Published: March 12, 2023

Pollard Banknote Limited hits new heights as revenue climbs to CAD$482.3m ...

Pollard Banknote Reports 4th Quarter and Annual Financial Results

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WINNIPEG, MBMarch 7, 2023 /PRNewswire/ - Pollard Banknote Limited (TSX: PBL) ("Pollard") today released its financial results for the three months and year ended December 31, 2022.

Results and Highlights for the Fourth Quarter ended December 31, 2022

  • Revenue reached a new fourth quarter record, $126.9 million, up 8.9% from the previous record last year.
  • Combined sales(1) in the quarter, including our share of our NeoPollard Interactive LLC ("NPi") joint venture sales, reached $144.6 million, up 13.9% from the $127.0 million in 2021.
  • Income from operations was $9.4 million, compared to $4.7 million in the fourth quarter of 2021.
  • Adjusted EBITDA(1) of $22.4 million increased from $18.7 million in the fourth quarter of 2021.
  • Our iLottery operations continued to show significant growth in the fourth quarter, attaining record combined income before income taxes of $11.6 million, over 40% higher than the previous quarterly record in the third quarter of 2022.
  • Our charitable gaming and eGaming systems businesses continued to see unprecedented demand for their products, achieving record revenue and earnings.
  • Our instant ticket margins remain significantly negatively impacted by the large inflationary price increases on all of our major ticket inputs including paper, ink, packaging and freight.
  • We continue to see ongoing success in our strategy of repricing our instant ticket customer contracts when up for rebid to recover the inflationary input cost increases.

Results and Highlights for 2022

  • Established a new record for revenue at $482.3 million, up 5.1% from last year.
  • Combined sales(1) in the year, including our share of NPi's joint venture sales, attained $537.4 million, up 7.7% from the $499.2 million in 2021.
  • Net income was $19.3 million, a decrease of $0.4 million from $19.7 million or 2% compared to 2021.
  • Adjusted EBITDA(1) achieved $80.5 million$3.5 million or 4.2% lower than the previous year.
  • Cash flow from operating activities before change in non-cash working capital generated $45.8 million during the year, similar to 2021.
  • Instant ticket margins were significantly compressed during the year as a result of unprecedented inflationary cost increases on raw materials and other manufacturing inputs.
  • We have successfully repriced a number of important instant ticket customer contracts during 2022 to recover the higher input costs as part of contracts that have come up for rebid.
  • Charitable gaming, including our eGaming operations, attained record revenue levels and very strong profitability due to high customer demand and expanded capacity.
  • Our existing iLottery operations generated very strong results, contributing $33.2 million in combined income before income taxes to our 2022 results.
  • Continued significant investments in the development of our iLottery platform and game content offerings positively situate us to take advantage of future iLottery opportunities.

(1)  See Non-GAAP measures for explanation 


"Our 2022 financial results reflect very strong sales and profits in almost all of our product offerings," stated John Pollard, Co-Chief Executive Officer, Pollard Banknote, "particularly charitable gaming, eGaming systems and iLottery. However, this was offset by major challenges in our instant ticket business. Nevertheless, we still achieved record sales and strong income from operations, and Adjusted EBITDA was only moderately reduced from 2021. Our 2022 combined sales exceeded $537 million, a strong reflection of both the breadth of our product and solution offerings as well as their demand.  Underlying all of these successes is our vision of continuing to help our lottery and charitable gaming partners grow and generate funds for good causes." 

"Consumer demand remained very strong in most of our lines of business throughout 2022. Charitable gaming continued to see exceptional demand for all paper products including pull-tabs and bingo paper, with revenue increasing 21% over 2021 and over 50% compared to 2020, now far exceeding our pre-pandemic revenue. The market absorbed higher selling prices to offset inflationary cost increases in our manufacturing inputs for charitable gaming, and we are focused on increasing our available capacity to address the continued growing demand."

"Similarly, charities continue to embrace electronic and digital forms of gaming, which has generated significant demand for both kiosk and tablet-based options in retail establishments, resulting in our eGaming revenue more than doubling since 2020."

"iLottery sales reached record levels, driven by significant organic growth in our Virginia and Alberta contracts, and a number of large jackpot runs in draw-based games including POWERBALL® and Mega Millions®, which drove higher traffic and revenue on our U.S.-based sites. The combined results of our Michigan joint operation, whose results are proportionately consolidated into the overall Pollard results on a line by line basis, and our NPi joint venture contributed $33.2 million to our income before income taxes in 2022, up from $22.9 million in 2021."

