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Earnings call: Flutter's Q3 results surpass expectations, plans share buyback

EditorEmilio Ghigini
Published 11/13/2024, 07:30 PM
PDYPY
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Flutter Entertainment PLC (FLTR), the parent company of FanDuel, has reported a robust financial performance in its third-quarter trading update, with CEO Peter Jackson and CFO Rob Coldrake announcing revenue and adjusted EBITDA figures that exceeded market expectations.

The Group saw a 27% revenue increase and a 74% rise in adjusted EBITDA, reaching $450 million. In the U.S., revenue soared by 51%, propelled by significant growth in sportsbook and iGaming sectors. The company also revealed plans for a $350 million share repurchase program and provided updated revenue guidance for 2024.

Key Takeaways

  • Flutter's Q3 revenue increased by 27%, with adjusted EBITDA up 74% to $450 million.
  • U.S. revenue growth of 51% was driven by a 62% increase in sportsbook revenue and a 46% rise in iGaming.
  • FanDuel benefited from the NFL season, leading to a 36% increase in handle.
  • International revenue grew by 15%, with strong performance in the UK and Australia.
  • The company announced a $350 million share repurchase program starting November 14, 2023.
  • Updated 2024 guidance: U.S. revenue projected at $6.15 billion, non-U.S. revenue at $8.2 billion.
  • Acquisitions of NSX and Snai are on track, with expected consolidation from July 1, 2025.
  • Promotional activity in the U.S. increased, while the UK market remains strong.
  • The company is preparing for a January 1, 2024, launch in Brazil.
  • "Your Way" product is showing positive customer engagement in early testing.
  • Revenue growth of 20% to 25% expected in 2025, with significant EBITDA margin expansion.

Company Outlook

  • Flutter anticipates a revenue increase and significant EBITDA margin expansion in 2025.
  • Plans to enter new markets in Alberta and Missouri, potentially increasing market reach by 3%.
  • Despite regulatory challenges in Florida, the company is exploring future opportunities.

Bearish Highlights

  • U.S. revenue projection for 2024 slightly lowered to $6.15 billion due to recent NFL results.
  • Growth in the UK may slow in 2025 due to competitor changes.

Bullish Highlights

  • Non-U.S. revenue expectations for 2024 increased to $8.2 billion.
  • The company maintains a strong competitive position, particularly in the NFL market.
  • Ongoing investments are aimed at enhancing customer engagement and product performance.

Misses

  • Flutter's FanDuel is currently unable to operate sports betting in Florida due to regulatory restrictions.

Q&A Highlights

  • Flutter is confident in its ability to absorb potential UK tax consolidation changes better than competitors.
  • Fox's potential option on FanDuel is subject to licensing and financial implications.
  • The "Your Way" product's full impact on engagement and hold rates is yet to be determined.

Flutter's third quarter has set a positive tone for the company's financial trajectory, with strategic plans in place to bolster its market position and leverage growth opportunities in both existing and new territories.

The company's strong performance and forward-looking initiatives, including the share repurchase program and product developments, indicate a proactive approach to maintaining and expanding its foothold in the competitive online betting and gaming industry.

Full transcript - Flutter Entertainment PLC ADR (PDYPY) Q3 2024:

Operator: Good afternoon and welcome to the Flutter Q3 Trading Update, hosted by CEO, Peter Jackson, and CFO, Rob Coldrake. Please note, this conference call is being recorded. And for the duration of management's opening remarks, your lines will be on listen-only. However, you will have the opportunity to ask questions thereafter. [Operator Instructions] I will now hand you over to your host today, Paul Tymms, Flutter Director of Investor Relations to begin today's conference. Paul?

Paul Tymms: Hi, everyone, and welcome to Flutter's Q3 results call. With me today are Flutter's CEO, Peter Jackson, and CFO, Rob Coldrake. After this short intro, Peter will open with a brief summary of our operational progress during the quarter and then Rob will run through the Q3 financials and our updated 2024 guidance. We will then open the lines for Q&A. Some of the information we are providing today, including our 2024 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 statement 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 on the Investors section of our website. And I will now hand you over to Peter.

