Brightstar Lottery (BRSL) Q3 2026 Earnings Call Transcript

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DATE

Tuesday, Nov. 10, 2026

CALL PARTICIPANTS

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

TAKEAWAYS

• Revenue -- $607 million, reflecting a 4% decrease primarily due to $99 million in noncash service revenue amortization.
• Operational Revenue Growth -- 4%, accelerating from 1% in the first half of the year due to increased product sales and digital expansion.
• Adjusted EBITDA -- $289 million, representing a 2% decrease as growth in product sales was offset by lower same-store sales and growth investments.
• Product Sales -- $60 million, more than doubling year over year due to retail hardware sales in Portugal and terminal deliveries in North Carolina.
• Adjusted EPS -- $0.10, including a $0.70 per share noncash impact from service revenue amortization.
• U.S. Multistate Jackpot Revenue -- $25 million, a 30% decrease reflecting lower jackpot levels compared to the prior year.
• Net Debt -- $3.8 billion, an increase from $2.7 billion at the end of 2025 following the final payment for the Italy Lotto license.
• Net Debt Leverage -- 3.3x, remaining within the company's targeted range.
• Total Liquidity -- $1.9 billion, comprised of $500 million in unrestricted cash and $1.3 billion in available credit facilities.
• Dividends -- $0.23 per common share, declared for the third quarter with a total of $127 million paid year to date.
• Share Repurchases -- $77 million, allocated through Nov. 9 as part of a strategy to return capital at current valuations.
• Full-Year Revenue Guidance -- $2.435 billion to $2.455 billion, revised downward to reflect foreign exchange volatility and lower multistate jackpot expectations.
• Full-Year Adjusted EBITDA Guidance -- $1.14 billion to $1.16 billion, updated primarily due to the strengthening of the U.S. dollar.
• Capital Expenditures -- $313 million year to date, with a full-year outlook of $450 million reflecting shifts in project timing.
• U.S. Same-store Sales -- Down 5.5% year over year, as high jackpot activity in the prior period created a difficult comparison.
• Italy Same-store Sales -- Down 1.2%, impacted by a summer heat wave and logistics disruptions from transportation strikes.
• Rest of World Revenue -- $98 million, a 42% increase driven by the Lotterywest contract and software service extensions.
• iLottery Sales -- Maintained double-digit growth, continuing multiyear momentum across global markets.
• Adjusted EBITDA Margin -- 41.5% year to date excluding service revenue amortization, representing a 50 basis point increase.
• Notes Issuance -- 500 million euros, issued in September to extend the company's debt maturity profile through 2032.
• OPtiMa Savings -- $100 million total target, with $80 million in actions already taken to improve structural efficiency.
• U.S. Instant Ticket Sales -- Reached the second-highest third quarter level in five years, demonstrating solid underlying consumer demand.
• Pro Forma Payout Ratio -- 65%, based on adjusted earnings per share of $1.05 and dividends of $0.69 year to date.

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RISKS

• Sadusky stated, "The increase from $2 to $5 and the change in the algorithm has not been all that successful," noting lower play levels at various advertised jackpots.
• Chiara stated, "The recent jackpot hit... has impaired our ability to basically get closer to another $1.8 billion Powerball jackpot that hit at the end of last year," referencing fourth-quarter expectations.
• Chiara warned that the situation in Italy regarding transportation strikes "remains obviously important to verify" over the final 60 days of the year.

SUMMARY

Brightstar Lottery PLC (NYSE:BRSL) reported that operational growth accelerated during the third quarter, driven by a doubling of global product sales and expansion in digital services. Management stated that the core lottery business remains durable despite lower activity in multistate jackpots compared to the previous year. The company revised its full-year financial outlook to account for recent jackpot trends, the timing of specific expansion efforts in Italy, and unfavorable foreign exchange rates. Capital allocation remains focused on maintaining a strong balance sheet while returning capital to shareholders through dividends and share repurchases.

• Sadusky noted the success of the Dual Play hybrid game in Italy, stating, "Approximately half of participating players are making their way to the MyLotteries app to enjoy the digital experience, creating an effective acquisition funnel from our retail network."
• The company is preparing for the launch of OTTO, a new self-service Lotto terminal, and Sani proximity services in Italy early next year to drive incremental recurring revenue.
• Management reported that U.S. instant ticket sales were up 4% in Indiana and New Jersey, where the company has lottery management agreements.
• Chiara highlighted the debt maturity profile, noting that the issuance of 500 million euros in senior secured notes was used to repurchase notes due in 2028 and repay revolving credit facility borrowings.
• The company expects to submit a new proposal for the New York lottery contract by early Dec. after the original request for proposal was canceled and reissued.
• Sadusky indicated that the Brazilian market opportunity remains viable despite federal restrictions on sports betting, stating, "We don't think lotteries will be impacted by the current negative situation federally regarding sports betting and iCasino."

