Brightstar Lottery Q1 FY2026 earnings call

Overall Financial Performance

• Reported first quarter 2026 revenue of ~$590 million, up 1% as reported and 3% on a constant currency basis excluding service revenue amortization (5% net of the UK transition impact)
• Adjusted EBITDA grew 15% as reported ($287 million for the quarter) and 5% on a constant currency basis, with a reported margin of nearly 49% (adjusted to ~42% excluding upfront license fee amortization, up from ~40% in the prior year)
• Ended the quarter with net debt leverage of 2.4x, one of the lowest levels in company history, returning over $70 million to shareholders via dividends and share repurchases
• Completed the final 1.67 billion installment of the Italy lotto license fee payment in April 2026, successfully refinanced the revolving credit facility to a 2031 maturity, and maintains total liquidity of ~$1.8 billion

Core Market Performance

• Italy: 3% same-store sales growth, driven by successful launches of premium scratch-and-win tickets including the first €30 price point and draw-based game enhancements. Global iLottery wagers grew 30% overall, with 27% growth in Italy that hit a new single-day wagering record in the quarter. Terminal upgrades for the new lotto license are on track to complete in Q3 2026
• United States: Same-store sales were flat year-over-year, with growth in Florida, Indiana, and Michigan offset by challenging comparisons in large markets like California. Early results for the newly launched multi-jurisdictional Millionaire for Life draw game are encouraging. U.S. iLottery wagers grew 36% driven by strong performance in Michigan, Georgia, Kentucky, and eInstance expansion in Virginia

Strategic Growth Initiatives

• Digital and Direct-to-Consumer: Now operates 11 global iLottery platforms with eInstance content across 12 jurisdictions. In Italy, the B2C digital offering now includes full lottery products, ~500 casino games, and newly launched sports betting, with ~1 million monthly app users; full mobile wagering functionality will launch in Q2 2026, with contributions expected to begin in H2 2026
• Retail Channel Expansion: Scaling cashless-enabled self-service vending machines from California to New Jersey and Indiana, with ongoing rollout of a new national retail partnership across thousands of U.S. locations that will drive incremental sales starting in H2 2026
• Greenfield Expansion: Building a full-service integrated retail-digital lottery platform in Sao Paulo, Brazil, with a digital launch planned for H2 2026 and retail rollout starting in early 2027
• Cost Efficiency: Continues to deliver benefits from the Optima efficiency program, with 20 million of the full year 50 million planned investment spend incurred in Q1 2026, driving margin expansion

Artificial Intelligence Initiatives

• Has established a formal governance structure, controls, and training program for AI utilization, led by an executive innovation committee. AI is already driving incremental efficiencies and cost reductions as part of the Optima program, particularly in game creation, personalized game recommendation engines, optimized field service scheduling, and software engineering efficiency

1. Instant Ticket and Draw Wager-Based Segment: Revenue was flat year-over-year at constant currency. Strong 3% same-store sales growth in Italy and favorable product mix in the U.S. were fully offset by the negative impact of the UK market transition. This segment represents the core revenue base of the business.
2. Other Service Revenue Segment: Revenue increased 14% year-over-year. Growth was driven by higher pass-through revenue (which contributes no incremental profit) and a lower LMA shortfall accrual compared to the prior year period. This segment contributed a smaller share of total revenue but drove the year-over-year growth in overall revenue this quarter.

