Image source: The Motley Fool.

DATE

Tuesday, Aug. 4, 2026 at 8 a.m. ET

CALL PARTICIPANTS

• Senior Vice President of Investor Relations - James Hurley
• Chief Executive Officer - Vincent Sadusky
• Chief Financial Officer - Massimiliano Chiara

TAKEAWAYS

• Revenue -- $584 million, reflecting 1.5% global same-store sales growth and Italy B2C expansion offset by a $47 million increase in service revenue amortization and the U.K. contract transition.
• Adjusted EBITDA -- $286 million, increasing 4% driven by same-store sales flow-through and the OPtiMa cost savings program.
• Net Income from Continuing Operations -- $33 million attributable to the company, compared to a $96 million loss in the prior-year period.
• Adjusted EPS -- $0.11, which includes a $0.23 per share impact from service revenue amortization net of tax.
• Fiscal Year 2026 Revenue Guidance -- $2.50 billion to $2.55 billion, including more than 5% organic growth.
• Fiscal Year 2026 Adjusted EBITDA Guidance -- $1.16 billion to $1.19 billion, as revenue growth is expected to offset $50 million in growth-initiative investments.
• Fiscal Year 2026 CapEx Guidance -- $450 million to $475 million, reflecting contractual obligations for recent wins and extensions.
• Global Same-Store Sales -- 1.5% growth, representing an acceleration from Q1 2026 performance on stronger U.S. results.
• U.S. Same-Store Sales -- 1.1% growth, primarily driven by an 11.1% increase in multistate jackpots.
• Italy Same-Store Sales -- 1.5% growth, fueled by the relaunch of multiplier games and the success of the new 30 euro instant ticket.
• iLottery Wagers -- 22% growth in the first half of the year, with U.S. iLottery sales expanding 29%.
• Italy Lotto License Payment -- $1.67 billion (1.43 billion euros), representing the final installment paid in April 2026.
• Net Debt -- $3.8 billion, resulting in a net debt leverage ratio of 3.24x at the end of the second quarter.
• Shareholder Returns -- $140 million deployed year-to-date, comprising $85 million in dividends and $55 million in share repurchases.
• OPtiMa Savings Target -- $100 million by 2028, upgraded from the previous $80 million goal against a 2024 baseline.
• Sao Paulo Concession -- 15 years, with digital operations now live six months after the contract execution.
• Italy Retail POS Upgrades -- 33,000 locations, where new terminals were installed to improve sales velocity and support digital adoption.
• Cash from Operations -- $750 million expected for the full year, excluding the impact of the upfront Italy Lotto license payment.
• Annual Free Cash Flow Target -- $400 million, representing the expected generation after the current capital expenditure cycle ends in 2028.
• Quarterly Dividend -- $0.23 per share, with a record date of Aug. 18, 2026.
• U.S. Instants and Draw Games SSS -- 0.4% growth, with performance bolstered by expansion in New Jersey and Indiana.
• Other Service Revenue -- 5% growth, reflecting digital distribution revenue from the MyLotteries play app in Italy.
• Product Sales -- $34 million, a $8 million decrease from the prior year due to the timing of hardware deliveries.

Need a quote from a Motley Fool analyst? Email [email protected]

RISKS

• Sadusky stated, "the weekly sales for Mega Millions is behind the historical run rate," indicating that players may not yet fully appreciate recent changes to the game model.
• Chiara noted that the company must "absorb the strong multistate jackpot impact of last year" in the third quarter, which includes a comparison against a $1.8 billion Powerball jackpot.

SUMMARY

Management reported that Brightstar Lottery PLC (BRSL +2.27%) has entered a strategic inflection point following the completion of the final Italy Lotto license payment. The company is transitioning from a period of heavy capital investment toward a "harvesting cycle" focused on free cash flow generation and organic growth in digital channels. Strategy centers on three pillars: expanding iLottery penetration in the U.S. and Europe, leveraging a modernized 33,000-location retail network in Italy to drive digital account activations, and establishing greenfield operations in emerging markets like Brazil. Management stated that the upgraded cost optimization program will streamline leadership layers and the global real estate footprint to support margin expansion as revenue from new initiatives scales.

• CEO Sadusky described the Sao Paulo market as a major opportunity, noting it contains 46 million residents and generates approximately one third of Brazil's gross domestic product.
• The company upgraded its retail technology in Italy, which Sadusky noted would allow draw-based game transactions to move from every 30 minutes to a target of every five minutes by the fall.
• Management identified 23,000 retailers in Italy who have been recruited to assist with digital account activations for the MyLotteries play app starting in August.
• A new national retailer partnership is expected to add lottery sales to 1,000 locations across eight U.S. states this year, with thousands more planned for 2027.
• CEO Sadusky noted that the company uses artificial intelligence to analyze individual player behavior and "deliver a more unique experience" regarding game themes and play denominations.
• Management expects third quarter organic revenue growth to reach 4%, doubling the rate seen in the second quarter as new product sales are delivered to various jurisdictions.

