Pollard Banknote Limited (PBL) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of Pollard Banknote Limited. Please note today's meeting is being recorded. It is now my pleasure to turn today's meeting over to the Chair of the Board of Directors of Pollard Banknote Limited, Gordon Pollard. Mr. Pollard, the floor is yours.

Good morning, ladies and gentlemen. My name is Gordon Pollard, and I'm the Chair of the Board of Directors of Pollard Banknote Limited. On behalf of the Board of Directors, I'm pleased to welcome each of you to the Annual Meeting of Shareholders. We have the following matters of business to conduct today: one, the presentation of financial statements; secondly, the election of 5 directors; and thirdly, the reappointment of KPMG LLP as the corporation's auditors. Immediately following the formal business of this meeting, John Pollard and Doug Pollard, Co-Chief Executive Officers of Pollard Banknote, will provide a report on operations and will respond to any questions that you may have. [Operator Instructions] As this meeting is being held virtually via live audio webcast, voting on all matters will be conducted by electronic ballot. Registered shareholders and duly appointed proxy holders will be asked to vote on each business item after the presentation of all business items. When you are asked to vote, you will receive a message on the virtual interface requesting you to register your votes. You will only have a certain amount of time to cast your votes once the polls are open. Second -- sorry. As a reminder, only registered shareholders or their proxies are entitled to take part in and vote at this meeting. All participants, however, are welcome to post questions to our co-CEOs at the end of the meeting. On behalf of the Board, I wish to express thanks to those shareholders who have submitted their proxies in advance. To make the best use of our time, certain shareholders have been asked to move and second the proposals which are called for in the notice of the meeting. Having dealt with those procedural matters, we will now proceed with the formal portion of today's being. The meeting will now come to order. And with your approval, I will ask Riva Richard, General Counsel and Corporate Secretary of Pollard Banknote, to act as Secretary of the meeting, and Computershare Investor Services Inc. through its representatives to act as scrutineers at the meeting. The notice calling the Annual Meeting and the accompanying form of proxy and management information circular were mailed to all shareholders on April 7, 2022. This was confirmed by an affidavit from the corporation's transfer agent. I direct that a copy of the notice and the affidavit be kept with the records of the meeting, and therefore, it will not be necessary to read the notice of meeting. In accordance with applicable law and as described in the management information circular, the Directors determine that to be valid, proxies were to be deposited with the transfer agent not later than 11:00 a.m. Winnipeg time on May 10, 2022. As of that date, the transfer agent recorded proxies representing 87.35% of the voting shares. The shares of those present who are represented by proxy and who are entitled to vote at this meeting are, therefore, in excess of quorum requirements. That being so, I now declare the meeting is regularly called and properly constituted for the transaction of business. As the first item of business on the agenda for today's meeting, I will ask the Secretary to table the audited financial statements of Pollard Banknote Limited together with the auditor's report thereon and the report to the shareholders contained in the annual report previously sent to you. Copies of such documents are available on our corporate website and through SEDAR. Accordingly, I don't consider it necessary to read the report to the meeting. We now have a few resolutions to present, beginning with the election of Directors. Sadly, we are only nominating 5 Directors today. Our sixth Director, Garry Leach, died earlier this month. Garry served on our Board since 2009. He was Chair of nominating the Governance Committee and the Compensation Committee and served as Lead Director. Garry was keenly interested in the business and operations of Pollard Banknote. His many years in the steel business enabled him to provide valuable insights to the Board, and he was never hesitant to ask management the difficult questions. Garry was an outstanding Director, but he was a better friend. He has an enthusiastic art collector and golfer, loved classical music and biking, collected wine and energetically debated politics. And he shared all of his enthusiasms and passions with his many friends. The Pollard family, the Board of Pollard Banknote and our management team were very lucky to have Garry as a Director and a friend and we will dearly miss him. The number of Directors to be elected at this meeting and to hold office until the next Annual Meeting of Shareholders has been fixed at 5. However, it is the company's intention to have a sixth director, a third Independent Director, appointed through a [indiscernible] in the coming months. I declare the meeting open for nominations.

Mr. Chair, I nominate the following persons for election as Directors of Pollard Banknote Limited: Dave Brown, Lee Meagher, Gordon Pollard, John Pollard and Douglas Pollard. And move that they be elected Directors to hold office until the next annual election of Directors or until their successors are duly elected or appointed.

