Bally's Intralot S.A. (BYLOT) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Gail, your Chorus Call operator. Welcome, and thank you for joining the Bally's Intralot conference call and live webcast to present and discuss the first half 2026 financial results. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Robeson Reeves, CEO of Bally's Intralot. Mr. Reeves, you may now proceed.

Thank you and hello, everyone. Thank to the 17th are because 2 things happened in August that between them tell you where this company is going. On 17th of August, Evoke shareholders voted on our proposed acquisition. At the court meeting, 99.91% of the shares voted were voted in favor. At the general meeting, the special resolution passed with 99.63% in favor of the scheme. I want to be precise about what that is and what it is not. It's not a formality. Shareholders in a business at that scale looked at the case we made looked at the operating model we said we would bring and backed it almost unanimously. This is a significant milestone, but we're not at completion just yet. The transaction is proceeding through a scheme of arrangement. Our own shareholders meet in September a number of the conditions relating to antitrust and regulatory approvals have now been satisfied, and the work on the remainder is progressing. The court will hold the sanction hearing once every closing condition is satisfied or waived. And as we said on the 17th of August, we continue to expect the sanction hearing and the scheme becoming effective in the fourth quarter of 2026 or the first quarter of 2027. Until that point, evoke and Bally's Intralot remain to entirely separate independent and competing businesses, and we are running them that way. So today, we will not further -- we'll not be further discussing integration synergies beyond approximately GBP 180 million of identified savings already announced or anything about the combined business as we must respect the ongoing process. . The second thing I want to put in front of you is simpler. And in some ways, it matters more. On the first of April, U.K. remote gaming duty went from 21% to 40% of gross gaming revenue, not a profit of revenue. I have spent the better part of the year telling this market that we will grow into that change rather than shrink into it. And then a business with our margin profile will come out of it stronger while others were treated. The second quarter of 2026 is the first full quarter under the new regime. So here is the test result. U.K. online revenue grew 11.6% year-on-year on a constant currency basis in the second quarter. That is an acceleration from the 10.5% year-on-year growth achieved in the first quarter. For the half, U.K. online growth was 11.1%, our U.K. business delivered an all-time high in net gaming revenue in the quarter in which its tax rate nearly doubled. I want to be very clear about what that actually means because it's easy to lose in our results release. We did not hold the line, we accelerated year-on-year player volumes held -- we did not lose customers to competitors, and we did not lose them to the unregulated market. Spain also delivered an all-time high in the second quarter with online revenue up 15.1% year-on-year. Growth is the thing that matters most in this business. because everything else, mitigation, deleveraging the transaction, the returns we can make is downstream of it. Cost programs are finite. You can only cut a business wants growth compounds and at the time where we were most likely to falter in the U.K., we showed strength. Let me deal with the costs directly because you would have seen it in the numbers. The duty increase cost us approximately EUR 34 million in the second quarter alone. That is the gross unmitigated impact of a single line of fiscal policy on 1/4 of this business, and I'm not going to address it up. Against that, management actions and underlying trading absorbed close to 65% of the impact in the very first quarter of the new regime. Revenue growth in core markets contributed approximately EUR 10.1 million, operating cost optimization and related adjustments contributed approximately EUR 11.3 million. We expect the cost benefits to be permanent, full year savings rather than a timing effect. Now 2/3 is not all of it, which is what you would expect one putter into a program at this site. Here is why I'm confident that we can close it though. Our mitigation was never a single action. It was 4 buckets, and they phase at different speeds. Generosity reductions only began to phase in during the second quarter. So we have carried a partial period benefit into a full period rate. Marketing optimization has further to run, and it is the lever most within our own control. Cost optimization from business combinations and spend discipline continues to come through. And the top line is doing more of the work than we assumed it would. So on this characterization is this. We mitigated roughly 2/3 of a very large number in one quarter from a standing start while accelerating growth and the levers required to mitigate the remainder are identified and will be executed. That is a materially better position than absorbing a shock and hoping the market improves. The one thing I would add, and I have said it before, is that this only works if the regulated market is policed. A 40% rate for operators inside the perimeter and nothing for those outside is not a sustainable structure. The commission has been progressive and I would encourage it to stay vigilant on offshore activity so that the