Pollard Banknote Limited

Good morning, everyone. Welcome to the Pollard Banknote Limited Third Quarter 2025 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 SIDAR Plus' database found at sidarplus.ca. I'd like to remind everyone that this conference call is being recorded today, Thursday, November 13, 2025. And I would like to introduce Mr. Doug Pollard, Co-Chief Executive Officer of Pollard Bank Note Limited. Please go ahead, sir.

Thank you very much, operator, and thank you, everyone, for joining us. As Jayden said, I'm Doug Pollard. I'm joined on the call today by John Pollard, the other co-CEO, and also Rob Rose, the Chief Financial Officer. We released our third quarter 2025 results yesterday. Reminder, you can access our news releases as well as our financial statements and MD&A on our website at PollardBankNote.com and also on CDAR+. Today we'll start out with prepared remarks from me, highlighting our 2025 third quarter operating achievements and overall business update. And John will then follow up discussing our, I think, quite strong third quarter results. And then, as usual, we'll open it up to questions. The third quarter was truly a transformational quarter for PolarBankNote, with a number of very noteworthy contract wins in a highly competitive marketplace, covering a number of our different product offerings, and product and solution offerings, and I'll address each of these in detail shortly. And at the same time, we did generate very strong financial results, which reflect the strength of our business across a number of different business lines. On September 12th, the Loterie Nationale, the National Lottery of Belgium, announced the intent to award a contract to us to deliver and operate a next-generation gaming platform. That contract was officially awarded on October the 8th. You know, this is really a monumental achievement for our team on a number of levels. It shows our commitment to provide an innovative omnichannel approach to the lottery industry, and it shows that that is being recognized as, in fact, the future of the industry, where lotteries are going to want to go. The Belgian Lottery is a large, recognized, and respected leader in the international lottery space, and this contract covers all of their technology ecosystem, including an omnichannel central gaming system, which covers both retail and iLottery sales, the player account management, or PAM, including the wallet, the game aggregation bridge to deliver diverse game content from leading game providers in one unified player experience, an instant ticket management system to optimize warehousing, inventory control, and instant ticket distribution for that important category, and an integrated marketing engagement platform to deliver personalized data-driven experiences at every player touchpoint to help that lottery responsibly drive their sales. It's important to note that this is a 12-year contract, and it was won in a competitive RFP process, and the contract's valued at approximately $289 million Canadian, and it's not insignificant that we replaced a long-time incumbent provider. Our teams between the lottery and us are already working extensively together As we begin this long-term collaboration with the Lottery, so far it's going very well. I'm very pleased with the way we've kicked it off. I just highlight this is really a game-changing win for our organization. We are truly honored for the trust that the Belgian Lottery has placed with Pollard. And as we've done with other accounts, we look forward to delivering this on time and delivering on everything we've promised. In addition, on September 25th, The California State Lottery named Pollard Banknote as their new primary contractor for their instant ticket products and related services, which they call Scratchers. This new primary contract starts December 1, 2025. It has a six-year term followed by an option to renew for up to an additional six years and has an estimated value over the entire 12 years of $375 million Canadian. Now, we had already been... a longtime secondary provider of scratchers tickets to the California lottery. And with this new primary relationship, we'll now be increasing that to providing approximately 70% of the lottery's instant ticket games. Now, replacing a longtime incumbent ticket supplier for one of the largest sellers of instant tickets in the world, those kinds of changes do not happen frequently in our industry. And we are very proud of that change because it really reflects the value of the long-time existing relationship that we've developed, and it shows the importance of the innovative and creative solutions that we've been offering to lotteries that they want to work with us. So truly a massive win for our team. We look forward to helping California Lottery continue to be a leader in this space. Speaking of instant tickets, which is a core part of our portfolio, It's nice to see that overall demand for instant tickets remains positive. Retail sales growth has come back to the low single-digit