Ballys Intralot Sa

Gentlemen, thank you for standing by. I am Gail, your chorus call operator. Welcome and thank you for joining the Bali's Intralot conference call and live webcast to present and discuss the Bali's Intralot trading update. All participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a question and answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Mr. Robinson Reeves, CEO of Bally's Inflop. Mr. Reeves, you may now proceed.

Good morning, everyone, and thanks for joining. As a standard reminder, this call may contain forward-looking statements. Please refer to our 17th March full year results for the following statement.

Mr. Reeves, I apologize. This is the operator.

Can you hear me?

Mr. Reeves, I apologize. This is the operator. Can you hear me?

Yes.

I'm sorry. Your line is very bad. I cannot hear you very well. I'll try again. Apologies. No problem. Thank you.

Okay. Good morning, everyone, and thank you for joining. As a standard reminder, this call may contain forward looking statements. Please refer to our 17th March full year results announcement for the full disclaimer and detailed FY 2025 financials. Today I want to do three things. First, briefly recap the key numbers we published on the 17th of March 26, so we're all working from the same base. Second, reaffirm our 2026 adjusted EBITDA guidance. And I want to be clear that reaffirmation is exactly what it is. And third, give you the Q1 2026 trading data, which I'm providing because it directly supports the confidence behind that reaffirmation. Let me get straight into it. On the 17th of March, we published our full year 2025 results. I'm treating that filing as read and want to reconfirm that headline numbers disclosed previously remain unchanged. A few points worth reiterating. The 39.7% adjusted EBITDA margin reflects the structural quality of this business. A UK operator running at that margin has a different risk profile to any operator running at 20 to 25%. That matters particularly now as we enter the period of UK gaming duty change. 172.7 million euros of levered free cash flow gives us clear capacity to service debt, return capital and pursue M&A simultaneously if the right opportunity arises. The 50 million of capital returns represents less than 30% of annual free cash flow. And we continue with our plan on deleveraging the balance sheet towards our 2.5 times target. That is the base. Now let me tell you where we stand on 26. Our 2026 adjusted EBITDA guidance of approximately 422 million euros is reaffirmed. From today, the 1st of April, UK remote gaming duty moves from 21% to 40% of gross gaming revenue. We have been preparing for this since Q4 last year. So we have a mitigation bridge. If I go to the start point, that's approximately 431 million euros. That's our 2025 performer adjusted EBITDA. So we get this gross tax impact of 95 million euros, the direct cost of the duty increase on our UK gross gaming revenue. With our first mitigation, that's our generosity reductions and marketing optimization, we add 25 million euros. That's already in motion, phased in Q1 and in the run rate now. Our second mitigation are the cost savings, headcount and operating expenditure, adding €10 million. That's been actioned in Q1. Mitigation three, that's the transaction synergies, adding €15 million, which tracks to be in line with the commitment we made at the time of acquisition. The final mitigation is just that organic growth across all markets, including our lottery division, with zero UK gaming duty exposure, adding 34 million euros. The net result of that is approximately 422 million. That's a 2% impact on the 2025 performer. That is what I told you this cost would be, and that's where we remain. On leverage, we're at 3.46 times. We're entering this tax change with approximately 173 million euros of levered free cash flow. The mitigations are operational levers within our control. And as the Q1 data I'm about to give you will confirm, we are entering this change with stronger underlying trading momentum than at any recent point in our history. On margin, our B2C adjusted EBITDA margin was approximately 40% in Q4 2025. Most comparable operators are running below 25%. When gaming duty nearly doubles on gross gaming revenue, not profit, a 20 to 25% margin compresses to near zero. A 40% margin does not. That asymmetry is why our guidance is reaffirmed with confidence. Now on to trading. The reason I'm giving you Q1 data today is straightforward. Q1 trading is strong, and I want you to have that as context when evaluating our guidance reaffirmation. This is not a separate story. It is the evidence base. Please note that these numbers are unaudited and could change slightly as we close our Q1 accounts. So now I want to touch on sequential quarter-to-quarter performance. So Q4 to Q1. Q4 is always the biggest quarter, our biggest quarter. It's