Flutter Entertainment PLC

LSE:FLTR

Earnings Call Analysis

Flutter's Q1 2024 shows strong growth despite net loss

Flutter Entertainment reported a 16% revenue growth to $3.4 billion and a substantial 46% rise in adjusted EBITDA to $514 million for Q1 2024. Their U.S. business, led by FanDuel, saw a 32% revenue increase, while iGaming revenue surged by 49%. Despite a net loss of $177 million due to non-cash charges, their adjusted free cash flow increased by $207 million. The company maintained its full-year guidance, expecting $6 billion U.S. revenue with 36% growth and adjusted EBITDA of $710 million, and $7.85 billion revenue outside the U.S., reflecting 6% growth.

Strong Start in the U.S.

Flutter's Q1 earnings call highlighted significant progress in their U.S. operations, driven primarily by FanDuel's impressive market leadership. FanDuel captured a 52% online NGR sportsbook market share and became the top brand in iGaming with a 27% market share. This achievement was based on a superior product offering and focused customer acquisition investments, which have shown high retention rates and attractive payback periods. Additionally, the launch of new state markets, particularly in North Carolina, demonstrated immense growth potential, with 1 in 20 adults signing up within the first 45 days.

Financial Performance

Flutter reported a 16% year-over-year increase in revenues, reaching $3.4 billion for Q1 2024. The adjusted EBITDA grew by 46% to $514 million, driven by strong operating leverage in the U.S. Despite this, the company faced a net loss of $177 million due to amortization of acquired intangibles and a non-cash charge related to marking the value of the FOX option to market. Adjusted free cash flow saw a significant increase to $157 million, and the leverage ratio improved from 3.1x to 2.8x.

U.S. Division's Growth

The U.S. division achieved a 32% year-on-year revenue growth, with sportsbook revenue up by 30% and staking increasing by 24%. Promotional spend levels remained consistent with last year, and superior product and pricing accuracy continued to enhance structural margins. Despite $76 million in unfavorable sports results towards the end of March, the division's iGaming revenue climbed by 49%, with slots revenue soaring 73% .

International Operations

Outside the U.S., Flutter's international segment exhibited an 8% increase in revenue, particularly within the UK and International markets where iGaming revenues grew by 15%. The UKI division, notably, saw a revenue growth of 17%, driven by a strong performance at the Cheltenham Racing Festival and expansion of sportsbook structural margins. The International division's revenue growth was driven by gains in Georgia, Armenia, Spain, and Brazil despite Italian sports results acting as a headwind .

Guidance and Outlook

For 2024, Flutter reaffirmed their previous guidance, projecting U.S. revenue to reach $6 billion with an adjusted EBITDA of $710 million. The global outlook expects a revenue of $7.85 billion and an adjusted EBITDA of $1.73 billion. The company also highlighted potential revenue dips from unfavorable sports results but maintained confidence due to strong operational momentum across all markets. Flutter's strategic direction remains focused on disciplined customer acquisition and product innovation, embedding long-term value into their operations .

Sustainability and Responsible Gaming

Flutter emphasized their commitment to responsible gaming, particularly in the U.S. where FanDuel took a leading role in establishing the Responsible Online Gaming Association (ROGA). This initiative aims to create a standardized framework for responsible gaming practices across the industry, leveraging international experience to proactively tackle responsible gaming issues .

Conclusion

Overall, Flutter's Q1 results illustrate a robust start to 2024, revealing strong revenue growth, improved operating leverage, and strategic initiatives that set the stage for sustainable, long-term success. With a keen focus on innovation and market leadership, especially in the rapidly expanding U.S. market, Flutter is well-positioned to continue its growth trajectory throughout the year and beyond.

Earnings Call Transcript 2024-Q1

[Operator]

Good morning, and welcome to the Flutter First Quarter 2024 Earnings Call hosted by CEO, Peter Jackson; and CFO, Paul Edgecliffe-Johnson. Please note that this conference is being recorded. [Operator Instructions].

I will now hand over to your host, Paul Tymms, to begin today's conference.

[Paul Tymms, executive]

Hi, everyone, and welcome to Flutter's Q1 2024 Results Call. With me this morning are Flutter's CEO, Peter Jackson; and CFO, Paul Edgecliffe-Johnson. After this short intro, Peter will open up with a brief run-through of our good progress during the quarter, and then Paul will take you through the Q1 financials. We will then open up the lines for Q&A.

I would also like to remind you that some of the information we are providing today, including our 2024 guidance, constitutes forward-looking statements under U.S. Securities law. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. There are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors are described under forward-looking statements in our earnings press release, our annual form -- our annual report on Form 10-K and our upcoming Form 10-Q to be filed with the SEC. In addition, all forward-looking statements are based on current expectations as of the date of this call, and the company undertakes no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, 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.

And with that, I will hand you over to Peter.

[Jeremy Jackson, executive]

Thank you, Paul. Before we get into Flutter's excellent performance in the quarter, I first wanted to update you on our U.S. primary listing. As you will have already noted, our proposal to move our primary listing from London to the New York Stock Exchange received overwhelming support at our recent AGM on May 1.

