Pollard Banknote Limited

Good morning, everyone. Welcome to the Pollard Banknote Limited fourth quarter and full year 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 forum and other periodic filings and registration statements. And you can access these documents at Cedar Plus, the database found at cedarplus.ca. I'd like to remind everyone that this conference call is being recorded today, Wednesday, March 11th, 2026. And I would like to introduce Mr. Doug Pollard, Co-Chief Executive Officer of Pollard Bank Notes Limited. Please go ahead, sir.

Thank you very much, operator, and thank you everyone for joining us this morning. With us on the call today are John Pollard, Co-Chief Executive Officer, and Rob Rose, Chief Financial Officer. We released our 2025 fourth quarter and annual results yesterday. You can access our news release as well as our complete financial statements and MD&A on our website at PollardBankNote.com. and also on CDAR+. Today, I'll start with some prepared marks, highlighting our 2025 accomplishments and providing an overall business update. And John Pollard will then follow up with a discussion of our fourth quarter results. We'll then open it up to questions. 2025 was truly a transformational year for Pollard. In particular, our ongoing investments over the past few years delivered some game-changing new contracts and revenue-producing opportunities. Let me start out with our initial iLottery solution using our own internal platform technology, Catalyst. That went live in February of 2025 with the Kansas Lottery. And that represented the fastest rollout of a Greenfield iLottery operation. And the rollout and the subsequent operations have really exceeded our expectations. As with most startups, particularly in iLottery, losses are expected while that revenue builds. We absorbed these headwinds in 2025, but we're moving toward profitability on the Kansas contract through 2026. It's been performing well. Later in the year 25, we were awarded a major technology contract with the Belgian National Lottery. It's a 12-year contract to provide their central gaming system, including the retail systems, Also, though, the player account and the player engagement platform, iLottery, loyalty, and a lottery management system and warehouse and distribution system. Including VAT, the value of the central gaming system is approximately $289 million Canadian and serves as a confirmation of the demand for the state-of-the-art technology solution that we have with Catalyst. Then in December, we were awarded a contract with the Oklahoma Lottery to provide a lottery-specific play-on loyalty solution. In addition to the loyalty solution, we also provide the website and the app and the new CRM with that. Including extensions, this seven-year contract is valued at approximately $10 million U.S. Implementation has already started as of the end of 2025. Our loyalty solution is now operating in a number of successful lotteries and provides a great model for the lottery industry, demonstrating Pollard's excellence in managing complex digital solutions. Expanding game content is always important, and with our internal game studio, it's a key success factor in the digital space, just like it is in retail. We currently have over 145 games live across nine jurisdictions, including some very popular games like Baking Me Crazy. And great game content is an important differentiator, not just for digital solutions, but across our complete product portfolio, including charitable e-tabs, printed instant tickets, and pull-tab tickets. During the fourth quarter, we were also awarded the primary supply role for instant tickets with the California Lottery, the largest seller of instant tickets in the United States. This 12-year contract including the available extensions, is recognition of the innovation and the retail success of our long-term relationship with the California Lottery. Switching over to charitable, charitable growth has remained steady. Future growth expected through electronic opportunities, in particular through kiosks and ETABS. We did absorb a reduction in margins in Minnesota, one of our larger states, due to some changes in the regulatory environment which impacted all suppliers. However, we have been diligently expanding and improving our game content, which has shown strong signs of improving margins toward the end of 25 and the beginning of 2026. I remind you that our neopolar joint venture grew significantly through strong e-instant sales and the impact of some large draw-based jackpots in the final months of 2025. In addition, during the year, the North Carolina Lottery exercised an extension of for an additional year, which takes that contract out to October 2028. Also during 2025, we continued expanding our charitable game product portfolio with the acquisition of Pacific Gaming, a leading supplier of electronic bingo handheld sets. The operations of Pacific have integrated seamlessly within our charitable gaming group. iLottery opportunities for both platform solutions and e-instant game content, whether marketed together or separately, continue to be active as lotteries look to expand their offerings and meet growing consumer demand in both North America and internationally. Pollard will continue to actively pursue these exciting opportunities. Important investments were made in CapEx and intangibles with more than $58 million invested during the year, including specialized presses, increases in key game content for digital e-tabs, and expanded e-instant content. Expanding our inventory of state-of-the-art ICON ETAB machines and significant ongoing development of our Catalyst gaming platform. While still focused on investing in our businesses, we anticipate total capex, including additions to intangibles, will be lower in 2026. During 2025, we financed all of these investments with internal operating cash flow, while at the same time generating strong financial results. Now I'll turn it over to John to highlight the fourth quarter results.