INDUSTRY GLOSSARY

• eInstants: Digital versions of traditional scratch-off lottery tickets played on mobile or web platforms.
• iLottery: The digital channel for selling lottery products, including draw-based games and digital instant games.
• OPtiMa: Brightstar's multiyear operational efficiency and cost-savings program.
• Same-Store Sales (SSS): A metric measuring the period-over-period growth in wagers at existing retail or digital locations.
• Service Revenue Amortization (SRA): The non-cash accounting treatment of upfront license fees spread over the duration of a concession.
• Wager-based Revenue: Revenue generated as a percentage of total lottery bets or tickets sold.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us and welcome to the Brightstar Second Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Jim Hurley, Senior Vice President of Investor Relations. Jim, please go ahead.

James Hurley: Thank you. And thank you, all, for joining us on Brightstar Lottery's Second Quarter 2026 Conference Call, which is being hosted by Vince Sadusky, our Chief Executive Officer; and Max Chiara, our Chief Financial Officer. After some prepared remarks, Vince and Max will be available for your questions. We are presenting from multiple locations today and would appreciate your patience if we encounter any technical difficulties. 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, August 4, and we have no obligation to update any forward-looking statements we make. And now I'll turn the call over to Vince.

Vincent Sadusky: Thank you, all, for joining us. Our better-than-expected Q2 profits were driven by an increase in global same-store sales and strong cost discipline even as we continue to invest in high return initiatives. We generated significant cash in the first half of the year, which not only helped to fund the final Italy Lotto license payment in Q2, but also the $140 million of capital returned to shareholders in the year-to-date period, all while continuing to maintain a solid balance sheet. We executed well against our strategic priorities in the first half of the year and expect this good progress to deliver stronger revenue and profit growth in the second half of the year.

Global same-store sales increased 1.5% in the second quarter, a slight acceleration from Q1's performance on stronger U.S. sales. The improvement in U.S. sales primarily came from stronger multistate jackpot performance and, to a lesser extent, better instant and draw game sales. Some of the strongest growth in instant and draw games came from New Jersey and Indiana markets where we have more direct involvement with day-to-day lottery operations. We've expanded retail points of sale and strategically deployed vending machines and digital signage, all proven initiatives that are delivering encouraging results. We intend to scale these initiatives across the broader portfolio over the next several quarters.

Italy same-store sales growth was fueled by instant tickets, including the relaunch of multiplier games, this year's featured summer bundle and the continued success of the new EUR 30 game. Recent multiyear extensions with the Oregon and Washington state lotteries have improved the long-term visibility we have for our business. iLottery continues to be an area of substantial growth. Wagers were up 22% in the first half of the year. In Italy, 23% iLottery growth was led by eInstants, especially the EUR 30 and multiplier games. The 29% iLottery growth in the U.S. included strong expansion in Kentucky and Georgia and the excellent performance of our eInstants content in Michigan and Virginia.

We've achieved several milestones with our Italy B2C expansion efforts. At the end of April, we launched a significantly enhanced MyLotteries play app featuring a full range of digital gaming options across eInstants, eDraw, iCasino and sports betting. It also includes new bonusing and loyalty programs in addition to live chat capabilities. It is a best-in-class offer with a compelling user experience. We recently completed the upgrade of retail point-of-sale terminals at over 33,000 locations throughout Italy. The new terminals have much faster processing capabilities, which should improve sales velocity during peak play time and support future game innovation initiatives.

The retail network is a strategic asset we intend to leverage to drive digital adoption and traffic to the MyLotteries play app. To date, we've recruited about 23,000 retailers to help drive digital account activation. Their player engagement efforts begin this month and go into September. We've also had important developments in emerging markets. In Sao Paulo, we are live with digital lottery operations. Our team was able to deploy the network just 6 months after executing our 15-year concession. The opportunity ahead is substantial. With 46 million residents and approximately 1/3 of Brazil's gross domestic product, Sao Paulo is the country's largest and most prosperous state.

The successful launch of digital operations establishes the foundation for an entirely new lottery operation we are building from the ground up. The launch of retail lottery operations is planned for later this year. We believe Sao Paulo has the potential to be a significant long-term growth opportunity for our business. Instant ticket printing has been another area of focus and investment, including a new press that went live a year ago. The incremental capacity has supported a double-digit increase in standard units produced in the first 6 months of the year, including good growth with customers in Texas, France and Poland. Our innovative GLEAM and Infinity games are important drivers of this higher production volume.

In addition, we secured multiyear FM contract extensions in Mauritius and Slovakia building on our decades-long relationships with both. The first half of the year was defined by meaningful progress on foundational initiatives. Much of that work has been investment-led and, as expected, has not yet delivered significant revenue or profit contribution. Looking ahead, we expect that equation to shift. Revenue, profit and cash flow are poised to inflect as these initiatives begin contributing more meaningfully. While some will scale faster than others, each supports the strong annual free cash flow we expect to generate once we move beyond the current peak CapEx cycle.

