UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE
13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of November, 2018
Commission File Number: 001-35078
POINTS INTERNATIONAL LTD. |
(Translation of registrant's name
into English) |
111 Richmond St., W. Suite 700, Toronto, ON, M5H 2G4, Canada |
(Address of principal executive
offices) |
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F [ ] Form 40-F [X]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes [ ] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________________.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Points International Ltd. | ||
(Registrant) | ||
Date: November 13, 2018 | By: | /s/ Erick Georgiou |
Name: | Erick Georgiou | |
* Print the name and title under the signature of the signing officer. | Title: | Chief Financial Officer |
NYC#: 108692.1 |
Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. |
SEC1815(04-09) |
EXHIBIT INDEX
Condensed Consolidated Interim Financial Statements
Points InternationalLtd.
September 30, 2018
Contents
1 | P a g e |
Points International Ltd.
Condensed Consolidated Interim Statements of Financial Position
Expressed in thousands of United States
dollars
(Unaudited)
As at | September 30, | December 31, | |||||
2018 | 2017 | ||||||
ASSETS | Note | ||||||
Current assets | |||||||
Cash and cash equivalents | $ | 55,668 | $ | 63,514 | |||
Restricted cash | 500 | 500 | |||||
Funds receivable from payment processors | 7,483 | 15,229 | |||||
Accounts receivable | 6,987 | 7,741 | |||||
Prepaid expenses and other assets | 10 | 2,085 | 2,420 | ||||
Total current assets | $ | 72,723 | $ | 89,404 | |||
Non-current assets | |||||||
Property and equipment | 2,211 | 2,128 | |||||
Intangible assets | 14,068 | 15,265 | |||||
Goodwill | 7,130 | 7,130 | |||||
Deferred tax assets | 3,446 | 2,557 | |||||
Other assets | 2,627 | 2,661 | |||||
Total non-current assets | $ | 29,482 | $ | 29,741 | |||
Total assets | $ | 102,205 | $ | 119,145 | |||
LIABILITIES | |||||||
Current liabilities | |||||||
Accounts payable and accrued liabilities | $ | 7,066 | $ | 7,998 | |||
Income taxes payable | 914 | 695 | |||||
Payable to loyalty program partners | 53,362 | 65,567 | |||||
Current portion of other liabilities | 10 | 816 | 1,400 | ||||
Total current liabilities | $ | 62,158 | $ | 75,660 | |||
Non-current liabilities | |||||||
Other liabilities | 414 | 538 | |||||
Total non-current liabilities | $ | 414 | $ | 538 | |||
Total liabilities | $ | 62,572 | $ | 76,198 | |||
SHAREHOLDERS EQUITY | |||||||
Share capital | 54,320 | 56,394 | |||||
Contributed surplus | 4,366 | 10,647 | |||||
Accumulated other comprehensive income (loss) | (131 | ) | 374 | ||||
Accumulated deficit | (18,922 | ) | (24,468 | ) | |||
Total shareholders equity | $ | 39,633 | $ | 42,947 | |||
Total liabilities and shareholders equity | $ | 102,205 | $ | 119,145 | |||
Guarantees and Commitments | 8 | ||||||
Credit Facilities | 11 |
The accompanying notes are an integral part of these
condensed consolidated interim financial statements.
2 | P a g e |
Points International Ltd.
