Mr. John Pollard reports
POLLARD BANKNOTE ANNOUNCES 1ST QUARTER FINANCIAL RESULTS
Pollard Banknote Ltd. has released its financial results for the three months ended March 31, 2019, generating positive quarterly revenue and net income trends.
"Our first quarter generated strong financial results, reflecting the return of our instant ticket orders to levels similar to those achieved in the first three quarters of 2018 and significantly higher than those of the fourth quarter 2018," stated John Pollard, co-chief executive officer. "Our consolidated revenue was over $97-million, a quarterly record, benefiting from the full three months of our recent acquisitions and strong instant ticket revenue, including sales from our ancillary products and iLottery operations.
"Our emphasis on high-value proprietary innovations, such as Scratch FX laminated and pouched products, generated continued sales interest from a number of lotteries and helped us achieve solid results in an important metric: average selling price.
"Net income for the quarter was over $8-million, 77 per cent higher than the same period last year, while adjusted EBITDA [earnings before interest, income taxes, depreciation and amortization, purchase accounting amortization, unrealized foreign exchange gains and losses, and certain non-recurring items, including severance costs and acquisition costs], excluding the impact of IFRS [international financial reporting standard] 16, exceeded $15-million, reflecting the strong selling prices of our instant ticket products and contributions of our acquisitions. All of our business lines, including iLottery and ancillary products, generated very positive results. Our current indications for instant ticket sales orders in the second quarter and throughout 2019 are strong and reflect volumes consistent with our expectations from the first three quarters of 2018; however, with industry growth and continued success developing innovative products, we are hopeful to achieve incremental growth in 2019.
"Our charitable gaming businesses, including American Games and International Gamco, continue to work together to integrate their operations and management teams. All indications suggest the market has received the combination of these two respected brands positively. The overall market for charitable gaming is showing some positive growth signs, and we're seeing opportunities to expand gaming in certain jurisdictions to include digital formats through e-tabs and other electronic gaming. This has resulted in increased revenue and future opportunities for our Diamond Game and Oasis charitable gaming machines."
"Consumer demand for instant tickets continues to grow, and lotteries are very open to work with suppliers who can demonstrate products and services to help grow their business," stated Doug Pollard, co-chief executive officer. "All of our material contracts remain in place, and we are very pleased with a pair of important new contract announcements. The Interprovincial Lottery Corp., consisting of all of the lottery organizations in Canada, recently awarded us a new five-year contract after the expiry of our previous contract. We are also very excited to be awarded a new contract to manage the inventory, warehousing and distribution of instant tickets for the Arizona Lottery. This lottery management contract is an important confirmation from the lottery industry of their confidence in Pollard Banknote's ability to be the partner of choice for lotteries and charitable gaming organizations.
"On May 1, 2019, we completed the acquisition of Fastrak Retail (U.K.) Limited, one of the leading instant ticket dispensing and merchandising companies based in the United Kingdom. We are looking forward to combining these new resources with our existing Schafer Systems merchandising-focused business to provide a world-class innovative force in driving retail change in the lottery sector."
"Our first quarter results were very positive and reflect the ongoing strength in our lottery business," concluded John Pollard. "Our recent acquisitions continue to perform to our expectations. We will continue to focus our resources on growing our organic expertise and capitalizing on strategic acquisitions, to maintain our vision of partner of choice to the lottery and charitable gaming industries."
About Pollard Banknote Ltd.
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.
Three months ended March 31, 2019 Three months ended March 31, 2018
Sales $97.5-million $80.3-million
Gross profit $22.9-million $19.4-million
Gross profit % of sales 23.5% 24.2%
Administration expenses $8.7-million $8.0-million
Selling expenses $3.5-million $2.8-million
Net income $8.0-million $4.5-million
Net income per share 0.31 0.18
Lotteries and charitable gaming $12.6-million $10.6-million
Diamond Game $2.5-million $2.4-million
Total adjusted EBITDA $15.1-million $13.0-million
* Excludes impact of IFRS 16 implemented, effective Jan. 1, 2019.