Thanks Doug. So during the three months ended December 31, 2025, Pollard achieved revenue of $150.8 million compared to $140.3 million in the three months ended December 2024. The factors impacting the $10.5 million revenue increase were we had a higher average instant selling prices in the fourth quarter of 2025, which increased revenue by $1.4 million compared to the prior year. which was primarily due to higher proprietary product sales and changes in customer mix. However, this increase in revenue was partly offset by a small decrease in instant ticket volumes of 0.5 million compared to the prior year. Sales of our other lottery products and services increased revenues by 2.8 million in the year. This growth was largely attributable to our Kansas iLottery sales that Doug was talking about that launched so successfully, and also we had an increase in sales of licensed products And also our lottery management services system grew a little bit as well. In charitable gaming, our volumes increased revenue, our increase in volumes increased revenue by 2.1 million in the fourth quarter. This is predominantly the result of the acquisition of Pacific Gaming that Doug just mentioned in the second quarter of 2025. These increases in sales were partially offset by a decrease in our charitable e-gaming or e-tabs revenue of 1.2 million compared to 2024, primarily due to the impact of the regulatory changes in the Minnesota jurisdiction, which is our largest ETAB market. Higher Michigan iLottery sales increased revenue in the fourth quarter of 25 by 1.3 million compared to the prior year. Sales of both e-instance and draw-based game sales were positively impacted by the significant mega-millions and Powerball jackpots that occurred during the quarter. Our fourth quarter revenue also increased by approximately 2.7 relative to 2024 due to the weakening of the Canadian dollar relative to the US dollar. And in a similar way, the Canadian dollar weakened against the Euro in the quarter as well, which also resulted in an increase of 1.8 million in revenue compared to 2024. And so our combined sales, which includes our GAAP revenue plus our 50% share of our NPI joint venture reached a quarterly total of $185 million, and that is up 10% from $168.2 million last year. Cost of sales was $128.4 million in the fourth quarter of 25 compared to $117.9 in the fourth quarter of 24. The increase of $10.5 million was primarily due to higher charitable gaming volumes, primarily resulting from the addition of Pacific Gaming, higher instant ticket costs due to product mix, additional costs associated with our increased iLottery operations, including the Kansas startup expenditures and related amortization, and higher licensed product sales that we referred to a minute ago. And in addition, those higher exchange rates on the US dollar expenses a further increased cost of sales compared to 2024. Gross profit was 22.4 million or 14.9 percent of sales in the fourth quarter of 25 compared to 22.4 million or 16.0 percent of sales in the fourth quarter of 24. The main factors impacting our gross profit percentage in the fourth quarter of 25 were Number one, the launch earlier in the year of Pollard's first iLottery operations in Kansas, which has resulted in increased costs to support our overall iLottery business, as well as negative gross profit margins in the startup phase of running Kansas iLottery. Secondly, higher amortization and depreciation expense predominantly related to the increased amortization of intangible assets, including our Catalyst gaming platform. Thirdly, the lower ETAB sales in 2025 from those regulatory changes negatively impacted gross profit as well. Offsetting that, the acquisition of Pacific Gaming positively impacted our overall gross profit percentage, and as well, our higher average instant ticket selling prices and increased proprietary sales and customer mix increased our gross profit in the quarter. Our administration expenses increased to $20.2 million in the fourth quarter of 2025 compared to $16.1 million in the fourth quarter of 2024. This $4.1 million increase was largely a result of higher compensation costs, ERP implementation costs of $1.3 million, and increased software licensing costs, as well as the addition of Pacific Gaming administration expenses. Selling expenses increased to 5.8 million in the fourth quarter of 25 compared to 5.3 in the fourth quarter of 24. This 0.5 million increase was primarily due to the higher compensation costs and the addition of Pacific Gaming selling expenses. Pollard's share of our Neo-Pollard Interactive Joint Venture income increased to 16.9 million in the fourth quarter of 25 compared to 12.6 million in the fourth quarter of 24. This $4.3 million increase was primarily due to continued strong instant sales in both North Carolina and Virginia, our two largest accounts there, and increased draw-based game sales due in part to two significant jackpot runs that were awarded