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Operator
Good afternoon and welcome to the Flutter Q2 results call hosted by CEO Peter Jackson and CFO Rob Coldrake. There will be a chance to ask questions later, but I will now hand the call over to Paul Thames, Group Director of Investor Relations. Please go ahead.
Flutter
Hi, everyone, and welcome to Flutter's Q2 results call. We meet this afternoon in New York our Flutter CEO Peter Jackson and CFO Rob Coldrake. To this short intro, Peter will open up with a brief summary of our operational progress during the quarter, and then Rob will run through the Q2 financials that have updated 2024 guidance. He will then open up 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. Reconciliation are included in the results materials we have released today available in the Investors section of our website. And I will now hand you over to Peter.
Peter
Thank you, Paul. I am delighted to be joining you today from New York, the home of our new operational headquarters following our primary listing move back in May. With me is Rob Coldrick, plus a CFO. This is obviously Rob's first call since he started as CFO on May 31st. It has certainly hit the ground running given his experience within the group, and I know he is looking forward to meeting you all in due course. It is also appropriate to acknowledge that in recent weeks, one of the group's founders, David Power, passed away. It was a long-standing support for this business and a great standing board for me and generations of Flutter leaders. May he rest in peace. I will now turn to the performance of the business in Q2. It was a very strong quarter for the group and ahead of market expectations. We delivered an growth of 17% and revenue growth of 20%, reflecting excellent execution against our strategic priorities and positive sports results. We have outperformed in our major markets, US sports and iGaming, the UK, Ireland and Italy, providing great momentum for the second half of the year. In the US, Fangio had an exceptional quarter with nearly 40% share of the entire US sports betting and iGaming market. Our market-leading products, underpinned by the Flutter edge, continued disciplined customer acquisition investments are driving our performance in the market. The improvements we delivered in our NBA, WNBA and MLB products are increasing pilot penetration, driving up our structural hold and player retention rates, resulting in continuing strong returns on player acquisition investments. In the quarter, both AMPs and new players increased by over 30% for sportsbook and iGaming compared to the prior year. This reflects a strong start in North Carolina, where we had 59% of the market and 20% growth in new players from pre-2022 states. These excellent KPIs point to a long runway of growth in these states and the market more broadly. They also vindicate the consistent posture we have taken since the market launched by investing behind Fangio's excellent return on customer acquisition. In iGaming, we completed an important milestone with the migration of Fangio Casino onto our proprietary technology. In time, this will unlock important benefits through access to in-house content, promotional capabilities and also greater platform stability. This, combined with the launch of more exclusive titles and promotional features in the quarter, are further evidence of the fantastic roadmap of improvements we still have for our iGaming players. Outside of the US, the groups Scale and Diversification contribute to AMP and revenue growth of 15% and 10% respectively. The Euros was the marquee event of the quarter, with our UKI and Italian businesses delivering same-game parlay product improvements for players in advance of the tournament. CSO is the first operator to offer same-game parlay in Italy, proof of the benefits of Flutter's Edge when it comes to delivering compelling product advantages for our brands in their local markets. CSO's same-game parlay accounted for nearly 20% of stakes on the Euros and helped deliver a record market share performance for CSO in the quarter. This encapsulates the strong performance in CSO since acquisition, where on a pro-former basis over the last two years, AMP's have increased by 60% and revenue by 37%. In the UKI, all our brands are delivering excellent growth, combining for a 10th straight quarter of market share gains based on gambling commission data. In iGaming, we leveraged the Palli Power brand in launching Palli's Mansion Heist, our most successful live casino game launch ever. In Australia, the previously noted and anticipated declines in the racing market were evident in the quarter. However, we saw strong customer engagement around marquee rugby events, where player acquisition doubled year on year. Overall, the group had a very strong quarter, strengthening our leadership position in the And with that, I hand you over to Rob.