always that every time. October November December has the autumn sporting calendar the Christmas build peak promotional intensity across the entire market so in Q4 25 UK net gaming revenue was 148.8 million pounds Q1 26 was approximately 147.9 million pounds. That's essentially flat quarter on quarter against a Q4, right? Q4 is always the biggest. So flap is exceptional performance. So that is the first thing to hold. Q1 2026, when we look at that for the quarter in full, UK B2C NGR for the quarter, as I said, £147.9 million, approximately 10.5% year-on-year. Every single month of Q1 delivered year-on-year growth. B2B performed in line with our expectations across the quarter. The B2B division is a core part of the business and it's stable, with a strong contracted revenue base, which provides additional resilience to the group during this tax transition period. Touching on some other customer metrics in Q1. Active players were flat quarter on quarter, so against a really strong Q4 base, this reflects sustained momentum in both acquisition and retention, as well as efficient welcome offers. First-time depositors were up 10.8% quarter on quarter and 59.4% year over year. The customer pipeline is expanding into the tax change, not contracting. B2B is stable. It's operating within our expected parameters and there's no material surprises. Non-core international markets are also stable. There are modest FX translation headwinds in certain markets and some market-specific dynamics we flagged at the FY25 results. That picture has not materially changed. The group margin is carried by UKI Gaming and our lottery division. Both of those are performing. Non-core stability means they are not a drag. That's the message. This is the trading base on which we reaffirm our €422 million of adjusted EBITDA guidance for 2026. Now onto capital allocation. So I'll start with buybacks. Approximately 20 million euros has been executed since the EGM authorization. I believe our shares represent outstanding value. I intend to continue utilizing related TRS products of international banks that do not immediately impact our cash on balance sheet and give flexibility to execute buybacks when we determine that timing is right. On to dividends. The board is recommending approximately $30 million to the annual general meeting. leaving 173 million of levered free cash flow, 50 million returned, well within our capacity while deleveraging. On leverage, net leverage at year-end was 3.46 times performer. The medium target remains at 2.5 times, and we have that in clear line of sight. On M&A, The tax environment is creating very motivated sellers, and we have the platform, the margin headroom, and the management team to act on the right opportunities. So we are active. My closing remarks. I'll just give you a nice summary. FY 2025, published on the 17th of March, performer revenue of €1,085,000,000. Adjusted EBITDA, €430.8 million. Margin of 39.7%. Leverage, 3.46 times. And free cash flow, €172.7 million. 2026 adjusted EBITDA guidance of approximately 422 million euros is reaffirmed and our mitigation program is in execution with all four levers active. Q1 UK B2C NGR of approximately 147.9 million pounds, flat on the seasonal peak of Q4, up approximately 10.5% year on year. Active players flat, Q on Q, but up 8.7% year on year. First-time depositors up 10.8% quarter on quarter, and 59.4% up year on year. The customer pipeline is expanding into the tax change. B2B is performing in line with expectations and non-core international markets are stable. 20 million euros of buybacks have been executed and a 30 million euro dividend recommended. De-leveraging is on track to 2.5 times. I said this before, that the strong don't only survive, but they do get stronger. And I believe that we are getting stronger. We'll now take your questions.

Thank you, Mr. Reeves. Ladies and gentlemen, at this time, we'll begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your handset when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question is from the line of Chinchilla Ricardo with Deutsche Bank. Please go ahead.

Hi. Thank you so much for taking my questions. I wanted to start on the M&A front. As you mentioned that there is opportunities and that the press has recently mentioned that you're active. While respecting the company's confidentiality regarding its specific targets, I would appreciate an assessment of the company's M&A appetite. This assessment could encompass, you know, suitable target profiles. Are you looking at B2C operators, technology stacks? and a specific, you know, company within a market? And also, can you please also provide us with an evaluation of the maximum leverage that the company can sustain or that you will be willing to elevate just to, you know, move fast in an environment and consume something, you know, in strategic for the business?