range, still driven by higher selling price points, but also some other getting into new retail channels. Higher selling price points, I should note, also mean a much greater likelihood for us of higher value features being added, and as a result, that delivers higher average selling prices for polar banknotes. And in that space, one of our most important is ScratchFX, and 2025 is on pace to record record annual sales of this very popular proprietary holographic ticket process. ScratchFX jumps out at retail, and it has historically generated significant sales increases for the lotteries that far outweigh the incremental cost of the product and the feature. Demand for our other products and solutions remains solid, including charitable gaming, printed products, and, of course, digital ETABS. And ancillary products and solutions, such as retail point-of-sales and dispensers, demand for those products also remains robust as lotteries and charitable gaming operators look for new ways to grow revenue. Our Kansas iLottery solution continues to meet all of our expectations, including it was quite notable that during the quarter in August and September, we had the large billion-dollar-plus Powerball jackpot run, and our solution handled that without any issues. In conjunction with the Canvass Lottery, we are now starting to institute a number of our planned roadmap initiatives that are going to move towards the phase of accelerating revenue growth and doing things like improving the website access, some improved targeted digital marketing and player acquisition tactics, and enhancing some of the game features that we offer that will make the games more attractive. I remind you that Kansas does remain a critical calling card and reference point for our state-of-the-art Catalyst platform, and it is absolutely serving that with anyone who checks into the Kansas Lottery. Hand-in-hand with our platform solution is our expanding e-Instant game content, which we're developing in our in-house game studio. It's not enough just to have a great platform. You also need exciting game content for success in the digital world. We provide that through our own platform in Kansas, but also through other third-party iLottery operations. Our games are now live in nine jurisdictions around the world, and that is growing rapidly. You should note that Pollard Bank has always been a strong creator of lottery game content, and so it's a very small step for us to now be bringing games our decades of experience to more digital media in addition to our print and other channels. I always like to remind people that lotteries remain very engaged in discussions with us about adding to or updating their iLottery technology and offerings. And we remind you that the RFP and sales process for the iLottery process, and really all lotteries products, but especially iLottery, that that is a very long cycle. I can assure you we are highly engaged in that cycle and at the forefront of those discussions in a number of jurisdictions. During the quarter, from an MTI perspective, our Neopollard Interactive Joint Venture announced the award of a two-year extension to continue to operate the iLottery for the North Carolina Lottery. That extends that contract to June 2028, and it highlights the confidence that the North Carolina Lottery has in our joint venture operation. NPI continues to generate meaningful results in cash flow, and with a number of long-term contracts and extensions already on the books, NPI will be doing so for a number of years. It's been autumn in the lottery world, and that means conferences, and I wanted to highlight how excited we were about our recent involvement in two of the more prominent conferences. September saw both the European Lottery Congress and trade show held in Bern, Switzerland, and And the big North American conference is NASFL, or North American Association of State and Provincial Lotteries. That took place, Ontario Lottery hosted that in Niagara Falls. We were very present in those conferences. We showcased a number of exciting, new, innovative products and solutions, such as our successful EasyPack pouches for printed instant tickets. And one of the products that generated the most buzz was our unique EasyServe self-service lottery pouches. product, which dovetails seamlessly with the overall retailer's move towards self-service, which we know is coming, and we want to find a way to get instant tickets really seamlessly into those self-service lanes. So we enjoyed significant engagement with lotteries in both of those conferences. Their enthusiasm with our roadmap and our creativity was clearly evident, and it really shows, in my opinion, the high regard that lotteries have for Pollard Banknote, and it's where we really enhance and build those relationships that lead to the significant wins that we had this quarter with lotteries like Belgium and California. So, you know, an exciting quarter for us. And I'm going to now turn it over to my brother, John Pollard, to highlight the first quarter results.

