Flutter Entertainment plc Q4 FY2024 Earnings Call

Good afternoon and welcome to Flutter's Q4 and Fiscal Year 2024 Earnings Call with CEO Peter Jackson and CFO Rob Coldrake. This conference call is being recorded, and all lines have been muted to minimize background noise. After the speakers finish, there will be a question-and-answer session. I will now hand it over to Paul Tymms, Flutter's Director of Investor Relations, to start today's call.

Hi, everyone and welcome to Flutter's Q4 results call. With me today are Flutter's CEO, Peter Jackson; and CFO, Rob Coldrake. After this short intro, Peter will open with a summary of our operational progress and then Rob will run through the Q4 financials and our new guidance for 2025. We will then open the lines for Q&A. Some of the information we are providing today, including our 2025 guidance, constitutes forward-looking statements that involve risks, uncertainties and other factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors are detailed in our earnings press release and our SEC filings. In addition, all forward-looking statements are based on current expectations and we undertake no obligation to update any forward-looking statements, except as required by law. Also in our remarks or responses to questions, we will discuss non-GAAP financial measures. Reconciliations are included in the results materials we have released today available in the Investors section of our website. I will now hand you over to Peter.

Thank you, Paul. I'm delighted to provide an update on what has been a fantastic year for Flutter. Our strategic positioning provides a compelling investment opportunity. This includes access to significant growth markets and a scaled and diversified portfolio of local hero brands that win in the local markets through accessing our unique differentiator, the Flutter Edge. In 2024, we capitalized on these opportunities as we strengthened our leadership position in the U.S. market, while globally, our local brands solidified their number 1 positions and took share in key markets, including the U.K. and Italy. We also grew into new markets with the very successful FanDuel launches in North Carolina and Vermont, along with the addition of MaxBet in our international business. We achieved this by leveraging the Flutter Edge to deliver the best product for players. Our pricing capabilities give our players access to the leading Same Game Parlay products across multiple geographies, driving both engagement and continued expansion of our market-leading structural gross revenue margin. Our IGaming product proposition is going from strength to strength with the creation of Flutter Studios which we believe will better harvest our games development capabilities, complementing the addition of further Tier 1 supplier content. Altogether, this translated into excellent financial performance, with revenue growth of 19% and adjusted EBITDA at $482 million, or 26% higher in 2024. With leverage now within our medium-term guidance range after declining by nearly a turn in 2024, we will truly see the benefits of being an AND business in 2025. Firstly, we expect FanDuel's fantastic product pipeline will drive continued organic investments and planned acquisitions to sustain our leadership position in the U.S. Secondly, in the newly formed International division, we expect to have the Snai and NSX acquisitions in the first half, further enhancing the scale and diversification of the group in high-growth markets. And thirdly, we'll get the full year benefit of the share repurchase program with up to $1 billion of repurchases expected across 2025. Turning now to our performance in Q4. In the U.S., we exited the year in a position of unparalleled strength, with a sportsbook GGR market share of 43% and an iGaming GGR market share of 26%. This means we closed the year as a clear number 1 online sportsbook operator in the U.S., a position we have consistently maintained. We have now also overtaken other multi-brand competitors to become the number 1 iGaming operator. This market leadership position has been delivered and maintained through our laser focus on product innovation, combined with a disciplined customer acquisition strategy. The strong performance in the quarter was somewhat masked by the well-documented adverse sports results as we saw some of the most customer-friendly NFL results on record. While these short-term results led to a change in outlook for 2024, the transitory nature of these impacts which are part of operating a sportsbook have no bearing on the long-term position of the business as we have absolute confidence in our leading pricing and risk management capabilities and in the structural gross and net revenue margin targets which we outlined at the Investor Day. I've been really pleased with the strength and trajectory of the U.S. business. Existing player cohort growth remains encouraging and the opportunity to acquire new customers remains very compelling, with payback periods of less than 18 months and well below our 2-year threshold for investment. Our focus on product innovation helps to drive our structural