Brightstar Lottery PLC

From our earliest days igniting the lottery technology revolution to now managing the most innovative and successful lotteries in the world, we have always understood something fundamental. Innovation makes the promise, but our people keep it. So whether it was introducing the first networked terminals over 40 years ago, becoming the world leader in lottery ticket vending machines 20 years ago, or launching the next generation of mobile games tomorrow, our partners have always known they could count on us to guide them into the future. But more importantly, they've always known they could count on us. And helping their businesses grow has helped us grow our business to be the primary technology provider for seven of the ten largest operators in the world. We are Brightstar. From preserving history in Italy to medical research in Belgium. from the Great Wall of China to the public schools of California. For centuries, lotteries have been the foundation of funding for public services and infrastructure. But what is the foundation of lotteries? Integrity, reliability, and trust. Because a lottery can only be as good as the people behind it. From our earliest days igniting the lottery technology revolution to now managing the most innovative and successful lotteries in the world, we have always understood something fundamental. Innovation makes the promise, but our people keep it. So whether it was introducing the first networked terminals over 40 years ago, becoming the world leader in lottery ticket vending machines 20 years ago, or launching the next generation of mobile games tomorrow, our partners have always known they could count on us to guide them into the future. But more importantly, they've always known they could count on us. and helping their businesses grow has helped us grow our business to be the primary technology provider for seven of the ten largest operators in the world we a bright star from preserving history in italy to medical research in belgium from the Great Wall of China to the public schools of California. For centuries, lotteries have been the foundation of funding for public services and infrastructure. But what is the foundation of lotteries? Integrity, reliability, and trust. Because a lottery can only be as good as the people behind it. From our earliest days igniting the lottery technology revolution to now managing the most innovative and successful lotteries in the world, we have always understood something fundamental. Innovation makes the promise, but our people keep it. So whether it was introducing the first networked terminals over 40 years ago, becoming the world leader in lottery ticket vending machines 20 years ago, or launching the next generation of mobile games tomorrow, our partners have always known they could count on us to guide them into the future. But more importantly, they've always known they could count on us. and helping their businesses grow has helped us grow our business to be the primary technology provider for seven of the ten largest operators in the world we a bright star

Ladies and gentlemen, thank you for joining us and welcome to Bright Star's Q4 2025 and full year 2025 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star again. I will now hand the conference over to James Hurley, Senior Vice President of Investor Relations. James, please go ahead.

Thank you, and thank you all for joining us on Bright Star Lottery's Q4 and full year 2025 conference call, which is hosted by Vince Sadusky, our chief executive officer, and Max Chiara, our chief financial officer. After some prepared remarks, both Vince and Max will be available for your questions. During today's call, we will be making some forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees, and our actual results may differ materially from those expressed or implied in the forward-looking statements. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our latest earnings release and in our SEC filings. During this call, we will discuss certain non-GAAP financial measures. You'll find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in our press release, slides accompanying this webcast, and our filings with the SEC, each of which is posted on our investor relations website. Our statements are as of today, February 24th, and we have no obligation to update any forward-looking statements we make. Now I'll turn the call over to Vince.

2025 was a transformational year for Brightstar. The divestiture of the IGT gaming business reshaped the company into a focused, pure play lottery leader. We strengthened our balance sheet, improving leverage to the best levels ever, secured the critical Italy lotto license, and introduced a multi-year capital allocation strategy that both increases returns to shareholders and provides investment capital to fund Brightstar's growth initiatives in digital, core technology, geographic expansion, retail points of sales, and printing. We generated $2.5 billion in revenue supported by the diversity of our global portfolio. Same-store sales grew nearly 4% for the quarter and 2% for the year, underscoring the consistency and resilience of our global lottery operations. At the same time, we invested heavily in our teams, our technology, and our processes, enhancing the organizational capabilities that will support the next decade of growth. Our Optima program delivered cost reductions, enabling funds to be reallocated to growth initiatives. $1.1 billion of EBITDA in fiscal year 25 represents a 45% margin, even as we are investing for the long term. We also produced nearly $750 million in cash from operations before funding the first two lottery license payments. We returned over $1 billion to shareholders through dividends and share repurchases and announced two consecutive dividend increases, including the new quarterly payout of $0.23, which is a 15% increase from the historical run rate. These actions reflect our confidence in the strength, durability, and long-term growth potential of our cash flows. 2026 will be another year of investment in several long-term growth initiatives. In Italy, securing Lotto for the next nine years provides the opportunity to execute a major digital expansion across iLottery, iCasino, and sports betting, leveraging one of the largest retail networks in the world with over 50,000 points of sale. This is an opportunity to extend our reach broaden our B2C capabilities, and bring new digital experiences to one of the world's most established lottery markets. We are also investing in our US retail footprint by adding new points of sale, deploying self-service solutions, and partnering with national retailers to expand lottery accessibility across the country. Internationally, one of the most exciting developments is in Sao Paulo. As the economic engine of Brazil and one of the largest global metropolitan regions, San Paolo represents a rare, large-market, full-service new lottery launch. We are building this business from the ground up, combining our technology, operational excellence, and game innovation to create a modern, scalable lottery ecosystem across both retail and digital channels. These initiatives, combined with ongoing expansion in iLottery, content, new games, data-driven CRM tools, and advanced AI capabilities, position BrightStar to accelerate organic growth and extend our industry leadership. BrightStar today is the largest and most advanced lottery operator and technology provider globally across both retail and digital channels. Our core business is one of the most stable and predictable models in gaming or entertainment, and it has demonstrated remarkable consistency through all economic times. On top of this solid foundation, we are executing targeted growth initiatives in Italy B2C Digital, iLottery, U.S. Retail Expansion, and Brazil's Sao Paulo Greenfield Opportunity, each of which enhances our long-term growth profile. Despite our leadership position, strong margins, and highly resilient cash flows, BrightStar continues to trade at a significant valuation discount to publicly traded lottery peers, and an even larger discount relative to adjacent sectors such as sports betting and iCasino, which operate with far lower EBITDA and far greater volatility. The current valuation discount versus peers presents a compelling opportunity for investors. With durable cash flows and multiple growth catalysts underway, we are well positioned to realize the full value of our focused lottery platform. Now I'll turn the call over to Max.

