20-F: Codere Online Achieves First Annual Profit Amidst Strong Revenue Growth and Strategic Market Expansion

Codere Online Luxembourg, S.A. reported a significant financial turnaround in its 2024 annual results, achieving its first net profit of €3.9 million and positive operating cash flow, driven by robust revenue growth in Spain and Mexico, despite ongoing regulatory challenges and a material weakness in internal controls.

Summary

• Codere Online reported total revenue of €200.7 million for the year ended December 31, 2024, a 24.2% increase from €161.6 million in 2023.
• The company achieved an operating income of €4.3 million in 2024, a substantial improvement from an operating loss of €14.8 million in 2023.
• Net income for the year ended December 31, 2024, was €3.9 million, marking the first time the company has reported a net profit, compared to a net loss of €2.4 million in 2023.
• EBITDA for 2024 was positive €4.7 million, a significant improvement from negative €14.6 million in 2023.
• Net cash provided by operating activities turned positive at €3.9 million in 2024, compared to net cash used of €11.6 million in 2023.
• Revenue growth was primarily driven by strong performance in Mexico (up 30.5% to €95.7 million) and Spain (up 16.0% to €87.8 million), with online casino wagering contributing significantly to the increase.
• The company continued to invest heavily in marketing, with expenses increasing by 13.6% to €85.4 million in 2024, while also shifting focus from pure growth to profitability and sustainability.
• Codere Online expanded its operations in Argentina, commencing activities in Mendoza Province in May 2024, and incorporated Codere Online Mexico S.A. de C.V. in July 2024.
• The company ceased its operations in Italy on December 30, 2022, and is in the process of liquidating its Maltese and Gibraltar supporting entities.
• A material weakness in internal control over financial reporting (Fourth Material Weakness) was identified and not fully remediated as of December 31, 2024.
• The company received a delisting notice from Nasdaq on May 16, 2025, due to the delayed filing of its 2024 Form 20-F, but believes compliance has been regained with the current filing.
• Shareholders authorized a share buyback plan on March 3, 2025, for up to 1 million ordinary shares, with 77,005 shares repurchased at an average price of $6.67 as of May 28, 2025.
• A waiver to the Relationship and License Agreement became effective May 1, 2025, allowing Codere Newco to operate online gaming in Italy using Licensed Marks, subject to conditions and indemnification.

Sentiment

Score: 7

Explanation: The company demonstrated a significant financial turnaround in 2024, achieving its first net profit and positive operating cash flow, driven by strong revenue growth. This indicates improving operational efficiency and a successful shift towards profitability. However, persistent material weaknesses in internal controls, ongoing regulatory challenges, and geopolitical risks in key operational regions temper the overall positive sentiment.

Positives

• Codere Online achieved its first annual net profit of €3.9 million in 2024, a significant turnaround from previous losses.
• Operating income turned positive to €4.3 million in 2024, indicating improved operational efficiency and cost management.
• EBITDA reached a positive €4.7 million in 2024, demonstrating a strong improvement in core business profitability.
• Net cash provided by operating activities became positive at €3.9 million in 2024, reflecting healthier cash generation from operations.
• Strong revenue growth of 24.2% to €200.7 million in 2024, driven by robust performance in key markets like Mexico (up 30.5%) and Spain (up 16.0%).
• Successful expansion into new regulated markets, such as Mendoza Province, Argentina, in May 2024, indicating continued strategic execution.
• The company is actively shifting its priority from solely pursuing growth to focusing on profitability and sustainability, a positive sign for long-term financial health.
• The Spanish Supreme Court ruling on April 10, 2024, voided several advertising restrictions, potentially allowing for more flexible marketing strategies in Spain.

Negatives

• Despite a strategic shift towards profitability, marketing expenses still increased by 13.6% to €85.4 million in 2024, indicating continued high customer acquisition costs.
• Finance income decreased significantly by 82.1% to €1.0 million in 2024, primarily due to negative foreign exchange differences and the change in fair value of warrant liabilities.
• The company continues to operate with a material weakness in its internal control over financial reporting (Fourth Material Weakness) as of December 31, 2024, which could lead to financial misstatements or reporting failures.
• The company received a second delisting notice from Nasdaq on May 16, 2025, due to delayed filing, highlighting ongoing compliance challenges.
• Ongoing legal and regulatory sanctions from the DGOJ in Spain, including a €60,000 fine in 2024 for an advertising breach and a €10,500 fine in May 2025 for player deposit limit infractions.
• The ongoing Israel-Hamas war poses a risk to operations and workforce, with over 40 employees (13% of total) located in Israel, potentially leading to disruptions from military service obligations.
• The Mexican Gaming Decree, effective November 17, 2023, could limit future permit renewals to only bingo and sports betting, potentially restricting Codere Online's online casino offerings in Mexico if LIFO's appeal is unsuccessful.
• The Colombian President's executive decree, effective February 22, 2025, introduced a 19% VAT tax on online deposits and a 1% stamp duty, which could adversely affect business in Colombia if deemed constitutional.

