Earnings call transcript: Pollard Banknote’s Q1 2025 earnings beat expectations

Pollard Banknote Limited reported stronger-than-expected earnings for the first quarter of 2025, with actual earnings per share (EPS) of $0.4447 surpassing the forecasted $0.34. The company’s revenue also exceeded expectations, reaching $146.2 million against a forecast of $133.88 million. Following the earnings announcement, the company’s stock price rose by 3.45%, reflecting positive investor sentiment. According to InvestingPro analysis, the company maintains a FAIR overall financial health score of 2.02 out of 3, with particularly strong performance in cash flow management.

Key Takeaways

• Pollard Banknote’s Q1 2025 EPS and revenue both surpassed forecasts.
• The company’s stock price increased by 3.45% in after-hours trading.
• Strong performance in iLottery and instant ticket technologies contributed to growth.

Company Performance

Pollard Banknote exhibited robust performance in Q1 2025, driven by its leadership in iLottery and instant ticket technologies. The company’s sales increased significantly compared to Q1 2024, reflecting successful product innovations and strategic operational decisions. The firm’s diversified portfolio and strong manufacturing presence in North America have positioned it well against competitors.

Financial Highlights

• Revenue: $146.2 million, up from $125.7 million in Q1 2024
• Combined sales revenue: $177.1 million, up from $151.2 million in Q1 2024
• Gross profit: $25.4 million, representing 17.4% of sales
• Net income: CAD 11.7 million, up from CAD 6.9 million in Q1 2024
• Earnings per share: $0.43, compared to $0.26 in Q1 2024
• Adjusted EBITDA: $30.6 million, up from $23.7 million

Earnings vs. Forecast

Pollard Banknote’s actual EPS of $0.4447 exceeded the forecast of $0.34, marking a significant positive surprise. The revenue of $146.2 million also surpassed the forecasted $133.88 million. This strong performance indicates the company’s effective execution of its strategic initiatives and market positioning.

Market Reaction

Following the earnings release, Pollard Banknote’s stock price rose by 3.45%, closing at $21.00. This increase reflects investor confidence in the company’s growth trajectory, especially given its strong performance in the iLottery sector. The stock’s movement contrasts with broader market trends, underscoring the positive sentiment surrounding the company’s results.

Outlook & Guidance

Looking ahead, Pollard Banknote expects gross margins to return to the low 20% range by the end of 2025. The company anticipates continued growth in its digital and iLottery segments, focusing on high-margin customers and monitoring international market dynamics.

Executive Commentary

Doug Pollard, Co-CEO, expressed optimism about future opportunities, stating, "We are very excited with opportunities we see in the lottery and charitable gaming markets." He emphasized the company’s success in the iLottery area, which has been a significant growth driver.

Risks and Challenges

• Potential tariff impacts on manufacturing costs.
• Regulatory changes in the E-Tab market.
• Increased competition in key markets such as Michigan.
• Fluctuations in accounts receivable that may affect cash flow.
• Macroeconomic pressures that could impact consumer spending.

Q&A

During the earnings call, analysts inquired about the trajectory of gross margins and accounts receivable fluctuations. The company provided detailed insights into the successful Kansas iLottery launch and addressed regulatory changes affecting the E-Tab market. Additionally, there was significant interest in the increasing demand for iLottery solutions, which Pollard Banknote is well-positioned to capitalize on.

Full transcript - Pollard Banknote Limited (PBL) Q1 2025:

Kelsey, Conference Call Moderator, Pollard Banknote Limited: Good morning, everyone. Welcome to the Pollard Banknote Limited First Quarter twenty twenty five Results Conference Call. Listeners are reminded that certain matters discussed in today’s conference call or answers that may be given to questions asked could constitute forward looking statements that are subject to risks and uncertainties related to Pollard’s future financial or business performance. Certain material factors or assumptions are applied in making forward looking statements, and actual results may differ materially from those expressed or implied in such statements. The risk factors that may affect the results are detailed in Pollard’s annual information form and other periodic filings and registration statements.

And you can access these documents at SEDAR plus database found at sedarplus.ca. I’d like to remind everyone that this conference call is being recorded today, Thursday, 05/08/2025. I’d now like to introduce mister Doug Pollard, co chief executive officer of Pollard Banknote Limited. Please go ahead, sir.

