Earnings Call Transcript - BRSL Q3 2025

Operator, Operator

Ladies and gentlemen, thank you for being here. My name is Krista, and I will be your conference operator today. I would like to welcome you to the Brightstar Lottery Third Quarter 2025 Earnings Conference Call. I will now turn the conference over to James Hurley, Vice President of Investor Relations. James, you may begin.

James Hurley, Vice President of Investor Relations

Thank you, and thank you all for joining us on Brightstar Lottery's Q3 2025 Earnings Conference Call, which is being hosted by Vince Sadusky, our Chief Executive Officer; and Max Chiara, our Chief Financial Officer. After some prepared remarks, both Vince and Max will be available for your questions. During today's call, we will be making some forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees, and our actual results may differ materially from those expressed or implied in the forward-looking statements. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our latest earnings release and in our SEC filings. During today's call, we will discuss certain non-GAAP financial measures. You'll find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in our press release, slides accompanying this webcast and our filings with the SEC, each of which is posted on our Investor Relations website. Our statements are as of today, November 4, and we have no obligation to update any forward-looking statements we make. And now I'll turn the call over to Vince.

Vincent Sadusky, CEO

Thank you, Jim, and good morning to all. We achieved many strategic milestones in the third quarter. This includes closing the IGT Gaming sale for $4 billion in cash, executing on our shareholder return plans, and completing the refocusing of the company as a lottery pure-play business. A big congratulations to the Brightstar team for their dedication and resilience in getting us here. Today's better-than-expected Q3 revenue and profit results reflect a significant acceleration of global same-store sales across all geographies. Year-to-date revenue of $1.8 billion highlights the scale of our business which is driven by the sustained growth of core instant ticket and draw game sales. That's translated into solid profits and cash flow generation, which are attractive characteristics of our lottery business. You can appreciate this in the nearly $1 billion we've returned to shareholders through a combination of dividends and share repurchases this year, including the dividend we announced today. That $0.22 cash dividend per share is a 10% increase from our historical rate and is a clear demonstration of our commitment to enhancing shareholder returns. Same-store sales rose an impressive 8% in the third quarter, including 4% growth for core instant and draw games. In the U.S., same-store sales were up 8%. Multi-state jackpot same-store sales rose 70%, fueled by a $1.8 billion Powerball jackpot in the period. We also had a nearly 2% increase in instant and draw games, their same-store sales. Thanks to the continued success of our high-priced instant tickets in California and Florida and eInstant growth in Georgia. Italy same-store sales were up solid mid-single digits with strength across both instant and draw games. The Miliardario relaunch and summer bundle performed well as did the new EUR 25 special edition VIP game. 10eLotto's multi-bet payslip in Gioco del Lotto's Numero ORO option continue to fuel Italy draw game growth. Global iLottery sales increased over 30% in the period. In Italy, digital-only Gioca Più games are driving eInstant growth, while our new 10eLotto fast game is contributing to double-digit eDraw expansion. iLottery momentum is equally strong in the U.S., where robust user growth in Georgia and Kentucky is complemented by the high-performing Elephant King and Cats jackpot games. Viking Gold, our first AI-developed game went live in Rhode Island and Kentucky a few weeks ago, marrying proven game mechanics with AI-generated animation. There are several more AI-developed games in the pipeline. We introduced the new Brightstar brand to partners in North America and Europe at the recent NASPL and European Lotteries trade shows. Brightstar received significant interest from customers eager to see the latest in lottery innovation to engage players. Brightstar's AI capabilities were of particular interest, including our new game plan Wizard, a tool that analyzes instant ticket inventory and the performance of past games to assist in forecasting and building optimized game launch plans. For over 50 years, our innovative products and services have helped our customers excel. We believe the current roster will drive compelling incremental value over the next few years. Now I'll turn the call over to Max.