Thank you, Doug. So during our third quarter, we achieved traditional gap sales of $156.3 million. This is a new quarterly record. compares to $153.2 million for the quarter ended September 30th last year, 2024. We like to talk about our combined sales, which then also includes our proportionate share of our neopolar joint venture revenue. And when we look at combined sales, we reached $187.3 million in the quarter, also a new record, and that compares to $180.4 million in the same quarter last year. Higher charitable gaming volumes increased sales by $2.8 million in the third quarter compared to 2024. This was predominantly the result of the acquisition of CJ Venn and Pacific Gaming. And in addition, the higher average selling price of charitable game printed products increased sales by a further $0.6 million. These increases were partially offset by a decrease in charitable ETAB revenue of $1.1 million compared to 2024. which is primarily due to the impact from regulatory changes in our Minnesota market that began in January 1, 2025. I should say that we did have a decline due to those regulatory changes, but we've been steadily improving those results throughout the year since that time. Lower instant ticket averages selling price in 2025 decreased sales by 2.1 million as compared to 2024, mainly results of customer mix. And in addition, a slight decrease in instant ticket sales volume for the third quarter of 2025 further decreased sales by 0.3 million. Higher sales of ancillary lottery products and services increased revenue in the third quarter of 2025 by 0.5 million compared to 2024. This growth was primarily due to increased digital sales, including of course our iLottery startup in Kansas, and higher distribution-related sales. This was partially offset, sorry, partially offset in these increases was a decrease in sales of licensed products in the quarter, which is a product category which can be kind of lumpy. The weakening of the Canadian dollar compared to the US dollar and the Euro compared to the same period in 2024 resulted in an increase in sales of approximately $2.2 million as well. Our gross profit decreased to $28.1 million, which would be 18.0% of sales in the third quarter of 2025, from $31.4 million, which would be 20.5% of sales in the third quarter of 2024. This decrease of $3.3 million in gross profit and the decrease in gross profit percentage will primarily result in the startup losses on our Kansas Eye Lottery operation and also slightly lower ETAB sales margins due to the previously mentioned regulatory changes in Minnesota. These two factors pretty much exactly account for the shortfall in the margin from last year. Administration expenses were $19.2 million in the third quarter of 2025 compared to the $17.0 million in the third quarter of 2024. And the increase of $2.2 million was largely the result of our ERP implementation-related costs and the addition of Pacific Gaming administration costs in the quarter. During the quarter, we also initiated the implementation phase of our new ERP system for our lottery and corporate operations. Selling expenses increased to $6.5 million in the third quarter of 2025 from $5.9 million in the third quarter of last year. This increase of $0.6 million was primarily due to the addition of Venn and Pacific Gaming and their selling expenses. Sequentially, the $6.5 million is consistent with the same $6.5 million of selling expenses that we had in the second quarter of this year. Pollard's share of income from our Neopollard iLottery joint venture increased to $15.3 million in the third quarter of this year compared to $13.6 million in the third quarter of last year. This $1.7 million increase was primarily due to just continued strong e-instant sales growth in both North Carolina and Virginia, two jurisdictions that continue to perform really strongly for us. We also saw some increased draw game sales in the quarter because of the impact of the Powerball jackpot run that we saw in later August and early September. But those gains that I just mentioned there now were partly offset by the expiry of the New Hampshire contract, which expired right at the end of last quarter or the beginning of this quarter. So our adjusted EBITDA decreased slightly to $32.0 million in the third quarter of this year compared to $33.3 million in the third quarter of last year. And the primary reasons for this $1.3 million decrease were our decrease in gross profit, net of amortization depreciation, which was $1.4 million. That was largely due to the result of our iLottery startup costs that I just mentioned on Kansas and the lower ETAP margins that I just talked about as well. Further reducing our adjusted EBITDA were the increase in administrative expenses, net of our ERP implementation costs of $1.1 million, and increase in selling expenses of $0.6 million. Then partially offsetting those decreases, of course, was the increase in our neopolar joint venture income of $1.7 million and an increase in realized foreign exchange gain of $0.2 million. Interest expense increased slightly to $2.9 million in this quarter compared to $2.7 million in the third quarter of last year as a result of an increase in our average long-term debt outstanding compared to last year due to the acquisitions that we completed and a higher investment in non-cash working capital. This was partly offset by lower interest rates in the third quarter of this year. Net income finally getting to it, it decreased by 10.3 million in this quarter compared to 18.2 million in the third quarter of last year. So the primary reasons for this 7.9 million decrease was the decrease in gross profit of 3.3 million. Again, prints of the results of the Kansas lottery startup costs and the low retail margins. Further reducing net income where the decrease in net foreign exchange gain of 2.3 million The increase in administration expense of $2.2 million, primarily the results of our ERP implementation costs. Increase in income tax expense of $0.7 million, increase in selling expenses of $0.6 million, and the decrease in other income, $0.3 million, and an increase in interest expense of $0.2 million. And partially offsetting those decreases in income was the Neopollard joint venture increase in income of $1.7 million. So net income per share, basic and diluted, decreased to $0.38 and $0.37 per share respectively in the third quarter of this year from $0.67 and $0.66 per share respectively in the third quarter of 2024. Just in regard to the international trade environment, obviously there remains uncertainty regarding the nature, extent, and duration of various protectionist trade measures, including tariffs that may have been and may be enacted within North America. We continue to believe that the current structure of our business, including extensive manufacturing facilities located in both Canada and the US, will ensure there is no material impact on our operations and financial results. We have the ability to produce almost all of our products that we sell in our US market, in our US manufacturing facilities. And similarly, we have capacity to service almost all of our Canadian customers from our domestic Canadian capacity. So we'll be continuing to monitor those developments and assess any additional short and long-term measures that might need to be taken to mitigate any other negative impacts, but we continue to be pleased with how that's working out for us. So it's been a good year generally for our instant ticket business as we've seen strong volumes and higher average selling prices that Doug talked about. And we're looking for this trend to continue as we move into 2026, particularly, of course, as we bring on the additional volumes from our new California instant ticket contract that we're very excited about. And at the same time, we're investing in new initiatives to improve our manufacturing efficiencies in instant tickets. The other things that we're really looking forward to coming up in the new year, of course, our Belgian contract. Super exciting to us. We'll see positive results from that in 2026 as we bring on revenues from that contract beginning right away next year. And of course, with our Kansas iLottery operations, we continue to have sales growth there and we'll continue to see improvements in our margins on the Kansas iLottery business as well. We haven't talked too much about charitable gaming. But we made a lot of investments in charitable gaming last year to improve our product offering with our new icon cabinets and lots of investment in new game content. We're starting to see the fruits of that, and we've got lots of also new jurisdictions that are expanding into e-tabs in 2026 that we're working with, and we expect to see some of those go live as well. So the outlook for charitable gaming market, in particular e-tabs, looks strong as well. So that's the end of the prepared part of our discussions, and operator, we'd be happy to entertain any questions at this time.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Jim Byrne from Acumen Capital. Please go ahead.