INDUSTRY GLOSSARY

• iLottery: Digital platforms allowing players to purchase lottery tickets and play games via the internet or mobile devices.
• eInstants: Digital versions of instant-win scratch-off lottery games.
• SRA (Service Revenue Amortization): The noncash recognition of upfront license fees over the life of a contract, such as the Italy Lotto license.
• OPtiMa: The company's multiyear program focused on structural cost savings and operational efficiency.
• Dual Play: A hybrid lottery game that combines physical retail play with a digital experience.
• OTTO: A self-service lottery terminal designed for retail environments.
• Sani: A suite of proximity services in Italy, such as bill payments and phone recharges, offered at lottery retail points.
• LMA (Lottery Management Agreement): A contract where the company provides day-to-day management of lottery operations for a jurisdiction.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to the Brightstar Third 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 third quarter 2026 conference call, which is being hosted by Vince Sadusky, our Chief Executive Officer; and Max Chiara, our Chief Financial Officer. We are presenting from multiple locations today, and we'd appreciate your patience if we experience any technical difficulties. During today's call, we'll 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.

Now I'll turn the call over to Vince.

Vincent Sadusky: Thanks, Jim, and thank you all for joining us. Both third quarter revenue and profit were in line with our expectations as operational revenue growth accelerated to 4%, up from approximately 1% in the first half of the year. This acceleration reflects the diverse scope of Brightstar products and services in addition to the growing contribution from several of the strategic initiatives in which we've been investing. Our year-to-date revenue, EBITDA and earnings per share performance also demonstrate the durability of the business even as we continue to invest to strengthen our contract portfolio and expand our technology and service offerings. Returning capital to shareholders remains an important pillar of our balanced capital allocation strategy.

Through November 9, we returned over $200 million through a combination of quarterly cash dividends and share repurchases, representing approximately 11% of our current market capitalization. We believe repurchasing shares at current valuation levels represents an attractive use of capital. At the same time, we remain focused on maintaining a strong balance sheet and preserving the financial flexibility to invest in growth. Our third quarter sales performance reflects the broad scope of the products and services we provide around the world. Product sales and other service revenue were the primary drivers of operational growth.

Product sales more than doubled from the prior year period, largely reflecting significant retail terminal sales in Portugal and the delivery of several hundred lottery vending machines in North Carolina. Higher instant ticket printing volumes also contributed to product sales growth. Other service revenue increased primarily due to software services, including the contribution from the Lotterywest contract we won in Western Australia. Non-wager-based services are an increasingly important source of resilient predominantly recurring revenue. We see meaningful opportunity to expand it, particularly through our Italy B2C initiatives and new opportunities outside the U.S. and Italy. Underlying lottery demand remains solid, especially for instant and draw games.

Q3 same-store sales reflect the comparison with a very high level achieved in the prior year period, not only for U.S. Multistate Jackpot games, but also for Global instant and draw games. Global iLottery sales maintained double-digit growth, continuing their multiyear momentum. Italy same-store sales were primarily affected by the calendarization impact we called out last quarter. September was a record month for eInstants wagers, fueled by the launch of Dual Play, a new hybrid instant game, providing an omnichannel retail and digital player experience. In the U.S., Multistate Jackpot comparisons have been the primary driver of same-store sales performance in both the third quarter and year-to-date period. This overshadowed good underlying performance for instant games.

U.S. instant sales in Q3 were the second highest for a third quarter period in the last 5 years behind only the exceptionally strong third quarter of last year. We are partnering with our customers to help broaden the sources of lottery growth through retailer network expansion, deploying a larger upgraded fleet of lottery vending machines, improving in-store player engagement and more strategic game and portfolio management. We are seeing encouraging early results in New Jersey and Indiana, where we have more direct involvement in day-to-day lottery operations through lottery management agreements. Instant ticket sales increased 4% in both jurisdictions during the third quarter and were up low to mid-single digits year-to-date.

These results reinforce our confidence in the operating playbook we plan to deploy more broadly across the portfolio. Our Italy B2C expansion plans are among our top growth priorities, and we're making good progress rolling them out. Our strategy consists of 3 initiatives: digital gaming, new retail lottery experiences and additional consumer services. Beginning with digital gaming, the MyLotteries PLAY app provides a broad range of gaming options across eInstants, eDraw games, iCasino and sports betting. In the last several months, we focused on driving gaming account activation. We recruited thousands of retailers to support these efforts and have deployed in-store televisions, LED displays and other branded materials to build awareness and engage players.

We are also leveraging the broader MyLotteries ecosystem, including our informational lottery websites and dedicated Lotto and Scratch & Win apps to provide consumers with a simple path to MyLotteries PLAY. Dual Play has been particularly successful in connecting retail and digital player experiences. Approximately half of participating players are making their way to the MyLotteries app to enjoy the digital experience, creating an effective acquisition funnel from our retail network. The second part of our B2C expansion strategy is OTTO, our new self-service Lotto terminal that creates a new recurring fee-based revenue stream for us. We will begin deploying the terminals early next year. The third area is proximity services.

