Hello, welcome to Codere Online first quarter 2023 financial results. All participants are in a listen-only mode. After the speaker's presentation, we will conduct a question and answer session. To ask a question, you'll need to press star followed by one on your telephone keypad. As a reminder, this conference call is being recorded. I'd now like to turn the call over to Guillermo Lancha, Head of Investor Relations. Thank you. Please go ahead.
Thanks, operator, welcome everyone to Codere Online's earnings call for the 1st quarter of 2023. Today, you will hear from our CEO, Aviv Sher, and CFO, Oscar Iglesias. Our former CEO and Executive Vice Chairman, Moshe Edree, who continues to be involved in the business and is supporting the team on a daily basis, will be participating in the Q&A section. Before turning the call over to Aviv, I'd like to remind everyone that during this call we will be referring to a presentation we uploaded to our website earlier today, which includes non-GAAP financial metrics such as Net Gaming Revenue or Adjusted EBITDA, for which you can find reconciliations in the appendix of the presentation. Let me also remind you that our accounting information is prepared under IFRS accounting standards, and that throughout this presentation, all monetary figures will be in euro unless expressed otherwise.
Please note that our replay and transcript of this call will be available on our website at codereonline.com, where you can also sign up for our investor email alerts. I will go ahead and pass the call on to Aviv.
Thank you, Guillermo. Thanks to everyone for joining the call. I'm very happy to be addressing all of you today for the first time since taking over as CEO of the company. In my new role, I'm fully committed to building upon the significant progress made under Moshe's leadership and to drive sustained growth and value for our shareholders in what is now our second year as a public company. Jumping straight into the highlights of the first quarter of 2023 on page seven, we have delivered an impressive 55% Net Gaming Revenue growth versus Q1 of 2022 to nearly EUR 40 million. This was also a sequential increase of 5% quarter-on-quarter, which is no small achievement considering the tough comparison with the World Cup in the previous quarter.
As we anticipated in our last call, a trend of increased contribution from casino continued into 2023, with casino generating 53% of our Net Gaming Revenue this quarter. This was driven by not only progress in our cross-selling of the casino product to our sports betting customers, but also, and more importantly, the strong contribution from our acquisition focus on casino-oriented players. This significant growth in Net Gaming Revenue was driven by a 22% increase in our active customer base to nearly 124,000, together with a 27% increase in average monthly spend per customer to 106 EUR. Mexico drove most of the increase in active customers with a 48% more than last year. Together with Spain, we achieved the highest spend per customer.
Our customer acquisition numbers remained relatively flat compared to last year, with 80,000 first-time depositors in the quarter. The sequential decline in acquisition was primarily driven by the lower marketing spend in the quarter as we took our foot off the pedal a bit following the heavy investment made prior and during the World Cup. As a result, and given the still strong number of customers acquired, our blended CPA across all markets fell by 21% versus Q1 last year to EUR 161. In terms of recent developments, we were one of five operators awarded a license to operate in the province of Mendoza in Argentina, where we were working to launch operation in the back half of this year. Though our priority in Argentina continues to be obtaining a license in the province of Buenos Aires.
In regards to the province of Córdoba, where we were one of eight groups to be pre-awarded a license, we took a decision to withdraw from the tender process given the lack of viable tax structure and given the significant upfront licensing fee made operating in that region not feasible from an economic standpoint. Finally, we are happy to announce today the appointment of Deborah Guivisdalsky as COO, succeeding me in my former role. Debbie brings a wealth experience in fraud, payments, VIP, and CRM areas, both at Codere Online and with other industry leaders such as Ladbrokes. I am sure she will continue to play a meaningful role in the future success of this company. We all wish her the best of luck. With that, I will return it over to Oscar to cover the financial highlights of the quarter.
Thanks, Aviv. Turning to page 9, consolidated Net Gaming Revenue grew 55% to nearly EUR 40 million in the first quarter, driven primarily by our Mexican business, which grew 75% to nearly EUR 18 million, together with a 40% growth in Spain to over EUR 18 million. Colombia also contributed to this increase with over EUR 2 million of Net Gaming Revenue in the quarter, 55% higher than last year. Engagement from both existing and new customers following the World Cup and the relative strength of our casino business played a significant role in this increase in the first quarter. Adjusted EBITDA, meanwhile, was negative EUR 2.3 million in the first quarter, including a record EUR 6.1 million positive contribution from Spain.
