Pollard Banknote Q2 2026 Earnings Report

Pollard Banknote EPS Results

• Actual EPS: C$0.32
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Pollard Banknote Revenue Results

• Actual Revenue: $154.83 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Pollard Banknote Announcement Details

• Quarter: Q2 2026
• Date: 8/12/2026
• Time: After Market Closes
• Conference Call Date: Thursday, August 13, 2026
• Conference Call Time: 8:30AM ET

Pollard Banknote (TSE:PBL) Ltd is principally engaged in the manufacturing, development, and sale of lottery and charitable gaming products throughout the world. Its operating segments are Lotteries and charitable gaming and eGaming systems. It provides instant tickets and lottery services including licensed products, distribution, SureTrack lottery management system, retail telephone selling, marketing, iLottery, digital products, Social InstantsTM, retail management services, and instant ticket vending machines. In addition, its charitable gaming product line includes pull-tab tickets, bingo paper, pull-tab vending machines, and ancillary products. The company generates the majority of its revenue from the sale of Instant tickets.

Pollard Banknote Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q2 financial performance improved: Revenue rose 8.5% year over year to CAD 154.8 million, while adjusted EBITDA increased to CAD 31.1 million from CAD 29.2 million and net income reached CAD 8.7 million. Gross margin expanded to 18.1%, the highest quarterly level in roughly two years.
• Positive Sentiment: Instant Ticket operations rebounded strongly. Production volumes returned to 2025 levels, California volumes exceeded expectations, average selling prices increased, and manufacturing spoilage declined. Management expects robust scheduled volumes through the remainder of 2026 and sees potential for further margin improvement.
• Positive Sentiment: Digital and charitable gaming continued to expand. Digital revenue benefited from iLottery contracts in Belgium and Kansas, while Colorado’s digital solutions award is expected to support development through 2027. Charitable gaming revenue and margins also grew, with Minnesota eTab sales reaching record levels.
• Neutral Sentiment: Kansas iLottery remains a key uncertainty. The contract expires in fall 2026, and Pollard has submitted an RFP response with management expressing confidence in renewal, but there is no guarantee and the operation remains unprofitable during its build-up phase.
• Positive Sentiment: The board initiated a normal course issuer bid to repurchase up to approximately 976,000 shares, or 10% of the current public float, providing an additional capital-allocation tool that could support per-share value.

Presentation

[Operator]

Good morning everyone, and welcome to the Pollard Banknote Limited second quarter 2026 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 assumption are applied in making forward-looking statements. Actual results may differ materially from those expressed or implied in such statements. The risk factor that may affect the results are detailed in Pollard's annual information form and other periodic filings and registration statements. You may access these documents at SEDAR+ database found at sedarplus.ca. I would like to remind everyone that this conference call is being recorded today, Thursday, August 13, 2026. I would now like to introduce Mr. Doug Pollard, Co-Chief Executive Officer of Pollard Banknote Limited.

[Operator]

Please go ahead, sir.

[Doug Pollard, Co-CEO at Pollard Banknote Limited]

Okay. Thank you, operator. John, thank you everyone for joining us this morning. With us on the call today are John Pollard, co-CEO, and Rob Rose, our CFO. We released our 2026 second quarter results yesterday. Reminder, you can access our news release as well as the complete financial statements in MD&A on our website at pollardbanknote.com and on SEDAR+. Today, as usual, we'll start with some prepared remarks from me, providing an overall business update. John will follow up with a discussion of our second quarter results, and we'll then open up to questions. We are very pleased with the financial results we achieved in the second quarter, which reflect the underlying strength across all of our business units.

[Doug Pollard, Co-CEO at Pollard Banknote Limited]

As discussed during our first quarter investor call, we were expecting a return to stronger revenue and profitability trends, especially in our instant ticket operations, as well as increased contributions from our expanding digital lines, and continuing strength in the charitable sector. All of which were achieved. During the second quarter, our instant ticket production volumes returned to our historic levels from 2025. Plus we got the additional incremental volumes from the impact of our new primary supply position for the California Lottery. In fact, the transition to primary supplier for California Lottery has gone extremely well and exceeded our expectations. We're looking forward to continuing to support them and looking to grow their retail business.