Peter Jackson: Thank you, Paul. And I'm delighted to be taking you through our excellent Q3 performance today. Performance in Q3 was very strong for the Group and once again ahead of market expectations. We delivered AMP (OTC:AMLTF) and revenue growth of 16% and 27% respectively, and EBITDA was 74% higher. This was driven by continued execution against our strategic priorities. And when I take a step back from this performance, it is clear that the business is very well positioned for future growth. The NFL season is off to a great start for FanDuel, helping drive handle 36% ahead in the quarter overall with handle growth of 23% in those states launched pre-2022 and 37% in those states launched in 2022 and 2023. Customer economics have also remained compelling with payback periods of 18 months in the quarter. These customer economics continue to validate our investment strategy as we focus on building as big a business as we possibly can today, while staying well within our 24 months payback target. This focus has been driving strong customer acquisition, up 10% compared to the prior year. Many of you joined us at our recent Investor Day in New York, where we demonstrated how product innovation has been and will continue to be a key driver of our success at FanDuel and across the Group. Recent product improvements rolled out for the new NFL season have been resonating well with our customers, including expansion of The Pulse to all NFL games and a further increase in live player prop markets. This focus on more immersive live experiences in capturing the player narrative helped to drive our sports book and base 31% higher year-over-year. In addition, the proportion of live handle coming from same game parlays almost doubled in the first month of the NFL season and our overall NFL parlay penetration was over 700 basis points higher. These product improvements are driving both customer engagement and volumes and are contributing to continued structural revenue margin expansion year-over-year. This continues to give us confidence that we are well on track to deliver our long-term gross revenue margin target of 16% we shared at our Investor Day. In iGaming, product improvements also drove our AMP base 43% higher and a step-up in our customer frequency. We know that our customers' top preference is to see exclusive and well-loved gaming franchises, and we continue to execute on delivering these with the launch of the "Pure imagination gaming title and our Wonka iGaming series, quickly becoming our second most popular slot game for new customers, next only to World of Wonka, which was launched in Q1. We were delighted to see the Missouri sports betting referendum passed by voters last week. From a new launch perspective, we therefore currently expect to add Alberta and Canada during Q2 and Missouri during Q4 2025. Outside of the US, AMP growth of 13% drove an increase in revenues of 15% and EBITDA growth of 24%, underpinned by our scale and diversification. We saw excellent momentum in iGaming as well as strong sportsbook performances with the conclusion of the European Football Championships in July and the beginning of the new soccer season in Europe during the quarter. In the UKI, our market leading products continued to deliver strong growth across both sportsbook and iGaming, resulting in continued market share gains. On iGaming, we added the UK's number three ranked games provider to our content portfolio. And our sportsbooks benefited from a 142% increase in same-game parlay wages at the beginning of the new soccer season compared to the same period in 2022. Our same-game parlay capabilities also benefited Sisal in Italy as the first operator to offer the product for the new Italian soccer season with same-game parlays accounting for nearly a quarter of all sportsbook wages in the first six rounds. Sisal also broadened its portfolio of iGaming titles during the third quarter, including exclusive titles we know players enjoy, which combined with our sportsbook product improvements helped to deliver a 200 bps increase in Sisal Italian market-share year-over-year and a 41% increase in online revenues. In Australia, while the anticipated racing market declines were evident in the quarter with staking 8% lower, AMPs were 6% ahead, and growing across both sports and racing, which we believe is encouraging for the future growth trajectory of the business. Overall, the Group had a very strong quarter. And I feel even more confident in the path to medium-term growth that we laid out at our recent Investor Day and the future value creation opportunities for the Group. You've heard me talk about us as an and business, almost significant capital allocation optionality, and I'm really pleased to confirm that we will launch our share repurchase program on November 14. We intend to repurchase up to $350 million of ordinary shares up to the end of Q1 2025 with a further announcement of the details in due course. This, coupled with our announcement to acquire NSX and Snai in the quarter, our continued organic investments in our businesses to drive strong growth, clearly demonstrate our status as a business with many opportunities for capital deployment and the ability to do the more. And with that, I hand you over to Rob.