gross revenue margin to 14.5% in the quarter. Parlay penetration continues to increase with NFL up 500 basis points on the high base as our market-leading Same Game Parlay products continue to resonate very well with our customers. Our product pipeline is stronger than ever, with a number of new sportsbook features launched in Q4 leveraging our market-leading pricing capabilities. These included increased betting markets across all major sports, a new live activity tracker for NFL which has seen good early adoption rates and greater ability for customers to tailor the general generosity they receive, with more to come during 2025. We also continue to trial a revolutionary new Your Way product, with all states having access to this new customizable way of betting NFL in the quarter and we are now in the process of rolling out Your Way to NBA markets. Although it's really early stages, the engagement we've seen from customers has been very pleasing. On iGaming, product innovation has also delivered us to our number 1 position. Launches included sports-themed games such as NBA Super Slam that we expect will help drive sportsbook costs down and exclusive titles by Samurai 888 Kenji. We know access to exclusive games appeals to our direct iGaming customers, in particular, as we laid out at Investor Day. We improved our iGaming rewards proposition with the introduction of the new jackpot functionality on our daily prize mechanic, FanDuel Reward Machine, as well as trialing our new FanDuel Rewards Club loyalty program. Combined, these features help to deliver exceptionally strong AMPs growth, up 37%. Our fundamental drivers are taking good momentum into the new financial year. The NFL season ended with a great Super Bowl. As we look into 2025, I feel very confident about FanDuel's prospects. From a regulatory perspective, the U.S. continues to be a dynamic market with new state opportunities. We continue to push for mass expansion for both sportsbook and iGaming. We also note the research and development on prediction markets and opportunities that may arise for us there. We are also monitoring proposals for state gaming tax increases within the regulated sports betting market and we're working closely with advisers and regulators alongside our peers to ensure the impact such changes can have on the regulated market are well understood. Irrespective of what means states may use to manage their budget deficits, as the largest operator in North America, we believe that we are in the best position within the sector to mitigate impacts should they arise. Outside of the U.S., we had a strong quarter with revenue growth of 14%, where access to our Flutter Edge capabilities is driving share gains across the portfolio. In UKI, we had another excellent year and we've now grown our market share by 4 percentage points over the last 2 years. Product delivery continues to be key to that success. In the quarter, Paddy Power's expanded Super Sub products drove increased parlay penetration and in turn, structural gross revenue margin improvements. An engaging English Premier League has also driven high levels of player demand. Our iGaming proposition continues to improve with expanded free-to-play content, such as the Sky Vegas Guaranteed Prize Machine and a broader range of Tier 1 gaming content. In Italy, Sisal's poker players now have access to PokerStars shared liquidity pool, quickly resulting in record prize calls and showing the direct benefit of access to the Flutter Edge. Sisal's compelling omnichannel offering helped drive a 33% increase in Italian AMPs during Q4, with omnichannel players generating over 1.5 times more online revenue compared to online-only clients. Given this large omnichannel presence, we look forward to welcoming Snai into the group in the second quarter. Positive momentum continues across our key consolidated invest markets, demonstrating the benefits of our diversified portfolio and our capacity to invest for long-term growth. This is demonstrated well in India, where we continue to invest through the impact of the tax changes introduced in October 2023 which temporarily impacted growth rates. The underlying performance can now be seen with AMP growth of 72% on a year-over-year basis. In Australia, player-driven momentum in sports remains a positive tailwind against the known softer racing market with underlying trends playing out in line with our expectations during the quarter. Finally, and in summary, we believe that the group is very well positioned for 2025 and also to deliver our 2027 goals that we set out at our Investor Day. We have excellent momentum in our global businesses and we are delivering against our Play Well ambitions. FanDuel has made a strong start to the year and we expect to materially expand our player base due to our market-leading products. The reorganization of our ex-U.S. businesses into our new international division will enhance our strategic focus on winning in our local markets, while our cost transformation programs will ensure we maximize shareholder value. I will now hand over to Rob to take you through the financials and our guidance.