[Doug Pollard, Co-CEO at Pollard Banknote Limited]

The important measure of average selling price for our instant ticket sales, that also increased in the second quarter compared to both second quarter of 2025 and the first quarter in 2026, which reflects the mix of higher value-added tickets we sold during this period. Our scheduled ticket volume for the rest of 2026 remains robust for instant tickets. We remain focused on improving our manufacturing efficiencies, and we've attained some positive momentum during this period with lower amounts of spoilage and improved processes that will allow us to develop an efficient cost base for our instant ticket production. In fact, all of this success is reflected in our overall gross margin exceeding 18% in the second quarter. Undoubtedly one of the highlights of the second quarter for our digital business was the announcement of the Colorado Lottery's intent to award their digital solutions contract.

[Doug Pollard, Co-CEO at Pollard Banknote Limited]

Reminder that we won this contract in a formal competitive RFP process, which included not just iLottery, but also a loyalty program where we bid our playON solution, in addition to the iLottery platform and game content solutions. We are very thankful for the opportunity with Colorado Lottery, and we look forward to working with the lottery as we begin the development and implementation of this fall and then through 2027. Work is also proceeding well on our Belgium Lottery omnichannel gaming contract, with activity and resources moving from the scoping and planning phases into the early development phase. This allows for greater revenue recognition during the second quarter compared to the first quarter of 2026.

[Doug Pollard, Co-CEO at Pollard Banknote Limited]

As you know, our Kansas Lottery iLottery contract was required to go out for bid as the existing contract to operate expires in the fall of 2026, and we have responded to the bid subsequent to the end of second quarter with what we believe is a very compelling response. A reminder that the ongoing operation of the Kansas Lottery iLottery is performing very well still. Interest in iLottery operations from lotteries remains high in both the United States and internationally based lotteries. Among our valuable digital offerings, our proprietary lottery-specific loyalty solution, playON, is a very effective tool for lotteries to improve their offerings and bridge into the digital channels. Implementation is proceeding well with the Oklahoma Lottery offering, which will take us to six installations in the lottery market with further opportunities to deploy on the horizon.

[Doug Pollard, Co-CEO at Pollard Banknote Limited]

Each of these installations showcases the strength of our technologies as well as our implementation experience and opportunities to expand our suite of other services and solutions. Our NeoPollard iLottery joint venture operations remain an important contributor to our profitability. As previously disclosed, our 50% interest in the Michigan iLottery contract terminated at the end of the second quarter. As we reflect on the growth of our internal digital strategy in the past two years, our Pollard Catalyst technology is confirmed as a pre-eminent state-of-the-art solution through winning these three contracts, including two greenfield opportunities and one replacement of an existing vendor. To understand our strategy, you should know that we see digital solutions as critical, not just for lotteries to generate sales via the iLottery and mobile platforms, but increasingly, digital solutions are a critical part of driving lottery retail sales.

[Doug Pollard, Co-CEO at Pollard Banknote Limited]

For example, our playON loyalty solution helps lotteries to know their players, which enables more effective player acquisition, and through one-to-one messaging capabilities, we can help achieve objectives for player retention and responsible gaming within that retail space. Our charitable gaming operations produced strong results, with revenues and margins ahead of last year, supported by robust demand for both printed and electronic products. The eTab market in Minnesota continues to generate record revenue and contributions after facing significant negative pressure in 2025 due to regulatory changes, which reduced the gaming revenue across all suppliers, including Pollard. Additional markets have expressed and are continuing to express interest in eTab product, and we are actively pursuing these new opportunities with expanded deployments and pilot test projects.

[Doug Pollard, Co-CEO at Pollard Banknote Limited]

During the quarter, our board of directors implemented the previously announced Normal Course Issuer Bid, or NCIB, to purchase up to approximately 976,000 of our common shares, representing approximately 10% of our outstanding common shares in our current public float over the next year. This mechanism got underway right at the end of June and will be an important tool in our capital allocation process. In summary, all of our major business lines performed well in the second quarter. We expanded our digital presence, we improved our volumes and selling prices of instant tickets, and we had strong results in charitable. This positive momentum generated in the second quarter is expected to continue throughout 2026. Now I'll turn it over to John Pollard to discuss in detail the second quarter results.

