Brightstar Lottery PLC (BRSL) 2025 Q2 法說會逐字稿

Hello, and welcome to the Brightstar Lottery Second Quarter 2025 Earnings Call. (Operator Instructions) I would now like to turn the conference over to James Hurley, Senior Vice President of Investor Relations. You may begin.

Thank you, Sarah, and thank you all for joining us on Brightstar Lottery's Second Quarter of 2025 Conference Call 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. 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. And now I'll turn the call over to Vince.

Thank you, Jim, and good morning to all. Well, we're excited to welcome you to our first earnings call as Brightstar Lottery. As a pure-play business, we've got a clear mission of elevating lotteries and inspiring players to bring meaningful benefits to all stakeholders. Our name has changed, but our global industry leadership remains, and there are a few characteristics worth highlighting. We are the world's largest lottery operator, running day-to-day operations in 9 jurisdictions.

We are also the primary technology provider to many of the world's largest lotteries, and we are the #1 provider of iLottery platforms globally. These leadership positions are built on a nearly 50-year history of innovation, reliability and an incredibly strong team with deep expertise and customer relations. This is the foundation from which we've been able to deliver steady growth and strong cash flows and we firmly believe our future is even brighter. Several important milestones have been achieved over the last few months. We closed the gaming and digital sale for net cash proceeds of approximately $4 billion, which was better than expected.

We secured the Italy Lotto License, our most important operator contract through November 2034, and we've developed a compelling digital strategy to grow that business. And a capital allocation plan is in place to drive future growth while increasing returns for shareholders. With respect to the second quarter, results were in line with our expectations. Same-store sales trends improved around the world with close to 3% growth in core instant ticket and draw games and more than 30% increase in global high lottery wagers. Across the board, players are responding to innovative new games, especially those at higher price points.

Italy same-store sales performance was impressive, rising nearly 4%. Scratch & Win wagers were up on the successful relaunch of the Miliardario franchise across multiple price points and a new summer bundle of tickets. For Lotto, multi-bed payslips are driving 10eLotto growth while the new Miliardario oral option is driving higher Gioca del Lotto sales.

Italy lottery wagers increased over 20% in the quarter on the success of new Gioca Più games as well as digital replica as of the most popular physical retail games. Our increase focused on driving digital adoption in Italy is working nicely. Year-to-year wagers on our B2C sites are growing at about twice the overall market rate and we've gained about 2.5 points of market share since launching the MYLOTTERIES Play app earlier this year.

In the U.S., same-store sales, for instance, draw games returned to growth, up close to 1% in the quarter. California and Florida instant ticket sales achieved strong increases, fueled by new games at $40 and $50 price points and trends in Michigan improved with the launch of a new $50 ticket.

Our proprietary Cash Pop game, which is currently in 16 jurisdictions drove drug game sales growth in Florida, Georgia and North Carolina. U.S. iLottery wagers were up over 30% in the period, fueled by Georgia and Kentucky and the contribution from new einstant games we recently launched in Michigan. Multistate Jackpot activity remained low with the absence of any large jackpots in the period compared to $1.3 billion jackpot in Q2 of last year.

Rest of World same-store sales were up more than 8%, driven by EuroMillions jackpot performance, which had 4 draws at the EUR 250 million cap in addition to double-digit high lottery and growth in Poland and in Belgium. Product sales were up about 60%, and our new state-of-the-art printing press is running 24/7, helping us to deliver on increased production volumes in Texas, France and Portugal.

We're seeing increased demand for our proprietary gleam and Infinity tickets. In a short time, Infinity has developed a library of over 60 games available across 20 jurisdictions. We've had some noteworthy contract wins and extensions over the last few months. First and foremost is Italy Lotto, which we secured through November 2034. In Missouri, a Brightstar customer for over 30 years, we entered into a new 8-year contract to deploy our fully integrated Omnia solution.

Omnia seamlessly connects retail and digital lottery channels to maximize operational flexibility. It also offers lotteries new ways of engaging players. We also secured several multiyear instant ticket printing contract extensions that we expect will maintain the strong momentum and opportunity we have in that business. The company has consistently returned capital to shareholders over the last decade through quarterly cash distributions. However, most of our capital during that period was allocated to investing in the business and reducing leverage.

Today, with leverage in our target range, we are allocating more capital to enhance shareholder returns. In conjunction with the closing of the Gaming and Digital sale, we announced that a $1.1 billion net cash proceeds would be returned to shareholders. Firstly, a special dividend of $3 per share that provides an immediate benefit Second, a $500 million share repurchase authorization that represents a significant portion of our current market cap and provides an opportunity for ongoing capital return and support for the stock. Today, we announced plans to launch a $250 million accelerated share repurchase program with a counterparty bank under the new authorization. This represents the largest buyback activity in the company's history.

