Lottomatica Group S.p.A. ($LTMC)

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining Lottomatica Group's First Quarter 2026 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Mirko Senesi, Head of IR at Lottomatica. Please go ahead, sir.

Thanks, operator, and good morning to everyone. Welcome to Lottomatica Q1 2026 Results Presentation. I'm here today with our CEO, Guglielmo Angelozzi; and our CFO, Laurence Van Lancker. Now the floor directly to Guglielmo for the presentation. Guglielmo, please.

Thanks, Mirko, and good morning, everybody. We can start with Page 2 of the presentation. Very happy to share with you another very good quarter. EBITDA continues to grow double digit on a normalized level and also revenues. And we have a positive 7% EBITDA also on a reported basis, notwithstanding the negative Sports payout in the quarter. This is on the back of a very strong market. As you can appreciate from the 2 graphs on the below part of the slide, Online has continued to grow mid-double digit in terms of bets and so Total Sports, meaning Online and retail. And at the same time, we've performed well in competitive terms, as you will appreciate in a few minutes. Let's go to Page #3. Well, this is the list of the main items that we think is relevant to comment for the quarter. As I said, the market has been strong. Tail operators have continued to lose market share, particularly in iGaming. No issue from prediction market, notwithstanding recent sponsorship. They continue to be legal. The product consumer mismatch continues to be strong. We don't believe there is any market space. And at the same time, sponsorship have basically no impact in enhancing local brands. Very good news on PWO market shares. iGaming, we've recovered half of the share that we lost through the migration. And we're a bit behind in terms of iSports, but this is explained by the market trend on overall Sports, meaning Online plus Franchise, which you know franchise has been particularly strong in the last few quarters, and so it is the case also for us. And so if you look at Total Sports, we have recovered to pre-migration levels at 9%, and we'll see more detail in a few minutes. There's been a refinancing done with the important raising more capital, more debt, EUR 765 million. EUR 400 million was a refi and additional capital for general corporate purposes, including buyback and bolt-on acquisition. The overall consequence of this is that we lower our cost of debt from 5.3% to 4.9%. Page #4, all that I have said leads to strong confidence on us being at the top end of the guidance for 2016 and also in being able to confirm our strong commitment on capital returns with up to EUR 1 billion to be returned to shareholders in '26 and '27, including dividends. So the key words are continued growth and continued returns to shareholders. Now let's go quickly page by page to see the items, the relevant items that I mentioned a couple of minutes ago. Market; strong market momentum. You see the details here. iGaming grows mid-double digit. iSports grows mid-double digit. And Sports Retail shy of that, of course, in terms of bet, because that's the only thing you can look at given the payout dynamic in the quarter. Page #6, you can appreciate the details of the tail operators' progression and our progression in terms of market share. This is on iGaming on the tail operators, you continue to see the sharp decrease trend starting from -- well, it was progressing throughout the year, and it was an overall trend, but it has accelerated starting from the new concession. From 2024, 4.4 points, which is roughly 25% of the total market share that this cluster had has been lost. We continue to grow market share. The 32.2% that you see there is including an additional bolt-on that we've made after Sportbet, we've done another deal with Bgame. So this is pro forma for that. So very good performance, both organically and with our deals that allow us to quicker consolidate, take advantage of the erosion of the tail. Page #7, I'd -- superfast, so as basically I just commented a few minutes ago on prediction markets, there's a bunch of data points here that you can look at and that show why this continues. This is not at all an issue for us. I think we can go directly to Page #8, which is the progression on PWO. We have separated from iGaming and Sports. iGaming, half of the market share, which had been lost due to the migration has been recovered, and there's a consistent path. So it's not really -- there's not really volatility in the progression. And Page #9 is the same trend for Sports. You can see in the graph. Sports as a total completely recovered. And then the detail and the breakdown between iSports and Sports Franchise. There is still room to go in iSports, but this has been compensated by a more than favorable trend on Sports Franchise. This is the consequence of the trend that we have observed at an overall level in the market and also, as it was mentioned before, by the fact that the -- actually, the retail recovery -- the retail transition, the retail recovery was structurally faster. But as you know, our GGR to profitability to EBITDA contribution from the 2 segments is pretty much about the same. So actually, this is very good news. Page #10, is basically a summary. We wanted to recap and make sure we were on the same page -- we're on the same page, and we fully appreciate the model, the business model of Lottomatica, the overall framework and setup. So, on one side, you have a very strong and resilient business model because of a bunch of reasons, including omnichannel, product tech, AI leverage, which results into top line growth, cost control and scalability and M&A -- demonstrated M&A and integration capabilities, and that's the core business part. Then we believe we have a very robust and steady capital structure. And as you've seen, we continue to optimize our financing costs, our balance sheet and through that, the financing costs. And we believe we have a smart capital allocation, meaning a good balance between organic growth compared to M&A and compared to direct shareholder remuneration. This results into growth and returns, which is the first page and the last page of this section of the presentation. And we wanted to do an interesting exercise, I believe. We took all European listed companies with market cap above EUR 5 billion. We went to filter those which have grown at least 10% with EBITDA, then those who have at least 30% EBITDA margin, then those who have at least 75% of cash flow conversion. So really cutting the parameters at the top end of the range. And then you are left -- and then those which have total shareholder returns of at least 100% in 2 years. And then you're left with 3 companies, which is, of course, less than 1% over the almost 400 companies that we started with. And that's basically the result of the model that you see on the left, growth and returns. So I leave the floor to Laurence.