We estimate Brightstar can deliver more than $400 million in annual free cash flow before upfront license payments and after minority distributions. That expected cash generation reinforces our commitment to growing shareholder returns. This cash flow outlook also highlights Brightstar's compelling current valuation representing about a 20% cash flow yield while our dividend yield is approximately 9%. Noncash service revenue amortization impacts adjusted EPS by approximately $0.94 this year, which more than covers the current annual dividend. The remaining EPS provides ample capacity to maintain or potentially grow shareholder returns. Adjusted EPS, excluding service revenue amortization, provides another attractive view on valuation. Based on the 2025 actuals, Brightstar is trading at just 7x that metric.

Altogether, the Brightstar story is straightforward. The heaviest investment period is largely behind us. Our growth initiatives are in place and beginning to scale and the market has not fully reflected or priced this inflection point. With that, I'll turn the call over to Max.

Massimiliano Chiara: Thank you, Vince, and hello to everyone joining us on the call today. Brightstar delivered second quarter revenue that was in line with expectations and profit that was better than expected. This drove very strong cash generation that was used to fund important investments in growth and shareholder returns. In the first 6 months of the year, we have laid the foundation for accelerated top line and profit expansion. Second quarter revenue was $584 million as reported. Excluding the service revenue amortization increase of $47 million, revenue was flat year-to-year as reported improving to 2% growth net of the U.K. transition, which is an important metric to focus on going forward as I'll explain in a second.

Wager-based revenue was in line with the prior year at constant currency. Global same-store sales growth and favorable mix in the U.S. was offset by the impact of the U.K. transition. The second quarter was the last full quarter of year-to-year comparison of the U.K. transition. There will be only about a month's worth of impact in the third quarter. Other service revenue increased 5% year-over-year. I'd like to point out that much of the growth from our Italy B2C expansion effort will be categorized as other service revenue.

This includes items like digital distribution of revenue earned on iCasino and sports betting wagering on MyLotteries play app and other B2C services we may add to round out our retailer services offering in the future. Product sales were down $8 million compared to last year when we had elevated hardware sales in multiple jurisdictions. Product sales are naturally lumpy and we expect a much more meaningful contribution from product sales in the second half of the year. As an example, we expect a 2 percentage point incremental impact on growth coming from product sales in Q3 on top of the current same-store sales run rate performance.

Second quarter adjusted EBITDA was up 4% to $286 million, which was better than expected. That translates to a reported EBITDA margin of nearly 49% and 42% excluding upfront license fee amortization, in line with Q1 and better than anticipated. Key drivers were global same-store sales growth, ongoing benefit of our OPtiMa cost savings program and certain expense recoveries. This profit increase was achieved despite the U.K. transition and our continuing investment in growth initiatives across the organization. Second quarter income from operations of $56 million experienced a turnaround from a loss of $60 million in the second quarter of last year despite a $47 million impact from service revenue amortization.

This was due primarily to adjusted EBITDA growth, lower restructuring costs compared to last year, FX which is a noncash positive impact from a change in the euro-dollar exchange rate on debt balances at the parent company and a lower tax provision, which reflects both the structural improvements we have made over the last 2 years to optimize our effective tax rate and the benefit from a discrete tax item. Our expected full year 2026 effective tax rate remains in the mid- to high 30% range compared to 55% in the prior year and heading closer to our normalized rate in the mid- to low 30s.

We expect full year '26 cash taxes in the range of around $150 million versus $220 million in the prior year period. Cash generation was strong in the first half of the year funding important investments in future growth and shareholder returns. During the second quarter, we made the final installment of the Lotto license payment. The $1.7 billion payment resulted in year-to-date cash from operations of negative $1.17 billion or a positive $501 million when adjusting for the Lotto payment. While these figures reflect the full license payment, Brightstar is only responsible for 61.5% with our partners responsible for the balance.

Capital expenditures totaled $121 million for the second quarter and $232 million for the first 6 months with the Italy Lotto deployment accounting for almost half of the investment. We have returned $140 million to shareholders year-to-date, including cash dividends of $85 million and $55 million in share repurchases, inclusive of a $10 million tranche of buyback activity just concluded. Our LTM cash dividend yield is very attractive at nearly 9%. Year-to-date adjusted EPS was $0.24 as reported, up 20% year-over-year. This figure includes noncash service revenue amortization of $0.47 per share.

If we exclude service revenue amortization, adjusted EPS increases to $0.71 in the first half compared to dividends per share paid of $0.46 reflecting a 65% pro forma payout ratio. Noncash service revenue amortization is estimated to have a $0.94 impact on full year adjusted EPS, which more than covers the current dividend run rate.

I think it is important to provide this additional perspective on our earnings as the service revenue amortization is the way the upfront fee for the new Lotto concession gets treated in our financials for the 9-year duration of the concession, but its cash impact was already fully realized in our net debt figure as of June 30 as we completed the upfront fee payment in the second quarter. Brightstar maintains a strong balance sheet and credit profile. With the final Lotto license payment behind us, net debt leverage of 3.24x is slightly better than our expectations and below our targeted level.

And with access to total liquidity of $1.7 billion, we have the flexibility to maintain our balanced capital allocation strategy. This year we are investing $50 million in new market opportunities, strengthening our product and service portfolio and supporting our core business to position Brightstar for durable growth. In Italy, we are hard at work on the expansion of iLottery and digital services where we see significant growth potential over the next several years. We are investing in our technology products and services innovation road map to meet the changing needs of our customers and we are supporting key contract renewals and the development of instant ticket services.

