Hello, everyone. Thank you for joining us and welcome to the Bright Star second quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Jim Hurley, Senior Vice President of Investor Relations. Jim, please go ahead.

Thank you, and thank you all for joining us on Bright Star Lottery's second quarter 2026 conference call, which is being hosted by Vince Sadusky, our chief executive officer, and Max Kiara, our chief financial officer. After some prepared remarks, Vince and Max will be available for your questions. We are presenting from multiple locations today and would appreciate your patience if we encounter any technical difficulties. During today's call, we will be making some forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees, and our actual results may differ materially from those expressed or implied in the forward-looking statements. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our latest earnings release and in our SEC filings. during this call we will discuss certain non-GAAP financial measures you'll find additional disclosures regarding these non-GAAP measures including reconciliations with comparable gap measures in our press release slides accompanying this webcast and our filings with the sec each of which is posted on our investor relations website our statements are as of today august 4th and we have no obligation to update any forward-looking statements we make and now i'll turn the call over to Vince.

Thank you all for joining us. Our better than expected Q2 profits were driven by an increase in global same-store sales and strong cost discipline, even as we continue to invest in high-return initiatives. We generated significant cash in the first half of the year, which not only helped to fund the final Italy Lotto license payment in Q2, but also the $140 million of capital returned to shareholders in the year-to-day period, all while continuing to maintain a solid balance sheet. We executed well against our strategic priorities in the first half of the year and expect this good progress to deliver stronger revenue and profit growth in the second half of the year. Global same-store sales increased 1.5 percent in the second quarter, a slight acceleration from Q1's performance on stronger U.S. sales. The improvement in U.S. sales primarily came from stronger multi-state jackpot performance and, to a lesser extent, better instant and draw game sales some of the strongest growth in instance and draw games came from new jersey and indiana markets where we have more direct involvement with day-to-day lottery operations we've expanded retail points of sale and strategically deployed vending machines and digital signage all proven initiatives that are delivering encouraging results we intend to scale these initiatives across the border for broader portfolio over the next several quarters Italy's same-store sales growth was fueled by instant tickets, including the relaunch of Multiplier Games, this year's featured Summer Bundle, and the continued success of the new 30 Euro game. Recent multi-year extensions with the Oregon and Washington State lotteries have improved the long-term visibility we have for our business. iLottery continues to be an area of substantial growth. Wagers were up 22% in the first half of the year. In Italy, 23% iLottery growth was led by eInstance, especially the 30-euro and multiplier games. The 29% iLottery growth in the U.S. included strong expansion in Kentucky and Georgia and the excellent performance of our eInstance content in Michigan and Virginia. We've achieved several milestones with our Italy B2C expansion efforts. At the end of April, we launched a significantly enhanced MyLotteries play app, featuring a full range of digital gaming options across eInstant, eDraw, iCasino, and sports betting. It also includes new bonusing and loyalty programs, in addition to live chat capabilities. It is a best-in-class offer with a compelling user experience. We recently completed the upgrade of retail point-of-sale terminals at over 33,000 locations throughout Italy. The new terminals have much faster processing capabilities, which should improve sales velocity during peak playtime and support future game innovation initiatives. The retail network is a strategic asset we intend to leverage to drive digital adoption and traffic to the MyLotteries play app. To date, we've recruited about 23,000 retailers to help drive digital account activation. Their player engagement efforts begin this month and go into September. We've also had important developments in emerging markets. In Sao Paulo, we are live with digital lottery operations. Our team was able to deploy the network just six months after executing our 15-year concession. The opportunity ahead is substantial. With 46 million residents and approximately one-third of Brazil's gross domestic product, In fact, Sao Paulo is the country's largest and most prosperous state. The successful launch of digital operations establishes the foundation for an entirely new lottery operation we are building from the ground up. The launch of retail lottery operations is planned for later this year. We believe Sao Paulo has the potential to be a significant long-term growth opportunity for our business. Instant ticket printing has been another area of focus and investment, including a new press that went live a year ago. The incremental capacity has supported a double-digit increase in standard units produced in the first six months of the year, including good growth with customers in Texas, France, and Poland. Our innovative Gleam and Infinity Games are important drivers of this higher production volume. In addition, we secured multi-year FM contract extensions in Mauritius and Slovakia, building on our decades-long relationships with both. The first half of the year was defined by meaningful progress on foundational initiatives. Much of that work has been investment-led and, as expected, has not yet delivered significant revenue or profit contribution. Looking ahead, we expect that equation to shift. Revenue, profit, and cash flow are poised to inflect as these initiatives begin contributing more meaningfully. While some will scale faster than others, each supports the strong annual free cash flow we expect to generate once we move beyond the current peak CapEx cycle. We estimate BrightStar can deliver more than $400 million in annual free cash flow before upfront license payments and after minority distributions. That expected cash generation reinforces our commitment to growing shareholder returns. This cash flow outlook also highlights BrightStar's compelling current valuation, representing about a 20% cash flow yield, while our dividend yield is approximately 9%. Non-cash service revenue amortization impacts adjusted EPS by approximately 94 cents this year, which more than covers the current annual dividend. The remaining EPS provides ample capacity to maintain or potentially grow shareholder returns. Adjusted EPS, excluding service revenue amortization, provides another attractive view on valuation. Based on the 2025 five actuals, Brightstar is trading at just seven times that metric. Altogether, the Brightstar story is straightforward. The heaviest investment period is largely behind us. Our growth initiatives are in place and beginning to scale, and the market is not fully reflected or priced this inflection point. With that, I'll turn the call over to Max.