Our new service, branded Sani provide consumers with a convenient way to pay bills, purchase phone recharges and buy gift cards. Proximity services represent a growing part of the broader Italian payments market, and we believe we have a compelling offer. Sani is expected to be another meaningful source of incremental recurring revenue. Altogether, our third quarter performance demonstrates good progress against our goals. Our core lottery business remains solid. Operational growth is accelerating as our strategic initiatives begin contributing more meaningfully, and we continue to strengthen the long-term durability and growth profile of the business. At the same time, our strong financial position allows us to invest beyond these opportunities, while returning significant capital to shareholders.

With that, I'll turn the call over to Max.

Massimiliano Chiara: Thank you, Vince, and hello, everyone, joining us on the call today. Our third quarter results were in line with our expectations and importantly, demonstrate the acceleration in operational growth that we have been expecting as we move through the year. Year-to-date revenue and profit performance demonstrates the durability of our business even as we invest in important long-term growth initiatives. Disciplined capital allocation keeps leverage in our targeted range as we continue to return capital to shareholders. The largest factor impacting our third quarter reported revenue of $607 million was service revenue amortization from the new Italy Lotto license, which increased $46 million year-over-year. Excluding that noncash impact, constant currency revenue was up 4%.

Other service revenue increased 11%, reflecting software services related to new contracts and extensions and the growing contribution from our Italy B2C initiatives. We don't often highlight our non-wager-based service revenue. It is worth noting it is mostly comprised of resilient recurring revenue for things like software, maintenance and other services we provide to customers and retailers. As Vince mentioned, it is a part of the business we expect to grow meaningfully in the future, especially as we execute our Italy B2C expansion plans and pursue new opportunities outside the U.S. and Italy. Product sales more than doubled to $60 million, driven by sales of retail hardware, software and the printing of instant ticket.

Wager-based revenue was mostly impacted by the comparison to very strong U.S. Multistate Jackpot sales in the prior year period and the final residual impact of the U.K. transition. In short, while the headline reported revenue comparison remains affected by noncash service revenue amortization related to the Lotto upfront fee, operational performance improved meaningfully during the third quarter, supported by the diverse scope of our products and services. Adjusted EBITDA for the third quarter was $289 million. There were several important operating drivers behind the quarter. We benefited from higher global product sales and improved product mix, profit flow-through from other service revenue growth and cost efficiencies related to OPtiMa and the streamlining of internal processes.

These benefits were offset primarily by lower same-store sales, particularly U.S. Multistate Jackpot activity, the remaining impact of the U.K. service contract transition and continued investments in our growth initiatives. Year-to-date adjusted EBITDA increased 5% to $861 million, driven by higher product sales and improved margin mix, increased other service revenue and associated profit flow-through as well as OPtiMa driven cost efficiency. Partial offsets include the U.K. contract transition and investment in growth initiatives. We were able to improve our year-to-date adjusted EBITDA margin, excluding service revenue amortization by 50 basis points to about 41.5%, showing a resilient performance despite investment and inflationary impact. Income from continuing operations was $45 million, compared with $95 million in the prior year quarter.

The year-over-year comparison reflects, among other factors, the higher service revenue amortization associated with the Italy Lotto license, higher net interest expense due to lower interest income after making the final Lotto license payment earlier this year and the impact of the U.K. transition, partially offset by a lower tax provision. Turning now to cash flow and shareholder returns. Cash generated from operations in the third quarter was $73 million, affected by the timing of working capital. Year-to-date, reported cash used in operating activities was approximately $1.1 billion, reflecting the final Italy Lotto license payment made earlier this year. Excluding that license payment, year-to-date cash from operations was a robust $574 million cash inflow. Year-to-date, capital expenditures were $313 million.

We continue to deploy capital with a balanced approach, investing in the business, while also providing meaningful returns to shareholders. Year-to-date through November 9, over $200 million has been allocated to remunerate shareholders, including $127 million in cash dividends and $77 million in share repurchases, representing approximately 11% of our market cap. Our dividend yield remains at levels well above our historical average at about 9% as a result of the depressed share price. Year-to-date adjusted EPS is $0.34. Excluding noncash service revenue amortization of $0.70 per share, adjusted EPS improves to $1.05 per share with a 65% pro forma payout ratio when compared to dividends per share of $0.69.

For the full year, we currently estimate that service revenue amortization will have a $0.93 impact on full year adjusted EPS. This is important to keep in mind as the cash impact of the upfront Italy Lotto license payment has been fully realized in our net debt figure and the service revenue amortization has a noncash impact on earnings. Our balance sheet and credit profile remains strong. At the end of the third quarter, net debt was approximately $3.8 billion, with net debt leverage of 3.3x. We also had approximately $1.9 billion of total liquidity, including roughly $500 million of unrestricted cash and $1.3 billion of available borrowing capacity.

During September, we also took another step to strengthen our debt maturity profile by issuing EUR 500 million of senior secured notes due 2032. We used the proceeds principally to repurchase EUR 342 million of our notes due in 2028 and repaid EUR 155 million of borrowings under our revolving credit facilities in addition to pay transaction-related costs. This extends our maturity profile, while maintaining substantial liquidity and financial flexibility. As we look to the fourth quarter, the key takeaway is that the acceleration in operational growth that we saw in Q3 is expected to continue. Operational growth improved from approximately 1% in the first half to 4% in the third quarter.