Thanks, Peter and hello, everyone. It's great to be talking to you today about another strong quarter. The group delivered revenue and adjusted EBITDA growth of 14% and 4%, respectively, despite the impact of the customer-friendly sports results in the U.S. The Group generated net income of $156 million which is after the combined non-cash expense of $346 million, the amortization of the acquired intangibles and the fair value movement on the FOX option. Earnings per share increased by $5.59 to $0.45 in Q4, benefiting from the recognition of a tax credit on historic U.S. losses and an impairment charge in the prior year comparative period. Adjusted EPS, which now excludes certain fair value movements primarily due to the impact of the revaluation of the FOX option, increased 67% due to the tax credit. Turning now to the financial performance for each of the segments. In the U.S., revenue was 14% higher with adjusted EBITDA of $163 million. This included continued strong iGaming growth of 43%, driven by the product improvements Peter outlined, driving excellent player growth and engagement during the quarter. Sportsbook revenue growth of 8% reflected the adverse impact of sports results as well as a moderation in handle growth to 12%. As anticipated, the sequential handle trend was lower than Q2 and Q3 due to various factors, including the timing of state launches in the current and prior year, a greater number of NFL games in Q4 2023 and the continued migration of our customers to higher revenue margin products which are typically also lower handle wagers. We estimate customer-friendly sports results cost approximately $550 million in revenue and $360 million of adjusted EBITDA in Q4. This is before factoring in one-off cost mitigations and any recycling benefits. I will summarize our estimate of the net impact of 2024 when I walk through our 2025 guidance. From a cost perspective, we continue to deliver excellent operating leverage despite the impact of sports results on revenue, the incremental taxes year-over-year in Illinois and the opportunity to continue to invest in customer acquisition. Outside of the U.S., revenue grew 14%, while adjusted EBITDA increased 6%. UKI had an excellent quarter with revenue growth of 20%, driven by a strong performance in both sportsbook and iGaming which were 31% up and 16% up, respectively. Sportsbook revenue was aided by the positive year-on-year swing in sports results at 390 basis points, combined with a further 110 basis points expansion in our structural gross revenue margin as players engage with our expanded Same Game Parlay offering. In International, constant currency revenue growth of 23% was driven by a 22% increase from existing consolidated first markets and MaxBet also contributed 8 percentage points to the year-over-year growth. Sisal had an exceptional quarter in Italy, highlighted by online revenue growth of 41% as we took share in the market and benefited from a favorable swing in sports results. India, Turkey, Georgia and Brazil all performed strongly in the quarter, demonstrating the benefits of our diversified portfolio. In Australia, revenue was 8% lower, reflecting softness in the racing market, although AMP growth has been encouraging at 7%. Cash flow growth in the quarter was underpinned by the growth in our business with net cash from operating activity up 67% and free cash flow growth of 175%. Cash flow also benefited from the comps versus prior year which included increased CapEx relating to the acquisition of our new U.S. office in L.A. and increased transaction costs associated with our U.S. listing. Cash flow conversion over the year as a whole was excellent with free cash flow of $941 million, a $0.6 billion increase year-over-year despite the $428 million headwind relating to the settlement of derivatives in 2023 and 2024. The significant expansion in group adjusted EBITDA was $482 million over the last year, and FX movements drove a $635 million reduction in our net debt over the equivalent period to bring leverage within our medium-term target range at 2.2x. This anticipated reduction unlocks the capacity to repurchase up to $1 billion in shares across 2025, in tandem with the acquisitions of Snai and NSX, totaling approximately $2.7 billion. Moving now to the 2025 guidance we have published today, which includes trading up to the end of February. In the U.S., we expect existing state revenue and adjusted EBITDA midpoints of $7.72 billion and $1.4 billion, respectively. This represents year-over-year growth of 33% and 176%, and growth at the midpoint of our Investor Day commentary after adjusting for sports results in the 2024 base. Normalizing 2024 sports results, U.S. net revenue would have been around $6.3 billion and adjusted EBITDA of approximately $800 million. This includes adjustments of one-off costs we called out as mitigation in Q4 as well as our estimate of the benefit of recycling in the quarter. 2025 started really well. Underlying trends are in line with our expectations with an acceleration in staking trends from Q4 levels as we lap a more like-for-like calendar period. Sports results for the year-to-date have been roughly neutral with the great Super Bowl result offsetting adverse sports results in January. I'll now take you through some comments on phasing for the existing state guidance. In the first half of 2025, it's worth remembering that the shape of 2024 was impacted by adverse sports results in Q1 and positive sports results in Q2 and therefore, phasing year-over-year will look different. We therefore expect revenue in Q1 to be roughly 24% or 25% of total revenue for the year and Q1 adjusted EBITDA to be around 20% of 2025 adjusted EBITDA. Around 60% of our U.S. adjusted EBITDA is expected to arise in the second half of 2025, with Q4 remaining our largest quarter of the year. New states and territory launches are expected to result in negative revenue of $40 million and an adjusted EBITDA cost of $90 million, reflective of a Q4 launch in Missouri and some pre-launch investment cost in Alberta ahead of an anticipated Q1 2026 launch. Moving on to group ex-U.S. guidance, we expect revenue and adjusted EBITDA midpoints of $8.25 billion and $1.85 billion, respectively, excluding M&A. On a nominal basis, this is in line with 2024. They equate to growth of 6% and 10% for revenue and adjusted EBITDA, respectively, after adjusting for foreign currency movements and the gross quarter results benefit in 2024, and is in line with our expectations. Foreign currency exchange rates have moved against the dollar over the last few months to create a 3% year-over-year headwind at revenue and adjusted EBITDA of approximately $220 million and $50 million, respectively. Quarterly phasing should be broadly in line with 2024 after allowing for the Euros in Q2 and Q3, along with very favorable sports results in Q2. Revenue growth is reflective of continued momentum in International and an encouraging outlook in Australia. As anticipated, growth in UKI is moderating from the high levels reported during 2024 as we come against positive sports results, the European Soccer Championships in 2024, absorbing the impacts of the government white paper finally being implemented and as we migrate Sky Bet onto our global platform. Overall, ex-U.S. guidance also reflects the initial benefits of our cost efficiency program, and we remain on track to deliver $300 million in annualized cost savings by 2027. 2025 is an important year for these programs and we are very pleased with our progress to date. We expect to migrate Sky Bet customers to a single UKI platform across the summer and complete the program by the end of the year. As our players now have access to PokerStars poker liquidity pool, we expect Italian players to be accessing a combined platform later this year. From Q1 2025, we will combine UKI, International and Australia into one new combined international segment. This means the group ex-U.S. adjusted EBITDA midpoint guidance is split between $2.08 billion for the new international segment and $230 million unallocated corporate overhead. Finally, we have also guided on some additional income statement and cash flow items that you can find in today's release. With that, Peter and I are happy to take your questions and I'll hand you back to Regina to manage the call.