Thank you, Guglielmo. On Page 12, you can see that on a normalized basis, our revenues are up plus 10% and EBITDA plus 22%. On a reported basis, despite the payout headwinds, revenues were up plus 3% and EBITDA plus 7%. Just as a reminder, we are comparing a Q1 '26 with a very unfavorable payout to a Q1 '25 with a very favorable payout. Lastly, I'd say our EBITDA margin has hit 39% due to the higher weight of Online in this quarter. Moving on to Page 13. Here again, we see on a normalized basis how we have continued to see good growth for both Online and Sports, still in double-digit territory. We are plus 17% for revenues Online, plus 11% for Sports Franchise and on an EBITDA level, plus 29% and plus 21%, respectively, for Online and Sports. Now when you look at it on a reported basis, you can see the impact of the payout affecting mainly the Sports franchise segment. Whilst despite the unfavorable payout, Online EBITDA has still grown by 18%. Gaming franchise is flat at a revenue level and slightly up, so plus 4% in Q1, partly due to bolt-ons and distribution in-sourcing and also some timing of costs, which we will reverse throughout -- during the course of the year. Page 14; on the left-hand side, you can see the total CapEx, including recurring and concession amounted to EUR 39 million, of which EUR 25 million is recurring, slightly higher than the previous year and the EUR 14 million concession CapEx in line with previous year. On the right-hand side, you can see that operating cash flow reached EUR 196 million, so up plus 6% from last year. And this growth number, if we had normalized both '26 and '25, Q1 for payout would have been plus 25%. Page 15. We closed the quarter here with a net financial leverage of 2.3 turns and the cash of EUR 119 million. So looking at the bridge from the net debt as at the 31st of December '25, you have EBITDA, then a negative working capital absorption in Q1, reflecting the typical seasonality of the business, CapEx, financial expenses and leases, and then we acquired EUR 56 million worth of stock in Q1. Then other, which also include extraordinary items in relation to the closure of our Serbian branch, which leads us to a net debt of EUR 2.052 billion in -- on the 31st of March 2026, equivalent to a net leverage, as I said earlier, of 2.3 turns. And that's it on our side.

Thank you, operator. I think we can open up for the questions.

[Operator Instructions] The first question is from Ben Shelley with UBS.

I've got 2, please. First, I hear you on the opening remarks, but could you expand a bit more on EBITDA margins in the quarter, specifically Online EBITDA margins? Any color on the drivers there would be much appreciated. And then my second question on Online bet growth of 15%. Could you talk about exactly what's behind that, particularly in iSports, where I don't think we've seen double-digit volume growth for some time?

Sure. Listen, on the EBITDA margin in Online, it's 57.5% this quarter. Q1 has been a good quarter in terms of volumes. So that is one factor that contributes to the favorable margins. And also, we are seeing the full impact now of the synergies Q1 '26 versus Q1 '25 of the synergies that we've realized in -- for PWO. So these are the main drivers. So in terms of bet growth in iSports, we have seen -- first of all, we're also comparing 2 periods with different payouts. Q1 was very favorable to us and this Q1 '26 was very unfavorable to us. So there is some payout dynamic also that impacts the bet growth. But I would say that we have seen this continued growth since the beginning of the year. And there's no real other reason than some of the payout dynamics, but we continue to see -- continue to believe that this segment in aggregate will continue to grow at a -- in the midterm at around 8%.

