Published: November 9, 2022



WINNIPEG, Manitoba, November 9, 2022 /CNW/ - Pollard Banknote Limited (TSX: PBL) (“Pollard”) today released its financial results for the three and nine months ended September 30, 2022.
Results and Highlights for the Third Quarter ended September 30, 2022

 Sales reached $125.5 million, a quarterly record, up 7.4% from the third quarter of 2021
 Combined sales(1) in the quarter, including our share of our NeoPollard Interactive LLC (“NPi”) joint venture’s sales, reached $139.2 million, up 9.9% from the $126.7 million achieved in 2021
 Income from operations was $6.7 million, compared to $4.4 million in the third quarter of 2021
 Adjusted EBITDA(1) achieved in the third quarter of 2022 of $20.2 million, increased from $19.4 million in the third quarter of 2021
 iLottery operations continued to demonstrate strong organic growth and the impact of a large Mega Millions® jackpot resulting in record quarterly earnings of$8.2 million
 Charitable gaming and eGaming systems businesses continue to benefit from strong demand, providing a very positive impact on revenues and earnings
 Our instant ticket production volumes increased from the second quarter, with production volumes achieving a quarterly record
 Retail dollar sales of instant tickets remain at the high levels achieved in 2021 and earlier in 2022
 Ongoing inflationary cost increases on our key instant ticket inputs (paper, ink and freight) continue to place negative pressure on our margins
 Our instant ticket average selling price was higher in the third quarter due to a greater mix of higher value and option work for the holiday season
 We continue to pursue our strategy of increasing selling prices on contract extensions and RFP’s to help mitigate inflationary cost increases and, ultimately over time, the success of this strategy will help our instant ticket margins return to the levels achieved in prior years

(1) See Non-GAAP measures for explanation

“Our third quarter results generated improved numbers compared to the third quarter of 2021 and the previous quarters of 2022, due to strong demand across all of our main product categories,” stated John Pollard, Co-Chief Executive Officer. “Charitable gaming, both printed products and eGaming systems, continues to generate higher revenue and earnings, addressing the significant consumer demand for our product offerings.”

“Our instant ticket business attained a quarterly production volume record. This was a nice return to more efficient production following some challenges in the second quarter, which negatively impacted production. Fewer mechanical issues and, while still a challenge, our ability to staff and maintain full operations throughout our production facilities improved in the third quarter.”
“Notwithstanding the positive demand for our instant ticket products, the inflationary increases in prices of key inputs such as paper, ink and freight, which began in the later part of 2021, continued to put significant negative pressure on our margins throughout the third quarter. Previously announced supplier price increases on our inputs came into effect in the third quarter, with additional, albeit smaller, price increases still to come in the fourth quarter. As we disclosed in previous quarters, our instant ticket contracts average around 4 years in length, with primarily fixed prices for the entirety of the term. As such, it is very difficult to pass on input cost increases in the short term.”

“One of our key strategies to offset these significant inflationary input cost increases is through raising our selling prices during contract extensions and RFP’s as they come up for bid. While still early in the process, we have had a number of successes retaining work at higher pricing in new bid situations, reflective of the input cost increases we have to absorb. Indications within the marketplace so far appear to confirm the industry recognizes the need to adjust pricing and we believe this will continue.”

“Most new contracts are awarded in advance of the end of the existing contract’s term and come into effect sometime in the future. Therefore, most of the price changes we have already negotiated will be implemented throughout 2023. However, ultimately, these higher prices will allow us to improve our margins on our instant ticket business. We also continue to diligently review our customer profiles to identify opportunities to focus our efforts on more profitable clients, which may result in lower volumes as we reduce sales to lower margin clients.”

“Our iLottery operations grew both revenue and earnings, driven in part by ongoing organic growth experienced over the past few quarters, plus the impact of a large U.S. draw-based jackpot in July, which drove higher sales and increased the number of new customers on our U.S. platforms. Our iLottery operations generated earnings of $8.2 million in the third quarter, which was a new quarterly record. While the jackpot spike certainly helped this terrific achievement, the ongoing sales strength retained after the large jackpot was won is testament to the growth we are seeing in this business segment.”