This negative EUR 2.3 million represents a significant improvement versus the negative EUR 13.2 million in the prior year quarter and reflects the pivot we have made to sustainable growth and profitability as discussed in our prior call. While our focus for this year will continue to be finding a balance between the two, we continue to see significant opportunities to invest and grow in both Spain and Mexico and expect over time to establish ourselves as a leading and profitable operator in Argentina. Looking now at our P&L on page 10, the EUR 11 million improvement in Adjusted EBITDA in the quarter was not only driven by the significant Net Gaming Revenue growth and consequent flow through to EBITDA, but also by the lower investments in marketing that Aviv mentioned earlier.
Turning to the Spanish operating and financial metrics, Net Gaming Revenue in the first quarter increased 40% versus the prior year quarter, despite a flat customer base due to the significant increase in spend per active in the quarter. This improvement was driven by both growth in our casino business, where spend per active is typically higher than sports betting, but also due to a higher than normal sports betting margin in the month of March. In Mexico, Net Gaming Revenue was nearly EUR 18 million in the quarter, an increase of 75% year-on-year and 8% sequentially. This strong performance was driven by both a 48% increase in the number of active customers together with a higher spend per customer.
Again, driven by the relative strength on the casino side of our business on the back of an improved product offering, promotional strategy, and strong brand recognition in the market. Moving to Colombia, Net Gaming Revenue increased 55% in the first quarter, slightly above the EUR 2 million mark. As we have outlined in prior calls, our business in Colombia is subscale, and given the substantial opportunities we are seeing in other core markets, we have decided to reduce marketing spend in this market in an effort to reduce losses. As a result, our portfolio of active customers in the quarter grew only 5% versus the prior year quarter. Despite the lower level of investment made in Colombia in the first quarter, we have delivered significant growth in Net Gaming Revenue, driven by higher spend per customer.
In short, going forward, our focus will continue to be on improving the quality of our customer acquisitions and the result, our portfolio of active customers as opposed to growth for growth's sake. Turning to the balance sheet, as of March 31st, we had over EUR 49 million of total cash on the balance sheet, of which approximately EUR 45 million was available and utilized over the course of the first quarter, approximately EUR 4 million. In terms of our net working capital position, we ended the quarter with negative EUR 23 million or around 17% on LTM Net Gaming Revenue. This figure included about EUR 2 million of extended accounts payables for services provided by Codere Group, which were subsequently paid in the month of April. On page 16, you have our cash flow statement for the quarter, together with further details regarding the variation in net working capital.
The weakening of the U.S. dollar throughout the first quarter resulted in a small negative FX impact, the strong operating results in the quarter resulted in a better ending cash position than we originally expected. Turning to our 2023 outlook on page 17, we are maintaining the Net Gaming Revenue and Adjusted EBITDA guidance we provided in our Q four earnings call. Given the strong performance in the first quarter, we expect to be in the upper part of the ranges provided, would like to have more visibility over the second quarter before deciding if a revision to this outlook is warranted. As we look out beyond 2023, we are well on track to deliver positive EBITDA and cash flow for the full year in 2024, our Q one performance is yet another step in that direction. That's all from my end.
I will now hand it back over to Aviv for closing remarks.
Thanks, Oscar. Before we turn to the Q&A, I would just like to thank the investors and the analysts that have joined us on this call and who have otherwise continued to support us throughout what has been turbulent time in the market. I also want to reiterate that this management team is not only committed to delivering sustainable growth, but also very excited about what we believe is a significant opportunity to create value for our shareholders. With that said, I will turn it back to the operator to open up the call to Q&A.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. To withdraw your question, please press star 1 again. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Jeffrey Stantial from Stifel. Please go ahead, your line is open.
Hi there. This is Jackson Gibb on for Jeff. You reiterated full year EBITDA guidance of EUR 20 million-EUR 30 million of losses, though moving to the higher end of the range. Contrasting that to the first quarter loss of EUR 2.3 million seems to suggest meaningful re-acceleration in marketing investment. Could you just walk us through the thought process there and help us think through marketing spend through the remainder of the year?
Yeah. Hi, Jackson. I think as it relates to we're not providing guidance in terms of our overall marketing spend for the year other than what we've guided in our Q4 call in terms of taking our foot off the pedal a little bit or balancing profitability with growth. I think that we are cautious going into the second quarter until we have a few more months of visibility over the business and how it's trading, especially into a few of the slower sports summer months. We wanna be a little bit more cautious in terms of revising guidance. The first quarter obviously came in strong. April figures are continuing, a continuation of that trend.