Massimiliano Chiara, CFO

Thank you, Vince, and hello to everyone joining us on the call today. Before I discuss the third quarter results, I want to note the early adoption of new accounting disclosures changed the geography of certain expense items on the income statement. Overall, results have not impacted, and we have provided historical recast financials reflecting these changes at the back of today's Q3 earnings press release. Now on with the quarter's results. Better-than-expected third quarter revenue and adjusted EBITDA were primarily driven by strong same-store sales across jurisdictions and game types. Adjusted EPS improved significantly in the quarter from a $0.02 loss in the prior year to earnings of $0.36 in the current year and increased 20% on a year-to-date basis, driven by improvements in net interest, income taxes, and G&A expenses, partially offset by higher gross profit in the prior year. The Q3 and year-to-date EPS figures do not yet fully reflect the benefit of the 13.6 million shares delivered to date under our accelerated share repurchase activities. The actual number of shares outstanding at the end of the quarter has been reduced to approximately 190 million shares. Third quarter revenue of $629 million grew 7% from prior year, up 5% at constant currency. Improved trends in same-store sales across all geographies drove a $19 million increase in instant ticket and draw revenue. Italy's 6% growth was especially impressive, even when normalized for a like number of Lotto draws, rising 5.3%. U.S. multi-state export revenue increased $15 million, primarily due to elevated activity associated with a $1.8 billion Powerball jackpot, and other service revenue decreased $10 million primarily due to non-wager-based revenue from European contracts in the prior year. Please note that this is the first quarter of the U.K. transition, which I'll address in more detail shortly. Third quarter adjusted EBITDA of $294 million rose 11%, or 7% at constant currency. High flow-through of wager-based revenue growth resulting from strong sales, store sales, and jackpot activity, and lower costs associated with expense recoveries were partially offset by the non-wager-based service revenue impact in Europe that I just mentioned and the impact of product sales mix and start-up costs associated with the new printing press. In addition, the transition of the U.K. contract had a negative impact of around $6 million in the third quarter and is expected to cause a headwind of about $14 million to revenue and EBITDA in Q4. Cash flow from operations and free cash flow for the third quarter and year-to-date periods reflect the impact of the first installment of the Lotto license fee. On a year-to-date basis, cash flow from operations was a negative $6 million or a positive $573 million when you adjust for the $579 million Italy Lotto upfront license fee. And free cash flow was a negative $245 million or a positive $334 million when you make that same adjustment. $2 billion of the IGT Gaming sale proceeds were used to reduce debt, improving net debt to $2.6 billion at the end of the third quarter. As Vince mentioned, we have delivered significant shareholder returns this year with around $980 million already paid to shareholders and an additional $42 million to be paid in the fourth quarter, marking a 10% increase in the quarterly dividend to $0.22 per share. Our financial profile is strong with total liquidity of $3.2 billion and net debt leverage of 2.3x. This puts us in a solid financial position in advance of the 2 remaining Italy Lotto license fee installments. As a reminder, the fees payable in 3 tranches with EUR 500 million already paid in July, EUR 300 million due in the fourth quarter and the balance of EUR 1.43 billion due by April 2026. Brightstar is responsible for 61.5% of the total, so EUR 1.37 billion or approximately $1.6 billion at current rates, and our consortium partners will fund the balance. We are reaffirming our full year '25 revenue and adjusted EBITDA outlook of approximately $2.5 billion and $1.1 billion, respectively. Cash from operations for continuing operations is now expected to be a negative $220 million or about $700 million positive when excluding the Italy Lotto license fee. An improvement of about $55 million from our prior expectations, primarily due to timing of working capital and a cumulative improvement of about $150 million from the original outlook for the year, reflecting a laser-focused approach to the non-EBITDA items affecting cash generation. CapEx is being revised lower to around $340 million due to timing shift. Overall, this represents about $110 million improvement in the outlook for CapEx versus what we expected at the beginning of the year. Now I will turn the call back over to Vince as we present an update on the business.