With this approval now in place, we expect the transition to become effective on May 31. This is a key milestone in the natural evolution of Flutter as FanDuel continues to scale rapidly and the U.S. becomes an even greater part of our business. We have now established our operational headquarters in New York, reflecting just how fundamental the U.S. is to our long-term future growth.

Moving now to the performance of the business in Q1 of 2024. I was really pleased with the progress made during the quarter on our strategic objectives. In the U.S., FanDuel is off to a very strong start, consolidating our sports leadership position with a 52% online NGR sportsbook market share. We also achieved a 27% share in iGaming where FanDuel is now the #1 brand.

This clear leadership position was delivered through both our leading product offering and our relentless focus on disciplined customer acquisition investment, where our superior structural margins and higher retention rates are delivering payback periods at very attractive levels. Our investments in customer acquisition and product innovation means we are embedding future profits into the business as we continue to scale. The effectiveness of this strategy is reflected in our strong execution during the quarter.

Total U.S. AMPs were 15% higher than the prior year and included a record 2.6 million customers for Super Bowl in February. This includes a 12% year-on-year increase in newly acquired players in pre-2022 states, demonstrating the very strong demand for our FanDuel offering in states that have already been open for a number of years.

We launched our FanDuel sportsbook product in Vermont and North Carolina during the period, with North Carolina quickly becoming one of our most successful state launches with an incredible 1 in 20 adults in North Carolina signing up to be a FanDuel customer in the first 45 days.

We continue to offer the best customer proposition in the U.S. market, both in terms of the quality of our product and the value given to customers. Our pricing sophistication means we have the highest structural gross win margin, whilst at the same time, offering the customers the best pricing in the market.

Our product offering is continually evolving, and I'm genuinely excited by the pipeline ahead of us. During the quarter, we added a range of new betting markets on MLB ahead of the new season start. And this has led to a 4 percentage point increase in the proportion of handle on MLB same-game parlays during the first 3 weeks of the season.

In iGaming, we launched more exclusive content, namely the World of Wonka, a very popular title with retail casino customers, which quickly surpassed expectations becoming the most popular title in our portfolio.

I'm delighted of the progress we're making in the U.S. with the strength and scale of our business making FanDuel the clear #1 in the market. As we continue to grow, it is very important that we do that in a sustainable way. Our players are the heart of our business, and our focus is on ensuring that they're able to engage and interact with our products in an entertaining and responsible way. Amy, Christian and the team have been spearheading progress in the U.S. on responsible gaming and setting the Gold Standard for the industry.

FanDuel was instrumental in the establishment of the Responsible Online Gaming Association, or ROGA, which we believe will help create the framework needed to support consistent responsible gaming practices across the industry. Our experience internationally in this area has taught us the importance of taking a proactive approach, and we believe ROGA will provide the industry with the right platform to help drive this forward.

Outside of the U.S., group ex U.S. revenues grew by 8%, driven by UKI and international and the addition of MaxBet to our International division, which offset the expected declines in Australia, where we have flagged softer racing market dynamics previously.

In the UKI, we continue to deliver strong growth, taking significant market share during March driven by the key Cheltenham Racing Festival, and with our iGaming business in particular seeing a continuation of the excellent momentum we had during 2023.

We leveraged the power of the Flutter Edge, launching Super Sub on the Paddy Power sportsbook app, a product that was developed in our International division. Super Sub allows a customer to swap a substitute player into a parlay bet, keeping the bet alive. It's proven incredibly popular with more than 80% of our sportsbook customers using the product since launch and has become the best-ever product launch campaign to date for our UKI division.

In iGaming, we further expanded our content with the launch of over 100 new titles driving a step-up in cross-sell rates.

Moving to international. We are pleased to complete our acquisition of MaxBet in January, and integration has been progressing well. In Italy, Sisal is seeing excellent momentum, delivering market share gains with record AMPS in March, up 22% compared to March 2023. This is all the more impressive given the challenging prior year comps due to the record SuperEnalotto jackpot, which boosted 2023 player engagement to peak levels in Q1. On sportsbook, the new Sisal betting app, which launched in Q3 2023, continue to engage customers and drove staking 24% higher in Italy year-on-year. New iGaming content, including the launch of a free-to-play bonus wheel feature boosted cross-sell rates.

And across our other markets, I've also been really pleased with the growth we've delivered in Georgia and Armenia, Spain as well as in Brazil. In India, we launched Junglee Poker during the period, and we've seen encouraging levels of player engagement since launch.

Overall, the group has produced a strong set of results in Q1. Our U.S. business is a clear #1 in the market, delivering an earnings transformation with strong revenue growth and operating leverage while still enabling us to invest and embed future value in our business. Outside of the U.S., our scaled and diversified portfolio and focus on product innovation continues to underpin growth.

And with that, I'll hand you over to Paul.