Rob Coldrake: Thanks, Peter. And hello, everyone. As Peter already outlined, the Group delivered a strong third quarter performance with revenue growth of 27%, adjusted EBITDA growing 74% to $450 million, reflecting the adjusted EBITDA inflection of our US business. After non-cash expenses, including the amortization of acquired intangibles of $128 million and $121 million loss in the quarter on the fair value of the Fox Option, the Group generated a net loss of $114 million. Our third quarter diluted loss per share and adjusted earnings per share improved year-over-year however, due to the strong financial performance of the Group. Turning now to the financial performance for each of the segments. In the US, performance exceeded our expectations with revenue growth of 51% and adjusted EBITDA $113 million higher than last year at $58 million for the quarter. As you may recall, we noted at our Q2 earnings that we expected a small adjusted EBITDA loss for the quarter with the outperformance here driven by a combination of underlying trading strength within the business, the impact of positive sports results and the benefit of one-off cost items. US revenue growth of 51% includes strong growth across both new and existing states with revenue up 46% in those states which launched pre-2022. Sportsbook revenue growth of 62% was driven by handle growth of 36% and 130 basis point increase in our net revenue margin to 8.2%. This increase was driven by further expansion of our structural revenue margin to 12.8%. Whilst we benefited from a positive sports results swing year-over-year, this was largely absorbed by increased investment in promotional spend as we returned some of the positive sports results to our customers. This is in addition to us continuing to invest in the compelling customer payback periods that Peter outlined. iGaming revenue was 46% higher as the product improvements we have been making continued to drive strong growth. Our cost of sales for the third quarter of 58.9% as a percentage of revenue was ahead of our expectations, primarily driven by the impact of the positive sports results. In sales and marketing, we delivered strong operating leverage and some phasing benefit into Q4, which drove the cost as a percentage of revenue down by 760 basis points year-over-year. This all combined with the revenue performance above to deliver adjusted EBITDA of $58 million for the quarter. Outside of the US, revenue grew 15% with growth across all segments. UKI maintained its strong momentum with the third quarter benefiting from in-year phasing of European football championship marketing to deliver strong leverage and EBITDA growth of 29%. Sports results were favorable in the quarter in the UKI, adding 40 basis points to our sportsbook net revenue margin. Australia also benefited from favorable sports results in the period with 130 basis points of positive impact in the quarter. This resulted in a year-over-year swing of 180 basis points and was the driver of the 12% revenue and 14% adjusted EBITDA growth year-over-year. Otherwise, staking trends were in line with our expectations in that market. In international, the addition of MaxBet and strong growth in our consolidate and invest markets drove revenue 17% higher on a constant currency basis. This translated to a 36% increase in adjusted EBITDA on a constant currency basis due to a one-off credit from a historic legal case, excluding which adjusted EBITDA growth would have been slightly ahead of revenue growth. From a cash flow conversion perspective, the strong performance I've just taken you through was offset by the impact from the settlement of derivative instruments in place to manage foreign currency and variable interest rate risk. These created an adverse year-over-year cash outflow driven by a payment on settlement during the current quarter of $213 million compared with a receipt of $89 million during Q3 2023. As a result, free cash flow was $112 million versus $434 million in the prior year. Our strong deleveraging profile saw our leverage ratio reduced to 2.4 times from 3.1 times at the end of December 2023, and it's now within our medium-term leverage target range of 2 times to 2.5 times. As Peter already flagged, we are pleased to begin our share repurchase plan, in-line with the authorization provided by the Board. Moving on now to our updated guidance for 2024, where I'm very pleased to say that we are able to slightly increase our overall full year expectations for the Group. In the US, if it was not for the run of customer-friendly NFL sports results in Q4 to date, we would have been increasing our guidance for the year also. Notwithstanding the impact of these results, the strong underlying performance in Q3 and the read through to Q4 means we are only reducing our US full-year revenue midpoint guidance by $50 million to $6.15 billion. Adjusted EBITDA midpoint moves $30 million to $710 million with our EBITDA range narrowed $670 million to $750 million. This equates to year-over-year growth of 40% for revenue and 206% for adjusted EBITDA. In the Group ex-US, we are upgrading our expectations and now expect increased revenue of $8.2 billion and increased adjusted EBITDA of $1.82 billion at the midpoint of our guidance. This equates to year-over-year growth of 11% for both. Given the positive sports results benefit we have seen in Australia, we also increased our adjusted EBITDA expectations for this segment to approximately $290 million for the year. As always, our guidance is provided on the basis that sports results are in-line with our expectations for the remainder of the year, current foreign exchange rates, no new state openings for the remainder of the year and then a consistent regulatory and tax environment. This guidance demonstrates the strong momentum we have across the Group and is really encouraging as I think about the medium term guidance we laid out at the Investor Day. Finally, we continue to make good progress towards completion of our acquisitions of NSX and Snai, which we expect to complete by the end of Q2. For consistency, it would make sense therefore, to think about consolidation of earnings of those businesses from 1 July, 2025. With that, Peter and I are happy to take your questions. And I'll hand you back to Greg to manage the call.

Operator: [Operator Instructions] And it looks like our first question today comes from the line of Ed Young with Morgan Stanley (NYSE:MS). Ed, please go ahead.

Ed Young: Thank you. Good evening. I have two questions, one on the US and one on the UK, if that's okay. And on the US, it looks like promotions were up 540 bps in the quarter, which is obviously above your 400 basis long-term guide you gave at the Investor Day. Rob, you touched on there that some of that was giving back generosity around good favorable results for you. And on that last point, is it the opposite, i,e., the offsetting benefit with less need from promos that's led to the relatively strong Q4 guide versus some of your peers? Or put another way, should we think of generosity as something that's good for the players but also good for you in terms of smoothing out some of the volatility of results within the business? And then the second question is on the UK, obviously, continued outperformance of the market there. How do you see the prospects for outperforming the market into 2025 given some of the regulatory factors might normalize? You've obviously called out operational side as well. So how much of the operational outperformance is the driver there and how much you think it's regulation affecting others? Thanks.

Peter Jackson: Hi, Ed. Why don't I just give you a brief response to the UK question, a couple of thoughts about US in general. And I know Rob will want to follow up with a bit more detail. I think, from a UK perspective, we're very pleased with the market share that we continue to take. Clearly, as we get into 2025, we will start to annualize some of the changes that we know our competitors have made. And I think it will become more difficult to grow market share at the same rate, although we shouldn't underestimate how strong our product is in the market at the moment. So I think that's something that we're really benefiting from as well as the changes that we made to move early from a safer gambling perspective. In the US, I'd actually call out our pricing accuracy as something that's been incredibly important for us. We've got a very strong parlay mix, which ought to actually make positive results better and negative results potentially worse because a lot of parlays can drive more sort of volatility. But our pricing accuracy is absolutely crucial. And I think that's what's really driving the material differential that you're seeing with our business and others. Rob, do you want to comment on generosity and other points?