Vincent Sadusky, CEO

Thank you, Max. With the completion of the gaming sale and Brightstar's transition to a dedicated lottery company, we believe it’s beneficial to present an overview of our business attributes and future financial targets to aid current and potential investors in assessing our company. Although the Brightstar name is new, our leadership team brings nearly 50 years of expertise in the lottery sector. Over this time, we have developed and launched some of the industry's premier products and services. As the leading pure-play global lottery company, our aim is to enhance lotteries and engage players. Our innovative solutions have enabled clients to thrive and set their lotteries apart from other discretionary spending options for decades. Today, we are partnering with our customers to shape the future of the global lottery industry. Focusing solely on lottery represents a thrilling new chapter. Brightstar holds a leading position in a growing industry, and this focused approach enhances our ability to innovate and execute effectively. We have maintained consistent performance by serving our lottery clients well, resulting in an average customer relationship lasting around 30 years. One distinct competitive advantage we have is that we are the only system provider also operating significant lotteries in both the U.S. and Europe, which gives us valuable insights as a customer of our own products and services. The global lottery market has shown steady growth for years, with even greater acceleration during the COVID pandemic. Currently, lottery sales remain elevated, which is impressive given the substantial growth of online gambling options. Additionally, lottery play has proven to be resilient during economic downturns, unlike other gambling forms. Our long-term contracts, both as an exclusive system provider and an operator, add stability, providing more visibility into future revenues, profits, and cash flows compared to many other industries. Our top position in high-growth iLottery operations contributes additional upside to the traditional lottery business. We anticipate that wider iLottery adoption, particularly in the U.S. and Italy, will continue to boost sales growth significantly. We believe our global leadership position gives us an distinct advantage in the iLottery space. The Brightstar team and Board have continually worked to unlock the inherent value of our assets by divesting non-core businesses, strengthening our balance sheet, and increasing capital returns to shareholders. We view our current valuation as an attractive entry point as we pursue strategies aimed at enhancing shareholder value. Brightstar's range of capabilities and geographic reach is unparalleled. We can operate lotteries on a B2C basis or offer technology and services on a B2B basis. Currently, we work with approximately 90 customers globally, with leading market shares in the U.S. and Italy, our two primary markets. Most of our service contracts are exclusive and long-term, averaging over 10 years in duration. Our established presence gives us considerable value, demonstrated by a nearly perfect renewal rate of facilities management and operator contracts in the U.S. and Italy over the past 15 years. Last year, we generated $2.5 billion in revenue, with around 80% recurring in nature, resulting in $1.2 billion of EBITDA and approximately $700 million in cash from operations. Brightstar's investment appeal and distinctive competitive position are based on four pillars: our unmatched industry experience among our leadership team, the expanding global lottery industry defined by exclusive long-term contracts requiring specialized knowledge, our market leadership and recurring revenue base, and our technological product leadership reinforced by a 50-year history of proven innovation and our unique role in the value chain. We have outlined a focused strategy for evolving the business and generating substantial incremental value over the next several years. This strategy will focus on defending and growing core contracts, seeking targeted expansion, and leading in iLottery, especially in the U.S. and Italy, where Brightstar is well-positioned to excel. We are also prioritizing efficiencies through our optimal cost-saving initiatives, digitization, and broader adoption of AI. These efforts are projected to deliver up to $1.7 billion in capital returns to shareholders from 2025 to 2028. The lottery industry has shown steady mid-single-digit growth over the last two decades and has exhibited remarkable resilience during times of macroeconomic and geopolitical uncertainty. Sales have increased even with the introduction of new gaming alternatives. We expect to maintain this mid-single-digit growth rate over the coming years, driven by broader adoption of iLottery, which supports the predictability of our revenue and cash flow through our service contracts. As previously mentioned, our incumbency is a significant asset, as we have retained nearly all of our facilities management and operator contract revenue in the U.S. and Italy over the past 15 years, with over 70% of our current revenue from FM and operator contracts secured or extendable