[Paul Edgecliffe-Johnson, executive]

Thanks, Peter, and good morning, everyone. Group delivered another strong set of financial results in the first quarter and remains on track for strong growth in the full year. Our revenues grew by 16% to $3.4 billion and our adjusted EBITDA by 46% to $514 million. We delivered a 310 basis point improvement in our adjusted EBITDA margin, driven by strong operating leverage in our U.S. business despite our continuing strategy of investing into new customer acquisition.

On a reported basis, the group had a net loss of $177 million. This was after amortization of acquired intangibles of $172 million and a $184 million charge from marking to market the value of the FOX option. This notional value charge resulted in earnings per share and adjusted earnings per share declines of $0.52 and $0.59, respectively.

Adjusted free cash flow was $207 million higher than the prior year at $157 million, while our leverage ratio reduced from 3.1x at the full year to 2.8x at the end of March, closer to our 2x to 2.5x target.

Turning now to each of the divisions. In the U.S., our disciplined investment in customer acquisition and retention drove strong top line growth with revenue up 32% year-on-year. Sportsbook revenue grew 30%, with staking up 24%, including continued growth in staking in pre-2022 states of 19% and an increase in our net revenue margin of 40 basis points to 7.3%.

Promotional spend levels were in line with last year, while our superior product and pricing accuracy continued to drive structural margin improvements with our expected structural margin in line with what we saw in quarter 4. These gains were partly offset by $76 million of unfavorable sports results in the final 2 weeks of March in the March Madness college basketball tournament.

Our strong growth in iGaming has continued with revenue up 49% and particularly strong momentum in slots revenue, up 73%.

This excellent revenue performance in the U.S. and our scalable cost base drove adjusted EBITDA up $79 million to $26 million. Sales and marketing expenses reduced by 410 basis points as a percentage of revenue despite our investment into 2 new state launches, and contributed to our 680 basis point expansion in adjusted EBITDA margin.

Outside of the U.S., AMPs grew by 10% and revenue by 8%, with a particularly strong performance in iGaming where revenues were up 15%. That growth was driven by our UKI and International divisions. While in Australia, we are pleased to see that market levels of activity appear to be stabilizing in line with our expectations when we published our 2024 guidance.

UKI delivered another excellent quarter with revenue up 17% or 12% on a constant currency basis. We expanded our sportsbook structural margin by 100 basis points to 12.6%, contributing to revenue growth of 9%, and grew iGaming revenue by 27%. Our scalable cost base translated this 17% revenue growth into 30% adjusted EBITDA growth.

In our International division, we grew AMPs 20%, helped by the earlier start of the Cricket IPL, and revenues by 5%. Sisal, Italy revenue declined 1% with a year-on-year swing in sportsbook results resulting in a 12% growth headwind. Sportsbook revenue therefore declined by 12% despite staking being up 24%, while iGaming revenues grew 7%, including 24% iGaming growth.

International adjusted EBITDA grew 16%, aided by the closure of FOX Bet and some cost phasing. Revenue in the International division's key consolidate and invest markets grew 8%, all relating to the acquisition of MaxBet. A strong growth in Georgia, Armenia, Spain and Brazil was offset by the Italian sports results headwind and by last year's gaming tax changes in India, which reduced our revenues from that market by 25%.

Turning now to the outlook for the remainder of 2024. We are maintaining our previous guidance despite the unfavorable sports results in the last 2 weeks of March, given the strong momentum we're seeing in the business.

Using the midpoint of our ranges. In the U.S., we continue to expect revenue of $6 billion, which equates to year-on-year growth of 36%, and adjusted EBITDA of $710 million. We said at the end of March that we expected 30% of U.S. EBITDA to be in half 1. And given the impact of unfavorable sports results that we had in the last 2 weeks of March and the strength of our North Carolina launch, you can assume that this becomes a little more back-end weighted into half 2 and quarter 4.

Outside the U.S., we continue to expect revenue of $7.85 billion, 6% growth; and adjusted EBITDA of $1.73 billion, 5% growth.

As always, our guidance is provided on the basis that sports results are in line with our expectations for the remainder of the year and in a consistent regulatory and tax environment.

To wrap up, we are very pleased with the performance of the business in Q1. We are continuing to build a business at scale with leading positions in the key markets around the world, and we look to the future with great confidence.

And with that, Peter and I are happy to take your questions. [Operator Instructions] Gavin, please could you now open the line?

[Operator]

[Operator Instructions]

And your first question comes from the line of Ed Young from Morgan Stanley.

[Edward Young, analyst]

My first is on your -- on the U.S. division. Could you please help by bridging us from the current 59% cost of sales you delivered in Q1 to the better than 56.5% you'll need to average for the remainder of the year to meet your 56.5% full year guidance?

The second one also in the U.S., the iGaming performance continues to be very strong and obviously you've got very good momentum there. I just wondered if you could perhaps give us some color on what's driving such excellent slot performance. I mean, 73% growth is very high. It'd be interesting to hear a bit more color on that?

Or looking at the other way around, is this something that's not as good on the table games side that is either a drag relative to that number or an opportunity going forward? Would be interested to see how you see the iGaming growth going forward.