Doug Pollard, Co Chief Executive Officer, Pollard Banknote Limited: Thank you, Kelsey, and thank you everyone for joining us. With us on the call today is John Pollard, Co Chief Executive Officer and Rob Rose, Chief Financial Officer. We released our first quarter twenty twenty five results today. You can access our news releases as well as our financial statements and MD and A on our website at pollardbanknote.com and also on SEDAR plus Today, we will start out with prepared remarks from me highlighting our twenty twenty five first quarter operating achievements and an overall business update, and John will then follow-up discussing our first quarter financial results. Then we’ll open it up to questions.

The first quarter of twenty twenty five was an exceptional quarter for Pollard with a number of key milestones and business goals achieved to help drive our strategy of being the partner of choice in the lottery and charitable gaming space. These were achieved in conjunction with strong financial results which we will discuss in detail a bit later. We are particularly proud of the implementation and startup of the Kansas iLottery solution which began on 02/13/2025. We worked very closely with the team from the Kansas Lottery and the rollout the state of the art catalyst gaming platform and our proprietary instant games was the fastest rollout ever in North America for iLottery and illustrates clearly our extensive experience with both iLottery and complex technological solutions which are necessary to be a leader in the lottery market. The go live went extremely smooth and continues to meet expectations in all areas.

Of course consistent with operations such as these there is a ramp up period as revenue grows to generate a profit and we continue on the expected trend from a financial perspective. In addition to providing our instant games in combination with the iLottery platform in Kansas. Our games continue to perform well in other jurisdictions. We are optimistic that our eIncident results will allow us to aggressively expand the number of third party sites hosting our games. We also continue to see significant interest by Lottery expanding their offerings to include an iLottery solution both for Greenfield solutions for new states to begin and for existing operations who are looking to replace their suppliers and their technology.

Recently the Massachusetts lottery issued a request for proposal for the implementation of a greenfield iLottery solution and we believe other jurisdictions are looking closely at doing the same. As we have discussed before the sales cycle of an iLottery solution is long but recent evidence supports it as a critical piece in the lottery suite of offerings. In addition to the successful development of our own in house proprietary iLottery platform and our instant game content, our NeoPollard Interactive joint venture achieved record results in the first quarter of twenty twenty five. Very strong sales of eInstance led the way, especially in Virginia and North Carolina. Our joint venture continues to generate meaningful results and cash flow and with a number of long term contracts and extensions already on the books will be doing so for a number of years.

Our success in the iLottery area has been remarkable and we are very confident we will continue to be a leader for years to come. We also saw the benefits of our strategy of repricing instant ticket contracts and we have now successfully repriced a large majority of our volume. With all of those contracts now live, we will see the full positive impact throughout 2025 as evidenced by the high average selling price we achieved in the first quarter. There are a few longer term contracts still remaining in place and will come up for rebid in the next few years at which time we will then have opportunities to assess our pricing on those remaining contracts. Subsequent subsequent to quarter end we closed the purchase of another complementary charitable gaming business Pacific Gaming.

Pacific is a leader in a charitable bingo market particularly in the provision of handheld electronic bingo devices, an important segment of that market and while small this investment continues to expand our product portfolio so that we provide the complete requirements for charitable gaming operators. Our overall markets remain very positive. Retail sales of instant tickets remain steady in 2025 relative to the prior year while still remaining at the high levels attained with significant growth during 2020 and 2021. Demand for charitable products remains robust with particular high interest among jurisdictions looking at expanding eTab and other electronic opportunities and we believe our digital areas including iLottery and eInstance offer significant growth opportunities both in North America and internationally. Now I’ll turn it over to John Pollard to highlight the first quarter results.

John Pollard, Co Chief Executive Officer, Pollard Banknote Limited: Thank you, Doug. During our first quarter, we achieved traditional GAAP sales of $146,200,000 compared to $125,700,000 in the three months ended March 2024. We prefer to focus really on our combined sales revenue number, which includes our proportionate share of our Neopolar joint venture revenue. And that measure obtained $177,100,000 in the quarter compared to $151,200,000 last year. A significantly higher instant ticket average selling price in the first quarter of twenty twenty five increased sales by $17,100,000 compared to 2024.