Again, our largest shareholder, will not be participating in the program, so the shares will come out of the public flow. We also intend to maintain the current level of about $160 million in annual regular cash dividends even with a reduced share count. The return to a singular focus on lottery marks an exciting new area for the company. Brightstar enjoys global leadership in a growing industry. Our business model is supported by mostly exclusive contractual and recurring revenue streams that deliver steady growth and have proved to be very resilient in the face of macroeconomic and geopolitical challenges.

For context, our average customer relationship is about 30 years and the average revenue-weighted contract life remaining for our portfolio is 7 years. This provides us with significant stability and visibility for our revenue, profit and cash flow. We believe broader iLottery adoption, especially in the U.S. and Italy, will be a meaningful tailwind that enhances our future growth algorithm. We have a clear right to win in iLottery.

Over the years, the Brightstar team and Board of Directors have consistently worked to unlock the intrinsic value of our assets. That is especially evident in the work done over the last 2 years to refocus the business on lottery, significantly improve the balance sheet and return capital to shareholders. We believe Brightstar's current valuation provides a compelling entry point as we execute on our long-term objectives. We believe the future is Brightstar. Now I'll turn the call over to Max.

Thank you, Vince, and hello to everyone joining us today. Brightstar generated second quarter revenue of $631 million and adjusted EBITDA of $274 million, propelled by 2.6% global same-store sales growth in instant ticket and draw games and a double-digit increase in product sales revenue. As expected, the year-over-year headwind caused by a lack of large U.S. multistage efforts and the associated LMA benefit continued in the second quarter, but were mostly offset by underlying revenue growth in the other part of the business. Year-over-year comparisons and profits are also impacted given the high profit flow-through of Jackpots and LMA activity.

Second quarter revenue of $631 million was up 3% from $613 million in the prior year and was stable at constant currency. Improved trends in same-store sales across all geographies and higher product sales related to both terminal sales and instant ticket services drove a $25 million increase in revenue, nearly offsetting the $27 million impact from elevated levels of Jackpot activity and associated LMA incentives in the prior year period.

For the second quarter in a row, there were no billion level Jackpots in the second quarter compared to a $1.3 billion Powerball Jackpot in the prior year period. Elevated levels of Jackpot and LMA incentive revenue are highly dependent on the timing of very large multistage airports, which occurs sporadically causing period-to-period variability. We delivered adjusted EBITDA of $274 million in the second quarter, down 5% as reported and 9% at constant currency when compared to $290 million in the prior year. If you exclude the impact of multistage Jackpot and related LMA incentives, which are outside of our control, adjusted EBITDA was in line with the prior year despite incremental investments we are making in growth areas of the business. This reflects some of the benefits we are realizing from the Optima cost savings program and highlights the resilient nature of this business.

Year-to-date, cash generation continues to be strong, delivering cash from operations of $433 million and free cash flow of $259 million. Cash from operations in the first half was about $100 million better than expected, mostly from timing of working capital items, although some of the upside will be maintained for the year. As Vince mentioned, we allocated $2 billion of the gaming and digital sales proceeds to debt reduction, which was completed earlier this month. This included the full redemption of the 4 1/8 senior U.S. dollar notes due April 2026 and a 3.5% senior secured euro notes due June 2026 and prepayments of EUR 300 million term loan facilities due January '27 and revolving credit facilities due July 2027.

In addition, we drew the second EUR 500 million tranche of the new EUR 1 billion term loan, which was predicated on us winning the Italy Lotto award. Net debt increased $463 million from the end of the year to $5.2 billion, which is primarily driven by the impact of foreign currency translation. Net debt leverage pro forma for the $2 billion debt reduction completed in July was at 3.0x, in line with our target and includes about 1/3 of a turn negative impact from currency translation for the first 6 months of the year. Our current balance sheet includes significant liquidity of $2.9 billion, putting us in a solid position in advance of the upcoming payments for the Italy Lotto license fee. As a reminder, this fee is payable in 3 installments with EUR 500 million already paid in July, EUR 300 million due when the new license term commences towards the end of this year and the balance of EUR 1.43 billion due by April 30, 2026.

Brightstar is responsible for 61.5% of the total so EUR 1.37 billion or approximately $1.6 billion at current rates, and our consortium partners will fund the balance. With the mandatory debt repayment beyond us, our debt maturity profile is attractive with no meaningful maturities until 2027. We continue to execute on Optima 3.0, our structural cost reduction program initially designed to proactively address the stranded costs associated with the sale of gaming and digital and have recently expanded the target to $50 million in annualized savings by the end of 2026, with about 60% expected to be realized this year as we are proceeding expeditiously and now expect an acceleration on some structural cost roll off post completion of the sale. And we are also working diligently to explore opportunities to further expand this program in the future with new initiatives focused on improving our operational efficiency.