burden falls on a level playing field. On the second half, let me give you the shape rather than a slogan. Growth in the first half has held up very well. And together with the cost containment measures we implemented, it allowed us to absorb around 65% of the tax impact in the first quarter of the new tax regime. Our original plan assumed a stronger contribution from market consolidation than we have seen so far. And that remains a scenario we're working towards. Under that original consolidation scenario, together with the organic growth of 12%, we would expect Interactive's contribution to adjusted EBITDA to reach approximately EUR 295 million. This includes further cost reductions in H2, while also absorbing additional costs relating to the Greek online project, which were not in the original guidance. If market consolidation does not materialize over the next 6 months will come through more slowly than we originally anticipated. Then on the same 12% organic growth assumption, Interactive's contribution would be around EUR 280 million. The difference between those 2 figures is mainly the pace of market consolidation. The legacy Intralot contribution, we expect to be in the range of EUR 112 million to EUR 120 million, reflecting the Turkish market risk already recorded in the second quarter and the seasonality of the United States jackpot business. Both estimates include the foreign exchange impact of sterling and dollar against the euro. I were to make one further observation on consolidation. It has been slower to arrive than we anticipated. Competitors have been more willing to absorb margin compression for longer than the arithmetic suggests they should. I'm not troubled by that for 2 reasons. First, our own growth momentum has more than covered the softer consolidation upside. We've achieved these results through sustained focus on our products, customers and execution, not by waiting for favorable market conditions. Second, deferred is not canceled. The 20% to 25% margin business paying 40% of its revenue in duty does not have an indefinite runway, which brings me to the point I most want you to take from this call. This company has 2 engines. Our Lottery and B2B business is a genuinely excellent asset, long contracts, high barriers government counterparties, no U.K. duty exposure at all, and Chris will take you through it. It is the ballast in this business, and I would not be without it. But B2C is the transformation. It is where the growth is. It is where the margin is, and it is where our operating model creates value that nobody can simply buy. In the first half, our legacy International Interactive business generated EUR 377.6 million of revenue at an adjusted EBITDA margin of 35.2%, in the half that included the duty increase. That is a margin most of this sector cannot reach in a good year, let alone in a year when its largest market's tax rate doubled. That capability is the entire strategic logic of what we announced in June and what Evoke shareholders endorsed in August. We are not diversifying. We're taking an operating model that has just proven itself under the hardest fiscal conditions this industry has faced in the U.K. and applying it at a significantly greater scale. The price is a materially larger B2C business run to our standards, not a bigger version of the same thing. And I would ask you to read through the growth numbers I gave you earlier in that light. The case for scaling this model does not rest on a projection. It rests on what the model did last quarter. On the balance sheet, I'll be straightforward, and Andreas will give you the detail. Adjusted net leverage was 4.05x and on a pro forma basis at the end of June. That is elevated relative to where we intend to operate and the largest single reason is visible and deliberate. We paid EUR 85 million in the quarter for a 15-year monitoring license in Victoria, Australia. That is 15 years of contracted regulated cash flow bought in 1 payment. I would make that decision again. Total liquidity at the end of June was EUR 287.3 million. Our commitment on financial policy has not changed and neither has a lens. We will protect the interest of our shareholders, our bondholders and our other stakeholders. And any transaction we pursue will be consistent with our stated financial policy within that perimeter. On the financing structure for the transaction, we'll say more when we're in a position to. In summary, U.K. online revenue growth accelerated to 11.6% year-on-year in the quarter, our largest markets duty rate nearly doubled. We didn't falter. Approximately 65% of the EUR 34 million quarterly duty impact was mitigated in the first quarter of the new regime and the levers to close the remainder are identified and within our control. Group revenue for the half was EUR 544.2 million with adjusted EBITDA of EUR 184.8 million. Legacy International Interactive delivered a 35.2% adjusted EBITDA margin through the duty change, the capability that makes the Evoke combination worth doing. Evoke shareholders approved the acquisition with 99.63% of general meeting votes in favor. We expect the scheme to become effective in Q4 2026 or Q1 2027. Interactive is expected to contribute approximately EUR 295 million to adjusted EBITDA under our consolidation scenario and around EUR 280 million without it, with legacy Intralot in the range of EUR 112 million to EUR 120 million. Growth remains a priority because everything else follows from it. I'll now hand over to Andreas to take you through the financials in detail.