Robeson, shall I take this one? Yeah. Go for it, Chris. Go for it. Yeah. Thank you for your question. We have said many times that we are on the lookout for any opportunity that will contribute towards either organic or inorganic growth. We're clearly on a growth path from this point on. So inorganic growth would cover, you know, our appetite for M&A is there. but on condition that we will be able to fulfill our financial policy goals as stated, which includes, first and foremost, our path to deliver and the distribution to shareholders. So both goals, I think, on distributions, we've already covered enough on this call and through our announcements. On the path to deliver, it remains our goal. We have disclosed what is the pro forma free cash flow generation. And with that, as you probably know, we have an amortization schedule with regard to our bank loans in our capital structure. And so we intend to make significant repayments and reduce the gross debt in the next two, three years. So we are committed to the leverage. We will do whatever M&A is necessary by adding EBITDA, by considering anything that's meaningful in terms of very, very substantial synergies that we feel comfortable we can deliver or cost reductions on the target. And at the moment, this is our message to the markets.

Got it. Thank you so much. If I may, you know, do a follow-up. The company recently opened that casino in Newcastle and had mentioned in the past that they wanted to expand into sports betting. Can you provide, you know, your thoughts on, you know, additional, you know, casino footprint in the U.K.? And if you'd rather, you know, acquire a sports business or build it yourself from the ground up? Thank you.

I'll take this one. For us, the retail casino in Newcastle is much more of a R&D piece. It's a very, very, very small part of the actual footprint. There's no intention to expand into retail within Bally's Intralot. The retail presence we'll have will remain in the lotteries. With respect to sports betting product, we currently have an agreement with Canby, who provides really a back-end sports betting solution. We're very happy with them. If we were to look at any opportunities out there, as we said, the UK market has become more attractive, more because of the trauma which has been created by this tax change. We would only consider things if we could see substantial cost-cutting opportunities as well as synergies. I would not underestimate how strong our margin profile is versus peers. in this space, as long as we can bring things into our platform, and I mean our platform, how we manage things, how we operate things that gives us this margin improvement over others, then it can become very attractive. But we'll be very diligent and ensure that we protect our capital structure in whatever we do.

Thank you so much. If I could squeeze one last one. In the past, the company mentioned, you know, articulated growth opportunities contingent upon the integration of the Merit Technology stacks. I was hoping if you could give us an update on, you know, these potential opportunities that at the time you mentioned that you would disclose, you know, once, you know, the merger was completed and you get permission. So any update would be very helpful. Thank you.

So as we discussed previously, Ricardo, our intention is to launch into two B2C markets per year, utilizing the interlock footprint and their relationships. These things are progressing. We will disclose those close to the time. If we end up looking at other opportunities inorganically, That may change that plan if it accelerates expansion, but we're still on track for two new B2C markets being launched this year.

Wonderful. Thank you so much.

The next question is from the line of Narula Raman with Principal Asset Management. Please go ahead.

Hi. Thank you so much for taking my question. Just a couple from me, please. The first, just curious if you can disclose what percentage of your full year 25 UK revenue was sports betting and maybe the same for Q1 as well. And just if you could give a sense of how that's been growing, that'd be appreciated.

Cool. Catherine, do you want to take this?

Sure, Wilson, thank you. Sports betting still constitutes a fairly small percentage of our revenue, but we have seen healthy growth in that space as is demonstrated by the growth in our FTD numbers. which were in part driven by some sports events that happened in Q1. So we continue using sports as a funnel to acquire gaming customers, and that strategy seems to have been working as would have been demonstrated in our Q1 numbers.

And just to lay on top of that, so thank you, Catherine, just to lay on top of that, When we look at sports betting and iGaming, what you would have seen from many of our peers' recent releases around Q1 performance, that there was a decline in sports betting and there was an increase in iGaming. Now, if you've got the balance right between your product sets, so people might win on sports and they reinvest into iGaming and so on, then the net position would always be better, whereas actually... A lot of the peers are showing down by 5% or so in sports betting and up in iGaming by 5%. So they're not even really seeing any growth. What we've been very careful to do with our sports betting offering is ensure that it fits with all of the regulations which sit in the UK market, such as stake limits on slot machines. So you need to balance exactly the scale of bets that you would take alongside people's ability to reinvest. Sports betting, just call it a mil or so per month is what we're seeing in the UK. So small, but that's where a huge opportunity lies.