Are there any further nominations? As there are no further nominations, I will ask Jennifer Westbury to move that nominations be closed.

I move that nominations be closed.

I second the motion.

The next item of business is the reappointment of auditors and the authorization of the Directors to fix their remuneration. The Audit Committee of the Board of Directors has approved, subject to shareholder confirmation, the appointment of KPMG LLP as the auditor of the company. I believe Dave Brown has a motion in this regard.

Yes. I move that the accounting firm of KPMG LLP be appointed auditors of Pollard Banknote Limited to hold office until the next Annual Meeting of Shareholders or until their successors are appointed and that the Directors be authorized to fix their remuneration.

I second the motion.

As indicated, voting today will be conducted by electronic ballot. I will now ask that Computershare please open the balloting to registered holders and appointed proxy holders. All registered holders and proxy holders who have properly logged in with their control numbers or access codes are asked to please register their votes by selecting 4 or withhold next to the name of each Director and 4 or withhold next to the resolution appointing KPMG LLP as the company's auditor. Once the electronic balloting closes, the voting page will disappear. Your votes will be automatically submitted, and the scrutineers will compile an interim report. While we wait for the results of the vote, I would like to call upon John Pollard and Doug Pollard, Co-Chief Executive Officers of Pollard Banknote, to briefly report on the operations and current activities of the company. Following their presentation, if there are any general questions regarding the presentation or any other questions regarding Pollard Banknote which you would like to raise, we will be happy to address them for you. John and Doug?