"Our instant ticket business was faced with unprecedented challenges due to the very large inflationary cost increases instituted for our raw materials, paper and ink, and other manufacturing inputs such as packaging and freight. These cost increases began at the start of the year with further additional increases introduced throughout 2022. Significant double-digit cost increases on many items in the 30-50% range occurred across our industry due in part to unprecedented demand for these inputs which also feed other industries such as consumer retail goods packaging. Our instant ticket customer contracts are primarily long term with fixed pricing. As such, in the short term we were unable to pass on these significant cost increases and our instant ticket margins underwent a very negative reduction. These input cost increases were introduced throughout the year, resulting in the negative impact on profits worsening as the year progressed."

"Our strategy to offset these higher costs and return to historical margins is to reprice our customer contracts with selling prices reflective of this new cost structure with every rebid or new RFP opportunity. Throughout the course of 2022, we were pleased to see lotteries and the market continue to accept these higher prices, recognizing the squeeze all instant ticket suppliers are currently faced with."

"We have been successful in repricing a number of very important contracts in 2022. However, the start dates of these new contracts are generally not until later, some at the beginning of 2023 and some later throughout the year. As such, 2022 has not benefited much from these new selling prices, however we should start to see the positive impact during the latter part of 2023 and into 2024. Additional repricing is expected to continue to occur through 2023 on new rebid opportunities."

"As we look into 2023 we do not see any additional new large increases in the costs of our inputs, nor have we seen any indications that costs are set to come down or return to pre-2022 levels. We are hopeful that this might ultimately be the case, as demand in other parts of the economy perhaps slows in 2023."

"Our Adjusted EBITDA exceeded $80 million, a very good result given the headwinds experienced in our instant ticket business. Our strategy of having a very broad product portfolio including charitable gaming, eGaming systems and iLottery to help maximize our operating results has proven to be very beneficial during 2022 and as we move into 2023."

"Pollard continued to produce very strong cash flow again this year, demonstrating the strength of our business model. Pollard has now generated over $163.6 million from operating activities prior to change in non-cash working capital over the past three years, allowing us to maintain a high level of investment in our business while maintaining a very low debt leverage capital structure."

"Our fourth quarter results reflected a number of the themes impacting our 2022 full year results," remarked Doug Pollard, Co-Chief Executive Officer, "with strong demand for our products and solutions generating increased revenue and earnings, however the impact of inflationary cost increases severely impacted our instant ticket margins. In addition, our mix of instant ticket production during the fourth quarter contained a larger mix of lower value work, resulting in lower margins. Consumer demand for iLottery, charitable gaming and eGaming products remained very strong and higher earnings in this area helped offset the loss of margin in instant tickets."

"Retail dollar sales of instant tickets during 2022 were slightly lower when compared to the record levels achieved in 2021, when retail sales had grown in the 30% range over 2020 and 2021. However, we have seen retail dollar sales on instant tickets return to positive year over year growth during the first two months of 2023. The retail sale of instant tickets has continued to show its resilience throughout this most recent economic uncertainty."

"Although no new iLottery jurisdictions were initiated in the United States during 2022, interests from and discussions with lotteries continue to be very active and we believe there are a number of jurisdictions that will develop into concrete opportunities. We remain very confident in the future of iLottery, both in the United States and internationally."

"We continued with the integration work of our two most recent acquisitions, Compliant Gaming LLC and Next Generation Lotteries AS, and we are very pleased with the results so far. Compliant's operations have been seamlessly merged with our charitable gaming and eGaming businesses, and this operation has significantly exceeded our expectations. The key assets from Next Generation Lotteries AS have laid the foundation for a state-of-the-art iLottery platform and exciting game library. We will continue to look for new acquisition opportunities to support our growth and assist our lottery and charitable gaming customers to expand their operations with particular focus on technology, including successful gaming content."

"While 2022 saw significant headwinds impact our instant ticket business, the strong results of our other lines of business helped mitigate the negative pressure on our instant ticket margins," concluded John Pollard, "and underlines the success of our strategy of expanding our product portfolio to address all needs of our lottery and charitable gaming customers. Overall demand for all our products and solutions remained at or near record levels and we anticipate this to continue."

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 audited consolidated financial statements of Pollard as at and for the year ended December 31, 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 BANKNOTE LIMITED

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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