The next question comes from Estelle Weingrod with JPMorgan.

Just again on the Online margins, you mentioned in the past the level in the mid-50s would make sense longer term. Is it still the case? Or should we be looking at something a bit higher, high 50s or something? And I have another question on the PWO market share evolution. May I ask why is iSports lagging the Sports Franchise in terms of the recovery versus pre-migration level, please?

I can take both. So, on the Online margin, we have had 1 quarter of good margins. I would still say that we're in the mid-50s. Maybe in the midterm, we're a bit at the high end of the mid-50s. So we have scope definitely to potentially make -- do a little bit better than that. But anyway, let's see how things progress also over the course of the year. On the PWO and the market share, Planet is one of the -- our most omnichannel brands of the whole portfolio. And as you know, the shift between online and retail is much more -- between channels is much more permeable. And therefore, the demand has moved in the past few quarters more on the retail side than on the online side. I'd say, but it happens in -- particularly in omnichannel, especially for highly omnichannel brands. We've continued to see this as well at the beginning of this year, where retail was very, very strong and online was doing well, but not as well as retail. We might see a reversal of this going forward. We'll see. But just as a reminder, as you already know, Estelle, it doesn't really matter to us from a profitability standpoint because when GGR moves from retail to online and vice versa, the contribution margin is very, very similar. So we're quite indifferent to this shift.

The next question comes from Fabio Pavan with Mediobanca.

I have one on the -- on your decision to update the full year guidance given your prudent approach, I think this is probably best news we have today. I was wondering if this is mainly driven by stronger-than-expected market dynamics or higher increase in market share, better margins or a mix of these 3 elements.

Thanks, Fabio. It's really a combination of all these factors. I'd say that volumes have been extremely strong in this first quarter, and we're seeing a continued growth after that. And that gave us -- it's definitely one of the elements that gave us confidence to put us at the high end of the guidance. The other element more on the cost side is, we see some of -- some impact also from the closure of the Serbian branch, which has moved -- which has contributed from a cost standpoint to increase the range of the -- increase the -- position ourselves at the high end of the guidance. I think the -- I think these are the main drivers. But I would say that probably the one of the determining factors has been this very strong market growth.

The next question is from Clark Lampen with BTIG.

I have 2 quick ones, if I may. On the Online margin trajectory over the balance of the year, just curious if you could share any perspective around the phasing and I guess, sort of time line for margin improvement over the balance of the year? Just curious if there are either comparison headwinds that we should be aware of in the '25 time frame or any lumpiness on the network side or with fixed costs this year, maybe beyond, I guess, what you just mentioned with Serbia. And then another, I guess, sort of clarification with volume growth over the balance of the year. I think if I heard you right before, Laurence, in the first answer, you mentioned that we should think about 8% over the balance of the year. Is that the right way of thinking about the embedded growth assumptions for the Online business? And if so, is there anything meaningful factored in, in either 2Q or 3Q for World Cup tailwinds?

Clark, so on the Online margin, if you look at the evolution over the quarters, obviously, assuming that all else being equal, the Q1 and Q4 are the strongest quarters of the year. And Q2, Q3 tend to be the, let's say, the weakest quarters of the year. So you have a seasonality dimension there to take into account. The second thing I'd say is that because in Q1, you were comparing Q1 '26, where you have the full run rate effect of the synergies with a Q1 '25, where we were still in the process of implementing synergies, there's an element there that has -- that compares favorably when you look at the -- when you compare the 2 quarters. In terms of volume growth, 8% is our sort of midterm view of the overall Sports segment, including retail and Online. And we'll -- this year, obviously, we have our projections, which is what is ultimately reflected in the guidance, but we do have some tailwind from the World Cup that helps as well.

The next question is from Domenico Ghilotti of Equita.

Two questions. One is on the synergies. I was trying to understand if we have to assume that the Q1 is at full run rate because you are mentioning the Serbian branch closure. So I'm trying to understand if it was already driving results in Q1 or something that will be left and in case how much we can expect from this action? And second, on the current trading, you made reference to a very supportive trend also beyond Q1. I haven't seen data so far. So if you can share a little bit what's going on.

Yes. On the Serbian part, I'd say that it already reflects -- it's all run rated. I would just assume that it's already run rated in Q1. And for the second question, for the -- we have to wait for Agimeg data that comes out. But I would not -- there's nothing surprising in the information. I think we continue to see very, very solid volume growth throughout April and very encouraging results already in May.