Rob Coldrake: Yeah. So maybe a point on the UK first, Ed. I think as Peter mentioned, we're really happy with the momentum there into next year. One thing that continues to perform extremely well in the UK is the gaming business. And we're up 29% overall there, but all brands were very strong again across the piece, which was very helpful for the result. In terms of promotions and the generosity in Q3, yes, we did -- it is consistent with our investment strategy year-to-date and actually we have been giving back more to customers as a result of the customer -- of the bookmaker-friendly results in Q3. We're not planning to change that strategy in Q4. We have had some slightly adverse results Q4 to date, but not withstand that, we're not expecting to change our generosity approach at this point in time.

Ed Young: Thank you.

Operator: All right. Thank you, Ed. And our next question comes from the line of Jordan Bender with Citizens JMP. Jordan, please go ahead.

Jordan Bender: Good afternoon, everyone. I think most of us would agree the moves to layer in the media funnels have been working pretty well in recent years, just thinking through TVG and FanDuel TV and just the share gains you've seen in that business. With that line of thinking, I want to get your perspective on the RSN deals that were announced in the US and how you'll look to utilize those assets with your existing business today. On the second question here, can we just get an update on what you're hearing on the ground in Brazil? It's a month and a half out here and it doesn't seem like there's too much progress to get out by Jan 1, just what you're hearing there. Thank you.

Peter Jackson: Yeah, afternoon, Jordan. You'll be aware from the conversations we had around the Investor Day, and how extensive our sort of media mix and footprint is in the US. And I think it's a real benefit you see from our scale. Don't forget Mike talking about the benefits of refer a friend, for example. And I think that's something which stands us in really good stead. We were -- look, we've been looking at this sort of RSN deal for a while. We thought it's an interesting opportunity to get involved in -- I mean, college sports, very important. It gives us access to some certain assets that we would have not previously been able to look at. And so we thought it was worth looking at it, being around the hoop and seeing what we could do with it. And I think early indications are very positive. I think the team has done a brilliant job from a standing start to deliver such good and strong integrations. And we'll see how much it helps benefit the business. I mean, Rob, do you want to talk about Brazil?

Rob Coldrake: Yeah. So we are still anticipating and preparing for a 1 January launch for Brazil. With it being Brazil, we don't have affirmative confirmation of that. But we're planning on that basis. There are various regulatory challenges at the moment there as we know, but actually, we're very confident about our approach in Brazil. We've grown there with our brands that we've got there already. We're very excited about the NSX acquisition. And we feel that gives us the ability to really kind of push on in Brazil and investing behind that brand in 2025 as we laid out at the Investor Day, something that we're planning to do and really take advantage of what we think is a very exciting market with lots of opportunity.

Jordan Bender: Awesome. Thank you very much.

Operator: Thank you, Jordan. And our next question comes from the line of Jed Kelly with Oppenheimer. Jed, please go ahead.

Jed Kelly: Hey, great. Thanks for taking my questions. Just going back around the promotional reinvestment. If more of your users or players start to lean into your same-game parlay product, just given the yield on that, does that force you just to have to promote more because the holds are so high? And then I saw you're going to be involved in the Netflix (NASDAQ:NFLX) Christmas NFL games. Was that implied in your guide or is that additional? Thank you.

Peter Jackson: Hi, Jed. Well, look, I mean, we're obviously -- we have known that we're going to be involved in the Christmas Day games. So it is in the guide. We'll be delighted to be able to deliver our exciting product for Americans to get behind on Christmas Day. From a parlay perspective, you're right, it does drive a significant improvement in the hold of. I think we should need to remember that we've seen a big step-up in parlay adoption year-over-year. Customers really like the product. It is higher margin, but the generosity proportions that we do offer to our customers are as a percentage. So naturally, as margins increase, we will be spending more.

Jed Kelly: Thank you.

Operator: Thanks, Jed. And our next question comes from the line of Bernie McTernan with Needham & Company. Bernie, please go ahead.

Bernie McTernan: Great. Thanks for taking the questions. Wanted to first just touch on the Your Way product and really dive into what behavior you're seeing from those players, whether it's engagement, retention, parlay mix. And then maybe what are the early learnings from Colorado? And I think the release mentioned another state that you're launched and early learnings in the past for its other launches. And then, sorry, that was a long first one. And then second, maybe more simple, but were you surprised how narrowly Missouri passed by? I think it was one of the closer referendum votes we've seen in US for online sports betting. Thanks.

Peter Jackson: Yeah. Hi, Bernie. Hello, it's easy to pick up the Missouri one. I mean, we only needed to win by a vote. So there's an argument that we wasted 6,099 votes. But look, yeah, joking aside, look, we were very pleased it was passed. There was some reasonably strong opposition at one point to the amendment. So we were delighted to get it over the line. And I think it gives us conviction in our guide at the Investor Day to the fact that we'd see two percentage points of adult population in each of the next several years. I think that's very helpful. Rob, you want to talk about the Your Way product briefly?

