. We will pause for just a moment to compile the Q&A roster.
First question is from, Jeff of Stifel. Please go ahead.
Great, thanks. Good morning, Aviv, Oscar. Thanks for taking our questions, and congrats on another excellent quarter here. Maybe just starting off on the sports business, looks like margins are kind of settling in around the 33% level last couple quarters. Oscar, you know, is this the right level, kind of to think about this business moving forward, or is there still some operating leverage left in the model as that continues to scale quite rapidly?
Hi, Jeff. Thanks for the question. I think there is still further improvement to go in terms of the operating leverage of the business. This will be something that I think we're... With the guidance that we're putting forward today in terms of Adjusted EBITDA for the full year, I think it's fair to say is cautious, given the first half results that we've delivered and announced to the market. I think we are also being cautious given where we are in the year, going into the return in the Spanish and European football leagues, which is always a little bit of an uncertain time in terms of the strength of the customer coming back after some of the summer lull in sporting events.
Otherwise, we're gonna be engaging going into this fall with obviously our board of directors in the context of our budgeting process for next year, and thinking about, you know, our focus and our objectives for 2024. I think what's still gonna be the focus, at least as things stand today, is that we're gonna focus on sustained growth. So we're not gonna move off the objective that we've set forth in terms of being EBITDA and cash flow positive into next year. But for sure, there's work we're doing to build upon the operating leverage, especially as we get to...
Especially as the mix increasingly is casino players, which, as you know, in general, tend to have higher player values, or have higher spend per active per period figures. So we're optimistic going forward, but obviously cautious given where we are in the year.
Great. That's, that's helpful. Thank you, Oscar. And then shifting gears here a bit, I was hoping you could just kind of talk to the product development roadmap a bit. You know, market by market, what features are you planning to roll out in the back half and into 2024? And maybe where do you see the product as perhaps still lagging some of your competitors in your various markets? Just any thoughts there would be helpful.
Aviv, Aviv, do you want to jump in?
Yes. So in terms of product offering, I think we closed most of the gaps on the sports side, and we are starting to offer a little bit more sports market and a little bit more functionality to our customers in Spain and in Mexico. In terms of our casino engine, we are continuing to develop and to improve our customer experience, mainly aiming at a better prediction and recommendation engines to our player. Plus, unique content that we are aiming to launch during the next couple of quarters and during next year. We have some very nice deals and content that already locked in. So for our casino players, we have a very good experience.
We also launched, and probably you will see communication in Mexico, what we call the Casa de Jugadores. So it's kind of a gamification on our platform. So we have much more to come in terms of the casino product and in the sport product.
Great. That's really helpful. Thanks, Aviv. And then if, you know, if I could just squeeze in a couple more here. Anecdotally, it does feel like we're starting to hear more from some of the U.S. and the European-focused global players regarding the Latin American opportunity. You know, can you just talk about what maybe you're seeing on your end in terms of appetite from some of the larger global players to enter and expand in the region?
Yes. So I'll take this one as well. Up till now, we didn't see any American players going south to LATAM. Not something with high investment over there in Mexico or in other territories, except maybe Rush Street in Colombia. Most of our players are still very local, and they still have our competitors, the local competitors in each of the markets, not just in Mexico, have a huge stake in terms of market share. So we haven't seen any American competitors starting to put marketing investment into those markets. What we do see is that the local competitors are working very hard to maintain their market share and their position in the market, and increase their investment year on year. So the competition is hard.
I think, whoever wants to go south will need to come with a lot of money in order to compete now.
Okay, great. And then if I could just squeeze in one last here. You know, it sounds like there's some news flow recently that Chile's poised to regulate online gambling by the end of the year. Can you just talk about, do you have any appetite to expand into that market based on, you know, the population size and the structure they've laid out?
Well, we have appetite. But we remain with our strategy to focus on Mexico and Spain for now. We see better ROI, and we, with the current plan that we have and cash, and working towards 2024 profitability, we are not sure that we will take more new markets in order to be able to, to stand behind what we said to the market. So for us, it's a good opportunity. We look at it as a positive thing. Both Chile and Peru are under our radar, but in terms of investment, I'm not sure that we are ready to make big investments over there.
We are looking into the regulation and the technical parts of the regulation, and maybe capitalize on some of the sponsorship that we already have in South America, but they will not be a focus market for us at this stage.
Great. That's all for me. Thanks very much, and nice quarter.
Thanks, Jeff.
Next question is from Pat McCann of Noble Capital Markets. Please go ahead.
Hey, this is Pat on for Mike Kupinski. My first question was with regard to the province of Mendoza. You know, can you provide any updates with the launch of the operations there or when, you know, when that is scheduled for? And then also, kind of piggybacking on that, you know, if you could talk a little bit about your efforts in Buenos Aires.