The next question comes from Pravin Gondhale with Barclays.

Firstly, can you chat about the Gaming Franchisee EBITDA margin drivers this year? I mean EBITDA margins were really strong in Q1 this year. What are your sort of outlook for rest of the year from here? And then secondly, any update on retail transition tender you have to share?

I'll take the first one. So on the Gaming Franchise, it's due to 2 impacts. One is the impact of the distribution and sourcing that improves our margins. As you know, we've been -- we've continued to carry out that activity throughout '25 and in early '26. So you see the benefit of that. But there's also an element of timing of costs when you budget for the year, some costs may move between quarters and this quarter has been a bit lighter on costs. So you should assume that on the margin level, we continue to see at margin levels between 23% and 24%.

Yes. Pravin, I'll take the one on the retail concession. No updates compared to last time. As you know, there is a very solid framework, which has been prepared by the regulator. And -- but it's very hard to say what's going to be the -- if it's going to be approved and when it's going to be approved as you need the agreement with the regions in the end. But I think there is -- everybody is highly committed to that, but very hard to make a forecast. What we can say is basically 2 things. It's very robust, balanced and constructive framework, as you all know. And second point, you'll need in any case, time to implement that and to execute upon that because really, it's a complicated process, so it takes time. But the framework is there and it's very good.

The next question comes from Chiara Pampurini with Intermonte.

I got a question about bolt-on acquisition. You said the proceeds of new bond issued are also for bolt-on M&A. So my question is. if you have set some targets, are you seeing some targets other than Bgame? And about Bgame, if you can share with us the market share gain you expect from this acquisition? And if the operation was similar to that of Sportbet or another structure?

Yes. I mean when we talk about bolt-ons, we have an active pipeline that we continue to work on across the different segments. So we look at Gaming Franchise, Sports Franchise as well as Online. We -- so that has not changed in the sense that, as you can imagine, we won't have capacity to buy more than EUR 350 million of bolt-ons. It's -- we're talking about tens of millions that we can actually implement in maintaining price discipline. So, we -- this is basically in continuity with the bolt-on activity that we've been carrying out for the last -- over the last 2 to 3 -- the last few years, sorry. With regards to Bgame, so it's around 0.7% of market share.

The next question is from Andrea Bonfa of Banca Akros.

I got just one clarification on your EBITDA guidance. Does it implicitly assume that in order to reach the top part of the EBITDA that you count on a payout, which will be lower than you've been budgeting for in order to compensate the Q1 negative payout? Or are you counting more on the mix side or on some lower cost side?

Listen, it's a combination of both really. We -- I would say, we have faster top line growth that puts us at the high end of the guidance as we said earlier and also some better cost efficiencies as well as we're reaping some of the benefits of some operating leverage as well.

The next question is from Richard Stuber of Deutsche Bank.

Just 2 for me. First, just a clarification again on your guidance. I think you've guided to the top of the EBITDA range of EUR 940 million to EUR 980 million. Is it fair to assume that you're also guiding to the top end of your revenue range as well, the EUR 2,390 million to EUR 2,460 million? And my second question is on the share buyback. I think you did EUR 56 million in the first quarter. So you're guiding towards about EUR 700 million over the next 2 years. Could you give us some sort of guidance in terms of how quickly that will ramp up? Any sort of guidance in terms of what sort of buyback you expect to do in the next few quarters?

Sure. Listen, on -- we're comfortable on the EBITDA guidance at the high end. On the revenue side, we'll see. It depends on ultimately where we'll end up because at an EBITDA, you have the confluence of both revenue growth as well as operating leverage and cost efficiencies. So for now, we just maintain the high end of EBITDA guidance and not of revenue guidance. And for the buyback, we will do a bit less than -- we'll do less than half this year and more than half next year.

The next question is from Andrew Tam with Rothschild & Co Redburn.

You included Sportbet and Bgame in your market share statistics. Can I just clarify whether those are fully consolidated into your revenue and EBITDA? And if not, if you did fully consolidate that, what that would add to your revenue and EBITDA growth?

Sure. So we consolidate them in the market share. We don't -- we will start consolidating them at some point. But it's -- for now, they're not in. I would say that if you look at the impact that it has on our EBITDA growth, it's -- at this point, I would say it's not material.

Okay. Operator, I think we are done with the questions, so we can close the call.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.