Thank you, Robeson. Good morning, and good afternoon, everyone. I will take you through the first half in 4 parts. The group results the second quarter bridge, the segments and then the balance sheet and the cash flow. Moving directly to Page #3, where we have the consolidated financial results. On a reported basis, revenue for the first half of 2026 reached EUR 544.2 million, compared to EUR 182 million in the first half of 2025. Baly's International Interactive contributed EUR 377.6 million of a total with Intralot legacy contributing EUR 166.5 million, I would note that Baly's International Interactive is consolidated only from October 2025 show the comparative period, comprises Intralot legacy alone and the group movement is not a like-for-like comparison. At the legacy level, revenue of EUR 166.5 million compared with EUR 182 million, a decline of 8.5%. That decline is concentrated in the B2B and specifically in the U.S., our largest market, which was down by 11.7% on a constant currency basis on softer lottery activity and reduced equipment sales against a stronger prior year period, partially offset by organic growth across the rest of the legacy B2B portfolio. Legacy B2C was broadly stable at EUR 38.5 million against EUR 39.5 million with Argentina up 7.6% and Bilyoner down 5.5% on a reported basis. flatting the amendment to its remuneration structure and the depreciation of the Turkish lira, even as amounts wagered grew 28.9% in local party terms, adjust the market up by 20.4%. At the adjusted EBITDA level, the group delivered EUR 184.8 million in the first half of 2026 against EUR 60.2 million in the comparative period, a margin of 34%, up 0.9 percentage points year-over-year. Within that, Baly's International Interactive contributed EUR 132.8 million, at 35.2% margin, and Intralot Legacy EUR 52 million at 31.2% margin, which comprises with 33.1% in the first half that 1.8 percentage point contraction reflects the same 2 drivers: softer U.S. B2B volumes and the remuneration amendment which took effect at the end of the first quarter of 2025 and therefore, weighs on the whole of the current period. Below adjusted EBITDA, depreciation and amortization was EUR 85.6 million, reflecting the amortization of the acquired intangibles from Baly's International Interactive. Transaction fees were EUR 13.9 million and net interest expense, EUR 69.6 million, reflecting the group's new debt structure -- after a tax charge of EUR 5.5 million. In the first half of 2026 recorded a loss after tax of EUR 20.7 million. On a pro forma 12-month basis to the 30th of June 2026, the combined group delivered EUR 1.075 billion in revenue. and approximately EUR 400 million in adjusted EBITDA, representing a 37.2% margin. Moving to Slide #4, and focusing on the revenue mix. Across our three dimensions and taking the reported first half of 2026 first. By game type, iGaming and sports betting is the largest contributor to our top line at 74.9% followed by lottery games at 20.3%. VLT Monitoring contributed 4.1% and casino and other activities, 0.7%. By geography, the U.K. is our largest region at 64.8% of group revenue with America 18.3%, Europe at 8.7% and the rest of the world at 8.1%, by activity line, we do see now represents 76.4% of the reported revenues with B2B at 23.6%. On a pro forma basis, the picture is very consistent. iGaming and sports betting at 74.3%, lottery at 21%, the U.K. at 64.1%, America at 19.1% and B2B at 75.6%. This confirms the group's structural shift towards the U.K. digital supermarket and that mix shift is the primary driver of the margin profile that we are delivering. Moving to Slide #5. We have the revenue and adjusted EBITDA bridges from the first quarter to the second quarter of 2026, starting with the revenue. Group revenue increased by 3% quarter-on-quarter to EUR 276.1 million, up EUR 8 million from EUR 268.1 million in the first quarter. The B2C segment contributed EUR 6.3 million of that uplift and B2B EUR 1.7 million. Within B2C, the U.K. delivered an all-time high with online revenue up 5.3% quarter-on-quarter, an increase of EUR 9 million and up 11.6% year-on-year on a constant currency basis. Spain set a new quarterly record with revenue up 9.7% quarter-on-quarter or EUR 1.1 million. Bilyoner declined by 21.8% quarter-on-quarter, EUR 3.6 million, reflecting the market seasonality. The B2B segment grew by 2.6% quarter-on-quarter, delivering steady growth of EUR 1.6 million. Turning to the adjusted EBITDA the sequential movement from EUR 102 million in the first quarter to EUR 84.6 million in the second is the most important table in this release. So let me walk it. The group delivered EUR 84.6 million in the second quarter, down EUR 15.6 million quarter-on-quarter with a margin of 30.7% against 37.4% in the first quarter. The B2C segment accounted for a EUR 16.6 million reduction, partially offset by a EUR 1.1 million contribution from the B2B. The dominant driver in B2C is the U.K. gaming tax, which had a EUR 34 million impact in the second quarter, following the increase from 21% to 40%. I would highlight that 65% of the tax increase was offset through management actions and underlying trading including EUR 11.3 million from operating cost optimization and adjustments at EUR 10.1 million from top line growth in the U.K. and in Spain. Bilyoner contributed a EUR 3.2 million adjusted EBITDA impact following the market, but expected stronger in the second half. On the B2B side, the EUR 1 million contribution proved resilient against the absence of major U.S. jackpots in the period. Moving to Slide #6. We have the key financial metric dashboard revenue moved from EUR 268.1 million in the first quarter to EUR 276.1 million in the second quarter with a pro forma 12-month figure of EUR 1.075 billion. Adjusted EBITDA was EUR 102 million at 37.4% margin in the first quarter and EUR 94.6 million, up 30.6% margin in the second quarter with a pro forma figure at EUR 399.9 million and a 37.2% margin. Operating cash flow was EUR 84.4 million in the first quarter and EUR 49.2 million in the second quarter with a pro forma figure of EUR 354 million. Second quarter figure includes the negative working capital movement of EUR 60 million, which is timing. Net CapEx was EUR 15.4 million in the first quarter and EUR 102 million in the second quarter, the step-up driven by the nonrecurring license fee for the Victoria monitoring license. Adjusted net debt stood at EUR 1.689 billion at the end of the second quarter against EUR 1.493 billion at the end of March with a pro forma adjusted net leverage ratio at 4x. As mentioned, this is temporary elevated with the largest reason being the payment of the EUR 85 million in the quarter for the 15-year monitoring license in Victoria, Australia. Last but not least, moving to Slide #7. We have the cash movement and the net debt evolution starting from the opening cash of EUR 242.2 million at the end of March. Normalized operating cash flow contributed EUR 59.4 million in this quarter against that CapEx of EUR 102 million working capital outflow of EUR 6 million, investing in M&A activities of EUR 26.9 million and treasury share purchases of EUR 3 million for the period. While the net interest amount paid in the second quarter was EUR 44.9 million, a positive FX impact of EUR 3.4 million and the RCF drawdown of EUR 65 million, brings us to the closing cash of EUR 177.1 million as of the end of June. Two points on that. First, net interest paid of EUR 44.9 million in the second quarter compared with EUR 23.7 million in the first quarter and simply reflects the elevated debt interest payment profile that falls in the second and in the fourth quarter. Second, on CapEx, the increase is driven by the nonrecurring EUR 85 million license fee for the 15-year monitoring license in Victoria, Australia, partially funded by the RCF drawdown. Still on this slide and turning to the net debt funded debt moved from EUR 1,692.1 billion at the end of parts to EUR 1.761.3 billion at the end of June, following 65 drawdown of the RCF and an adverse FX effect on our GBP-denominated term loan, adding lease liabilities of EUR 70 million and other debt items Total debt stood at EUR 1.812 billion, and unrestricted cash, as already mentioned, as of the 30th of June was EUR 177.1 million with restricted cash in DSRA account for the retail bond of EUR 15.2 million, giving us a total cash of EUR 192.3 million, with EUR 95 million undrawn on the revolving credit facility. Total liquidity was EUR 287.3 million. Adjusted net debt was EUR 1.6189 billion against EUR 1.4931 billion at the end of March. Against LTM pro forma adjusted EBITDA of EUR 399.9 million. That puts an adjusted leverage at 4x. The movement in the quarter in the quarter is driven by none which are the Victoria license, the working capital timing differences, investing in M&A activities and the share buyback program. And with these final remarks, the first half of 2026 financial results presentation is ended, and I now will now hand over to Chris for his remarks. .

