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Pollard Banknote Reports 4th Quarter and Annual Financial Results and Announces Dividend Increase

WINNIPEG, Manitoba (March 5, 2024) – Pollard Banknote Limited (TSX: PBL) ("Pollard") today released its financial results for the three months and year ended December 31, 2023 and reported a 25% increase in dividend rate.

Results and Highlights for the Fourth Quarter ended December 31, 2023

  • Revenue reached a new quarterly record, $135.5 million, up 6.4% from the fourth quarter of last year.

  • Combined sales(1) in the quarter, including our share of our NeoPollard Interactive LLC ("NPi") joint venture sales, reached $157.3 million, up 8.4% from $145.0 million in 2022.

  • Income from operations was $14.0 million, compared to $9.4 million in the fourth quarter of 2022.

  • Adjusted EBITDA(1) reached a quarterly record of $25.7 million and increased $3.3 million from $22.4 million in the fourth quarter of 2022.

  • iLottery operations continued to show strong growth in the fourth quarter, attaining combined income before income taxes of $13.5 million, 20.5% higher than the fourth quarter of 2022.

  • Our iLottery business expanded with the addition of eInstants to our North Carolina iLottery operation and the award of a new iLottery contract in West Virginia.

  • Instant ticket margins grew during the fourth quarter reflecting the increasing impact of repriced contracts on our average selling prices.

Results and Highlights for 2023

  • Established a new record for revenue at $520.4 million, up 7.6% from last year.

  • Combined sales(1) in the year, including our share of NPi's joint venture sales, attained $600.7 million, up 11.5% from $538.8 million in 2022.

  • Net income was $31.4 million, an increase of $12.1 million (63.0%) over $19.3 million earned in 2022.

  • Adjusted EBITDA(1) achieved a record annual amount of $91.3 million, $10.8 million or 13.4% higher than the previous year.

  • Instant ticket margins were compressed during the year as a result of unprecedented inflationary cost increases on raw materials and other manufacturing inputs incurred in 2022.

  • Partially mitigating the cost increases were higher average selling prices achieved through repricing our instant ticket contracts as they came up for re-bid. We successfully repriced a significant number of important instant ticket customer contracts in 2022 and 2023. The impact of repriced contracts began to come into effect during 2023 and will grow during 2024.

  • Our joint venture iLottery operations generated very strong results in comparison to last year, contributing $49.1 million in combined income before income taxes in 2023, 54.4% higher than the $31.8 million earned in 2022.

  • We continued our significant investment in the development of our iLottery platform and eInstant game content offerings as important complements to the ongoing success of our 50% owned iLottery joint venture.

"We are very pleased with the continued strong fourth quarter results and overall annual results for 2023," remarked John Pollard, Co-Chief Executive Officer. "Despite significant margin compression during 2023 in our instant ticket business, our other operating businesses, particularly iLottery and eGaming systems, helped mitigate the challenges experienced in our instant ticket business and ultimately led us to both record quarterly and annual sales and record Adjusted EBITDA in 2023. Our strategy of expanding our product and solution portfolio to address the wide variety of lottery and charitable gaming needs has provided us with diversity of cash flows and strong profitability, while laying the foundation for continued profitable growth going forward."

"Our strategy of expanding our product and solution portfolio to address the wide variety of lottery and charitable gaming needs has provided us with diversity of cash flows and strong profitability, while laying the foundation for continued profitable growth going forward."

"Our Combined Sales (which includes our 50% share of our iLottery joint venture revenue) was just over $600 million, an impressive milestone and a reflection of the strong growth experienced in all of our business lines. Both the lottery and charitable gaming sectors continue to perform well in North America and internationally."

"Our Adjusted EBITDA exceeded $91 million, a record annual result despite the headwinds experienced in our instant ticket business. The significant cost increases to our instant ticket manufacturing inputs such as paper and ink incurred during 2022 were fully absorbed during 2023. In the past year we did not experience any additional cost increases and in fact we have seen some small decreases in costs on some of these key inputs towards the end of 2023. Moving into 2024 we are hopeful to see additional decreases in costs helping to ease some of the negative pressures absorbed over the past two years."

"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."

"Our strategy to offset the cost increases by aggressively repricing our customer contracts during rebid and new RFP opportunities has continued to be successful. Over the past two years we have repriced a significant majority of our contracts and the market has been receptive to these changes. As is typical in our industry, many of the new contract terms are negotiated well in advance of when the new terms take effect. We have slowly seen the positive impact of higher selling prices increase in each of the quarters of 2023, with a number of repriced contracts still to come on stream in 2024."

"We have seen our gross margin percentage steadily increase in each of the quarters of 2023, starting with 14.0% in the first quarter growing to 18.1% in the fourth quarter and the impact of our repricing strategy has been an important factor in this growth. We will continue to focus our repricing strategy on our remaining legacy contracts, subject to the timing of contract terms."

"Our iLottery operations continued to produce record results throughout 2023, fueled by organic growth and a record number of large jackpot runs in draw-based games including Powerball® and Mega Millions®. We were very pleased to be awarded a new contract to provide the iLottery solution to West Virginia through our NPi joint venture and look forward to it going live in late 2024. Our iLottery operation in North Carolina expanded its offering to include eInstants late in 2023 and this will provide another opportunity to grow our existing operations. The combined results of our joint venture operations including our Michigan contract contributed a combined $49.1 million to our income before income taxes in 2023, up significantly from $31.8 million in 2022."

"Significant investment in our iLottery platform and game content continued during 2023, and we are very excited with our state-of-the-art solution. We continue to see active discussions throughout the lottery industry in both North America and internationally. We are demonstrating our solution to lotteries and look forward to responding to opportunities and requests for proposal."

"Charitable gaming markets continued to show strong demand, in both printed products and eGaming play. We see eGaming in particular as an exciting area for charities to expand operations and generate more funds for the good causes they serve."

"At its meeting today, the Board of Directors was pleased to increase Pollard's regular quarterly common share dividend from 4 cents per common share to 5 cents, increasing the annualized amount to $0.20 from $0.16 per share, commencing with the dividend payable on April 15, 2024."

"Our directors have recognized the strength of our strategic vision," commented Doug Pollard, Co-Chief Executive Officer. "This dividend increase reflects both the growth in our cashflow experienced in 2023 and the expectation that our businesses will continue to grow. Of particular importance is the ongoing improvement in our instant ticket business as our repricing strategy will continue to have a growing impact as we move through 2024 and beyond. We remain committed to providing a reasonable dividend return to our shareholders while at the same time retaining sufficient funds to continue our investments in growth capital and acquisitions. One of the strengths of our business is the high cash conversion rate of our Adjusted EBITDA which supports ongoing growth and higher shareholder returns simultaneously."

"All of our markets exhibit strong demand for our products and solutions, underpinning our successful financial results in 2023 and in particular the fourth quarter, while building a foundation for further growth."

"All of our markets exhibit strong demand for our products and solutions, underpinning our successful financial results in 2023 and in particular the fourth quarter, while building a foundation for further growth. Retail dollar sales of instant tickets in 2023 were similar to those achieved in 2022 but remain at the high levels attained after significant growth in 2020 and 2021."

"2023 generated strong financial results despite ongoing headwinds within our instant ticket business," concluded John Pollard. "Our extensive product and solution portfolio has proven a sound investment and combined with strong demand across our market segments provides a clear roadmap to continued growth and success in the future."

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, 2023. These financial statements have been prepared in accordance with the IFRS 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 net insurance proceeds. 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.

About 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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