Brightstar Lottery PLC (BRSL) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reveals strong financial performance with significant EPS improvement, impressive same-store sales growth, and substantial shareholder returns. Despite some negative cash flow, adjusted metrics show positive trends. The Q&A highlighted organic growth opportunities, especially in Italy, and reaffirmed guidance, suggesting confidence in future performance. Management's avoidance of specific details introduces some uncertainty, but overall, the financial and strategic updates are positive, likely leading to a stock price increase.

Key Financial Performance

Revenue Third quarter revenue of $629 million grew 7% from prior year, up 5% at constant currency. Improved trends in same-store sales across all geographies drove a $19 million increase in instant ticket and draw revenue. Italy's 6% growth was especially impressive, even when normalized for a like number of Lotto draws, rising 5.3%. U.S. multi-state export revenue increased $15 million, primarily due to elevated activity associated with a $1.8 billion Powerball jackpot.

Adjusted EBITDA Third quarter adjusted EBITDA of $294 million rose 11% or 7% at constant currency. High flow-through of wager-based revenue growth resulting from strong sales, store sales and jackpot activity and lower costs associated with expense recoveries were partially offset by the non-wager-based service revenue impact in Europe and the impact of product sales mix and start-up costs associated with the new printing press.

Adjusted EPS Adjusted EPS improved significantly in the quarter from a $0.02 loss in the prior year to earnings of $0.36 in the current year and increased 20% on a year-to-date basis, driven by improvements in net interest, income taxes and G&A expenses, partially offset by higher gross profit in the prior year.

Same-store sales Same-store sales rose an impressive 8% in the third quarter, including 4% growth for core instance and draw games. In the U.S., same-store sales were up 8%. Multi-state jackpot same-store sales rose 70%, fueled by $1.8 billion Powerball jackpot in the period. Italy same-store sales were up solid mid-single digits with strength across both instant and draw games.

Cash flow from operations On a year-to-date basis, cash flow from operations was a negative $6 million or a positive $573 million when adjusted for the $579 million Italy Lotto upfront license fee.

Free cash flow Free cash flow was a negative $245 million or a positive $334 million when adjusted for the $579 million Italy Lotto upfront license fee.

Shareholder returns Nearly $1 billion returned to shareholders through a combination of dividends and share repurchases this year, including a $0.22 cash dividend per share, which is a 10% increase from the historical rate.

Net debt Net debt reduced to $2.6 billion at the end of the third quarter, with $2 billion of the IGT Gaming sale proceeds used to reduce debt.

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Operating Highlights

AI-developed games: Launched Viking Gold, the first AI-developed game, in Rhode Island and Kentucky. Several more AI-developed games are in the pipeline.

Game Plan Wizard: Introduced a tool that analyzes instant ticket inventory and past game performance to optimize game launch plans.

iLottery Expansion: Global iLottery sales increased over 30%. Strong growth in the U.S. (Georgia and Kentucky) and Italy, with new games and digital adoption driving growth.

Italy Market: Italy's same-store sales grew mid-single digits. New EUR 25 VIP game and other initiatives contributed to growth.

U.S. Market: Same-store sales rose 8%, with a 70% increase in multi-state jackpot sales driven by a $1.8 billion Powerball jackpot.

Operational Efficiencies: Identified $80 million in gross cost savings by 2028 through back-office optimizations, AI adoption, and technology modernization.

CapEx Adjustments: Revised CapEx to $340 million for 2025 due to timing shifts, representing a $110 million improvement from initial expectations.

Focus on Lottery Business: Completed the sale of IGT Gaming for $4 billion, transitioning to a pure-play lottery company.

Shareholder Returns: Returned nearly $1 billion to shareholders in 2025 through dividends and share repurchases, including a 10% increase in quarterly dividends.

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Risk or Challenges

UK Contract Transition: The transition of the UK contract had a negative impact of around $6 million in the third quarter and is expected to cause a headwind of about $14 million to revenue and EBITDA in Q4.

Italy Lotto License Fee: The upfront license fee for the Italy Lotto has significantly impacted cash flow, with $579 million already paid and additional installments due, creating financial strain.

CapEx Peak Cycle: The company is entering a peak CapEx cycle from 2025 to 2028, with annual CapEx expected to average $400 million, which could strain financial resources.

Italy B2C Expansion: The expansion into Italy's B2C market, including iLottery and other digital initiatives, requires significant investment and carries execution risks.

Operational Efficiencies: The company aims to achieve $80 million in gross cost savings by 2028, but this depends on successful implementation of AI, digitization, and other optimization strategies.

Debt and Leverage: Despite reducing net debt to $2.6 billion, the company expects leverage to temporarily exceed its 3x target due to the Italy Lotto license fee and other financial commitments.

iLottery Growth: The company is heavily reliant on iLottery growth in the U.S. and Italy, which depends on regulatory approvals and market adoption.

Revenue Amortization Impact: The new Italy Lotto license will weigh on reported revenue due to the amortization of the upfront fee, potentially affecting financial performance metrics.