This is primarily due to an increase in our proprietary product sales, also the impact of the repriced contracts that Doug just alluded to, and we had a favorable change in customer mix in the quarter. Partially offsetting that increase to revenue was a decrease of instant ticket sales volumes of $5,800,000 compared to the prior year and that is primarily as a result of us declining to produce work for certain low margin accounts that we’ve talked about in the past. Our higher charitable gaming volumes increased sales by $4,400,000 in the first quarter of twenty twenty five compared to the first quarter of twenty twenty four. This was predominantly the result of the acquisition of CJ Van in the third quarter of twenty twenty four. This increase in sales was partially offset by a decrease in charitable eTab revenue of CAD 1,700,000.0 compared to 2024, which was due to a regulatory change in one of our larger jurisdictions that has temporarily depressed sales there a bit.

Lower Michigan Eye Lottery sales also decreased revenue in the first quarter of twenty twenty five by CAD1.5 million compared to 2024, which is reflecting the ongoing competition in the Michigan market with the private iCasino gaming operators. Gross profit was CAD 25,400,000.0 or 17.4% of sales in the first quarter of this year compared to $21,700,000 or 17.3% of sales in the first quarter of twenty twenty four. This increase of $3,700,000 in gross profit was primarily the result of higher instant ticket sales margins, largely flowing from our higher instant ticket average selling price that we just talked about. Our overall gross margin percentage was similar in Q1 of this year to Q1 of last year. The higher margins that we talked about on instant tickets were partially offset by about three other things primarily.

The largest one was startup costs that we’re facing in the startup of the Kansas iLottery contract. Obviously, we only had revenue for a portion of the quarter. And as Doug talked about, revenue starts smaller and builds up. So there was definitely a negative impact on our margins from the Kansas iLottery start up that will gradually improve every quarter going forward. Secondly, the lower Michigan iLottery revenue that I just referenced does have an outsized effect on our gross margin percentage because those are high margin sales and the decline affects gross margin disproportionately.

And similarly, that temporary decline in ETAB revenues that I talked about from the regulatory change, similar effect to the lower Michigan I lottery revenue. So if compare our 17.4% gross margin percentage from Q1 of this year with our sort of high watermark of the 21% that we achieved in the second quarter of last year. Those three factors that I just talked about account for almost all of that change in percentage. Administration expenses increased to $17,300,000 in the first quarter of twenty twenty five compared to $15,400,000 in the first quarter of twenty twenty four. Dollars ’2 million increase was largely the result of increased compensation expenses and software licensing costs as we continue to invest in resources to expand our digital and iLottery footprints.

Selling expenses were up a little bit to $6,000,000 in the first quarter of this year compared to $5,400,000 last year. That increase also primarily the result of higher compensation expenses, but also a little bit of the result of including CJVAN in our results this year. Our share of our income from our Neopollard iLottery joint venture increased to $16,200,000 in the first quarter of twenty twenty five, up from $12,200,000 in the first quarter of last year. That strong $4,000,000 increase was primarily the result of continuing great results that we’re getting on eInstance sales in North Carolina and Virginia. Moving on to adjusted EBITDA, this increased to $30,600,000 in the first quarter of this year compared to twenty three point seven million dollars in the first quarter of last year.

The primary reasons for that $6,900,000 increase in adjusted EBITDA were the increase in the gross profit we talked about above of $4,500,000 again, primarily due to higher instant ticket and charitable gaming sales margins. In addition, the increase in our equity investment income from our Neoplara joint venture of $4,000,000 and an increase in realized foreign exchange gain of $1,200,000 also contributed to the increase in adjusted EBITDA. Partly offsetting those increases were the $2,000,000 increase in administration expenses and the $600,000 increase in selling expenses referenced above. Interest expense increased slightly in the quarter to $2,800,000 from $2,400,000 in the first quarter of twenty twenty four, largely the result of an increase in our average long term debt outstanding compared to last year, but partially offset by the impact of slightly lower interest rates in the first quarter of this year. Net income was CAD11.7 million in the first quarter of twenty twenty five compared to CAD6.9 million in the first quarter of twenty twenty four.