We expect to maintain Q3 operational growth rate in Q4, which reinforces our medium term growth expectations. Notably, product sales and our Italy B2C expansion initiatives are a meaningful part of that fourth quarter growth outlook. In the first 9 months of the year, we have displayed the strength of the diversity of our revenue streams and durability of our operating model. The company has delivered a resilient adjusted EBITDA performance with the margin, excluding the impact of service revenue amortization, better than last year and ahead of our expectations.

This performance underscores increased contribution from product sales and other service revenue in addition to structural cost savings and other operating efficiencies that are bolstering the strong and attractive profit margin profile of our business. Our revised revenue outlook for the year assumes mid-single-digit growth from operational drivers in Q4, led by product sales and other service revenue, which is consistent with the accelerated growth we achieved in Q3. The update to a range of $2.435 billion to $2.455 billion accounts for 3 main items. First, the same-store sales in the second half of the year. This includes the impact of temporary exogenous factors such as the summer heat wave in Italy and more recently, transportation strikes there.

It also includes incrementally lower expectations of U.S. Multistate Jackpots, particularly against the very high levels we had in the second half of last year. Second is the phasing of certain Italy B2C expansion efforts. And finally, we have adjusted FX to current rates account for the strengthening of the dollar against the euro in the second half of the year. The flow-through to adjusted EBITDA, which is primarily impacted by the FX impact, moves the adjusted EBITDA outlook for the full year to a range of $1.14 billion to $1.16 billion. Our cash from operations outlook is unchanged.

We expect to finish the year with approximately $900 million of net cash used in operating activities, including the $1.67 billion final Lotto license payment or an approximately $750 million cash inflow of cash from operations, excluding that payment. We now expect capital expenditures of $450 million for the year due to a shift in timing between 2026 and 2027. There are 3 main takeaways I'd like to highlight before we open the call for Q&A. First, operational growth is accelerating. Second, we are able to maintain attractive margins as operational growth increases, and we continue to deliver on cost efficiencies.

And third, we remain committed to returning capital to shareholders, while maintaining a strong balance sheet and investing in opportunities that we believe can support sustainable growth beyond 2026. We believe the operating momentum we are seeing as we exit 2026 reinforces our medium term growth expectations. With that, Vince and I will be happy to take your questions.

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

Jeffrey Stantial: Maybe starting off on guidance. Max, you mentioned something there in terms of the revisions on same-store sales assumptions in terms of exogenous factors. Can you just -- I didn't quite catch that. Do you mind just sort of expanding on what you mentioned? And then on this subject, I think core, meaning excluding jackpot, same-store sales in the U.S. was down 1.4%. It was tracking sort of more flattish in the front half. You mentioned Indiana and New Jersey as sort of successful examples of where initiatives have been able to drive growth. In the remaining states, I'm curious, what do you think is going on there? What's driving the decline?

Like is there anything more structural in terms of macro or potentially cannibalization from other gambling verticals, whether regulated or unregulated? Just any sort of high-level thoughts there would be helpful as well.

Vincent Sadusky: Yes, I can start it off and talk a little bit about sales performance and the consumer, and then I'll let Max touch base on bridging the look forward. So I would say when you step back and take a look at our business geographically, the Q3 and year-to-date, I think, was roughly in line with expectations. Our operational revenue growth, as we mentioned on the last call, we believed it would accelerate in the back half of the year, and it indeed did. We were up 4% in the third quarter from roughly 1% in the first half of the year when you take out FX and the amortization of the SRA. And then EBITDA expanded as well.

I think that performance, when you break it down between our primary markets, Italy and U.S., in Italy, for the year-to-date period, we're up just over 1%. Yes, that's on top of an incredible quarter last year and incredible -- a very strong year-to-date. I think we're up about 3% on a year-to-date basis. Yes, I'd say most recently in Italy, then I'll switch on over to the U.S. It was an interesting summer. It was the hottest summer on record. And many of the retailer formats that we've seen were down for the quarter. We also were up against a really difficult comparison. I think we were up around 6% in the third quarter of the prior year.

So I'd say the comparison to last year was tough and the heat wave in Europe, in particular, in Italy, made it difficult. But as we look towards the fourth quarter, so far, we see the fourth quarter. Italy is roughly flat or so and the growth accelerated over the last week. So we feel pretty confident in the initiatives we have and things returning to normal, notwithstanding some of the social disruption that's taking place over there that we're hoping is short-lived. On the U.S., yes, I mean, on a year-to-date basis, same-store sales were down slightly. Again, a couple of tough things, tough comparison to the prior year.

The year started off slow with Multistate Jackpots, and then we had a really strong run in the back half of the year, third quarter in particular. In fact, in the third quarter last year, the same-store sales on the Multistate Jackpots were up about 70% from the previous year. And instant had the best third quarter that we can recall in recent history. So that was a tough comparison. In fact, as I mentioned in the prepared remarks, our third quarter instant ticket sales this year were actually our second highest instant ticket sales for a third quarter in the last 4 or 5 years or so behind only a super strong third quarter of last year.