Good morning, guys. Thanks for taking my questions. Maybe just looking at gross margins, I guess we heard a lot about repricing the contracts over the last couple of years, I guess I would have expected to see more of a positive impact on the gross margin side. Actually, 2025 has been down from 2024, and I understand Kansas has been a drag on that. But have there been other kind of moving parts that you haven't seen improve that profitability on the instant side? And should we expect that improvement to happen in 2026?

Hi, Jim. It's Rob Rose here. So as we pointed out, there are some new headwinds on our gross margin that we haven't really had in the past. All of the repricing that we've done has been baked in. There's not new repricing coming on board. We've got that all in our numbers sort of in this year. but then you always sort of look at the mix and the propriety of stuff that we can sell. So if you really account for the Kansas Eye Lottery and the ETABS, our margin did increase on a year-over-year basis, and particularly when you think of last year, of course, with Q3, which is always a very strong quarter as well. But certainly when you look at it sequentially, we continue to see improved margins in the underlying infant ticket that gets a little bit hidden with some of these new ventures that we're starting up and investing in. But for certain, as we go through 2026, particularly as John mentioned in terms of bringing on the California volume, we'll continue to see that margin improve. And we'll just have to make sure we highlight sort of the other things that are impacting our overall gross margin, but of course, those negative headwinds will also be improving, because the Canada-style lottery will continue to improve and reduce their loss as we move toward profitability. And we continue, as John pointed out, really work on that ETAB game content. And John mentioned that the regulatory changes in Minnesota impacted us negatively. Of course, they impacted the whole market. It wasn't just us, it was our competitors as well. They really changed the market, and now we're adapting to that and bringing on the game content that works within the regulatory structure that will really help to regain that gross margin. So really, we've got three positive trends that are underway as we speak, and going forward to 2026, you'll see that margin improve.

Okay, that's helpful. And then just on the G&A side, you mentioned the ERP implementation. Those costs were a little higher than we expected. Is that all done? Should Gene kind of trend back to more normal levels?

I like your comment, Jim, is the ERP all done. ERP implementations do take a long period of time. So we've literally just started that really at the end of June. We've been planning for it for a while, but it's really kicked in. So no, it's not done. You'll see that impact our numbers through 2026. And it's fairly compressed. because we want to do this quickly and get into the new system. So you'll continue to see that over the next couple of quarters. More will be done in the first half of the year. You'll see that trail off a little bit in terms of the expenditures as we start to implement it, actually go live towards the end of 2026 and beginning of 2027.

Okay, that's perfect. And then maybe just lastly on NPI, you mentioned the big jackpot run for Powerball into September. Mega Millions kind of picked that up here lately, approaching a billion dollars. Are you seeing that momentum from the Mega Millions here into the fourth quarter?