That increase of CAD4.8 million dollars was primarily due to the increase in gross profit of $3,700,000 due again to the higher incentive charitable sales margins. In addition, the $4,000,000 increase in our NeoPollard equity investment income and the increase in foreign exchange gains of $3,000,000 further contributed to the increase in net income as compared to 2024. And of course, offsetting those increases were the increase in income tax expense of $2,700,000 increase in administration expenses of 2,000,000 and the increase in excelling expenses of $600,000 and a slight increase in interest expense of $400,000 So net income per share was $0.43 basic and $0.43 diluted in this year in the first quarter that compares to $0.26 per share basic and $0.25 per share diluted in the first quarter of twenty twenty four. Just a quick comment on our first quarter cash flow. Look, the nature of our business can generate significant swings in levels of our working capital, particularly in accounts receivable.

And during the quarter, our investment in working capital did increase by a fairly large $46,000,000 the bulk of that through an increase in accounts receivable. So that was large, but this does follow from Q4 of last year where we did generate a fairly large drawdown in our working capital. The timing of our sales in the first quarter of this year was more heavily weighted to the end of the first quarter. And also the particular customer mix we had impacted our accounts receivable and just a general return to more historic absolute levels of our normal trade receivables all factored into that increased investment. However, when we look back even just at April, we’ve already collected a significant amount of those that larger buildup in accounts receivable.

And we do just anticipate a return in the second quarter to more normal levels of investment in working capital. And so we should have a strong positive cash flow in the second quarter. Also, a quick further comment on the whole tariff and trade protectionism environment, I’ve been talking about this quite a bit lately of course. There does remain a fair bit of uncertainty about the nature, extent and duration of various protectionist trade measures, including tariffs that may be enacted within North America. However, we continue to believe that the current structure of our business model, which includes extensive manufacturing facilities located both within Canada and The United States, will largely mitigate any negative effects as we have the ability to produce almost all the products that we sell to our U.

S. Customers in our U. S. Manufacturing facilities. Looking at our production input side and the effects from tariffs there, our supply chain does include options and various suppliers where there may be cross border flow for production in either our Canadian or US manufacturing facilities to shift those flows to stay within the country where the product is being produced.

And so that ability will also help to mitigate the negative impacts of tariffs. Lastly, just a general comment that, of course, if this trade environment, tariff and trade environment does cause an overall decline or negative impact on the general economy. As we’ve stated over the years, historically, the lottery and charitable gaming markets that we’re in have been generally very resilient to any negative impacts or negative effects of economic downturns. So we feel that that will also bode well for us in this environment. We will continue to monitor developments here and assess any additional short term and long term measures that need to be taken as if anything changes.

That is the end of our prepared part of our discussions. Operator, we’d be happy to entertain any questions now at this time.

Kelsey, Conference Call Moderator, Pollard Banknote Limited: Thank you. Ladies and gentlemen, we’ll now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two.

And if you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Jim Byrne from Acumen Capital. Please go ahead.

Jim Byrne, Analyst, Acumen Capital: Yeah. Good morning, guys. Thanks for taking my questions. It’s a sad day, I guess, in Winnipeg with the Jets losing last night. Out.

How’s Calgary doing, I just I got a few questions, I guess. I appreciate the comments on your gross margins and maybe you could just address kind of the volatility we’ve seen. I recognize the Kansas startup and a few of the other moving items, but is there a kind of a steady state number that we should be thinking about that you should be building towards from a gross margin standpoint, maybe towards the end of twenty five or into 2026?

Rob Rose, Chief Financial Officer, Pollard Banknote Limited: Thanks, Jim, it’s Rob. That’s a good question. We saw that as we developed through 2024, you saw that gradual increase to gross margins and really what we expect to see in particularly when you go out longer such as a period to the end of twenty twenty five. We definitely expect to see us grow back into that level of historical gross margins that we saw even before sort of in that low 20 percentage. And we think ultimately an upside to increase that because we have got to the point where we’ve returned most of our instant ticket margins back to sort of that level now.

We do have some of these other things kicking in like our startup in iLottery, etcetera, and some movement and some other things that have as John described has reduced sort of margins. So there will be some ups and downs in between the quarters, not just the nature of our business, but certainly that trend should move back toward that low 20s by the end of the year as we get through the initial startup of Kansas Lottery the instant tickets continue to have that impact on our numbers. There’s a little bit of seasonality as you know, our Q3 is generally a little bit stronger. But no, we would expect to get back at least to that low 20s and certainly as the iLottery and the digital part of our business grows, which as you know has higher margin and that’s really in the growth phase in the next year or two, that should give us an opportunity to get increased margins over that.