[John Pollard, Co-CEO at Pollard Banknote Limited]

Thanks, Doug. During the three months ended June 30th, 2026, Pollard Banknote achieved revenue of $154.8 million compared to $142.7 million in the three months ended June 30, 2025. The factors impacting that $12.1 million revenue increase were higher instant ticket sales volumes increased revenue by $3.3 million as compared to the prior year. In addition, higher instant ticket average selling price in the second quarter of 2026 further increased revenue by $0.8 million compared to 2025. That was primarily due to a change in customer mix. Also, higher sales of ancillary lottery products and services increased revenue in the second quarter of 2026 by $5.3 million compared to 2025. This growth was primarily due to increased digital sales, including our iLottery contracts with the Belgium and Kansas lotteries and higher distribution-related sales.

[John Pollard, Co-CEO at Pollard Banknote Limited]

Partially offsetting those increases in ancillary lottery sales were the decreases in the sales of retail solutions and license products. Charitable gaming print volumes increased revenue by $0.7 million in the second quarter of 2026 compared to 2025. In addition, higher average selling prices of charitable printed products further increased revenue by $0.2 million. Charitable gaming eTabs generated an increase of $2.2 million in revenue compared to 2025, with revenue generated in our Minnesota market reaching new records. New game content and a greater number of sites have driven revenue higher in Minnesota than the pre-regulatory change levels in 2024. Higher Michigan iLottery revenues increased revenue in the second quarter of 2026 by $0.6 million compared to 2025. Cost of sales was $126.8 million in the second quarter of 2026 compared to $118.8 million in the second quarter of 2025.

[John Pollard, Co-CEO at Pollard Banknote Limited]

The increase of $8 million in cost of sales was primarily the result of the additional cost associated with higher instant ticket volumes and increased Pollard iLottery operations, including ramping up resources for the Belgium Lottery contract development efforts. These increases of cost of goods sold were partially offset by the impact of lower exchange rates on USD-denominated expenses. The gross profit increased to $28 million, or 18.1% of sales in the second quarter of this year, compared to $23.9 million, or 16.7% of sales in the second quarter of 2025. The increase of $4.1 million in gross profit and the increase in gross profit percentage were primarily the result of three things. One, increased instant ticket sales margins, largely because of the higher volumes. Two, the higher charitable eTab sales obviously positively impacted our gross profit.

[John Pollard, Co-CEO at Pollard Banknote Limited]

Three, the increased margin recognized on the Belgium Lottery contract as we transitioned into more development work in the second quarter of 2026. Our administration expenses were $19.4 million in the second quarter of this year, compared to $17.6 million in the second quarter of 2025. That increase of $1.8 million was a result of increased compensation costs, as well as higher professional fees and ERP implementation expenses. Selling expenses were $6.5 million in the second quarter of this year, very similar to the $6.5 million in the second quarter of last year. Our share of income from our iLottery joint venture decreased to $15 million in the second quarter of 2026 from $17.7 million in 2025.

[John Pollard, Co-CEO at Pollard Banknote Limited]

This $2.7 million decrease was primarily due to the expiry of a customer contract at the end of the second quarter of last year, as well as lower foreign exchange gains and higher third-party content costs in 2026. Those decreases, however, were partially offset by the increased eInstant sales in North Carolina and Virginia and higher casino content-related sales in Alberta. Other expenses were $1.6 million this year, compared to $0.1 million in the second quarter of last year. That increase of $1.5 million was primarily due to the consultant transfer fee that we paid in 2026. During the quarter, Pollard entered into a transaction with an external consulting supplier to transition a dedicated team of outsourced consultants into internal direct hire employees.

[John Pollard, Co-CEO at Pollard Banknote Limited]

In connection with the termination of the prior vendor arrangement and the release of exclusivity rights, Pollard paid a lump sum transition fee to the supplier, including incidental expenses of $1.8 million. The foreign exchange loss was $0.7 million in the second quarter of 2026 compared to a net foreign exchange loss of $3.5 million in the second quarter of last year. The 2026 foreign exchange loss of $0.7 million consisted of a net unrealized foreign exchange loss of $0.7 million, primarily a result of an unrealized loss on the increased Canadian equivalent value of USD-denominated accounts payable and long-term debt due to the weakening of Canadian dollar relative to the U.S. dollar, which was partially offset by an unrealized gain on foreign currency denominated accounts receivable and net intercompany receivables.

[John Pollard, Co-CEO at Pollard Banknote Limited]

Adjusted EBITDA increased to $31.1 million in the second quarter of this year compared to $29.2 million in the second quarter of 2025. The primary reasons for this $1.9 million increase were the increase in gross profit and net of amortization and depreciation of $5 million, substantially as a result of the increased instant ticket, eTab, and Pollard iLottery margins that we spoke about previously. Also increasing adjusted EBITDA in 2026 was the lower realized foreign exchange loss of $0.6 million. Partially offsetting these increases to adjusted EBITDA was the decrease in our equity investment income from our NPI joint venture of $2.7 million and the increase in administration expenses, net of ERP implementation and acquisition costs of $1.4 million.