Rob Coldrake: Yes, it's quite early stages in Colorado and West Virginia, and it's only available to select customers. So it's not rolled out to the entire customer base, but certainly in terms of the initial reaction that we've got from customers and their engagement with the product, we've had some really positive feedback and reviews. And we therefore plan to roll out that early stage version more broadly to all states in time. So yeah, I think the most important thing from a financial perspective is that we've solved the math to actually price almost infinite markets here, which is the really exciting point as we move forwards.

Peter Jackson: I'm super excited about the product. I mean, there's a huge amount of work to get the user experience right. When you think about having infinite SKUs, that could become very difficult. But I think we're getting some good learnings out of it. This has taken years for us to build. And we're delighted to see what it does in the years ahead.

Bernie McTernan: Great. Thank you both.

Operator: Thanks, Bernie. And our next question comes from the line of Paul Ruddy with Davy. Paul, please go ahead.

Paul Ruddy: Hi, good evening, guys. Just back to the promotional intensity in the US, just the decision to reinvest some of that additional hold in Q3. Is that reference to a pickup in overall intensity in the market, has it gotten more competitive? Or is it simply just back to the old the capital LTV still remain very favorable? And then secondly, just as a quick follow-up just on Australia. I think you've used the word encouraging there. Is it too early to say that that market has inflected back now, we might see a good rebuild?

Peter Jackson: Hi, Paul. Look, on Australia, I think we've been pleased with the growth in AMPs we're seeing in the market. Obviously, we're through the Melbourne Cup. I think it was actually an Irish jockey that won the race and 90-to-1 outsider, was a pretty favorable result for the Australian punters. But look, I think we're pleased with the way that we're seeing the AMP growth. I think we've got some positive sports results in Q3. We've got to remember next year, we've got a lot of taxes we're going to annualize. But I think it just goes back to the strength of the business and the benefits that Australia continues to provide into the rest of the Group through The Flutter Edge in terms of helping us with things like generosity and products. And, Rob, to the point of generosity, why don't you talk about the promotional intensity stuff?

Rob Coldrake: Yeah. So, thanks, Paul. I mean, in terms of generosity generally, we had a good run in Q3 and actually returning some of that positive luck to our customers will help NFL investment. And we're seeing great engagement around our NFL products, and we're really happy with the customer engagement we're seeing in NFL to date. Just generally, we do work within a set of economic parameters for our paybacks, as we've mentioned on a number of occasions. And we're tracking well within that at the moment both in terms of marketing payback and generosity. So we're really pleased with the investment that we're laying down and the engagement that we're getting from our customers. And we don't see any need to significantly change that in the short term.

Paul Ruddy: Thanks very much.

Operator: Thanks, Paul. And our next question comes from the line of Brandt Montour with Barclays (LON:BARC). Brandt, please go ahead.

Brandt Montour: Good afternoon, good evening, everybody. Thanks for taking my question. So first question would be on the pre-2022 state revenue growth of 46%, 23% handle growth really strong. How much of that is new customers acquired this year? And do you think the strength you've seen from new customer growth, is at all in part because of certain black market sites known to be being shut down this year? The second question would be, how has the Illinois competitive landscape changed at all in the last few months since the legislation? And if you've changed anything at all, how are customers responding to those changes? Thank you.

Peter Jackson: Hi, Brandt. I'll start with a sort of overview of what I think is happening from a sort of competitive intensity perspective, which I think is important to the view about the pre-'22 states. The new customer acquisition in those states is actually up 6% year-over-year. And I know you referenced the point about whether that's black market operators being closed down or not. We've got by far the best pricing and products in the market. And I think that's what's standing us in really good stead. We have -- if you think about the TAM that we shared at the Investor Day, we've still got a long way to go from a penetration perspective even in some of the states which we've been operating in for a very long period of time. So I continue to see a long runway of growth for us in the future in those states from a customer acquisition perspective. But let's also remember, if you look at the sort of NFL, parlay penetration up 700% -- sorry, 700 basis points year-over-year and that helps improve margins as well. So a combination of all of those things helping support the business.

Rob Coldrake: On your second question in terms of Illinois, we've not seen anything that leads us to a different conclusion from what we guided at Q2 in terms of the impact and what we're seeing currently is not deviating from those trends. So it's largely consistent with what we saw and commented on at Q2.

Brandt Montour: Thanks, everyone.

Operator: Thanks, Brandt. And our next question comes from the line of Ryan Sigdahl with Craig-Hallum Capital Group. Ryan, please go ahead.

Ryan Sigdahl: Hey, good afternoon, guys. I want to start, Peter, you just mentioned FanDuel has the best pricing in the market for the customer. Highly competitive from that standpoint. Can you elaborate on where you're really seeing the success from a pricing advantage in the more complex markets and bets driving that, I'll say, relatively strong Q4 thus far given the game outcomes? And then secondly, on the Your Way parlay, from a hold standpoint, should we think of this as your traditional parlay hold above average percent or can this be better given the uniqueness and personalization of it? Thanks.

