Brightstar Lottery (BRSL) Earnings

Management highlights

• Strategic Execution and Growth Progress: The company delivered better-than-expected Q2 profits, driven by 1.5% global same-store sales growth (an acceleration from Q1) and strong cost discipline, while continuing to invest in high-return initiatives. Strong cash generation in H1 2026 funded the final Italy Lotto license payment and $140 million in year-to-date shareholder returns, while maintaining a solid balance sheet. Recent multi-year contract extensions with Oregon and Washington state lotteries improved long-term business visibility. • Italy B2C and Retail Upgrades: The company launched an enhanced MyLotteries Play app with full digital gaming options (eInstant, eDraw, iCasino, sports betting), new bonusing/loyalty programs, and live chat, creating a best-in-class user experience. It completed upgrades to retail point-of-sale terminals at over 33,000 Italian locations; the new faster terminals improve peak sales velocity and support future game innovation. 23,000 Italian retailers have been recruited to drive digital account activation, with player engagement efforts starting in August-September 2026, leveraging the retail network as a strategic asset to drive digital adoption. • Emerging Market Expansion: Digital lottery operations launched in Sao Paulo (Brazil) just six months after securing a 15-year concession; retail lottery operations are planned for launch later in 2026. Sao Paulo, Brazil's largest and most prosperous state with 46 million residents, represents a significant long-term greenfield growth opportunity for the company. • Instant Ticket Printing and Contract Wins: Incremental production capacity from a new press supported double-digit unit growth in H1 2026, driven by innovative Gleam and Infinity games. The company secured multi-year contract extensions in Mauritius and Slovakia, building on long-standing relationships in those markets. • Financial Strength and Shareholder Returns: The company expects to generate more than $400 million in annual free cash flow (before upfront license payments and after minority distributions) once it exits the current peak CapEx cycle, supporting a continued commitment to growing shareholder returns. With the final Italy Lotto license payment completed, net debt leverage is 3.24x, slightly better than expected and below the company's target, with $1.7 billion in total liquidity providing capital allocation flexibility. Dividends per share of $0.46 paid in H1 represent a 65% payout ratio relative to amortization-excluded adjusted EPS, with ample capacity to maintain or grow returns. • Cost Optimization: The company launched Optima 3.3, the third phase of its multi-year cost savings program, increasing the total savings target from $80 million to $100 million against a 2024 baseline. The initiative focuses on streamlining management layers, consolidating overlapping functions, and optimizing the global real estate footprint (primarily in Rhode Island and London) to reduce overhead and energy consumption while supporting hybrid work. $70 million of the total savings are expected to be realized by the end of 2026, with the remainder split between 2027 (one-third) and 2028 (two-thirds).

Guidance

- Management reaffirms full-year 2026 revenue, profit, and cash flow guidance, and expects accelerated revenue and profit growth in H2 2026 as growth initiatives and cost optimization begin contributing more meaningfully, and the UK transition annualization is completed. - Q3 2026 same-store sales are expected to be flat year-over-year: Italy same-store sales will be flat due to calendar effects that will benefit Q4 same-store sales, while U.S. low single-digit growth in instant and draw games will be offset by easier comparisons to the $1.8 billion Powerball jackpot in Q3 2025. Product sales are expected to add 2 percentage points of incremental growth in Q3, with an initial ramp-up of Italy B2C sales also contributing. - Overall Q3 2026 organic revenue growth (ex-UK transition) is expected to double Q2's 2% growth rate to 4% year-over-year. Adjusted EBITDA is expected to be in line with the first two quarters of 2026 and slightly down year-over-year, due to continued growth investment and the tough year-over-year jackpot comparison. - For full-year 2026, the effective tax rate is expected to be in the mid-to-high 30% range, down from 55% in 2025, and approaching the normalized mid-to-low 30% target. Full-year 2026 cash taxes are expected to be ~$150 million, down from $220 million in 2025. - Italy full-year 2026 same-store sales are expected to maintain the low single-digit growth achieved in H1 2026. Management expects to reach a 1% incremental growth uplift run rate from Italy B2C by the end of 2026, with customer growth and increased monthly active users as the primary near-term goal.