Jim Byrne, Analyst, Acumen Capital: Okay, that’s great. And then just looking at the iLottery and the NPI results, obviously continue to be very strong. There wasn’t really any jackpot runs here in the quarter. You mentioned that the success of the E instance are those Pollard E instance or just E instance in general in North Carolina and Virginia maybe what’s going wrong in Michigan?

Doug Pollard, Co Chief Executive Officer, Pollard Banknote Limited: It’s Doug Pollard calling. Thanks, Jim. Can I’m sorry, speaking, Jim, can address that. Let me start off by saying that in Virginia and North Carolina, those e instant sales are from multiple providers. So it would be Aristocrat but it would be others as well and we’re in the process introducing our Pollard Banknote games into those customers but they’re not there yet.

They also had some kind of there weren’t jackpot runs but they did have one progressive game that you know, is a progressive instant that had a building jackpot that wasn’t obvious on Powerball scale, but it was still enough to generate some buzz and that helped as well. What was the second half of the question was about iLottery? Michigan. Oh in Michigan. Yeah.

Michigan I would say has been a very interesting market. It is I think the most competitive gaming market in The United States today. Far beyond what where what you know even a place like Nevada. You know they have very significant land based casinos. They approved online sports betting.

They approved online casino and there are quite a few casinos there. And on top of that, prior to all that, they were in the lotteries, in the I lottery space and they were a good lottery. So you put all that together plus there’s some charitable gaming there and it is just a very competitive market. So I think that’s made it harder for Michigan. It’s probably taken some of the real high value players as well which I think is, you know, I guess that’s what I would say and we’ve got to help lotteries manage and steer their way through that and help them still continue to acquire players and make sure they’re helping players manage to long term success.

I would say that’s the main factor in Michigan.

Jim Byrne, Analyst, Acumen Capital: Okay, that’s helpful. Maybe just lastly, I know in the past you know just timing of shipments and things have negatively impacted results and revenue. Were there any shipments that kind of boosted sales here for this quarter? Either push from Q4 into this quarter or pulled forward from Q2?

Rob Rose, Chief Financial Officer, Pollard Banknote Limited: I don’t think so, Jim. It’s Rob. I think we do see that, because it’s kind of a unique business we have that, even though as our company grows, we are a relatively few transaction in number company, but have a very high value. We can have individual shipments and invoices in the 2,000,000 or $3,000,000 range. So we’re not that big enough that those can kind of just get absorbed, but certainly in Q1 there wasn’t anything unusual.

Our sales volumes were a little bit lower than our production volumes, but over time that equals out. So, you get a little bit of variation. But there was nothing unusual in this particular quarter, Jim.

Jim Byrne, Analyst, Acumen Capital: Okay, that’s great. I’ll pass the line.

Doug Pollard, Co Chief Executive Officer, Pollard Banknote Limited: Thanks, Jim.

Kelsey, Conference Call Moderator, Pollard Banknote Limited: Thank you. And your next question comes from Robert Young from Canaccord Genuity. Please go ahead.

Robert Young, Analyst, Canaccord Genuity: Hi. Good morning. First question from me would be around the ASP strength. Just trying to understand the drivers there. You highlighted a few already, so thanks for that.

But don’t normally think of this quarter as one with ASP strength. Is that mostly the repricing of the contracts or maybe you just break that down a little better?

John Pollard, Co Chief Executive Officer, Pollard Banknote Limited: It’s John. I can comment on it briefly. It was a combination of at least a couple of things. The repricing was a good chunk of it, but not in round numbers, maybe half or something in that kind of range. It’s not because there were significant other factors.

Look, we did see back in Q4, as we know, a relatively weak result on our instant tickets. And just as Rob Rose just mentioned, just the timing of orders from one quarter to another was a little bit weak and those things tend to even out over time. And so some of that weakness in Q4, some of those orders returned in Q1. So some of our higher margin customers that were a little bit missing in Q4 came back in Q1, but not in an overly just back to Jim Burns’ question, not an overly disproportionate way, just sort of return more to normal. But it was still a good mix, just a good overall mix of customers as well.