Thank you very much, Mr. Chair. You see some forward-looking statements. Hopefully, you can see that agenda. I should start by introducing myself. I'm Doug Pollard, one of the co-CEOs. You'll hear from me and shortly from my brother, John, the other co-CEO as well. The agenda we want to cover today will be a few financial highlights as well as some highlights from 2021 by division, an acquisition update. Then we look at our 2021 annual financial results, and we look at our first quarter from 2022. So just a few of the financial highlights. You can see, 2021 was a pretty good year for us in lots of measures. One of the things you'll notice at the top left is it was a great year in terms of sales. We hit a milestone number. We round that up to almost -- up to 500, but very close to. That was a strategic objective for us to hit amongst our management and executive team, and we are very happy with that. The combined sales, as a reminder, includes both Pollard Banknote revenue as well as the consolidated NeoPollard Interactive joint venture sales. You can see that adjusted EBITDA is up. I will add, though, not quite as much as we would have liked considering some of the sales growth. But we'll explain some of that later on. And then finally, on the bottom left, you can see that the net debt is actually down, and that reflects a number of items: the share offering which we did during 2021, continued strong cash flow, carefully managed CapEx and, of course, our acquisition of Next Generation Lotteries, or NGL. Within the instant ticket world, we had very strong continued retail sales growth through 2021. That retail sales growth translated into growing orders for instant tickets from our lottery customers. With respect to iLottery, there was definitely a pandemic spike that led to iLottery sales more than doubling from the start of COVID. And while that tapered off a little bit throughout COVID, we saw that resume the strong organic growth within that iLottery sector. So we're very happy to see that. A foundation for us are some of our key contracts, and we had success with many new contract renewals and awards, including one that's particularly -- we are particularly happy and proud of is the contract... [Audio Gap] We've been saying for a long time through these presentations that we are in a growing industry, and you can see that in the 10-year CAGR numbers. Both worldwide and North America have seen consistent steady growth for a long, long time. But what you see in the top right is -- what you really see worldwide and including North America is the big growth that we've seen during COVID during that 2-year period, which was... [Audio Gap] 22% sales growth. Now that's retail sales, but it shows you it's a very strong business. Now the Pollard instant ticket sales here is our sales, and you'll see, obviously, that -- while that grew, it did not grow as much as the sales of the industry. Although we have had very strong long-term growth, the 7.6% CAGR. But the 2021 numbers were affected by a few things. The first thing you'll see in bold at the bottom is the FX cost. The stronger Canadian dollar reduced sales by about $11 million from 2020 numbers. We should point out, during 2021, we were definitely capacity constrained during that time, which prevented us from being able to take as many orders as we would have liked, although we are making some good progress there. And it's also worth noting that lottery retail growth, particularly that which we saw during COVID, doesn't always translate to production for us as a manufacturer because of a few points. There has been a long-running trend towards higher price points, to more -- more lotteries launching $20, $30, and in some case, $50 tickets. And those higher price point tickets don't necessarily translate into as much volume. And in addition, during COVID, we definitely saw some inventory drawdowns from lotteries, where they would often pull games from the market before they were fully sold through, because COVID sales were so strong, they had a much higher sell-through than they would have normally had. And so that allowed some of the sales growth to come out of lotteries' inventories. But kind of like an accordion, you start to see that turning around now with very strong sales and orders for us as that accordion reverses. A little reminder about the state of the industry. We've already highlighted significant growing demand for lottery products, particularly instant tickets. There is limited existing capacity for instant ticket manufacturing. When we talk to our fellow competitors -- there are only 3 of us, but we -- I'm pretty sure we are all in the same position that there is constrained capacity. When you combine that with the third bullet, you see here a very high barrier to entry for potential new suppliers. It suggests that we should be able to see some price increasing going forward, which we'll address when we get to some feedback about inflation. It's also worth noting still that lotteries, particularly in North America, really look to their supply chain for ways to continue growing their revenue. And that growth and the innovation they look for there, fits very well with us because they're looking to do that through expanded retail channels, through new ways of selling in existing channels, through iLottery and through digital innovation, all of which lines up with priorities for us. Within the retail group, we have the combined what was Schafer and Fastrak. We've now rebranded it as Schafer Retail Solutions. This entity produces the retailer merchandising solutions. So we like to design outstanding games that look terrific, but we also want to have great merchandising solutions for lotteries so that players see it when they go to retail. And that's what Schafer Retail Solutions does. And that can help sell more tickets for lotteries at existing retailers with things like traditional convenience stores, where we use products like the digital menu board, which you see on the left side of your screen. And that additional visibility at a convenience store can help lift sales. It also helps lotteries to introduce new retail channels. So that red device you see on the middle is a Select 4, which is a great product to help introduce instant ticket sales and make them manageable for bars and restaurants. And we're seeing some success there and lots of interest. And of course, it's a big priority for lotteries to start selling tickets in-lane, particularly self-service in-lane. And our [ EasyBan ] solution, which we're working on, will help us with that. It is worth noting in this retail group -- for merchandising solutions, 2021 was a tougher year in the merchandising area. That was largely driven by the fact that the lotteries' field sales reps for portions of the year and depending on the lottery were just not out in the field as often, and so fewer resets and fewer reorders of some of our more traditional products. But we're starting to see that turn around now. I don't think we'll cover that, but that will be there for the