We're optimistic that this trend will continue throughout the year, that the higher yield that we're getting from customers overall because of some of the mix change we've made and some of the focus we've made in efforts on acquisition and CRM on a relative basis more focused on the casino side of the business. We're expecting that to continue. We wanna be a little bit more cautious before we revise guidance.
Got it. That makes sense. Then just to follow up with another question on marketing spend. Revenues in Spain and Mexico were up 3% and 8% quarter-on-quarter respectively, despite aggregate marketing spends down close to 40%. That's pretty impressive. Can you just talk a bit more on customer retention efforts post the World Cup and how sticky you're seeing customers prove to be as you pull back a little bit on that marketing reinvestment?
Avi, do you wanna jump in on this one? Avi?
Yes. Basically, we kind of rode the wave after the World Cup and tried to retain the customers, the new customers that came during the World Cup and explore our product and our offering. I think lowering a little bit the marketing investment facing new customers didn't affect the effort that we've continued to do during the first quarter on our existing database and the new database acquired during the World Cup. I think those efforts actually showed good results. We introduced several mechanics that I think, at least in the casino, made a lot of sense and our players really liked it. I think it's very interesting actually what we did and able to grow the revenue even after the World Cup.
It means that the customers that we acquired during the year, not just the World Cup, are a good customer with the value that we expected and even more.
That's really helpful. Then if I could just switch gears a little bit. There's been some news flow suggesting momentum in Brazil to get online sports betting regulated. Given how you've been executing on the growth opportunities in your core markets, do you expect to be in Brazil day one when online sports betting is legalized? Oscar, how much capital would you envision needing to ramp operations there that did come to pass?
Hi, Jeff. How are you? It's Moshe here. Oscar, we'll take it. Yeah, well, obviously, we are following the regulation in Brazil like any other operators, and especially those that are operating in Latin America, and it's kind of like an obvious continuity for the core market that we have, which is at the moment it's Spain, Mexico, Argentina and Panama and Colombia. Brazil, it's by itself. The size is like an a separate continent. More than that, since it's not the same language and it's to open like a new factory and a new operation. On one hand, we have the setup in Latin America that will allow us later on to open in a proxy in Brazil.
In terms of the size of the country and in terms of the language, in terms of the setup and the efforts to build the brand since Codere is not a well-known brand in Brazil like, unlike Mexico and Colombia, for instance, that we have the retail. To start from scratch, it will require like EUR tens of millions, which at the moment is not in our priority, not for the first stage. I don't see any real movement from our side at Codere Online to Brazil in 2023, and maybe even not in the first half of 2024.
Understood. If I could squeeze one more in. It looks like Mexico continues to be the largest growth driver for you guys. Just curious how you've seen the competitive landscape evolve there, maybe over the past three-six months?
In terms of the competition, our biggest competitor is still ruling the market with heavy investment everywhere. We are trying to compete as hard as we can and gain position. I think in terms of market share, we were able to increase the market share year-on-year and maybe quarter-on-quarter even from the fourth quarter to the first quarter. Other than that, the competitive landscape is very harsh. We keep hearing of new competitors coming in, some of them even pulling out after one year. It's complicated to operate over there, and I think our retail business over there give us a good advantage over new competitors coming in. The infrastructure is very solid and helpful, and our brand is growing strongly.
We already see in terms of the research that we are conducting that our brand recognitions, they went up, maybe 300% or 400% year-over-year. We are able to get our foot in there and to be recognized by more and more people in the street.
Jackson, I would just add that it's important to note that we're only a year and a half outside of our IPO and our capital raise, and we really started ramping that heavier level of investment in the first quarter of 2022 in Mexico. We're really only one year in in terms of that investment, that brand building that obviously is the key and drives the overall acquisition retention machinery. You know, we're happy and what we're starting to see here is momentum. It's being reflected in the numbers and obviously we don't wanna lose that momentum, and we wanna keep that going throughout this year.
Got it. Thanks for all the color and congratulations on an excellent quarter.
Great. Thanks, Jeff.
Our next question comes from Patrick McCann from Noble Capital Markets. Please go ahead. Your line is open.
Hey guys, congrats on the quarter. I'll say first I got disconnected in the middle of the call, so hopefully none of these questions are too redundant with what some of the things you've already said. My first question had to do with Spain, you know, with the cash flow margins really being pretty meaningful in this quarter. I guess I'm wondering, you know, to what extent that could be a result of maybe the shakeout of some of the less established players in Spain, given the regulatory environment. Just generally where you see Spain going from here, is that trend of improving cash flow there, is there more room for that to continue going forward?