during the quarter. These increases were partially offset by the expiry of one customer contract in the joint venture at the end of the second quarter of 2025. We had a net foreign exchange loss of half a million dollars in the fourth quarter of 25 compared to a net foreign exchange loss of 4.4 million in the fourth quarter of 24. And so adjusted EBITDA increased to 27.7 million dollars in the fourth quarter of 25 compared to 25.2 million in the fourth quarter of 2024. And the primary reasons for that increase of 2.5 million were the increase in our Equity investment income from our NPI joint venture of $4.3 million. Increase in our gross profit net of amortization and depreciation of $1.2 million. And a small increase in the realized foreign exchange gain of $0.3 million. Partially offsetting those increases to adjusted EBITDA was the increase in administration expenses of $2.8 million. That's net of our ERP implementation costs. and the increase in excelling expenses of 0.5 million. Amortization and depreciation totaled 12.8 million during the fourth quarter of 25, compared to 11.6 million during the fourth quarter of 24. The increase of 1.2 million was primarily the result of increased amortization of our intangible assets, largely resulting from our past expenditures on our Catalyst gaming platform. Income tax expenses 5.5 million in the first quarter of 2025, an effective rate of 54.6%, which is higher than our domestic rate of 27%, due primarily to the effect of withholding and other taxes and the effect of foreign exchange-related non-deductible items. Those were partially offset by the effect of lower income tax rates in some foreign jurisdictions. So net income ended up at $4.6 million in the fourth quarter of 25 compared to a net loss of $1.8 million in the fourth quarter of 24. The main reasons for the increase of $6.4 million were, again, our increase in equity investment income from our NPI joint venture of $4.3 million, decrease in foreign exchange loss of $3.9 million, and the decrease in income tax expense of $3.3 million. partially offsetting those increases to the net income where the increase in administration expenses of 4.1 million and the increase in other expenses of 0.6 million as well as increasing sell expenses of 0.5 million. So net income per share basic and diluted end up being 17 cents per share in the fourth quarter of 25 compared to a net loss of 7 cents per share and $0.06 per share respectively for basic and diluted in the fourth quarter of 24. I will just comment that before we wrap up that 2025 was really a transformational year, as Doug talked about, with huge events, the successful launch of our Kansas iLottery with our Catalyst platform, the awarding of the Belgium National Lottery contract and the awarding the primary contract, the California Lottery, all huge transformational changes and positive things for Pollard Banknote. We did record record revenue in the year for 2025, which was fantastic. Our EBITDA increased less than what we might have hoped for, increasing to 120 million approximately from 115 million the year before, a 5 million increase. I will just point out that there were two events that occurred during the year we've spoken about that made that EBITDA lower than it would have been. The first one being the startup costs of our Kansas iLottery venture. That is not a bad thing. It is going fantastically and right on track. And all iLottery ventures on a RevShare basis start in the negative in the first year or two and grow to positive. And so that's going exactly as planned and is going to become a great revenue generator for us. And secondly, We did have that unusual situation in our Minnesota ETAB market with those regulatory changes, which took a significant chunk out of our EBITDA in 25 compared to the year before. But as we've talked about, we've seen progressive improvement through the year because we've been aggressively dealing with our game content to improve it and work better with the new regulations. And we've seen in particular the last few months really strong growth, and we expect 26 to be much better than 25 in that regard. Lots of great things in the year to celebrate and a few things that limit our EBITDA. The last brief comment I'll make is only that the world has seen, particularly recently, lots of turmoil with military conflicts in the Middle East and gas price increases and those matters. We see our lottery results and our charitable gain results on a daily basis because of the digital nature of a lot of our operations. We know literally to the hour and the minute how those things are affecting sales if they were to be. We see no impact on our businesses yet from any fallout of these sort of world events. And so we're cautiously optimistic that 2026 won't be impacted in any way by those matters. That's it. That's the end of our prepared part of our discussions. And operator, we would be happy to entertain any questions at this time.