Pollard Banknote Q3: Revenue Up, Profit Down on Plant Inefficiencies

Net income fell 21% to CAD 8.1 million, or CAD 0.30 per diluted share, from CAD 10.3 million, or CAD 0.38, a year earlier, as Pollard Banknote (TSE:PBL) absorbed manufacturing inefficiencies, a weaker instant-ticket customer mix and the expiration of its Michigan iLottery contract.

Revenue edged up to CAD 158.9 million for the three months ended September 30, 2026, from CAD 156.3 million. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) declined to CAD 28.3 million from CAD 32.3 million. Co-CEO Doug Pollard said operating results came in below expectations, but pointed to new contract wins and demand for charitable gaming products as support for the company's outlook.

What squeezed the margins?

Gross profit dropped to CAD 24.3 million, or 15.3% of sales, from CAD 28.1 million, or 18.0% of sales. Co-CEO John Pollard attributed the decline to:

• Lower instant-ticket selling prices
• Production inefficiencies and lower-than-expected output
• More material spoilage and additional rework
• The loss of CAD 2.1 million in gross profit after the Michigan contract expired in July

Doug Pollard said production skewed more heavily toward lower-valued international work than in a typical third quarter. John Pollard said the company has installed new plant management at its main printing facilities in Winnipeg and Ypsilanti, Michigan. He acknowledged growing pains from ramped-up California production, though the company met delivery dates and the customer was pleased with the product.

Management expects a more favorable instant-ticket mix in the fourth quarter and into 2027. John Pollard said early fourth-quarter results showed improving efficiencies, but cautioned that the loss of Michigan's contribution would remain a drag as other digital revenue grows — and that broader digital improvement would take several quarters, not one.

Where are the digital wins?

The pipeline is fuller than the quarter suggests. The Kansas Lottery named Pollard the apparent winner of a new five-year iLottery contract starting in late 2026, with a possible two-year extension. Its NeoPollard Interactive joint venture received a final one-year extension of the North Carolina iLottery contract through June 2029.

The Colorado Lottery issued a notice of intent to award Pollard its digital solution contract, with implementation expected in the later part of 2027. The company launched its playON player engagement solution in Oklahoma in September, and Norway's Norsk Tipping announced its intent to award Pollard a new instant-ticket contract beginning in December 2026.

One deliberate omission: Pollard won't bid on Virginia's next iLottery contract, scheduled to begin in 2028. Doug Pollard said the company chose to preserve capacity for existing digital implementations and other opportunities, including North Carolina's contract, which management expects to go to a request for proposals in 2027. Pollard keeps receiving its 50% share of earnings from the current Virginia contract through its joint venture until October 2028.

In Kansas, CFO Rob Rose said the operation remained in a negative position but was gradually improving. Reaching profitability could take until early 2027 — later than previously suggested — as the company works with the lottery to grow its player base.

What's happening in charitable gaming and cash flow?

Charitable e-gaming revenue rose by CAD 1.5 million year over year, with Minnesota revenue hitting a record. John Pollard said new game content and more sites have lifted Minnesota above levels seen before the regulatory changes of 2024. The company is expanding pull-tab production capacity and pursuing eTab opportunities elsewhere: a Virginia pilot is progressing well, a New York market limited to fraternal organizations should open in early 2027, and Alaska would require legislative approval. Each market could be material, though none is expected to match Minnesota's scale.

Rose said working-capital investment increased partly due to billing arrangements on the Belgium and California contracts — Belgium development work is recognized before some milestones are billed, while California payments are tied to retail ticket sales. He expects the California investment to stabilize by year-end and the Belgium investment to start reversing toward the end of 2027.

Verica Simic joins as CFO in the coming days, replacing Rose, who retires at the end of 2026 after more than 30 years with the company.

The takeaway: a soft quarter driven by plant execution and Michigan, with a multi-quarter fix — but the contract pipeline gives 2027 a firmer floor.