In addition to investing in top line growth, we continue to drive organizational efficiency and cost optimization. To that end, we have initiated the third phase of the OPtiMa 3.0 multiyear program, OPtiMa 3.3. With that, we are accelerating and upgrading our OPtiMa savings target from $80 million to $100 million against the 2024 baseline. The third phase is focused on changes to the management structure, including a reduction in executive and other senior leadership layers, and the consolidation of similar functions. Also included in OPtiMa 3.3 is the optimization of our global real estate footprint primarily in Rhode Island and London.

By fully embracing hybrid work arrangements, we have been able to reduce the size of our facilities and in some cases, eliminate them entirely. This has allowed us to reduce overhead cost and lower the company's energy consumption while providing employees the flexibility they value. Of the $100 million savings target, we are well underway for $70 million to be realized by the end of 2026. As far as the balance, we expect 1/3 to come next year and the remaining 2/3 in 2028, the final year of the plan. We are reaffirming our full year 2026 revenue, profit and cash flow outlook.

For the second half of the year, we expect accelerated revenue and profit performance as the benefits of our growth initiatives and cost optimization efforts contribute more meaningfully to the results. I would like to offer some perspective on third quarter same-store sales, which are expected to be in line with prior year. In Italy, same-store sales are expected to be flat due to calendarization, which instead will help fourth quarter same-store sales. Overall, for the second half of the year, Italy sales are expected to maintain the low single-digit growth rate achieved in the first half.

In the U.S., we expect low single-digit growth in instant and draw games to be offset by lower multistate jackpot games due to a $1.8 billion Powerball jackpot in the third quarter of 2025. Overall, our core business should be helped in Q3 by a couple percentage points of growth coming from the initial slew of product sales under delivery to various jurisdictions. We also anticipate an initial ramp-up of sales in the Italy B2C initiative. Overall, we expect Q3 organic revenue growth to double compared to the 2% growth rate ex U.K. that we have experienced in Q2 achieving about 4% organic growth year-over-year.

This should translate to an adjusted EBITDA in line with the first 2 quarters of the year, slightly down versus the previous year, as we continue to invest in our growth initiatives while we have to absorb the strong multistate jackpot impact of last year. In wrapping our [ Q3 ] performance up, Brightstar is committed in investing to secure our future and generate strong returns for shareholders. The first 6 months of 2026 were a solid start to the year with a nice year-over-year improvement in our profitability. The outlook for the second half includes accelerated revenue and profit growth as strategic initiatives begin to contribute more meaningfully and we anniversary the U.K. transition.

We look forward to the remainder of 2026 and beyond as a period of renewed growth and operational efficiency built on a solid financial foundation. Now we'd like to open the call up for questions.

Operator: [Operator Instructions] Your first question comes from the line of Jeff Stantial from Stifel.

Jeffrey Stantial: Maybe just starting off on the Italian business, Vince, appreciate the update earlier on some of the key milestones here for the B2C initiative. I was hoping could you just update us or add a little bit of color to the incentive structure that's been put in place with those? I think you quoted 23,000 retailers to encourage them to drive online conversion. And then looking forward, can you just help us think about some of the key upcoming milestones that we should be thinking about here as you execute on the initiative? And then Max, you mentioned sort of a ramp here in the back half.

Can you just confirm for us is your expectation that you'll be sort of hitting that 1% incremental growth uplift that you guys do as part of your 2028 target as early as this year or should we think about that as more of a 2027 target?

Vincent Sadusky: Yes. I'll give you a quick update, a little bit more color on Italy B2C and then hand it over to Max. So since we've won the Lotto contract, there's been a terrific amount of work done around the technology, both the system and the hardware upgrades. We're ahead of schedule there as I mentioned. We're now virtually complete with removing and replacing the roughly 33,000 point-of-sale locations around Italy with new terminals and that will help us not only with increased velocity around the existing games, but new games, right? So [Foreign Language] we introduced kind of Pick 3, Pick 4 in the U.S. That's an every 30-minute transaction. We believe now we can move that up considerably.

Our goal by the fall is to go to every 5 minutes with that game. And with still the considerable amount of activity and sales generated on the retail channel in these neighborhoods, we think that will incrementally add to the sales growth. But just as importantly is the capabilities that the terminals will provide in terms of assisting the retailers in activation for our particular iCasino app and iLottery app. So we're encouraged. We really haven't done much in terms of interaction with the consumer. All of our efforts so far have been focused on the technology, getting that right, putting the team in place.

And so far we've experimented with about 100 -- over the summer so far with about 100 of our close retailers to kind of work out and test and get feedback on the app and on the interaction. Having said that, our iLottery market share is up over a year ago and we continue to grow. Our digital growth was pretty good. I think our iLottery wages were up like over 20% for the first half of the year. But our goal was to have an offering that was on par with the competition in the market, first and foremost, before we had an aggressive launch campaign and we feel like we've accomplished that.

