Results and Highlights for the First Quarter ended
- Sales reached
$113.9 million , up 1.5% from the first quarter of 2021 - Combined sales(1) in the quarter, including our share of our
NeoPollard Interactive LLC ("NPi") joint venture's sales, reached$125.2 million , up 2.5% from the$122.1 million achieved in 2021 - Income from operations was
$9.3 million , compared to$12.3 million in the first quarter of 2021, primarily due to two specific factors: - Included in the first quarter of 2021 was the receipt of
$1.9 million inCanada Emergency Wage Subsidy ("CEWS"), recorded as other income, compared to nil received in 2022 - Our iLottery operations benefited from a unique double jackpot run in the
U.S. in the first quarter of 2021, which provided a large boost to our income. As a result, the combined iLottery income before taxes was approximately$2.1 million lower this year in comparison to 2021 - Adjusted EBITDA(1) achieved in the first quarter of 2022 of
$19.0 million decreased from$23.3 million in the first quarter of 2021 primarily due to the factors discussed above - NPi continued to demonstrate strong organic growth when compared to the third and fourth quarters of 2021
- Retail sales of instant ticket products remain at strong levels in the
U.S. and in certain international jurisdictions - Charitable gaming and eGaming systems businesses continued to experience unprecedented demand, achieving record revenues and earnings
- Inflationary price increases on our key instant ticket inputs (paper, ink and freight) negatively impacted margins
(1) See Non-GAAP measures for explanation |
"Given the challenging business conditions we are pleased with our financial results achieved in the first quarter of 2022 and the foundation laid for continuing improvement going forward in 2022," declared
"We set a quarterly record for production of instant tickets in the first quarter, reflecting the continued strong demand from our lottery customers combined with our success in expanding our production capacity through increased staffing. Our production volume increased as we proceeded through the first quarter, with noticeably higher volumes produced in March. However, our sales volumes for the first quarter were approximately 7% lower than actual production volumes, due to certain shipments falling into the first part of the second quarter."
"Our quarterly combined sales of
"Demand for our main products and services remained very strong throughout the quarter," commented
"Our iLottery operations recorded their second quarter in a row of solid organic growth, with particularly strong results from our two newest operations in
"Inflationary price increases on our key instant ticket inputs (paper, ink and freight) continue to be an issue. Previously announced price increases were absorbed during the first quarter and we have been advised of additional price increases being implemented in the second and third quarters, reflecting the state of the pulp and paper industry, and impacting all paper-based businesses worldwide. While we have been able to pass on these cost increases to our customers in the charitable gaming market, the nature of our long-term lottery contracts, with fundamentally fixed selling prices, makes it difficult to adjust our instant ticket pricing in the short term."
"We continue to initiate a number of strategies to deal with this margin pressure, including increasing our ticket production volumes, which we were able to achieve in the first quarter. Over time we expect to be able to increase our selling prices to reflect these higher input costs; however, this will take some time as our contracts have an average 3-5 year term."