[Jeremy Jackson, executive]

Thanks. Let me just quickly deal with the iGaming one, and then I'll let Paul come in with a slightly more complicated one around sort of cost.

But I think from an iGaming perspective, we always were sort of confident that 2024 was the year where we try and take market leadership. Think about what we said, Capital Markets Day, it was about fixing broken things, it was reaching product parity and getting ahead. And that's what we've done.

It's important to recognize that we've got ahead by acquiring a lot of business in the direct to casino space. And if you look at customers' preferences, the direct to casino players are much more interested in slots than they are table games. Table games are typically used by customers, sports customers who are cross-selling. So that's why we see that strong growth in slots. And it's aligned with the strategy we've had to continue to grow the iGaming business whilst ever we meet the great return criteria.

[Paul Edgecliffe-Johnson, executive]

And in terms of the U.S. division, Ed, the 59% cost of sales that we saw in the first quarter is really in line with what we're expecting. We are investing heavily in that quarter into the North Carolina launch, which, as you know, is a big state. So we have made a significant investment.

And we've won the state as far as we can see the data. We've signed up 1 in 20 adults, so we're really pleased with the results there. But obviously, it comes at a cost. And with the sports results that we saw around March Madness, that has depressed revenue somewhat. So it will normalize through the year to the 56% we've guided to, which you'll remember is in line with our prior IFRS guidance. So that will just come back and normalize across the year.

[Edward Young, analyst]

Okay. If I just could just follow up on the answer because, presumably, your structural hold is going to be lower in future quarters, or it leads in 2 and 3 versus Q1 and Q4. So does that mean your promotions also be lower? I'm not really sure what the difference would be quarter-on-quarter. And I guess putting it the other way, if you're going to be better than 56% for most of this year, does that mean it might be above 56% in future years?

[Paul Edgecliffe-Johnson, executive]

So if we talk about the structural hold, which we saw in the fourth quarter of last year is at 13.5%, and we've said that it's very similar in first quarter of this year. And given the mix of sports and the strong proportion of parlays, which drives that higher margin.

We have seen the biggest state launch of the year in the first quarter. So there's a big investment there. We've also seen significant losses, which we'll have to see will happen through the course of the year. But that has impacted the percentage there. Otherwise, it would have been in line with what we talked about, the 56%.

So we will -- you'd expect to see the bookends of Q1 and Q4 where we had the highest structural hold. And where there's most business, that's where you have more promotional intensity because that's where you want to try and win customers. So that's where you'd expect to be investing more. So hopefully that helps, Ed.

[Operator]

Your next question comes from the line of Jordan Bender from Citizens JMP.

[Jordan Bender, analyst]

I want to stick with the iGaming business in the U.S. The data isn't always perfect that we get, but it seems like your generosities were up significantly in the quarter. So with the share gains, is that a combo of -- is it new product and higher promotions? Or I think you mentioned in the prepared remarks you're just seeing better cross-sell with your offerings.

[Jeremy Jackson, executive]

Jordan. I think the key factor for me, and you'll hear us talk a lot about this, is we continue to acquire as much business as we can whilst we meet the return criteria. We aim for less than 2 years, and we've been well within that. And that's as true for iGaming as it is for sports.

I think the -- look, the team are doing a terrific job in executing. And FanDuel is now the #1 player, and iGaming where we've taken significant share. We're doing that with real strength in the direct to casino space. I mentioned earlier the strength we have in slots. It is 70% of the market, it's the fastest-growing part of the market, so. It's a place you want to be strongest. And we've got some exclusive content there.

We are very sophisticated with our application of generosity. It's something that we think is a very important component of our approach in all facets of the business, whether it's how we apply our generosity into our sports customers, but also in the iGaming. And we've got some unique mechanisms that we can apply in iGaming.

So we're very pleased with the performance of the business. We've got good product. We've got -- I think the team are doing a great job around sort of marketing and attracting the direct to casino customers. Of course, we're continuing to benefit from the size of our sports betting business as well for cross-sell.

Go ahead if you have another question, Jordan, please.

[Jordan Bender, analyst]

Yes. Sorry, I just want to -- on the follow-up, I just want to make sure I got the message right. You're unchanged on the guidance for the U.S. business despite that $76 million headwind. Is that primarily just outperformance in North Carolina? Are you seeing anything else coming in better than your expectations?

[Paul Edgecliffe-Johnson, executive]

We've had a -- thanks, Jordan. We've had a very good launch in North Carolina. So we're very pleased with the market share we've gained there. And we were very pleased with the market share we've got across the U.S. as a whole. 52% of the NGR, we think, is a fantastic place to continue to build from. And the business is going well as we look at April numbers. And our outlook for the rest of the year, it's all very positive. And on the basis of that, we have held our guidance. Nothing further really we can say on that, though, Jordan.

[Operator]

Your next question comes from the line of Monique Pollard from Citi.

[Monique Pollard, analyst]

The first one I just had was whether you could give some color on I guess North Carolina also Ohio, the 2 states that have been the most successful launches. What you've done differently in those states that's allowed you to acquire so many players so rapidly. And whether you find that there's some specific advantage to acquiring these players very early on, so in the first 45 days, versus some time within the first 12 months. That's the first question.