Peter Jackson: Hi, Ryan. Look, I think the point around pricing advantages, look, we've got to think about this as a sort of pricing accuracy point. It's really, really important when we are taking these complex parlay bets that we're getting the pricing as accurate as possible. And that is what has supported us with very strong margins even whilst we've had the best pricing available for our customers. It means that when customer-friendly results, we don't get hit as badly as people who've got loose pricing, which is not as accurate. And it means that when results are in our favor also helps us as well. At the end of the day, though, it means that we've got the confidence to offer a broader range of products and markets to our customers, which means that they're more likely to take more parlay products, we get more data, which helps us to reinforce our pricing capabilities and pricing accuracy. So this goes back to the stuff that Dom and the team talked about at the Investor Day. And I think you're really seeing the benefits of it in real life in Q4 when you compare our performance against other players in the market.

Rob Coldrake: I think maybe just to add to what Peter said, I mean the fact that obviously, we lead the market in parlays, that compounds the margin benefit. So when thinking about Your Way, we're very excited about it in terms of the potential to offer more markets and compound that same-game parlay benefit even more. And as we said though earlier on, it's very early days in terms of this product. So we need to do this testing and see where we land. But we're very excited about it as we mentioned.

Operator: All right. Thank you, Ryan. And our next question comes from the line of Dan Politzer with Wells Fargo (NYSE:WFC). Dan, please go ahead.

Dan Politzer: Hey, good afternoon, everyone, and thanks for taking my questions. First, I wanted to touch on 2025 a bit. Can you talk us through maybe some of the building blocks as we think about next year as it relates to structural hold and the extent of the increases you've seen in the past couple of years and how to think about that next year? And then along with that, the other puts and takes, whether it's Missouri and sports versus iGaming growth? And then the second question, just Florida, there's been some news and some headlines regarding that state possibly opening up along with Hard Rock. If there's any kind of comment or insights you could share there, that would be great? Thanks.

Peter Jackson: Dan, yeah, maybe I'll start with 2025. We're not providing 2025 guidance at this stage, and we'll share that at our Q4 earnings in March. You will recall, however, that we shared our medium-term views on the trajectory of what we expect at our Investor Day, including how we're thinking about 2025. I think just referring to that would be helpful in thinking about the growth for next year. I can touch on a couple of specific points. But we said at that time that we expect revenue growth, excluding 2025, state launches for the US to be between 20% to 25% from our 2024 guidance. And from an EBITDA perspective, we expected margin expansion of 500 basis points to 600 basis points. In terms of some specific points, yes, we're going to have two new states next year as we mentioned in terms of Alberta and Missouri. The way that we generally think about new states is roughly a $35 million cost for each 1% of the population. With those two new states depending on timing, that's going to be accessing a further 3% of the population in the context of how we think about the overall US population. So those are probably the key points to be thinking about as we move into 2025.

Rob Coldrake: Dan, look, and in terms of your question about Florida, I mean, look, you're aware that we're not able to operate sports betting in Florida presently, the Seminoles and Hard Rock retain monopoly in the market. As an associate member of the Indian Gaming Association, FanDuel, of course, supports and partners with Indian tribes throughout the US. And we recognize the importance of the Supreme Court's decision for tribal sovereignty. We'll continue to find ways to work together with tribal partners in Florida and the US more generally. There are potential paths forward in Florida that we'll continue to explore, but it'd be premature to identify what course that might take at the moment.

Dan Politzer: Understood. Thanks so much.

Operator: Thanks, Dan. And our next question comes from the line of Robert Fishman with MoffettNathanson. Robert, please go ahead.

Robert Fishman: Hi, good afternoon. Peter, can you talk more about your confidence in seeing the shorter payback period that you've referenced while balancing the additional investments to acquire the new users? And then either maybe Peter or Rob, any additional detail you can share on how FanDuel's new product features aside from the Your Way parlay are benefiting the net revenue margins during the first half of the NFL season, or maybe even more broadly, like how would you characterize the competitive position of FanDuel's product relative to the competition given all your enhancements that you're making there? Thank you.

Peter Jackson: Hi, Robert. So look, in terms of my confidence in our sort of paybacks at the moment, I mean, look, they're high. I mean, we've got a fantastic product. I think people recognize the benefits of our pricing. I think we're doing smart things with generosity. I mean, you saw a lot of that come together at the Investor Day. And customers have seen that with the start of the football season, of course, with basketball as well. And I think that's what's leading to a big step-up in acquisition volumes year-over-year in the third quarter, which of course, is always a more intense and bigger period for us. So we're very pleased with performance. There has been a reduction in the payback period. And look, we've always been trying to acquire as big a business as we can whilst ever we meet our payback criteria. Obviously, there's a bit of space in there at the moment, but we're continuing to push hard and acquire as much business as we can.