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 unaudited condensed consolidated financial statements of Pollard as at and for the three months ended
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
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 solutions to lottery and charitable gaming industries throughout the world. Management believes Pollard is the largest provider of instant tickets based in
On
HIGHLIGHTS
| Three months ended | Three months ended | ||
Sales | $ | 113.9 million | $ | 112.2 million |
Gross profit | $ | 22.0 million | $ | 24.8 million |
Gross profit % of sales | 19.3% | 22.1% | ||
Administration expenses | $ | 12.1 million | $ | 12.1 million |
Selling expenses | $ | 4.5 million | $ | 3.9 million |
NPi equity investment income | $ | 3.9 million) | ($ | 4.0 million) |
Unrealized foreign exchange gain | $ | 0.7 million) | ($ | 0.9 million) |
Net income | $ | 6.4 million | $ | 7.5 million |
Net income per share (basic and diluted) | $ | 0.24 | ||
Adjusted EBITDA: | ||||
Lotteries and charitable gaming | $ | 12.6 million | $ | 19.8 million |
eGaming systems | 6.4 million | 3.5 million | ||
Total adjusted EBITDA | $ | 19.0 million | $ | 23.3 million |
(1) Certain comparative figures have been reclassified to conform to the presentation adopted in the current period. |
SELECTED FINANCIAL INFORMATION | |||||
(millions of dollars) | Three months | Three months | |||
|
| ||||
Sales | |||||
Cost of sales | 91.9 | 87.4 | |||
Gross profit | 22.0 | 24.8 | |||
Administration expenses | 12.1 | 12.1 | |||
Selling expenses | 4.5 | 3.9 | |||
Equity investment income | (3.9) | (4.0) | |||
Other expenses | 0.0 | 0.5 | |||
Income from operations | 9.3 | 12.3 | |||
Foreign exchange (gain) loss | (0.5) | 0.5 | |||
Interest expense | 1.8 | 1.1 | |||
Income before income taxes | 8.0 | 10.7 | |||
Income taxes: | |||||
Current | 2.7 | 4.3 | |||
Deferred reduction | (1.1) | (1.1) | |||
1.6 | 3.2 | ||||
Net income | |||||
Adjustments: | |||||
Amortization and depreciation | 9.7 | 9.4 | |||
Interest | 1.8 | 1.1 | |||
Income taxes | 1.6 | 3.2 | |||
EBITDA | |||||
Unrealized foreign exchange gain | (0.7) | (0.9) | |||
Acquisition costs | 0.0 | 0.5 | |||
Contingent consideration fair value adjustment | 0.2 | 0.0 | |||
Litigation settlement cost
| 0.0 | 2.5 | |||
Total Adjusted EBITDA | |||||
(1) Certain comparative figures have been reclassified to conform to the presentation adopted in the current period. | |||||
2022 | 2021 | ||||
Total Assets | |||||
Total Non-Current Liabilities | |||||
Results of Operations – Three months ended
During the three months ended
- Higher sales of ancillary lottery products and services increased revenue by
$2.1 million in 2022. This growth was largely due to increased sales of digital and loyalty products, and retail merchandising products compared to 2021. - A lower instant ticket average selling price decreased sales by
$3.9 million as compared to 2021 due to lower margin customer mix in the beginning of the quarter in 2022. This decrease was partially offset by an increase in instant ticket sales volumes in 2022, which increased sales by$2.0 million . - Lower sales from
Michigan iLottery decreased revenue in 2022 by$2.5 million as compared to 2021 whenMichigan iLottery sales were higher as a result of a double jackpot run early in the quarter. - eGaming systems revenue increased sales by
$2.9 million due to a higher number of eGaming machines placed at charitable establishments as compared to 2021. As well, more retail establishments were open in the first quarter of 2022, as a number of jurisdictions had closed retail establishments where eGaming machines are placed due to COVID-19 during the first quarter of 2021. - The higher average selling price of charitable games in 2022 also increased sales by
$2.7 million , as we have been able to pass along related inflationary cost increases. - During the three months ended
March 31, 2022 , Pollard generated approximately 70.6% (2021 – 70.1%) of its revenue inU.S. dollars including a portion of international sales which are priced inU.S. dollars. During the first quarter of 2022, the actualU.S. dollar value was converted to Canadian dollars at$1.270 , compared to a rate of$1.273 during the first quarter of 2021. This 0.3% decrease in theU.S. dollar value resulted in an approximate decrease of$0.2 million in revenue relative to the first quarter of 2021. In addition, during the quarter the value of the Canadian dollar strengthened against the Euro resulting in an approximate decrease of$0.7 million in revenue relative to the first quarter of 2021.