record. This will be posted to our website, and you can study that later on, if you'd like. If I move now to iLottery. A little reminder that our NPI, or NeoPollard Interactive, portfolio for iLottery covers these lotteries in Michigan, New Hampshire, North Carolina, Virginia and Alberta. Our portfolio in the iLottery space in North America is still by far the largest. It is a little disappointing that in 2021, notwithstanding the tremendous growth in sales for these lotteries and iLottery, we did not see any new contracts coming up. I will assure you, however, that our -- we have pretty significant legislative efforts to help get approval of iLotteries. Definitely, lotteries want to go forward, but we need some help getting that through the legislative cycle, and we are heavily engaged in that push. If you look on this slide, it shows the net gaming revenue for iLottery for the NeoPollard clients that we have. And you can see quite clearly here -- this is quarter-by-quarter going back to 2019, but you'd see a similar chart if you went back before that, long term steady growth in iLottery proceeds. You also see, however, is in Q1 of 2021, you start -- you really see that explosive growth that we saw. That was partially from COVID. But it's also worth reminding you that at Q1 of 2021 is when we had kind of a historic double billion jackpots in January 2021 in both Powerball and Mega Millions. And those big draw games are great ways to recruit new players into iLottery. So that really spiked the sales. Since then, there's a little plateau. But we're now seeing the growth resuming, as you can see. So long term steady growth. We're very happy with what we see in iLottery from our existing customers. You can see that here -- or you can see that combined revenue, I guess that third line down, is going up. And so that's gone up to $66.8 million in 2021. You can see there on the top line, Michigan iLottery actually went down. That's a factor of 2 things to give you a bit of color on that. Number one, Michigan was the pioneer in many ways and some of their gross gaming revenue did slow down a little bit. But also very importantly, in that time, we saw a price cut, which we negotiated with the Michigan Lottery in return for a 4-year extension of our contract, which was still a very good deal for us and for the lottery, I might add, given the success that Michigan continues to have. But that does show up there. You can also see that profits at NeoPollard combined are up. I will acknowledge, though, that because of a shift there somewhat to lower -- to less profitable gaming verticals and particularly some of that shift into the new revenue from Alberta, the profit is not up as much as we'd like. Although even within that portfolio, games in Alberta, where they have a much broader portfolio than our U.S. customers because they can also offer casino products, we are shifting that mix as well. So we're making some progress, which you'll start to see in Q1 here, if I flip to that. So now you can see going back 4 or 5 quarters, depending on how you want to look at it. Nice to see on that top line Michigan is growing again. So you can see that. It's a little bit unfair in some ways to compare 2022 to 2021, because, as I said, that 2021 Q1 was really an exceptional quarter led by some unusual jackpot activity. But nonetheless, when you look at this, you can see not just Michigan, but Pollard overall, the combined revenue is growing. So steady growth in all accounts. And you can see at the bottom that, that sales growth is translating nicely into income. And so that reflects some of the revised pricing is now in place for iLottery in Michigan, but also some of the work that we've done to make some of the accounts like Alberta more profitable with some of their mix. We like to show this chart because it just reminds us that NPI is still without question the market leader, and we are an active participant in that. It fits with our strategic vision of being the best partner to help lotteries raise more money for good causes we support. This shows the per capita iLottery revenue that these states saw. And so Michigan, New Hampshire and Virginia are, of course, NeoPollard accounts. Our one competitor runs Georgia and Kentucky, another one runs Pennsylvania and a different runs D.C. But when you look at the per capita numbers, you can see the NPI accounts definitely outperform, which we think gives us long -- a real competitive advantage going forward. I did want to highlight Next Generation Lotteries, or NGL. It's a company we acquired in early 2021. They do have games and platforms currently operating in multiple European jurisdictions. But since we acquired them, there has been very significant platform development, which we have undertaken to make sure that they have a world-class platform. And there's also been continuing and significant investment made into their games studio resources, again, fitting with our strategic vision of having outstanding games. So whereas NPI focuses its efforts on North America through NGL, we have an ability to bring great iLottery platform and games to our customers in Europe, and indeed, in the rest of the world. One thing about NGL, through some of the investments that we're making there, we are very excited. We think we've now got some great technology and some games we're really excited about. Historically, NGL's market penetration has not been as strong, but we are very confident that's where we can help them. And we think, ultimately, that will start to show an impact in their financials as we start to turn that around. Again, in the digital and iLottery space, I might just highlight one of our acquisitions, mkodo. Just a reminder, mkodo does, what I call, front-end apps and websites for both iLottery and iGaming, which I might add that mkodo was very good at. And as iGaming in general has been growing, particularly iLottery, that's created more market opportunities for mkodo to grow its revenue using its unique market expertise with its apps and mobile interfaces. Kind of a -- and so that's some work that we've been doing with a number of different lotteries and iGaming companies around the world. But we also like to point out one development as well, which you kind of see referenced here, [ geolocs ] or [ geolocks ] -- I can't really decide how that's pronounced, but I'll get it right eventually -- which is kind of a first for us. It's -- mkodo is branching into the specialized proprietary software-as-a-service, or SaaS, offering. And that [ geolocs ] is a -- it's a geo location service, and it's a software that -- it ensures that consumers are within appropriate jurisdictional boundaries, which is a requirement in regulated iGaming and iLottery services. And it's an example of a service we're really excited about, that it should really help scale very nicely and contribute to the profitability on an ongoing basis of mkodo. So I'm now going to -- we're going to jump to charitable gaming. And for that, I'm going to turn it over to John Pollard, our other co-CEO.