Thank you, Vince, and hello to everyone joining us on the call today. Brightstar delivered second quarter revenue that was in line with expectations and profit that was better than expected. This drove very strong cash generation that was used to fund important investments in growth and shareholder returns. In the first six months of the year, we have laid the foundation for accelerated top line and profit expansion. Second quarter revenue was $584 million, as reported. Excluding the service revenue amortization increase of $47 million, revenue was flat year-to-year, as reported, improving to 2% growth net of the UK transition, which is an important metric to focus on going forward, as I explain in a second. Wager-based revenue was in line with the prior year, a constant currency. Global same-store sales growth and favorable mix in the US was offset by the impact of the UK transition. The second quarter was the last full quarter of year-to-year comparison of the UK transition there will be only about a month worth of impact in the third quarter other service revenue increased five percent year over year I'd like to point out that much of the growth from our Italy b2c expansion effort will be categorized as other service revenue this includes items like digital distribution revenue earned on iCasino and sports backing wagering on my lottery display app and other b2c services we may add to round out our retailer services offering in the future product sales were down eight million compared to last year when we had elevated hardware sales in multiple jurisdictions product sales are naturally lumpy and we expect a much more meaningful contribution from product sales in the second half of the year. As an example, we expect a two percentage point incremental impact on growth coming from product sales in Q3 on top of the current sales rate performance. Second quarter adjusted EBITDA was up four percent to 286 million which was better than expected. That translates to a reported EBITDA margin of nearly 49 percent and 42 percent excluding upfront license fee amortization in line with q1 and better than anticipated key drivers were global same-store sales growth ongoing benefits of our optima cost savings program and certain expense recoveries this profit increase was achieved despite the uk transition and our continuing investment in growth initiatives across the organization second quarter income from operations of 56 million experienced a turnaround from a loss of 60 million in the second quarter of last year despite a 47 million impact from service revenue amortization. This was due primarily to adjusted EBITDA growth, lower restructuring costs compared to last year, FX which is a non-cash positive impact from a change in the euro dollar exchange rate on debt balances at the parent company and a lower tax provision which reflects both the structural improvements we have made over the last two years to optimize our effective tax rate and the benefit from a discrete tax item our expected full year 2026 effective tax rate remains in the mid to high 30 percent range compared to 55 percent in the prior year and heading closer to our normalized rate in the mid to low 30s. We expect full year 26 cash taxes in the range of around 150 million versus 220 million in the prior year period. Cash generation was strong in the first half of the year, funding important investments in future growth and shareholder returns. During the second quarter, we made the final installment of the lotter license payment. The $1.7 billion payment resulted in year-to-date cash from operations of negative $1.17 billion, or a positive $501 million when adjusting for the lotto payment. While these figures reflect the full license payment, Bryster is only responsible for 61.5%, with our partners responsible for the balance. Capital expenditures total $121 million for the second quarter and $232 million for the first six months, with the Italy Lotto deployment accounting for almost half of the investment. We have returned $140 million to shareholders year-to-date, including cash dividends of $85 million and $55 million in share purchases, inclusive of a $10 million tranche of buyback activity just concluded. Our LTM cash dividend yield is very attractive at nearly 9%. Year-to-date, adjusted EPS was $0.24 as reported, up 20% year over year. This figure includes non-cash service revenue amortization of $0.47 per share. If we exclude service revenue amortization, adjusted EPS increases to $0.71 in the first half, compared to dividends per share paid of $0.46, reflecting a 65% performance payout ratio. Non-cash service revenue amortization is estimated to have a 94% impact on full-year