Our first question will come from Ed Young with Morgan Stanley.

My first question is on U.S. guidance. You've given a lot of detail there. So I wonder if you could pick up on the $90 million of investment losses in new states. Can you just talk through the timing movement on Missouri and Alberta? And if there are any other underlying changes within the guide? And perhaps more broadly, could you comment on the customer acquisition environment? And then the second question is on prediction markets. Peter, you mentioned it very briefly there. Just listen to your main peer describe there as more of an opportunity than anything else. Is that how you see it?

Okay. Should I pick up the first question with regards to the new state? So as mentioned yet, we're expecting to launch Missouri in Q4, essentially around November and we're expecting Alberta not to be until Q1 2026. As we've said previously, 1% of the population we think roughly equates to around $35 million in contribution costs in terms of the state launch in the first 6 months. So that ends up being around $80 million for Missouri as most of those investment costs are specifically incurred upfront as we said before. And then in Alberta, we expect around $10 million for a kind of pre-live investment towards the end of this year. So that gets you to the $90 million.

Yes, I think you asked about customer acquisition more broadly. We've been very pleased with the way we've been able to continue to lean into the market. I referenced earlier the extent to which we continue to see good opportunities to acquire a customer and that we exited '24 with a bigger business than we anticipated. I don't see any reason that we can't continue to push on and build as big a business as we can. With regards to your second question, Ed, look, we are monitoring the situation with these sports futures contracts closely. The regulation is very fluid. I think we'll understand that the CFTC is due to hold a roundtable on sports-related event contracts in the next month or so, and we'll get especially some clarity thereafter. It could be an interesting opportunity, but I think it's worth recognizing that the products themselves are less rich than a true sportsbook offering. I think about the Your Way products and the fact we were doing around the Super Bowl for that. It's a very compelling, very broad parlay product. We need to remember that the prediction products are very limited in comparison.

Our next question comes from the line of Clark Lampen with BTIG.

Peter, I wanted to follow up on customer acquisition trends. Just very quickly, did you see any major delta in acquisition trends between, say, iGaming first customers and core sportsbook? And as it relates to iGaming product in sort of '25 and beyond, you talked about the launch of the rewards program and integration of new jackpot features into the product. I don't know if it's too early to comment, but I'm curious if you could give us on the product and rewards program, maybe a feel for what the expected benefits might be from those integrations over time?

Well, Clark, certainly not where I am. But look, from the customer acquisition perspective, we've made the point earlier about how pleased we are with the trends. We're seeing very strong growth in iGaming. You can see that in the numbers year-over-year when you look at the fourth quarter and that was behind the very strong revenue performance we saw in the quarter. It is a function of the fantastic things we're doing from a product perspective. The Reward Machine jackpots which were live in October I think have been very important. The FanDuel Casino Rewards Club, which is a flagship loyalty program. We conducted trial in December to a subset of our customers. There's a lot going on. There's a bunch of things that we've been doing over the course of this year which I'm sure you've seen access in what we're giving customers access to some exclusive content which I know the team is very excited about as well. So I'm delighted that going both to drive the direct casino acquisition but also to continue to support the cross-sell into the sportsbook as well.

If I may, I have a very brief follow-up just on the Italian lottery. Peter, you've previously expressed some interest in bidding for a second lottery contract. I'm curious if that's still an opportunity that's been focused? Or has that materialized maybe the way that you might have expected?

I think you're referencing, I mean, look, in Italy, there is an opportunity to bid for the lotto contract. It's a very different type of product to the SuperEnalotto that we already run in Italy. We've been very pleased by the way we have been able to run the SuperEnalotto product. I think Sisal has done a brilliant job in terms of activating that, driving cross-selling at the online channel and driving benefits in that. There is an opportunity to bid for the lotto. We are putting our thoughts together on that. We've got a couple of weeks to decide what we're going to do. But looking at the extent to which we can make a good financial return on it, you'd expect us to lead into it. It is a difference of the sort of lottery products that we see in the U.S. are more opportunities to drive it. Rob, you want to reference?