Thanks, Doug. So the last division or area the company will talk about is charitable gaming. As Doug said and -- really, look -- in some ways, charitable gaming was the star of the show in 2021. And we'll just get into that a little bit here. We'll just remind people that there are 4 companies in that division: American Games, International Gamco, who are primarily the paper ticket based suppliers and pull-tabs and bingo paper, as you see on the screen there. And then Diamond Game, we acquired a few years ago, is the e-gaming or e-pull-tab supplier that primarily sells their product through a kiosk-type device like an ATM, as you would see in the picture. And then, of course, Compliant Gaming is the fourth company that we just acquired at the start of 2021, and they offer essentially the exact same e-tab products as Diamond Game, except delivered in a tablet, like a generic iPad format instead of on a kiosk. So those are the companies, and they had a terrific year. I'll remind you, of course, that in 2020, during the pandemic, they had a really tough year because the jurisdiction -- or the venues, I should say, that their products are in is primarily bars, fraternal organizations and bingo halls. And of course, those were often just shut down completely during the pandemic. And even though there was strong demand for the products, obviously, you can't offer it if the venues are shut. So you can see in the chart, we got now -- in 2020, sales in this division were significantly diminished, obviously. But in 2021, it really came roaring back. And look at the significant growth that we had in 2021 over the pre-pandemic levels of 2019. This chart, by the way, you're looking at, shows all of our acquisition companies results as if we had acquired them in all those years. So obviously, we didn't own all of them necessarily back to 2017, but we restated their historical figures so you could clearly show sort of more like same-store growth there. There's no effect of the acquisitions in there. And so look at the strong growth you see in 2021. And that's continued even more so in the first quarter of 2022. Because even in 2021, there were still some lingering effects, particularly for Diamond Game in Ontario, where the bingo halls were shut for significant periods of time. So we still had the COVID effects in there, notwithstanding that had some great growth. So this has really become a significant part of our business now with these acquisitions that we've had, but also the success they've had. And the nice thing about this market is their contracts are all short term or essentially month-to-month with private distributors in most cases or on a rev share basis. And therefore, the difficulties that we had in our government contract side with inflation in the instant ticket side and others is not in this division. We are able, when we choose to, to put through price increases and pass on the inflationary costs that are occurring in this line of work. They are not as significant here as well because in the e-gaming systems the input cost inflation is not the same as with consumable products. But that's a nice feature of this business. So sales are growing strongly and profits have grown strongly as well. We'll just quickly talk about acquisitions. There isn't too much to say here. But really, we've completed 9 acquisitions over the last few years, as this slide says. Two of them were relatively small, but the others were quite significant. And they've really all done very well and we're pleased with them. And we're kind of focusing our efforts in a lot of ways now on making sure those get really effectively integrated and we maximize our opportunities from them. So there's lots of work going on to bring those into the fold. We still are actively looking, but the primary areas that we're really looking at are really digital game content. That's going to be increasingly important for us. We feel we've got a terrific iLottery platform now both with our NeoPollard joint venture and our new NextGen Lottery acquisition. But we want to develop more of our own games. And so a game studio would be great to supplement the ability we have to produce our own digital games now. And we also continue to look in the charitable gaming business. There are some opportunities there to do further acquisitions. So those are the areas we're mostly focusing on, and we'll continue to work hard at that, but likely a smaller part of our business the next year or so than in the last few years. Hand in hand in some ways with the acquisition strategy, so I just talk about capital strategy really quickly. Really, the main issues here are simply that we continue to have really good cash flow from the business. And so that, combined with the very successful share offering that we did during 2021, has meant that our leverage ratio is really coming down nicely. We're only at 1.47 a ratio of debt-to-EBITDA. So really pleased with that. Mr. Rose, you heard from earlier in this meeting, has done a great job also negotiating a super bank deal for us. We've expanded our lines there. So we've got, as we note in this point, $175 million of dry powder, as Rob likes to say, for room in our lines to make sure that we have terrific ability to take advantage of any acquisitions that we can successfully realize, or there are potentially some capital expenditures coming up next year, it could be larger, just for organic growth because we're seeing such good sales growth in our division. So really well positioned for capital. We'll maybe just switch now to the dryer numbers part of the presentation, although for the accountants like me, it's maybe not so dry. But we'll quickly talk about the 2021 year as a whole and then flip to just looking at Q1 for 2022. So 2021, as you see on your screen here, it was an interesting year. You have really strong sales growth. And Doug talked about that milestone, will round up to $500 million of sales, the $499 million of combined sales. And again, the difference between our sort of GAAP sales of the $459 million we show there and the $499 million, is the $40 million of our share of sales in the NeoPollard joint venture that isn't in GAAP sales because of the nature of the accounting we have to do. That shows you the explosive growth we had in those non-Michigan NeoPollard accounts, though, right, that -- you can see the small difference between sales and combined