Rob
Thanks Peter. Good afternoon everyone. Thanks for joining the call. It's a really exciting time to be stepping into the CFO role and I'm delighted with the current momentum in the business. The group delivered a really strong performance in the quarter, with revenue growth of 20% and adjusted EBITDA growth of 17% to $738 million. The group had netting income of $297 million on a reported basis, which is after non-cash expenses, including the amortization of acquired intangibles of $147 million and a $91 million gain on the fair value of the Fox option. Polluted earnings per share increased 290%, while adjusted earnings per share increased 56% due to the strong financial performance and the positive movement in the Fox option. Free cash flow was $171 million versus a cash outflow of $95 million in the prior year. Our strong deleveraging profile saw our leverage ratio reduced to 2.6 times from 3.1 times at the end of December 2023. We are almost within our medium term leverage target range, 2 to 2.5 times. We look forward to updating you on our capital allocation framework and the range of capital allocation opportunities we have at our Invest Today on September 25th. Starting now to each of the segments. In the US, the exceptional quarter noted by Peter translated to excellent financial returns, with revenue growth of 39% and adjusted EBITDA growth of 51%. Pleasingly, the strong growth is across all state cohort types, with pre-2022 state launch revenue up 33% year over year, including pre-2020 launches 27% higher. Sportsbook revenue grew 41% from stakes growth of 35% and a fair expansion of our structural Sportsbook net revenue margin. Our gaming revenue was 47% higher, reflecting the gains we are making in the direct casino segment of the market from the product improvements the team has delivered over the last two years. This revenue performance combined with operating leverage and sales and marketing helped deliver adjusted EBITDA of $260 million, well ahead of market expectations. Outside of the US, revenue increased 10% due to strong performances in UK and I, and international. In UK and I, the combination of continued eye-gaming momentum, the European football championships and positive sports results drove revenue and adjusted EBITDA 18% higher. Sports results were very favourable in the quarter, adding 190 basis points to our Sportsbook net revenue margin. Positive results were most notable during the Euros which continued into July. The previously noted softer Australian racing market resulted in associated -on-year declines in that market, with revenue down 10%. In international, the addition of max debt and 12% constant currency revenue growth in our other consolidate and invest markets, drove revenue 16% higher on a constant currency basis. Starting now to our updated guidance for 2024. In the US, we have increased our midpoint revenue guidance to $6.2 billion and adjusted EBITDA midpoint to $740 million. This equates to -over-year growth of 41% for revenue and 219% for adjusted EBITDA. This reflects the strong momentum we have in the business, including the excellent performance in Q2, including the sports results benefit, and is after the $40 million net impact of the tax changes introduced in July. The gross tax impact in Illinois is $50 million in 2024, and we expect to mitigate 50% of the tax from 2025 onwards. That is prior to any additional second-order benefits such as market share gains from subscale players, which we have typically seen where regulatory or tax changes have been implemented in our other markets. On a quarterly basis in the US, we expect a small EBITDA loss in Q3 and significant earnings to be generated in Q4. In the Group X US, we now expect both increased revenue of $8 billion and adjusted EBITDA of $1.77 billion at the midpoint of our guidance. This equates to -over-year growth of 8% for both metrics. 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 in a consistent regulatory and tax environment. This guidance demonstrates the strong momentum we have across the Group. With that, Peter and I are happy to take your questions. In the interest of time, can we ask that, as usual, we limit to two questions per person? With that, I'll hand you back to Jeremy to manage the call.
Operator
All right, thank you so much. To ask a question today, please press star, followed by the number one on your telephone keypad. All right, our first question comes from Clark Lampen from BTIG. Please go ahead.
Clark Lampen
Thanks. Good evening, guys. Appreciate you taking the questions. Peter, I wanted to see if we could open up by talking about US performance. Two key results were nicely ahead. Full-year guidance was raised in Ettaville, Illinois. I think Rob said pre-22 state growth was up 33%. Could you give us a little bit more color around, I guess, just what's sort of driving, you know, sort of strong results right now and what also is embedded for back-half guidance? Second question I have is related to the 40 million net headwind that you guys called out from Illinois. As we think about managing potential additional increases in taxes going forward, what are the key levers that you guys have at your disposal to mitigate those headwinds and is a potential tax surcharge on player winnings maybe part of that calculus? Thanks very much.