Aviv, do you want me to take that?
Uh, yes.
In Mendoza... Hi, Pat. In Mendoza, we're working diligently to get everything from an operating standpoint prepared to be able to launch in the market. It's taking a little bit... I would say it's taking a little bit longer than we initially expected. We've been focused on a few other things over the past few months, but it should be something that we would be in a position to launch before year-end, without committing to any specific date. So we're making progress there.
As you, as you probably know, in Argentina, it's, you know, the regional licenses, there are differences in terms of, in some, in some cases, small, in some cases, large, in terms of the regulatory frameworks from one to the other, which creates, you know, some technical issues, that need to be managed from a platform and, and technology standpoint. As it relates to Buenos Aires, as you know, we continue operating in, in the city, and are, and continue to work toward, acquiring a license, in the, province of Buenos Aires. Obviously, that's the, that's the biggest market in Argentina, by population, also by disposable income. So that's really the, the focus. It has been for some time.
It's a tricky year with elections and also all the other macroeconomic, you know, issues that the country is facing now that sometimes get in the way of deal making. But we're working, and hopefully, we'll have something to announce at some point to the market.
Okay, great. And then, you know, I think, I think this question was probably mostly answered, when Jeff asked about the competition. But I was just wondering, in Mexico, you know, it sounds like it has remained pretty competitive, but just given the, the state of the capital markets and the tightness of capital, I was wondering if, if there had been any shakeout or, you know, if any of the competition had... Yeah, if there had been any shakeout as a result of that. Maybe, maybe if the, the answer is already out there, that not really. It sounds like it's still pretty competitive, but I was just gonna ask about that.
I can't call it a shakeout, but I think some of our mid to small size competitors have lowered their investment in the last quarter. We are still in Mexico, I think, let's say three companies that has most of the market shares, and all the rest are falling a little bit behind. No one is really out like a shakeout, but I think they lowered their investment, and they are more on a defensive position at the moment. Don't forget that I think globally, we see media prices going up year on year, so the barrier of entry is harder, as I said before.
Gotcha. Thanks. And then, one last question with Colombia, you know, with the slight, slight reduction in revenue,
Mm-hmm.
You know, I imagine that was to be expected, you know, given that you sort of deprioritized that in favor of some of the other expansion markets. Should we sort of expect Colombia to be relatively stable going forward?
I think that's a fair comment. I mean, we're just seeing so much strength in our two major core markets that I think the focus, and given the strategic priority of reaching profitability next year, that what we really are looking to do is keep Colombia, let's say, cash flow or even break even. I think that's what we're looking to, and improving the quality of the portfolio of customers we have and building upon the success that we're having with that portfolio of customers. So it's a market where our focus and our priority may change over time. Right now, it's more of a holding pattern.
Okay, great. Well, congrats on the great quarter, and thanks again for the color.
Great. Thanks, Pat.
Before we go to the next question, I would like to remind everyone that in order to ask a question, press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Next question is from Ollie Westbrook of BlackRock.
Hi, guys. Congrats on the results, and thanks for taking my questions. I just wanted to start off on guidance. So just comparing the EBITDA outlook of negative EUR 15 million-EUR 25 million this year, with your guidance of positive in 2024. I was just wondering if you'd give a bit more color on sort of what the main driver is gonna be to help you bridge this up?
Yeah, hi, thanks for the question. I think most of the driver, I would say, of our improvement in EBITDA this year has been not only the increase in the continued strength that we're seeing on the revenue front, but it's also the decision we've taken to take our foot a little bit off the pedal from a marketing standpoint. As you know how this business works, it's a significant upfront investment that you're harvesting over longer periods of time. So I think looking out into next year, our expectation is to continue doing the same. I think that's something that we'll work through, given now that we're eight months into the year and starting to think about our 2024 budget and, let's say, our strategic plan for the next two, three years.
There will be decisions that will be taken over the course of this fall that very much will govern, you know, beyond just, just all the different things we're doing, all the other initiatives we have on the operating front, financial performance into next year. But I think mostly it's, it's, let's say, taking the foot a little bit off the pedal on the marketing, combined with the, continued success and strength that we're seeing, quite honestly, across both vertical sports and casino, but, but especially on the casino side, where we feel like the, the investments we've been making since de-SPACing over 18 months ago, and the focus, quite honestly, from an operating standpoint on our two core markets are starting to pay off.
So I think those are gonna be the key drivers for the back half of this year, and then going into next year to be both EBITDA and cash flow positive.
That's great. Makes sense. I guess for your guidance, next year, do you have any sort of rough idea of how the EBITDA is going to be phased? Do you guys have a quarter in mind when you're aiming to be EBITDA breakeven?