“Our charitable gaming operations, including both paper-based products and eGaming systems, continue to turn out tremendous results,” noted Doug Pollard, Co-Chief Executive Officer. “The charitable gaming industry is becoming increasingly focused on innovative products to address consumer demand in conjunction with raising funds for important good causes. The growth of our eGaming systems, which make gaming in social settings such as bars and fraternal organizations available, is a great example of working in partnership with charities to help them achieve their fundraising goals.”

“One of our new instant ticket in-lane retailing innovations debuted recently in Arizona, allowing the lottery to enable consumers to purchase their instant tickets while in-lane in large multi-lane retail environments, rather than using a separate vending machine or having to go to a dedicated kiosk. This new distribution method is a significant development in expanding the retailing of instant tickets and our focus on innovation. We are very confident in its future success.”
“The fundamentals of all of our business lines remain very strong,” concluded John Pollard, “and we are confident that our higher pricing strategy for instant tickets will, over time, allow us to increase our margins back to historic levels. We believe our charitable gaming operations will continue their market leadership and generate excellent results, and the large investments we are making in the digital areas are laying the foundation for further growth, in partnership with our lottery and charitable gaming customers.”

Use of GAAP and Non-GAAP Financial Measures
The selected financial and operating information has been derived from, and should be read in conjunction with, the unaudited condensed consolidated financial statements of Pollard as at and for the three and nine months ended September 30, 2022. These financial statements have been prepared in accordance with the International Financial Accounting Standards (“IFRS” or “GAAP”).
Reference to “EBITDA” is to earnings before interest, income taxes, depreciation, amortization and purchase accounting amortization. Reference to “Adjusted EBITDA” is to EBITDA before unrealized foreign exchange gains and losses, and certain non-recurring items including acquisition costs, litigation settlement costs, contingent consideration fair value adjustments and insurance proceeds (net). Adjusted EBITDA is an important metric used by many investors to compare issuers on the basis of the ability to generate cash from operations and management believes that, in addition to net income, Adjusted EBITDA is a useful supplementary measure.

Reference to “Combined sales” is to sales recognized under GAAP plus Pollard’s 50% proportionate share of NeoPollard Interactive LLC’s (“NPi”) sales, its iLottery joint venture operation. Reference to “Combined iLottery sales” is to sales recognized under GAAP for Pollard’s 50% proportionate share of its Michigan Lottery joint iLottery operation plus Pollard’s 50% proportionate share of NPi’ s sales, its iLottery joint venture operation.

EBITDA, Adjusted EBITDA, Combined sales and Combined iLottery sales are measures not recognized under GAAP and do not have a standardized meaning prescribed by GAAP. Therefore, these measures may not be comparable to similar measures presented by other entities. Investors are cautioned that EBITDA, Adjusted EBITDA, Combined sales and Combined iLottery sales should not be construed as alternatives to net income or sales as determined in accordance with GAAP as an indicator of Pollard’s performance or to cash flows from operating, investing and financing activities as measures of liquidity and cash flows.

Forward-Looking Statements
Certain statements in this report may constitute “forward-looking” statements which involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. When used in this document, such statements include such words as “may,” “will,” “expect,” “believe,” “plan” and other similar terminology. These statements reflect management’s current expectations regarding future events and operating performance and speak only as of the date of this document. There should not be an expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.

Pollard is one of the leading providers of products and solutions to lottery and charitable gaming industries throughout the world. Management believes Pollard is the largest provider of instant tickets based in Canada and the second largest producer of instant tickets in the world. In addition, management believes Pollard is also the second largest bingo paper and pull-tab supplier to the charitable gaming industry in North America and, through its 50% joint venture, the largest supplier of iLottery solutions to the U.S. lottery market. 




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