So what are we doing to try to impact that? We've talked on the last couple of quarters that we've been working really hard with our customers to expand retail outlets. Again, it's largely an impulse purchase, the purchase of lottery tickets. We focus primarily with a few retailers in New Jersey and Indiana, given we've got a bit more flexibility in those LMA markets. And in fact, we've seen those markets do pretty well. In the third quarter, same-store sales were up 4% in New Jersey, and they were up in Indiana as well. And we've added a couple of hundred more vending machines and point of sales in New Jersey and Indiana.

And we've worked on launching good, higher price point games where we've seen over the last couple of years that there's been increased demand for that type of product. So yes, I'd say it's difficult to infer what's taking place over the longer term based upon 1 quarter. Again, I think as you parse it, I'd say the Instance, in particular, is a good barometer. And again, even though down a bit from a year ago, pretty strong overall results. When we look at the consumer, and we've done a fair amount of work like other consumer-facing companies, it's clear all consumers are facing inflationary pressure and a decrease in disposable income, especially with the price of fuel.

Hopefully, for our business and many others, that abates over time. What we've seen is not really broad weakness, but clearly, consumers are being more selective and more intentional with their spend. And the research we've done supports what I'm sure you've seen for other businesses and other industries that the lower income consumer is most significantly impacted. The higher end consumer, even in the lottery business is relatively stronger as we see continued really strong demand when the various customers launch instant ticket games in the $20, $30 and $50 price points.

So for us, the goal is to keep working with our customers, keep refining our value proposition and the in-store marketing and keep up our overall engagement. iLottery sales in the U.S. continue to be strong. So clearly, that digital channel is a very strong one. We have several more iLottery platforms that we're launching over the next year for our customers. Our iLottery games continue to do well, and we continue to be hopeful that more states will expand their offering to provide for an iLottery offering. And then when you step back and you look on a year-to-date basis, lottery sales have held up really, really well overall.

And I think we've seen, again, this historical trend where lottery offers a high entertainment value for the cost. It's a pretty diverse customer base. And when you start seeing things like good jackpot runs in U.S., in particular, that has a disproportionate impact to the positive and to the negative. We had a bit of a run here with Powerball getting up close to $1 billion. Fortunately, great for the player, not great for us, got hit by a person in New Jersey. And we've talked before also about the fact that the Mega Millions changed the second Multistate Jackpot. The increase from $2 to $5 and the change in the algorithm has not been all that successful.

We're seeing lower play levels at the various advertised jackpots than previous. Things improve when Mega runs up to close to the $1 billion, you get -- you start to get to a similar level of play, but at the lower levels, it has not done all that well. So we're hopeful the industry continues to take a look at that algorithm and thinks about ways to make an adjustment to make it perceived more valuable to players. But as I say, overall, there's a lot of different moving parts, a lot of components. I'd say it's -- lottery sales have held up pretty well, especially given other consumer-facing businesses.

And again, it's good to be Brightstar and have a product offering in all these different verticals and geographies, and be able to do things like drive product sales and system sales in a quarter like the third quarter and improve the top line and contribute towards profitability. So with that, I'll turn it over to Max to handle the first part of the question.

Massimiliano Chiara: Yes. So let me add a little bit of color and bridge to the updated outlook. So as Vince was mentioning, the single largest negative impact in the third quarter was the lower Multistate Jackpot. 2025 third quarter saw a historical Powerball at almost $1.8 billion, which we couldn't repeat. We basically stopped at just barely above $1 billion this year. And so that obviously reduced our ability to kind of close the gap to last year.

And then looking into the fourth quarter impact on the U.S. side, the recent jackpot hit that Vince just mentioned, which happened last week, obviously, has impaired our ability to basically get closer to another $1.8 billion Powerball jackpot that hit at the end of last year in December. So just really before the Christmas break. So again, reflecting that into our expectations for the last 60 days of the year makes us obviously a bit weaker than what we originally anticipated for the year. So again, overall, the U.S. remains in good health from a core business perspective, but has this significant second half Q3 and Q4 impact on Multistate Jackpot that is difficult to face.

On the Italian situation, aside from the disruption due to the heat wave in the summer that caused a 2% retail foot traffic reduction overall, not only for lottery, but overall, which again, we have gone past that now. But in October, what happened in October, especially in the second part of October, there was a trucker strike in Italy, particularly on the center and southern part of the country that has affected some logistic delivery of instant tickets to our outlets. We're talking about a few dozens of million dollars of delayed deliveries. Luckily, we run this business with inventory on the ground.

And so the retailers were able to offset the majority of that impact. by kind of activating the inventory in the outlets. And again, hopefully, that is now over. It looks like the government gave to -- came to a positive conclusion of the situation with the truckers association and extended some tax credits to the association to the individual operators so that hopefully, that thing is beyond us. But we need to stay vigilant for the last 60 days of the year because the situation remains obviously important to verify. And then again, last but not least, we wanted also to update and reflect the latest FX dynamics. So the year went exactly the opposite way of '25.