Yes. I mean the SuperEnalotto product that we've got at the moment, Clark, has been performing fantastically well for the Sisal business. It's got a huge customer base. When you look at the lotto products, it's quite different to SuperEnalotto. There's more of a regional bias to a SuperEnalotto tends to be a national game for us. But if you look at the lotto, the 21 million Italians playing it every week, which is over 40% of the population, that serves a lot. So we think there's huge opportunity there. If the numbers make sense, it's something we're looking quite close down.

Our next question comes from the line of Brandt Montour with Barclays.

So Your Way is rolled out to a big portion of the system. I know it's been a very light touch with what you've put out there so far versus what you have aspirations to put out there eventually through that product. What has the early learnings been with what you've put out? Give us an update on that product, please?

I can share some insights from the Super Bowl where our product was available. We didn't heavily promote it, but approximately 1 in 20 customers used the product at the event. About 90% of the bets placed relied on the customization offered by the Your Way product. Additionally, around 25% of customers placed parlay bets with over 10 legs, indicating strong engagement. Users appreciate the customization options that allow them to find unique bets. We are eager to further develop this product. It's important to note that we are addressing two complex challenges with Your Way. First, we are expanding the variety of markets available to customers and finding ways to present these options clearly so they can quickly find what they want to bet on. Second, we are managing the associated risks. The team has done an excellent job in tackling these issues, and we are proceeding thoughtfully and cautiously as we introduce this to our customer base.

And just a follow-up on hold. You gave structural hold calculation for the fourth quarter, 14.5%. Maybe you could talk about how you're thinking about a hold for '25 given that fourth quarter number that you hit, isn't far away from the 15% that you guys had sort of put out as a target for '27, recognizing there's some seasonality to it?

Yes. Thanks, Brandt. Listen, we're not guiding specifically on hold for 2025. But what I would say is we laid out some targets structurally at the Capital Markets Day back in September. We're making really good progress towards that. You can see that in the published data in 2024. We feel like we've got a very good start in Q1 this year. And we're very much tracking in progress with those longer-term targets that we set out. So we're feeling quite sanguine about where the margins are at the moment.

Our next question comes from the line of Bernie McTernan with Needham.

Great. I want to ask on tax rates, just dealing with Illinois in the second half of '24. What did you actually see on a gross impact and net impact? And was there any change in the competitive environment in the state because of the higher tax rates?

Yes. Certainly, let me pick that one up, Bernie. As we've previously mentioned with Illinois, we said that was going to be circa $50 million impact in 2024 and that would be $40 million after mitigation. It's broadly ended up resulting in a result for us that's in line with that. We've previously set for 2025, we're expecting to be able to mitigate circa 50% gross impact and that's still where we're thinking. So broadly, it's played out as we expected.

Understood. Then maybe just on the other side of regulation, thinking about potential iGaming legalization, would just love any updated thoughts here in terms of potential momentum in states?

The beginning of the year is always a time when we can better gauge what will happen throughout the year. We don't want to rush anything at this point. However, we're excited about launching in Missouri in the fourth quarter. During Investor Day, we mentioned that we expect to capture a few percentage points of sports betting in each of those three years and one new iGaming state, and we remain confident that this can occur.

Our next question comes from the line of Jordan Bender with Citizens.

We're getting questions around handle growth slowing in the U.S. and then continuing into January. I believe parlay handle growth comps are incredibly tough in the 4Q and the start of the year. Anything else you could point us to help us bridge from what we're seeing today to your implied handle growth for the full year? And then the second question, unrelated. I'm seeing if you can expand on the broader strategy across South and Latin America. The region is pretty untapped by any Flutter brands. So is the strategy there to kind of build your presence and brand in Brazil before potentially laying the groundwork to further expand throughout the region?

Jordan, why don't I just quickly deal with that Latin American question. We're excited to be working with NSX and we have to get the deal closed next quarter. I think we've got a terrific team and the opportunity to be able to bring the Flutter Edge to bear there with their products, expertise, technology and other scale benefits, I think will be very exciting. As and when we find other opportunities across Latin America, we'll take them. You need to remember we're in AND business; we're investing very heavily in organic customer acquisition, great paybacks, sort of 18 months in iGaming or sports here in the U.S. and other markets around the world, India, et cetera. We're also going to continue to do M&A. And we've got this $1 billion of share repurchase this year. So M&A will continue to be an important part of our strategy, but we have to make sure that it's the right opportunities for us in terms of delivering the right financial returns and us being able to reap the benefits from the Flutter Edge.

