Good morning, and welcome to the Flutter Entertainment Plc 2023 Interim Results Call. There will be a chance to ask questions later on. But first, I'd like to hand you over to Mr. Peter Jackson, CEO of Flutter. Please go ahead, sir.

Good morning, everyone, and thank you for joining Paul Tims and I for this call this morning. As noted in the presentation, which hopefully you have all had a chance to watch. Paul Tims is standing in for Paul Edgecliffe-Johnson, who's out of the office this week due to a family medical emergency. Before we go to questions, the first half marks a pivotal moment for Flutter. Our U.S. business is now structurally profitable with FanDuel delivering an H1 adjusted EBITDA of $100 million, including a Q2 EBITDA of $153 million. This has occurred six months earlier than we were forecasting when providing this guidance back in August 2021. And as I outlined then, our U.S. customer base is now at sufficient scale to more than offset the cost of future customer acquisition. This effect will continue to compound and drive significant profit growth, which in turn will transform the earnings profile and financial flexibility of the group. FanDuel attracted over 2 million new players in the half, which drove revenue growth of 63%. We maintained our position as the number one online sportsbook operator with a 47% share of the market and grew our iGaming share to 23%. And outside of the U.S., pro forma revenue grew 8% and EBITDA was up 4%. In U.K. and Ireland, we grew AMPs and revenue by 10% and 13%, respectively, as our recreationally focused brands took significant share due to product enhancements and new gaming content. In Australia, while we have successfully retained our COVID-era large customer base, our expectations for market growth in H2 have moderated somewhat due to reduced spend. International is also a growth inflection point, underpinned by the strong performance of our consolidated investment markets, which grew revenues by 19% and represents 77% of the divisional revenue. The second half has started well, and we remain focused on delivering against our strategy and capitalizing on the significant opportunity ahead, both in the second half of the year and beyond. And with that, I'd like to hand it over to George for questions, and I'll ask if you can limit it to two questions per person, please.

Thank you very much, sir. Our first question is coming from Paul Ruddy of Davy. Please go ahead.

Hey, good morning, Peter and Paul. Just two quick questions, if I may. The first one is just on the U.S. So H1 EBITDA came in at around $50 million or $79 million ex PokerStars and FOX. Just thinking through that looks a long way ahead of H1 consensus and just thinking through the midpoint of the guidance range, which looks to be in line with consensus expectations. Could you kind of give us some color on that kind of H2 outturn, what level of additional investments you might make? And is there anything we should be thinking about in H2 which colors that number? And the second one is just on Australia. So you've obviously reset the guidance down in Australia. Just wonder, could you give some context on what the underlying market is declining in Australia at the moment and what your expectations are for that for the rest of the year, i.e., when you might think the Australian market returns to growth? Thanks.

Thanks, Paul. Look, in terms of the first question, I think it's important that we go back and remember the context a couple of years ago. When we first told people that our U.S. business would make money this year. And the reason we saw that is because we knew that this year would be the tipping point where we’ll have more customers in the back book — sufficient customers in the back book to generate contribution to cover some of our fixed costs as well as the customers that we were going to be acquiring. Now we've actually reached that milestone earlier, and we've reached that milestone earlier because the business is bigger than we anticipated it would be a couple of years ago. Look, I think the important thing for me is, in terms of the shape of the business, which I think is where you're getting to with the H1-H2 comparison — I'm not really focused on that. What I'm focused on is, it has transitioned and the pivotal moment this year is that we become profitable. I'm thinking about the shape and the trajectory of momentum into next year. If you think about the very material shift in earnings versus us making a loss last year to profit-making this year. Of course, it gets compounded next year, right, because we're going to have another huge set of customers that we've acquired this year that will make a positive contribution. So we knew this year would be profitable. We've already reached that milestone. So the business is now structurally profitable which proves the model works. And so, we will continue to acquire and invest in acquiring as many customers as we possibly can do, whilst ever they meet our CAC/LTV hurdles. I mean I think we were very pleased with the acquisition in the first half, and we'll try and acquire as much business as we can do in the second half. I think with regards to Australia, I think the context there is, we saw a very significant benefit going into COVID for the Sportsbet brand. We've got a customer base that's 2.5 times the size of anyone else's. And we're very well positioned to win in the market. There's been some reversion though as we saw in the U.K., we're now seeing in Australia. And that is impacting the business. Look, when we look to next year, I think we hope the business will get back to growth. But I think we have to acknowledge that going into the second half of this year, we're going to see some—Paul, you'll give us some thoughts.