And that was a significant part of it. But we expect our mix basically going forward to be better than it has been in the last couple of years because as we’ve talked about, we’ve been purposely kind of walking away from some of our low margin customers that were not able to get the profit margins that we want. So it was a combination really of mix of higher margin customers and the repricing in somewhat equal ish measures.

Robert Young, Analyst, Canaccord Genuity: Okay, thanks. That’s helpful. Last quarter you had some spoilage or abnormal spoilage. Is that all under control? I think you described that as a temporary knot, but not out of the ordinary factor.

Mean, is that all done?

John Pollard, Co Chief Executive Officer, Pollard Banknote Limited: Yes. I mean, I’ll always say in generally the nature of the lottery business, particularly the instant scratch off lottery ticket printing business, that’s why there’s high barriers to entry is that it is a complicated, difficult product to produce. Although we’ve been doing so for many years now, the recipes are constantly changing to keep ahead of changes in the environment and it’s a complicated product. So this is just a risk of always being in this business. The particular issues that we had in Q4, this was a sort of a technical issue with some of our production.

We did sort of figure out, address them and fix them And that’s not reappeared in Q1 or since then. So yes, that issue is fixed. But I’ll just say it’s always a complicated business we’re in.

Doug Pollard, Co Chief Executive Officer, Pollard Banknote Limited: Okay.

Robert Young, Analyst, Canaccord Genuity: Just to expand on the tariff discussion, you’ve been talked about US production for US domestic consumption. But what about your ability to compete internationally? Does it put you in a better position than your competitors for international consumption? Well, your footprint.

John Pollard, Co Chief Executive Officer, Pollard Banknote Limited: It’s interesting that so far we don’t see any real significant change there. We do get the odd comments sometimes lately from our European customers that nice being Canadian. But

Doug Pollard, Co Chief Executive Officer, Pollard Banknote Limited: look,

John Pollard, Co Chief Executive Officer, Pollard Banknote Limited: you know, we’re our business is long term contracts, as you know, and people can’t easily switch in the short run. I don’t know, Doug Pollard, it’s more your area whether you’d have

Doug Pollard, Co Chief Executive Officer, Pollard Banknote Limited: a comment on that. But I don’t think we see a big change in anything yet. Yeah, Doug. We haven’t I haven’t seen that yet. And remember, some of our competitors do have production in Europe as well.

No, I think, you know, the only other part I’d add to that, Rob is the lottery business is still a relatively small business and we have relationships with lotteries around the world, pretty good relationships. And if I’m being honest, our competitors do too. And I think that allows some of the lotteries to kind of see past some of the political rhetoric they might see on CNN and see some of the individuals. That said, don’t think it’s a terrible environment in the international market to be Canadian.

Robert Young, Analyst, Canaccord Genuity: Alright, last question for me is just on the regulatory change you highlighted on eTAS. Maybe that’s Minnesota. If you just just talk about what that is and how it impacts you. And then I’ll just pass.

John Pollard, Co Chief Executive Officer, Pollard Banknote Limited: There were legislative changes in the Minnesota market, largely coming from that in Minnesota, some of the commercial gaming is through tribal compacts and those groups felt that the E Tab products were getting a little bit too slot like essentially that the tribal groups had a sort of a monopoly on in the state. And so pushed back through the legislature a little bit to require the E Tab operators to essentially dial back a little bit on some of the play mechanics of the E Tab games. There were things like bonus rounds that were being brought in by all of us over the years that we had to re It was a significant effort for us and all of our competitors in that market. We had to essentially redo all of our games to dial back on some of those bonuses and features to make them a little closer back to a traditional paper pull tab reveal. Those changes launched on January one of this year in a big bang.

It wasn’t gradual. It was a hard cut over on January 1. And so, obviously the players can see a little bit of a difference in the nature of the play. And it did have a depressing effect on the level of play early in the year. And we’re addressing that with new games that we’re launching and all kinds of other stuff.

And it’s definitely been improving since then, and we expect to be able to address most of that and get back to regular levels of playing growth over the next few months.

Robert Young, Analyst, Canaccord Genuity: Okay, thanks. I’ll pass the line.

Doug Pollard, Co Chief Executive Officer, Pollard Banknote Limited: Thanks, Rob.

Kelsey, Conference Call Moderator, Pollard Banknote Limited: Thank you. And your final question comes from Steven Olin from Raymond James. Please go ahead.