So we started with a strong euro. We actually had some tailwind into the first and second quarter, particularly in the first quarter that reversed out and became a headwind in Q3 and now expected also to be a headwind in Q4. So again, overall, we obviously had to throw that down because of FX. On the EBITDA side, I think we are able to couple up all this impact from U.S. and Italy with the continuation of our strong efforts in cost cutting to kind of hold the line, if you want. But I have to throw down the number for FX. again.

So overall, we still expect the margin to hold year-over-year, which would be a great outcome for us, definitely slightly ahead of our initial expectations. But again, we are facing a market situation that we have to remain vigilant against.

Jeffrey Stantial: That's great. Maybe switching gears for our follow-up just over to the Italian business. I think there are some media reports out, I think it was last week that suggested that the government might look to extend your Scratch & Win contract in exchange for sort of catch-up fee. Vince or Max, can you just clarify for us sort of what you're hearing on this subject? And obviously, these are just media reports, but assuming that it does play out the way that these reports suggest, can you help us think about potential implications to your capital allocation framework as you think about the next couple of years?

Vincent Sadusky: Yes, sure. Go ahead, Max. I'll kick it off and let you talk about the capital allocation implications. So the anticipation was the budget law would come out, and that would include the opening bid for the next license that comes up at the end of next year. It turns out that the budget law contemplates right now an actual extension to the existing award going out 15 months, which would take the current contract that we and our partners hold through December 31 of '29. There would be an upfront cost to that of EUR 188 million as currently drafted and you pay that in a couple of installments.

So for us, that we believe all of our existing partners would contribute their pro rata share, and we would extend. It has to go through the formal process with parliament to become -- to be finalized, but that's essentially the model. And also, in the budget law, it also contemplates a new weekly Lotto draw every Wednesday. And as we've seen in various markets around the world, increased draws typically are a catalyst for sales.

Massimiliano Chiara: Yes. And from a funding/capital allocation perspective, Jeff, the payments will be done in 2 tranches, in 2 installments at the end of March and at the end of September of next year. Luckily enough, we just refinanced a bond for EUR 500 million. We used 2/3 of that to retire a bond that was coming to a close expiration. And for the balance, we basically freed up capacity in our revolver. So that now comes very handy to support that action. In terms of more broadly capital allocation impact, we don't think that this payment will have a significant impact to our leverage trajectory.

And we don't see a change in our posture towards our balanced capital allocation approach and the continuation of our plan to return cash to shareholders going forward.

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

Steven Pizzella: Just going back to the guidance. Can you walk us through the puts and takes on the implied 4Q margin? And then looking into 2027, how much of the cost savings are still ahead of you? And how much additional margin upside could that support?

Massimiliano Chiara: So I'll take this up, Vince. So in terms of margin trajectory during the year, we have been able to stay ahead of last year and be better than our original expectations as a result of a very strong performance aided by our OPtiMa program, which, as you know, we have recently upgraded to $100 million, adding another $20 million at the back end. So again, we think this OPtiMa program is going to wrap up by kind of early mid '28 in terms of actions so that there will be full deployment of the $100 million by '28.

We think that right now, we see a $10 million year-over-year improvement next year built into our kind of outlook and then potentially the final closure of the plan with the final $20 million in '28. So that's how it currently stands. It doesn't mean that we could do -- we couldn't do better and further accelerate actions that are out there. In the meantime, we continue to look for other opportunities. And again, as a result also of the significant investments that we are taking in early stages, right, on AI transformation, there are some actions that would require some process -- business process reengineering. So we are starting to put our arms around that effort.

And we believe that we will be able to put together an interesting program for the next few years, but we need a little bit more time to make sure that we localize our efforts to what is relevant to make sure that we keep in mind the rate of return for those individual reengineering and cost savings initiatives and don't waste resources spread across different functions and different -- and 2 different functions to different processes. So very focused, very targeted. And again, we are in the early innings for that. So more to come in the future.

Vincent Sadusky: Yes, overall, we believe the margin is going to be down in Q4 to the recent quarters, but this is just a typical calendar situation as we continue to build our pipeline of product sales in the fourth quarter. And as you know, margins associated with product sales run definitely lower than the service revenue, which is built with a much, much higher margin intrinsically. Having said that, we are very happy with the margins we realized in product sales in the third quarter.

Steven Pizzella: Okay. And then maybe more of a longer-term question as my follow-up. Historically, you framed long-term lottery growth at around 4%. Given the increasing contribution from digital and the evolution of the business, how has your view of the long-term growth algorithm changed? And what do you think is an appropriate terminal growth rate today for the business?

Massimiliano Chiara: So as you know, our North Star is the revenue algo that we put out when we did the 3-year plan of 5% CAGR. We believe that we have -- we are in full capacity to get to the 5% CAGR going forward as a result primarily of the new engine growth initiatives that we are deploying, particularly the iLottery with, again, a full speed execution at 20% growth rate on a recurring basis and continuing as well as the Italy B2C.