Yes. Our view of the market is, we can see the racing market down about 8% to 10% in Q2. Sports is ahead; we can see the market growing about 5%, and we're taking market share there. I think our view for Sportsbet for the rest of the year is revenue broadly flat and returning to growth next year.

That’s really helpful. Thank you.

Thank you very much, sir. We'll now move to Ed Young, calling from MS. Please go ahead.

Good morning. The first one on U.S. investment. I understand how you've laid out the ambition to invest more into growth, that's clear. But just in terms of that investment itself, I mean sales and marketing is coming in very nicely with the gearing in the business. So could you perhaps give us some color on how that is being spent. You mentioned, obviously, you're sticking to CAC/LTV ratios. Are you spending on higher CAC because real LTVs are higher? Is that why spending is higher? Are you finding better channels to allocate it? Just be interested about if you could talk a little about the how as well as what you're doing. And then the second one was on capital allocation. There wasn't a customary one to two times that you've spoken about previously. There's a lot of pink countries on Slide 36. So are you sort of broadly expressing that you might run leverage at a higher level than you've previously talked about getting to? And perhaps on that, could you reflect on the operational capacity of the business to absorb a big acquisition as well as your balance sheet capability to do it. Thank you.

Good morning, Ed. Thank you for the questions. Look, on the U.S., we're continuing to see good returns across the board. I think we've talked in the past about how delighted we were with the performance of this year's Super Bowl and actually the nature by which we acquire the customers leading up to it; the quality of customers was much better. But just in general, in the first half, we've been really pleased with the performance across all channels. And look, our lifetime values have proved to be better than we had originally anticipated. And we think the quality of our products, the levels of retention and the structural margin changes we're making, particularly through pricing accuracy and things like that, have all contributed to give us higher LTVs. And we've got real confidence in that. So we're still sticking with our CAC/LTV framework of 12 to 18 months. And as we mentioned in Q1, we are coming well within that in terms of the new launch rate, for example, but we're very pleased with it. With regard to the second question, you're right, there are a lot of pink countries on that map. And it is an indication that there are a lot of opportunities for us to expand. I think we have to be thoughtful about what is the right level of leverage for us to carry as a business and there are factors in that which we need to think about in terms of the earnings profile for this business now and also whether a U.S. listing will change investors' views on any of those themes. I think from a capacity perspective, we've been very pleased with our ability to integrate the assets that we've acquired to date. And look, whilst it's something we have to be thoughtful about, I think our ability to make bolt-on acquisitions into the business, particularly across the International division, where we've got a real platform capability now, is something that we're very comfortable with. Paul, I don't know if you want to add any comments to that.

Does that answer your question, sir?

That did. Thank you.

Thank you very much, sir. Our next question comes from Clark Lampen calling from BTIG. Please go ahead. Your line is open.

Hi. Thanks. Good morning, guys. Two questions, please. Peter, you've laid out some detail, I guess, in previous presentation decks and reports around performance and payback periods for newer FanDuel player cohorts. I didn't see that this morning. You may have just sort of confirmed what I'm about to ask with the prior question, but would it be possible to update us on performance and whether you've seen any meaningful change in what was otherwise a pretty healthy trend. The second question that I have is on U.S. product. You saw about a third of your NBA players engaging with shorter duration micro-bets during the playoffs. Were those betting options driving incremental spend? Was that maybe more of a reallocation? And as we're approaching NFL season, is there any reason to think differently, I guess, about the opportunity with engagement or stand with football? Thank you.

