Flutter Entertainment plc (FLUT) Q4 2024 Earnings Report, Transcript and Summary

Good afternoon and welcome to Flutter's Q4 and Fiscal Year 2024 Earnings Call hosted by CEO, Peter Jackson; and CFO, Rob Coldrake. Please note, this conference call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. [Operator Instructions] I will now hand you over to Paul Tymms, Flutter Director of Investor Relations, to begin today's call.

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

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

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

[Operator Instructions] Our first question will come from the line of Ed Young with Morgan Stanley.

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

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

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

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

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

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

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

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

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

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

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

I can talk a little bit about some of what we saw in the Super Bowl where the product was available. We didn't particularly market it aggressively. We saw around 1 in 20 customers use the product at the Super Bowl. I think around 90% of the bets that people placed were bets so they couldn't have done without utilizing the customization that's available within the Your Way product. We're seeing -- and I think around 25% of the customers have placed parlay bets of more than 10 legs. So we're seeing really strong engagement with it. People are really enjoying the extent which they can customize and find bets that they couldn't have done otherwise. We're excited to see what we can do with this product as we continue to evolve it. You need to remember, we're solving 2 very complex things with Your Way. One is just sort of enormous expansion of markets that come available for customers. And finding ways and merchandising and simplifying that back to customers so we can give them what they want to bet on quickly. And then secondly, managing all the risk associated with that. And I think the team has done a great job in cracking that but we're just being very thoughtful and careful in terms of how we roll this out to the customer base.

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

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

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

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

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

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

The beginning of the year is always the time when we get a better read on what's going to happen over the course of the year. We don't want to jam anything at this stage. But we're excited that we'll be launching in Missouri in the fourth quarter. You remember at the Investor Day, we talked about the fact we anticipate getting a couple of percentage points of sports betting in each of the -- that sort of 3 years and 1 new iGaming state, I think we remain confident that can happen.

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

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

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

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

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

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

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

Okay. Great. And if I could just ask a second, just to unpick the handle growth question for the U.S. a little bit more. Is it right to think about kind of a lower handle growth environment now as we go through 2025 as people -- as you look to more of those recreational high-margin products that are maybe lower bet size and higher margin maybe up some upside on hold percentages and lower handle growth? Or how should we think that through? Is there kind of any broad guardrails you think about to handle growth?

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

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

First, I know you guys gave a lot of great detail on the U.S. If I look at your kind of normalized revenue and EBITDA for '23 and for -- or sorry, for '24 and '25, it looks like flow-through is in the low 40s. Is there any way to kind of give us a little bit additional color whether it relates to gross margins and being able to get some additional upside there relative to the prior year or even leveraging kind of some of the fixed OpEx buckets? Any additional detail would be helpful?

Dan that any question you had?

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

We're not going to talk about our bidding strategy. It's commercially sensitive. We will be very -- rest assured we'll be very disciplined and we'll -- to the extent that we go ahead, we will put on as good a share as we can. Do you want to...

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

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

Great. Just circling back on handle because we've been getting a lot of questions on it. Just where we -- when we look at it, where your iGaming growth is really strong, we are seeing some handle deceleration. So is that some of your better higher-value players choosing to play iGaming over sports betting? Or is there anything out there? And then just on the Your Way parlay, just to roll that broader -- just to get a broader rollout, are you more -- concentrating more on the merchandising? Or is it more still on the risk management?

Jed, I think the -- I can talk a little bit about the Your Way products. And look, I mean, I think I can make a comment on iGaming and I'm sure Rob will have some follow-up there but -- yes. On the Your Way product, we've got to get the merchandising right from a customer perspective. And so the user experience of having a vastly increased array of product to become overwhelming and we have to make sure it isn't. And so I think the team are doing a really nice job on sort of the user experience that we've made available. But it's no good taking bets on an array of new products if you actually haven't got the pricing risk management right at the same time. I say you've got to solve all of these problems simultaneously. It's very complex but I think the teams are doing a brilliant job and we're really excited to see where we can take this product. It's worth remembering that. I remember being in Australia, where we launched the multi-resolution, as it was then in 2016. And here we are 9 year of facilitating and developing the product. I'm sure Your Way is something which is going to -- will be similar. Rob, I don't know if you want to talk about iGaming?

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

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

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

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

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

More favorites 1 than normally it happened. So I think that's a simple answer.

[Operator Instructions] Our next question will come from the line of Jeff Stantial with Stifel.

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

The thing that we do which is true for acquisition as well as deployment of generosity is we look through a very -- we're very disciplined in terms of how we allocate and spend it. So we want to see a good return. We talk about a 2-year payback from a marketing acquisition perspective and here, we're 18 months. It is true for deployment of generosity as well, making sure it gets to the right customer drives the right outcome is how we're really focused in the business and that's how the team has set up to think about deployment of our very big [indiscernible] for us.

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

Peter, Rob, just wondering how you think about the impact of Your Way, both on structural hold in U.S. as well as your ability to kind of accelerate, say, handle growth. Just curious about -- do you see that as more accretive to your structural hold or what?

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

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

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

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

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

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

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

I think the team have done a brilliant job over the years of negotiating good contracts. I mean I think we have always been very disciplined in how we tackle these and we've been able to use our global experience to help us identify which ones are going to be most attractive. I think the -- there is a lot of change happening at the moment. We're all aware of the sort of fragmentation of rights, certainly increase in streaming. So we're thoughtful about how we continue to ensure that our customers can access the sports they want to watch. I'm pleased with the portfolio we have. Our scale helps us in terms of investing to acquire the right types of rights. And we've got a bigger customer base, we can amortize those across which is important.

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

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

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

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

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

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

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

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

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

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

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

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

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

You might think we've only been talking about parlays in 2024. But as I said earlier, the revolution really started in 2016. The Italian teams are very excited about the introduction of the parlay products to that market. Historically, it's been difficult to deliver from a regulatory perspective but we're making progress. There's some great things that the U.K. teams are doing. And of course, we've got the Your Way up here in the U.S. There's a lot of products coming to bear for customers. I think the team have a brilliant job in terms of keeping our customers engaged and excited. And it is true for what we do in iGaming as well. From a -- you have to customers are really interested and engaged in what's happening from a player perspective. What we can do with all the new markets and the sort of parlay is exciting. There's a whole heap of things around generosity which we're evolving as well. And I referenced some of the things we're doing from iGaming perspective earlier. There's a lot of exciting things to come.

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

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

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