Thank you, Vince, and hello to everyone joining us on the call today. Four-quarter revenue of $668 million increased 3% from $651 million in the prior year, beating expectations on elevated U.S. multistage equity activity and strong iLottery performance. 3.5% same-store sales growth included increases across all geographies when normalized for a like number of Italy lotto ball draws. This was more than offset by the transition of the UK technology contract. US multistage jackpot revenue rose year over year, driven by the 1.8 billion Powerball and the 980 million mega million jackpot that hit in the quarter. Other service revenue includes the impact of higher amortization related to the Italy lotto upfront license fee. The new lotto license commenced in early December and adds about 41 million euro a quarter in additional amortization, which is treated as contra-revenue under U.S. GAAP. Favorable foreign currency rates also helped drive the year-over-year increase in revenue. Full year 25 revenue of $2.51 billion was in line with the prior year and included the benefits of increased demand for instant ticket and draw games and favorable foreign currency rates, which mitigated some meaningful headwinds, including $51 million from higher LMA incentive revenue in the prior year, and current year impacts of $18 million from the UK technology contract transition, and $25 million from the incremental Italy lotto license fee amortization. We deliver adjusted EBITDA of $304 million in the fourth quarter, a 5% increase compared to $290 million in the prior year. Favorable foreign currency rates drove the year-over-year increase in profit. Operationally, the high flow-through of elevated U.S. multistage output activity was more than offset by the U.K. transition. Optima cost savings, which are split relatively equally between service gross margin and other operating expenses, were partially offset by project expenses related to contract bids, as well as enhancements of cloud-based solutions and point-of-sales optimization. For the full year, adjusted EBITDA was 1.2%. 12 billion compared to 1.17 billion in the prior year period, as growth in wager-based revenue was more than offset by higher LMA incentives in the prior year, the UK transition, and the timing of terminal and software service deliveries in our product sales vertical. We also incurred higher startup costs associated with the new printing press. Optima cost savings are tracking nicely to our target of around $50 million by the end of 2026 versus a 2024 baseline. These savings are not readily apparent on the face of the financial statements, as they are somewhat offset by the investments in the business that I just described, which we are incurring to drive growth in pursuit of our 2028 financial targets. Sustained cash generation funded key investments and significant shareholder returns in 2025. On a full year basis, both cash from operations and free cash flow included $926 million related to the first two installments of the Italy Lotto upfront license fee, which were paid in July and December of 2025. While the full amount of the license fees reported in cash from operations Bristar is only responsible for its 61.5% share or $569 million of the amount paid in full year 25. Cash from operations as reported was a negative $193 million or a positive $733 million before the upfront license fee exceeding the recently revised guidance. Free cash flow was negative 509 million or a positive 417 million when you make the same adjustment. As a reminder, the lotto license renewal occurs every nine years, and these figures do not include the benefit of the pro-rata contributions from our minority partners. The final installment of the upfront license fee is 1.43 billion euros, or approximately $1.68 billion and is expected to be paid in the second quarter of 2026. Bright Star proportionate share of the final payment is 880 million euro or approximately $1 billion. As Vince mentioned, Bright Star delivers significant shareholder returns over a billion dollars in 2025, including $770 million in cash dividends comprised of a $3 per share special dividend and regular quarterly dividends totaling 82 cents per share, and $271 million in the form of share repurchases through a $250 million accelerated share repurchase program and a 10b-5-1 plan. To date, in 2026, we repurchased an additional 2.1 million shares for a total cost of $30 million via the 10b-5-1 plan. We have utilized, to date, 60% of the $500 million share repurchase authorization that was approved in Q2 2025, repurchasing 18.6 million shares, representing a 9% reduction in shares outstanding. $200 million remains under this authorization. In addition, today we announced a $0.23 per share regular quarterly cash dividend to be paid. in March. This represents a one cent increase from the prior quarter when the dividend was raised by two cents. In aggregate, these increases reflect a quarterly cash dividend that is 15% higher than the historical run rate. This reflects our confidence in future cash flows and reinforces our commitment to increasing shareholder returns. Net debt improved significantly to $2.7 billion at the end of 2025, compared to $4.8 billion at the end of 2024, mainly due to the allocation of $2 billion for debt reduction from the IGT gaming sale proceeds. Net debt leverage was also reduced to 2.4x compared to 4.1x at the end of the prior year, providing room to absorb the lotto upfront license fee and still maintain leverage at the manageable level. We expect net debt leverage to peak at around 3.5x following the final installment of the license payment in the second quarter, then begin to decline thereafter. Our target leverage ratio mid-cycle is at or below 3x. Our financial condition is strong, with no significant near-term maturities due in part to the successful issuance of 750 million, 5.75% senior secured notes due in 2033, the proceeds of which were used to retire 750 million, 6.25% bonds due in 2027. And we have over $3 billion in liquidity, which is more than enough to fund our portion of the remaining lotto license fee. Now I would like to introduce our outlook for 2026. We expect to generate revenue of $2.5 billion to $2.55 billion, which includes about $175 million in incremental lotto license fee amortization as a contra-revenue item. This target represents a more than 5% organic growth rate on a year-over-year basis, led by expansion of our core business and Italy B2C digital efforts. and is in line with the three-year CAGR we expect to generate from 2025 to 2028. Adjusted EBITDA is forecasted between $1.16 and $1.19 billion as organic growth and optimal savings more than offset an additional $50 million of investments we are making in growth initiatives such as Italy B2C and iLottery expansion, R&D investments in technology, product, and services, and project costs associated with the extensive contract renewal cycle recently completed and in progress. Our outlook assumes a euro-dollar exchange rate of 1.15 throughout the year. Cash from operations is expected to be a negative 900 million or a positive 750 million when you adjust for approximately the 1.68 billion related to the final lotto license fee. CAPEX is expected to be in the range of $450 to $475 million. About three-quarters of this investment is related to contractual obligations associated with wins and extensions we have already secured. The balance is primarily related to upcoming bids not yet secured. We recently communicated 2028 financial targets with revenue of approximately $275 billion and adjusted EBITDA of around 1.3 billion. 2025 actual results, the 26 outlook and 2028 targets are laid out here to highlight we are on plan to achieving those goals. You can infer we believe the business can generate an average of 800 million in cash from operations in the 2027-2028 period annually, excluding upfront license payment. As a reminder, following the 25 to 28 peak capex cycle, we expect capex to moderate to about 200 to 225 million annually, yielding over 400 million in annual free cash flow before upfront license fees and after minority distributions. This would represent a mid-teens free cash flow yield at the current share price. Now, we'd like to open the call for questions.

Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. First question comes from the line of Jeff Stanchel with Stiefel. Jeff, your line is open. Please go ahead.

Good morning, Max. Thanks for taking our questions and congrats on a strong quarter. And Guy here, maybe starting off on the quarter. So Italy, same store sales up half a percent if you normalize the timing of draws. a little bit below sort of the recent trend and historically it's been about a low single-digit growth algorithm. So can you just maybe dig in a little bit further on what's driving that? And as we think about 2026, sort of how you view that KPI shaping up based on the content launch and the online strategy that you laid out.

Yeah, yeah, sure thing. So when we Reviewed 2025 and the fourth quarter, we'd say we exited 2025 with really good momentum. And that was – the great thing about being international and having strong operations around the world is certain quarters, you've got really good launches of products in certain markets in North America or Italy. Other quarters, you don't. And so having that geographical and product diversity we think is really – you know, is really, really effective. So as you know, Italy's driven a lot of the growth for us, and it turned in the back half of the year where North America was a significant contributor. And I guess a couple of observations when we look at the performance for the year and we think about our plans for 2026. When we look at the first half of the year versus the second half, there was a clear acceleration throughout the year in core sales. The first half of the year, as we know, was challenged as a result of the impact of really low jackpot activity and then the calculation around the LMA at the back half of the fiscal year, just the way the math worked out, unfortunately. In the second half of the year, though, we saw meaningful acceleration. We had strong same-store sales growth, and that came largely in North America. We had better sales. multi-state jackpot performance, which was more in line with the historical averages. And again, you know, continued double-digit eye lottery gains in both the U.S. and in Italy. And our LMA jurisdictions showed, you know, a clear recovery as well. We had mentioned on previous conference calls that we had put some initiatives in place that we, you know, we were hopeful would have an impact. And, you know, New Jersey was up, I think, in the 6% range or so for the back half of the year. which was driven by a longstanding effort by our government relations team to work with the lottery commission in the state to increase the payouts, as well as an incremental drawing. And in Indiana, we had some good game launches, and we also talked in previous quarters about the installation of more automated vending machines to create more frictionless point of sales in the market that seems to be having an impact as Indiana was up, I think, close to 7% in the in the second half of the year. And so I'd say, you know, those things all, I think, bode really well going into 2026. On the Italy front, as you pointed out, you know, the fourth quarter same-store sales normalized was just a little bit, you know, had very low growth. But we had good eye lottery growth. We didn't have the product launches that we wanted. We are going to have those going. We have a pretty robust plan going into 2026. And then the rest of the world contributes less, certainly. But the fourth quarter, same-store sales in the rest of the world were up about 5% driven by Poland and Belgium. So overall, I'd say, despite a more challenging start to the year, we did have a strong second half of the year. And it just comes from different places depending on the timing of product launches, et cetera. When we look ahead to 2026, You know, we've seen, you know, we've been up around 1% or so in same-store sales versus the prior year, and that has been very similar to the way we exited 25 in that it's been led by the U.S. and the rest of the world, Italy's flattish. And, again, we have some new product launches coming up, and as well as we expect, certainly in the back half of the year, more significant contribution from the Italy B2C digital launch that we discussed, as well as we're increasing our network expansion and working with our customers on their development plans. So we think all those things have the capability to deliver growth, especially as the year progresses. That's great.