Vince just highlighted today kind of the incremental services that we are planning on launching down the road, and we are in the process of executing that rounds out a very compelling program that would allow us overall to hold the line on the 5% despite the fact that same-store sales looks weaker in the short-term. And we believe that we have an option that we can play here to be able to kind of absorb that short-term weakness with a much stronger contribution from the Italian growth plan. Please, Vince, if you want to add some more color.

Vincent Sadusky: Yes. No, I think Max is right on. It's -- we're a bit hesitant because our plan is the first quarter of next year to give a refreshed outlook on the business. But as we're seeing 2026 progress, our thinking is that more of the growth will come from the Italy B2C and the iLottery business, and perhaps a bit less from retail growth than we anticipated when we came up with our targets for the future last year.

And a lot of that has to do with the solid start and our increased conviction around our ability to expand the revenue streams in Italy as well as continued strong iLottery growth and the opportunity to roll out some new platforms on iLottery as well.

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

Barry Jonas: Can you give a little more color about iLottery from a legalization outlook? Are there specific states to keep an eye on? Any implications from the midterms there?

Vincent Sadusky: Yes. I think it's a little early to tell. From a high-level perspective, the fact that the states are now increasingly challenged around their budgets and looking for new revenue sources, we think iLottery has a good chance of increasing its legalization. And the reality is, there was such a massive effort on sports betting over the last decade or so. And what we've heard is most states have underperformed on the projections they had around return the state for sports betting, but lottery has been a long-standing solid contributor for decades to the states. In fact, as you know, one of the largest contributors of revenue.

So I do think that the momentum is growing for further provision for iLottery. For us, we've been busy. We have 3 planned platforms in U.S. over the -- or actually 2 in U.S., 1 international over the next year. And then also in the markets where we don't provide for -- we don't provide the platform, our eInstants content has done really well with -- primarily with our Lucky Coins franchise. So in markets like Massachusetts, where we didn't win the iLottery platform, we have product up and running, and the performance has been very good, and we believe that leads to more product.

So difficult to say exactly which states beyond the ones that we're currently working with to implement a platform will legalize. But again, I think the environment is increasingly positive.

Barry Jonas: Great. And then just for a follow-up, I wanted to talk about Brazil and maybe get an update on the business there. I'm curious if the gaming ban has any direct or indirect implication for you guys? Does it alter the competitive opportunity or maybe even your appetite for further investment?

Vincent Sadusky: Yes. So a couple of things in Brazil. So as we pointed out last time, we've got a joint venture partnership with Sci Games in the market. We've got our team in place, and we've been building out from scratch the retail network in Sao Paulo, in the province of Sao Paulo. And we've gotten our digital product up and running. We continue to monitor the situation with Lula reelected and being against gaming. Obviously, it's in front of the Supreme Court. We believe it has certainly large implications for iCasino and sports betting company as the restrictions primarily focused on those 2 areas at the federal level.

But again, I mean, the Supreme Court ruled a while back that the states have the right to administer their own lotteries, which is -- we've been operating in Minas Gerais for years, and we continue to move forward with our plans in Sao Paulo. So we don't think lotteries will be impacted by the current negative situation federally regarding sports betting and iCasino.

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

Domenico Ghilotti: Three questions. The first is if you can provide an update, if any, on Texas and New York lottery contracts. Second, if you can elaborate a little bit more on the proximity services you are going to launch on your Italian B2C operations. And third is like, a question on the comments you gave on iLottery and B2C probably contributing a bit more compared to same-store sales going forward. And so I wonder if the profitability of these 2 businesses is comparable with the lottery because I presume that same-store sales are bringing a lot of profitability.

Vincent Sadusky: Sure thing. So with regard to Texas and New York, Texas has been submitted. We're not really in a position to be able to comment on the status. But as we said in the past, we remain confident in our proposal. We've provided outstanding service to Texas for years. Just a reminder, it's a 10-year contract. The RFP is a 10-year contract through '30,'38. And the scoring is very high towards technical, 90% technical requirements, 10% on pricing. So we look forward to hearing the outcome of that RFP, and we hope and expect to win that award.

On New York, we recently executed a 2-year extension in order to give the lottery enough time to issue the RFP and work on the upgrades that are required and transition for the new contract. The RFP actually was canceled and a new one was issued, and we will submit by early December on the new submission. And it appears that the things that changed in the RFP were some clarifications and more specifics around products and services that were a bit more general in the original RFP. So nothing that we reviewed that was all that significant and nothing would change our view on our opportunity in New York.

And again, we provided great service to that longstanding customer as well. On the B2C side in Italy, yes, I mean, as we discussed, we've really got a couple of different opportunities we believe. And we think we've made really good progress in 2026, including a full upgrade of hardware with our retailers as well as partnering up with our retailers around our proximity services and the signing up of game accounts. So Tabaccai our partner in our Lotto consortium, and we've had a great long-standing relationship with them. With regard to our proximity service business, in particular, that I think you asked, it includes things like payments, phone recharges, gift charges.