[John Pollard, Co-CEO at Pollard Banknote Limited]

I am also very happy to note, of course, that our second quarter adjusted EBITDA of $31.1 million was also significantly higher than our adjusted EBITDA in the first quarter of this year of only $21.5 million, driven by those higher instant ticket volumes and average selling price, as well as the increased contributions from digital. Interest expense decreased to $2.4 million in the second quarter of this year from $3.1 million in the second quarter of 2025, primarily the result of lower interest rates in the second quarter of this year, as well as the reduction in average long-term debt outstanding compared to 2025. Amortization and depreciation, including amortization and depreciation of our equity investment, totaled $13.2 million during the second quarter of 2026, which increased from $12.3 million in the second quarter of 2025.

[John Pollard, Co-CEO at Pollard Banknote Limited]

The increase of $0.9 million was the result of the increased additions of property, plant, and equipment and intangible assets. Income tax expense is $3.7 million in the second quarter of this year, an effective rate of 30.4%, which was higher than our domestic rate of 27.0% due primarily to the effective withholding and other taxes, partially offset by lower income tax in foreign jurisdictions and the effect of non-taxable items. Finally, net income was $8.7 million in the second quarter of 2026 compared to $8.0 million in the second quarter of 2025. The increase in net income of $0.7 million was primarily due to the increase in gross profit of $4.1 million, primarily a result of increased instant ticket, eTab, and Pollard iLottery margins. Further increasing net income was the decrease in foreign exchange loss of $2.8 million and the decrease in interest expense of $0.7 million.

[John Pollard, Co-CEO at Pollard Banknote Limited]

Partially offsetting these increases in net income were the decrease in equity investment income of $2.7 million, the increase in administration expenses of $1.8 million, and the increase in other expenses of $1.5 million. Lastly, an increase in income tax expense of $0.9 million. Net income per share, basic and diluted, increased to $0.32 and $0.32 per share respectively in the second quarter of 2026 from $0.30 and $0.30 per share, basic and diluted, in the second quarter of 2025. That is the end of the prepared part of our discussions. Operator, we would be happy to entertain any questions at this time.

[Operator]

Yes, sir. Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. Once again, star and one if you wish to ask a question. Please stand by while we compile the Q&A roster. Thank you for waiting. We now have our first question, and this comes from Stephen Boland from Raymond James. Your line is now open. Please go ahead.

[Stephen Boland, Analyst at Raymond James]

Morning, everyone. Can you remind me the Belgium revenue recognition? I guess the lottery and the iLottery. I am just trying to get an idea of where this is not actually live yet, right? It is still in development. Like you said, you have gone from scoping to development. So I am just trying to get an idea of how do we look at the revenue recognition quarter by quarter by quarter, or is it a little bit difficult to do that?

[Rob Rose, CFO at Pollard Banknote Limited]

Morning, Stephen. It is Rob Rose here. I will take a shot at that one. There is a number of deliverables under this contract. We are providing a number of different services and solutions. They will be rolled out and implemented over the course of the next couple of years, and then there is ongoing support, and additional work as we support the contract going forward. So really the revenue recognition really is like a percentage completion contract basis for construction of a building. The whole contract will be based on the work we provide, and as we provide and do the work, we will be recognizing a portion of that revenue that we will be able to bill, related to that work. The billing is a little bit different than the actual work and recognition of it.

[Rob Rose, CFO at Pollard Banknote Limited]

Really think of it as a percentage of completion that gets driven by the amount of work we are doing. So it will not be lumpy. It will be somewhat smooth as we build up the work, increasing, and then we will slide down as we change some of the work later on. But that is the revenue driver. The billing is done separately based on milestones of delivery of the services.

[Stephen Boland, Analyst at Raymond James]

Okay. Just on the, you said, lower spoilage, manufacturing efficiencies. Could you explain what you had to do to get the manufacturing efficiencies to improve? I am just curious, what was the spend? What had to happen to improve that?