Thanks for all that. Maybe just one on – there's a note in the release. So, Max, you're stepping away from the board. It sounds like to focus a little bit more on some strategic opportunities and M&A. Focusing more on the M&A side of that equation, what sort of assets do you see as strategically additive to the business? What's the market like?

currently uh perhaps it's being shopped around and and how much of a priority here should we think about m&a being you know called relative to that executing on that multi-year outlet that you laid out for us last quarter yeah so first of all i'd like to kind of uh give a little bit of uh over rationale behind the decision um on stepping uh not seeking re-election to the board after a six-year tenure this has been uh taken in conjunction with the conclusion of the Bright Star Strategic Portfolio transformation that has again just been completed with the sale of the IGT gaming business. And then also as part of a deliberate governance evolution to strengthen the separation between management leadership and non-executive oversight at board level. So in this respect, I will continue to operate in close partnership with our executive chairman, Marco Sala, and with Vince on my CFO duties. as well as, as you said, on the additional responsibilities attributed to me in the areas of strategy and M&A. Speaking specifically on M&A, I'd like to remind everyone that we have a very compelling plan with a significant step up in our growth rate to 5% organic. That plan obviously was drafted during the transition period on the gaming sale and the entails significant strategic initiatives primarily to develop that and favor that growth through various individual engine initiatives. So fundamentally, our plan is commensurate with a significant initiative portfolio of organic growth. but definitely we continue to remain opportunistic on M&A, particularly if opportunities were to arise in the market in areas where we have opportunity to enhance our growth faster and accelerate our plan.

Yeah, I would just add to that. And I would just add, Sorry, yeah, I would just add to that. When you think about the unique space that BrightStar operates in and where it has a significant right to win and significant strengths, it's in the area of digital, in the area of iLottery. This B2C expansion in Italy, our willingness to potentially partner with other joint venture partners internationally, as we've done in Italy and San Paolo, and we're currently looking at other parts of the world. So when you think about, you know, where we would potentially look to enhance what we believe is a strong opportunity for, you know, let's call it organic growth, but it's really, I think, product and geographical expansion that's built into our plan, which requires a significant amount of investment, and we expect, you know, a superior ROI, it would be in those particular areas.

That's great. Thank you both for all the color. If I could just squeeze in one more here on capital allocation. I'm curious, Vince or Max, whoever wants to take this. How opportunistic do you plan to be this year with that remaining $200 million or so left on the repurchase authorization? It seems to be, at least to us, that the market is pricing in a degree of cyclicality here that's pretty dislocated from the historical fundamentals that we've witnessed for a lottery. So just curious how you're, you know, you're approaching this, this pullback in stock relative to the capacity of the authorization.

Next. Yeah. So, um, as I said, during my prepared remarks, uh, we have, um, uh, significantly accelerated shareholder returns during this, uh, six month period. Uh, we have achieved so far about 60% of our authorization on the buyback, but we have also increased the ordinary dividends. and we paid the special dividend in July. So this represents more than 30% capital returns over 2025. And again, the current yield, just on the ordinary dividends, is getting towards the 7% at this point with the stock price of the last few days. Having said that, we continue to be disciplined in our evaluation of the opportunities going forward to continue to kind of devolve and return cash to shareholders both in dividends and buyback. We also obviously want to be mindful of the fact that we have significant commitments with respect to Lotto and other contracts that we need to take care of during the next few quarters. Thank you.

I would just tie on to the buyback question, my sales pitch that I included in my script. You know, it's just I think it's pretty incredible that there's such a meaningful disconnect between our intrinsic value and where our stock trades today. I know a lot of CEOs say that, but, again, I mean, by every investor metric, whether it's EBITDA, multiples, free cash flow yield, DCF, or our valuation below both direct lottery peers and comparable businesses, whether it's in gaming, travel, leisure, infrastructure-like businesses, We increased our dividend, and now that's, you know, at the current trading levels, more than 6% yield, which is far above levels typically associated with companies that have our level of stability and multi-year contract visibility and the resiliency of the business. So, you know, we have engaged in, you know, actively in share buybacks. And, you know, to Max's point, you know, we continue to think through the allocation on a go-forward basis. And, you know, we and our board certainly take a long-term view towards value creation for this business.