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Guidance & Outlook

Revenue and Adjusted EBITDA Outlook: Brightstar reaffirmed its full-year 2025 revenue and adjusted EBITDA outlook of approximately $2.5 billion and $1.1 billion, respectively.

Cash Flow Projections: Cash from operations for continuing operations is expected to be a negative $220 million or about $700 million positive when excluding the Italy Lotto license fee. This represents an improvement of about $55 million from prior expectations.

Capital Expenditures (CapEx): CapEx is revised lower to around $340 million due to timing shifts, representing an improvement of about $110 million versus the beginning of the year.

Mid-Term Revenue and Profit Targets: By 2028, revenue is expected to reach approximately $2.75 billion, with a more than 5% organic CAGR. Adjusted EBITDA is projected to grow at a more than 6% CAGR to $1.3 billion.

iLottery Growth: Brightstar expects 20%+ annual iLottery growth over the next several years, driven by broader adoption in the U.S. and Italy. U.S. iLottery penetration is under 10%, with significant room for growth.

Italy Digital Expansion: Brightstar aims to bring Italy's iLottery penetration in line with European benchmarks by 2030, leveraging digital solutions and cross-selling opportunities.

Operational Efficiencies: The company targets $80 million in gross cost savings by 2028, with $50 million expected by 2026. Savings will come from back-office optimizations, technology modernization, and AI adoption.

Shareholder Returns: Brightstar plans to return up to $1.7 billion in capital to shareholders during the 2025-2028 period through dividends and share repurchases.

Peak CapEx Cycle: The 2025-2028 period represents a peak CapEx cycle, with average annual CapEx of about $400 million. Post-2028, annual CapEx is expected to moderate to $200-$225 million.

Free Cash Flow Projections: By 2028, the business is expected to generate over $400 million in annual free cash flow before upfront license fees, implying a low- to mid-teens free cash flow yield at the current share price.

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Shareholder Return Plan

Dividend Increase: A $0.22 cash dividend per share was announced, marking a 10% increase from the historical rate.

Total Dividends Paid: Approximately $160 million in annual regular cash dividends are planned going forward, with a 5% yield at the current share price.

Special Dividend: A $3 per share special cash dividend was paid in July 2025.

Share Repurchase Program: A 2-year $500 million share repurchase authorization was announced, representing mid-teens percent of the current market cap.

Accelerated Share Repurchase: A $250 million accelerated share repurchase agreement was executed, the largest in company history.

Shares Delivered: 13.6 million shares have been delivered to date under the accelerated share repurchase activities, reducing the total number of shares outstanding to approximately 190 million.

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Key Q&A

Q:Can you unpack the assumptions underpinning the growth rates for core growth, iLottery, Italy, and other segments?

A:The growth components are based on recent history for core retail growth, with additional contributions from iLottery, Italy B2B expansion, and printing/product sales. iLottery growth is primarily organic, with secured platform and content deals. The B2C segment in Italy is seen as a significant opportunity, leveraging a strong retail network and underpenetrated market. Incremental share gains in instant ticket sales and advancements in hardware products also contribute to growth.

Q:What are the expectations for the second $250 million tranche of the buyback program?

A:The first tranche is still being executed and is expected to complete by the end of the year or early January. Further options for the second tranche will be considered after the first tranche is completed.

Q:What are your thoughts on the Mega Millions price change and its impact?

A:The price change to $5 in April introduced a built-in Megaplier and adjusted the math model to allocate more funds to sub-jackpot prizes. While it’s too early to fully evaluate its success, there has been an increase in payouts at sub-jackpot levels. The differentiation from Powerball is expected to become clearer over time, especially with higher jackpots.

Q:Can you provide insights into 2026 growth and frame next year's growth relative to 2028 targets?

A:Detailed 2026 guidance will be provided at year-end. Core businesses have accelerated, with Italy showing above-trend growth and the U.S. recovering. Jackpot performance and OPtiMa savings are expected to contribute positively. Historical trends suggest recovery in jackpot performance, and $50 million in additional OPtiMa savings is anticipated between 2026 and 2028.

Q:Why was the decision made to reaffirm the Q4 outlook despite tough comparables?

A:Q3 performance helped recover pace lost in the first half. Negative impacts in Q4 include $30 million from the U.K. and increased revenue amortization in Italy. Product sales are expected to be in line with last year, and G&A expenses are anticipated to decrease. The $1.1 billion EBITDA guidance is reaffirmed, with potential for slight overperformance.

Q:When can we expect opportunities for share expansion outside the U.S. and Italy?

A:Share expansion opportunities, such as São Paulo, Brazil, will take several years to materialize. Execution for such projects may begin in 2026, but profitability and cash flow will be realized beyond 2026. Near-term opportunities are focused on print and product sales.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on anticipated market share percentages for iLottery in Italy and the exact timing or mechanism for the second $250 million tranche of the buyback program. Additionally, they deferred detailed 2026 guidance until year-end and did not provide granular details on Q4 performance beyond general trends and impacts.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

BRSL Transcript

Brightstar Lottery PLC (BRSL) Q3 2025 Earnings Call Transcript

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