Peter
Thank you for the questions, Clark. It's nice to be talking to you in your time zone for once. And long may this continue. Let me give you some thoughts around the US performance. And then I think I'll probably ask Rob to give us the major building blocks. As I said in my opening remark, I'm really pleased to see the strong performance in Q2. I think it's a really good vindication of the posture that we've adopted in the market of acquiring as much business as we can whilst ever we meet our return criteria. And to remind you that's just to make sure that we can see less than a two-year payback. And I think we pushed hard in the first half and you can definitely see the benefits of that come through in the player numbers, the increase in acquisition that we saw in Q2. I think it's done this really good stead as we go into the back half of the year. But maybe you want to talk about the building blocks. Yeah,
Rob
I think first of all, Clark, I'm delighted to be talking about an upgrade to the four-year guidance for revenue and the Iudora, my first earnings call. As Peter said, you know, a terrific performance in Q2. And that's partly driven by the positive sports results. What we see as a result of that is extremely strong drop through in Q2. And I think we're looking forward to the second half. The second half of the year still accounts for 40% of the revenue upgrade, but that won't directly drop through to Iudora for a couple of reasons. Firstly, we're choosing to invest a further 20 million behind customer acquisition given those returns that we continue to see well within our kind of 24-month paybacks that we've previously stated. That momentum should set us up really well for 2025 as we take a larger business into next year. In addition, we've got an additional 20 million dollars of operating costs. And that's partly due to the higher payment costs, which have been driven by the changing player behavior and more frequent deposits and withdrawals and partly due to some additional costs associated with the beyond play acquisition. If you then factor in the net Illinois impact of 40 million, you get the full year guidance. So essentially the full year upgrade, excluding Illinois, drops through at 35% or 15% ex-Illinois.
Peter
So we're
Rob
absolutely utilizing
Peter
this. Thank you, Rob. And I suspect, you know, Clark, you've got a question around the situation in Illinois. And I can imagine that a number of other people will have questions around how we're thinking about positioning ourselves in it. So I think it probably makes sense to me just to give a slightly more expansive answer to that question. And then I don't anticipate us needing to answer the question subsequently for other people. To start with, I think it's important to recognize that there's a happy medium for tax rates that enables operators to maximize market growth, provides the best experience for customers and over time maximizes revenue for states. And most states have taken a sensible approach to date. I do think, though, that instituting a grantorated tax system that punishes those who've invested the most to grow their businesses is wrong. I think it will drive customers to offshore operators or potentially to onshore operators who are operating unregulated and untaxed prop parlays under the guise of sweepstakes. We have lots of pattern recognition of operating internationally in high tax locations. And our experience is that moderating levels of generosity or indeed reducing local marketing is the best response. As Rob mentioned, we often find as well that smaller players may also have to increase their prices, which leads to us capturing more share, which provides an offset for us. And so we think that the moderating levels of generosity and reducing local marketing is the best customer option. And we have no plans to introduce a surcharge for
Rob
winners. Thanks very much.
Operator
Our next question comes from Jordan Binder from Citizens JMP. Please go ahead.
Jordan Binder
Good afternoon, everyone. Maybe just to follow on the CPA questions. In 2Q here, that's been a big theme or topic across most players in the space. So are you seeing acquisitions costs fall kind of equally across iGaming and sports betting? And can you maybe point to why is this happening maybe year to date? And then the second question off of that, the updated US guidance implies an increase in OpEx for the full year, even after kind of accounting for the Illinois impact. Are the declining CPAs kind of that core reason why you're stepping up investment here or is there anything else you're seeing into the market or into football season here that kind of allows you to invest more? Thank you.
Peter
Thanks, Jordan. On a CPA basis, if I look at Q2 this year and Q2 last year, we actually would see that our costs have come down a little bit, even with the significant increase in customers that we, customer numbers that we've acquired. It's often difficult to try and look very precisely at it because you do get an impact of new state launches, which can often dilute the CPA cost because of our large DFS, customer base that we can cross sell into and other mechanisms that we have that give us advantages. So I think what's important is that we're maintaining the consistent posture that we've had in the market to acquire as much business as we can whilst we meet our return criteria. We're very confident in offering the best prices to customers in the market and the best products in the market that we will maintain high levels of customer lifetime value and together with the significant benefits of getting customer acquisition, it gives us real confidence to continue to acquire as much business as we can.