Hi, Jim. It's Doug here. We haven't seen as much of what they traditionally call jackpot fever yet from that Mega Millions jackpot. And I would say there's kind of two things that we're monitoring. You never know exactly why, right? The first is It came, you know, the previous Powerball jackpot that happened the end of October, beginning of September, was the first billion-dollar jackpot that we had in a while. In fact, that was one of the drags on Kansas. You need those large jackpots to recruit players, and we were counting on getting one much earlier in our tenure of Kansas Eye Lottery. So it was welcome when it finally did come. And so to now have this Mega Millions jackpot coming, you know, a couple months later, it's a little harder. It doesn't generate as much traction. People talk about there being jackpot fatigue. It's really not as much jackpot fatigue as it is media fatigue, right? It's just not as much of a story in the media. So that's hurting it. The other thing I would say is there have been some changes made to the matrix of Mega Millions and the price point where they moved that up to a $5 price point and made some changes to it. I don't know that those have been universally received positively by players. And so how much of that is affecting some of their uptake of it? But we are very close to a threshold level of a billion dollars, and you may well see a little more activity. So I hope that we'll see that now start to pick up. And it's interesting, Powerball is such a strong brand. It's just chugging along right behind them. It's now already up to nearly $500 million, I think. So the short answer to your question, I hope that gives you a little more context. The shorter answer is it hasn't generated as much momentum as the last jackpot, nor would I have expected it to do so, but I think we're going to start to see some of that impact as we cross that billion-dollar threshold.

Okay, that's very helpful. Thanks, guys. Thank you, Jim.

Next question comes from Robert Young from Canaccord. Please go ahead.

Hey, good morning. Thanks for taking the questions. The first one, the California win. Congratulations, obviously, there. But does that competitive takeaway shake up the space meaningfully enough that Pollard moves up a level and is thought more as a primary vendor? Or would you say that that's the way that Pollard has been viewed for a long time? And then how do you think about capacity given California is quite large and this may open up other opportunities?

Do you want me to start with the first half of that? Look, there's no question the California Lottery is 40 years old and they have had one primary provider for that whole 40-year term. And so for us to take that away, that generated a lot of notice in the lottery industry. No question. You know, that was really nice momentum to have going into what I call the conference season. And people definitely took notice of that. Now, did it change people's perceptions? I think you have to see that as an ongoing contribution to changing that perception. I hate the expression, but I use it anyway. I think Pollard has been punching above our weight for a number of years. And so when you go to these large conferences where everyone's together, they really, for a while, we've gotten profile there that's roughly equivalent to scientific games and now Brightstar, what was IGT. And so I think... that we've kind of been seen at that level for a while, but wins in California and Belgium, I might add, kind of helps cement that, that we really are at that top level. And we've invested in that for a number of years, right? We've been a top level platinum sponsor of the World Lottery Association, for example. That was a tough, tough bite for us a few years back, but you can see it's now starting to pay dividends. And so when we We've been saying we've got this stuff, but when we back it up with wins, I think that really has been helping. So California in and of itself doesn't change things dramatically, but it contributes to that long-term trend that we're really excited about. The second half of your question was about the capacity, and I don't know, John, do you want to address your perspective on that?

Yeah, capacity-wise, it... will be no problem for us. As people noted in our results the last year or two, our instant ticket volumes have been a little bit lower than they had been prior because we've been turning away lower margin work, as we've talked about for a couple of years now, that we weren't able to make margin on. A lot of that was the French National Lottery work, which was a major customer of ours that we hadn't been able to reprice at a level that we were happy with. so our actual physical volumes have been a little bit lower, and these new California volumes will fundamentally only replace some of that lower French volume, so we'll easily be able to handle those volumes within our current capacity, which is why we're also hopeful that it'll have a, a very positive financial impact, obviously, because our incremental costs to produce them should be quite controlled.

Okay, that's very helpful. And then just a couple more. On the Belgian win, as you noted, it's an online and offline hybrid contract, and so I was curious if you could help us understand the competitive space around iLottery vendors, how many of your competitors can offer a platform that can span those two worlds? And how important is that when you're going into RFI and RFP with that relative to the competitors?