It's been a growth market in Italy, and it's one that we know really well. We owned a similar business for many years that reached, I think, really strong market share and good potential. So we think the opportunity to do this is something that we're familiar with. We have knowledge. And of course, the opportunity is to leverage all of these point of sales, where we distribute lottery tickets throughout Italy. And then with regard to margins, yes, whether it's the iLottery business or the winning of a new contract like in Brazil or Australia, or certainly the digital business in Italy, there is a heavy investment period upfront. It's just the nature of the business.

So I think as you look out, our expectation is for very strong contribution to our revenue growth algorithm, but it will take -- certainly take some time for the profitability to improve as the business achieves scale. Max, I don't know if you had anything you wanted to add to that.

Massimiliano Chiara: No. Very good. Thank you.

Operator: [Operator Instructions] Your next question comes from the line of Charlie Muir-Sands with BNP Paribas.

Charlie Muir-Sands: I've only got one left actually. With respect to your CapEx, you've indicated that due to rephasing this year's CapEx will be at the lower end of your prior range. I just wondered at this early stage, what your anticipation would be for CapEx for next year? And also with the residual benefits you're hoping to achieve from the OPtiMa saving program, whether there would be any material restructuring charges excluded from adjusted EBITDA, which we should be considering as well?

Massimiliano Chiara: So starting with the CapEx, our original commitment was effectively to run the CapEx cycle with around about $1.6 billion over 4 years of total CapEx, '25 to '28. We think we can hold the line on that commitment over those 4 years. The timing has shifted a little bit from the early years to the back out years. So when you do the math on the 4 years, you should be able to see the $1.6 billion. This recent retiming obviously increases the bar in absolute terms for 2027 slightly.

But again, what is important is really to couple up that CapEx with the incremental revenue that we expect to achieve from our initiatives as well as kind of the robust portfolio of contracts that we expect to maintain and grow down the road going forward. So as far as OPtiMa is concerned, we are in the final innings of the program. There may be some minor restructuring that will still come into fruition, but it's not going to be a significantly material amount left on severance costs. Obviously, there will be some that we anticipate. But again, the majority of the program is beyond us at this point.

Operator: Your final question comes from the line of Chad Benyon with Macquarie.

Aaron Lee: This is Aaron on for Chad. Yes, I appreciate all the details so far. Just maybe on Rest of World, those revenues obviously grew pretty substantially in the quarter. Any markets you would highlight as driving that growth? And how much visibility do you have into the run rate growth there?

Massimiliano Chiara: You want me to take that? Okay. So the beauty of this part of the business is that really is a little bit of contribution from different parts of the business that are concurring together to a sound Q3 and kind of year-to-date performance. Here Q3, we're able to increase kind of in the $12 million range year-to-date already $30 million. Again, this is cutting across the different geographies are, either work in progress implementation deliveries associated with new contracts like Lotterywest in Australia, is system installations win that are underway and either fully executed, approved or in the process of, like in Central Europe, some contract extensions in Eastern Europe.

Even the iLottery interactive platform that we deploy outside of the United States is contributing to that. And then obviously, last but not least is the Italy digital business, particularly associated with iLottery, iCasino and sports betting. Again, we're still talking small numbers, and we expect those numbers to pretty -- to come up pretty soon and then kind of double that up from a run rate perspective. But again, when you start counting the month one after the other, we're getting to a number that by the end of the year is going to be kind of north of $10 million.

So again, overall, very, very pleased with the orchestration of the different services that we provide to the market, helping kind of support our strong performance, irrespective of Multistate Jackpot weakness and those short-term temporary hiccups that happen in markets like in Italy due to the trucker strike. So very, very confident we have a sound business that can help navigate those times.

Aaron Lee: Great. That's helpful. And then quickly on Italy digital. Here in the U.S., a lot of B2C companies talk about a 20-month -- roughly 20-month payback period. Curious how you're thinking about that, the payback period in Italy given that market. Do you expect anything different? Or should it kind of follow that roughly 2-year payback time line?

Massimiliano Chiara: So on average, I kind of -- I think we see similar trends in the U.S. on our own digital business. So again, there is an investment period that you have to go through before you can really start seeing profit coming home. And then you have a very scalable business that can ramp up the profit margin nicely. On the Italian side, I think we have, I believe, more control on the cost side. And so we may be able to kind of mitigate that initial negative curve, trying to take, again, hold the line and then obviously build up -- as we build up our business to start growing that profit much faster than that.

Operator: We have reached the end of the Q&A session. I will now turn the call back to Vince Sadusky, CEO, for closing remarks.

Vincent Sadusky: Yes. So thank you all. So we'd say our third quarter year-to-date performance demonstrates our progress against the goals. We think the core lottery business remains solid, and we've seen acceleration in our strategic initiatives, and we think that will continue to contribute more meaningfully. We're also in a strong financial position to invest in opportunities, while returning significant capital to shareholders, and we appreciate your interest in Brightstar. Have a great day.

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

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