Yes. Thank you for getting up so early. So let me just take the second question quickly, and then Paul will talk to us about the performance piece. Clearly, there would have been some reallocation, right? So when customers are picking up some of those newer products we made available with those products around the NBA, we will have seen some substitution. I think the point we're making there was less around whether it’s incremental — it is just our ability to continue to innovate and drop new products into the market. Yes. And the fact that we capture 50% more revenue than our competitors from the handle means that we've just got a bigger war chest to invest in product, marketing and generosity more generally. And so we're excited to see what we can do with the product. We're a fast-moving target for people in terms of trying to replicate what we have. And I know the team have got some very exciting plans for the upcoming season and for the years ahead. Paul, do you want to talk about the performance?

Yes. The customer cohort analysis, which you're referring to, is something we've used say, for the last six to 12 months to demonstrate our confidence in profitability, which we've now achieved. And you can see how we've laid that out on Slide 11. And I think it's been pretty successful in demonstrating our confidence in profitability. It is very difficult then to take that forward and use that as a basis for modeling. As you can see, if you listened to the presentation this morning, we transitioned from using customer cohorts to state cohorts. I think that is a much better basis for modeling the business going forward, particularly if we think about the complexity of what our business will look like in 2024-2025. In terms of any changes to underlying trends in that customer cohort, I mean there's a lot of moving parts in there, but we're still seeing the very strong returns that we've seen for the last 12 months.

Thanks, Paul.

Thanks, sir. We'll now move to Mr. David Brohan calling from Goodbody. Please go ahead.

Good morning, guys. Just two questions from me. Firstly, I wonder if you could give an update on India and how the recent proposed tax changes factor into your long-term thinking in that market. And then just secondly, around — I know the FOX Bet losses are going to ease off in the second half of the year. I wonder could you give a timeline on when the PokerStars losses will reduce — be it this year or next year? Thank you.

Good morning, David. Look, in terms of India, I think we've now, I believe, got clarity around the new basis for calculation of GST, which is effectively going to be on deposits, and we think it will be anticipated to be introduced from the first of October. But we've been very pleased with the performance of our business since we acquired it. Junglee is one of the fastest growing rummy businesses since we acquired it. I think engagement is up to four times since we made the acquisition. From our perspective, the tax basis change does impact the business, but what it effectively does is it means that there's a slug of tax costs in the revenue line, which means that the EBITDA profile is probably more similar to the U.S. business in the long run than would otherwise have been the case. So look, we're still very excited about it. And I think it probably means a bit like the U.S., you'll need to have real scale to win in the Indian market. Paul, do you want to talk about FOX Bet, please?

Yes. So we've talked previously about our 2022 losses for FOX Bet and PokerStars, $91 million. We'd expect to retain probably just under half of those losses going forward on the current run rate for the PokerStars business. In terms of what happens to those losses going forward, I mean we're setting up the business for the long term. We do expect the losses to reduce over time. It is a good brand for when the gaming TAM expands. It's clearly dependent on the poker regulatory framework in the U.S., but we think there's definitely a very strong brand there that resonates that we can utilize going forward.

Perfect. Thanks, guys.

Thank you very much, sir. We now move to Ryan Sigdahl calling from Craig-Hallum Capital Group. Please go ahead. Your line is open.

Good. Thanks for taking my questions. Just want to start with FOX Bet quick question. I guess you have a license in several states, New Jersey, Pennsylvania, Michigan, Colorado. Curious what your plans are to do with those, whether you're going to sell those or launch a different brand there. And then secondly, on FanDuel, the app consistently ranks at the top for virtually every category of testing you can imagine, which is kudos to you guys in the product. The one area Bet365 has a reputation internationally and now in the U.S. as well is probably the fastest in-game bet settlements. How important is that in your mind when you think about kind of innovation and improvements going forward? Thanks.