Understood. That's very helpful. And I guess as a segue into the next question, obviously this year, huge sports calendar along with the World Cup. Just curious, you know, maybe in a similarly stacked sports year like 24 with the Euros, I mean, what kind of effect did you see on your sort of core iGaming business during those months, those summer months when you had those big football tournaments ongoing?

We didn't see any. If you're asking, is there any negative impact by having sport? You have to understand, you've got the Euros, you've got the World Cup. How many of those matches are competitive and how many fixtures do they have in terms of volume? They're good acquisition drivers, but they're not necessarily big revenue drivers. You're going to have fixtures between Curacao and other matches, which are heavily one-sided. When it comes to soccer... you prefer fixtures which are a bit more balanced, or you have sufficient volume. The World Cup actually is a, call it a low period, or the Euro is a low period in fixture volumes for actual revenues, but it does bring new customers to the market. So for us, this would aid the funnel for acquisition, and it's almost like a perfect storm in lots of ways. because there's not enough matches for people to be betting on to constantly be active. If you think about normal Saturday, there's lots of fixtures for revenue to flow there, but actually this will get the right prestige and coverage to acquire, and then there's no matches, then people can play iGaming products and so on.

That makes sense. And then lastly, just wanted to touch on dividend policy, obviously in the preliminary results you stated earlier, that it's the intention to recommend a pre-dividend sort of along with the publication of H1 results. If you could just give us a sense of like the potential quantum, is that going to be a percentage off of, you know, the performer adjusted EBITDA or is that still a percentage of adjusted net income? Just if you could give, remind us of your dividend policy, that'd be really helpful.

Chris, do you want to take it? Sure. At this point, we cannot give you an estimate about the pre-dividend. I think the combination of buybacks and the dividend that we will distribute the 30 million, which is what we already have available for previously undistributed profits in the past, which we could not distribute at the time due to losses that we're now covering. That's the only specific thing that we would like to share at the moment. We don't want to preempt what the results are going to be. We will evaluate the entire situation, our cash flows at the time, and we will make the decision once the results are available.

Understood. Could you just clarify the medium-term target of 2.5 times? Do you expect to sort of be there at around the mid of 27, or what are you targeting?

That will be in line with our amortization schedules, yes. By the time we get basically to 2029, when we have the retail bond, maturing the $130 million retail bond, the unsecured portion of our debt maturing in February 2029. We intend to repay that, and we intend to repay through amortizations, as I said, and eventually on maturity at the end of 2029, the Greek bank loan. Well, these two transfers together is $330 million of gross debt. Of course, it will all depend on the cash generation, on our capex requirements, and all of this. So in this period, we think that it's achievable if we manage to deliver our growth targets. What we said is that basically the imposition of a new tax regime in the UK will have as a result the delay of our plan by one year because we will be able to from the market, which we believe is going to change fundamentally in the next year.

Understood. Thank you very much.

The next question is from the line of Sake and Peter with Credit Sites. Please go ahead.

Hi. Good afternoon. As part of the bond offering last year, the company included the helpful KPIs. You mentioned the impressive growth, 8.7% increase year over year in the first quarter. Is that going to be included in the annual report and in upcoming presentations?

I think You're referring to the UK market or to the combined growth?

Yes, maybe the active online players, revenue proactive players. That type of disclosure was helpful and it was included in the bond offering and you mentioned it again today. I guess it was more of a request to include it as part of your presentations.

Yeah, I think going forward, we'll share the most relevant KPIs which can indicate the future pathway as best as we can guide. That's why we show new player volumes. New player volumes will build on your base and actually drive future revenues. So we believe that transparency is always a good thing. So we'll be as transparent as is sensible without giving away too much competitor information, let's say. So we'll try and be as transparent as possible in every quarter going forward.

