Results and Highlights for the Fourth Quarter ended
- 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 inWest 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.
(1) See Non-GAAP measures for explanation |
"We are very pleased with the continued strong fourth quarter results and overall annual results for 2023," remarked
"Our Combined Sales (which includes our 50% share of our iLottery joint venture revenue) was just over
"Our Adjusted EBITDA exceeded
"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
"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
"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
"Our directors have recognized the strength of our strategic vision," commented
"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
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
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
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
HIGHLIGHTS
| Three months ended | Three months ended | ||
Sales | $ | 135.5 million | $ | 127.3 million |
Gross profit | $ | 24.5 million | $ | 18.8 million |
Gross profit % of sales | 18.1 % | 14.8 % | ||
Administration expenses | $ | 15.6 million | $ | 12.8 million |
Selling expenses | $ | 5.6 million | $ | 4.5 million |
NPi equity investment income | ($ | 11.0 million) | ($ | 8.3 million) |
Unrealized foreign exchange gain | ($ | 2.7 million) | ($ | 2.2 million) |
Net income | $ | 11.3 million | $ | 10.5 million |
Net income per share – basic | $ | 0.42 | $ | 0.39 |
Net income per share – diluted | $ | 0.41 | $ | 0.39 |
Adjusted EBITDA | $ | 25.7 million | $ | 22.4 million |
HIGHLIGHTS
| Year ended | Year ended | ||
Sales | $ | 520.4 million | $ | 483.7 million |
Gross profit | $ | 85.8 million | $ | 83.4 million |
Gross profit % of sales | 16.5 % | 17.2 % | ||
Administration expenses | $ | 58.3 million | $ | 50.0 million |
Selling expenses | $ | 20.7 million | $ | 17.4 million |
NPi equity investment income | ($ | 39.1 million) | ($ | 22.3 million) |
Unrealized foreign exchange (gain) | ($ | 2.0 million) | $ | 4.4 million |
loss | ||||
Net income | $ | 31.4 million | $ | 19.3 million |
Net income per share – basic | $ | 1.17 | $ | 0.72 |
Net income per share – diluted | $ | 1.15 | $ | 0.71 |
Adjusted EBITDA | $ | 91.3 million | $ | 80.5 million |
(1) Certain comparative figures have been reclassified to conform to the presentation adopted in the current period. |
Results of Operations – Year ended
SELECTED FINANCIAL INFORMATION
(millions of dollars) | Year ended | Year ended | |||||||
Sales | |||||||||
Cost of sales | 434.6 | 400.3 | |||||||
Gross profit | 85.8 | 83.4 | |||||||
Administration expenses | 58.3 | 50.0 | |||||||
Selling expenses | 20.7 | 17.4 | |||||||
Equity investment income | (39.1) | (22.3) | |||||||
Other (income) expenses | (0.1) | 4.1 | |||||||
Income from operations | 46.0 | 34.2 | |||||||
Foreign exchange (gain) loss | (2.0) | 3.7 | |||||||
Interest expense | 10.5 | 8.3 | |||||||
Income before income taxes | 37.5 | 22.2 | |||||||
Income taxes: | |||||||||
Current | 23.1 | 9.6 | |||||||
Deferred reduction | (17.0) | (6.7) | |||||||
6.1 | 2.9 | ||||||||
Net income | |||||||||
Adjustments:
| |||||||||
Amortization and depreciation | 45.0 | 41.0 | |||||||
Interest | 10.5 | 8.3 | |||||||
Income taxes | 6.1 | 2.9 | |||||||
EBITDA
| |||||||||
Unrealized foreign exchange (gain) loss | (2.0) | 4.4 | |||||||
Contingent consideration fair value adjustment | 0.5 | 4.6 | |||||||
Net insurance proceeds | (0.2) | – | |||||||
Total Adjusted EBITDA | |||||||||
2023 | 2022(1) | ||||||||
Total Assets | |||||||||
Total Non-Current Liabilities | |||||||||
(1) Certain comparative figures have been reclassified to conform to the presentation adopted in the current period. |
Results of Operations – Year ended
During the year ended
- The higher instant ticket average selling price in Fiscal 2023 increased sales by
$24.2 million as compared to 2022, as a result of the change in customer mix in part due to Pollard declining to accept certain discretionary lower margin work, the initial impact of repriced contracts and higher proprietary product sales. However, this increase was largely offset by the decrease in instant ticket sales volumes of$22.1 million as compared to 2022, primarily as a result of Pollard declining lower margin work. - Higher sales of ancillary lottery products and services increased revenue by
$11.4 million . This growth was largely due to increased sales of digital and loyalty products, distribution services and retail merchandising products. - Higher eGaming systems revenue increased sales by
$5.7 million due primarily to a higher number of eGaming machines placed at bars, bingo halls and fraternal organizations as compared to 2022. - The higher average selling price of charitable games in 2023 also increased sales by
$3.9 million as compared to 2022. However, this increase was offset by lower charitable gaming volumes, which decreased sales by$3.8 million , largely as a result of certain production inefficiencies. - Higher Michigan iLottery sales further increased revenue in 2023 by
$0.4 million as compared to 2022. - During Fiscal 2023, Pollard generated approximately 70.5% (2022 – 71.5%) of its revenue in
U.S. dollars including a portion of international sales which are priced inU.S. dollars. During Fiscal 2023, the actualU.S. dollar value was converted to Canadian dollars at$1.352 , compared to a rate of$1.298 in Fiscal 2022. This 4.1% increase in theU.S. dollar value resulted in an approximate increase of$14.4 million in revenue relative to Fiscal 2022. In addition, during 2023, the value of the Euro strengthened against the Canadian dollar resulting in an approximate increase of$2.7 million in revenue relative to 2022.