And then the second question, more of a technical one for Paul. I'm struggling to get to the net interest guidance, the $370 million for 2024. I guess if I look at the 1Q, we're really at $112 million. And I know you've done the refinancing, but from what I can work out, that saves you about $12 million of interest per annum. So just trying to understand how we get to that $370 million for the year.

[Jeremy Jackson, executive]

Thank you, Monique. So let me talk to you about North Carolina and Ohio, but it's also true for Vermont or any of the other states that we've launched in. And I think with each new state launch that we have, we find that we get even better at refining our playbook in going to market. We do have a big advantage in being able to convert our DFS customers into sports betting customers. That's an important component of what we do. There's also the fact that we have our large established customer base. And so we're able to use mechanisms like refer a friend which become important and allow us to benefit from our scale.

We have also though switched to national advertising. And so the brand and the product is becoming better known to consumers in states when they launch, and there's a lot of pent-up demand.

And answering to your question around, is there an advantage in acquiring the customers early, we believe there is. I mean, we've got the best product in the market. And so the extent to which customers are able to get on to the best product early, they stick with us. And if we look at the way that the cohorts are performed from those customers we acquired back in 2018 or subsequent years, they're stuck with us.

So I think it's important to get in early. We find that actually the acquisition cost in doing so from the benefits of our scale really help us. And look, having a bigger business allows us to get ultimately more sort of operating leverage and gives us greater scale. So it's all very helpful.

[Paul Edgecliffe-Johnson, executive]

And in terms of the net interest, Monique. I mean, the two components, obviously, are what we pay on our debt balances and then the interest that we receive on our cash balances which do fluctuate through the year. And it's building in that interest received through the year, which may be where you're not getting the right number because that does obviously fluctuate quite significantly during the course of the year. But very happy to follow up with you on that afterwards because that can be quite a big number. But -- so as I say, happy to follow up afterwards, Monique.

[Operator]

Your next question comes from the line of Clark Lampen from BTIG.

[William Lampen, analyst]

I have two. Peter, I want to come back to U.S. guidance. I know you've mentioned historically that FanDuel has sometimes left some profitable AMP acquisition opportunities on the table. Does the guidance for '24 OpEx now sort of leave you more flexibility to be aggressive if the market gives you -- if the market remains, I guess, attractive and you can lean into it? And if so, is that benefit sort of contemplated in '24 guide? Or would that show up more in '25?

And then Paul, on the capital return philosophy, could you just remind us, as we're getting closer to the leverage targets and sort of generating some excess capacity, how robust is the opportunity set for acquiring the MaxBet, like local heroes, relative to -- I guess in absence of that, would the priority be, I guess, beginning to return capital to shareholders?

[Jeremy Jackson, executive]

I think what you have to look at with our business is we've maintained this posture of sort of acquiring as much business as we can whilst we meet the return criteria. And historically, I have stated several times that we would wish we've been able to lean in harder and take more business. Typically, that's because we found that the customers have ended up being more valuable than we had initially anticipated, possibly through higher retention rates, more parlay penetration, more legs on the parlay, better cross-sell into gaming. So all those things have helped benefit the value of the cohorts we've acquired in the past.

You would've seen from the data we've published for our first quarter, we are pleased with the posture that we have in the market and the volumes, the customers we're acquiring. I think it's very important that we focus on embedding future growth and value into the business by acquiring as much business as we can. We're not subject to sort of constraints in trying to optimize around a certain EBITDA threshold or anything like that. We're just trying to build as big or most valuable business as we can.

[Paul Edgecliffe-Johnson, executive]

And in terms of the capital return philosophy, Clark. So we've talked about our priorities of the use of capital. First of course being to invest in the business, as Peter has just talked about, because that does give the best returns, the best paybacks.

And then acquiring businesses. And you talked about MaxBet, that's been a great acquisition for us. Very pleased with how that's going. Similarly with Sisal, that's going extremely well. If you think a little further back with Tom Bowler, there's lots of these national champions that we really like. And as long as they are strategic, so the market works and the financial economics work, then we are actively looking for businesses like that.

And then beyond that, within the framework that we've talked around for leverage, which is sort of being at 2 to 2.5x levered, if there's capacity to return cash to shareholders, we absolutely will do that.

And as we think about how rapidly the EBITDA will grow in this business over the course of '24 and beyond, there will be capacity to do all those things, invest into the business. to make acquisitions, and to return cash to shareholders. But that's not sort of being prescriptive as to exactly which year we'll do which in, as you can imagine.

[Operator]

Your next question comes from the line of Ryan Sigdahl from Craig-Hallum Capital Group.

[Ryan Sigdahl, analyst]

I want to start with, I guess, the U.S. So trying to do the math, I guess, on the last 2 weeks of the quarter, from March 17 through the end of the period. I get something north of $200 million in delta relative to kind of the first 11 weeks of the quarter, that growth rate to the down 51% for the last 2 weeks, $76 million of it is low hold. But I guess curious, what else is going on in there?