Risks

• Codere Online's future performance may significantly differ from prospective financial information due to factors outside its control, including regulatory changes, market demand, competition, and foreign currency fluctuations.
• The online gaming industry is subject to extensive and evolving regulation, and failure to comply with licensing requirements, anti-money laundering, anti-corruption, or data protection laws could materially adversely affect the business.
• Dependence on Codere Group for brand usage, certain gaming licenses (e.g., Mexico's LIFO License), and critical services (platform, technology, management support) exposes Codere Online to risks if the Codere Group's financial stability or operational performance is compromised.
• The material weakness in internal control over financial reporting could lead to material misstatements in financial statements, restatements, or failure to meet periodic reporting obligations, adversely affecting share price.
• Highly competitive business environment with larger competitors and competition from retail and illegal gaming activities could adversely affect market share and profitability.
• Failure to keep up with rapid technological developments in the online gaming market, including mobile operating systems and third-party platforms, could negatively impact business.
• Use of artificial intelligence (AI) and related technologies carries risks of reputational damage, competitive setbacks, legal liabilities, regulatory sanctions, and data security breaches.
• Volatility in online casino and sports wagering margins due to chance, unequal wagers, player skill, and platform errors can significantly affect financial results.
• Reliance on third-party providers for geolocation and identity verification, with potential for inaccurate data or service disruptions, could lead to non-compliance and disciplinary action.
• Use of third-party open source software components carries risks of non-compliance with licenses, infringement claims, and potential requirements to make proprietary code public.
• Negative public perceptions and publicity surrounding the gaming industry could damage Codere Online's reputation, lead to increased regulation or taxation, and reduce customer confidence.
• Failure to detect money laundering or fraudulent activities by customers or third parties could result in criminal sanctions, administrative fines, direct losses, and loss of customer confidence.
• Intellectual property, substantially licensed from third parties including Codere Newco, is subject to infringement or misappropriation risks, or loss of rights if licenses are terminated.
• Ongoing legal, administrative, and arbitration proceedings, including tax and regulatory disputes, could result in substantial costs, divert management attention, and adversely affect the business.
• Operating as a public company incurs increased costs and requires substantial management time for compliance with U.S. securities laws and Nasdaq listing standards.
• Control by Codere Newco (65.7% ownership) means its interests may not always align with other shareholders, potentially delaying or preventing changes in control.
• Risk of delisting from Nasdaq due to failure to meet continued listing standards, which could significantly reduce liquidity and market price of securities.
• Fluctuations in the fair value of Codere Online Warrants, classified as financial liabilities, can result in material non-cash gains or losses on the income statement.
• Geopolitical and economic instability in the Middle East, particularly the Israel-Hamas war, may disrupt operations and impact the workforce in Israel.
• Potential tax liabilities from historical membership in Codere Group's consolidated tax group, as taxes may not be definitively settled until audited.
• Dependence on credit and debit card payment service providers and other financial institutions to process payments, with potential for restrictions or service interruptions.
• Holding significant cash balances in financial institutions exposes the company to risks of insolvency or inability to access funds.
• Potential loss of foreign private issuer status could result in significant additional costs and expenses, including U.S. GAAP reporting requirements.
• The Internal Revenue Service may assert that Codere Online should be treated as a U.S. corporation for U.S. federal income tax purposes, leading to substantial tax liabilities.
• Codere Online may be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, subjecting U.S. holders to adverse tax consequences.
• Differences between Luxembourg and U.S. corporate laws may offer less protection to shareholders compared to U.S. corporations.
• Foreign direct investment restrictions in Spain may require pre-approval for foreign investors acquiring 10% or more of Spanish subsidiaries.

Future Outlook

Codere Online aims to become a leading online casino gaming and online sports betting operator in Latin America, leveraging its Spanish and Mexican operations for expansion. The company intends to explore new Latin American markets as they become regulated (e.g., Brazil, Chile, Peru, Puerto Rico, Uruguay, and other regions of Argentina) and assess options to access the large Hispanic market in the United States. The strategic priority is shifting from primarily pursuing growth to focusing on profitability and sustainability of operations, with continued significant investments in business operations and growth. Management believes the company has sufficient cash to finance operations through 2025 and expects the overall business to begin generating positive cash flow in 2024, with potential adjustments to marketing spend or external financing if targets are not met.