I mean we now have over 100, 120 eInstants available online, draw-based games available online. Some mirror the existing retail products. Many are new and unique experiences. We also now carry our competitors' jackpot games as well. And I think we're up to something like 700, 750 casino games, including live casino game capability and sports betting with the best-in-class content providers. So now that we've got that in place, I think the significant milestone for this quarter, as you mentioned, was the recruitment of retailers.

And again, as I mentioned in my comments, we think the relationship and the distribution network is a key strategic asset, one that will enable us to compete in this particular space of not only digital sale of lottery tickets, but also some incremental play around iCasino and sports betting. So we're not talking specifically about the deals that we're working out with our retailers. But we do think we have an attractive offering that will motivate a significant amount of those retailers to prioritize and assist us in customer acquisition. Again, don't forget, a portion of the Lotto consortium is owned by the Tobacconist, the largest group of -- most significant group of retailers in Italy.

And I'll hand it over to Max for the second part of the question.

Massimiliano Chiara: Yes. So to round out a little bit our answer here. In terms of growth projections, we believe we're going to be able to get to a run rate of 1% in the second half. Obviously we need to be very careful because this is a ramp-up business so it's going to grow slower and hopefully grow higher. And also we need to be very methodical in the way we apply our marketing spend, both vis-a-vis the retailers with the recruitment scheme as well as the bonus schemes that are typically allocated to the players.

So again as a combination of the 2, we think that we expect to be able to get to that 1% run rate between now and the end of the year.

Vincent Sadusky: Jeff, just one of the things you did ask is milestones. Remember we haven't published at this point yet given it's still nascent. But our goal -- our primary driver and most important goal by the end of the year is customer additions. We want to and we have a goal of significantly increasing our monthly active users. That's the primary goal. And with that, we'll have an exponential effect in the future we believe on digital revenue growth in Italy.

Jeffrey Stantial: That's great. Maybe just for a follow-up, switching gears and asking more on sort of the competitive environment and the outlook for new contracts. Just from our seat, it does feel like to us there's been a few more contracts specifically in the U.S. with systems creating hands than usual, Ohio, Minnesota, there's been a few others. Just curious to get your views on how you see the competitive environment right now for systems and iLottery contracts as well in the U.S. If you think that incumbent win rates have moved here in a material way over the last few years?

And then sort of from a more technical standpoint, with some of these recent RFPs, are you seeing sort of a shift in states rewarding more and more points for AI implementation or broader tech innovation or anything like that? And if so, can you just talk to us a little bit on sort of how you're positioning accordingly to compete in these categories?

Vincent Sadusky: Yes, it's a great question. I'd say look, in every industry there's an evolution. Things become more competitive, no company has a moat and we're approaching it from that perspective. When we separate the businesses, right, we just said -- we made a general statement that we'll have more of a singular focus on the lottery business. We see our competition engaged in M&A, looking for incremental growth in other areas that they have not traditionally been in; doing iCasino, sports betting, prediction markets, things in markets that are far from a perfect overlap in markets and not even the same customers.

So we've resisted and focused our digital efforts in places where we think we have a right to win; iLottery in the U.S., iLottery in Europe and certainly this B2C initiative that we have in Italy as well; as seeking more meaningful operator contracts around the world, right, including Sao Paulo where we will operate that lottery for 15 years. We think it's a great growth opportunity and with that, we have the right to deploy and execute not only in the retail system, but on the digital side as well in the iLottery side. So we've seen, I would say, different strategic initiatives executed by our competitors.

But in terms of increased competition for our business, which is primarily operating big lotteries around the world and providing systems primarily in North America as well as competing on the iLottery front; I would say over the years the iLottery has been the most competitive area. I would say not that much has changed in terms of having the credibility and being able to deliver a system or operate a lottery. And if you take a look at these RFPs as they come out in the meaningful lottery markets, the ones that really matter that are big.

Oftentimes you have to have operated a lottery or you have to have provided systems for multiple lotteries for years as a base requirement. And in markets where we have not won' places like Ohio and New Mexico; we are typically the rated highest technically. So we feel good about that. But nonetheless, a lot of this investment that we've been talking about has been on our system area to ensure that we don't take for granted our leadership position and that we continue to progress and accelerate our investment in our systems so we can continue to achieve the best technical score when being evaluated for these lotteries around the world.

And also with this inflection point, this incredible point in technology where AI capabilities are truly game changing, we also have the ability to become more efficient in the future. In places where we don't win, it's almost always on price and almost never on the technology offering. And so we recognize this and with this singular focus on lottery, that's been a big part of the investment that Max has been talking about as we invest in our systems and infrastructure as well as our digital offering in Italy and improving our iLottery offering around the world. So it's a dynamic environment.

We think it's pretty exciting, but we also feel very good about our leadership position, but we're certainly not taking it for granted.

Operator: Your next question comes from the line of Steve Pizzella from Deutsche Bank.

Steven Pizzella: You've highlighted a path to more than $400 million of annual free cash flow once you move beyond the current CapEx cycle. Can you walk us through the biggest drivers that bridge you from today's earnings and cash flow profile to the normalized free cash flow level?