Steven Olin, Analyst, Raymond James: Good morning, everyone. Can can you just go back to the accounts receivable? Like, many how many customers, like, was involved in this? And and and again, can you just like you said, it was late orders, and so the the AR, you know, got elevated, but it you know, is this I haven’t seen this before. So I’m just curious.

Is it

Doug Pollard, Co Chief Executive Officer, Pollard Banknote Limited: just kind of a a

Steven Olin, Analyst, Raymond James: one off that is kind of unique for this year? Maybe just a little bit more on that.

Rob Rose, Chief Financial Officer, Pollard Banknote Limited: Sure, Steven, it’s Rob here. There’s a couple of factors that went into it and the overriding statement of course is we do see significant variation, particularly in the receivables from quarter to quarter, just based on the fact that we mentioned we’ve got a few number of transactions, but they’re fairly large. So if you go back a few quarters, one of the impacts was our working capital receivable balance at the December was probably at an all time low, it was down to 79,000,000 due to some good collections and some good payments at the year end. If you go back to the third quarter of twenty twenty four, our receivable balance was actually 104,000,000. So, the $119,000,000 we have at the end of Q1 really isn’t that outsized compared to where it was and you do see this up and down.

So, it was a combination of A) that we had some really good timing success just in the way of a couple of our large customers paid us off at the end of the year. We put a little focus of course on year end, it’s always a good leverage reason to go make sure you get collections and so it was particularly low. So part of that increase was just getting sort of back to our median level of sort of receivables. So there is nothing sort of unusual in that, it just started from such a low point and they went to a sort of a high point. So it was a combination of a number of factors.

Certainly, customers have different payment terms. Of course, the underlying issue with our receivables is, we have and I hate to say this, because I don’t want to call it out, but we have probably the most high quality value receivables in our business. We essentially don’t have bad debts in our business. We are trading with governments and gaming entities that of course are pretty resilient in terms of the collectability. But some of our contracts, for instance, have longer terms just by the nature of the government, we’ll have forty five and sixty day terms on some of them.

But we have some customers that when the transaction gets too high, it actually has to go up all the way to the government to the CEO to get signed off and that just takes a long time. Our sales, total sales of course in the first quarter were quite high and it was sort of leaning more towards the end of the quarter, which pushes that factor as well. We have a few other things that we’re just working with customers that are a little bit more bureaucratic. So, it just takes them longer to process it. And then the key thing to understand is we would expect by Q2 to see that number come right back down to more that median or the mean number that we see in our receivables.

So, we already know that April we collected a bunch of it. So, it’s just a matter of timing that coupled with our low starting point, not that you ever want to be concerned that you’ve collected all your receivables, but it just is not unnatural to see that grow back up again in a quarter to quarter. And if you go back over a couple of years and just look at the quarter balances, you can see that variation. So, it’s really just the timing of our normal operations and nothing unusual for our business.

Steven Olin, Analyst, Raymond James: Okay, that makes sense. Second question, just in the MD and you’ve mentioned the outlook, the interest in iLottery has increased. I’m just curious about, is it exponential? Is it used to get one call a month, now you’re getting 10? Like, I’m just trying to gauge the frequency or the more states or jurisdictions that are looking into it.

Doug Pollard, Co Chief Executive Officer, Pollard Banknote Limited: Thanks, Steven. It’s Doug Collard here. I’ll address that. There is definitely more interest and there are more states that are going down this path. And so the interest is building is what I would say without question.

I don’t know that I would describe it as exponential. I mean that that you know, I find your exponential I think it’s sort of 10 x and I it’s it’s not that. But it’s more frequent for sure, the inquiries than what we’ve had in the past. And, you know, you probably heard it from us before and I’ll say it again. It is a very long sales cycle in the iLottery space.

Right? So, you know, lotteries, they sort of work at it and on in The US, I’ll focus on. They work at it from a legislative side for a long time and in parallel and and once they see a bit of interest on the legislative side, then they start trying to educate themselves. And I think we have an outstanding team that has been through this a number of times both working for the lottery and working for us both at NPI and at Pollard Banknote on our own. And I think we have really good experience and so we are engaged with most of those lotteries and not all of them that are contemplating going down that path and we have seen an increase in that activity.