beyond 2028. This foresight gives us strong visibility into our revenue and cash flows for the foreseeable future. Three primary levers will drive additional growth for our core business. The first lever is share expansion. There is over $12 billion in lottery sales currently held by competitors that will be up for rebid by 2028, much of which exists outside of the U.S. We have recently allocated more management resources towards pursuing these opportunities, with Brazil being a particularly promising market where we have already established a foothold. The second lever involves product innovation and optimizing our portfolio. The lottery sector is supply-driven, and innovative new games are essential. Fine-tuning the pricing and payouts of our lottery game portfolio is an efficient method to craft engaging player experiences tailored to a variety of preferences. This approach has yielded success for us in Italy in recent years. The third lever is expanding our channels and touchpoints. Increasing the accessibility of lottery games for players is an effective strategy for driving sales growth. Recruiting new retailers with extensive store networks and deploying self-service vending machines are effective strategies we have implemented. New technologies that enhance sales velocity, like LotteryLink and our cloud-based tech solutions, are also key products designed to boost sales. LotteryLink is currently operational in New Jersey, and we have started deploying self-service machines in high-traffic areas across Italy. Widespread adoption of iLottery, particularly in the U.S. and Italy, will be a significant driver of incremental growth in the years ahead. Brightstar is strongly positioned to capture market share across various platforms and content. As the global leader in iLottery platforms, we offer a library of over 300 games used by nearly 20 customers. In the U.S., iLottery penetration remains under 10%, with only 14 lotteries active and none of the top five participating. Mature markets average over 40%, demonstrating strong player interest. Our iLottery sales in the U.S. have grown significantly faster than the market rate in recent years, and we have secured two of the last four platform awards. We anticipate more than 20% annual growth in iLottery for the next several years, backstopped by successful acquisition of new jurisdictions, leveraging our strong history of performance with our FM customers, as we have accomplished in Tennessee and Missouri. Game innovation and portfolio optimization present further potential, with plans to launch about 40 new eInstant games each year. Our customer relationship management tools assist our clients in driving growth by delivering customized and engaging player experiences based on deep player insights. The iLottery potential is equally strong in Italy. As the operator of the two largest lottery games in the country, we are strategically positioned to lead the digital expansion. Italy is among the globe's most attractive gaming markets, with total market wagers experiencing a 7% compound annual growth rate over the last decade, including a 20% increase in digital wagering. Land-based wagers have similarly grown with the rise in digital options. Currently, iLottery penetration in Italy is just 3%. In contrast, other European markets show penetration rates ranging from the mid-teens to over 50%. The Italian market's acceptance of digital is evident, with iGaming and online sports betting reaching penetration levels of 30% and 55%, respectively. By 2030, we aim to bring Italy's iLottery penetration in line with these European benchmarks. As we implement proven iLottery strategies in Italy, we have uncovered additional opportunities for increasing digital adoption. One approach is to implement digital solutions in our 58,000 Lotto and Scratch & Win locations to enhance the retail player experience. Over the past year, Lotto and Scratch & Win attracted 9.5 million and 17.1 million players, respectively, accounting for 40% to 75% of Italy's total gaming demographic. We've already initiated this digital approach with the launch of My Lotteries Play earlier this year, resulting in a 3-point market share increase with minimal marketing efforts within just nine months. My Lotteries Play also facilitates entry into iCasino, digital sports betting, and bingo. Recently, we've launched over 80 iCasino games and a dozen live casino games, targeting the estimated 25% overlap between digital lottery participants and those engaged in iCasino and digital sports betting. This creates cross-selling prospects that could enhance average spending on iLottery and other games. We believe we can generate substantial incremental value here without needing to become the market leader. Additionally, we stand to earn a distribution fee on all My Lotteries Play activities, alongside the 50% return on Lotto wagers and 3.9% on Scratch & Win wagers. As a concessionaire for these games, this creates further value. Clearly, the new Lotto license opens up significant strategic and financial opportunities that reinforce our leadership in Italy's evolving digital gaming landscape. I will now turn the call back to Max.