That's great. Thank you both. I'll pass it on.

Operator, the next question, please.

Apologies for that. Your next question comes from the line of Barry Jonas of Truist. Barry, your line is open. Please go ahead.

Hey, guys. Good morning. Wanted to start with Brazil. Can you maybe talk a little bit more about the opportunity and how we should be thinking about both near-term and longer-term implications? Thanks.

Yeah, so the Brazil opportunity is significant. We had to invest a significant amount up front in order to obtain the license. It was a deal that, as I mentioned, is pretty rare. As you know, there's not a lot of meaningful greenfield opportunities left around the world. Brazil's been a challenging place politically. It certainly had its ups and downs. We were confident that it met our risk profile after spending a lot of time doing the analysis and the work to understand the stability and the potential competitive threats in that market. Sao Paulo is the crown jewel of Brazil economically. People can afford to buy lottery tickets. It's got a terrific amount of activity. The population really enjoys gaming and wagering. And this is, I think, an area that the government is very focused on and has done the right way and has spent a lot of time in crafting the RFP and the potential bidder and bidder support. In fact, they already have the funds allocated for several hospitals in the area, so they've got a direct utilization of funds. And I think the public sees the direct benefit In order to de-risk both the financial commitment as well as the significant amount of operating startup capital as well as intellectual property knowledge, we partnered up with Scientific Games on this venture. And between the two of us, this is going to be an incredible effort, an incredible entrepreneurial effort to start this lottery from scratch. The point of sale is have got to be billed out, the implementation and installation of all of the machines across the state. It has an iLottery component. Both of us will be printing tickets and contributing tickets to the venture for scratch tickets and game development. And it's a very long-term contract as well. So we're excited about it. As usual, we've got plenty of experience with this. As usual, it will take some time. to generate meaningful cash flow, but we do think this can generate meaningful cash flow. And because it's a 50-50 joint venture, we're excited about the cash flow potential, but this will be an entity that we won't consolidate.

Got it. That's helpful. And then just wanted to follow up on the M&A angle. There's clearly been increasing DEALS ACROSS THE GLOBAL LOTTERY SPACE. YOU'VE ADDRESSED YOUR M&A STRATEGY, BUT HOW SHOULD WE BE THINKING ABOUT IMPLICATIONS FROM ALL THE COMPETITIVE M&A THAT'S BEEN OUT THERE FOR BRIGHTSTAR, WHETHER THAT'S IN A COMPETITIVE OPERATING OR A BIDDING ENVIRONMENT? AND I WOULD JUST NOTE THAT ONE COMPETITOR IS ACQUIRING A COMPANY IN THE U.S. DOING PREDICTION MARKETS. I'M CURIOUS TO GET YOUR THOUGHTS ON THAT DEAL. THANKS.

YEAH, THAT WOULD BE, YOU KNOW, ALL IN ACQUIRING PRIZE PICKS. I think each company in the lottery space, there's not that many of us, have their own strategic, imperative, and strategic direction. And, of course, everybody thinks it's the right one. We think ours is right, given our many years of experience being a leader in the digital gaming space with our Play Digital segment, as well as being a leader in the land-based gaming area with IGT. We decided over many, many years that those businesses did not have significant synergies and were not comparable, didn't help us win any more lottery contracts, and were not leverageable into incremental consumer sales. So we obviously reached a very different strategic conclusion from some of our competitors that have been more active in the M&A market and actually have been acquiring companies that are involved in the iGaming space, the iCasino space, the prediction markets. And we believe that's a completely different business. Now, they have their own strategic goals. Maybe, you know, that's a way to enhance growth, even though it's not a good strategic fit. And then you also have the issue of geography, meaning, you know, many of these acquisitions that they have made or competitors made and the acquisition targets that are currently available are don't overlap very well with our geographies. So we just don't believe that there is a smart thing to do is to go out and pay very high multiple for a business that potentially could grow with a potential of higher growth than lottery, but is not a good strategic fit. So again, as I mentioned earlier, if you see us interested in anything, it would be in the area of enhancing our iLottery game development, enhancing our platform. We are now in the B2C business specifically in Italy. And so that is interesting to us if there is a good overlap with a strong provider of games and consumers in Italy. But we believe very strongly that the greatest value creation comes organically. And the fact is we've built out an outstanding team in Italy to to develop and deploy our iCasino and sports betting. We actually just, on a limited basis, started sports betting this week. We've had iCasino for a couple of months. We believe in the leverageable opportunity from the lotto license in Italy that we can grow and build that business. We've been in that business before. We've been hard at work for many, many years on building out the best iLottery platform. Our games are now top performers in the world in our game development studio for for iLottery, so it's, I guess, along with an answer to we would not, we're not interested in overpaying for things just to potentially enhance our growth that are not a good strategic fit. It would have to be a very strong strategic fit for us. Thank you.