Secondly, kind of to that, I guess, you reported on March 26, we selectively disclosed kind of performance through the week prior to that, the 17th. I guess, why not include some of this to level-set expectations into your first U.S. quarter here?

And then last one is just kind of the mark-to-market on FOX Bet option. What changed in that calculation relative to the end of 2023 for the revision lower?

[Jeremy Jackson, executive]

I'm happy to say the easy one, Ryan, which is that the value of FanDuel goes up because the business continues to grow. More customers is a bigger business. So the value. Unfortunately, it was sort of slightly counterintuitive that, as the value of FanDuel grows, we have to take more costs on to the value of the FOX option.

[Paul Edgecliffe-Johnson, executive]

And that is likely to be every quarter, but we will call it out so that you can sort of strip it out. Obviously, it's a noncash charge. But as Peter says, that is required under U.S. GAAP.

In terms of your first question around the math on the U.S. Yes, you've got the losses in March Madness. And then, of course, we've got the investment into the North Carolina launch, which is significant. As I said earlier. We won the state there. We took a very high proportion of the business. So we invested heavily. And I think that's the component of the math that you're trying to work through there.

In terms of why we only reported up to a certain date, that's when we had the numbers for. So we reported to the latest dates that we had the reliable trading data to, which was -- so that's the reason.

[Operator]

Your next question comes from line of Joe Stauff from Susquehanna.

[Joseph Stauff, analyst]

I realize on the U.S. iCasino, I realize you're in the process of kind of bringing all, if not most of your iCasino tech stack in-house. Just wondering how long that process would take? Is it fair to assume a year or something like that? Trying to get an idea there.

And then I apologize if you did state this, but just wondering where your North Carolina handle share was in March. Curious.

[Jeremy Jackson, executive]

Joe, I'm happy to sort of pick those up. The iGaming tech stack, I mean, and this is part of what we talked about at the Capital Markets Day in terms of the three phases of it. It's about fixing things that are broken, reaching parity with the market and getting ahead.

We have broadly done the work now to bring the tech stack in-house. It's -- you can see from the rest of the group, we are the world's largest iGaming operator. So being able to bring those capabilities to the U.S. markets, that actually what will help us maintain our leadership position in the market, and that's something that the team are very much focused on. But that sort of tech migration is broadly done.

And unfortunately, North Carolina is one of the states where they don't disclose the operators. And so we're not going to share our figures. You might best and try and reverse-engineer it based on the number of customers we told you who signed up with. But we're not disclosing the numbers.

[Joseph Stauff, analyst]

Okay. Could I squeeze one more in? I guess with respect to your AMP growth for iCasino in the first quarter, again, FanDuel, it was 34%. Is it fair to say that I guess the bulk of that AMP growth is really from the direct casino customer?

[Jeremy Jackson, executive]

Yes.

[Operator]

Your next question comes from the line of Robert Fishman from Moffettnathanson.

[Robert Fishman, analyst]

Two questions for you guys. Can you speak to the competitive dynamics in the U.S. today? And would you expect an elevated level of competition to continue? Or do you think that the market is becoming even more rational despite the new competitive launches over the past couple of quarters?

And then just separately, with the recent FanDuel free ad-supported channel launch on Roku and others, can you just speak to or update us on the company's U.S. media strategy and whether this helps offset national marketing spend? Or how you're approaching the U.S. market from a media side?

[Jeremy Jackson, executive]

Robert, welcome to the call. The competitive dynamics we're seeing in the U.S., I mean, there's never been a time when it has not been very competitive. So the market remains very competitive. But I think the point that you talk to around players being rational is important. We're not seeing people spend in ridiculous amounts of money trying to persuade customers to try out product, which isn't very good. I think the market is competitive, but much more rational.

And of course, having the best product in the market stands us in a good stead. And the returns that we're seeing because of the our parlay penetration and all the other benefits that we have in the business, means that we're continuing to acquire customers at very attractive returns.

The observation that you made about FanDuel TV. And for those people who are not aware of it, this is essentially our offering. We have two channels that are available on cable, but also OTT and on digital platforms. This allows customers -- historically, it's been very much focused around racing. So of course, the Kentucky Derby was a fantastic opportunity for new customers to get into rating. And then they'll see a lot more content available on FanDuel TV.

But it's an ability for us to stream content and our customers to sort of bet and watch. And it's something that actually predated FanDuel. So TVG and the operation there was something that we've been doing for a long time and had national reach and audience. Racing, interestingly, allows us to go into states often in advance of sports betting because there's a different set of legislative results around horseracing.

[Operator]

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

[Daniel Politzer, analyst]

First question, on gross structural hold, I think it was up around 220 basis points in the first quarter, which is a similar year-over-year pace as the fourth quarter. So just trying to get a better sense of how we should think about this over the course of 2024 and if you can kind of keep that pace of gains.

And then for my second question, on sales -- in terms of the U.S. and the cost buckets. I think your sales and marketing costs were up 16% in the quarter, which is a similar increase in tech and G&A. How should we maybe think about the pacing of these buckets if there's any difference in the growth rates over the course of this year?