Massimiliano Chiara, CFO

Thank you, Vince. Considering all the strategies that have been outlined, we believe Brightstar's organic growth rate will accelerate to over 5% CAGR in the next three years. First, our core land-based business in the U.S. and Italy is expected to deliver a 3% CAGR, excluding the U.K. transition. Second, improved iLottery regulatory momentum in the U.S., along with our strong market leadership, should contribute another 1% CAGR. Third, the new B2C expansion initiatives in Italy, driven by iLottery growth, are also expected to add an additional 1% CAGR. Additionally, increasing our share in underpenetrated international markets and instant ticket printing will provide further momentum. Due to the accounting effects of the amortization of the initial fee related to the new Lotto license, we anticipate a net growth of over 3% CAGR. Alongside this accelerated top-line growth trajectory, we have pinpointed certain operational efficiencies that should yield around $80 million in gross cost savings by 2028 compared to the 2024 baseline. We have already communicated $50 million of these savings expected by 2026, primarily focusing on optimizing our back-office operations following the IGT Gaming sale. The additional $30 million in OPtiMa savings announced today will target primarily cost infrastructure across our main operational areas. This also includes benefits from modernizing backend technology, enhancing automation, digitization, and broadening AI adoption throughout the organization. We have established a structured program to expedite AI adoption in core processes such as content creation, software development, and corporate workflows. We expect initiatives driven by AI to further enhance our profitable growth and future capital expenditures when these initiatives are fully operational by 2028 and beyond. As previously mentioned, the period from 2025 to 2028 will be a peak CapEx cycle for us due to the renewal of several major contracts, including those in California and Italy, which we have secured, along with upcoming contracts in New York and Texas as well as Italy's Scratch & Win. Additionally, there are smaller contracts that have mostly already been secured. We expect an average annual CapEx of about $400 million during this peak period, largely driven by traditional contractually required investments in new central systems, retail terminals, and communication infrastructure across our portfolio. There will be some new strategic investments, including expanding player touchpoints through proven sales drivers like self-service vending machines and integrating new technologies such as LotteryLink. We are also investing to advance our core technology stack to utilize new capabilities like AI and cloud infrastructure. Moreover, investment will be allocated to infrastructure supporting new B2C opportunities in Italy activated by the new Lotto license. We continue to expect annual CapEx to moderate to approximately $200 million to $225 million after this peak CapEx cycle. It's important to recognize that our CapEx investments strengthen Brightstar's unique competitive advantages and directly support our accelerated organic growth plans, establishing a foundation for long-term efficiencies beyond the current OPtiMa program. The stability and predictability of our cash flows as an independent lottery business have enabled us to establish key principles for capital allocation. Over the last decade, the company has consistently returned capital to shareholders through quarterly cash dividends. However, most capital has been allocated to business investments and reducing leverage. We are now comfortable maintaining leverage around our target of 3x and intend to allocate more capital for growth and enhance shareholder returns. Following the sale of the gaming business, we recently announced several measures to increase shareholder returns, including a two-year $500 million share repurchase authorization, representing a mid-teens percentage of the current market cap. Under this authorization, we executed a $250 million accelerated share repurchase agreement, marking the largest in company history. We also declared a $3 per share special cash dividend paid in July and plan to maintain approximately $160 million in annual regular cash dividends moving forward, even with a reduced share count after the buyback program, effectively increasing the per-share dividend on an annualized basis. This is evidenced by today's announcement of a 10% increase in the Q4 dividend. At the current share price, our regular dividend yields around 5%. We are committed to providing an attractive yield even as we encounter heightened capital requirements to sustain the contract portfolio over the next few years. During the 2025 to 2028 period, we anticipate generating a total of $7.1 billion in cash, allocated as follows: about $3.2 billion for investments necessary to maintain the existing contract portfolio and pursue targeted new growth initiatives; around $1.7 billion for shareholder returns, including dividends and share repurchases; and the remainder allocated to payments to minority partners, debt reduction, and other cash uses. I'd like to point out that this multi-year allocation does not include any upfront fee for Scratch & Win in 2028, as the structure of the RFP is not yet known. Also, to remind you, our net debt at the start of the 2025 to 2028 period was $4.8 billion. Since then, we have successfully reduced our debt exposure to a historic low of $2.6 billion, allowing us to absorb the Lotto upfront fee without significantly impacting our leverage, which we expect to temporarily exceed our long-term 3x target until the recurring cash generation enables us to realign our leverage toward the long-term target in the coming years.