Good morning, Ryan. Look, kudos to you for getting up early. I appreciate it. With regards to FOX Bet, we have a separate entity in the U.S. which operates what is effectively the PokerStars business in America. So that has its own market access partners, and we don't intend to make any changes as a consequence of the deal that we've done with FOX to close down FOX Bet. So the PokerStars business will continue to exist in those entities in the U.S. With regards to FanDuel, we've continued to invest and develop our products in a way that we think really resonates and works for the American audience. Ultimately, we have great products in all of our businesses, in all of our different markets around the world, but we give them the freedom to operate and develop whatever is required for a local audience. And that's what the FanDuel team has done so successfully over the years. So if I look at the quality of product, we are very proud of the fact that we rank so highly. Speed and ease of use are crucial. And we continue to develop and innovate the product. We've got plans for the short term and plans for the long term. Clearly, I'm not going to disclose those today to competitors. But rest assured, we're investing very heavily in maintaining our product leadership in the market.

Thanks, Peter. Good luck, guys.

Thank you, sir. Our next question comes from Dan Politzer calling from Wells Fargo. Please go ahead, sir.

Hi. Good morning everyone and thanks for taking my questions. First one, just one of your competitors in the U.S. last night announced a partnership with ESPN. I just wanted to get your sense of, one, did you look at that type of deal? And two, how you think about promotional expectations going into the third quarter? Does this change anything? Also, there's another big entrant, so just that now you are thinking about this promotional season with NFL. And then the second question was about gross margin, that was about 12%. I think there were some favorable sports outcomes in there. So what was that on a normalized basis, excluding those outcomes? And how do you think about this trending over time given it seems like you're bumping up against that 12% 2025 goal? Thanks.

Good morning, Dan. The start of every football season is always one where we have a degree of trepidation because we just reactivate and reenergize our book of business. I mean, look, we've done this many times now, but still we always anticipate a highly competitive environment when the season really starts. This year will be no different. I think as you rightly point out, there are a few people who have stated that they intend to make a bit of a splash this year. We will stay focused on what we've always done, which is making sure we deliver our best experience to our customers by having the best products and using our fantastic leading brands. You asked me whether we look at deals and transactions in the U.S. market and of course, we do. I think we do the ones we want to do, and we leave others to do the ones that we don't want to do. And that's probably what I'd say about that particular one. Paul, do you want to talk about the margin?

If I just cover the margin. So our actual gross margin in the period was 12.2%. And as you saw in the presentation, expected gross margin was 11.3%. That does benefit from 170 basis points of structural margin improvement. That's again a combination of what we've seen over the last 12 months. So increased pricing accuracy and increased in-play penetration. We did talk about a target of 12% expected gross margin by 2025. And I guess the question is how quickly are we getting there. We're making very good progress towards that 12%, clearly already at 11.3%. There are quite a few moving parts in there, though. So could we go through 12% potentially? Yes, but there's a lot to work through — we're getting there quicker.

I'd add that the scale of our business in the U.S. now and the investments we're making in risk and trading, the amount of data that we see and our ability to really focus on pricing accuracy — that's one of the things that's making a particular difference, especially when people are thinking about complex in-play bets. That's helping support that structural margin and accelerate our progress.

Thank you, sir. We'll now move to Monique Pollard calling from Citi. Please go ahead.

Hi. Good morning, everyone. I just have a couple of questions on the U.S. from the slides that you gave where you're sharing sort of how we should think about modeling the cost items out to 2025. The first one is on the U.S. COGS. I just wanted to question again, whether the 47.5% to 52.5% of revenue range is a bit conservative, given obviously New York relative exposure shrinks as new states launch. Is there some tax creep being assumed in there, which I guess might be reasonable given what we've seen in hires? And is there any fall in generosity or the proportion of GGR that's embedded in that guidance? And then the second question on the U.S. expenses, on sales and marketing expense. Your 2023 to 2025 framework outlines that you're going to approach basically your 2030 target on EBITDA margin pretty quickly, maybe by 2026. So just trying to understand what drives the material scaling of the marketing budget from here?