Well, let me just say that some of the traditional competitors like Brightstar and Scientific Games and Intralot can do both. Some of the sort of newer offerings like Aristocrat Interactive, which was Neo Games, you know, they are iLottery only. And others like Allwin and others, I'm not sure exactly where they would say they'd be there and where they aren't. It's a little more of a continuum as opposed to a black and white. The competitive landscape in that space, however, is what Belgium showed was, you know, I think Belgium has... has deep technical expertise, so they could really engage with us and really understand what we had. And what they wanted to have was the responsiveness that newer agile technology gives them. And with some of the more legacy offerings, if I could say that, it's just slower. And it's harder to do some of the things they wanted to do. So, for example, one of the things they'd really like to have is the ability to, going forward, plug in any terminals they want at retail and not be stuck with one terminal, the same terminal, at every retailer. And our solution can accommodate that. I always say to lotteries, I'm not speaking to Belgium, but in general, that I could envision a high-volume gas station and sea store is going to have a traditional lottery retail terminal for a while. But there might be some other locations that are more of a pop-up location, and they want to be able to just plug in an iPad and take orders. And our system has that kind of flexibility. So for lotteries that really see how technology is going to support their future, our technology does that. Now, that comes with some degree of risk, right? I mean, this is similar to California. The Belgian lottery has been working with the incumbent technology for a long time. So it's a change. So that's still not easy to accommodate and accomplish. So it was a lot of work to do. And I wouldn't suggest that there's a whole bunch of lotteries that are about to flip. But those who dig into it and are really thinking about their future and their technology, they do appreciate the agility that comes with our solution. And we're quite excited to put this in place and make it a calling card. And frankly, so is the Belgian lottery. They want to show this off and show that this is the way to go. So it's a nice formula.

I can't help adding this John Pollard here. You know, the reason we're pretty excited about the last few months and this past quarter is not so much our financial results, which were good, but these kind of somewhat transformative wins. And so in our space, we've for decades had two major competitors, what used to be called G-Tech, then became IGT, and now Brightstar. And Brightstar forever have been the dominant player in central gaming systems and draw games with a 70% likely world market share. And our other main competitor was Scientific Games, who for decades has been the dominant supplier of instant ticket systems with a 70% world market share of instant tickets. And so what we've seen in the last few months is we've won contracts from both of those major competitors in Belgium and California of some of their biggest, longest standing customers. And that is a big step that doesn't happen very often. We've obviously always been in the instant ticket business for a long time, but Brightstar is in a multi-billion dollar part of our lottery industry and central systems that because of the omni-channel nature of our catalyst system puts us in there. We're not just an iLottery competitor, we're a full central system competitor. Those are both very significant wins for Pollard Bank now.

Thanks a lot for all that. I mean, just a couple more. I think earlier, Rob, I think you said that the biggest impact on gross margins was the Kansas ramp and the pull tabs had wind in Minnesota. I wanted to make sure I heard that correct. And then in the release suggested that profitability in Kansas could turn positive in the next few quarters because of some initiatives underway. And I was just trying to get maybe a little more precision around your thoughts on where Kansas, that headwind dissipates.

Sure. So Rob, you did hear me correctly. Those are the two main factors on the gross margin headwinds. And certainly we talked specifically about moving towards profitability in Kansas iLottery. We've got a number of initiatives as we had anticipated now in our roadmap to really generate some additional sales. You know, the Kansas lottery, correctly so, went off to sort of what we would call a soft launch or a conservative launch, right? These are new things for these states, and they want to be careful of how it's perceived by the people in their jurisdiction. And we agree with that, so we've been going very slowly. All along, we knew there was levers to pull to get back up to sort of more standard or more traditional gameplay and different factors that you see in a more mature country. So we're undertaking those initiatives now. So we'll certainly start to move towards the profitability. I'm not going to specify in terms of exactly when we're going to turn it into profitability, but you'll see the losses decrease over the next number of quarters. And then it just comes down to, as Doug said, a little bit more in terms of the jackpot play and the other factors. But it'll take a little while, but we're certainly going to be moving in the right direction. So it's John.

I will say in that September jackpot run in Powerball, we did see a significant increase in our play in Kansas and signed up players, and we've maintained a big chunk of that play going in post-September. So we saw exactly what we'd expect to see with that jackpot in September and moved to a higher level for sure based on that.

Thank you. And last question. would just be on the ASP and the quarter you just reported. I normally would have thought of ASP being strong for holiday sell-in, and sorry if I missed it, but if you could just help me understand why ASP was a headwind, not a tailwind in the quarter, and then I'll pass the line.

Sorry Rob, it's Rob again. So again, we had a very strong average selling price in this quarter as expected for exactly the reason you've talked about. We do do a higher level of proprietary work and we've obviously baked in all of our repricings now. The challenge is, and I hate to say this, but last year, of course, Q3, we had that same factor. So we had a very strong Q3 last year as well. So when you look at the ASP year over year, it's down a little bit, but really just a change in the mix component. But when you look sequentially, obviously our average selling price was significantly higher this quarter compared to Q1 and Q2. So that trend is going to continue, and we're going to keep some of that trend going forward that we wouldn't have seen before in things like the fourth quarter or even in the earlier part of the year next year.