The bulk of the current program savings are focused on back office optimization and do not impact customer-facing activities or jeopardize our growth initiatives in any way. In conjunction with this expansion, we incurred a $21 million pretax restructuring charge in the second quarter. Increasing shareholder value is a key area of focus, and we have recently announced several ways in which we are delivering enhanced shareholder returns. First is a 2-year $500 million share repurchase authorization, representing about 17% of the current market cap of the company. As part of that authorization, we are planning to launch a $250 million accelerated share repurchase program, the largest in company history.

Next is the declaration of a $3 per share special cash dividend that is payable today. For U.S. shareholders, we anticipate that this special dividend, along with the quarterly dividend paid in June of this year and any remaining quarterly dividends that might be paid during the remainder of this year will be treated as a return of capital for U.S. federal income tax purposes. I refer you to the Form 6-K filing filed with the SEC today and the dividend history section of our Investor Relations website for further information.

And finally, we intend to maintain approximately $160 million in annual regular cash dividends going forward, even with the reduced share count post execution of the buyback program effectively increasing the per share dividend on an annualized basis. At the current share price, our regular dividend represents a compelling yield of around 6%. Now I would like to turn to the outlook. For full year 2025, we are reaffirming our adjusted EBITDA outlook of $1.1 billion while improving our cash flow expectations. Due to a timing shift in product sales and 1 month of the increased amortization related to the Italy Lotto Offering license fee, we are adjusting full year revenue down $50 million to $2.5 billion.

As a reminder, upfront license fee amortization is treated as contra revenue and the starting date of the new concession will be December 1, 2025. With respect to adjusted EBITDA, the benefit from a more favorable euro-dollar exchange rate assumption to align with more current levels in the back half of the year is offset by higher-than-expected negative impact from the U.S. multi-stage Jackpots and LMA dynamics described during this call. We expect higher revenue and adjusted EBITDA in the second half of the year versus the first half, reflecting improved multistage effort and LMA comparisons as well as incremental Optima savings. In the third quarter of '25, revenue and adjusted EBITDA are expected to be up mid-single digits from prior year levels on same-store sales growth and higher product sales.

Our full year cash flow outlook has improved nicely. Cash from operations, inclusive of the first 2 tranches of the Lotto of from fee totaling EUR 800 million is now expected to be a lower use of cash of about EUR 275 million. This is EUR 75 million better than our prior expectation based on various improvements across the board in interest income taxes and other working capital items. CapEx has revised lower by $75 million to around $375 million, reflecting timing shifts related to recent contract extensions. Overall, this translates to about a $150 million improvement in the outlook for free cash flow.

To round out the outlook conversation following recent contract renewal development, we currently expect annual CapEx of about $375 million from full year '25 million through full year '28 with a reduction to $200 million to $225 million for several years thereafter once we complete our current CapEx cycle related to the renewals extensions of most of our largest FM and operator contract. I would like to remind you that our full year '25 adjusted EBITDA outlook of $1.1 billion includes several items that specifically reduced profit in 2025 and such as the severity of the Jackpot and LMA headwind for a total amount north of $70 million and specific investments in the business, which are considered temporary in nature, for the total amount expected for the full year of about $25 million. This, coupled with the benefits expected to be realized from OPTIMA 3.0 in gives us confidence that we can return to adjusted EBITDA levels closer to $1.2 billion in the future.

Likewise, cash from operations averaged around $780 million over the last 3 years, and we believe we should be able to return to that level going forward, if we exclude the Italy Lotto upfront license fee once we exit from this one-off period. One thing to note, given the streamlined 2-play lottery business expected going forward, we have initiated an extensive review of our financial disclosures to align to our post gaming industry group. With Q3 earnings, we expect to provide a status update and any changes to our GAAP, non-GAAP, KPIs and other disclosures to achieve this enhanced alignment and to early adopt some recent new disclosure requirements published by the SEC. Brightstar is well positioned for the future as a pure-play lottery business, supported by our global leadership position, a growing resilient business with strong profit and cash flow profiles a continued focus on structural cost reduction and a balanced capital allocation strategy that includes enhanced shareholder returns. That concludes our prepared remarks.

Operator, would you please open the line for questions.

(Operator Instructions)

Jeff Stantial with Stifel.