Thank you, Andreas. Hello, everyone, from me, and thank you for attending our second quarter earnings call. I will give you briefly the lottery and B2B picture on the commercial side. The first half was one of the strongest periods of new contract activity. We announced a 15-year electronic gaming machine monitoring license in Victoria, Australia. The EUR 85 million investment under an groups we referred to and 15 years of contracted regulated cash flow. An up to 12-year contract with the state lottery of Chile and an extension a new contract with the lendings in Greece, running for up to another 12 years. And most notably, we were selected as the Lottery technology provider to OLG, the entire lottery for a 10-year contract. And that's a very important contract in a country that has increasing significance for our revenues. We are now serving -- we will be serving 2/3 of the Canadian market, combined with BCLC, where we've had, as you know, a very positive experience. We have a lag in our own numbers in the U.S. and in Turkey. We expect H2 to be much better. It traditionally is especially the fourth quarter. So we are having the U.S. seasonality and some market contraction in Turkey in the second quarter, which our teams have already worked on, and we are very optimistic about how the numbers will come in the end, and that gives sort of the upper end of the range we're giving in the updated guidance. We are also working very hard on the renewals of our contracts in Arkansas, New Homes and Idaho and all these this together rather expanded an increased CapEx profile for the year, which is totally within the bonders we were expecting according to our business plan. Also in the United States, we are pursuing certain very large contracts. And obviously, that takes up a lot of effort and investment in these billings, and that has impacted on the first half results. So with these comments, I will now hand back to Robeson. Thank you.