Yeah, it's a good question. I think that's one that we'll have to have that debate going into our Q3 earnings about 2024, whether we wanna be a little bit more specific as to guidance. And then, as you say, I think everyone has the same question in terms of the cadence from quarter to quarter. Is this gonna be first half positive? Is it gonna be full year positive? I think we're gonna have to wait until Q3 earnings to be able to share any additional information, 'cause it very much is impacted by what ultimately is decided from a budgeting standpoint for next year. And the markets we're gonna be focusing on, as it stands today, continues to be Spain and Mexico.
But I think there's other things that we're looking at, especially in the context of having licensed in Argentina and the opportunity we see there, notwithstanding that it's a complicated year with elections and the rest. So I think it's a little bit early for us to give more specifics around 2024, but I would just say that now with another quarter behind us, we're more confident than we were after the Q1 when we came to the market in May. We're even more confident. I think even then we were comfortable with the guidance we were giving generically for 2024 of being full year EBITDA and cash flow positive.
That's great. Thanks for the color. And then last question on the cash side. Do you guys think you'll need any additional external cash, like, to execute your plans in 2023 and 2024? And I guess, what would be the minimum level of cash you guys would be comfortable operating the business at?
Yeah. I think the answer to the first question is no, we have no intention of raising additional capital. I think especially given the current state of the capital markets, I think we're operating under an assumption that we will not have access to additional external capital, and that we're gonna be running this business and focusing on that sustainable growth. I'd rather not share a minimum cash figure per se, but I think that we're comfortable where we are with the year, with our planned investment in marketing and how the business is trading, even since closing of Q2. We're gonna be running better than what we initially planned and expected from an available cash position.
Obviously, we always would retain some level of buffer in the event of, you know, some unexpected surprises, which from time to time do come up.
Great. Thanks for the color. Good luck in the next quarter.
Thank you. Thanks for the questions.
Thank you. I would like to turn the call back over to Guillermo.
Hi. Yeah, so we have a few questions coming in through the webcast. First one is around Argentina. The primary election was more eventful than usual. Do we expect that the political situation could impact the rollout of the new online licenses?
Aviv, do you wanna try?
We don't know. I think the straight answer is that we don't know. We have no, no assumption over it. We continue to operate as we are operating now. We do think that any elections will change that will change the map, will have some impact on online gambling, but I'm not sure that this is the top priority of any new government that will come. So for us, in the short term, we don't see any foreseeable changes over there. It is something that we are monitoring closely, but I don't think that right now we can say what's going to happen. We are looking forward to see how it will affect the macroeconomics and of course, eventually the licensing processes.
But I don't think anyone put it as a top of his agenda, any of the politicians, no.
Okay, we have another question around Brazil, and whether we expect to have a presence there once the market is fully operational.
Brazil. Moshe, you want to take Brazil?
Yeah, I will. So the answer is that at the moment, we are not foreseeing any activity or definitely before there will be more clarity about the regulatory environment. But we, as Oscar mentioned before, are very much focused on the next, I would say, 12-18 months to keep and support our core market, and especially Spain and Mexico, due to the very good performance. And therefore, at the moment, we are not, we don't have any intention to approach Brazil.
Yeah, we're monitoring the legislative developments as it relates to the executive order that emerged, see what comes back from the Congress in terms of comments or if that ultimately is ratified, and we'll continue monitoring developments, but I don't think there's anything actionable for us right now.
No, we see Brazil as a new-
I think that.
Continue, Moshe.
Exactly. I think that the people are confusing the fact that it's in the same continent, it's that it's on the same because of the region, that it can be the same, more of the same as the other countries in Latin America, but it's completely new market for us. It's Portuguese, it's not Spanish. It require like a full-on operation on ground, and it's not in our priority.
Okay. Well, we have one last question on the webcast related to Spain, and if we can comment on the EUR 500,000 fraud, if that was in Q2 statements, on kind of mitigation plans in terms of IT systems or whatever we are planning.
Yeah. In terms of the fraud that we disclosed in the press release here in Spain, it's under police investigation, so unfortunately, there's not much we're gonna be able to say about what happened. But obviously, the most important thing is we're pursuing recovery of the monies, and as there are new developments and as the police investigation moves forward, obviously, we'll come back to the market and be able to provide updates or new developments in due course.
Okay. I'm not seeing any more questions on the webcast. I don't know, operator, if anybody else on the line would like to ask a question?
Yes. So, just to remind everyone that in order to ask a question, please press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star one again.
Okay. So looks like we have no further questions. If you would like to follow up on anything, feel free to reach out to me or Oscar, and