Hey, good morning, Vince. Max. Congratulations, again, on closing the gaming and digital transaction. Maybe just starting off here on capital allocation and the buyback authorization, Max or Vince, can you just walk us through the intuition on looking to the ASR structure versus more open market type purchases and then maybe how you decided on the $250 million amount for the ASR. And then for that remaining $250 million, should we expect the spend to be more opportunistic, more programmatic? And just to be clear, do we know yet or do you know yet if -- will be opting out of this half of the $500 million as well?

Thanks

Good question. So first of all, the first -- the total authorization that we have obtained by the Board of Directors in connection with the proceeds of $500 million is a large program with regard to our capitalization that represents about 17% of the market cap of the company today. Again, we think that sizing the program with a first tranche of 50% of its value is definitely an important decision and an important step towards showing the full commitment of the company to execute that plan.

We think the benefit of the ASR is obviously the immediacy of the ability to reduce the share count once the program is launched and also the fact that it represents a constant purchase of shares during a relative period of time, that would help the company kind of navigate through this interim period. And so we believe that this program, this instrument represents a better tool for our particular situation to help deliver the shareholder returns that we have committed for.

In terms of the next kind of the next phase, we would like to see how this first phase gets completed. Obviously, the decision and the -- of tendering shares into this first tranche makes the case for the entire program insisting on the float, which is obviously an important feature of this program as well. Obviously, it's not appropriate for us to speculate on the Destiny intentions with the development of future tranches of the total program. And again, we have not decided yet, speaking about that, what are the most appropriate instrument going forward. So we would like to launch -- to be able to launch this program, see the program in execution, see the outcome and then decide what to do next once we get to that point.

Sorry, I'll just add to that, and thanks for the compliment. -- long two-year process to get that strategic realignment done and raise the proceeds and now have the great opportunity to be able to have been competitive for Lotto and then also have the excess proceeds available to think about how to drive value for the for the company. So I would just say from a big picture perspective, we all believe firmly the management team, our Board of Directors, that the company's intrinsic value is significantly greater than where it's currently trading at. I mean a lot of companies say that, but when you look at free cash flow per share, when you look at all the different metrics and valuations that we've looked at, we've decided that's apparent. So we're excited to invest back in buying back our shares.

As you saw from the press release and heard on our comments, De Agostini our largest shareholder, will not participate in the buyback. So triangulating to what is the right amount and what is the right structure. The amount of $250 million is significant relative to the public float. It will take some time to execute that. And as Max said, we will then evaluate based upon the impact of that, where we stand and what the next step might be.

But then also, I think that this is significant from the perspective that the company historically has chosen to return capital to shareholders through dividends, right? And we're going to maintain that dividend policy. In fact, we're going to -- our intention is to maintain the dividends at the current level despite the reduced share count. And we think that this ASR as a vehicle is efficient, gives us the opportunity to buy shares back at a good value. And I think equally as important, it shows a real commitment, right?

This is the largest program the company has ever done and is not engaged really in buybacks. I did a bit of that a few years back, but not consistently. And I think this just really, I think, demonstrates the commitment entering into the contract and our strong view around about value opportunity for existing shareholders.

That's great. And then maybe turning over to guidance. Max, can you just talk about or maybe remind us what's embedded in the back half guidance in terms of same-store sales, maybe focusing on Italy and the non Jackpots for North America. And then if you -- can you compare that to exit rate growth rates coming out of Q2 and if it is materially different, sort of like what are the puts and takes the levers to drive towards that back half guidance?

I'll kick off on this, Vince, again. So again, going through the 4 major items, so LMA, Jackpot, Italy and U.S. So the LMA starts a new fiscal year with our Q3. So again, there is not a progressive history that would influence any deviation from the norm that being the norm kind of an expectation of no incentive, not short of fall. So we don't expect Q3 to be a surprise at this point.

And obviously, with Q4, we have to see what happens during Q3 in terms of Jackpot performance, but for now, we expect a muted second half of the year in terms of LMA. And so when you compare H1 to H2, we should hopefully get the benefit out of it. In jackpot, again, the Jackpot has been extremely impacted in the last 9 months. Since the $1.3 billion early April of '24. There has only been $1 mega million Jackpot at the end of December.

And so obviously, we have suffered for the entire period. We expect some sort of return to normalization in the second half, but we don't see an excitement around the casual play yet. So again, still modest improvement in the Jackpot although definitely better than in the last nine months.

In terms of Italy, Italy has experienced the best quarter over the last 6 quarters in Q2 and even Q1 was phenomenal when you normalize it for the selling days and everything else. So again, Italy is expected to continue well in Q3 and Q4, but probably at a slightly more modest growth than what we have experienced in Q1 normalized for this adjustment.

