Pollard Banknote Reveals Second Quarter Instant Note Challenges
Lottery solutions provider Pollard Banknote said it encountered a number of challenges in its core instant ticket business during the second quarter of its fiscal year 2022, and expects price increases to continue to have a impact on operations in the third and fourth quarters.
Instant tickets remain Pollard Banknote’s largest business, but increases in the prices of key inputs such as paper, ink and freight, coupled with continued heavy demand from lottery customers, have led to increased spending.
Pollard Banknote said the nature of instant ticket contracts include longer terms, averaging four years, with mostly fixed prices for the entire term, making it difficult to pass on significant increases immediately. input costs.
Co-chief executive John Pollard said a strategy to offset costs will be to increase selling prices on contract extensions and requests for proposals (RFPs) as they come up for bid. , but as these contracts do not start immediately, it could take some time before an impact is seen.
In addition, Pollard Banknote noted that the instant ticket production volume in the second quarter was below budget by approximately 8-10%. This was attributed to continued challenges recruiting and retaining entry-level staff, increasing staffing issues with higher call-outs and no-shows, and higher unexpected mechanical and production issues. .
“Our sales volumes were also below budget, reflecting lower production volume, which further negatively impacted our margins,” Pollard said.
“We are focused on increasing our production volumes in the future as this is one of our best levers to help mitigate the higher input costs associated with our instant tickets. We believe a number of initiatives we have implemented will address the issues experienced in the second quarter and we expect our production numbers to be higher in the third quarter and beyond. »
Breaking down second-quarter performance, revenue rose 2.2% to $115.9m (£95.0m/€112.7m), with the vendor highlighting particularly high demand for its charitable gaming and online gaming operations.
The vendor also noted that its revenue share from the NeoPollard Interactive joint venture with NeoGames, which also reported results this week, more than doubled from $2.5 million to $5.1 million.
Cost of sales increased 4.6% to $94.7 million, while selling, general and administrative expenses also increased year-over-year.
After also factoring in funding-related costs and taxes, it ended the quarter with net income of $2.5 million, down 67.5% from $7.7 million in 2021. Additionally, adjusted earnings before interest, tax, depreciation and amortization (EBITDA) slipped 16.4% to $18.9 million.
“We remain very excited about our business and the opportunities ahead of us,” Pollard said. “While it will take time to absorb our unprecedented increases in key input costs and bring our instant ticket margins back to historic levels through higher selling prices, we have already seen the market accept higher prices. high in contract extensions and tenders and we expect this to continue.
“And our remaining businesses, including charity gaming, online gaming systems and lottery, remain extremely strong and we expect that to continue to drive growth in the future.”
Meanwhile, Pollard Banknote reappointed Jerry Gray as an independent director. Gray previously served as a director of Pollard and its previous businesses from the initial IPO in 2005 until his retirement in 2021.
He was appointed to the board on an interim basis until a permanent director is elected. This is expected to take place at the Annual General Meeting in May 2023.