Okay, great. Thanks. I'll pass the line. Thanks, Rob.

Next question comes from David McFadigan from Cormark. Please go ahead.

Great. Yeah, so a couple questions. So when I look at the revenue, you know, it was up slightly, but when you back up Michigan, it was, you know, it was still up, you know, slightly. But, you know, the instant ticket volumes were flat. selling prices down. So I think, um, at least relative to my expectations and I think other people, uh, they were expecting more, uh, more revenue out of the instant ticket side of the business, you know, cause terrible gaming was up as well. Um, so I don't know. What's your, what's your kind of outlook on volumes for the year and average selling prices to get to higher revenues on the instant ticket side?

That's John. I mean, the, the, uh, Looking at the instant ticket market takes a bit of a sort of historical perspective. We saw a big jump in instant ticket volumes back to COVID. I hate to go back there now. That's going back three years ago now. We saw a really big jump. And then volumes were flat coming out of that for a year or two. So instant ticket volumes have been flat the last couple of years. But again, glass half full, we've maintained that COVID jump. And we're just seeing now in the last few months, return, as Doug noted in his comments, to some modest growth and sort of low single digits. So, you know, I think we're getting back on a long-term trend of seeing instant ticket growth. If you sort of look at the trend of instant ticket sales for the industry over the last number of years and you sort of flatten out the COVID bump, you'll really see a long-term trend returning to that hopefully low to medium single digits growth in instant tickets. But it's been a little bit flattish the last couple of years. We had a bit of a tough comparison to our Q3 last year. And, of course, our volumes, because we were more selective last year, so in turning away lower margin work, you know, no doubt our own volumes have been a little bit under pressure on instant tickets. We've more than made up for that an increase in average selling price coming from our repricing and our, you know, as Doug talked about, the move to... to the higher price points in the industry where there's more $10 and $20 tickets versus $2 and $5 tickets has meant we're selling more premium options like ScratchFX. So the good part of our instant ticket business last couple years, the really good part has been that average selling price increase. The volume part has been a little more challenged. We were, however, sequentially quite a bit stronger in the third quarter of this year versus the first two quarters. So I think there's a good trend within the year And particularly California coming on, we expect to see that volume trend going up. So it's a nuanced area, our scratch ticket business, to try to look at the last couple of years for sure. But the bottom line is it's still a really strong part of the lottery business. Sales are growing again in instant tickets in the industry. And we've just won the biggest contract in our lives. And so we're pretty bullish about that outlook. We expect our average selling price to continue growing slightly even going forward, even though the repricing cycle is mostly done because we're going to continue selling more options. One of the reasons California chose us is because they love our physical products and the options and the interesting things we offer. They specifically call that out in instant tickets. We have a variety of cool options, our flip scratch tickets. We get into all kinds of examples that our competitors don't offer. We're going to be selling those options to California. So it's still a really important good part of our business that we expect growing revenues from. But it's been a little, you know, nuanced the last couple of years for sure. So sorry for that long answer.

Yeah, no, no, that's helpful. Thank you. I was just wondering, do you think that the instant ticket side of the business is being negatively impacted at all by the growth of iLottery? So it could result in some sort of structural change in the industry or no?

No, not – Doug, you can probably talk to that better than me. I would definitively say no. There has been no evidence of that in any lottery. If you look over the last 12 years we've been doing this in the U.S., let's focus on that, where the biggest market is for instant tickets. The lotteries that have introduced iLottery have had faster growth of retail sales than non-iLottery states. So there just isn't that evidence of it. And in fact, if you look at some of the kind of analytical data that you see out there, you see, you know, we know that omni-channel players, i.e. those players that play both retail and online, are the most valuable. All right, no surprise there. So a lot of that is you are taking retail players and they are incrementally buying some tickets online. But the key is the flip side of that, and there are still players that when you survey them, their first purchase of lottery was made online, and then they have become an omni-channel player that buys at retail as well, and that's what's behind the numbers. And so it's just, and then the last thing I'd say on that, David, is it's just a fundamentally different purchase. So iLottery is just so easy, right? And that's in a different context. Think about it, that you're going to look up and you're going to say, okay, Mega Millions is drawing on, I forget, Friday night, and You know, the jackpot is $9.80, I forgot to buy it. Oh, yeah, I can just go onto my phone and I can buy that. That's really easy, okay? But also, buying a scratch ticket at retail is really easy. You go in, put down your $10, they hand you a ticket, you get it back, you scratch it, you win, you hand it back to them, they give you $50 cash. Real nice, easy transaction. In fact, it's easier to buy scratch at retail than it is online, arguably. So it's just a very different transaction, and for that reason, we haven't seen the kind of cannibalization that you're talking about in your question. So I'm confident that it is still good for the business overall, and that our strategy of focusing on this new digital space, while at the same time not falling out of love with our core retail business, is the right one for us as Pollard Banknote, and frankly, is the right one for the lottery industry.