Cost of sales was
Gross profit was
Administration expenses were
Selling expenses increased to
Pollard's share of income from its 50% owned iLottery joint venture, NPi, was
Other expenses were $nil in the first quarter of 2022 compared to
The net foreign exchange gain was
The 2021 net loss of
Adjusted EBITDA decreased to
Interest expense increased to
Amortization and depreciation, including depreciation of property and equipment and the amortization of intangible assets, totaled
Income tax expense was
Income tax expense was
Net income was
Net income per share (basic and diluted) decreased to
iLottery
Pollard and its iLottery partner,
In 2014 Pollard, in conjunction with Neogames, established
SELECT iLOTTERY RELATED FINANCIAL INFORMATION | |||||||||||||||||
(millions of dollars) | |||||||||||||||||
Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||
2022 | 2021 | 2021 | 2021 | 2021 | 2020 | 2020 | 2020 | 2020 | |||||||||
Sales – Pollard's share | |||||||||||||||||
| |||||||||||||||||
NPi | 11.3 | 10.5 | 9.8 | 9.9 | 9.9 | 6.1 | 3.1 | 2.2 | 1.2 | ||||||||
Combined iLottery sales | |||||||||||||||||
Income (loss) before income taxes – Pollard's share | |||||||||||||||||
| |||||||||||||||||
NPi | 3.9 | 3.2 | 2.6 | 2.5 | 4.0 | 1.6 | 0.8 | (0.3) | (0.5) | ||||||||
Combined income before income taxes – Pollard's share | |||||||||||||||||
Beginning in the second quarter of 2020, with the onset of COVID-19, revenues from Pollard's contract with the
Sales and income before income taxes from our
Outlook
The consumer demand for our products and services in the instant market and all aspects of our charitable gaming market remains very strong. Instant ticket retail sales remained solid throughout the early part of 2022, with growth levelling off from the large increases experienced over the past two years. However, demand from lotteries remains high, well above pre-pandemic levels.
After setting a new quarterly record for production volume in the first quarter of 2022, our production schedule remains very busy over the next two quarters, and we see no indications that this strong demand will lessen. As well, our mix of instant ticket products returned to a greater proportion of higher value offerings starting in the latter part of the first quarter. This should continue through the second and third quarters of 2022, where historically we produce a greater percentage of higher value work in time for the holidays. As experienced in the first quarter of 2022, the timing of revenue recognition can be delayed from the actual timing of the production.
The expansion of our productive capacity in our
Charitable gaming, both paper-based products and eGaming system solutions, continues to benefit from strong consumer demand. We continue to focus on expanding our capacity through increased staffing and production efficiencies in order to meet this high demand for our pull-tabs and bingo-related products. Our eGaming systems business is adding new sites and providing updated game content in a number of jurisdictions, with average revenue per machine responding positively. While faced with inflationary pressures for our product inputs in our charitable gaming market, particularly for pull-tabs and bingo paper, we have been able to increase our selling prices to offset these increases and maintain our margins.
Our iLottery operations have shown two quarters of strong organic growth, particularly in our newer contracts in
Inflation continues to be a strong headwind, particularly in our instant ticket operations, with suppliers of our main inputs including paper, ink and freight continuing to introduce increased prices in 2022. In the short term, this results in pressure on our margins as the majority of our instant ticket supply contracts do not allow us to increase our selling prices to reflect these higher input costs. We continue to utilize a number of strategies to help mitigate these cost pressures, through focusing on innovation and higher value work, and producing higher volumes to help offset the reduced margin percentage. As our contracts come up for renewal and rebid, we are increasing our prices to reflect these higher input costs, with the current strong industry demand and limited manufacturing capacity providing support for this strategy. Our overall supply chains remain intact and functional, although they continue to be stressed from challenging logistics and supply allocations. We will continue to work closely with our supply partners to ensure our operations can be maintained efficiently, while supporting our future growth.
Important foundations have been established over the last few quarters for improved financial results in the future, despite unprecedented inflationary price increases to inputs, all while experiencing record demand for our products and solutions. Barring additional unknown inflationary impacts, we expect to see higher financial results as we move through the rest of 2022, building on the initiatives put in place in all areas of our business.
SEDAR: 00029950
(PBL)
CO:
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