And then last but not least, in the US retail market, we see a steady state improvement is step by step, but we see months in and month out more states, more jurisdictions turning the corner, moving into a positive trend. We have seen California, Florida doing very well in Q2 and we expect more of those to improve also in the back half of the year.

And then finally, iLottery, we expect iLottery to continue this phenomenal trend. Really, for us, the turning page has been the full introduction of the cloud, the transition to cloud, which has allowed us to scale up the operations quickly and follow the market when the market goes up. And like we have seen in Kentucky, for example, in the last three months. Vince, anything to add?

Yes, I would just add to that. I think Max summed up the revenue drivers and the profitability driver as well and the expectation for the back half of the year. I would say when I -- when we look at pacings for the first 3 weeks of the year, worldwide sales are up about 2% or so. It was good in the second quarter to see return to growth. And the takeaway for me really is it's just great to have multiple revenue streams were geographically diverse and more and more so product diverse in that we're having more significant revenue streams coming in from iLottery and for printing as well.

So I think it's just great to have this diversity. And the way I look at it is, if it's not been for unfortunately, another quarter of bad log with North America multistate jackpots, the top line growth would have been very good for the quarter. So that's our view. We definitely see the see the core trends have improved in the second quarter and continue that trend through the third quarter. And hopefully, we get a little bit of luck on multistate jackpots in the U.S.

And just to put things in perspective, I think it was about 1.5 years about six quarters or so where there was a $1 billion jackpot or a build towards $1 billion jackpot.

And we haven't seen that, I think, empowerball since the second quarter of '24, and I think Mega Millions has only seen one. And we really think the move to the $5 mega millions can have a significant impact on the build, but unfortunately, mega trillions has been hit multiple times and has not enjoyed a good run since the $5 price change. But over time, we have the expectation that those jackpots will build, and we'll we have a chance to see, I think, a good positive impact from that change as well.

Barry Jonas with Truist.

Hey hey guys, good morning. Maybe as a follow-up, you've given some helpful color on current trends. But last quarter, you did highlight a high degree of macro uncertainty, have you seen any improvement since?

So again, the market uncertainty that we mentioned a quarter ago was really more of a warning in terms of really not knowing the direction of discretionary consumption going forward in light of the uncertainty created during the during the spring for tariffs events and other situations. So I think we continue to see cautious around particularly lower court.

But we don't -- we have not seen a deterioration that could have been possible. So again, the market is holding up pretty well. For us, it's really -- the deciding factor is the ability to provide incremental innovation with new games, new game features and new ways to access games that stimulate demand with existing players and new players.

And so again, the company has the ability to offset potential weakness in the market by fostering incremental innovation. So again, we remain cautious, but we are optimistic that the second part of the year will look better -- will show a better trend than the first part of the year.

I would agree with Max. I would say really the that comment was, as Max said, just based upon -- everything that was going on with tariffs and the very potential negative scenario in the States and in Europe and particularly where our business is primarily driven of what might happen. Now that we're not of course, wrapped up, but much more settled on the tariff front and the negative economic fallout seems to be negligible, and hopefully that continues.

It doesn't seem like that's certainly not nearly a significant concern as we had in the second quarter. And again, just to step back and keep in perspective, the lottery business is one that is historically been anti-cyclical. And in some cases, when the economy has been tough, folks play lotteries more often. So yes, I think it really is up to us and the team to continue to bring great products to the marketplace. And so I would definitely say that, that comment is significantly reduced where we sit today than where we sat 90 days ago.

That's extremely helpful. Just -- and then just for my follow-up, recognizing your average contract life, I think, is about seven years. Wanted just a follow-up there. As you think about the next round of contract bids, whether that's a renewal or maybe a competitive bid -- the competitive environment? And maybe walk through the balance between incumbency technology and then pricing to really be successful.

Yes, sure. When we look at all the activity is an incredible, probably an unprecedented amount of activity in renewals, just all happening to come together really over the last year or 1.5 years. And by and large, those have kind of gone the way that we expected. And I think what's really reassuring for our company and our solutions is in markets like, let's say, Missouri, where there was a expanded contract renewal encompassing pretty much everything in lottery over the next several years and their desire to have us implement Omnia, which really covers everything from retail to high lottery, to connected play to player management, data insights, et cetera. So that's significant technical win that the company achieved to Lotto, which there was -- obviously, it was a very competitive process in price, but also with a capable competitor in CECO/flutter to win that technology score.

And then we look at markets like Ohio and New Mexico that came available and BrightStar did not win those opportunities based on value, and we're very disciplined on price, but we did win on technology. So I think the technology investments that we continue to make, and again, I mean a lot of this business is credibility for iLottery, which is a huge, huge focus will continue to be for lotteries, we continue to power -- by our calculations, more lotteries platform-wise than any other operator in the world.