Jordan
I think in relation to... Great, thanks Peter. The second
Rob
part of your
Jordan
question,
Rob
George. So as Peter said, A, we're investing behind what we're seeing as some very strong paybacks. I think from an operating cost perspective, we've got the beyond play cost that I mentioned in the second half of the year. We're also seeing some slightly higher payment costs. We're very comfortable with the position that we've got for the second half of the year. As I mentioned also earlier, we've got some very good momentum coming into the second half of the year from a revenue perspective. One of the other things that will be very focused on for the second half of the year moving forward is actually driving more operating leverage. All the costs are coming into focus. We're really looking to be as efficient and optimal as we can from a cost based perspective. But we do have a couple of additional costs. I think in addition, you've got the cost that we previously outlined in terms of investing behind the FlutterEdge capabilities and also some regulatory compliance costs in conjunction with our US listing. But we previously signposted both of those and they're in line with our expectations.
Jordan Binder
Awesome.
Operator
Thank you both. Our next question comes from Ed Young from Morgan Stanley. Please go ahead. Good evening.
Ed Young
My first question is on the cohort growth that you talked through Rob on slide six. It presents as very bullish to see obviously strong growth across all these different cohorts. I perhaps wonder if broad brush you could give some color on the relative mix of growth and revenue per amp growth you're seeing across those different cohorts just to give us some understanding over what's driving some of that across the different areas. And then second of all, perhaps a novelty of a non US question in UK and I obviously the euros was known to be a good event, but you've got to have much stronger. I came in growth and sports but in growth, I just wonder if you could give a bit more more color on what's driven that and how you've seen the tournament progress from where you were pre tournament.
Peter
Thanks. Hi, Ed. Good evening. Let me give you just a few thoughts about the cohort growth. And I think this is probably where you're coming from. But we continue to see an increase in increases and things like our parlay penetration in our historical cohorts. I think that's been something which has been very beneficial to us. If I think about that together with the step ups we've seen in our structural margin position has really helped drive the historical cohort performance. You know, I think it's it's as true and you can see that in all of the different timeframes that we that we lay out. Well, but there was any you want to say about. Yeah, I think specifically,
Rob
I think, you know, we're very confident in the major cohorts and the growth that are driving. So pre 2022 state acquisition revenue was up 16 percent and 20 percent in 2022 and 2023 cohort state revenues up to 45 percent. So, you know, we've got some incredible growth coming through there with regards to the UK performance and the euro specifically. I mean, we're absolutely delighted. The fact that Harry Kane didn't have his shooting boots on helped us with that. Mostly exited Q2 with some great momentum and that continued into the third quarter with the first half of the month with the euros. In addition to that, I think what's what's almost more encouraging for the UK is the gaming performance. So we're seeing some excellent gaming momentum this year and actually all four brands in the UK are posting gaming growth of 20 percent plus year on year, which we're particularly happy with. So, you know, you gave in very good shape at the moment as we move into age two.
Flutter
Thank you.
Operator
Our next question comes from Ryan from Craig, I'm capital group. Please go ahead.
Ryan
Hey, good afternoon, guys. I want to start. There's been a couple of rumors. You might sign an agreement with Diamond Sports Group during naming rights for regional sports networks separately, potentially looking at Penn Interactive ESPN. I think that no need to comment specifically on those rumors or directly, but curious how you think about media tie in and what you've learned from other markets. And then secondly, second question, Caesar is sold their intellectual property for a world series of poker to GG Poker, your main global competitor. They're just curious how you think that may impact the competitive dynamics and in your strategy around poker. Thanks. Thank you.
Peter
I think we've we've we've always been able to benefit from our strong media tie ins here in the US. Yeah, scale is definitely our friend. And we I think if I look at historically the way in which we've been able to showcase our products and pricing with good integrations, I think it's always been important for us. And I think it's part of what helps with our strong customer acquisition performance. I think it's, of course, really important. You've got quality product. You can back it up with. There's no point in people testing and trying to get products and finding that they don't like it. We're fortunate we have the best product in the market. Yeah, I think from a Caesar's perspective, you're right. They have done this deal with I think with GG Poker, the global competitor to our poker business, albeit one which operates in a lot of markets that we wouldn't be prepared to operate in. I think there's some interesting questions there for some of those people involved. I think the poker business provides us with an important opportunity in the US market. I think the extent to which we can get shared liquidity across states can give us some advantages. There is a when you look at it around the world, poker is breaking down into smaller segments from a liquidity perspective. And I think we're reasonably in a reasonably strong position in some of those regulated markets because of the strength of the local hero brands that we have. Yeah, I think just
Rob
to
Peter
add to Peter's
Rob
point, from a poker perspective, we talked about at Q1 the fact that we've started to embark on a transformation for poker staff. That's progressing really well. Very pleased with the progress. And actually by later this year, we'll see our poker platform rolled out into Italy, which I think demonstrates our agility and how quickly we can move there. Also from a performance perspective, a poker staff is doing very well in the US. We're seeing some real green shoots and very optimistic about how big that business can become there. I think secondly, when you look at the poker staff business in the rest of the world, we continue to see the positive impacts of some pricing initiatives that we've put in play. We've made some changes to the loyalty, which has resulted in cost savings. And we also have a number of offset savings across our casino products. So we're really happy with the way that we're trending on poker overall. Great. Thanks, guys.