Vincent Sadusky, CEO

Moving now to the mid-term targets. We are introducing 2028 revenue and profit targets to give you a sense of where we expect the accelerated growth outlook we have outlined to take us in the medium term. By 2028, we expect revenue to reach approximately $2.75 billion as a more than 5% organic CAGR, net to over 3% on a reported basis as a result of the increased service revenue amortization associated with the new Lotto concession. Adjusted EBITDA is expected to grow at a more than 6% CAGR to $1.3 billion over the same period as top line expansion is accentuated by optimal cost savings and other efficiency initiatives. Cash conversion before upfront license fee is expected to improve to about 70%. Once we are past the peak CapEx investment cycle, we believe the business will generate over $400 million in annual free cash flow before upfront license fees, but after minority distributions. This implies a low- to mid-teens free cash flow yield at the current share price. We expect free cash flow to further increase at an accelerated pace as many of the initiatives we have talked about today mature in 2030 and beyond. We believe this is a compelling value for a growing, durable business with long-standing leadership positions. With that said, now I'd like to open the call for questions.

Operator, Operator

Your first question comes from Jeff Stantial with Stifel.

Jeffrey Stantial, Analyst

Maybe starting off here on the new financial targets and sort of strategy that you laid out. Vince, if you take each of the buckets that are laid out on Slide 23, so core growth, iLottery, Italy, all other, could you maybe just unpack a little bit further for us some of the assumptions that underpin those growth rates, meaning for iLottery? How much is sort of same-store sales growth? How much of a benefit is new state launching for Italy? How much is assumed for retail market share, iLottery penetration, casinos, sports capture, that side of things? Just anything to really help us better understand the algorithm from here would be great.

Vincent Sadusky, CEO

Sure. We aimed to outline the components of growth in a straightforward manner. The foundation is based on recent history concerning the growth potential of our core retail operations. Additionally, our growth comes from iLottery, the expansion of our B2B operations in Italy, as well as printing and product sales. We anticipate that iLottery will see primarily organic growth, and we have realistic expectations for what new markets may develop over the course of our planned period. What excites Max and me is our ability to project growth up to 2028. We've highlighted our mid-term targets because of the confidence we have in them, and it's much easier to project three years out as opposed to longer-term forecasts. In terms of iLottery, we've secured several platform and content deals that will take time to implement and grow. The projected growth in North America is based on our existing customer base and the opportunities we've identified in the iLottery segment. On the B2C side, we recognize there's a lot of curiosity around this area as it represents the most speculative aspect of our growth story and can be challenging for investors to fully grasp. We believe it's crucial to discuss this opportunity further because we see significant potential. Our position in the market is strong, with two well-established lotteries controlling around 90% of Italy's lottery market, a strong retail distribution network, and minimal advertising. We're poised to engage a market where gaming is popular yet currently underrepresented in the B2C iLottery space. Securing Lotto enhances our strategy. While we haven't detailed our anticipated market share percentages, we feel confident they are realistic. We've managed to gain three share points since launching our streaming app, consolidating gameplay under a single platform while improving usability and interaction with our customers, even before rolling out extensive marketing efforts. This reflects substantial potential for increasing our market share. We consistently note the presence of established competitors in the market, and while we don’t expect share levels near theirs, even modest gains can significantly enhance our cash flow from this segment. Looking ahead to 2028, we recognize there will be a gradual ramp-up, and we've been prudent in our projected market share increases. The truly exciting developments are expected beyond 2028. What we've established leading up to 2028 appears quite reasonable. Regarding other segments, much of the growth is derived from the incremental gains we've achieved in instant ticket sales over the past year or so. Our team has made great progress since investing in our print facility, which is now state-of-the-art, allowing us to confidently increase our market share. Although we are still working through some initial challenges with our printing operations, our aim is to be a leader in printing from our Lakeland facility, ensuring we can supply quality products globally. In terms of product sales, we're taking a focused approach in analyzing both our competitors' capabilities and advanced point-of-sale equipment worldwide to develop leading-edge hardware that should enhance our competitiveness in the sales sector, and we believe this can happen quickly. We are already competing in the market with what we consider to be superior hardware products, and we feel confident about our growth trajectory, which is mainly based on our current business and reasonable share gains anticipated from our execution efforts.