Management Comments

• Aviv Sher, Chief Executive Officer, replaced Moshe Edree on March 1, 2023.
• Gonzaga Higuero, CEO of Codere Group, also serves as Chairman of the Codere Online Board.
• Management believes the company is well-positioned for continued growth with the support of the Codere brand, its dedicated and highly-experienced management team, and an established and flexible technology platform.
• Management believes that its online gaming platform, experience operating in different jurisdictions, the Codere brand, and its marketing strategies will enable it to compete effectively.
• Management has prepared the financial statements under the going concern principle, believing the company has adequate resources to continue operations for the next twelve months, contingent on the successful completion of Codere Group's financial restructuring.

Industry Context

The online gaming industry is characterized by rapid technological developments, frequent new product offerings, and evolving regulatory standards. Latin America is identified as a fast-growing market with increasing regulation, leading to a shift from offshore to regulated operators. The COVID-19 pandemic accelerated growth in online gaming, but as retail establishments reopen, competition from land-based operators has increased. The industry faces increasing regulatory pressure, including advertising restrictions, taxation increases, and enhanced due diligence requirements. The EU AI Act introduces new obligations and potential significant fines for AI usage, impacting the industry globally. The Spanish Supreme Court's ruling on advertising restrictions offers potential relief for operators in Spain, but the risk of reintroduction of restrictions remains. Geopolitical events, such as the Israel-Hamas war, pose risks to international operations and workforce availability.

Comparison to Industry Standards

• Codere Online's market share in online gaming in Mexico, Colombia, Panama, and Spain ranged between approximately 2% and 22% as of December 31, 2024, indicating varying competitive positions across its core markets.
• In Mexico, Codere Online is estimated to be the second-largest online operator, following Caliente and ahead of Bet365, PlayCity, Playdoit, and Betcris, suggesting a strong competitive standing in a key Latin American market.
• In Colombia, Codere Online operates among 15 authorized licensed online gaming operators, including Bwin, Sportium, Luckia, and Rush Street, indicating a competitive but established presence.
• The company's strategy of leveraging the Codere brand and its retail footprint (45,000 slots in nearly 7,000 venues) aligns with omnichannel strategies seen in other global gaming operators, aiming to create value through cross-channel synergies.
• The termination of the River Plate sponsorship agreement and the amendment of the Real Madrid sponsorship to exclude Spain reflect industry-wide adaptation to evolving advertising regulations, similar to actions taken by other major operators in regulated markets.

Management Changes

Corporate Governance

Legal Proceedings

• In 2023, CDON received two sanctions from the DGOJ of €125,000 each (reduced to €75,000 for prompt payment) for breaches of regulatory obligations, including failing to prevent online gaming activities of an individual listed in the Spanish general register of gaming access bans.
• In 2024, CDON received a sanction from the DGOJ of €100,000 (reduced to €60,000 for prompt payment) for a serious breach of the Advertising Decree, related to promotional material published on one of CDON's social media platforms in 2022.
• On May 12, 2025, CDON received a sanction from the DGOJ of €17,500 (reduced to €10,500 for prompt payment) for three regulatory breaches related to infractions affecting player deposit limits.
• LIFO self-reported 125 transactions (January 1, 2021 August 31, 2021) and 264 additional transactions (September 8, 2021) to Mexican tax authorities for exceeding reporting thresholds under anti-money laundering legislation, with a risk of economic sanctions and potential revocation of the LIFO License.
• LIFO, along with other Codere Group permit holders, filed a claim against the Mexico Gaming Decree on December 15, 2023, arguing it affects grandfathered rights; a resolution in LIFO's favor on November 21, 2024, was challenged by the Ministry of the Interior and is pending appeal.
• A fraud resulting in misappropriation of funds totaling €0.5 million occurred in Spain from April to July 2023, involving fraudulent withdrawals by an online customer; a police report was filed, and a preliminary hearing is scheduled for June 5, 2025.
• Codere Online has filed criminal complaints in Spain and is the plaintiff in criminal proceedings for various offenses, including fraud, identity theft, money laundering, corruption in sports, and belonging to a criminal organization.