Rob Coldrake: In terms of the product question, there's lots of developments that keep landing. And there's a number of things that we can touch on for Q3. I mean, first, I would say that we're delighted with the fact that our total live handle was up 700 bps in the first four weeks of the NFL and also the NFL parlay penetration has been up 700 bps in the first four weeks as well. We've put quite a lot of investment behind the live investments. So we've got a number of things such as in-house game trackers launch for NFL and college football. We've improved the customer experience with new scoreboards across the big six sports as we see them. We're improving the player narrative constantly. We've enhanced the market in terms of player props and quick duration bets. So there's a bunch of stuff that we've done here, and we'll continue to invest behind it. And this is where we really see some of the benefit of the Flutter Edge as well because some of the things that we're bringing to bear in the US market are things that we've seen and developed in other markets and we're now successfully reaping the benefits in the US also.

Robert Fishman: Great. Thank you both.

Operator: Thank you, Robert. And our next question comes from the line of Clark Lampen with BTIG. Clark, please go ahead.

Clark Lampen: Thanks very much. I have two, please. I wanted to follow up on the Your Way beta testing comments. I'm curious, if we were to think about, I guess, the sort of duration of the '24-'25 NFL and NBA seasons right now, would you be disappointed if the products aren't released or sort of brought nationally and out of beta over that timeframe? And then the second question I have is on Italy. Rob, you mentioned sort of July 1, '25, as a good time for thinking about when that might start to hit the model. When you have Snai under the umbrella and fully consolidated, what are the most immediate opportunities that you guys have in front of you in terms of Flutter Edge improvements or sort of product cross-pollination? And are there specific targets that you might sort of think about or have in mind amidst regulation from a share capture standpoint? Thank you.

Peter Jackson: Hey, Clark, let me deal quickly with the Your Way point. And then Rob can talk to you about, I think, sort of synergies sounds like you're asking on Italy. We've been pretty clear, I think, on the Your Way products. We're very excited about it. It's taken a huge amount of work to get it this far as Rob was saying, solving the maths. We're now very focused on making sure we deliver a fantastic user experience as we do with all of our product. So look, our intention is to roll out this beta more broadly to customers across the US. But we're not going to roll it out unless we get it right. And we also -- it's difficult to get this -- to land this correctly. We spent a lot of time building it and we'll get it in customers' hands when we're ready. We're very excited about it. I think it's going to have a huge impact for the business in later years. But there's no point in rushing it a week here or there.

Rob Coldrake: Yeah. So, in terms of the Snai acquisition, we're really excited about this one. So we continue to really outperform our expectations in Italy, which is a huge developed regulated gambling market and the largest in Europe. What we've seen since Sisal has come into the Flutter's table is the fact that being an omnichannel operator in Italy enables you to continue taking share because of the advertising restrictions there. And we see us kind of compounding that with Snai coming on board as well. There's a significant cost and revenue synergy plan behind the Snai deal, which I won't talk in detail about now, but we're very confident about both the revenue and cost synergies. And yeah, we've got a fantastic team already in place in Italy running Sisal that gives us a very high degree of confidence over those synergies. And I think the last point to mention with Snai is that this is a really standout brand by itself. Snai is a brand in the Italian market that's synonymous with sports betting. So it's a very different and complementary brand to Sisal. So we see them both operating alongside one another and really kind of enhancing our position in the market overall and taking that gold medal position.

Clark Lampen: Thank you.

Operator: Thanks, Clark. And our next question comes from the line of Joe Stauff with Susquehanna. Joe, please go ahead.

Joe Stauff: Thank you. Hello, Peter, Rob. Two questions, please, on FanDuel. One, just in terms of the AMP mix in the quarter, I saw that you referred to 43% casino AMP growth. Is that a casino-first product or is that a mixture between maybe the two casino products depending on how the user is sourced? And then two, I wondered if you could just kind of review your Ontario positioning. It's tough to tell what's really going on in that market other than from a macro perspective. I think you had just migrated the product over to the US tech stack? And what is your share in that market, third quarter and so forth?

Peter Jackson: Hi, Joe. So I think on the -- yeah, on Ontario, I mean, we have just migrated the product over. You're absolutely right. I think we've been very pleased with how the FanDuel product has resonated with the Canadian consumers. We're excited to see what we can do now. We've got it on our own tech stack. This wasn't a cold start market. Obviously, this is a little bit more complex to land the market, but I think the product has resonated really well. I don't have the sort of market share figures to hand, I'm afraid. Rob, do you want to talk about the casino stuff?

Rob Coldrake: Yeah, could you just repeat that -- your first part of the question there for us, please?

Joe Stauff: Yeah. Sure. Sure, Rob. I was just kind of referring to the third quarter AMP growth, 28%. I thought I read something, correct me if I'm wrong, that the casino portion of that grew 43% in the third quarter. And I'm wondering, is that all the casino-first product is sort of more of, say, a clarity question?