Good morning, Moni. Let me give you a sense of context around this. When we look at the COGS, there are quite a lot of moving parts here around cost of data and rights, the tax changes, those kinds of things. This is our best view of what we think is going to happen. You're right to highlight tax creeping higher. But look, we don't anticipate there being a wholesale shift in the tax burden. And I think you're right to highlight New York exposure reducing as new states launch. I think when we think about generosity, the big driver for us is actually around a very focused and increasing emphasis on personalized generosity. It's something we've done very successfully in the U.K. and Australia. It makes a really big difference and it's obviously a very large cost item for us. From a marketing perspective, we operate in a pretty saturated environment. And actually, it's quite hard to significantly scale that. So I think you do get some natural benefits. So what we're really showing here is the benefit of our scale, but Paul you can add.

I think that's right. Just on sales and marketing, you're right, Monique. At the scale that we have, and quite simply, the new states are a smaller proportion of the overall revenue mix, which means that we do start to see that leverage come through pretty quickly on the sales and marketing line. We've said the midpoint is about a six percentage point leverage benefit per year. That will be quicker in the first year and the second year through to 2025.

Thank you.

Our next question is coming from Alistair Johnson calling from BNP Paribas Exane. Please go ahead, sir.

Good morning, guys. I had a couple of questions on the same slide, actually. On the OpEx increases, it looks like you're expecting some quite material growth there. So just if you could provide color on what's driving that. And then secondly, within the OpEx number, how should we think about management incentives because I think on your guidance slide further in the deck, it looks like some of the cash costs are being adjusted out, but understanding that you historically have included management comp within your EBITDA numbers suggests any change in the accounting? Thank you.

I can very quickly deal with that second one. Unlike the way some people account for these things, we fully account for all management incentive costs included in that number. Paul, do you want to talk about the OpEx piece?

So on that slide, we talk about a one percentage point leverage benefit per year through to our 2030 targets, which gets us to OpEx of 10% of revenues — pretty much straight line. In terms of OpEx movements in the half, a 45% increase demonstrates good leverage versus the revenue growth of 53%. So we still are in an investment phase. We do include share-based payments within our OpEx. We've always been disciplined throughout the group on our OpEx spend, but the business is still growing quickly and we tend to deleverage in the short term.

Great. Thank you.

Thank you, sir. We'll now move to Richard Stuber calling from Numis. Please go ahead.

Good morning, Pete and Paul. Just one question for me. On the U.S. actives volume, we rose from 2.5 million in the first quarter to 2.8 million in the second quarter. I was wondering how do you keep your seasonal players engaged? Is that just more product or other sports? And do you think you'll ever be able to maintain and grow actives quarter-on-quarter like you do in the rest of the world? Or is it just the seasonality in the U.S. is too big from sporting events such as March Madness?

Richard, you've answered your own question. That's the nature of the market. There's seasonality in other parts of the world. Our Italian business is pretty quiet in July and August. We see seasonality in Australia as well, particularly early on in the year. So it's not an aberration to find a seasonal situation in the U.S. And I think the team have got pretty accomplished at making sure that we can reengage the customers who have been active on the platform as soon as things come back to life.

Okay. Great. Thanks. So you don't see that you can try and cross-sell a product to those sports betting customers during Q2. Do you think that's just the nature of the U.S.?

Look, tennis and sports like that, which are popular year-round, are always there for people to bet on. But there is a degree of seasonality, and we're comfortable with that.

Great. Thank you very much. And apologies for earlier.

Our next question is coming from Kiranjot Grewal calling from Bank of America. Please go ahead.