Okay, all right. So just a question on margin, so... you know, you've talked about this on the call. So if you look at the EBITDA margin, you back out MPI, you back out Michigan, just focus on the rest of the business, you know, the margin's down. So, you know, you called out a couple of things that are driving that. So I guess it's Kansas would be the biggest factor in that, that it's running an EBITDA loss right now. And Because, you know, because you say ticket margins, EBITDA margins are up, charitable's up, right? So it would be primarily Kansas then, I guess?

Well, if you're talking about EBITDA margin, which is distinct from gross margin, obviously, different measures. So when we were talking on the call about gross margin, the two factors that entirely account for that on gross margin are were primarily the Kansas iLottery startup costs and secondarily the lower ETAP margins due to the regulatory change in Minnesota, which we're steadily addressing and is getting better every quarter throughout this year. But on an EBITDA margin level, you do have a third sort of factor coming in there, which is our selling and admin expenses are up as well from last year, which obviously would impact our EBITDA margins. because we're aggressively growing our business. We're investing a lot of time and energy and money in our digital space, not just iLottery platforms, but iLottery content and our ETABS. We put a lot of effort in the ETABS market, even though we're not really seeing the benefit of that yet in 2025, because we're doing a lot of lead work on new jurisdictions and new products that'll be hopefully launching in 2026. So our selling and amending costs are up, not insignificantly, year over year. That's just because we're growing the scope of our business a lot and investing a lot in the future. And we expect to see the significant payoffs of those, but we're not yet, right? So 2025 is being dragged down by all that investment. But look, the Belgium thing, the Belgium win, that's why it's so huge, because it really says, yeah, what we're doing here is not, you know, it's not just been validated by the Kansas win, but our second major win. And... And so as well, we'll expect to see that investment in SG&A get the payoff for that as we start to get profits from these investments we made. And as well, we did two acquisitions over the last year with Pacific Gaming and CJ Venn. And that's added somewhat to our selling costs as well. Which, by the way, both those investments have gone really nicely. We didn't really talk about them because they're smaller, but fitted in really seamlessly well to our charitable gaming group. So that's my fuller answer on this EBITDA margin question.

Okay. No, that's helpful. So when do you expect Canvas to be EBITDA-positive?

I think Rob Rose just tried to stick handle that question a little bit. It's hard to say for sure. As I said, we made significant improvement in the September jackpot run. We've moved to a significantly higher level of revenue in Kansas. We talked about some of the initiatives that we're taking with improved game content, website, and that. And so, you know, it's hard to say for sure. We should see meaningful progress in the next couple of quarters as we get through on that, but it's hard to say for sure. But it's steadily improving, and there's no reason we won't bring it up to the levels that we're seeing in some of our joint venture customers. It just matters how many quarters it takes, but we're seeing steady progress.

Okay. All right. Thank you. There are no further questions at this time.

I will now turn the call over to Doug Pollard. Please continue.

Okay, thank you very much, operator. You know, we talked about some of the game-changing milestones that we achieved during the third quarter, which confirms to us that our strategy is the correct strategy for our organization. You know, full credit goes to the 2,600 team members of Pollard Banknote working around the world. And, you know, I can just tell you that John and I are immensely proud of what our team is achieving every day. You know, we talked about some of those specific projects like, you know, California and Belgium and Kansas. But those are just a sampling. We've got all kinds of examples of that from around the world in the lottery space, in our charitable gaming space, in ETABS, in lots of areas. Those folks that we've got on our team are out there tirelessly providing the innovative solutions that lotteries and charities require to be successful and putting us in a great position. So thank you to our team. The recent achievements that we've made are just the beginning of us reaping the benefits from the substantial investments we've made in recent years across our businesses, including innovative game technologies, exciting game content, and, of course, creative retail solutions. We are extremely excited about the opportunities that lie before us, and we look forward to more successes in future quarters. So thank you for joining us this morning. We look forward to updating you after year-end in March of next year. And in the meantime, have a great rest of your day.

ladies and gentlemen this concludes today's conference call thank you for your participation you may now disconnect