As a reminder to everyone who's dialed in, if you would like to ask a question, please press star 1 to raise your hand. withdraw your question please press star one again please limit yourself to one question and one follow-up our next question is from domenico gilotti of equita domenico your line is open please go ahead um good morning if you question first of all on on the italian market i'm interested in your

first thoughts on your iGaming launch that you were commenting just a second ago. And in general, I'm also interested in having your thoughts on the potential launch of the tender for instant tickets in Italy in 2027. We read about this. I want to understand your idea on that. And the last, if you could be interested, in case of the tender for retail concessions also on this kind of opportunity in Italy. And then more broadly, some color on the 5% organic growth that you are targeting for 2026, if you can give us a feeling on the contribution from the two key geographies.

Okay, I'll get started, and then I'll hand it over to Max to help with the building blocks of growth. So on the Italy digital opportunity, we're primarily administering the B2C experience through our MyLotteries app. We've made really good progress with very little marketing. We've been putting together our marketing channels and opportunities. The great opportunity, of course, is the folks that we touch regularly, roughly a million consumers a month, or we have over a million interactions a month in Italy with people checking their lottery tickets, winnings, et cetera. So we've not begun a significant marketing effort so far through that channel and with our retailers, but clearly that's the opportunity. That all gets launched early this year. We recently hired a seasoned digital gaming executive Victor Kukorian to lead the business. Victor's got great, great experience. We've spent a lot of time together. He's been with Flutter and Fortune Entertainment Group and understands the opportunity to attract consumers and what it takes to have a competitive offering. So today, early days, it's possible you can play Lotto, you can play scratch and win games, you can play iCasino and skill games on our app. even though it has not been optimized. You'll see a very, I think, a product that is every bit as good as the established leaders in the market as the year progresses. But having said that, in fiscal year 25, our lottery wagers in Italy were up over 20% as a result of, I think, continued really good game delivery in the portfolio. Our active users have increased significantly. And, again, early days, but we've gained three incremental points of iLottery market share since we launched the MyLotteries app, this kind of first iteration of the app back in early January with limited marketing. So we're pretty excited about the long-term prospect and the opportunity for us to gain a reasonable share of the iCasino market and sports betting market, which could, you know, in our plan, result over the years in, I think, a meaningful contribution to our cash flow and profitability in Italy. And it naturally leverages our strength in operating the two largest lotteries in Italy. On the scratch and win front, you know, we anticipate, you know, the process for scratch and win will be similar to lotto, where you'll have the law come out and the RFP will be issued. could happen the end of this year. We're closely monitoring it, and we'll see how things play out. And obviously we're very excited about the opportunity to extend our relationship with the state.

So in terms of the building blocks of the 2026 growth rate, I would say that we have the expectation for a couple of points coming from the core, same-store sales growth in the retail lottery business. Probably a 1% on top coming from iLottery. Also LMA, we expect LMA to be positive in the year, primarily in the first half. And then we have an initial contribution from the Italy B2C that is probably going to be in the range of 1% as well. Keep in mind, we have to complete the full circle of the UK transition, which started in August. That is going to be a headwind, obviously, on our top line. And then we have a little bit of product sales increases backloaded into Q4 as we typically season out the product sales in the last quarter of the year. So, again, all growth engines are expected to start cranking up on the 5% three-year CAGR, three-year 5% CAGR that we have laid out with our 2028 plan, already in 26.

Yeah, no, the last comment, I know you're focused on Italy. I would make, Domenico, is around the performance of Italy in 2025. So, again, so much of the The quarter-to-quarter performance is based on the timing and the cadence of new game launches in each jurisdiction. If you step back and you look at the full year, 2025, same-store sales in Italy were up about 2%. And when you normalize it for the number of draws and sell-in days, the real organic growth that we view was 3%. So we feel very comfortable with the continued growth potential of the Italian market.

Thank you. If I may follow up on the guidance that you gave on operating cash flow, just to be sure. So if I take out the lotto payment you are guiding for $750 million, and if I look at your EBITDA guidance, if I'm not wrong, there is something like more than $400 million cash leakage from, I presume, financial charges, cash taxes, or working capital. Can you give us a sense of What do you expect on these items?

Correct. Yes. So the 750 is perfectly comparable to the 730 that we achieved this year. Obviously, you have to take a little bit of after-tax EBITDA improvement into consideration. When we talk about interest and taxes, interest, we have been able to optimize the interest expense with the $2 billion debt repayment. And we don't see a big increase coming yet in 26, despite the fact that we'll have to make the $1 billion payment in the second quarter. So there's going to be a little bit of increase, but not significant. And then instead, we expect cash taxes to come down significantly. That's really our focus going forward. is on the cash taxes. We paid more than $200 million last year. We expect to pay something in the range of $150 million this year. There was some timing on Italy payments, about $20 million. And then obviously the incremental amortization from fee will depress a little bit earnings. And so that will be a kind of a positive for lower tax payment into 26. And then we have a couple of other optimizations underway.

that will allow us to kind of optimize that cash tax payment in that 150 range okay thank you your next question comes from chad baynon of aquari capital chad your line is open please go ahead hi thank you uh vince max good morning uh thanks for taking my question two-parter on i lottery um focusing more on North America, I guess, firstly, what have you seen so far from a legislation standpoint as states are looking to expand products or bring in tax revenues for their state? Are you seeing movement there? And then secondly, on iLottery, thinking about it from an AI standpoint, I would assume that maybe some of the content could become potentially cheaper just because it might be easier for some of these games to be created. Wondering if there could be margin improvements on iLottery as AI continues to be a bigger part of that development. Thank you.