Operator
All right. Our next question comes from James Rowland Clark from Barclays. Please go ahead.
James Rowland Clark
Hi. Good evening. Thanks for taking questions. My first question is on Australia. You said there's no change to online trends and the upgraded EBITDA guide is sports results driven. Can you just give us some color on what you're focused on, particularly there that provides some confidence that the trends have bottomed out, as you previously mentioned? And then secondly, it's a slightly nitty-gritty question on the interest charge, which has guided up from 370 million to 405 due to a delay in previously expected interest income benefits. Is this raising the interest charge now for years or is this just a timing thing? Thank you.
Rob
Yes, so I can pick up both those questions. So firstly, in Australia, I think we're really pleased with the performance that we've seen in the quarter. I think it's demonstrating a really resilient performance in the face of what's a tough regulatory backdrop. So as we said, we're seeing really good customer momentum and underlying trends are in line with the expected market to collide that we previously signed postage. We're particularly seeing strong customer engagement on market events like the Stakes of Origin games and rugby, where we've doubled the customer acquisition year over year. So it's really good momentum in sports in particular, in Australia outside of racing. And as we said, we've had a benefit from sports results in the queue as well. So factoring all of that in, that's driving the upgrade in Australia, which we're very pleased with. I think from an interest perspective, some of the projects that we had talked about previously to unlock cash efficiency across the wider group now won't land until 2025, when we'd originally envisaged from H2 2024. So that's making it a path to change. In addition, when I've come in and we've had a look at the forecast, it was quite evident that some of our interest rates and cash assumptions in H2 were quite optimistic. So we have tweaked those and revised the forecast accordingly, which is why it's now seeing a slightly higher number. But we're very confident in the number that we've now got. And that's what we think will hit for the full year. I think just to add to that as well, we did finance refinance some very expensive euro and US debt in May. We'll see that the benefit of some interest cost savings in that versus the current run rate in H2.
Operator
Our next question comes from Dan Pulitzer from Wells Fargo.
Dan Pulitzer
Please go ahead. Hey, good evening, everyone. Thanks for taking my question. The first one, Peter, maybe could remind us on some of the parameters through which you evaluate M&A. And how do you think about US opportunities or maybe balancing these relative to opportunities in Brazil or other jurisdictions? And acknowledging here your leverage, I believe, is 2.6 times. Your target is 2 to 2.5 times. Maybe how high would you be willing to go for the right deal? And then secondly, your flow through, I believe you mentioned it was about 35 percent for the back end of this year, ex-Illinois. Is that kind of the right ballpark to think about your flow through on a normalized basis from here? And that's it for me. Thank you.
Peter
Thanks, Dan. I'll answer the M&A question and then we'll talk to you about the flow through. I think the first thing to remind everyone is we've done a lot of M&A here in the US and internationally. We recently acquired Beyond Play. We also bought the financial business back in 2018 as well. So we will be happy to make acquisitions in this market if we think it will help us. It's also important to recognize that internationally there are many, many markets in either regulated or soon to be regulated markets where we're not yet present with either a podium position or certainly some gold medal position. And we've had a great track record of acquiring businesses in those markets, applying the Flutter Edge and seeing a big step up in performance. C-SAL is a great example of that. Actually, Tombola is another example of us doing it in the market. We've had great experiences in a jar of that. All around the world we've got great experiences. We pride ourselves on making sure that we look at almost everything that gets traded in our space. And if necessary, we will go beyond our leverage targets to do the right type of deal if we've got something to leverage quickly. That is what you see. But as recently we're bringing our leverage down now off the back of the very strong growth in earnings in the US.