adjusted DPS, which more than covers the current dividend fund rate. I think it is important to provide this additional perspective on our earnings, as the service revenue amortization is the way the upfront fee for the new locker concession gets treated in our financials for the nine-year duration of the concession. but its cash impact was already fully realized in our net debt figure as of June 30, as we completed the upfront fee payment in the second quarter. Brightstar maintains a strong balance sheet and credit profile. With the final auto license payment behind us, net debt leverage of 3.24 times is slightly better than our expectations and below our targeted level. And with access to total liquidity of $1.7 billion, we have the flexibility to maintain or balance capital allocation strategy. This year, we are investing $50 million in new market opportunities, strengthening our products and service portfolio, and supporting our core business to position Brightstar for durable growth. In Italy, we are hard at work on the expansion of iLottery and digital services, where we see significant growth potential over the next several years. We are investing in our technology products and services innovation roadmap to meet the changing needs of our customers. And we are supporting key contract renewals and the development of Eastern Ticket Services. In addition to investing in top-line growth, we continue to drive organizational efficiency and cost optimization. To that end, we have initiated a third phase of the Optima 3.0 multi-year program, Optima 3.3. With that, we are accelerating and upgrading our Optima savings target from $80 million to $100 million against the 2024 baseline. The third phase is focused on changes to the management structure, including a reduction in executive and other senior leadership layers and a consolidation of similar functions. Also included in Optima 3.3 is the optimization of our global real estate footprint, primarily in Rhode Island and London. By fully embracing hybrid work arrangements, we have been able to reduce the size of our facilities and in some cases eliminate them entirely. This has allowed us to reduce overhead costs and lower the company's energy consumption while providing employees the flexibility they value. Of the $100 million savings target, we are well underway for $70 million to be realized by the end of 2026. As far as the balance, we expect one-third to come next year and the remaining two-thirds in 2028, the final year of the plan. We are reaffirming our full year 2026 revenue, profit, and cash flow outlook. For the second half of the year, we expect accelerated revenue and profit performance as the benefits of our growth initiatives and cost optimization efforts contribute more meaningfully to the results. I would like to offer some perspective on third quarter same-store sales, which are expected to be in line with prior year. In Italy, hamster sales are expected to be flat due to calendarization, which instead will help four-quarters hamster sales. Overall, for the second half of the year, Italy sales are expected to maintain the low single-digit growth rate achieved in the first half. In the U.S., we expect low single-digit growth in instant and draw gains to be upset by lower multi-state jackpot gains due to a 1.8 billion dollar Powerball jackpot in the third quarter of 2025. Overall, our core business should be helped in Q3 by a couple percentage points of growth coming from the initial loop of product sales under delivery to various jurisdictions. We also anticipate an initial ramp-up of sales in the Italy B2C initiative. Overall, we expect Q3 organic revenue growth to double compared to the 2% growth rate ex-UK that we have experienced in Q2, achieving about 4% organic growth year over year. This should translate to an adjusted EBITDA in line with the first two quarters of the year, slightly down versus the previous year, as we continue to invest in our growth initiatives while we have to absorb the strong multi-state jackpot impact of last year. In wrapping our Q3 performance up, DryStar is committed in investing to secure our future and generate strong returns for shareholders. The first six months of 2026 were a solid start to the year with a nice year-over-year improvement in our profitability. The outlook for the second half includes accelerated revenue and profit growth as strategic initiatives begin to contribute more meaningfully and we anniversary the UK transition. We look forward to the remainder of 2026 and beyond as a period of renewed growth and operational efficiency built on a solid financial foundation. Now we'd like to open the call up for questions.

Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question. And if you're muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Jeff Stanchel from Stiffle. Your line is open. Please go ahead.

Thank you. Good morning, Vince. Max, Jim, thanks for taking our questions. And maybe just starting off on the Italian business, Vince, appreciate the update earlier on some of the milestones here for the B2C initiative. I was hoping, could you just update us or add a little bit of color to the incentive structure that's been put in place with those? I think you quoted 23,000 retailers to encourage them to drive online conversion. And then looking forward, can you just help us think about sort of the key upcoming milestones that we should be thinking about here as you execute on the initiative? And then, Max, you mentioned sort of a ramp here in the back half. Can you just confirm for us, is your expectation that you'll be sort of hitting that 1% incremental growth uplift that you guided to as part of your 2028 targets as early as this year? Should we think about that as more of a 2027 target?

Yeah, I'll give you a quick update, a little bit more color on Italy B2C and then hand it over to Max. So since we've won the lot of contract, there's been a terrific amount of work done around the technology, both the system and the hardware upgrades. We're ahead of schedule there, as I mentioned. We're now virtually complete with removing and replacing the roughly 33,000 point of sales locations throughout Italy with the new terminals. And that will help us not only with increased velocity around the existing games, but new games, right? So Phi Trey, Phi Quattro, we introduced, it's kind of like pick three, pick four in U.S. That's an every 30-minute transaction. We believe now we can move that up considerably. Our goal by the fall is to go to every five minutes with that game. And with still the considerable amount of activity and sales generated on the retail channel in these neighborhoods, we think that will incrementally add to the sales growth. But, you know, just as importantly is the capabilities that the terminals will provide in terms of assisting the retailers in activation for our particular iCasino app and iLottery app. So, you know, we're encouraged. We really haven't done much in terms of interaction with the consumer. All of our efforts so far have been focused on the technology, getting that right, putting the team in place, and so far we've experimented with about 100 over the summer, so far with about 100 of our close retailers to kind of work out and test and get feedback on the app and on the interaction. Having said that, our iLottery market share is up over a year ago, and we continue to grow. Our digital growth was pretty good. I think our iLottery wages were up like over 20% for the first half of the year. But our goal was to have an offering that was on par with the competition in the market, first and foremost, before we had an aggressive launch campaign. And we feel like we've accomplished that. I mean, we now have over 100, 120 e-instants available online, draw-based games available online, some mirror the existing retail products. Many are new and unique experiences. We also now carry our competitors' jackpot games as well. And I think we're up to, you know, something like 700, 750 casino games, including live casino game capability and sports betting with the best in class content providers. So now that we've got that in place, I think the significant milestone for this quarter, as you mentioned, was the recruitment of retailers. And again, as I mentioned in my comments, we think the relationship and the distribution network is a key strategic asset, one that will enable us to compete in this particular space of not only digital sale of lottery tickets, but also some incremental play around iCasino and sports betting. So, you know, we're not talking specifically about the deals that we're working out with our retailers, but we do think we have an attractive offering that will motivate a significant amount of those retailers to prioritize and assist us in customer acquisition. And again, don't forget, you know, a portion of the Lotto Consortium is owned by the tobacconist, the largest group of and most significant group of retailers in Italy. And I'll hand it over to Max for the second part of the question.

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

That's great.

Yeah, I think, Jeff, I think – Oh, please. I'm sorry. Sorry, Jeff. Just one of the things you did ask is milestones. We haven't published, you know, at this point yet, given it's still nascent. But, you know, our goal, our driver, our primary driver and most important goal by the end of the year is customer additions. You know, we want to and we have a goal of significantly increasing our monthly active users. That's the primary goal. And with that, you know, we'll have an exponential effect in the future, we believe, on digital revenue growth in Italy.