So my first one on the U.S. iGaming. I think on Slide 29, we can see that your iGaming market share ramped up quite a bit from mid-2022, but it's flatlined in recent months. Do you think there's more you can do to increase that share? Or do you think you're comfortable with where you've got to? The only other question I have is around the secondary listing. I'm not sure how much you can actually say, but any implications to existing listings and would you look to drop one of the listings to just maintain two?

On the iGaming front, we're ambitious. Last year when we spoke about iGaming our product wasn't good enough. We saw this as a multi-year opportunity, and we started to address some of the things that were not in place last year — having a dedicated team, brand content capabilities, etc. We did that, and we've been really pleased with the way in which the business has grown and taken share. We've got a bunch of improvements we've made this year, which we covered in the presentation, that we think will provide further support for the business. And we've got exciting plans into next year as well. So we think we'll get to product leadership in iGaming. And that will enable us to continue to take significant share both in the direct casino market as well as the cross-selling market. We are the world's biggest regulated online casino operator, so we now have to execute on this. With regards to the secondary listing, we're working through the implications for our other listings following the pursuit of a U.S. listing. We're preparing our application with the relevant U.S. authorities at the moment and we'll continue to work in the background on what the implications are for our other listings.

Perfect. Thank you.

Thank you. Our next question is coming from Joe Stauff. Please go ahead, sir.

Good morning, Peter and Paul. I did want to follow up maybe on an additional question on Slide 29, just kind of talking about your U.S. iGaming position. I wondered if you could maybe give us a read on kind of your relative market share, say, the sports-first casino customer versus the online casino-first customer? And then second question to that is with PokerStars essentially freed up in the U.S., I was wondering if you would use that possibly as a second brand?

Good morning, Joe. In terms of iGaming, we've been really pleased with the market share growth taken, which has mainly actually been in the direct-to-casino market. So that's where we've seen the majority of our gains. I think that's simply because we've been fixing some of the issues that were there in the product, but also bringing some of the innovations to the market such as the sort of daily free-to-play mechanics that we've been successful with elsewhere. In terms of how we will utilize the PokerStars brand, we now have clarity around the future of that and the ownership structure of it. We've had it in market a while. We're primarily focused on FanDuel first, and we're pleased with some of the performance we have. But we're not averse to running multiple brands. We will figure out how we utilize PokerStars in the most effective way moving forward.

Thanks, guys.

Thank you very much, sir. Our next question is coming from Joe Thomas from HSBC. Please go ahead.

Good morning, Peter. And good morning, Paul. A couple of questions, please. Firstly, Australia, margins, I think down 950 basis points in the first half, down to recall about 25% or so. Can you just clarify whether that business is long-term impaired now? And if not, how do you expect to get back towards that sort of 30-plus percent level? That would be the first question, please. Second question regards the U.K. — obviously, a very good U.K. performance despite having removed some generosity around things like guaranteed bets. Just wondering if you can give a bit more clarity about what you think is driving that in particular? And is it sports or casino? Thanks.

Yes, Joe. Good morning. From a U.K. perspective, we are very pleased with the product changes we made. The bet builder functionality has had a profound impact on customer engagement. We've been really pleased. As we mentioned in the presentation, 90% of customers who engaged during the World Cup are still on the platform, which I think is a good testament to the product uplift we've made. And it's not just in sports — we've made a bunch of changes in gaming as well, whether that's some of the Paddy Power branded slots and some of the live products we brought on stream. We've also made a heap of changes to the way in which we tackle and present generosity to customers, which we think is really important. It's a very large cost item for us, and we know around the world how important it is to drive the performance of the business. I think all of those product changes have helped. From a regulatory and safe gambling perspective, I think our capabilities are in good stead and we've been able to manage the business under the new environment while others have had to slow down, so I think that's contributing to the performance. The team in general have got their mojo back, which is reflected in the U.K. performance. In Australia, Paul will give some more specific context.

Thank you so much, gentlemen. Ladies and gentlemen, that will conclude today's conference. We thank you for your attendance. You may now disconnect.