Rob
With regards to the flow through question, a couple of points to mention. A, we are going to see some difference in flow through by quarter as we move forward because it can be impacted by a number of factors, including both sports results and seasonality and also where we see opportunities to continue investing at the level of paybacks that we talked about. We'll continue to do so because that's what's driving our superior returns. That's what's driving our market share gains and our overall kind of virtual firewalls of business. So we're not holding ourselves or anchoring to a specific number. But we are quite confident at this stage that given the momentum we've got, we will continue to see a decent drop through on the incremental revenues that we're driving.
Operator
Thanks so much. Our next question comes from Paul Rudy from Davie. Please go ahead.
Paul Rudy
Hey, good evening guys. Just two from me. Well, probably both interconnectives. Just on the maybe the competitive intensity. Firstly, maybe in Icasino when you think about that MGM, speaking to increased investment in Icasino, is there anything there you feel you may have to respond to? And the second, similarly, in the sports sphere, there's a couple of operators speaking about refresh product launch. Could you kind of give us some detail on why you think your product advantage will retain into the new NFL season?
Peter
Evening Paul. I mean, fairly straightforward responses for you. I think from a competitive intensity perspective, we've always maintained that what I would describe as a robust posture, acquiring as much business as we can, whether that's in the states which just do sports or the states that do sports and I gaming. Of course, we get the benefit of the cross-sell for I gaming. But we're very pleased with the performance in the first half. We talked about Q2 today and Bob just referenced what we're going to do to think about continuing to push hard in the second half of the year. It's not just around investment in marketing. We have also been investing a lot in building out our product capabilities. I'm really pleased when I look at the performance of Carl A's in MLB at the moment. Historically, it wasn't an area of strength for us. We've almost got to the same level of penetration as we would do in things like the NFL. So clearly the product advantages we've been having, we've been doing a lot of a lot of rounds of live betting. And there's a backload of things that we're going to deploy to take our product forward into the new football season that launches at the beginning of September. So we've got the best product in the market. We've got the best pricing in the market. And we intend to work very hard to keep a long way ahead of our competitors.
Operator
Thank you. Our next question comes from Joe Stoff from SIG. Please go ahead.
Joe Stoff
Hello, Peter. Rob. I had two questions, please, on the US. Amp growth in the quarter, 27 percent. I was wondering if you could disaggregate that for us between OSB and iCasino. And then to with respect to the effort to in source a lot of the say technical and text text that capabilities of your US iCasino offering. Where are you in that process? The reason I ask is I'm trying to anticipate, say, the gross margin pickup you get once that's fully in house. Thank you.
Peter
I know. Well, it's a great question because I'm delighted to say that we've actually brought our gaming product in house in the US. And it's not it's not a cosplay, but it's certainly going to improve our ability to deploy our own in-house content into the US market, which is not something we've been able to do in the past. It's also going to help improve things like the stability of the platform as well. So we we will definitely drive benefits of it. Yeah, I think there's a lot of exciting initiatives that we can deploy off the back of it. Well, whether you want to just talk about the the amp. In
Rob
terms of
Peter
the app,
Rob
we're
Peter
we're
Rob
both sportsbook and I gaming. And, you know, that's very much continuing into the into the second half of the year.
Joe Stoff
And just to clarify, Peter, so it is 100 percent then say in source at this point in terms of the the casino tech sex.
Peter
Yeah, I mean, clearly the big part of our gaming is working with third party providers. Yeah, we'll continue to work extensively with partners in that space. But when I look at all the work that we've done around deploying our own cross product promotional engine into I gaming, the stuff that you'll see us doing around that, all the work we've done around the lot of the stability control. So there's a lot of things that we've been able to bring from our experiences around the world and into the US market. And we we now sit on our own in-house text.
Joe Stoff
Thanks very much.
Operator
All right. And as we continue, since we are running low on time, we would like to ask everybody that's a question to limit themselves to one. All right. We will continue with Monica Pollard from city. Please go ahead.