[John Pollard, Co-CEO at Pollard Banknote Limited]

It is John Pollard. I will answer that question. The cause of a good portion of some of the high spoilage that we had in the first quarter was due to the fact that the nature of the products we produce is constantly evolving. We are constantly bringing in new innovations and new kinds of products for our customers. In the first quarter, we had some brand-new products that we were launching, that because they were going through some of our manufacturing for the first time, there were just some slightly more unexpected difficulties in manufacturing those than we thought. So to some extent, the problems in the first quarter were just ironing out the initial times that we produced that particular iteration of It was part of our Scratch FXtra family of games that we are constantly evolving with new innovations there.

[John Pollard, Co-CEO at Pollard Banknote Limited]

It was ironing out those problems, on implementing that new product type. But other than that, it is a constant process of continuous improvement that we are always dealing with, in trying to improve our efficiencies. We have a relatively new Executive VP of Operations, Jeff Versterre, working with us, just started in the last year. He has got all kinds of exciting projects going to make improvements to our process.

[Stephen Boland, Analyst at Raymond James]

Okay. I will just do one more. You mentioned in the press release about game content, that you are always looking for more of that. Is that something you can continue to do organically? Or in the past, you have talked about looking at different studios that might have some innovation in content. So I am just wondering if that is still on the table.

[Doug Pollard, Co-CEO at Pollard Banknote Limited]

Hi. Good morning, Stephen. It's Doug Pollard speaking here. The reality for game content is we're looking at both. The roots of our company are in game content, right? We've been doing instant ticket scratch-off games for a long time. We understand content fairly well. So we are building up a game studio internally by adding some various resources, developing games. We keep adding customers all the time who are receiving our games. But it is an important area that's going to only become bigger through both the iLottery channel and the charitable gaming space. The games are quite similar. In fact, one of the games we developed, Bacon Me Crazy, was developed for an iLottery channel, and it's a record-breaker in the charitable space as well. But because this area is growing and important, we are still looking at outside acquisition opportunities to grow even faster.

[Doug Pollard, Co-CEO at Pollard Banknote Limited]

This is definitely an area of emphasis for us.

[Stephen Boland, Analyst at Raymond James]

Okay. Thanks very much.

[Operator]

Thank you. The next question comes from Robert Young from Canaccord Genuity. Your line is now open. Please go ahead.

[Robert Young, Analyst at Canaccord Genuity]

Hi. Good morning. Thanks for taking the question. I wanted to dig a little deeper on the gross margins. You gave three reasons why gross margins are better. Great to see that. Looking specifically at the instant ticket margins, where I'm guessing is the biggest factor, it would be nice to know if that assumption is correct, but you're highlighting volumes. That would mean that the ASP improvement this quarter and the recovery of the efficiencies in manufacturing, those would be lower impact factors than just the higher volumes. Is that the correct way to think about it? As we go forward here, should we expect those gross margins to continue to improve and maybe the efficiencies spill over into Q2 of it? Or maybe if you can just talk about where you expect that to go.

[Rob Rose, CFO at Pollard Banknote Limited]

It's Rob here. Good morning. Respective to your question, the answer is at a broad agreement. It was certainly driven by the instant ticket improvement. Certainly sequentially, that was the big driver. It's really a combination of all three of those things. I wouldn't necessarily pull them out and separate them. It's a combination of certainly additional volume gives you leverage on your fixed costs, which works positively for your margin. Our ASP was certainly up as well, depending what comparison you're using, last year or the sequential year. Those are all very important. Probably maybe the lesser of the three right now are the efficiency improvements. That's a bit more of a longer-term process. We've certainly made some improvements and we talk about the momentum that we've gained as opposed to the absolute USD improvements.

[Rob Rose, CFO at Pollard Banknote Limited]

But certainly longer-term, that efficiencies will be just as important. It's really a combination of all three of those factors, Robert. It's hard to pull them apart. We don't give guidance, as you know, in terms of where we expect the gross margin to be. 18.1%, of course, is the highest we've had in a couple of years on a quarterly number, so that's very positive. But we expect and know there's more improvement in that. So we're still absorbing the startup operations in some of our iLottery and digital spend. That's not positive into our gross margins. Over time, that will improve, and we think we can continue on our instant ticket, particularly as we have higher volume in California Lottery, continuing focus on the new innovations and driving up that ASP.

[Rob Rose, CFO at Pollard Banknote Limited]

All those factors will give us more positive momentum, not necessarily immediately, but over the next number of quarters. If you look back historically, you've seen us, a few years ago, in that low 20% range. Again, our company's changed quite a bit, but there's certainly no reason why we can't move toward that going ahead.