Yeah, so I would say on the expansion, I U S has been averaging, you know, one or two jurisdictions a year, right? This year, Massachusetts, uh, part of the proposal, the RP that we want in, in Missouri, uh, counts Missouri, which I, I think our estimates are somewhere around the middle of 2026. We'll be implementing that I lottery system. Um, you know, we've implemented I lottery on the draw side in, uh, Connecticut, we've implemented it in Tennessee. Recently, New Jersey is a state that will also go to iLotteryDraw, from what I recall, will be executing that as well. As far as new jurisdictions, it's difficult to tell. We did not see anything explicit in this legislative session across the U.S., but we anticipate perhaps Colorado will be a state that will look to bid out its It's iLottery. So there's not a lot on the horizon, but I think at this continued pace of one or two a year, that seems directionally where it's going. For Brightstar in particular, we've got a strong platform. I believe we've got more platforms deployed than any other iLottery company in the business. So we continue to refine and strengthen our game recommendation engine, which is, you know, has a lot of nifty AI tools incorporated in that, and we continue to work to improve and enhance things like game recommendations are perfect. You know, I mean, we used to call it machine learning, but now, you know, AI-driven opportunities. And then certainly, you know, we have talked in the past around, you know, game development. So, you know, we've been with, uh, uh, this current pace in North America of new jurisdictions, um, putting out RFPs at, at this rate of one to two a year, we focused a lot of tension on our, on our content, uh, engine. Um, we know that content from our play digital I casino experience is the area that builds credibility, and reputation with our ultimate customers. And so we've had a lot of focus in that area. And we've had really good success for some of the markets where we don't operate the platform. We've had really good uptake of our games because our games perform. So the team, I'd say, has done a really good job, especially in the last year and a half or so, of focusing on and delivering top-performing games that are desired in the iLottery markets by states where we don't have the platform. We think that's an exciting opportunity to continue to grow in addition to continuing to pursue the platform opportunities. And then finally, we've also talked in the past about the AI opportunity in game development. When you find mechanics... that work. And oftentimes the mechanics are, you know, there's a lot of work that goes into things like progressive games in particular that consumers really, really seem to enjoy. When you get a formula that works, to be able to leverage that into reskinning and slightly different look and feel of games allows you to, you know, increase the throughput and certainly bring down the cost. We've had some games that you know, have performed so well, we've essentially translated them into other languages and, you know, changed the odds and tweaked with the math necessary for compliance in various jurisdictions. But it's by and large the same game. So our focus has been, you know, very, very heavy in the iLottery space on continuing to make advancements to arguably – have the best platform, have the best games. And then over time, you know, we have been able to free up resources to be able to continue to develop better games across the world. And I think over time, we don't see a real, you know, that we've hit the maturity stage for iLottery, fortunately, continues to grow at, you know, a significant pace. But, you know, over time, as you start to see the numbers get bigger and the percentage growth slows down, I think we'll have a more significant focus on taking out costs and reducing costs in the business. But right now, when we talk about investment in growth opportunities, clearly iLottery is one of our top areas.

And just to top up the conversation on the margin expansion, as Vince mentioned, there's Cost in investment in growth initiatives that we expect to entertain this year obviously are going to be a little bit of a drag overall. But again, the iLottery business, you have to look at the iLottery business as a staggering growing business. As we add new contracts on top of existing contracts, as those contracts get to maturity phase, then the margin obviously goes up. because at the end of the day, it's a scaling of an existing infrastructure that can be really deployed and benefited from as you grow the business down the road. So as we are in this heavy growth mode, we will continue to add contracts, and so the margin will gradually improve, but the full margin deployment will happen over time.

Great. Thank you. And then lastly, just wanted to revisit the topic of the $5 mega millions increase, which I believe happened in April. So it's eight or nine months ago. Good to see a bigger jackpot hit recently. I know that was something that we were all trying to figure out the evolution of play and customer adoption on that. Does it feel like 2026, based on what you're giving your guidance and kind of what you're seeing with activity, that 2026 could lead to more jackpots or higher jackpots driven by this mega millions increase? Are we finally starting to see maybe a little bit more of a tipping point? Thank you.

Our final question comes from the line of Joe staff of Susquehanna. Joe, sorry, it is open. Please go ahead.

Operator in the middle of, of answering a question from chat.

Oh, apologize for that.

Yep.