Monica Pollard
Oh, hi, afternoon, everyone. OK, I'll stick to one then on the US gross margin to the gross margin was really good in the quarter. Forty five point one percent. Presumably, if I just think about, you know, how you've been growing in the different states, there's been some scaling therefore of the non-tax cogs. So I just want to understand what sort of initiatives are being put in place there. And also, when we think about the full year gross profit margin, we talked about forty three and a half percent. Obviously, that was excluding the Illinois tax impact. Is that still the guide, the Illinois tax impact, or has that been also increased?
Peter
Hi, Monique. I think one of the points I just made is to remember the impact of those false results, which has quite a profound impact, particularly when not all of our cost of sales are, you know, are to do about 25 percent of impact on handles. So it's that will have a bearing. But, well, I don't know any more details you
Rob
want to. I think there's probably a couple of points to mention, Monique. I think one is when you look at cost of sales more broadly here, we now expect it to be roughly fifty six point eight percent revenue, which is very much in line with the previous guidance of fifty six and a half percent. When you look at the composition of our cost of sales, obviously as Peter said, some of it's driven by sports results. But there are some other levers that we can put in cost of sales and we will pull over time. If you look at payment costs, for example, we had an increase in payment costs as a function of our deposit and withdrawal system. We've got set up for our customers, which essentially makes it easier for them to deposit and withdraw. They love that feature. But, you know, as a percentage of revenue, the payment costs are about six percent of our revenues. So it's quite a significant cost. But we've got significant pattern recognition from other markets, you know, across the world, other jurisdictions where we've lent into payment costs and reduced them over time. We definitely see some opportunities to do that in the US. That's a system coming in next year where we think we'll start to make some in-routes payment costs. You've got other things as well in cost sales, like GEO comply costs. You know, that we also think that over time we'll be able to address. So, yeah, in line with guidance, there's a number of things that levers that we think we can put on cost of sales moving forward to stay within the longer term guidance that we previously outlined.
Operator
All right. Our next question comes from Robert Fishman from Moffitt and Nathanson. Please go ahead.
Robert Fishman
Hi. Good afternoon. Peter, in your recent write up on the similarities between Flutter Edge and Fergie's ManU, you discussed the importance of developing and maintaining a distinct competitive advantage. I'm just kind of curious if you can talk about your confidence of maintaining or even growing your number one position in the US and if you want to speak about the success of North Carolina, I think that's a good example.
Peter
Yeah, Robert, I think it's, I'm pleased you read the article. Look, I think it is important when you look at the business that we've assembled globally and the way that we've been able to do that in a way that empowers each of our local markets. I think, you know, businesses are trying to do things in a central place, you know, can often get bogged down with, you know, trying to coordinate things around product road maps and stuff like that. We think it's really important to have local teams delivered and delivering on what's required in the local market. But what we're doing through the Flutter Edge is we ensure that in a small number of areas, we have really good examples of the teams supporting each other. I call that actually, you know, what we're seeing here in America with our strength in our casino business. A lot of the teams who are leading that come from around the world and have had great experience and pattern recognition of having run big casino operations for us elsewhere. We've been able to bring things like our reward mechanic into the market from our UK business and we've been able to bring technology from other markets as well. So I think what we've done here in casinos is a great example of the Flutter Edge coming to life. When you look at the same game parlay, so we're the first to bring that to Italy, and I mentioned earlier, 20% of our customers in Italy use that in the euros. That's another great example of the Flutter Edge in action.
Operator
Our next question comes from Jed Kelly from Oppenheimer. Please go ahead.
Jordan
Hey, great. Thanks for taking my question. Just going back to the taxes and I get not implementing the surcharge, but can you talk about just given your experience in other jurisdictions, how you Flutter can be proactive in terms of preventing sort of some of the state contagion, especially if some of your WIG margins continue to go up?
Peter
Thanks. I think you've probably sneaked in in terms of a slightly different approach to the point I made earlier. We do operate in a lot of different markets around the world. I think when you look at it, there are plenty of examples we can highlight where in some places where they've pushed the tax rates up, they've actually seen the tax take defy. So these are not straightforward decisions for these bodies to take because it may not actually achieve what they're aiming for. We'll all be familiar with the LASA curve. There are optimal points, we believe, for taxation to be set. And we try and spend as much time as we can educating and sharing our experiences with with state bodies to ensure that they can achieve the best outcome for themselves and for customers as well.