Yeah. If I could just start with on the.
Yeah.
Aviv, let me just start with. I'll just mention the unit economics front in Spain as Pat as you may know, it's the market where we have the lowest gaming tax rate. We benefit from a special tax subsidy for being domiciled in one of the two autonomous regions in North Africa in Melilla. It's the one where we have the most operating leverage and obviously every incremental euro we have of higher Net Gaming Revenue, a significant part of that is flowing through to EBITDA, especially some of the cost structure, especially on the platform and tech side.
There's a mix of fixed and variable, but there's a significant portion of fixed expense there that allows the flow through to be substantial. Obviously that's a focus for us. It's a tough market, as you know.
Okay
... the advertising restrictions. Increasingly, and even more so, on a go forward basis, the regulatory environment is just getting more stringent. I think that favors incumbents that are, that have the teams and the systems and the processes in place to manage through that complexity which as you point out, becomes a barrier to entry for newcomers and also really gets existing smaller players in the market thinking twice about their commitment to the market.
Thanks. Just to piggyback off of the previous question about the competitive landscape in Mexico. I think you mentioned on the last call that, you know, that Caliente is still spending very heavily, you know, despite maybe the more restricted capital environment we're in, but that some of the other brands are experiencing more challenges to growth. Could you just provide any update on that as far as, you know, if you're seeing maybe other brands outside of Caliente, you know, having, you know, continue to have trouble where the competitive landscape is getting, you know, a little more favorable for you?
Well, Caliente is still investing heavily, we see it everywhere we are trying to invest as well. In terms of new competitors, Rush Street Interactive came in and they started advertising and I think they pulled out a little bit. We don't see any other significant competitors, except bet365 that continue to push through their partnership with TV Azteca. In terms of competitive landscape, it didn't change much, but we are aware that other competitors are at least announcing that they are coming into the market, whether it's CIRSA through their acquisition of Ganabet or Betano that released a press release on that and started advertising on TV. We still believe that the country as itself to operate is a complicated one and it takes time to understand how to operate there.
Through our retail, I think we still are gaining the competitive advantage on any newcomer that tries to advertise and go solely on an online strategy. I think through the omi channel we still have something else that the others don't have.
We are getting our brand out there. We are heavily invested there in marketing in Mexico.
Great. Thanks. I'll let others ask questions.
We have no further questions over the phone. I would like to turn the call back over to Guillermo for any web questions.
Thanks. We have a couple questions coming in through the webcast. The first one is about the licenses in Mendoza. We were awarded one of the five, and the question is who was awarded the other four? I mean, I can answer this one. It was mostly local operators with a few exceptions of us and Rush Street. The rest, it was just local operators. The other question is in terms of Colombia. If Colombia is non-core due to scale, what are your midterm plans for the country?
Yeah, it's a good, it's a good question. I think that's where we're working through, though. Those are the discussions that we're having internally in terms of, I think we had clear what we wanted to do near term, and now there's discussions taking place medium term. You know, what's our approach? What can we change in terms of what we're doing there to establish ourselves as leaders in a market that is a sizable market within the context of Latin America. We don't have an answer today for this call. It's one we're working through. What we do have clear is that what we wanna be doing in Spain, Mexico, and that we have increasingly focused and continue to be focused on Argentina and all the preparations there.
We continue to be focused on stepping into a license in the province of Buenos Aires. And when we have something to announce on that, we'll announce it. But right now we're still working through options in regards to Colombia. But I think the important point here is that I think even in the quarter was a small positive Adjusted EBITDA, and that's the key. Just cutting the losses until we have a definitive solution in terms of what we wanna do in the market.
As a reminder, to ask a question over the phone, please press star followed by the one on your telephone keypad.
Okay. We have no more questions on the webcast. Unless there is anybody else, wanting to ask a question through the phone, maybe we can wait a couple seconds, and if not, we can leave it here.
Once again, to ask a question over the phone, please press star followed by one on your telephone keypad. I'm showing no further questions over the phone lines.
Okay. Okay, thanks. Thank you everyone for joining us today. If you want to follow up on any of the, of the subjects that we discussed, you know where to reach us, if not, we will talk again in the back half of August with our Q2 earnings. Thank you, everyone.
This concludes today's conference call.
Thank you.
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