That's great. Thank you for all the color. Maybe just for a follow-up, switching gears and asking more on sort of the competitive environment and the outlook for new contracts, just from our seat, it does feel like to us there's been a few more contracts, specifically in the U.S. of systems, creating hands than usual, Ohio, Minnesota, there's been a few others. And it's just curious to get your views on how you see the competitive environment right now for systems and iLottery contracts as well in the U.S. If you think that incumbent win rates have moved here in a material way over the last few years. And then sort of from a more technical standpoint, with some of these recent RFPs, are you seeing sort of a shift in states broadening more and more points for, you know, AI implementation or broader tech innovation or anything like that? And if so, can you just talk to us a little bit on sort of how you're positioning accordingly to compete in these categories?

Yeah, it's a great question. I'd say, look, in every industry, you know, there's an evolution. Things become more competitive. You know, no company has a moat. And we're approaching it from that perspective. When we separated the businesses, we just said, we made a general statement that we'll have more of a singular focus on the lottery business. We see our competition engaged in M&A, looking for incremental growth in other areas that they have not traditionally been in, doing iCasino, sports betting, prediction markets, things in markets that are far from a perfect overlap in markets and not even the same customers. So we've resisted and focused our digital efforts in places where we think we have a right to win. I lottery in the U.S., I lottery in Europe, and certainly this B2C initiative that we have in Italy, as well as seeking more meaningful operator contracts around the world, right, including Sao Paulo, where we will operate that lottery for 15 years. We think it's a great growth opportunity. And with that, we have the right to deploy and execute not only the retail system, but on the digital side as well, in the iLottery side. So, you know, we've seen, I would say, different strategic initiatives executed by our competitors. But in terms of increased competition for our business, which is primarily operating big lotteries around the world and providing systems primarily in North America, as well as competing on the iLottery front. I would say over the years, the iLottery has been the most competitive area. I would say not that much has changed in terms of, you know, having the credibility and being able to deliver a system or operate a lottery. And if you take a look at these RFPs as they come out, in the meaningful lottery markets, the ones that really matter that are big, oftentimes you have to have operated a lottery or you have to have provided systems for multiple lotteries for years as a base requirement. And, you know, in markets where we have not won, places like like Ohio and New Mexico, we are typically the rated highest technically. So we feel good about that. But nonetheless, a lot of this investment that we've been talking about has been on our system area to ensure that we don't take for granted our leadership position and that we continue to progress and accelerate our investment in our systems so we can continue to achieve the best technical score when being evaluated for these lotteries around the world. And also with this inflection point, this incredible point in technology where AI capabilities are truly game changing, we also have the ability to become more efficient in the future. Because places where we don't win, it's almost always on price and almost never on the technology offering. And so we recognize this. And with this singular focus on lottery, that's been a big part of the investment that Max has been talking about as we invest in our systems and infrastructure, as well as our digital offering in Italy and improving our iLottery offering around the world. So it's a dynamic environment. We think it's pretty exciting. but we also feel very good about our leadership position, but we're certainly not taking it for granted. Thanks very much.

Your next question comes from the line of Steve Pazella from Dutch Bank. Please go ahead.

Hey, good morning, everyone, and thank you for taking our questions. You've highlighted the path to more than $400 million of annual free cash flow once you moved beyond the current CapEx cycle. Can you walk us through the biggest drivers that bridge you from today's earnings and cash flow profile to the normalized free cash flow level?

Yeah, so this is Max speaking. Again, starting from cash flow mobs, we're currently targeting 750 for the year, excluding obviously the impact of the upfront fee to the lotto. We believe the number is poised to growth beyond 800 million for the next couple of years, as we have already said before, when you take the CAPEX and you bring the CAPEX down to a normalized mid-cycle from the current 400 million run rate for the last two years and the next two, you basically get to a number that starts with 600, 650 million of pre-cash flow. So when you consider the minority payments between 200 and 250, you basically get to that 400 million. That 400 million to us is only the starting point. We believe that number is poised to grow as we move along the way into the next cycle, which is a cycle that we call harvesting cycle in terms of cash flow. once our capex cycle is over at the end of 2028. And the plus and minuses on the cash for MOPS are expected to come, obviously, from EBITDA improvements as well as the continuation of our efficiency around interest and taxes. Primarily, the tax line is coming down significantly from the recent past, and we are basically getting the benefit of it mostly this year. Working capital, again, is net neutral over the cycle, so that should not have an impact. So those are the highlights to get to the 400 plus X minorities once the capex cycle is over.