Thank you. And what is driving the impressive growth in the first quarter?

Well, with respect to the revenues, as we said, we've made some slight adjustments to our products, so some of the configurations with regards to ensuring that players... basically lose at a very sustainable rate. So our objective has actually been to manage player spend almost down slightly on a visit frequency, which means that people retain better longer term. But we've seen really good numbers coming from, call it marketing performance from acquisition spend. As I said to all of you, the day following the tax announcement in the UK, we saw improved performance from the same marketing spend amounts because there was reduced competition. For me, that's a pretty amazing sign that the statement of tax coming caused the reaction. So from this day, we'll see what performance looks like, given now this is the first time that people with suppressed margins will have to start footing a bill with the increased gaming taxes. I'm very hopeful that if I think about my history in this sector, when I started working here, there was no tax on revenues, no gaming duty on revenues. Then it went to 15% tax of net gaming revenue, then flicked across onto gross gaming revenue, then became 21%. And this is the next tax change. In every single period of this, it's led to consolidation. And actually, through this cycle, EBITDA margin has grown because we're very, very good at, call it, flying for a storm. And operators who don't see there's a storm there, even if it might be a clear blue sky, they just don't see opportunities because you can continuously improve and continuously improve your margins and improve your growth. So I'm quite excited about this next period. This is opportunity.

Thank you for your time.

The next question is from the line of Gonquil Priven with Barclays. Please go ahead.

Hello. Good afternoon. Thanks for taking my questions. Firstly, on UK sort of market growth outlook, for 2025 and 2026. What's your assessment on that given the tax changes? And then within that, are you seeing any changes in channelization of online gaming? I realize it's just day one of the new taxes, but what's your outlook for that as well? Thank you.

Yeah. Okay. So you're talking about the overall UK market, right? Just for clarity. Yes, please. Yes, yes. Yes. So the UK market, as I was indicating when I spoke about some of the peers who haven't been able to see reinvestment of winnings from sports betting go back into casino, there will be a degree of channelization coming from that. Because the reason why people can't reinvest is due to limits on what they're able to spend. This can do... multiple things people could move to the black market slightly but bear in mind the uk gambling commission are investing substantially in trying to police this um i don't see the market growing by that much if growing at all this year because of these changes to state limits. Having said that, I believe it's a significant period of consolidation. So I'd expect all the big operators to gain share in this. There are many operators out there who are willing to hand over databases for royalty fees and so on. They're willing to exit. And that will just mean that we can soak up that revenue. So I don't see the market really growing. It will be minimal, like call it low single digit if growth, right? But there will be consolidation into the big guys. Thank you very much.

This is really helpful.

Once again, to register for a question, please press star and one on your telephone. The next question is from the line of Katsios Nestoros with Optima Bank. Please go ahead.

Yes, hello. Just a question from my side. Can you please repeat your forecast flow guide because I missed that part. Thank you.

We have not given the guidance for 2026. We have published the pro forma free cash flow for the combined entity at 171 million, 172.7 million euros for last year. So that was on the background of an EBITDA of 230.8 million, 430.8 million, sorry. So, based on the guidance on EBITDA, and it will depend a little bit on our CAPEX requirements this year. Last year, the CAPEX we published was around 60 million. This year, it will be a bit higher because of certain renewals in the United States, and we're still waiting to hear from our bid for the Victoria monitoring license in Australia. So we can't reveal the sensitivities on our CAPEX. So it will depend on that alone.

Thank you.

Thank you. As a final reminder, to register for a question, please press star and one on your telephone.

ladies and gentlemen there are no further questions at this time i will now turn the conference over to management for any closing comments thank you thank you thanks everyone for joining us today i'm sorry that we're interrupting your easter break i hope you all get a bit of time off um but we wanted to give you the most up-to-date summary of q1 And I look forward to speaking to you again soon. Feel free to reach out to the company if you've got any further questions. So thank you for joining us. Goodbye.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for calling and have a good afternoon.