Cost of sales was
Gross profit increased to
Administration expenses increased to
Selling expenses increased to
Pollard's share of income from NPi increased to
Other income was
The net foreign exchange gain was
The 2022 net foreign exchange loss of
Adjusted EBITDA increased to
Interest expense increased to
Amortization and depreciation totaled
Income tax expense was
Income tax expense was
Net income increased to
Net income per share (basic and diluted) increased to
iLottery
Pollard and its iLottery partner,
In 2014 Pollard, in conjunction with NeoGames, established
SELECT iLOTTERY RELATED FINANCIAL INFORMATION | |||||||||||||||||
(millions of dollars) | |||||||||||||||||
Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | |||||||||
2023 | 2023 | 2023 | 2023 | 2022 | 2022 | 2022 | 2022 | 2021 | |||||||||
Sales – Pollard's share | |||||||||||||||||
| |||||||||||||||||
NPi | 21.8 | 21.5 | 18.5 | 18.5 | 17.7 | 13.7 | 12.4 | 11.3 | 10.5 | ||||||||
Combined iLottery sales | |||||||||||||||||
Income before income taxes – Pollard's share(1) | |||||||||||||||||
| |||||||||||||||||
NPi | 11.0 | 11.1 | 8.8 | 8.2 | 8.3 | 5.7 | 4.7 | 3.6 | 3.0 | ||||||||
Combined income before | |||||||||||||||||
Throughout 2022 and 2023, NPi's contracts achieved strong organic growth, adding to sales and income before taxes. In addition, quarterly sales and income before taxes are positively impacted during quarters where substantial draw-based game (
(1) Certain comparative figures have been reclassified to conform to the presentation adopted in the current period. |
Results of Operations – Three months ended
SELECTED FINANCIAL INFORMATION
(millions of dollars) | Three months | Three months | |
ended | ended | ||
|
| ||
(unaudited) | (unaudited) | ||
Sales | |||
Cost of sales | 111.0 | 108.5 | |
Gross profit | 24.5 | 18.8 | |
Administration expenses | 15.6 | 12.8 | |
Selling expenses | 5.6 | 4.5 | |
Equity investment income | (11.0) | (8.3) | |
Other expenses | 0.3 | 0.4 | |
Income from operations | 14.0 | 9.4 | |
Foreign exchange gain | (2.9) | (3.1) | |
Interest expense | 2.6 | 2.3 | |
Income before income taxes | 14.3 | 10.2 | |
Income taxes: | |||
Current | 5.1 | 1.2 | |
Deferred reduction | (2.1) | (1.5) | |
3.0 | (0.3) | ||
Net income | |||
Adjustments: | |||
Amortization and depreciation | 11.5 | 11.6 | |
Interest | 2.6 | 2.3 | |
Income taxes | 3.0 | (0.3) | |
EBITDA | |||
Unrealized foreign exchange gain | (2.7) | (2.2) | |
Contingent consideration fair value adjustment | – | 0.5 | |
Adjusted EBITDA | |||
(1) Certain comparative figures have been reclassified to conform to the presentation adopted in the current period. |
Results of Operations – Three months ended
During the three months ended
- The higher instant ticket average selling price in the fourth quarter of 2023 increased sales by
$16.3 million as compared to 2022, primarily due to higher proprietary product sales, the growing impact of repriced contracts and the change in customer mix, in part as a result of not accepting certain discretionary lower margin work. However, this increase was partially offset by the decrease in instant ticket sales volumes of$6.2 million as compared to 2022, primarily as a result of Pollard declining lower margin work. - Higher eGaming systems revenue increased sales by
$1.6 million due primarily to a higher number of eGaming machines placed at bars, bingo halls and fraternal organizations as compared to 2022. - The higher average selling price of charitable games in the fourth quarter of 2023 also increased sales by
$0.6 million as compared to 2022. However, this increase was offset by lower charitable gaming volumes, which decreased sales by$2.0 million , largely as a result of certain production inefficiencies. - Also partially offsetting the increases to sales were lower sales of ancillary lottery products and services in the quarter, which further decreased revenue by
$2.5 million as compared to 2022, largely due to decreased sales of licensed products and retail merchandising products. - Lower Michigan iLottery sales also decreased revenue in the fourth quarter of 2023 by
$0.9 million as compared to the fourth quarter of 2022, partially due to a substantialPowerball ® jackpot awarded in the fourth quarter of 2022. - During the three months ended
December 31, 2023 , Pollard generated approximately 64.9% (2022 – 71.5%) of its revenue inU.S. dollars including a portion of international sales which were priced inU.S. dollars. During the fourth quarter of 2023, the actualU.S. dollar value was converted to Canadian dollars at$1.370 , compared to a rate of$1.361 during the fourth quarter of 2022. This 0.7% increase in theU.S. dollar value resulted in an approximate increase of$0.6 million in revenue relative to 2022. In addition, during the fourth quarter of 2023, the value of the Euro strengthened against the Canadian dollar resulting in an approximate increase of$0.7 million in revenue relative to 2022.