Okay, thank you. But just as a follow-up, now that you have the final lotto payment behind you, leverage is below your target and kind of you highlight the attractive valuation in the opening remarks. How are you thinking about share repurchases moving forward?

So we have a remaining authorization of $175 million right now, including the last $10 million that we just completed a few days ago. So we believe that we have to continue to nurture all the returns going forward in consistency with our balanced leverage target. And just as a reminder, our leverage at the end of June at three and a quarter was about a quarter below our initial expectation. So we are favorable to leverage. So we are acquiring increased flexibility to be able to continue to promote shareholders' return going forward in both ways, dividend and shared by bet. Obviously, we need to be careful in the way we spend our money and kind of manage it through the quarters as we continue to spend a significant amount of dollars for our investment. particularly in the contract renewals that are expected to come into fruition in 27 and 28.

Okay, thank you.

Your next question comes from the line of Barry Jonas from Truist. Please go ahead.

Hey, guys. Good morning. Was hoping you could give us an update on Mega Millions. Do you think customers are getting more comfortable with the higher price point? And is the committee still working on any initiatives or changes to help drive growth?

Yeah, very good. So, you know, as you know, we had a really unusual in the history of jackpots, a frequent hit on both Powerball and Mega Millions in the first quarter going into the early part of the second quarter. Fortunately, that slowed and, you know, we had a pretty good build of both jackpots and a lot of excitement around Mega Millions as it grew to $800, roughly $800 million. And, you know, sadly, you know, it was hit just a week ago or so, but it was, you know, provided really good organic marketing and, you know, Powerball continues to run in the U.S. So it proved that at the $5 price point, perhaps customers, consumers and players are getting more comfortable with the value proposition. But nonetheless, the weekly sales for Mega Millions is behind the historical run rate. And so we don't think folks are fully on board or fully appreciate the changes. So, yeah, the consortium is, you know, we've worked on some different things to try to provide some research and insight, but ultimately they continue to think about, you know, whether or not they want to change the model.

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

Yeah, yeah. We've talked about this in the past. I think, you know, in every industry, it's difficult to isolate one or the other. I think, you know, the criticality is you have to be a leader in both and just simply be available either at retail or have a compelling digital offering for consumers. And the one thing we know is when you look at the combination, those markets that have robust digital offering complementing a good retail distribution networks, those are the lotteries that certainly perform the best. And for us to be more specific, you know, right now we're very focused in a couple of areas. One, we think, of course, the Italy B2C opportunity is our greatest opportunity, given our retail strength, the ban on third-party marketing, and the fact that, you know, there's really a very small percentage of lottery tickets sold online in Italy. So, of course, that's our value proposition, we think, our opportunity. Other large markets of greenfield opportunity in Sao Paulo, we think, over time, could be significant. And also, we have a couple of other iLottery platforms that will come online, likely in 2027. In Missouri, you know, we won that opportunity and Lottery West in Australia as well. So we're, you know, we're very focused on those specific opportunities as well as providing great service to our key platform customers in the U.S. And then also in places where we don't have the platform to continue to produce great games. and we continue to increase our share in those markets.

Perfect. Thank you.

Your next question comes from the line of Chad Bainan from McCurry Capital. Please go ahead.