sales in 2020 and the big difference in 2021 because of the tremendous growth we had in that -- in all those other non-Michigan accounts, really terrific. And the rest of our business is growing strongly, too. The gross margin is a little bit disappointing because of a couple of things we'll talk about coming up in slides, some cost pressures we have and mix issues. On this slide, again, our NPI joint venture share of income. Again, those are the non-Mission account -- sorry, non-Michigan accounts that flow through the joint venture. Really strong growth in profitability there to grow with that strong growth in sales. So a really a high point there. Other income expense line is sort of a very strange one because there's a lot of unusual -- or a few unusual items going through it. In earlier years, the CEWS or Canada Emergency Wage Subsidy goes through there in a positive way. That, of course, went down in 2021. And reflected in 2021 as well is the earn-out payments that we are happy to be having to make to the former owners of Compliant. That successful acquisition essentially gets expensed through other income. So it shows up in a strange way there and makes that line a little hard to figure out. But the details in the notes are all in the financials. When you adjust for those things, adjusted EBITDA, right below, is up from $80 million to $84 million. So that's good. But as Doug said, we're disappointed that wasn't higher. We'll talk about that a little bit more coming up. And the net income line is really heavily affected, again, largely by that -- those earn-out payments having to be expensed in the other income line. That's why it largely shows as negative as it does compared to last year. So just digging into a little more detail. I don't think we need to talk too much about the combined sales slide here. We'll talk about it a bit more coming up. And just to show that it's a tremendous growth story there. And we've been hampered by a few things delivering that profit to the bottom line in 2010, but -- sorry, in 2021. But that should get better over the next year or 2. Adjusted EBITDA. Again, over the last 5 years as we've doubled our sales, we've more than doubled our adjusted EBITDA. So we're really thrilled with that progress. And we'll get into the details in a slide or 2 on the change between this year and last year. We've talked about the strong cash flow. 2021 was no exception. Again, we had a little heavier CapEx in 2021 partly due to our acquisitions and partly due to this -- as Doug talked about, we are investing a bit of money in platform and digital games at NextGen Lottery, and we're happy to be doing that. But notwithstanding the slightly heavier CapEx, you can see almost $22 million of free cash flow on the bottom line there, which is why, as Doug pointed out earlier, that our net debt is actually lower this year now than it was last year. So we continue to see that strong cash flow is a big part of our business. If we drill down just a little bit into the full year fiscal 2021 sales, really sort of all green on that chart except for mostly one item, which was that stronger impact of the Canadian dollar. You can see a pretty significant negative $22 million impact because of the Canadian dollar strengthening. And of course, most of our sales are still in U.S. dollars and a little bit in euros. And so that's why it hits our sales so negatively. So tremendous growth, notwithstanding that we took that $22 million hit. The Canadian dollar, as we speak today, has weakened off a little bit. So maybe we'll get a little bit of that back in 2022, if we're lucky. And then, of course, we have the slightly lower Michigan iLottery sales, which is a shame to even show that. They're at $5 million negative, because overall iLottery was huge growth, as we talked about a minute ago in that slide. What's missing on this slide, in the total of $459 million, is the $40 million of sales from our other 4 iLottery accounts. And of course, if you put them on this chart, that negative $5 million in iLottery would be like positive $30 million or whatever. Don't quote me on that exact number. But close to that, $25 million or so. So it's really a great story in iLottery. And just the way the accounting shows up, it doesn't look quite as good. And the rest of our business is really all green. So pretty good news basically all around on this chart. The EBITDA is a little more of a nuanced, if I want to put it -- a one-way story, I guess. The good news, you can see that really strong green number, $15 million positive, from the charitable gaming and e-gaming systems. That's those 4 companies: American Games International Gamco, Diamond and Compliant that we talked about. Superstar performance there. Now remember, they were coming out of 2020 where they had very bad performance in the pandemic. So there's a little bit of a rebound effect there. But notwithstanding, really strong performance. And we see that continue when we get to the first quarter of 2022. So tremendous success there. Here, you see where -- in total, iLottery is higher because now you bring in the impact of the non-Michigan accounts that don't show up through sales. Again, as Doug said, $2.8 million higher on iLottery, only is a little less than you might expect to see with the big sales jump. And that's because of the changes we had to make in the Michigan contract, which in the long run are fantastic, but in the short run cost us a bit, and the mix in those non-Michigan accounts. But that's all going to be just improving now going forward and we'll see that in 2022. The sort of negative part of our EBITDA situation is really 2 items, primarily. Well, I should say 3 because if you flip over, of course, the Canada Emergency Wage Subsidy, you see the negative $2.6 million there. We qualified for significantly less CEWS in the year. So that comes off our EBITDA line. But the other story is really our -- in those other part of our businesses, primarily instant lottery tickets and the other ancillary products, beyond iLottery and charitable gaming, we had sales growth in the year, as we saw earlier. But we, as you can see on this page, did not have EBITDA growth. That comes down to some of the things we've been talking about the last couple of quarters, which is the challenging supply chain issues, the challenging mix issues we had in Q3 and Q4 with our sales mix, which is temporary. That's