[Robert Young, Analyst at Canaccord Genuity]

Okay, that's great color. The California Lottery contract volumes, you said, are exceeding expectations. That's a large volume contract. Should we think of that as something that's good for margins, or is over-performance there dilutive to the instant ticket margins, if you can share that?

[John Pollard, Co-CEO at Pollard Banknote Limited]

Hey, Robert, it's John Pollard answering this one. Let me be clear. It's positive for margins. Although, just the nature and the size of the California Lottery contract means that the price we had to bid is going to be lower than our average price on some of our other contracts. But because of the volume, it's still definitely positive margins. We've actually seen two benefits on California Lottery that are, when we say exceeding expectations, the volumes themselves have been slightly higher than we expected. Also we've been more successful in raising the projected average selling price on that account from what we expected going in, just due to success in selling them on some of our value-added innovations that are optional to the contract. So we've achieved a slightly higher ASP than we thought.

[John Pollard, Co-CEO at Pollard Banknote Limited]

It's sort of an interesting dynamic there because it's a lower overall margin for sure than some of our other higher margin accounts. But it is overall positive.

[Robert Young, Analyst at Canaccord Genuity]

Yeah, that's great to hear. Last question from me, I think, just on the Kansas iLottery. You noted in the prepared remarks that it expires in October. I think we all knew that. You've already submitted an RFP response. I would assume that you're in a very good position given that you've already had some ramp startup costs that are absorbed into that contract. I guess the first part of my question would be that if you were to lose the contract, what would the financial impact be, given you've already absorbed a bunch of ramp costs? Then what's your confidence on extending that, given how the performance has gone thus far? I'll pass the line.

[Doug Pollard, Co-CEO at Pollard Banknote Limited]

Hi, it's Doug Pollard here. Maybe I'll answer the second part first, because I would say that we are very confident, but we are not taking the Kansas Lottery contract for granted. We worked very hard to put in what we believe is a very compelling proposal for the Kansas Lottery, where we can continue the partnership and help grow their business. The Kansas Lottery is thrilled with what we've achieved together over the last year, frankly, and so are we. I don't expect they're going to want to change. That said, there's no certainty. It's a public bid process, and you just don't know what's going to come out of that. As far as what the negative financial consequences would be, I don't know that I could begin to speculate.

[Doug Pollard, Co-CEO at Pollard Banknote Limited]

Obviously, there are some variable costs, but mostly we're developing platforms and capabilities, and I suppose we'd have to go and deploy those elsewhere.

[Robert Young, Analyst at Canaccord Genuity]

Thanks for taking the questions.

[Doug Pollard, Co-CEO at Pollard Banknote Limited]

Thank you, Robert.

[Operator]

Thank you. Yes, sir. Thank you. The next question comes from David McFadgen from ATB Cormark. Your line is now open. Please go ahead.

[David McFadgen, Analyst at ATB Cormark]

Oh, yes. Hi. I have a few questions. Maybe I will just start with Kansas Lottery. Are you still incurring EBITDA losses on Kansas?

[Rob Rose, CFO at Pollard Banknote Limited]

It is Rob here, David. Morning. Kansas Lottery continues to be in that build-up mode. We are not in a profitable level, but certainly that we want to be, but we are seeing some good momentum in that way, but it will take some time. We all get a little bit forgetful that, of course, with the money that we are making on mature iLottery operations such as the NPI, it took many years to get to that level. You would only have to go back a couple of years to see our joint venture was not even contributing anything. It has been quite successful once it gets to a mature level. We are still working through that with Kansas Lottery. There are lots of opportunities to improve their work. Some of these are postponed or not actively done when it is an RFP process. It is sort of status quo while they work through that process.

[Rob Rose, CFO at Pollard Banknote Limited]

We are very optimistic that if and when we expect to return to that contract, we will have more opportunities to really continue to build that base with more players and get back to a mature state as these iLottery contracts normally follow.

[David McFadgen, Analyst at ATB Cormark]

Okay. In the event that, let's say, you don't win on this RFP, is there a cure? Is there a make-whole given the losses you've incurred to date, and then they pull it from you?