Massimiliano Chiara: Yes. So this is Max speaking. Again starting from cash from ops, we are currently targeting $750 million for the year excluding obviously the impact of the upfront fee to the Lotto. We believe that number is poised to grow beyond $800 million for the next couple of years as we have already said before. When you take the CapEx and you bring the CapEx down to a normalized mid-cycle from the current $400 million run rate for the last 2 years and the next 2, you basically get to a number that starts with the $600 million, $650 million of free cash flow.

When you consider the minority payment between $200 million and $250 million, you basically get to that $400 million. That $400 million to us is only the starting point. We believe that number is poised to grow as we move along the way into the next cycle, which is a cycle that we call harvesting cycle in terms of cash flow once our CapEx cycle is over at the end of 2028. And the plus and minuses on the cash from ops are expected to come obviously from EBITDA improvement as well as the continuation of our efficiency around interest and taxes.

Primarily the tax line is coming down significantly from the recent past and we are basically getting the benefit of it mostly this year. Working capital again is net neutral over the cycle so that should not have an impact. So those are the highlights to get to the $400 million plus ex minorities once the CapEx cycle is over.

Steven Pizzella: Okay. Then just as a follow-up. Now that you have the final Lotto payment behind you, leverage is below your target and kind of you highlight the attractive valuation in the opening remarks. How are you thinking about share repurchases moving forward?

Massimiliano Chiara: So we have remaining authorization of $175 million right now, including the last $10 million that we just completed a few days ago. We believe that we have to continue to nurture shareholder returns going forward in consistency with our balanced leverage target. And just as a reminder, our leverage at the end of June at 3.25x was about 0.25x below our initial expectations. So we are favorable to leverage. So we are acquiring increased flexibility to be able to continue to promote shareholders' return going forward in both ways, dividend and share buyback.

Obviously we need to be careful in the way we spend our money and kind of manage it through the quarters as we continue to spend a significant amount of dollars for our investments, particularly in the contract renewals that are expected to come into fruition in '27 and '28.

Operator: Your next question comes from the line of Barry Jonas from Truist.

Barry Jonas: Was hoping you could give us an update on Mega Millions. Do you think customers are getting more comfortable with the higher price points? And is the committee still working on any initiatives or changes to help drive growth?

Vincent Sadusky: Yes. So as you know, we had a really unusual in the history of jackpots, a frequent hit on both Powerball and Mega Millions in the first quarter going into the early part of the second quarter. Fortunately, that slowed and we had a pretty good build of both jackpots and a lot of excitement around Mega Millions as it grew to roughly $800 million and sadly was hit just a week ago or so. But it provided really good organic marketing and Powerball continues to run in the U.S. So it proved that at the $5 price point, perhaps customers -- consumers and players are getting more comfortable with the value proposition.

But nonetheless, the weekly sales for Mega Millions is behind the historical run rate and so you don't think folks are fully on board or fully appreciate the changes. So the consortium; we work on some different things, we try to provide some research and insight, but ultimately they continue to think about whether or not they want to change the model.

Barry Jonas: Got it. And then just for my follow-up question, another quarter of very strong iLottery growth. We've touched on this in the past, but I'd love to get any updated thoughts you have whether the digital lottery is incremental from a player perspective to retail or if you're concerned about cannibalization, whether that's retail or even other or traditional digital channels?

Vincent Sadusky: Yes. Again we've talked about this in the past. I think in every industry, it's difficult to isolate one or the other. I think the criticality is you have to be a leader in both and just simply be available either at retail or have a compelling digital offering for consumers. And the one thing we know is when you look at the combination, those markets that have robust digital offering complementing good retail distribution networks, those are the lotteries that certainly perform the best. And for us to be more specific, right now we're very focused in a couple of areas.

One, we think of course the Italy B2C opportunity is our greatest opportunity given our retail strength, the ban on third-party marketing and the fact that there's really a very small percentage of lottery tickets sold online in Italy. So of course that's our value proposition we think and our opportunity. Other large markets, greenfield opportunity in Sao Paulo we think over time could be significant. And also we have a couple of other iLottery platforms that will come online likely in 2027. Missouri, we won that opportunity and Lottery West in Australia as well. So we're very focused on those specific opportunities as well as providing great service to our key platform customers in the U.S.

And then also in places where we don't have the platform to continue to produce great games and we continue to increase our share in those markets.

Operator: Your next question comes from the line of Chad Beynon from Macquarie Capital.

Chad Beynon: Wanted to ask about just distribution in the U.S. with gas prices at these levels. I know over the past couple of years, you all have diversified away from gas stations with C-stores and retailers and other areas. But with the elevated gas prices and maybe a little less in consumers' wallets when they're filling up their tank, have you seen much of an impact at these levels? And as gas prices hopefully come down, could this be a small benefit in the back half of the year?

Vincent Sadusky: Yes. I would say it's difficult to tell, to be honest. A lot of the transactions continue to be cash transactions. The transactions that we can trace are digital and the digital shows no sign of slowing especially in markets like North America where we've been providing and the states have been offering iLottery for years, the growth continues very, very strong. And so it seems that the key is to continue to provide game innovation and good interesting, I think, availability of games to the players that are meaningful and interesting at different price points and different types of winnings, be it smaller more frequent winnings or less frequent larger winnings. That seems to be the key.