SELECTED FINANCIAL INFORMATION
(millions of dollars)
Three month ended Three months ended
March 31, 2019 March 31, 2018
Sales $97.5 $80.3
Cost of sales 74.6 60.9
Gross profit 22.9 19.4
Administration expenses 8.7 8.0
Selling expenses 3.5 2.8
Other expenses 0.2 -
Income from operations 10.5 8.6
Finance costs 1.5 2.4
Finance income (1.5) -
Income before income taxes 10.5 6.2
Current 1.8 3.1
Future (reduction) 0.7 (1.4)
Net income $8.0 $4.5
Amortization and depreciation 6.3 4.1
Interest 1.5 1.2
Unrealized foreign exchange (gain) loss (1.9) 1.0
Acquisition costs - 0.1
Severance costs - 0.4
Income taxes 2.5 1.7
Adjusted EBITDA $16.4 $13.0
Less impact of implementation of IFRS 16 (Leases)
IFRS 16 related depreciation 1.1 -
IFRS 16 related interest 0.2 -
Adjusted EBITDA without IFRS 16 impact $15.1 $13.0
The selected financial and operating information has been derived from, and should be read in conjunction with, the condensed consolidated unaudited interim financial statements of Pollard as at and for the three months ended March 31, 2019. These financial statements have been prepared in accordance with the international financial accounting standards.
The company's instant ticket order levels have returned to similar levels previously seen in the first three quarters of 2018 as expected. Based on its expectations and current schedules, the company believes these order levels will continue through the second quarter and the rest of 2019. In addition, with industry growth and continued success developing innovative products, the company is hopeful to achieve incremental growth over and above the volume levels achieved in the first three quarters of 2018.
The lottery industry remains robust with growing consumer demand, particularly as it relates to instant tickets and digital offerings. Its contract portfolio remains strong with no material contracts expiring in 2019. Over the past year, the company has been awarded a number of long-term instant ticket contracts with key lotteries, including the Western Canada Lottery Corp. and the B.C. Lottery Corp. It has also recently been awarded a new contract with the Arizona Lottery to manage its instant ticket warehousing, distribution and inventory management operations. This award represents growing recognition of the company's expanding product offering.
As previously disclosed, there are currently large instant ticket contracts up for bid in 2019, where Pollard is not a major supplier. These contract bid processes are under way, and although lotteries do not regularly replace their primary supplier, the company is hopeful, at a minimum, that these coming contract awards may offer Pollard the opportunity to provide incremental levels of instant tickets going forward.
iLottery continues to be very active, with state and provincial lotteries looking into opportunities in this space, while work continues on the rollout of the company's North Carolina iLottery operation, targeted to go live late in 2019. The court process the company initiated to clarify that the Wire Act only applies to sports betting, and thereby, confirming lotteries can continue to provide lawful gaming over the Internet remains before the New Hampshire Circuit Court. A ruling is not expected before the summer of 2019. The company remains confident the court will find in favour of the lotteries, although it anticipates the initial court ruling will likely be appealed.
A foundation of the company's success has been, and continues to be, the development of innovative proprietary products with regard to both the company's instant tickets and the company's other offerings, including digital and other ancillary products. The company continues to invest resources in developing these value-added products and services to help lotteries maximize their proceeds for good causes and differentiate Pollard Banknote from other suppliers.
The integration of the company's most recent acquisition, Schafer Systems, with the company's instant ticket business continues to move forward positively, with cross-company development teams working together on innovative merchandising concepts for instant tickets.
In 2018, the company recommissioned its original printing press in Ypsilanti, and the company is currently adding some additional equipment to increase its capacity. The resulting capacity increase will position the company to provide efficient, flexible scheduling for its current level of orders, as well as ensure sufficient available capacity for growth.
No major individual capital expenditure projects are anticipated for 2019, and the company expects its capex for the next year will be similar to the levels incurred in 2018. Its business remains a strong generator of free cash flow, and after financing the company's capex and current dividend, free cash flow will be used to pay down debt and to help finance any future acquisitions.
Acquisitions remain a critical component in the company's strategic plan, and the company continues to actively review strategic opportunities that will assist it in key areas, such as technology, ancillary lottery products and charitable gaming.
We seek Safe Harbor.
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