Brightstar Lottery Q3 FY2025 earnings call

• Achieved strategic milestones like closing IGT Gaming sale for $4 billion, executing shareholder return plans, and refocusing as a lottery pure-play. • Q3 revenue and profit better-than-expected due to 8% same-store sales growth globally, including 4% core instant and draw games growth. • U.S. same-store sales up 8%, multi-state jackpot up 70% from $1.8 billion Powerball jackpot. • Italy same-store sales up mid-single digits with instant and draw games strong, iLottery sales up over 30%. • Introduced Viking Gold AI-developed game, rebranded to Brightstar, and showcased AI capabilities like Game Plan Wizard. • Italy's Miliardario relaunch and summer bundle, new EUR 25 VIP game, and 10eLotto multi-bet driving growth. • U.S. iLottery sales growing above market rate, aiming for 20+% annual growth, and Italy iLottery penetration to reach European benchmarks by 2030.

Third quarter revenue was $629 million, growing 7% from prior year, up 5% at constant currency. Instant ticket and draw revenue increased $19 million due to strong same-store sales across geographies. Italy had 6% growth, even normalized for Lotto draws rising 5.3%. U.S. multi-stage export revenue increased $15 million due to Powerball jackpot activity. Third quarter adjusted EBITDA was $294 million, rising 11% or 7% at constant currency. Year-to-date revenue was $1.8 billion driven by core instant ticket and draw game sales. Revenue contribution is from instant ticket and draw games, with Italy and U.S. being key geographies.

• Reaffirmed full year 2025 revenue outlook of approximately $2.5 billion and adjusted EBITDA of $1.1 billion. • Organic growth rate expected to accelerate to over 5% CAGR over next 3 years, with core land-based business in U.S. and Italy at 3% CAGR, iLottery at 1% CAGR, Italy B2C expansion at 1%, and other areas contributing. • Mid-term target of $2.75 billion revenue by 2028 with over 6% CAGR adjusted EBITDA to $1.3 billion. • Expect cash conversion before upfront license fee to improve to about 70%, and post-peak CapEx, annual free cash flow before upfront license fees and minority distributions to exceed $400 million. • $2 billion of IGT Gaming sale proceeds used to reduce debt, net debt at $2.6 billion, target net debt leverage around 3x.

• U.K. transition had negative impact of ~$6 million in Q3 and expected $14 million headwind to revenue and EBITDA in Q4. • Non-wager-based service revenue impact in Europe and product sales mix and start-up costs associated with new printing press. • Economic downturns could impact lottery sales, though lottery play is resilient. • Uncertainty around timing and execution of market expansion opportunities in new geographies.

Q: Maybe starting off here on the new financial targets and sort of strategy that you laid out. Vince, if you take each of the buckets that are laid out on Slide 23, so core growth, iLottery, Italy, all other, could you maybe just unpack a little bit further for us some of the assumptions that underpin those growth rates, meaning for iLottery? How much is sort of same-store sales growth? How much of a benefit is new state launching for Italy? How much is assumed for retail market share, iLottery penetration, casinos, sports capture, that side of things?

A: Vince Sadusky discussed that iLottery growth assumptions are based on organic growth, secured platform deals, and reasonable share gains. Italy B2C expansion assumptions include activating digital solutions in retail points of sale, My Lotteries Play launch gains, and cross-selling opportunities. Core growth assumptions are based on instant ticket share gains and product sales improvements. Other growth is from print and product sales share gains.

Q: And then for a follow-up, maybe turning over to a return of capital, Max, I apologize if I missed this, but it seems like the full $250 million ASR at this point is pretty much effectively deployed. I didn't catch any commentary on expectations for that second $250 million tranche, whether in terms of timing, mechanism, anything like that? Any color there would be would be appreciated.

A: Massimiliano Chiara said the first tranche of the $250 million ASR is being executed and expected to complete by the end of the year or early January, with patience needed for the second tranche and consideration of other buyback program options.

Q: First, Mega Millions is on a nice jackpot run right now. We're curious to get your thoughts on what you're seeing since the price change went into effect and how or when you'll know if it's been successful for you?

A: Vincent Sadusky said Mega Millions price change in April led to more sub-jackpot payouts, taking time for players to understand, and expected differentiation to accelerate with continued jackpot runs.

Q: It's still early, but can you walk through puts and takes as we start thinking about 2026? And could you frame next year's growth relative to the 2028 targets you introduced this morning?

A: Massimiliano Chiara stated they would provide 2026 updates when reporting year-end numbers, core business in U.S. and Italy is accelerating, with Italy Q3 performance above trend and U.S. core business recovering, and near-term 2026 growth related to print and product sales.

Q: Vincent, Max, thanks for all the medium-term commentary and framing up the story. That was helpful. Max, just revisiting a little bit what you were kind of touching on there, but I want to focus on Q4 and the decision to reaffirm the outlook. So I know that you have tough comparables, particularly in Italy from a year-over-year basis. But it looks like maybe Q3 came in a little bit better than expected from a same-store basis, that's kind of continued here. Can you maybe -- and then I did want to touch on was the U.K. amount that you noted of $14 million, is that -- was that in the original guidance. But I just want to ask about anything else that might be coming in below expectations? Or was this just an opportunity to maintain hopefully some conservatism given the uncertainty with the consumer?

A: Massimiliano Chiara said Q4 has U.K. and increased revenue amortization from Italy's new concession as headwinds, but product sales expected to be in line, G&A to be lower, and they are reiterating the $1.1 billion EBITDA outlook with optimism due to core business progress and operational savings.