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

Yeah, I would say, you know, it's difficult to tell, to be honest. A lot of the transactions continue to be cash transactions. The transactions that we can trace are digital, and the digital shows no sign of slowing, especially in markets like North America, where we've been providing and the states have been offering iLottery for years. The growth continues very, very strong. And so it seems that the key is to continue to provide game innovation and good, interesting, I think, player availability of games to the players that are meaningful and interesting at different price points and different types of winnings, be it smaller, more frequent winnings or less frequent, larger winnings. That seems to be the key, and as we've looked across time, it looks like there is some correlation to the consumer, but as we've said, even in really tough times, lottery sales remain very consistent. So I think one of the other areas where we can help ourselves, you mentioned retailer outlets, a lot of the states have not increased the number of outlets that they've had for years post-COVID. One of the benefits, I think, of many of these contracts coming up for renewal in North America or extension, it's been a very active period for us over the last two years and will be so through really through the end of this year, is the opportunity to outfit with new hardware, new equipment, more vending machines in the market as part of the RFP process or the extension process. So, you know, we, the teams have been very busy in many states implementing more points of sales. And, you know, we did also mention last time that we've got a new national retailer that is very excited about the addition of lottery games to increase their foot traffic and generate a bit more incremental revenue. So we think, you know, that will ultimately result in, you know, in over a thousand new locations selling lottery games across six or eight of our states this year and thousands more next year. So I think those are the things that will will ultimately help to drive sales. And, you know, perhaps we get a bit of a benefit if gas prices moderate in the future.

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

I would say for the meaningful markets, in Europe in particular, they have had iLottery in place for many, many years. And a lot of that activity is what helped us to build our model and plan for Italy, which, again, we believe is, by all measures, underexploited digitally. You know, we don't really talk about our, you know, the things that we're working on internationally. But again, from time to time, you know, we have an opportunity like Sanfala, which again is, you know, a great field opportunity. We've built, you know, the iLottery business from the ground up. And overall, I'd say, you know, the rest of the world, we had good iLottery growth in the markets where we continue to provide the iLottery platform and provide iLottery games. But again, I'd say that we've been laser focused on Italy, Sao Paulo, and continuing to grow our content sales business in markets, primarily in North America.

Thanks. Appreciate it.

Your next question comes from the line of David Katz from Jeffries. Please go ahead.

Thanks. Good morning, everyone. Appreciate all the detail. You know, two sort of questions at once. You know, is it too early to start, you know, keeping being an eye on scratch and win, right, which, you know, I think is probably the next sort of larger, um, you know, contract that, that you'll, you know, look to, to rebid or renew. And then max, my sense is you probably keep a careful eye on, you know, contracts that can, um, you know, go into extension period while they're being rebid. historically I recall that you know those periods can be you know very earnings productive because you know they're often fully depreciated you know but continuing to you know generate revenues and profits you know are there are there any of those out there that we should keep an eye on you know whether it's you know obviously you've given us for this year but you know is there a next year or the year after that we can keep an eye on for that thank you yes so

in terms of the second question, so contracts that go into extension, so we just announced Oregon and Washington. So again, the answer is yes. From time to time, we are able to extend contracts. They don't come completely for free. Obviously, there are investment upgrades necessary, but they are at a fraction of a typical bid from day one. And so we tend not to obviously announce contracts until they are signed and executed. So they're kind of in the making on a regular basis. And as far as the scratch and win is concerned, again, it's probably a bit too early. the best kind of reference that we could look at is how Lotto played out in the two years prior to adjudication of the bill. So typically, a government comes out either in the budget law or in a specific law decree with the highlights and the key rules of the new concession. We're still waiting for that to happen. And then from there, the whole process unfolds with the preparation and the publication of the bid, the period in which there is Q&A and the potential competitors participate to the bid, submit the bid, and then wait for the final results. So, again, it's a little bit early to talk about that, but, again, we're going to keep a close eye on that going forward.

Appreciate it. Thank you very much.

Your next question comes from the line of Domenico Ghilotti from Equida. Please go ahead.

Good morning. A couple of questions. The first is a comment on the guidance. In the sense you have confirmed the guidance. If I'm not wrong, the midpoint you are already almost at 50%, so 49% already achieved in the first semester. Usually I remember some seasonality, in particular in Q4. So I wonder if the confirmation is a matter of prudence or if you think you can maybe be in the upper part of the guidance, in terms of the BIDA at least. Second, on Brazil, if you can provide some color on how the operations are performing, some indication, let's say, on the initiative. and third just a modeling question with the minorities contribution for the lotto I wonder if now it has been completed so in the first semester you receive all the of the cash payment and you will start paying down the the cash flow starting from the second half of this year and and for the next years so let me start with the first question about achievability of the midpoint of