[Rob Rose, CFO at Pollard Banknote Limited]

No, there's not. That reflects our, you know, we believe that if we can get these contracts and we can be successful, we'll continue to be a provider, and we believe in the long term, there's money to be made in this digital iLottery space. But that does require taking some risks. Taking Kansas Lottery on that short term that was remaining with our loyalty contract was a risk, no question about it. We believe it was a good one, and we continue to believe it was a good one.

[David McFadgen, Analyst at ATB Cormark]

Okay. Just moving to California Lottery. Based on the answer to the previous question, it seems like the gross margin percentage would be lower, but given the volume, it's going to be obviously accretive to just gross profit. Is that the correct way to understand this?

[John Pollard, Co-CEO at Pollard Banknote Limited]

It's John. I suppose I've never really crunched the numbers exactly as to the exact impact on the margin percentage from California Lottery. It depends a little bit on the interplay of variable and fixed costs. The nice thing about our instant ticket operations, when your volumes are going up, it's nice, is that their costs are relatively fixed in a lot of ways. When we calculate our gross margin percentage, of course, that's after a full burden of allocated fixed overhead cost into that number. If I looked at a pure report that would say what my percentage margin was, it's after an allocation of that fixed cost into California Lottery. But really incrementally, as we've grown, we haven't had to add much to that fixed cost.

[John Pollard, Co-CEO at Pollard Banknote Limited]

It's an accounting exercise a little bit, that a report might actually say a lower gross margin than average on California Lottery. But if you really backed out the fixed cost allocation, that it makes it quite a bit higher. California Lottery wouldn't be driving up significantly or maybe much at all our overall gross margin percentage. It's certainly very positive that the absolute number of gross margin. In terms of changing the percentage, it's probably not that material one way or the other, frankly, on the actual percentage.

[David McFadgen, Analyst at ATB Cormark]

Okay. And then just on Virginia Lottery, can you give us an update on the Virginia RFP?

[John Pollard, Co-CEO at Pollard Banknote Limited]

Virginia Lottery issued an RFP. If you recall, a while back, they pulled it, then they reissued it. That RFP is due, I believe, September 18th. And so that's an open RFP, and it's in with our bid team, and really not much more we can say than that at this juncture.

[David McFadgen, Analyst at ATB Cormark]

Have they announced or have they given an indication as to when they'll announce the winner of the RFP and then when that winner would take over the contract?

[John Pollard, Co-CEO at Pollard Banknote Limited]

Well, the contract. Let's go from the end. The contract goes until the summer of 2028. It will run its full course with NPI, and then we will see what happens after that. They would announce their winner. In this case, I think they have expectations to do that later in November. But when lotteries indicate that as their timing, that is an indication. That is not a certainty.

[David McFadgen, Analyst at ATB Cormark]

Yeah. Okay. On NPI, that one customer that negatively impacted the NPI business in the quarter. Is that the first quarter where you have experienced the impact from that, and then we should expect another three quarters to lap it up?

[Rob Rose, CFO at Pollard Banknote Limited]

Sorry, David. It is Rob. No, last year, New Hampshire contract ended. It was in the comparative numbers for last year, but it is not in the numbers this year.

[David McFadgen, Analyst at ATB Cormark]

Okay. All right. Okay. Thank you.

[Rob Rose, CFO at Pollard Banknote Limited]

Thank you.

[John Pollard, Co-CEO at Pollard Banknote Limited]

Thanks, David.

[Operator]

Thank you. There are no further questions that came through. I will now turn the call back over to Mr. Doug Pollard. Please go ahead, sir.

[Doug Pollard, Co-CEO at Pollard Banknote Limited]

Okay. Thank you very much, John. We are very pleased with the results of our second quarter, and more importantly, we are very pleased that our results confirm that our underlying strategy, which we have, is the correct strategy to drive our long-term success. It was very nice to see in the quarter all of our major product lines are doing well. That is retail, including instant ticket, charitable gaming, as well as digital, and they all performed strongly, and we are very excited for the opportunities ahead of us for the rest of 2026 and beyond. For those of you on the call, thank you for joining us. Thank you for your support, and we look forward to updating you again next quarter. Until then, have a great rest of your day.

[Operator]

Thank you. This concludes our conference call for today. Thank you all for participating. You may now disconnect.

Participants

Executives

• Doug Pollard, Co-CEO
• John Pollard, Co-CEO
• Rob Rose, CFO

Analysts

• Stephen Boland, Analyst at Raymond James
• Robert Young, Analyst at Canaccord Genuity
• David McFadgen, Analyst at ATB Cormark