[Paul Edgecliffe-Johnson, executive]

Thanks, Dan. So yes, pleased with the structural hold, which as we said, was very similar in Q1 of this year to what we saw in the fourth quarter of last year. And that's largely driven by mix of product. So when we see more parlays, which do have a higher hold rate, and more parlays with more legs, then we will see a higher hold there.

And Q1 and Q4 do tend to be higher. So we'll have to see how that progresses through the course of the year. But -- and whether we have the same quarter-on-quarter increases. But certainly, we would expect to see Q1 and Q4 be the high water mark.

And in terms of investing through the business and quarter-by-quarter. Again, we invest where we think there is the greatest return to be had from that. On a marketing and generosity basis, say Q1, Q4 tend to be higher given the weight of sports there. And in terms of other OpEx, other elements of OpEx, that will be more consistent through the year as you're building our capabilities to support the bigger and bigger business that we're generating.

[Operator]

Your next question is from line of Paul Ruddy of Davy.

[Paul Ruddy, analyst]

Just two quick questions, if that's okay. Just the first is on the U.S. Just really quickly, the H1, H2 EBITDA split, I think you referenced 30-70 before. Does that still stand?

And then the second, maybe just to jump out of the U.S. for a second if that's okay. In Italy, it looks like you're back to taking market share. Could you just give some of the dynamics in the Italian market? What drove that pickup in share? And how is the overall health of the Italian market at the moment?

[Paul Edgecliffe-Johnson, executive]

So yes, in terms of half 1, half 2 split, we had envisaged 30-70. And given the sports results in Q1 and also the successful launch we've had in North Carolina, we think that, that will be a bit more back-end weighted now. So more weighted into the second half and into the fourth quarter, when we will start to see those returns from North Carolina coming through. So won't differ massively from that 30-70, but it will be a bit more second half-weighted.

And in terms of Italy, yes, we are pleased to be taking market share there. It's performing well. April has been a good month.

[Jeremy Jackson, executive]

Yes. I mean, I think from my perspective in Italy, as Paul says, we're taking market share. The team is performing very well. A lot of it is driven, as we see in the states and other markets, by getting the core things right. So we've made some significant product improvements. We launched the new sports betting app in Q3 2023, which is helping support the business. They've got some really interesting product features in that market. So there's possibility more to feed into the Flutter Edge over time.

And I think in terms of how the market is evolving, Obviously, there's no advertising and different players are pursuing slightly different approaches to generosity. But I think we've got a very good product. We can drive cross-sell from our lottery operations. It's a great top of the funnel product for us into casino and then into sports, and that's proving very well. As Paul said, we're hitting record levels of market share for online customers in sports and casino.

[Operator]

Your next question comes from the line of Simon Davies of Deutsche Bank.

[Simon Davies, analyst]

A couple from me, please. Can you give us any color on trading in the month of April? And then any surprises, either positive or negative? And in particular, you're seeing signs of re-cycling of all those consumer winnings in the U.S. from late March.

And secondly, in the U.K., we now have a bit of clarity around affordability guidance. Are you comfortable with the outcome there? Do you see any positive or negative ramifications from that in terms of your previous guidance for the U.K. market?

[Jeremy Jackson, executive]

Thanks, Simon. So in terms of current trading, we're not giving any specifics other than to say we are happy with what we're seeing in April, and we remain very confident in our outlook for the year. And without getting into specifics, you would expect there would be some recycling. There always is. So I think that's a rational thing to expect.

[Paul Edgecliffe-Johnson, executive]

And within the U.K., there's no change to the guidance of $25 million to $50 million in total likely in H2 2024. I think we're pleased to see further progress. There's clearly a little bit further to go, but it's good to get a bit more clarity for the market.

[Operator]

Your next question comes from the line of Ben Shelley from UBS.

[Benjamin Shelley, analyst]

Two for me, if I may. One on CACs in the U.S. Could you provide some color on how customer acquisition costs have fared through the quarter in the U.S., please? You still seeing efficiencies here despite the heightened levels of investment? Or is it too soon to tell?

And my next question is on U.S. taxation. So of course, a lot of talk around potential increases in state taxes in the U.S. I would love to get your thoughts on the potential for contagion risk across states and how you think the future looks and how you feel you can offset future state tax increase through other means.

[Jeremy Jackson, executive]

On the customer acquisition costs, we have obviously quite a lot of customers in the quarter. We've been very pleased with our efficiency of those acquisitions. We have not really seen any change in the long-term trends in terms of the number of months of payback, frankly. So the team continues to execute very well, and it's embedding a lot of future value into the business.

[Paul Edgecliffe-Johnson, executive]

And in terms of tax, I think what we've seen and what states have seen is that having a healthy gaming environment, where the tax is set at the right level, means that actually the tax take in the state is optimized. So in Illinois, there are conversations with the state governor going on, but there's no new news on that. So if there is, then we'll come back and update. But nothing more on that for now, Ben.

[Operator]

Your next question comes from Rowland Clark from Barclays.