Yes. Picking up on your handle question, Jordan. So Q4 handle trends were broadly as we had anticipated, so 12% and Q4. We're expecting Q4 to be lower than the previous quarters, partly due to the impact of state launches and some phasing around NFL games. But you look at Q4 specifically, it had 1 less NFL round and it also lapped Kentucky which moderated sequential growth. As I mentioned in my remarks, we also talked about some recycling benefit but that's not enough to kind of offset the above. 2025 started really well, as we stated that Q1 improved year-on-year as we lapped this kind of like-for-like calendar period. So yes, we're quite pleased. I think the last point worth mentioning is we don't really obsess about handle that can be inflated by promotions and parlay penetration that we're obviously keen to keep moving the dial and tends to be a bit of the headwinds to handle at times as well, but we're pleased with where we're trending.

Our next question comes from the line of Paul Ruddy with Davy.

Just 2 questions for me. Just firstly, on the Italy acquisition in Snai. Just could you give any more detail maybe on the timing of that coming in? And just the second part of it looks like that business may have lost some share in the second half of 2024. Just how quickly do you think when you absorb that business, you can kind of start to turn that around and get growth back? And then just as a quick follow-on from that, just if you can give any broad guidance on the expected contribution from the 2 acquisitions in 2025 on a half-year basis?

Yes. Thanks, Paul. So I can pick up on that. So we're still on track for Q2 with the Snai completion. As you noted in the Italian market share data with our Sisal brand, we've been doing very well. So we've been taking the share. So we're keen to get the Snai deal completed and give them access to our product capabilities and on the Flutter Edge and also get on with delivering some of these synergies which we're confident we'll be able to start realizing those quickly. With regards to the numbers around the acquisitions, as previously stated, in Brazil, we think that NSX, there will be up to $100 million of EBITDA losses this year, also hoping to completion of NSX at some point in Q2 and it's nice as previously guided as well but feeling very good about both acquisitions, keen to get into the building and both can start making a difference.

Okay. Great. I’d like to delve further into the handle growth question for the U.S. Are we correct in considering a lower handle growth environment as we move through 2025, particularly as you shift towards more recreational high-margin products that might come with smaller bet sizes and higher margins? Could this lead to an increase in hold percentages alongside lower handle growth? How should we approach this? Are there any general guidelines you have in mind regarding handle growth?

I think I'll come back to the point that I just mentioned, Paul, which is we don't obsess about handle. We're quite happy with where handle is trending. But you can artificially inflate that with promotions and other things. And actually, if you look at the underlying momentum we've got within the business in revenue, which is the key KPI that we look at, it's very strong and we're very pleased with it. So I said in Q4, there are reasons that sequentially why the trend was slightly lower because we've kicked off this year; we're really happy with where the business is trending.

Our next question comes from the line of Dan Politzer with Wells Fargo.

First, I appreciate the detailed information you provided about the U.S. When I examine your normalized revenue and EBITDA projections for 2024 and 2025, it appears that the flow-through is in the low 40s. Can you provide some additional insights regarding gross margins and the potential for further upside compared to the previous year, or possibly how you might be leveraging some of the fixed operational expenses? Any extra details would be appreciated.

Dan, what question do you have?

No. My follow-up is just another one on the Italian lottery. Any puts and takes as you think about that concession, whether joining the existing concessionaire versus maybe competing against that incumbent in the bidding process? Just how you're kind of thinking about that high level, would be great.

We're not going to discuss our bidding strategy as it's sensitive information. We will be very disciplined, and if we decide to move forward, we will present the best offer we can.

Yes. So in terms of your drop-through question, I mean, there's a number of dynamics playing into this as we previously talked about. But you've got the existing states which are maturing and with the maturity of those states, you might see some lower handle but you're going to see higher net revenue versus pilot penetration increases. One thing that's important to say is actually, we are delivering operating leverage across all lines and you can see that in the P&L in Q4 and we expect that trend to continue into 2025. So we're clearly making progress on cost of sales and marketing towards those targets that we set out in 2027. I think the last point is I said we don't obsess about handle. We don't obsess about drop-through even sometimes they aren't the best metrics to look at. We prefer to focus on revenue and EBITDA and those targets that we laid out at the Capital Markets Day.

Our next question comes from the line of Jed Kelly with Oppenheimer.

Great. Just following up on handle because we've received many questions about it. When we examine it, while your iGaming growth is quite strong, we are noticing some deceleration in handle. Is this due to some of your higher-value players opting to engage in iGaming rather than sports betting? Also, regarding the Your Way parlay, as you look to expand its rollout, are you focusing more on merchandising or still on risk management?