Segment performance

Overall company: Q2 2026 reported revenue was $584 million; excluding a $47 million service revenue amortization increase, revenue was flat year-over-year, reaching 2% year-over-year growth after adjusting for the UK transition impact. Wager-based revenue was flat year-over-year at constant currency, with global same-store sales growth and favorable U.S. product mix offset by the UK transition. Other service revenue increased 5% year-over-year; most growth from the Italy B2C expansion will be categorized here. Product sales were $8 million lower than Q2 2025, due to lumpy elevated hardware sales in the prior year, but are expected to contribute meaningfully in H2 2026. Adjusted EBITDA grew 4% year-over-year to $286 million, with a reported EBITDA margin of 49% (42% excluding upfront license fee amortization). Income from operations was $56 million, a turnaround from a $60 million loss in Q2 2025. Year-to-date reported adjusted EPS was 24 cents, up 20% year-over-year; excluding service revenue amortization, adjusted EPS was $0.71 for the first half. Core geographic/segment performance: U.S. same-store sales accelerated, driven by stronger multistate jackpot performance, and improved instant/draw game sales, with the strongest growth in New Jersey and Indiana. Italy same-store sales grew, fueled by instant tickets including relaunched multiplier games, the Summer Bundle promotion, and the successful new 30 Euro game; iLottery wagers grew 23% in H1 2026. Global iLottery wagers grew 22% in H1 2026, with U.S. iLottery growing 29% led by strong expansion in Kentucky, Georgia, Michigan, and Virginia. Instant ticket printing: incremental capacity from a new press installed one year prior supported a double-digit increase in standard units produced in H1 2026, with strong growth from customers in Texas, France, and Poland.

Risks & headwinds

- Forward-looking statements are not guarantees, and actual results may differ materially from expectations due to identified and unidentified risks and uncertainties detailed in the company's SEC filings and latest earnings release. - Increased competition for lottery system and iLottery contracts, particularly in the U.S. as more contracts come up for rebid. Competitors are pursuing divergent strategic initiatives including M&A and expansion into non-core areas like iCasino and sports betting outside traditional lottery. Contract wins are often decided on price rather than technical capability, even when the company achieves the highest technical rating. - Ramp-up of new growth initiatives (Italy B2C, Sao Paulo) is gradual and requires upfront investment, with revenue and profit contributions taking time to materialize. Uncertainty around player adoption of new digital offerings and the pace of revenue growth from new markets. - Q3 2026 faces structural headwinds from tough year-over-year comparisons to large 2025 jackpots, which may depress year-over-year results if similarly large jackpots do not occur in 2026. New ramped-up businesses have lower initial margins, putting pressure on overall H2 margins.

Analyst Q&A

• Q: Analysts asks for details on the Italy B2C retailer incentive structure for driving online conversion, key upcoming milestones, and confirmation of the 1% incremental growth uplift timeline for 2026 / 2027. /

  A: The company has completed terminal upgrades at 33,000 Italian retail locations, enabling faster transaction speeds for existing games and new frequent-play games. It has built out a full best-in-class digital offering including 120+ eInstant games, draw games, 750+ casino games, and sports betting, and has already achieved 20%+ iLottery wager growth in H1. 23,000 retailers have been recruited to drive customer acquisition, leveraging the company's strong existing retail network as a key competitive advantage. Management expects to reach the 1% incremental growth uplift run rate by the end of 2026, with growing monthly active users as the primary near-term milestone. (378 characters)

• Q: Analyst asks to break down the drivers to reach the target of over $400 million in annual free cash flow after exiting the current peak CapEx cycle. /

  A: Excluding the Italy Lotto upfront license payment, annual cash from operations is targeted at $750 million for 2026, and is expected to grow beyond $800 million over the next few years driven by EBITDA growth and continued improvements in interest and tax expenses. When capital expenditures fall from the current $400 million peak run rate to a normalized mid-cycle level, and after accounting for minority distributions of $200-$250 million, the company reaches the $400 million+ free cash flow target, which is expected to grow further after 2028 as the company enters a harvesting cycle. (391 characters)

• Q: Analyst asks for an update on Mega Millions performance after the price point increase, and whether there are ongoing initiatives to drive growth, plus an update on whether iLottery growth is incremental or cannibalizes retail sales. /

  A: A recent large ~$800 million Mega Millions jackpot indicated growing customer comfort with the $5 price point, but weekly sales still trail historical run rates, so the Mega Millions consortium continues to evaluate potential model changes. Management notes that lotteries with robust digital offerings complementing strong retail networks perform best overall, so the company prioritizes being a leader in both channels, and focuses digital expansion on underpenetrated markets like Italy and greenfield opportunities like Sao Paulo. (364 characters)

• Q: Analyst asks whether elevated gas prices have impacted U.S. lottery sales at gas station retail locations, and what non-U.S./non-Italy markets could soon launch iLottery. /

  A: Management notes that lottery sales have historically been resilient across economic cycles, and strong digital iLottery growth shows no slowdown related to gas prices. The company is adding over 1,000 new retail lottery locations across multiple U.S. states in 2026, with thousands more planned for 2027, which will drive sales growth regardless of gas price trends. Most European markets already have established iLottery, and the company is currently focused on the greenfield opportunity in Sao Paulo Brazil, with new iLottery platforms launching in Missouri (U.S.) and Lottery West (Australia) in 2027. (402 characters)