Yep. Uh, sorry about that. So, um, yeah, so just commenting first on, on, on Powerball. So the, the year end run up a Powerball, uh, was, was, was really great. The, the final jackpot ended up having the highest sales of any drawing. since the first two-plus-billion-dollar jackpot all the way back in 2022. And the sales for the jackpot were nearly two times the sales of the last jackpot this size since October 2023. So we were very excited. It really confirmed our thesis when we look at the data over several decades that when there's multiple hits on the jackpot, you do indeed from time to time hit this jackpot fatigue syndrome, and then when there's not a lot of jackpots for a while, the interest from the general public, once the jackpot gets up to a significant number, really, really picks up. So that to us was really reassuring to confirm the sustained appeal of the game. With regard to Mega Million specifically, the build has been slower than anticipated with the changes that have been made. As you pointed out, the game just got changed less than a year ago, and the jackpot hit four times, which is way more than statistically expected, and so it was difficult to make any inferences around the play level. We did see a jackpot near a billion dollars finally, and that jackpot did indeed grow slower than the $2 game, and we did not see a significant benefit from the occasional players that oftentimes hit. come into the market and help to drive those jackpots once the jackpot becomes significant. So we continue to monitor it, and certainly the committee that administers and in charge of Mega Millions is very focused on it and feel like we need some time. We need to see where this run goes. Hopefully, knock on wood, this one continues to build. And I know, again, the committee with our helping where we can around research, et cetera, is taking a look at an assessment of the performance to make a determination as to whether or not there are some recommended changes and tweaking to the jackpot funding. So I think we'll see those things play out in 2026 as we have a you know, a larger body of knowledge from which to draw upon.

Your final question now comes from the line of Joe Stoff of Susquehanna. Joe, your line is open. Please go ahead.

Thanks. Good morning, Vince. Good morning, Max. I wanted to come back to the Italian digital product offering. You know, at least we take it seriously. pretty significant sort of proof point for the stock. And just wondering, Vince, as you think about, say, the opportunity here, I assume, correct me if I'm wrong, that the biggest opportunities is to certainly convert what is a retail sales lottery into a digital, and therefore higher volume, and then to iCasino. I guess, Number one is, are those the most important inputs as you thought about the return and what you paid for the lottery renewal? That's the first question. And then the second question is, how do we think about when you're really starting to gain traction in that digital channel, maybe on those components? Is that something in terms of KPIs or any information that you'll be releasing going forward? Thank you.

Great. Thanks for the question. And I would agree with you. I do think a lot of the enhanced growth profile of the business and the valuation has to do with growth and a significant growth lever or enhancer is the Italy digital opportunity. It will take some time to build up the unique consumers. and both convert players who are primarily retail players. I think that is one of the greatest opportunities is we've built an incredible relationship and a lot of touch points through those retail players. And some of those retail players have a good number of those retail players have digital activity, but it's fairly limited to things like checking tickets and scanning tickets from their from their phone. So we think we have the ability to help promote and support movement of those people into more of a digital environment where they're actually purchasing iLottery tickets and to a lesser extent get them interested in playing iCasino games. The whole thought process around the iCasino games and to a lesser extent sports betting was to provide a fulsome entertainment experience for consumers in Italy. So they already love us for the lottery. They've built a relationship. I think our digital offering on iLottery, as witnessed by the share increase, is much improved and will continue to improve. And our goal is to provide a digital platform that's best in class and frictionless, and a really, you know, nice, fun experience. We're not there yet. That development is taking place in 2026. And then also, you know, why allow the consumer to or why give the consumer a reason to leave that app and have a second app to engage in iCasino games? And, again, to a lesser extent in sports betting, why not provide, you know, all those games all together in one app? So, yeah, your assessment's right in terms of the iLottery is the driver, and then we feel like we can pick up a decent amount of iCasino play. Certainly, yeah, nowhere near the leaders in the marketplace who are long established that have multiple brands. We don't have to in order to fulfill our long-range plan. And the same thinking around sports betting, like why not also – offer that in one place as well. We certainly won't be the leading sports betting platform. You know, that's a unique business. We don't have desires to, but, again, really to offer players the convenience once they've established their wallet. So if they choose to, they can do everything through the MyLotteries app. And I'll hand it over to Max to talk about the KPIs.

So, again, the KPI – Opportunity is interesting because obviously we have to time and create the sort of leading indications of the successes of this venture. And we think that the first step is in growing market share in the iLottery space. And we have seen already in 2025 a very good development without significant investments on our end with a three percentage point increase in market share. We have now turned on the e-instant as the second provider in the market. Thanks a lot.

There are no further questions at this time. I will now turn the call back to Vince Sadusky, CEO of Bright Star Lottery, for closing remarks.

Yeah, thanks for joining us today, everyone. Bright Star's core business is one of the most stable and predictable models in gaming and entertainment, and we think it's demonstrated remarkable consistency through all these economic cycles. And we've talked about our growth initiatives that we think will enhance our long-term growth profile. Again, I make the pitch for our valuation discount, no matter how you Take a look at this and really appreciate your interest in Bright Star Lottery. We'll see you in the next couple of weeks, many of you, and continue to update you throughout the year. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.