Jed, I can discuss the Your Way products. Regarding iGaming, I'm sure Rob will add to that. On the Your Way product, we need to get the merchandising right from the customer's viewpoint. The user experience has greatly expanded with a wider range of products, and we need to ensure it remains manageable. The team is doing a great job enhancing the user experience we've provided. However, we can't take bets on new products if we haven't also addressed pricing and risk management. It's essential to tackle all these challenges at once, which is complex, but I believe the teams are excelling, and we're excited about the potential of this product. I recall launching the multi-resolution in Australia back in 2016, and now, nearly nine years later, we are still evolving the product. I expect the Your Way product will follow a similar path. Rob, would you like to discuss iGaming?

Yes. I mean in terms of your first question, Jed, we're not seeing that in terms of trend, we're going to take away from sportsbook. I think as Peter outlined earlier, we had some fantastic product developments in iGaming which are really kind of driving the performance of iGaming forwards. We're really pleased with that. We're also continuing to see excellent paybacks in both sportsbook and iGaming, arguably even better in iGaming. The question for us is how much we keep really kind of investing behind that. We've got Asaf, who's our Casino Director of FanDuel. He's constantly asking me to invest more. So it's a good challenge to have, but we're really pleased with the performance of both. So definitely not a drag on sportsbook from iGaming.

Our next question comes from the line of Barry Jonas with Truist Securities.

Given the Illinois mitigation efforts you've seen to date and you expect this year, can you kind of offer any general guidelines around the mitigation targets we could see as more states talk about increases? Is 50% sort of a good baseline target should it come to that?

I think it's a good starting point. I mean we need to remember that as the largest operator in the market by a long way, I think we're in the best place to mitigate this. But I think as a rule of thumb, it's not a bad starting point.

Great. That's really helpful. And then just a general follow-up. Do you think there was anything structurally different about the NFL this past year that led to abnormal holds? And I guess did you learn anything from the season that you could take with you in the future?

More favorites than normally happened. So I think that's the simple answer.

Our next question will come from the line of Jeff Stantial with Stifel.

Peter, can you just talk a bit on the trajectory of promotional reinvestment in the U.S. heading into 2025? Do you expect reinvestment as a percentage of handle to drift higher as you allocate or share back a portion of your structural hold rate expansion back with players? And if that is the case, can you just add some color on how you think about derivative market share impact as your reinvestment strategy starts to bifurcate from peers who do seem to be managing promos either flat or lower in 2025?

We are very disciplined in how we allocate and spend our budget for both acquisitions and promotions. We aim for a solid return, targeting a 2-year payback on marketing acquisitions, and currently, we are achieving this in 18 months. This approach also applies to how we deploy our resources, ensuring that they reach the right customers and produce the desired outcomes. Our team is focused on maximizing the effectiveness of our substantial budget.

Our next question comes from the line of Joseph Stauff with Susquehanna.

Peter, Rob, I'm interested in your thoughts on the impact of Your Way, particularly regarding its effect on structural hold in the U.S. and your capacity to accelerate growth. Do you view it as enhancing your structural hold?

I think that the types of benefits we derive from Your Way are likely to be, as you say, like higher holds; I think we should get better engagement, increased customer frequency. I mean, we won't get all of them. We're excited to see what happens with it.

Our next question comes from the line of Robert Fishman with MoffettNathanson.

I'm curious if you guys are seeing any signs of consumer weakness in your older vintage U.S. states for either sports betting or iGaming? And then any lessons that you can take from the international markets that you can apply to FanDuel if, in fact, we do see any sort of macro U.S. headwinds in the coming quarters?

Rob, look, in terms of macro impact, traditionally, our experience is that the business is actually very defensive. So when we think about the impact of the financial crisis or other macro impacts, the business has actually been very defensive in the face of those. And so look, we're not seeing any bearing on our historical cohorts here in the U.S., and I wouldn't expect it.

And the same applies for international. From my experience in international, the businesses tend to be very resilient in times of economic downturn. So we're not seeing any signals at all at the moment despite the various volatilities in the U.S. economy.

Our next question comes from the line of Chad Beynon with Macquarie.

I wanted to ask one on the U.S. business. I know there's some broadcast partnership deals that could be coming to an end. And these are always fluid. And particularly on American football, you guys have participated when it made sense. So wondering if you could elaborate a little bit in terms of how you view media rights, partnerships, if anything has really changed as the economics of these contracts is pretty dynamic?