just -- that's sort of timing of orders. And also the inflation problems creeping in. So the combination of those 3 things meant that even though we had some decent sales growth in those areas, our EBITDA was actually slightly negative. You can see we had a little higher SG&A of $3.8 million there in those areas, and the EBITDA effect was actually slightly negative. So a disappointment, but we are addressing that going forward. And I'll come to that a little bit too later on in the next slide coming up. And lastly, our NGL acquisition is a fantastic long-run investment that we're thrilled with. But in the short run, it does not generate operating profits. And the slightly negative in that $7 million of SG&A that we inherited due to our acquisitions, the chunk in there, of course, is NGL. And it's not contributing a margin to compensate for that. So there's a little negative impact from NGL. So that's the disappointing part of 2021 was that EBITDA wasn't higher, but all those things are going to be improving in 2022, we expect, and going forward. So I think that sort of covers the 2021 year, and we'll flip into Q1 of 2022. There is sort of a highlights page there that I won't maybe spend too much time on. Sales are up a little bit. Now remember, Q1 of 2021 was a fantastic quarter for us. Doug talked about the double billion jackpot run. We had tremendously strong mix in the iLottery -- sorry, in the instant ticket side in that quarter. So it is a bit of a tough comparison for us. But notwithstanding that, sales are still a little bit higher in Q1 this year from last year. And fundamentally, the EBITDA and gross margin is down sort of $2 million to $4 million largely due to 2 things. Our iLottery profits are down about $2 million just quarter-to-quarter because we had that supercharge double jackpot in Q1 of 2021. And we have 2 million of less CEWS, the Canada Emergency Wage Subsidy in the quarter. If you pull those things out, our adjusted EBITDA would be about the same, and that would be comparing to a really strong quarter in Q1. Within that still, what we saw is stronger results in charitable and weaker offsetting results in instant ticket and other areas, though, and balancing the rest of it. But that's the quick highlights on Q1. If we drill down into the details a little bit more -- here's where you can see that -- again, continuing really strong charitable and e-gaming sales. And our other ancillary products, like Doug talked about in the Schafer division, for instance, starting to see a rebound coming out of COVID. And we had higher instant ticket volumes, only slightly. Again, that's been a challenging area for us that Doug talked about. It's been really difficult hiring staff, not any different than any manufacturer is facing, I think, in North America these days. So although we had demand to produce more product, we were limited in our ability to produce it largely because we could not hire enough staff just fast enough. We are slowly making progress on that. You can see we did get some improvement in Q1 here with that $2 million higher volumes, and we continue to get better. But we are capacity constrained by that, as Doug says. And tremendous opportunity there as we do boost up our staffing to grow our sales because the demand is for sure there. So strong sales. But then we still had a lingering mix problem. So you see the negative $3.9 million lower instant ticket average selling price. We still had a mix -- a bit of a mix problem in our instant tickets in Q1. That is definitely going to turn around in Q2 and Q3. But a little bit of a mix that carried over and some lower Michigan iLottery sales. So the sales trends are still really all positive and that mix issue is going to turn around as we get later into the year. If we lastly flip to the adjusted EBITDA for Q1, again, no surprises here. You can see the positive impact from the higher charitable sales. You can see that there's negative impact from our instant ticket mix that we just talked about. You can see that $2 million lower iLottery EBITDA, which is strictly to the effect of the double jackpots. And as Doug showed you in his discussion of the sequential quarterly results in iLottery, you'll recall that sequentially our iLottery results are increasing. It's just when you compare all the way back to a year ago that it looks lower. And of course, we just talked that we had $2 million less of CEWS. So that's the story on EBITDA for Q1. Again, we'll highlight the strong cash flow, $7 million positive cash for the quarter again. So our net debt position continues to be really strong. And lastly, I think what we'll just talk about is the inflation situation. Certainly, we're getting hit with some inflation issues on our input costs. A little bit of that showed up in the latter part of 2021 and started to show up more heavily in Q1 of 2022 and will be a little bit worse in Q2 and Q3 if they maintain where they are going forward. As we said, in charitable gaming, we can pass that along fully. There's no issues there. But in instant tickets, due to the nature of our contracts, these fixed price contracts we have with the government lotteries, which in the long run is still a fantastic thing to have in terms of stability for our business, but in the short run, it means we can't pass through price increases right away. But we're working on strategies to address this. And we do actually have some significant contracts coming up for renewal this year, and we will be expecting to be able to put through significant price increases that, if our shareholders can be a little bit patient into next year of 2023, they should start to see a significant difference in 2023 as we start to pass through some of these costs to our customers. And of course, we're also going to be increasing our volumes and taking advantage of that strong demand. And that will also help us address the inflationary situation. So if you just bear with us a little longer, you'll see us able to turn that around. Look, in the long run, we'll pass all those inflationary costs on. It might take 2 or 3 years as our contracts roll over, but we expect to be able to pass them all along. So I think that's the end of my lengthy chat. Thanks to all our shareholders for your support, and we're looking forward to delivering strong results going forward. And Doug, I'll end there unless there's anything you want to add to that.