Jeffrey Stantial, Analyst

That's great. And then for a follow-up, maybe turning over to a return of capital, Max, I apologize if I missed this, but it seems like the full $250 million ASR at this point is pretty much effectively deployed. I didn't catch any commentary on expectations for that second $250 million tranche, whether in terms of timing, mechanism, anything like that? Any color there would be would be appreciated.

Massimiliano Chiara, CFO

We need a little patience on that because the first tranche is still in the market. We are executing it as we originally anticipated, and we expect to complete the first tranche by the end of the year or early January at the latest. We'll see when we reach that point and what other options we have for advancing the buyback program.

Jeffrey Stantial, Analyst

Right. And just to be clear, do you know how much is still remaining on the $250 million ASR?

Massimiliano Chiara, CFO

The program is proceeding at pace with the original expectations. So we kind of are not walking off our estimate, to be done by the end of the year.

Patrick Keough, Analyst

First, Mega Millions is on a nice jackpot run right now. We're curious to get your thoughts on what you're seeing since the price change went into effect and how or when you'll know if it's been successful for you?

Vincent Sadusky, CEO

Yes. Since the Mega Millions price increase to $5 back in the spring, we haven't had a strong performance, which makes it challenging to assess the success of this change. The benefit of the price adjustment is the integrated Megaplier, and the math model was adjusted so that a smaller portion of the wagers goes to the jackpot while more is allocated to substantial future prizes, which are in the millions. The idea was that this would create a distinct game compared to Powerball, which typically focuses on higher jackpots. It will take time for players to grasp and appreciate this change. The actual outcomes are aligning with that framework, as there have been many more payouts at levels below the jackpot. Players are starting to notice this, but it will definitely require some time. As with any jackpot game, a higher jackpot attracts more play, which results in players winning these secondary jackpots more frequently. I believe this differentiation will grow more pronounced. Currently, Mega is around $800 million, and we are hopeful for it to maintain this positive trend. This is the highest jackpot level since the price increase, and we hope it continues.

Patrick Keough, Analyst

That's great. Next from us. It's still early, but can you walk through puts and takes as we start thinking about 2026? And could you frame next year's growth relative to the 2028 targets you introduced this morning?