I believe the team has done an excellent job over the years negotiating favorable contracts. We have consistently approached these matters with discipline, leveraging our global experience to identify the most appealing opportunities. There is a lot of change occurring right now, especially with the fragmentation of rights and the rise in streaming. We are mindful of ensuring that our customers have access to the sports they want to watch. I am satisfied with our portfolio. Our scale benefits us when it comes to investing in the right types of rights, and we have a larger customer base over which to distribute these costs, which is crucial.

Our next question comes from the line of John DeCree with CBRE.

One question on Brazil. I'm not sure if I missed it earlier, but I know it's only been a couple of months since the regulated market launched. But curious if you could walk us through kind of your investment strategy kind of in a launch. And is that happening already? Or would we expect more investment when the NSX acquisition closes later this year?

John, it's worth remembering that Brazil is not like the launch of a U.S. state. There is a very extensive market in operation before regulation arrives. There's a lot of advertising, principal payment opportunities. It was a very functioning market. And so it's not going to be like the launch of Missouri will be in Q4, where there's a big push from an acquisition perspective. Rob, you may comment on that as you've got experience in Brazil from international.

Yes. We've got lots of experience in Brazil from our previous investments. The headline is we're still working to the $100 million in terms of EBITDA losses for this year, and we might see some slight phasing differences on that depending on when the deal completes and the Brazilian football season doesn't actually start until the end of this month, so we need to see what happens then. Yes, there is going to be in this first 12 to 18 months intense competition for media assets. There were up to 200 different companies that applied for a license. We think the market will start to shake out quite quickly. But I think given our track record, given our capabilities, and given our products, we are very confident of our ability to succeed in the Brazilian market and we're very excited to get started with NSX.

Our next question comes from the line of Ben Shelley with UBS.

If we take your normalized revenues and EBITDA for the U.S. in 2024, they were meaningfully in excess of your original guidance in March last year. Can you just talk us through what you're forecasting underappreciated last year? And to that effect, where do you see potential upside to guidance in the U.S. in 2025?

I'm happy to give you a bit of a flavor on it, Ben, and Rob will definitely want to follow up. We ended the year with a much bigger business than we anticipated in terms of the number of customers we had on the platform, but particularly the progress we made in iGaming and those things really help support the numbers that you referenced. I think it's also fair to say that we may get considerable progress for us in terms of the parlay perspective, which helped support the structural hold. All the things that we talked about actually at the Investor Day. But Rob, I don't know if you want to add anything.

I think that's the key point, Peter. I mean, ultimately, we're very pleased with the progress that we're making towards those long-term targets. We've gotten off to a good start. I think there will be different phases with this. But as and when we see opportunities to continue investing and continue growing the business, the kind of paybacks that we're experiencing will continue to do so. But it's a good start, and we're on track to get towards what we outlined for 2027 at the Investor Day.

Our next question comes from the line of Adrien de Saint Hilaire with Bank of America.

I'm just curious if you could decompose a bit for us the growth, the 22.5% U.S. growth underlying you expect between iGaming and online sports betting?

We're not going to provide that. It's in aggregate for the U.S. business. So not breaking it down between sports and gaming.

Our final question will come from the line of Ryan Sigdahl with Craig Hallum Capital Group.

Just a bigger picture question to end. Looking at sports betting, the last couple of years have really been focused on parlays, enhancing the offerings there, which has been talked a lot about, but curious with the focus on the sports betting product roadmap would be for 2025, and even if you want to go beyond that?

You might think our discussions have been centered on parlays for 2024, but as I mentioned before, the real changes began in 2016. The Italian teams are very enthusiastic about the new parlay products entering their market. In the past, regulatory hurdles made this challenging, but we are making strides. The teams in the U.K. are doing some impressive work. Furthermore, we have the Your Way initiative here in the U.S. Many products are being developed for our customers. I believe the team is doing an excellent job keeping our customers engaged and excited. This is true for our iGaming efforts as well. Customers are very interested and involved in the player experience. What we can achieve with new markets and parlays is thrilling. We are also expanding on various aspects of generosity. I mentioned earlier some of our initiatives in iGaming. There is a lot of exciting development ahead.

Yes, I think maybe a couple of other things to add. We're really excited about the development in live products. There's been a bunch of stuff this year in terms of NFL in-house game trackers, product improvements. As Peter said, people are really following the player narrative as well. So we've developed player experiences where people can go and look at the last 5 games stats of the players. And there's some really interesting stuff that the U.S. team are doing which is really driving the sportsbook forward. So I'm quite excited about what's to come in 2025.

Okay. Well, look, I think we've come to the end of the questions. Thank you very much, everyone. I'm sorry I have to rush through the last half dozen or so you didn't get a chance to ask the second question. Myself and the IR team are around to help you. But thank you all for your time. We very much appreciate it.

That will conclude today's call. We thank you all for joining. You may now disconnect.