So we think these things are critical, and that's the core business, and we've got to continue to win and innovate and be the best in that regard. And then the pricing for these contracts is each individual one is, in my view, completely unique in terms of the dynamics and competitiveness and the competitive desires and all of those things. So we have to continue to win technically.

We have to be the best and then also certainly compete in all the other attributes of these RFPs. But I would say things are settling down now. There's not that many that are up in the cycle as we work through this recent very, very active period.

Chad Beynon, Macquarie.

Hi, good morning. Thanks for taking my question. Vince, Max, I wanted to start with the double-digit increase in instant ticket printing for the quarter. This has obviously been a focus to win more primary or secondary opportunities. But I was wondering if you could just kind of dive into, again, kind of Vince on the back of your recent comment with upcoming renewals or opportunities, if there's anything on the instant ticket printing side? And then maybe if you could just talk about how the efficiencies maybe helped in the quarter for margins broadly and how that could help going forward with OPTIMA?

Yes, sure. I'll start off with an overview and then let Max talk more specifically to OPTIMA and the efficiencies that we've been working on for kind of our new size stand-alone lottery entity. Yes, as you know, has been an area that we think is considerable opportunity, and it's been an area of focus for us for the last couple of years. We've been the market leader in central systems, but certainly not in printing. So one of the things we did was invested significantly in hardware and software.

And also, we've expanded our print library and our logistical capabilities, and we've learned from the markets where we perform those operations. We've come up with, as I mentioned, affinity instance, which is a great technology, where we've rolled out a bunch of those games in market that we control in a very mature market in Italy with very good success. We've also come up with innovation with this clean technology that's got these holographic looks at ticket. So the goal is to constantly offer something beyond the commodity product. So you have to obviously have the capabilities, but then I think through a deep library of content as well as some interesting production methodology, offer something else.

The new press that we've put in is now operational. And just by virtue of it being one of the most recent ones to be installed is state-of-the-art. And so that as our learning curve progresses not only is the capacity there, but our ability to continue to drive efficiencies over time is there. I think in 2025 and Max can check this, I think our production is up somewhere around 20% or so. We think that, that trend will continue as we've won some new business, some significant printing contracts over the last year or so with Portugal, a new contract with FDJ, Spain, et cetera.

And I think that, that is an area that is something that can contribute, especially as the volume increases, right, like any manufacturing facility, the greater the volume running two shifts a day, 8 to 12 hours a day is really key to driving profitability as well as certainly best practices minimizing waste and maximizing the distribution opportunity. So those contracts have a tendency to come up more frequently than the FM contracts. It's not nearly as difficult to change or add a printer, a printing company as it is to change FM or central system. And so we believe that that's one of the reasons for the investment and why we think the opportunity is greater. And also, we've seen a trend over the last decade or so where more and more lotteries are okay with and have gone to multiple print vendors.

So unlike central system, it's not an all or nothing RFP in value proposition. And Max, you talk about the OPTIMA.

Yes. So just to confirm what Vince just said. So in 2024, we produced $8.5 billion of standard unit in the instant ticket facility in Lakeland, Florida. So -- and we are running 25% above that right now. We have expanded the capacity by 50%, adding a full new press we invested about $30 million in the last 2 years to do that.

So again, we have created the conditions to expand capacity beyond the current portfolio, and we are obviously going after a new contract as the bid environment permit. Switching to the question related to the margin progression in the second half of the year. EBITDA margin has clocked around 43% in the first half. We believe we are meant to go up in the second half, maybe a point, maybe two that is primarily going to be driven by the efficiency generated by Optima from a pure marginality standpoint. We have some puts and takes in the top line and in the gross profit.

But the bottom line is that we should be able to drive those savings home and hence, improve our marginality in the second half of the year. And speaking about that, we are looking very closely at the new SEC recently deliberated principles, ASU2024 03, which is called income statement expense disaggregation disclosures.

There's a 2027 as date of inception, but with the possibility for an early adoption and since we are in the transition to this new company, pure play lottery setup, we think that there is an opportunity for us to take advantage of this new requirement to kind of adopt -- early adopt potentially some of the features or all of the features of this new disclosure requirements and improve the transparency of our reporting and our KPIs as well as improve the ability for investors and the sell-side to really compare side-by-side with our industry group in a more linear fashion. So again, we think that this is an opportunity that we want to look hard into it, and we'll come back with our Q3 earnings with more clear effect. Thank you.