the guidance so I'd like to go back and look a little bit at how we fared in the first half so overall our revenue was down three and a half but if you exclude the service revenue amortization we were actually up four percent in revenue year-on-year that the equivalent EBITDA was up nine percent so we were able to actually improve the margin a little bit year-on-year. We closed last year at 41%. I'm quoting margin X SRA just to be kind of indifferent from the service revenue amortization change year-on-year. And we achieved a margin in the first half of close to 42%, so call it one percentage point improvement in the margin. That comes on the back of the continuation of our Optima program. The addition of profit coming from the sense of sales growth ex the UK, the famous 2%, partially offset by the investment in growth that we mentioned, we've been mentioning now for a few quarters. The expectation for the second half of the year is for that margin to probably come down a little bit from the 42% on the back of the different mix of businesses that we are adding, particularly as a result of businesses in ramp up phase starting from scratch. They tend to have investment up front, and so that margin that kind of margin target is not available from day one. Plus, the product sales that we expect to achieve in the second half will contribute favorably to both the revenue and the profit, but typically our product sales margin runs at lower percentage than the average margin that we generated in the first half. So overall, we feel good in terms of the guidance range. But again, we have to keep in mind that there are some puts and takes. And last but not least, we don't project overarching results on the jackpot. We have to keep in mind that last year we are facing a comp of two $1.8 billion powerball jackpots, one for each quarter. one in September and one in December of last year. And so that also, if in absence of a repeat of the same trend, structurally would not contribute the same way as last year. So we have to face a couple of headwinds, but we have good tailwinds on our end as well to offset those. So again, I think that overall, the guidance range is still logical. In terms of the delivering associated with the end of the lotto payment period in Italy, I think we have surpassed our best expectations right now. The three-and-a-quarter leverage was expected to be achieved at the end of the year, 26, so we're happy to report that we are there right now. And so now it's a matter of holding the line and trying to slightly improve that leverage ratio down the road. And again, in doing that, we think that we will be able to start to pay off debt that we built to fund the payment of the Lotto at Franciscan.

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

Your final question comes from the line of Joe Stoff from Susquehanna. Please go ahead.

Thank you. Vince, when you're talking about in Italy, the new digital offering, you had mentioned that all the lottery products are now available on that, um including you know essentially your largest competitor there uh with respect to lottery flutter um my question to you is on they've been offering i lotto you know for a while um on their b2c platform largely it's i gaming you know say concentrated but were they able to sell your lottery products on their digital platform over the last say two years or is this a new agreement between both of you to be able to do that?

Yes, yes, they've been able to do that. But when you think about a market that's had digital play available for years and with the various competitors in the marketplace, there's the opportunity to offer the competitor's product, but then there's also an emphasis, right? Just the way things are kind of the way your mosaics and tiled are to deliver up. We've talked about our iLottery team's significant advancement, primarily through the utilization of AI and understanding our individual player behavior to be able to deliver a more unique experience as to whether or not they prefer games that have animals, that have fruit, that have gems, that are frequent play games with low denomination, less frequent, you know, higher denomination games, et cetera. So, you know, there's a lot that goes into serving up the offering, you know, much in the way that, you know, Google handles search and Netflix handles delivery or Prime video handles serving up, you know, their particular programs and prioritization on the things that they push on their customer interface. So those are the types of things that we've been working long and hard at to really optimize the first and foremost, the player experience, but then also to ensure that we've got the best chance for our games to be played in the iCasino space and certainly most importantly in the iLottery space.

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

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

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

Yes, thank you all for participating and listening in. I think we've got a very attractive investment given the current valuation for Bright Star Lottery. Just to sum things up, I think we've got the opportunity for ongoing lottery sales growth driven by digital, which we think will increase in the future. We've made significant investments, will continue to do so in organic growth initiatives. We think those are the most valuable and will continue to provide greater share worldwide of digital revenue in the future. And when you take a look at the first half of the year, we grew EBITDA as a result of a very, very strong cost reallocation plan. And we are not cutting back on the investment that we're making in both retail and digital lottery operations. So we appreciate your interest in Brightstar. We look forward to continuing to update you throughout the year.

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