Operator
Our next question comes from Joseph Thomas from HSBC. Please go ahead. And you may be on mute if you're trying to talk. All right, we'll move on. Our next question comes from Simon Davies from Deutsche Bank. Please go ahead.
Joseph Thomas
Hi, guys. This one from me. Brazil looks like it's finally set to launch in the new year. Can you just talk a bit about how well you're positioned in that market? And is it one of those markets where you might need to bring in M&A to scale up?
Peter
Hi, Simon. Yeah, look, I can remember talking about Brazil in our preliminary earnings call in 2018. So, you know, I mean, we're finally getting there when the regulation is going to pass this time. We are excited about it. It's a tremendous country. I spend a lot of time there. You know, they're all absolutely sort of soccer mad. I've seen a lot of betting that happens in the market today. I think we're reasonably well placed with our Betfair brand in that market and of course, we also operate Pokerstar there as well. But, you know, we are ambitious. We like to have podium positions and ideally we like to have gold medal positions. We've been able to do that organically in many markets around the world, but we've also in time often resorted to M&A. And we think that when we do that, we're able to apply the flutter edge and supercharge these businesses. So we will work out what we want to do in Brazil. And when we made a decision, we'll let the market know.
Operator
Our next question comes from Andrew Tam from Redburn. Please go ahead.
Andrew Tam
Hi guys. Thanks for taking my question. So at the start of the year, you played pretty well that it was a tack towards leaning into customer acquisition. Are you satisfied with your efforts during the first half? Do you think you could have gone harder in that regard? And then just as a follow on, is there a natural tempering of expectations given the hit to customer ATVs in certainly in the Illinois market given the change there? And does that mean there's a reallocation of spend out of that market into other states? Thanks.
Peter
Andrew, we have talked in the past about having looked at historical performance and wishing we'd leaned in and done more. Yeah, and partly that's because we found that the lifetime values of customers has ended up being greater than we had originally anticipated. I think that, you know, and that's in part because of better retention. In part, it's been the stronger cross-selling into iGaming. It's also been because of the expansion of our grocery margin to the parlayer penetrations and things like that. If you look at the performance in Q2, all of those things continue to be true. And so I think historically we would always wish we had acquired more business. I think we did push hard in Q2. We kept within our guardrails and I think the team delivered a great job. We continue to refine our playbook and if we think there are further opportunities to push and we can deliver the great returns, we will.
Operator
All right, and our final question of the day comes from Robin Farley from UBS. Please go ahead.
Robin Farley
Great. Thank you. I wanted to circle back to your not having plans to introduce the surcharge. I'm just kind of curious why you wouldn't see it as an opportunity to recapture, you know, a significant part of tax expense, you know, not only in Illinois, but also New York and Pennsylvania, and maybe even prevent future states that might be following what Illinois did. I mean, if you as a market leader, it seems fairly low risk if the two market leaders both pass along the cost and no one's really at a competitive disadvantage. So just kind of curious why not take that opportunity. Thanks.
Rob
Robin, I doubted that earlier and I'm standing further today.
Operator
All right, now we will get a question from James Wheatcroft from Jefferies. Please go ahead.
James Wheatcroft
Good evening, Peter and Rob. Just a question really around product and development as we go into the next NFL season. I'm particularly thinking about bet in play and how that's going to be incremental to the parlay product, how that will shape over the course of this following season and into next year,
Peter
please. Hi, Jane. Yeah, I think if we look at Q2, we were really pleased actually with how our investment in line betting helped us. I think we mentioned that we saw the proportion of customers betting in the NBA playoffs was four times higher than we had done previously. So it's definitely helped when we improved the quality of the product. And for the NFL, we've got some great initiatives and plans that we plan to get behind the same game parlay lives for the season start. So yeah, it's an important product for us.
Operator
All right, and that does conclude the Q&A. I will now hand it back over to Peter and the team for closing remarks.
Peter
Okay, thank you, everybody, for joining the call. It's been fantastic to do it from here in our operational headquarters in New York. And I hope all of our US-based analysts have appreciated not getting up in the middle of the night for this evening's print. But we're delighted with the performance in Q2 and look forward to catching up with you all soon.
Operator
That concludes today's presentation. Have a pleasant day.
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