[James Clark, analyst]

Two questions, please, from me. The first is on moving the operational headquarters to New York. Would you mind just providing a bit of color on exactly what that means? Does that involve more costs or more cost going to the U.S.? And then sort of related question to that what would you do with your registered headquarters?

And then my second question is on U.S. again. So the sort of AMPs in Q1 grew at 15% year-on-year, and that follows 34% in Q4. It just looks like a bit of a slowdown. And I appreciate the incredibly strong Ohio performance and launched there -- sorry, North Carolina. But you might mention that actually it's Ohio's comp that means that the AMPs slows down a bit in the first quarter. I'm just interested to know really any color as to why that has slowed down from the fourth quarter trends. That would be very helpful.

[Jeremy Jackson, executive]

I think you probably answered your own second question, but I'll let Paul come in and, if there's anything you want to answer it in a moment.

On the operational HQ, there's going to be no significant change from a cost perspective. We're going to have our board meetings there. I'm obviously spending a lot more time there. I'm there this week. And we'll be having a lot more of the exco there in person. But in practical terms, it's not going to change a lot from a sort of cost perspective.

[Paul Edgecliffe-Johnson, executive]

And James, yes, I think you sort of did answer your own question. You got Ohio in the comps for a full quarter but only the 3 weeks of North Carolina coming in there. So we are very pleased with the growth we're continuing to see, both in the new states and in existing dates where we are, those pre-2022 states where we're seeing very strong growth in AMPs still. So really pleased with the underlying health of the business.

[Operator]

Your next question comes from the line of Andrew Tam from Redburn Atlantic.

[Andrew Tam, analyst]

Just touching on the U.S. sales and marketing expenses up 16% year-on-year. Can you provide any color on where you're making those investments? Is the bulk of that largely do with the state launches in Vermont and North Carolina? Or is it across existing states as well?

And just in terms of the run rate, is that something we could expect throughout the rest of the year? Or can we expect that to dial down in future quarters?

[Jeremy Jackson, executive]

Look, I'm happy to give you some color on that. I mean, we are spending money where we can, right? So we've shown very strong growth in our existing states. We continue to acquire a lot of customers in the states, the penetration rates continue to grow. And we'll spend money there whilst ever we can meet our return criteria. And that's as true of the sports as it is for gaming.

And clearly, we do put our shoulder behind the wheel. When we launch in a new state, it's very important to win in the early days, which we try hard to do. And so the shape of it, of an investment, it will not be that dissimilar to what we've seen in the prior year. I mean, there's obviously periods of time where naturally you see a sort of greater interest in new sports. So the prelaunch of the football season and that type of thing where we'll lean in heavier, and that's what ultimately ends up skewing the numbers.

But it's all sort of very carefully calculated and all factored into our customer acquisition costs and giving us very good returns and driving a lot of embedded value into the business for the future.

[Operator]

Your next question comes from the line of Joe Thomas from HSBC.

[Joseph Thomas, analyst]

Yes, just firstly, I wanted to ask you about India. You're talking about net revenue down 25% there. Can you just talk through how you're expecting India to pan out how those tax changes have come in? I think you said there's some sequential improvement, but there's also been a benefit of an earlier IPL. So perhaps you could can talk about how you're mitigating that and what the long-term prospects are.

And then elsewhere, just with respect to the -- in the other divisions with respect to the change in structural hold that you're making. It looks like there's been some ups in The U.K. and Australia and down in international perhaps. Perhaps you can just explain that, if I've got it right, even. And how you -- how that's impacting the recycling that you're seeing.

[Jeremy Jackson, executive]

The important factor to remember in India is that we saw a shift in the tax from GGR to deposits. And we mentioned I think last time we talked about this, that we anticipated that we would get the business back to sort of positive growth towards the end of the year. And I think we still stand by that. So the material impact here is the impact on the change in tax rates in India.

I mean on an underlying basis, the business is performing very well, and we're very pleased with the changes we've made to our rate to deposit ratio. So I think India is performing well. Of course, we are benefiting somewhat from the earlier IPL, but I think the business is standing in good stead.

Paul, why don't you answer the part about what we're seeing from a structural hold perspective?

[Paul Edgecliffe-Johnson, executive]

Yes. Thanks, Peter. So in terms of the structural hold, we're seeing the benefits of more parlays, and also Bet Builder in the UKI in particular, and greater efficiency in our promotional expense. So that is all continuing to drive up margins. Of course, we're trying to keep that at the right level. I don't want that to go too high, but we're happy where it is for now.

[Operator]

There are no further questions at this time. So I'd like to hand back to presenters.

[Jeremy Jackson, executive]

Okay. Well, look, I think we've rattled through lots of questions from you all this morning. Thank you very much for taking the time. For those of you who are in the U.S., thank you for getting up so early to accommodate us. We appreciate it. And if there's anyone who wants to follow up with us, we are all here for you. Thank you.

[Paul Edgecliffe-Johnson, executive]

Thanks, everyone.

[Operator]

That does conclude our conference for today. Thank you for participating. You may now all disconnect.