Mr. John Pollard reports

POLLARD BANKNOTE REPORTS 3RD QUARTER FINANCIAL RESULTS

Pollard Banknote Ltd. today released its financial results for the three and nine months ended Sept. 30, 2023.

Results and highlights for the third quarter ended Sept. 30, 2023

• Quarterly revenue reached $128.7-million, up 2.5 per cent from the $125.5-million achieved in the same period last year.
• Combined sales in the quarter, including the company's share of its NeoPollard Interactive LLC (NPi) joint venture sales, reached a record $150.2-million, up 7.9 per cent from $139.2-million in 2022.
• Income from operations was $14.6-million, compared with $6.7-million in the third quarter of 2022.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $24.8-million, 22.8 per cent higher than the $20.2-million in the third quarter of 2022 and a quarterly record.
• Income before income taxes in the third quarter was $9.3-million, up from nil in the third quarter of 2022.
• The company's i-lottery operations generated record combined income before income taxes of $14.3-million, higher than the results achieved in the first and second quarters of 2023, and up significantly from the $8.2-million earned in the same period of last year.
• Subsequent to quarter-end, the company's industry leading NPi joint venture was awarded its fifth United States (and sixth overall) i-lottery platform contract by the West Virginia Lottery. The company anticipates going live in the latter part of 2024.

"Our strong third quarter results reinforce the value of our strategy focusing on the lottery and charitable gaming industry while expanding our product and solution portfolio," stated John Pollard, co-chief executive officer. "Quarterly records were attained in combined sales, adjusted EBITDA and i-lottery income before income taxes. More importantly, our repricing strategy for our instant ticket contract portfolio continues to be successful, providing a gradual, positive impact beginning to be meaningfully reflected in our revenue and margins.

"One important financial indicator is our gross margin percentage, and our third quarter achieved a gross margin percentage of 17.6 per cent, up from 16.3 per cent in the third quarter of last year and 15.4 per cent in the second quarter of 2023. A better mix of higher value product sales combined with the positive impact from repriced instant ticket contracts were contributing factors.

"High input costs remain a significant headwind in our instant ticket product line. However, we have not experienced any additional new cost increases since the start of 2023 and we have actually experienced some very small cost decreases on a few of our key inputs recently. We are hopeful that this trend will continue, and we will see lower costs in the future.

"Our NPi operations generated $14.3-million in income before income taxes, a significant increase from $8.2-million earned in the third quarter of 2022, and a quarterly record. A number of significant draw-based game jackpots, including Powerball and Mega Millions, helped generate large increases in gaming revenue and with a predominantly fixed cost base, incremental revenue increases positively impact our earnings. In addition, our i-lottery contracts continue to grow organically as they expand and develop their customer base. Total combined i-lottery sales reached a new quarterly record at $28.7-million.

"Subsequent to the end of the third quarter, our NeoPollard joint venture announced the award of our sixth i-lottery platform customer, the West Virginia Lottery. While not expected to be operational until the latter part of 2024, this latest win shows the confidence the lottery market has in our experience and ability to greenfield a successful i-lottery start-up. We continue to have extensive discussions with a number of lotteries regarding their interest in i-lottery including providing demonstrations of our new PollardEdge i-lottery platform. While a long sales cycle, we are very optimistic of the future potential for i-lottery.

"We continue to see positive demand in all our main markets, both printed and electronic, and of course i-lottery," exclaimed Doug Pollard, co-chief executive officer. "We remain extremely disciplined regarding accepting discretionary instant ticket work where the associated margins do not meet our benchmarks. As a result, our production volumes of instant tickets will continue to be at levels lower than recent quarters for the remainder of 2023 and 2024. The positive impact of this approach can be seen in our third quarter results.

"Our strategy of repricing instant ticket contracts to offset the impact of the high inflation on our input costs continues, and the third quarter saw a higher positive impact from increased selling prices relative to the first two quarters of 2023. As previously noted there is a lag between the timing of higher revenue being recognized in the financial statements from when these contracts are rebid. The larger impact of the reset pricing to date will be felt moving forward during 2024. We have been successful in repricing a significant portion of our contract portfolio and will continue to work at resetting our selling prices on the remainder of our contracts as they expire.

"Our third quarter results reflect the strength of our various business operations," concluded John Pollard. "Improving margins, growing sales and an expanding digital focus are key components in our strategic plan and will lay the foundation for ongoing success. Demand remains strong across our entire product and solution continuum. We are very excited about the opportunities ahead and look forward to helping lotteries and charitable organizations generate funds for their good causes around the world."

Outlook

Overall demand for Pollard's products and solutions remains strong across both lottery and charitable gaming customers. Despite continuing demand, the company's instant ticket volume is expected to remain low relative to volumes in previous quarters as Pollard continues to be very disciplined in accepting discretionary work where the margins do not meet its minimum hurdle rates. Over the long term, as these remaining instant ticket contracts are repriced when they come up for renewal or rebid, opportunities to increase the company's volumes profitably will develop. I-lottery sales attained record levels during the third quarter driven by a number of very high jackpot runs involving both Powerball and Mega Millions. In the long term i-lottery is expected to continue to grow, however in the short term, i-lottery results may be impacted by fewer major jackpot runs in the fourth quarter.

The company's NeoPollard joint venture was awarded a new greenfield i-lottery contract with the West Virginia Lottery, expected to be operational in the latter part of 2024. In addition, discussions and solution demonstrations of the company's state-of-the-art PollardEdge i-lottery technology continue with a number of lottery organizations.

Profitable growth is continuing in all of Pollard's digital solutions, including e-gaming via kiosks and tablets in charitable gaming settings such as bars, fraternals and other social gaming environments. The company's repricing of instant ticket contracts will continue and going forward through 2024 the financial impact of pricing increases already attained will be increasingly realized as these new contract terms come into effect. Supplier prices for the company's key instant ticket inputs, including paper and ink, have remained stable during 2023. Some very small price decreases have been received recently and the company is hopeful that additional input cost decreases will be realized through 2024.

The company's operations generate strong cash flow which enables the company to continue to reinvest capital in new technologies enhancing the company's production capabilities as well as advancing its i-lottery technology and expanding its game content. Important investment initiatives will continue including strategic acquisitions to complement the company's strong portfolio of lottery and charitable gaming solutions.

The company is very excited about the future of Pollard Banknote. Strong demand across the company's main product lines, increasing opportunities in i-lottery and a proven strategy to return to historic margins in the company's instant ticket business provides an expectation for financial growth going forward.

About Pollard Banknote Ltd.

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-per-cent joint venture, the largest supplier of i-lottery solutions to the U.S. lottery market.

We seek Safe Harbor.