Thanks, Max. Appreciate it. And then secondly, I just wanted to ask about the Greek state lottery opportunity. I know there's a 100-plus page document out there that's been translated from Greek to English. But just in terms of maybe the timing of this or more importantly, historically, I guess, the financial arrangement, if it's a similar type of contractor economics where there would be an upfront fee similar to the way that Lotto is designed or if you're able to win or participate in that opportunity if that's more the traditional percentage of sales and no upfront fee from a CapEx standpoint?

Just any color on that would be helpful.

Yes, I would just say on Greece, it's early days. Right now, the RFI was issued. So it's a request for information. As you know, the incumbent and ourselves, we did a lot of work on it and submitted. But it will run a process, and they'll make a determination as to what the RFP will ultimately look like.

But that contract, I think, expires in 2027. So it will be a process. First step for some of these lotteries is an RFI, gather information, their commission will then utilize that information to make a determination as to what form of contract that they -- and what form of RFP that they want to put together. So we're in the game on that one, but it's early days.

Thanks Vince, appreciate it.

David Katz of Jefferies

So congrats on all the activity, no small amount of work. When I look at the business today, and I think you pointed this out in your deck that by virtue of the repurchase, you're getting a little bit of dividend growth. And I do wonder if that becomes just a part of the thought process going forward and whether dividend growth by one way or the other is something that will become more a part of the story going forward.

Yes. I think as we -- and thanks for the comment, David, appreciate it. Yes, really, when I think about trying to make Brightstar lottery as attractive investment vehicle as possible. To me, it's pretty straightforward. The company has done a lot of work to get this balance sheet in a great place.

We have, I think, a really solid proven business that's been really resilient through kind of the explosion of digital gaming opportunities around the world and in particular, in North America. Through the innovation, I think, enjoy that people get out of these lotteries. It's our job to work with these lotteries and certainly the ones that we directly control to continue that innovation and interest for people. You get a little bit of love to the positive and negative with the big jackpots. And that's just part of the business.

And then you have growth upside from the increasing digitization of the business that's more mature in certain markets. But when you think about Brightstar's footprint, our most significant footprint, of course, is North America and Italy, where it's not all that mature and there is, we believe, significant upside opportunities. So you have a nice growth aspect associated with a very consistent and solid countercyclical business.

And then to kind of do what we can do to enhance the profile for all of us collective shareholders, capital returns is certainly part of that value proposition that we've spent quite a bit of time thinking about. And so initially, the comment has been we intend to maintain the absolute value of our dividend each quarter despite the fact that shares are going down.

So yes, you picked up on that grade. And then the thinking on a go-forward basis, we can't comment on it, but we will constantly be evaluating what our yield is in order to remain competitive, and that's something that we think is an important part of our value proposition to investors.

So just to follow that up quickly. Please finish.

No, sorry, this is Max speaking. I just wanted to substantiate one more item on what Vince just said. Obviously, having a disposal of the more volatile of our businesses allows us to also come into our forecast process more comfortably vis-a-vis not only our profit but also our cash, and that gives us confidence that we can we can kind of project and maintain going forward, a poster vis-a-vis different usage of cash, inclusive of the dividend. So again, it's a technical step initially as a result of the ASR execution. But again, going forward, obviously, our ability to better project cash is a point of strength in terms of determining the dividend.

Understood. And my very quick follow-up was really just going to be whether you'll start thinking and talking about a dividend payout ratio at some point in the future.

So it's a good question. There are companies that have stated payout ratios on earnings, adjusted earnings, cash flow, adjusted cash flow. So again, this is definitely something that we may want to look at in the future in terms of our new equity story. But again, it's important to keep in mind the specific technicalities of our industry, and in particular, of some of our contracts that require larger amortization of fee to be deducted from revenue and have a straight flow through to profit, which obviously had an impact to the bottom line. So again, we have to assess the situation and see what is the best indicators to improve the predictability of cash allocation to shareholders.

Okay, thank you very.

Domenico Ghilotti with Equita

Good morning. Three questions. First on the ASR instrument because I'm less familiar, just to be sure. So there is a specific time frame to execute the buyback is something that we will know in advance. And so if you can just clarify on that. Second, on the iLottery business evolution in Italy, you were providing some comments during the call.

If you can add some color on your strategy and maybe some KPIs. And third, if you can remind us the sensitivity to the euro/dollar with the new perimeter in terms of sales, EBITDA and net financial position.

So I can take the -- Yes, go ahead, Max. If you want to take number one and three, I'll take the Right --

So on the ASR timing, obviously, that predicated upon the volume trading, daily volume trading. But I would say that in general, our expectation is that the company will be in the market with this program up to the end of the year probably. So that's kind of round about where we expect the program to last. In terms of sensitivity on the euro/dollar, obviously, with the mandatory repayment, we have taken out a big chunk of euro debt at the holding company, which is functional currency dollars. So hopefully, we have turned the corner on that FX volatility.