Massimiliano Chiara, CFO

We typically provide an update for 2026 when we report the end-of-year numbers, so we aren't ready to discuss it in detail at this time. Our focus is on finishing the year and giving the market insight into our mid-term expectations with the 2028 target, which will help investors understand our strategies and the new equity story of Brightstar. However, the positive news is that our core business has accelerated in the short term. Italy is performing above trend, with a particularly strong Q3, normalized for the calendar, at plus 5%. The U.S. core business is also recovering significantly. Year-to-date, the jackpot is down just above 10% year-on-year, so it will take a lot to align performance with historical averages. The $1.8 billion jackpot in September was an outlier, but if we see decent performance in the fourth quarter, we may land in a good position. The performance relies heavily on the LMA, which is impacted by the fiscal lottery year ending mid-calendar year in June or July. Sometimes, we experience consecutive quarters without jackpots, which affects the LMA. However, historically, the business has quickly recovered from such situations, and we hope that will be the case between the second half of 2025 and the first half of 2026, assuming jackpot performance continues as it has in the past. Another positive note for 2026 that we want to share with the market is our continued acceleration of OPtiMa efforts. We are further along in executing the first part and have already realized $30 million in savings through 2025. We still have an additional $50 million to achieve between 2026 and 2028 to reach the total of $80 million we announced today. Beyond that, I will wait to discuss further during the end-of-year report.

Chad Beynon, Analyst

Vincent, Max, thank you for the insightful comments about the medium-term outlook. Max, I want to revisit what you mentioned, particularly regarding Q4 and the decision to reaffirm our outlook. I understand you're facing challenging comparisons, especially in Italy year-over-year. However, it seems that Q3 performance exceeded expectations on a same-store basis, and that trend appears to be continuing. Can you clarify whether the £14 million figure for the U.K. was part of the original guidance? Additionally, I'm interested in knowing if there are any other areas where performance may fall short of expectations, or if this is an opportunity to maintain a conservative stance given the uncertain consumer environment.

Massimiliano Chiara, CFO

Yes, this is definitely an interesting time of year because with our strong Q3 performance, we have somewhat reestablished the pace we lost in the first half due to the LMA jackpot negative combination. Looking ahead to Q4, it's important to recognize two negative impacts on the top line: one from the U.K. and the other from the increased revenue amortization related to the larger upfront fee we will deliver to ADM in Italy. December 1 marks the start under the new concession, so we will need to account for a month at the new rate. When we consider these two factors, which likely total around $30 million, we can anticipate a strong top-line performance compared to last year. We expect product sales to align closely with last year's figures for the fourth quarter, which would represent solid performance. Additionally, we foresee G&A expenses decreasing in Q4. Overall, we believe we have what it takes to deliver another strong quarter. It didn't make sense to delve into minor details of the numbers, so we are maintaining our EBITDA guidance of $1.1 billion. We might hit that target exactly, or possibly exceed it slightly. We'll see how things turn out, but we are facing a few challenges on the top line. However, we are making good progress in our core business and achieving savings in our operational structure. Overall, we are optimistic about delivering a solid quarter.

Chad Beynon, Analyst

I appreciate that, Max. Vince, regarding your medium-term outlook on growth, you mentioned share expansion outside of the U.S. and Italy, which I believe is around 12% based on the slide deck. Can you elaborate on when these opportunities might become available? Is there a schedule for new bids that are coming up, or is it more related to the printing side? I understand you're not providing guidance for '26, but I'm trying to understand when some of these opportunities will emerge.

Vincent Sadusky, CEO

Yes. I would say that gaining market share in our core business will take several years. For example, in São Paulo, Brazil, if we decide to proceed with our partnership with Scientific Games, we will start executing in 2026, but cash flow and profitability won't materialize until after that. This is typical when establishing a lottery in a new market, which presents an exciting opportunity, but it requires time. Therefore, the market expansion initiatives we discussed, particularly looking at the near term in 2026, are focused on print and product sales.

Operator, Operator

And that concludes our question-and-answer session. I will now turn the conference back over to Vince Sadusky for closing comments.

Vincent Sadusky, CEO

Thank you all for your attention. Just to recap, we believe that Brightstar enjoys global leadership in a growing industry, and we think having returned to a singular focus on lottery really marks an exciting new chapter. It improves our ability to continue to innovate and execute, drive the acceleration in organic revenue growth, and increased shareholder returns that we expect over the next 3 years. And of course, we believe our current valuation provides a compelling entry point for growing a durable business with a long-standing leadership position as we execute on strategies to continue to create significant shareholder value. Thank you.

Operator, Operator

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.