• Full year 2026 revenue, adjusted EBITDA, profit, and full year cash generation guidance are all reaffirmed
• Q2 2026 revenue is expected to be below the prior year, driven by higher service revenue amortization; adjusted EBITDA is expected to be modestly below the prior year, as underlying business growth and cost discipline are offset by the UK transition impact, the expected New Jersey LMA shortfall, and ongoing growth investment
• Management expects accelerated revenue and profit growth in the second half of 2026, with product sales contributing 3-5% growth to each H2 quarter from backlog deliveries, same-store sales acceleration from retail initiatives, and potential normalization of multi-state jackpot activity
• The full year 2026 effective tax rate is expected to be in the high 30% range (down from 55% in 2025), moving toward the normalized mid-to-low 30% range; full year 2026 cash taxes are expected to be ~$150 million, down from $220 million in 2025
• Net debt leverage is expected to peak around 3.5x mid-year 2026 after the final Italy lotto license payment, then decline gradually toward the long-term target of 3.0x over the next several quarters
• The full year foreign exchange assumption has been updated to 117 from the prior 115 to reflect recent spot rate movements

• The New Jersey LMA contract has outsized exposure to multi-state jackpot volatility, with an expected $20 million total shortfall in the first half of 2026 due to multiple low-value Powerball and Mega Millions jackpots that did not grow to levels that drive incremental sales; this is the maximum annual capital penalty for the 2026 fiscal year
• The UK market transition continues to create a 2% drag on year-over-year quarterly revenue growth, which will persist through the first half of 2026
• Inflationary pressures are impacting postage, freight, and other operating costs, though management notes the impact is manageable
• Mega Millions has underperformed since the 2025 $5 price point increase, as consumers have not responded favorably to the new value proposition, and no game tweaks have been finalized by the multi-state consortium
• The pace of iLottery legalization and adoption across U.S. states and global jurisdictions is uncertain, creating variability in long-term growth projections
• Leverage will increase to a peak of ~3.5x mid-year 2026 after the final Italy lotto license fee payment, before declining over subsequent quarters

Q: How does management expect to move from 1% Q1 revenue growth to the full year 3% organic growth target, and what are the most material growth drivers for the second half acceleration? / A: Management expects 2026 to follow the 2025 pattern of stronger H2 growth, with the UK transition drag ending and product sales contributing 3-5% growth to each H2 quarter from existing backlog deliveries. Same-store sales will accelerate from new game launches, vending machine expansion, and new retail partnerships, while iLottery is on track to contribute 1% full year growth and the Italian B2C initiative will contribute an additional 1% by year end. Management expects some normalization of multi-state jackpot activity in H2 to support sales. Total retail sales are on track to grow 3% full year. (371 characters)

Q: What is the upside of Powerball's upcoming international expansion, and what is the outlook for potential tweaks to the underperforming Mega Millions game? / A: Powerball's international expansion is scheduled to launch in the UK in summer 2026 pending regulatory approval, which will add additional contributions to the jackpot base from UK ticket sales, supporting larger jackpot formation in the U.S. This is an unprecedented change, so management is not forecasting significant immediate sales upside and is taking a conservative approach while the market reacts. For Mega Millions, the $5 price point has underperformed due to poor consumer reception of the value proposition, and no changes to the game have been finalized by the consortium as of yet. (389 characters)

Q: How is Brightstar utilizing AI for efficiency and growth, and what is the company's M&A appetite after completing the final Italy lotto license payment? / A: Brightstar has a formal AI governance and training program in place, and already uses AI for game development, personalized game recommendations, field service optimization, and software engineering efficiency. AI is already driving incremental cost reductions under the Optima efficiency program, with increasing benefits expected over time. For M&A, management is open to small, incremental acquisitions that add expertise or market share in high-growth areas like iLottery, with manageable balance sheet impact; the company's balance sheet remains strong enough to support selective tuck-in acquisitions while continuing existing capital return programs. (382 characters)

Q: What is the long-term total addressable market opportunity for iLottery for Brightstar, both in the U.S. and globally? / A: iLottery has consistently delivered strong 30% quarterly growth for Brightstar, and attracts new players who do not frequent retail locations. Management is well-positioned for upcoming new iLottery launches in markets like Massachusetts, New Jersey, and Missouri, with the Sao Paulo greenfield launch expected to drive long-term digital growth. Cashless adoption at retail, which is still low across most U.S. jurisdictions, also represents an underappreciated incremental growth opportunity, as cashless capability increases both transaction size and frequency. (314 characters)