Cost of sales was
Gross profit was
Administration expenses increased to
Selling expenses increased to
Pollard's share of income from NPi increased to
Other expenses were
The net foreign exchange gain was
The 2022 net foreign exchange gain of
Adjusted EBITDA increased to
Interest expense increased to
Amortization and depreciation totaled
Income tax expense was
Income tax recovery was
Net income increased to
Net income per share (basic and diluted) increased to
Outlook
Retail dollar sales of instant tickets in 2023 were steady compared to the sales achieved in 2022, remaining at the high levels attained following the significant growth experienced during 2020-2021. Based on early 2024 data we would expect similar levels of retail sales to be attained in 2024. We continue to see strong underlying consumer demand for these products, particularly in some of the higher value proprietary products and tickets with higher retail price points. Demand for products and services supporting the sale of instant tickets, such as retail dispensers and digital solutions including second chance draws and loyalty programs, are all seeing increased demand as lotteries look to grow the funds they generate for good causes.
The charitable gaming market, including printed products as well as eGaming machines, also experienced positive demand throughout the past year and we anticipate this will continue in 2024, in particular as charities and regulators look to expand digital offerings in these markets. Future opportunities include jurisdictions approving tablet and kiosk-based gaming in social settings to complement the traditional pull tabs and bingo games. Initiatives are under way in our manufacturing group to leverage new equipment and additional staff to increase our production to meet the growing demand.
The iLottery market experienced significant growth during 2023 as product expansion (
We continue to see more interest from lotteries about iLottery in both greenfield opportunities as well as existing lotteries looking for refreshed solutions, including in the international marketplace. This has led to a number of opportunities to demonstrate our new state-of-the-art omnichannel platform and our game content library. Our internally developed Pollard iLottery solution provides an important complement to the ongoing success of our 50% owned iLottery joint venture. The sales cycle associated with iLottery opportunities is long, however we continue to believe that long term this business will become an increasingly critical important area for more lotteries.
The large inflationary increases to our instant ticket inputs were fully absorbed during 2023. We experienced no further inflationary cost increases during this past year and saw some small decreases in costs toward the end 2023. We are hopeful we will continue to see cost decreases going forward in 2024 and beyond as supply chains have largely returned to pre-pandemic levels of efficiencies.
Our strategy of aggressively repricing our instant ticket contract selling prices began in 2022 and has been very successful over the past two years. We have repriced a majority of our current volumes, however these contracts are negotiated well in advance of their start date resulting in the financial impact being delayed, with the higher prices not fully impacting our revenue until later in 2024.
Our instant ticket volumes are expected to be at similar levels to 2023, lower than the levels of 2021 and 2022. This is due to our continued strategy of not pursuing work which has unacceptable margins due to the higher input costs and selling prices not yet repriced, where our contracts allow us discretion relative to accepting work.
Identifying appropriate acquisition targets continues to be an important strategic initiative. Opportunities to continue to expand our portfolio of products and solutions targeted for lotteries, further enhancing our charitable gaming product offering and distribution channels, and increasing our expertise in digital solutions including additional game content are all being pursued.
Our business continues to generate strong cashflow, which supports our ongoing investment in CAPEX, development of new products like our iLottery platform and the ability to increase our dividend in the first quarter of 2024. Strong cash flow coupled with a conservative approach to our debt levels provides us with significant available resources to pursue our strategic objectives in a sustainable, capital efficient manner.
Our successes in 2023 have laid the foundation for continued financial growth in 2024 including supporting a 25% increase in our dividend. Strong demand continues across all of our main product lines and both the lottery and charitable gaming markets provide us opportunities to profitably grow our business. Our repricing of instant ticket contracts starting in 2022 has been successful and we will continue to see greater positive impacts throughout 2024. Higher selling prices coupled with emerging cost reductions of our inputs should provide improving margins. Opportunities exist throughout the lottery and charitable gaming markets for innovative solutions to support the objective of raising funds for good causes and we are excited about our prospects for growth in 2024.
SOURCE
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