And now the impact of $0.01 on net debt is down to $15 million. So that's the majority of the impact that you will see reflected in our financials going forward. Vince.

Yes. And I would just say on the iLottery side in Italy, we -- what we described and discussed our Lotto win, we also outlined our digital plan for Italy. So the attributes real quick are -- we've had greater than a 20% CAGR over the last five years in iLottery growth in Italy. The first half of the -- of 2025 that continued. I think we were up over 20% or so.

Having said that, the iLottery penetration in Italy is low. It's in the kind of the low to mid-single digits. And so our focus area has certainly been on the opportunity to grow that.

And so one of the steps that we've done is the team developed an outstanding MyLotteries Play app, which has gained a significant amount of market share already. I think we gained over 2 points of market share just in the first half of 2025, both on the edraw side as well as on the einstant side. So this is a real focus of ours going forward and now that we've secured Lotto. So we've got both contracts for many years.

We will deploy kind of all the very good and smart operator, retail digital business execution around driving that, whether it's kind of combined jackpots, or the utilization of in-store promotions to help to drive the level of digital play. And we believe that given our deep experience on both retail and iLottery and the proven fact that the most successful digital operators, whether it's in iLottery or if it's in a gaming or sports betting have a combination of retail and digital presence.

So we'll continue to build out -- build off of the MYLOTTERIES app, but our goal is later this year, took them out with a product that includes iGaming and sports betting and allows players, of which there are quite a few that engage in both lottery activities as well as iGaming and sports betting give them the opportunity to do all of that from our app. So the goal is to expand the player base and engage with players beyond the retail destination, coupled with having several opportunities available, really a one-stop shop with our best in-class iLottery games coupled with the opportunity to engage in bingo and iGaming and sports betting.

Joe Stauff of Susquehanna

Vince, Max. On both Texas and New York, those contracts certainly, the process, the tender process seems to have been delayed somewhat. The expiration of those are in August of '26. Is it -- do they give you an official notice that, a, it would be extended by an explicit time? And what is that?

And then the second question is maybe the observations you have for the new pricing on Mega Millions in April and what you saw in the second quarter and thus far in the third, are the -- is the volume demand there relative to what you expected? I guess the simple, say, observation is that it kind of launched probably not the most ideal timing of April when the market was getting smoked. And just wondering if more customers gravitated to the $2 Powerball at the expense of mega.

Yes. So a couple of -- it's a really good question. We've been looking over data for the 5 mega million launch, and it is what we've been is the absolute sales levels at comparable jackpot levels. So the $5 game compared to the $2 game, looking at any given week with similar jackpot levels is higher under the $5 ticket price. And so the way the math works is the number of ticket sales is down, for sure.

But of course, the average ticket purchase and number of tickets purchased that absolute transaction dollar value is up.

Now we certainly hope and expect that it will be up much more than it's currently been up. And as you point out, I think it was a tough moment in time. But more importantly than that, as we said earlier, we feel like the correlation between macro and lottery ticket sales, certainly not perfectly correlated. In fact, lottery ticket sales after times to do well in a tough macro. It's more of the jackpot experience.

So players need to, I think, play have enough experience with the $5 price point to recognize that there's value associated with that through a higher starting point for the jackpots, but more importantly, a faster build of the jackpots week-to-week. And unfortunately, we just had some really bad luck that mega millions has been hit over and over again since the increase of the $5. So we've not been able to demonstrate that experience to consumers. So it's going to take some time. Hopefully, we have a good run or 2, and we really get people to enjoy the incremental benefit and understand what we think is a better payout structure.

And then with regard to Texas and New York, yes, you pointed out right, Joe. New York expires in August of 2026. We don't have anything specific contract-wise. However, we do expect that an RFP will come out at some point and because the date is now a year away for the expiration that, that will include some form of extension because we do not believe it would be possible to implement a new system in this tight time frame. And then finally, Texas.

Yes, Texas was disappointing. We felt as if we had the best proposal, et cetera, and then all the noise surrounding the couriers really kind of throw that off and the consolidation of the lottery government agency and all those things took place. And so the lottery has been extended out through 2029 and ITT has been big granted an extension for another few years until, I think, 2028. So we anticipate sometime between now and then, they'll start a new on an RFP process. But as you can imagine, there's a lot of moving parts there and combining government agencies.

So I'm not sure that's going to happen anytime soon.

This concludes the question-and-answer session. I'll turn the call to CEO, Vince Sadusky, for closing remarks.

Yes. As always, thank you for you interest. We look forward to updating you as time progresses. Thanks, and have a great day.

This concludes today's conference call. Thank you for joining. You may now disconnect.