Rob Coldrake: I can pick it up, Joe. I mean, the 43% is correct. And I think we have been very pleased with the growth in both the direct casino customer segment as well as in cross-sell. I mean, I think we'd always originally assumed we'd get strength in cross sell. I think as I've spoken over the last few results quarters, we've seen real performance in the direct casino space, but look, we're very pleased in both segments. And I think we've got some great product, as I mentioned, in my opening remarks, I think the stuff we're doing with our daily jackpots and stuff, I think is also really resonating with the customers as well.

Joe Stauff: Thank you.

Operator: Thanks, Joe. And our next question comes from the line of John DeCree with CBRE (NYSE:CBRE). John, please go ahead.

John DeCree: Hi, Peter and Rob. Thanks for taking all of our questions. Maybe just one on the UK to start. Obviously, the budget has come and gone, but leading into it, there was a bit of speculation about possible tax increases and that didn't happen. But I think would be great to get your kind of thoughts on anything in the budget that's relevant for you and maybe a comment on the consultation that's expected about possibly consolidating the tax structure?

Peter Jackson: Do you have another question, John? Or...

John DeCree: Sure. The second one was just going to be about the share repurchases now that you've started the $350 million tranche, could you remind us your approach to that? Is it kind of going to be a quarterly announcement, programmatic, a bit more opportunistic and just kind of revisit how we should think about that?

Peter Jackson: John, on the UK, sort of the budget tax changes, I mean, I think it's worth reminding everyone, given our significant scale, we're better placed to absorb any tax changes relative to the market than other competitors there. What the government, the new government in the UK have effectively done is said that they're going to carry on with the work that the preceding government were doing, which was to look at consolidating the various different tax rates in the UK and they are consulting about that. So we'll continue to engage with them. I think there's also been a small sort of NI change in the UK, but that's sort of immaterial really for us from a group perspective. Rob, do want to talk about the share repurchase there?

Rob Coldrake: Yeah. So we're really excited to get going with this share repurchase and we'll commence that later this week. From that point onwards, we'll introduce the next tranche of the buybacks at our Q4 results in March. And we're partnering with Goldman Sachs on this to help us out in terms of the mechanics and looking forward to getting excited going with that later this week.

John DeCree: Great. Thanks, Rob. Thanks, Peter.

Operator: Thank you, John. And our next question comes from the line of Adrien de Saint Hilaire with Bank of America. Adrien, please go ahead.

Adrien de Saint Hilaire: Thank you. Good evening, everyone. So I've got a couple of questions, please. The first one is that Fox has been discussing a lot vocally the fact that they would enforce their option around FanDuel. So just wondering how you see things panning out around that? And then sticking to the UK, can you remind us if your numbers already include anything around the white paper implementation? You touched before on like 50 million to 100 million pounds of impact. Is that already in the UK numbers, or would that come in if ever the white paper was to be implemented? Thank you.

Peter Jackson: Hi, Adrien. Look, I think you need to ask Fox what they intend to do. I mean, clearly, if they were to exercise it, they'd have to be licensed, which I understand is no mean fee. And then once they did that, they'd have to exercise the entire option. And then it would give them the ability to acquire the stake, which is illiquid. So they've got no exit mechanism. And of course, there's the price which you're familiar with. So look, this is something we'll -- that you have to -- you have to ask Fox whether they intend to put their shareholder capital into that or not? Rob, do you want to talk about the white paper in the UK?

Rob Coldrake: So as we stand, we're early in the second year of an anticipated multi-year consultation. We've not seen anything so far to indicate any change to our previously guided GBP25 million to GBP50 million EBITDA impact. And a number of those elements are still subject to further concentration piloting. So we'll have to see how it goes. I mean, what I would say is that we've got ahead of some of the previous regulation, which has stood us in very good stead. And we believe these numbers are in consensus already.

Adrien de Saint Hilaire: Thank you.

Operator: Thanks, Adrien. And our final question today comes from the line of Robin Farley. Robin, please go ahead.

Robin Farley: Great. Thanks. Just a quick one circling back to Your Way and maybe just ask the question slightly differently. When you gave your long-term hold guidance, was this factored into it or would that be potential upside or did that long-term hold guidance kind of assume that you would be developing different things as you approach that? Thanks.

Peter Jackson: Hi, Robin. Look, clearly, we were aware of the Your Way products when we gave our long-term hold guidance. We're out in beta with it at the moment. We're very excited about the product. I think it will provide a lot of excitement and engagement for US consumers. But we don't yet know how people are going to properly engage with it when we have it out there to them. But at this stage, it was factored into guidance. Clearly, our hold rates are higher in the guidance than they are today. And this is part of it, increased parlay penetration be driven by Your Way, More Legs and all those types of things will have an impact on that.

Robin Farley: Okay, great. Thank you.

Peter Jackson: Okay. Look, I think that's it now. So, Greg, thank you very much and to everybody on the call. Appreciate your time. Thank you all for listening and look forward to catching up with you soon.

Operator: Thank you. And, ladies and gentlemen, that does conclude today's call. Thank you all for joining. And you may now disconnect. Have a great day, everyone.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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