Published: November 10, 2021

Pollard Banknote Reports 3rd Quarter Financial Results


WINNIPEG, MBNov. 10, 2021 /PRNewswire/ - Pollard Banknote Limited (TSX: PBL) ("Pollard") today released its financial results for the three and nine months ended September 30, 2021.

Results and Highlights for the Third Quarter ended September 30, 2021

  • Sales attained $116.9 million, similar to $116.7 million achieved in the 3rd quarter last year. Combined sales(1) in the quarter, including our share of our NeoPollard Interactive ("NPi") joint venture's sales, attained $126.7 million, up 5.8% from $119.8 million in 2020
  • Income from operations was $4.4 million, compared to $16.7 million in the third quarter last year primarily due to a number of unusual factors:
    • Included in the Q3 2021 results is a $4.9 million expense related to the increase in expected contingent consideration relating to the earnout for our acquisition of Compliant Gaming, due to continued success of that operation
    • Canadian Emergency Wage Subsidy ("CEWS") declined from $2.1 million in Q3 2020 to $0.7 million in 2021
    • Q3 2020 income from operations reflected the contribution of a very large licensed product sale which was not replicated in 2021
    • Our average selling price for instant tickets was approximately 6% lower in 2021 compared to 2020 due to the customer mix in the quarter and timing delays for some of our higher value production, which was pushed into the first part of the fourth quarter
  • Combined sales(1) from our share of iLottery operations for Q3 increased to $15.7 million from $12.6 million in Q3 2020. Combined iLottery margin(1) decreased from $6.2 million last year to $4.6 million in Q3 2021 primarily due to a shift in sales to lower margin gaming verticals
  • Adjusted EBITDA(1) reached $19.4 million, compared to $24.5 million in the same quarter in 2020
  • Core instant ticket business remained strong, driven by continuing high sales of instant tickets at retail, particularly in North America, generating higher order volumes for Pollard
  • Charitable gaming revenue continued to reflect very strong consumer demand, exceeding pre-COVID-19 levels for the second quarter in a row
  • Our largest market for Diamond Game eGaming machines, Ontario, re-opened its retail bingo halls allowing our machines to generate revenue for the first time in 2021

(1)      See Non-GAAP financial measures for explanation

"Pollard Banknote's third quarter results reflect the ongoing investment and growth in a number of our business lines and, despite some non-routine negative impacts on our financial numbers, we continue to be satisfied with the progress all of our businesses have achieved," stated John Pollard, Co-Chief Executive Officer.  "The lottery market for instant tickets continues to see strong levels of retail sales especially in the United States and shows no signs of returning to the lower levels seen prior to COVID-19."

"A number of unusual transactions impacted negatively the Q3 2021 results compared with those of last year.  Our Compliant Gaming business has performed at record levels throughout 2021 including the most recent three months and, as a result, we have increased our contingent consideration accrual relating to the earnout provision in the acquisition by $4.9 million.  Our accounting rules require this increased liability to be expensed in the income statement, reducing our income from operations, net income and earnings per share accordingly.  Increasing the earnout liability of course is a very positive reflection of the strong results generated by Compliant since our acquisition."

"The third quarter of 2020 also reflected a very large sale in our licensed products operation which was not replicated in 2021.  Sales of this nature are very lumpy and result in some variability in our earnings trend. Changes in the value of the Canadian dollar resulted in an unrealized foreign exchange loss of $2.2 million in the third quarter related to our U.S. dollar debt, compared to an unrealized foreign exchange gain of $2.8 million record in the comparable period last year, generating a $5.0 million negative swing on our third quarter income before income taxes."

"In addition to the above matters, despite a strong level of orders for our instant tickets, our volumes were negatively impacted by a number of factors: 

  • Our production processes were impacted somewhat by delays in the supply chains for certain inputs, which resulted in scheduling inefficiencies and some production delays
  • Similar to the timing of supply inputs, transportation of our finished goods to lotteries has also been hit with both delays, and increased costs, due to the worldwide transportation backlogs, which is delaying some revenue recognition
  • Increased difficulty in recruiting new staff, common to many companies currently, has hampered our ability to increase production volumes
  • During the quarter we incurred some instant ticket production inefficiencies which negatively impacted our margins"

"Our operations in certain of our digital and lottery management areas including mkodo and Next Generation Lotteries ("NGL") generated lower than expected results during the third quarter of 2021.  NGL traditionally generates significantly higher sales and contribution in the fourth quarter and we also anticipate new projects to commence in the fourth quarter for mkodo." 