Related Party Transactions

• Codere Newco, the parent company, holds approximately 65.7% of Codere Online's outstanding Ordinary Shares as of March 31, 2025.
• The Relationship and License Agreement (effective June 21, 2021) grants Codere Online an exclusive, sublicenseable, and non-transferable license to use certain Codere trademarks for its online gaming business, with fees measured as a percentage of Net Win (currently zero). A waiver effective May 1, 2025, allows Codere Newco to operate online gaming in Italy using Licensed Marks, with indemnification for Codere Online.
• The Sponsorship and Services Agreement (effective June 21, 2021) outlines the provision of various corporate services (e.g., internal audit, legal, IT) by Codere Newco and its subsidiaries to Codere Online, and grants use rights to sponsorship agreements (e.g., Real Madrid). The River Plate sponsorship agreement was terminated effective April 30, 2025.
• The New Platform and Technology Services Agreement (effective January 1, 2023, until May 17, 2029) details the provision of platform and technology services by Codere Newco and Codere Apuestas Espaa S.L.U. to Codere Online's Spanish and Latam online casino and sports betting businesses.
• The AenP Agreement (effective June 21, 2021, amended August 2, 2023) governs Codere Online's (through SEJO) operation of online gaming in Mexico via an unincorporated joint venture with LIFO (a Codere Group subsidiary), where SEJO receives 99.99% of distributed profits. The amendment includes indemnities from SEJO to LIFO for certain losses related to online business operations.
• Restructuring Agreements (November 15, 2021) were entered into for Colombia, Panama, and Argentina to govern the assignment of assets, contracts, employees, and permits from relevant Codere Group entities to Codere Online entities for online gaming operations.
• The Internal Affiliate Program Master Agreement (effective January 1, 2021, amended June 30, 2023) establishes revenue sharing principles between retail and online businesses in Omni-Channel Jurisdictions for customers active in both channels.
• Argentina Debt Agreements (July 31, 2023) were entered into to partially offset debts between SEJO, Iberargen, S.A., and Codere Online Argentina, S.A., arising from Iberargen's management of online gaming operations on behalf of Codere Online Argentina, S.A.
• A Framework Agreement (July 30, 2024) was signed between Codere Newco and Codere Online Luxembourg S.A. to govern their relationship, corporate governance, conflicts of interest, information flows, and related party transactions.

Stakeholder Impact

• Shareholders face potential share price volatility due to market factors, regulatory changes, and the company's financial performance. The ongoing material weakness in internal controls and the Nasdaq delisting notices could negatively impact investor confidence and share value. Future share issuances could dilute ownership, and no dividends are expected in the foreseeable future.
• Employees, particularly those in Israel (13% of the workforce), are exposed to risks from geopolitical instability (Israel-Hamas war) and potential military service obligations, which could disrupt operations and lead to a shortage of skilled labor. The Long-Term Incentive Plan aims to retain and motivate senior management and directors.
• Customers may be impacted by regulatory changes that affect product offerings, advertising, or payment methods. The company's ability to maintain a secure platform and prevent fraud is critical to retaining customer trust and engagement. Data privacy breaches could also erode customer confidence.
• Regulators in various jurisdictions (Spain, Mexico, Colombia, Panama, Argentina) continue to scrutinize and impose sanctions, fines, and new requirements, increasing compliance costs and potentially restricting business activities. The company's ability to obtain and renew licenses is crucial for continued operation.
• Suppliers and creditors are impacted by the company's financial health and its ability to meet contractual obligations. The company's reliance on third-party service providers for critical functions means their performance and security practices directly affect Codere Online's operations.
• Codere Group, as the controlling shareholder and a key service provider, is directly impacted by Codere Online's performance and compliance. Its own financial restructuring processes could indirectly affect Codere Online's operations and access to resources.

Next Steps

• Continue efforts to remediate the material weakness in internal control over financial reporting.
• Monitor and adapt to evolving regulatory frameworks and tax laws in existing and new markets.
• Pursue expansion into new Latin American markets (e.g., Brazil, Chile, Peru, Puerto Rico, Uruguay) as they become regulated.
• Explore options to access the large Hispanic market in the United States.
• Continue to improve the efficiency of marketing and promotion activities to balance growth with profitability.
• Renew the Colombia License, which is set to expire on November 14, 2025.
• Monitor the outcome of LIFO's appeal against the Mexico Gaming Decree and its potential impact on Mexican operations.
• Attend the preliminary hearing for the €0.5 million fraud case in Spain on June 5, 2025, and pursue recovery of misappropriated funds.
• Implement measures to comply with the EU AI Act, with obligations related to general-purpose AI models effective August 2, 2025, and full enforcement by August 2, 2026.
• Continue share buyback program as authorized by shareholders on March 3, 2025.

Key Dates

Recommendation

Keywords

Online Gaming, Sports Betting, Casino Games, SEC Filing, 20-F, Financial Results, Revenue Growth, Profitability, EBITDA, Market Expansion, Latin America, Spain, Mexico, Colombia, Argentina, Regulatory Compliance, Internal Controls, Nasdaq Listing, Share Buyback, Related Party Transactions, Intellectual Property, Cybersecurity, Geopolitical Risk, Taxation, Warrants, Codere Online