It’s only turned into one RFP recently. You saw the Massachusetts Lotteries or maybe you didn’t but the Massachusetts lottery has introduced an RFP which we’re in the process of responding to. I hope we’ll see others. There’s certainly some indication that there are others that are getting prepared. So it’s growing is what I would say and we are excited about being able to be a real strong competitor in that space building on the on the terrific experience and reference we get from the Kansas lottery and from our NPI experience.

Jim Byrne, Analyst, Acumen Capital: Okay, that’s great. Appreciate it. Thanks everyone.

Kelsey, Conference Call Moderator, Pollard Banknote Limited: Thank you. And your last question comes from Jim Byrne from Acumen Capital. Please go ahead.

Jim Byrne, Analyst, Acumen Capital: I thought I’d ask about Kansas. Any early indications per capita numbers that you could share or anything that I suspect you won’t, but just wanted to ask about the early returns in Kansas.

Doug Pollard, Co Chief Executive Officer, Pollard Banknote Limited: It’s Doug again. Thanks Jim. I can’t share specific per caps or anything. Look what I would say is this in Kansas. It’s important for us to step back and see that we confirmed that our technology works.

We confirmed that our team knows what we’re talking about. Not only is our technology work but when you have great modern technology you can do this fast and we confirm that as well. And as I said, Kansas are big advocates for us now. They are you know, we’re in an industry that has not had really successful large technology projects. More often than not the lotteries feel, feel bullied.

More often than not, they feel it took longer than it was supposed to and that was not the case in Kansas. So at a, you know, recent conferences, they’ve been singing our praises and so that was the first objective. The second objective is to show that hey if we’re going to be the partner of choice we’ve got to show that we can drive revenue and I would say that Kansas the revenue that we’re seeing is very much right on track with what we would have been expecting and we expect it to be a good strong contributor in in the iLottery space and we’re seeing that. Now keep in mind, we’ve had a little bit of one hand tied behind our back for two reasons. Number one, we had a very soft launch.

You know, the nature of it was that Kansas Lottery wanted to make sure we got everything up and running and got it got it solid before they, you know, started doing stronger ad and promo. That hasn’t begun yet and that will begin in the next, little while. And the second thing is jackpots are a really important factor in iLottery. Not so much for the revenue that they drive, but for the player acquisition that they provide. And we’re on a on a real low when it comes to Powerball and Mega Millions jackpot runs.

And those runs are where we see significant player acquisition for relatively low cost of acquisition and then our marketing job kicks in to try to retain those players and keep them responsibly playing on products like our instance. And we just haven’t had that. So that’s a long answer to say, look, I am very happy with the financial results in Kansas. They are right on track and we’re keep lifting those as we now start to implement an advertising strategy. And hopefully, we start seeing the jackpots build, although that’s gonna need a little more time.

Jim Byrne, Analyst, Acumen Capital: Okay. That’s super helpful. And then maybe just lastly, any update from Belgium?

Doug Pollard, Co Chief Executive Officer, Pollard Banknote Limited: No. We’re still in in process there. You know, we had ongoing dialogue with them as as part of the RFP process. But nothing other than just regular Q and A confirmations that sort of thing.

Jim Byrne, Analyst, Acumen Capital: That’s it for me. Thanks guys.

Doug Pollard, Co Chief Executive Officer, Pollard Banknote Limited: Thank you, Jim.

Kelsey, Conference Call Moderator, Pollard Banknote Limited: And there are no further questions at this time. I will now turn the call back over to Mr. Doug Pollard. Please continue.

Doug Pollard, Co Chief Executive Officer, Pollard Banknote Limited: Okay. Thank you, Kelsey. Our strong financial results in the first quarter and important business milestones achieved underline the success of our strategy of reestablishing our traditional print margins while growing our digital solutions. We are very excited with opportunities we see in the lottery and charitable gaming markets and the foundation of our success are the more than 2,500 dedicated team members who ensure our organization will continue to be the partner of choice to help our lottery and charitable gaming customers. We thank you on behalf of John and Rob.

Thank you for joining us and we look forward to updating you on our business in August.

Kelsey, Conference Call Moderator, Pollard Banknote Limited: Ladies and gentlemen, this concludes call for today. We thank you very much for your participation and ask that you please disconnect. Have a great day.

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