"iLottery reached a combined level of revenue among all of our iLottery operations of $15.7 million, up approximately 25% from the same period last year, as revenue from some of our newer lotteries continued to increase.  Our margin contribution from the third quarter was lower than the comparable period last year due to lower sales in Michigan and the impact of increased sales of lower margin gaming verticals."

"Our charitable gaming and Diamond Game operations continued the trend of very high consumer demand for all of our products: pull-tabs, bingo and eGaming machines.  Capacity limits in the production of our paper-based products remain a challenge in trying to meet these demands and we continue to focus on increasing our production through accelerated hiring and expanding machine capacity, with improved results in these areas starting to come to fruition."

"At the beginning of the third quarter, the province of Ontario allowed the re-opening of various retail sites including bingo halls which house our Diamond Game eGaming machines.  This market is the largest single jurisdiction hosting our eGaming machines and while not quite back to pre-COVID levels of operation, its return has made a very significant positive impact to our operations."

"We are very excited to see all of our products and services generating significant engagement with lotteries and the retail consumers around the world," commented Doug Pollard, Co-Chief Executive Officer.  "Our focused strategy of being the partner of choice for the lottery and charitable gaming industry allows us to provide solutions across the spectrum of needs and opportunities for these important organizations."

"While our third quarter financial results were negatively impacted by a number of unusual items, the longer term positive trends of all of our product offerings is very evident and we remain very excited about both the short and long-term expectations for our organization," concluded John Pollard.  "Indeed, we expect a number of the issues discussed today to lead to much stronger financial results in the fourth quarter and continue to generate positive results throughout 2022. We are very thankful for our entire team's dedication and hard work throughout this past quarter and look forward to continued success in the future."

Use of Non-GAAP Financial Measures

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 severance costs, acquisition costs, litigation settlement costs and contingent consideration fair value adjustments.  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 NeoPollard Interactive LLC's ("NPi") 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 services 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.

On December 30, 2020, Pollard signed and closed a definitive agreement to purchase 100% of the equity of Compliant Gaming, LLC ("Compliant") for a purchase price of $19.0 million U.S. dollars ($24.3 million) prior to standard working capital adjustments and potential future earn-out payments based on certain EBITDA targets. Compliant is a leading provider of electronic pull-tab gaming systems and products to the charitable gaming market.

On January 14, 2021, Pollard completed the acquisition of Next Generation Lotteries AS ("NGL"). On December 31, 2020, Pollard signed a definitive agreement to acquire 100% of the equity of NGL for a purchase price of €36.0 million ($56.5 million), prior to standard working capital adjustments and certain deferred cash considerations, of which €32.0 million ($50.2 million) was paid at the time of closing and the remaining €4.0 million ($6.3 million) will be paid upon the achievement of certain gross margin targets in 2021. The purchase price was funded from existing Pollard cash resources and availability under our existing senior credit facilities for approximately €27.4 million ($43.0 million) and the issuance of treasury shares of Pollard for approximately €4.6 million ($7.2 million).

On February 9, 2021, Pollard announced that it had entered into an agreement with a syndicate of underwriters to purchase, on a bought deal basis, 812,000 common shares of Pollard at a price of $36.95 per share. Pollard also granted the underwriters an over-allotment option exercisable at any time up to 30 days following the closing of the offering, to purchase up to an additional 121,800 common shares. The offering, including the full over-allotment, closed on March 2, 2021.  The total gross proceeds, prior to any commissions and offering expenses, from the sale of 933,800 common shares was approximately $34.5 million. Pollard used the net proceeds to repay indebtedness under Pollard's credit facility incurred in the acquisitions of Compliant and NGL.

The selected financial and operating information has been derived from, and should be read in conjunction with, the unaudited condensed consolidated interim financial statements of Pollard as at and for the three and nine months ended September 30, 2021.  These financial statements have been prepared in accordance with the International Financial Accounting Standards ("IFRS" or "GAAP").

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