And as we've looked across time, it looks like there is some correlation to the consumer. But as we've said, even in really tough times, lottery sales remain very consistent. So I think one of the other areas where we can help ourselves, you mentioned retailer outlets. A lot of the states have not increased the number of outlets that they've had for years post-COVID. One of the benefits I think of many of these contracts coming up for renewal in North America or extension.

It's been a very active period for us over the last 2 years and will be so really through the end of this year is the opportunity to outfit with new hardware, new equipment, more vending machines in the market as part of the RFP process or the extension process. So the teams have been very busy in many states implementing more points of sales. And we did also mention last time that we've got a new national retailer that is very excited about the addition of lottery games to increase their foot traffic and generate a bit more incremental revenue.

So we think that will ultimately result in over 1,000 new locations selling lottery games across 6 or 8 of our states this year and thousands more next year. So I think those are the things that will ultimately help to drive sales and perhaps we get a bit of a benefit if gas prices moderate in the future.

Chad Beynon: Makes sense. And then on rest of world, just iLottery or digital transformation. I know this has been something we've talked about that there's just higher penetration rates in some markets as those markets have moved slightly from analog to digital. Are there any other, I guess, non-U.S., non-Italian markets that could introduce iLottery? I know in the U.S. these usually come at the same time of year when Congress is pushing these things forward or the lottery boards are. But internationally, are there any markets we should keep our eye on the radar?

Vincent Sadusky: I would say for the meaningful markets in Europe in particular, they have had iLottery in place for many years and a lot of that activity is what helped us to build our model and plan for Italy, which again we believe is by all measures underexploited digitally. We don't really talk about the things that we're working on internationally. But again from time to time, we have an opportunity like Sao Paulo, which again is a greenfield opportunity we built the iLottery business from ground up. And overall, I'd say the rest of the world, we had good iLottery growth in the markets where we continue to provide the iLottery platform and provide iLottery games.

But again I'd say that we've been laser-focused on Italy, Sao Paulo and continuing to grow our content sales business in markets, primarily North America.

Operator: Your next question comes from the line of David Katz from Jefferies.

David Katz: Appreciate all the detail. Two sort of questions at once. Is it too early to start keeping an eye on scratch and win, which I think is probably the next sort of larger contract that you'll look to rebid or renew? And then Max, my sense is you probably keep a careful eye on contracts that can go into extension period while they're being rebid. Historically, I recall that those periods can be very earnings productive because they're often fully depreciated, but continuing to generate revenues and profits.

Are there any of those out there that we should keep an eye on, whether -- obviously you've given us for this year, but is there a next year or the year after that we can keep an eye on for that?

Massimiliano Chiara: Yes. So in terms of the second question so contracts are going to extension. So we just announced Oregon and Washington. So again the answer is yes, from time to time we are able to extend contracts. They don't come completely for free. Obviously there are investment upgrades necessary, which -- but they are at a fraction of a typical bid from day 1. And so we don't -- we tend not to obviously announce contracts until they are signed and executed. So again they're kind of in the making on a regular basis. And as far as the scratch and win is concerned, again it's probably a bit too early.

The best kind of reference that we could look at is how Lotto played out in the 2 years prior to adjudication of the bid. So typically, a government comes out either in the budget law or in a specific law decree with the highlights and the key rules of the new concession. We're still waiting for that to happen. And then from there, the whole process unfolds with the preparation and the publication of the bid, the period in which there is Q&A and the potential competitors participate to the bid, submit the bid and then wait for the final results.

So again it's a little bit early to talk about that, but again we're going to keep a close eye on that going forward.

Operator: Your next question comes from the line of Domenico Ghilotti from Equita.

Domenico Ghilotti: A couple of questions. The first is a comment on the guidance. In the sense you have confirmed the guidance. If I'm not wrong, the midpoint you are already almost 50% or 49% already achieved in the first semester. Usually I remember some seasonality particularly in Q4. So I wonder if the confirmation is a matter of prudence or if you think you can maybe be in the upper part of the guidance in terms of EBITDA at least. Second, on Brazil, if you can provide some color on how the operations are performing, some indication, let's say, on the success of the initiative? And third, just a modeling question.

With the minorities contribution for the Lotto, I wonder if now it has been completed. So in the first semester you received all the cash payment and you will start paying down the cash flow starting from the second half of this year and for the next years.

Massimiliano Chiara: So let me start with the first question about the achievability of the midpoint of the guidance. So I'd like to go back and look a little bit at how we fared in the first half. So overall, our revenue was down 3.5%. But if you exclude the service revenue amortization, we were actually up 4% in revenue year-on-year. That equivalent EBITDA was up 9%. So we were able to actually improve the margin a little bit year-on-year. We closed last year at 41%. I'm quoting margin ex-SRA just to be kind of indifferent from the service revenue amortization change year-on-year. And we achieved a margin in the first half of close to 42%.