No. Thank you very much, John. So as our Chair, Gordon Pollard, mentioned at the beginning...

Yes. So thank you, Doug and John. That was a very thorough presentation on the results of Pollard Banknote. The meeting is now open for questions. [Operator Instructions] I see we do have a question. So we'll take a look at it and give an answer.

So just a reminder that there -- yes, as the Chairman mentioned, there is the ability to do this online. So our first question comes from [ Russell McLean ], who asks if there has been any discussion about being active buyers of our shares in the market based on current prices. I presume that means for us to be actively buying them. Do you want to address that, John? Or do I answer?

I think all we can say there is that we have had a few people suggest that to us as we talk to our shareholders. There are some people who think that might be a good idea for us to pursue. And so we are giving it consideration, I guess. We certainly would have the ability to do that if we wanted to because of our strong balance sheet. But look, we still see ourselves as a growth company, and that relatively quickly, that share price should come back as we demonstrate growth in the EBITDA that should come back more strongly over the next year or 2. So we're constantly monitoring it, and it's a possibility. But there's no current plans to do so right now.

I guess it's also safe to add that there has been interest expressed for us about increasing liquidity of our shares in the marketplace as well. So that would also kind of fly in the face of that as well. So between the opportunities and liquidity, we -- it's probably not likely, but I guess we don't rule it out.

Correct.

We are holding on. If you have any challenges with the technology and hopefully -- I'm not sure what you do in that case. But hopefully, you can find the Q&A button, if you're looking to. This is a new platform for us. So thank you to our friends at Computershare for helping us with us.

Well, at least we know the questions work because we've got one. So...

Thank you, Mr. [ McLean ], for confirming the platform works.

Yes.

It appears that there are no further questions, so I'll now return to the formal business of the meeting. I'm advised by the scrutineers that the ballots and proxies deposited for the meeting have been voted in favor of the resolution. I hereby confirm that each of the 5 nominees have been elected as Directors of the company to serve until the next Annual Meeting of Shareholders or until their successors are duly elected or appointed. The appointment of KPMG LLP as the auditors of the company has been approved, and the Board of Directors of the company has been authorized to fix their remuneration. I direct that the results of the poll be included with the minutes of this meeting and the results of the voting be filed on SEDAR. That concludes the formal business of the meeting. As there is no further business to come before the meeting, I shall ask Jennifer Westbury for a motion to terminate.

Mr. Chair, I move that the meeting terminate.

I second the motion.

Thank you, Mr. Rose. I now declare the meeting terminated. And I thank all of you for your attendance.