Thank you, Chris. Let me close with where I think this half leaves us. For a year, I've been asked a single question in different forms. What happens to this business when the U.K. doubles its tax rate? We now have a quarter of evidence, right, rather than a quarter of argument. Our U.K. growth accelerated. We mitigated approximately 2/3 of the impact immediately, and we know which levers to close the rest. Our interactive margin stayed above 35% through it, and our lottery business did exactly what a balance is meant to do and kept a stable and balanced. I said that it's a less competitive market would benefit operators with our scale and margin profile. One full quarter into the new regime, I'm more confident in that view than I was when it was still a forecast. And in the same month, Evoke shareholders voted almost unanimously to back the case for scaling our operating model. There is real work still to do before that transaction completes and we will do it properly and in the right order. But the direction sets and it sets on the back of performance rather than a promise. For me and for this business, growth is what matters most. We've not faltered in the market where faltering was most likely. That's the half. And now we'll open the floor for questions. Operator, please go ahead.

[Operator Instructions] The first question is from the line of Colin Mansfield with CBRE.

Maybe first, I just wanted to touch a little bit on capital allocation as you guys think about the dividend from a go-forward basis. I know the EUR 30 million dividend was approved and already getting paid out, I believe, in July, but you previously mentioned the potential for a pre-dividend based on first half '26 performance. And when you look at the levered free cash flow bridge that you provide, you compare it to where net income is trending year-to-date. It's two different stories, and I know the dividend policy, the recurring ones based off of a ratio net income, but just curious how you guys are thinking about the potential for that pre-dividend and maybe how we should think about the potential sizing of that and what we should be basing that off of?

Chris, do you want to take it?

Yes. Sure, Robeson. At this point, we are not ready to comment on the pre dividend. We promised that this will come after the first half results. But please give us some more time on that. But I would like to comment that we are also making share buybacks -- and that's another way to allocate capital. We made a large number of purchases directly around 23 million shares, about 1.23% of our share capital. We bought back and these are already treasury shares. And we also have TRS swap agreement with Deutsche Bank and weekly, we announced the purchases, which are happening at a steady base by Deutsche Bank in the period of months and what we consider a return to the shareholders as well.

Great. I appreciate the color. And then maybe just one follow-up on the cost side, seeing a pretty big pullback in the personnel expense line item for the B2C segment. You guys gave a lot of good color on sort of the cost optimizations that you're enacting as a result of some of the tax changes. But is this a good level we can kind of expect from a run rate perspective? Is there maybe some seasonality or normalization that we should expect in that line item? Or is this sort of a good sort of run rate to think about on that segment specifically.

From a Q2 perspective, we're probably at run rate. We did make some changes in Q1 that are still annualizing, but the Q2 level should give you an indication of where we expect the trend?

The next question is from the line of Alex Apostolidis with LGT.

Two questions for me, if I can ask them separately. The first one, just around the U.K. online business, obviously, growing very nicely in Q2. Can you give any sort of early commentary for the month of July and August? Is this trend continue?

Yes, I can answer. Yes, the trend is continuing. is the answer.