So call it 1 percentage point improvement in the margin. That comes on the back of the continuation of our OPtiMa program, the addition of profit coming from the same-store sales growth ex the U.K., the famous 2% partially offset by the investment in growth that we've been mentioning now for a few quarters. The expectation for the second half of the year is for that margin to probably come down a little bit from the 42% on the back of the different mix of businesses that we are adding, particularly as a result of businesses in ramp-up phase starting from scratch, they tend to have investment upfront.

And so that kind of margin target is not available from day 1. Plus the product sales that we expect to achieve in the second half will contribute favorably to both the revenue and the profit. But typically, our product sales margin runs at lower percentage than the average margin that we generated in the first half. So overall, we feel good in terms of where we stand vis-a-vis the guidance range. But again, we have to keep in mind that there are some puts and takes. And last, but not least, we don't project overarching results on the jackpot.

We have to keep in mind that last year we are facing a comp of 2 $1.8 billion Powerball jackpot, one for each quarter, one in September and one in December of last year. And so that also if in absence of a repeat of the same trend structurally would not contribute the same way as last year. So we have to face a couple of headwinds, but we have good tailwinds on our end as well to offset those. So again I think that overall, the guidance range is still logical. In terms of the delevering associated with the end of the Lotto payment period in Italy, I think we have surpassed our best expectations right now.

The 3.25x leverage was expected to be achieved at the end of the year '26. So we're happy to report that we are there right now. And so now it's a matter of holding the line and trying to slightly improve that leverage ratio down the road. And again in doing that, we think that we will be able to start to pay off debt that we built to fund the payment of the Lotto upfront payment.

Vincent Sadusky: Yes. And I'll just add with regard to your question on Sao Paulo. We've got a really good team in place that's been executing. Our iLottery launch is live with the eInstants in the market. It's early days. There's not a lot of marketing that's taken place because the retail build-out is still taking place and retail will be a big part of the marketing efforts. But we're ahead of schedule in terms of the technology included with -- that it takes to launch an iLottery product. We've gotten the approvals and we are live in the market. And we think as retail comes online as we get into 2027, we'll have good growth going forward.

Operator: Your final question comes from the line of Joe Stauff from Susquehanna.

Joseph Stauff: Vince, when you were talking about in Italy the new digital offering, you had mentioned that all the lottery products are now available on that, including essentially your largest competitor there with respect to Lottery Flutter. My question to you is they've been offering iLotto for a while on their B2C platform. Largely it's iGaming, say, concentrated. But were they able to sell your lottery products on their digital platform over the last, say, 2 years or is this a new agreement between both of you to be able to do that?

Vincent Sadusky: Yes, they've been able to do that. But when you think about a market that's had digital play available for years and with the various competitors in the marketplace, there's the opportunity to offer the competitor's product, but then there's also an emphasis, right? Just the way things are kind of the way your mosaics and tile deliver up. We've talked about our iLottery team's significant advancement primarily through the utilization of AI in understanding our individual player behavior to be able to deliver a more unique experience as to whether or not they prefer games that have animals, that have fruit, that have gems, that are frequent play games with low denomination, less frequent, higher denomination games, et cetera.

So there's a lot that goes into serving up the offering much in the way that Google handles search and Netflix handles delivering or Prime Video handles serving up their particular programs and prioritization on the things that they push on their customer interface. So those are the types of things that we've been working long and hard at to really optimize, first and foremost, the player experience, but then also to ensure that we've got the best chance for our games to be played in the iCasino space and certainly mostly in the iLottery space.

Joseph Stauff: That makes sense of course. And just to follow up and sorry for the detailed question, but it's an important input for the stock and for the business. Is the functionality now I can go in, let's say, into a retailer, buy one of your lottery products, get a ticket, a retail lottery product and then essentially scan a code on the back that launches me into a digital realm where I can do the KYC and register. Is that the functionality that you have now?

Vincent Sadusky: Correct. That's correct. There's a lot of ways to access. You can go to -- a lot of folks already have our lottery app to check numbers, right? So that's a lot of players that just use it to check numbers without actually engaging in any commerce, no KYC stuff, no digital wallet. So there's an opportunity for cross marketing through the folks that already have the app to check numbers, get it through the various app websites, the app stores. But we believe a very significant opportunity for signing up accounts is going to come through what you described, the interaction at the retailer level.

Operator: At this time, there are no further questions. I will now turn the call back to Vince Sadusky, CEO, for closing remarks.

Vincent Sadusky: Thank you all for participating and listening in. I think we've got a very attractive investment given the current valuation for Brightstar Lottery. Just to sum things up. I think we've got the opportunity for ongoing lottery sales growth driven by digital, which we think will increase in the future. We've made significant investments and we'll continue to do so in organic growth initiatives. We think those are the most valuable and we'll continue to provide greater share worldwide of digital revenue in the future.

And when you take a look at the first half of the year, we grew EBITDA as a result of very, very strong cost reallocation plan and we are not cutting back on the investment that we're making in both retail and digital lottery operations. So we appreciate your interest in Brightstar. We look forward to continuing to update you throughout the year. Thanks.

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