Condensed Consolidated Interim Statements of Comprehensive
Income
Expressed in thousands of United States dollars, except per
share amounts
(Unaudited)
Note | For the three months | For the nine months | |||||||||||
ended | ended | ||||||||||||
September | September | September | September | ||||||||||
30, 2018 | 30, 2017 | 30, 2018 | 30, 2017 | ||||||||||
(restated | (restated | ||||||||||||
Note 3(a)) | Note 3(a)) | ||||||||||||
REVENUE | |||||||||||||
Principal | $ | 88,689 | $ | 87,765 | $ | 263,394 | $ | 249,724 | |||||
Other partner revenue | 5,669 | 3,824 | 17,933 | 10,787 | |||||||||
Total Revenue | 4 | $ | 94,358 | $ | 91,589 | $ | 281,327 | $ | 260,511 | ||||
EXPENSES | |||||||||||||
Direct cost of principal revenue | 81,776 | 80,268 | 241,528 | 226,970 | |||||||||
Employment costs | 6,934 | 6,660 | 20,698 | 18,731 | |||||||||
Marketing and communications | 308 | 388 | 1,096 | 1,391 | |||||||||
Technology services | 545 | 489 | 1,592 | 1,390 | |||||||||
Depreciation and amortization | 858 | 1,029 | 2,624 | 3,017 | |||||||||
Foreign exchange (gain) loss | 40 | (75 | ) | (33 | ) | (183 | ) | ||||||
Operating expenses | 1,970 | 1,986 | 6,483 | 6,068 | |||||||||
Total Expenses | $ | 92,431 | $ | 90,745 | $ | 273,988 | $ | 257,384 | |||||
Finance income | 242 | 71 | 446 | 158 | |||||||||
INCOME BEFORE INCOME TAXES | $ | 2,169 | $ | 915 | $ | 7,785 | $ | 3,285 | |||||
Income tax expense | 693 | 310 | 2,239 | 1,096 | |||||||||
NET INCOME | $ | 1,476 | $ | 605 | $ | 5,546 | $ | 2,189 | |||||
OTHER COMPREHENSIVE INCOME (LOSS) | |||||||||||||
Items that will subsequently be reclassified to profit or loss: | |||||||||||||
Unrealized gain
(loss) on foreign exchange derivative designated as cash flow hedges |
205 | 573 | (545 | ) | 1,101 | ||||||||
Income tax effect | (54 | ) | (151 | ) | 144 | (292 | ) | ||||||
Reclassification
to net income of loss (gain) on foreign exchange derivatives designated as cash flow hedges |
180 | (192 | ) | (141 | ) | (132 | ) | ||||||
Income tax effect | (48 | ) | 51 | 37 | 35 | ||||||||
Other comprehensive
income (loss) for the period, net of income tax |
$ | 283 | $ | 281 | $ | (505 | ) | $ | 712 | ||||
TOTAL COMPREHENSIVE INCOME | $ | 1,759 | $ | 886 | $ | 5,041 | $ | 2,901 | |||||
EARNINGS PER SHARE | |||||||||||||
Basic earnings per share | 6 | $ | 0.10 | $ | 0.04 | $ | 0.39 | $ | 0.15 | ||||
Diluted earnings per share | 6 | $ | 0.10 | $ | 0.04 | $ | 0.38 | $ | 0.15 |
The accompanying notes are an integral part of these
condensed consolidated interim financial statements.
3 | P a g e |
Points International Ltd.
Condensed Consolidated Interim Statements of Changes in Shareholders
Equity
Expressed in thousands of United States | |||||||||||||||||||
dollars except number of shares |
Attributable to equity holders of the Company |
||||||||||||||||||
(Unaudited) | Accumulated | ||||||||||||||||||
Share Capital | other | Total | |||||||||||||||||
Note | Number of | Amount | Contributed | comprehensive | Accumulated | shareholders | |||||||||||||
Shares | Surplus | income (loss) | deficit | equity | |||||||||||||||
Balance at December 31, 2017 | 14,561,450 | $ | 56,394 | $ | 10,647 | $ | 374 | $ | (24,468 | ) | $ | 42,947 | |||||||
Net income | - | - | - | - | 5,546 | 5,546 | |||||||||||||
Other comprehensive loss, net of tax | - | - | - | (505 | ) | - | (505 | ) | |||||||||||
Total comprehensive income | - | - | - | (505 | ) | 5,546 | 5,041 | ||||||||||||
Effect of share option compensation plan | 7 | - | - | 40 | - | - | 40 | ||||||||||||
Effect of RSU compensation plan | 7 | - | - | 3,157 | - | - | 3,157 | ||||||||||||
Share issuances options exercised | 7 | 118,288 | 1,348 | (997 | ) | - | - | 351 | |||||||||||
Settlement of RSUs | 7 | - | 1,316 | (3,905 | ) | - | - | (2,589 | ) | ||||||||||
Share capital held in trust | 7 | - | (2,956 | ) | - | - | - | (2,956 | ) | ||||||||||
Shares repurchased | 5 | (457,556 | ) | (1,782 | ) | (4,576 | ) | - | - | (6,358 | ) | ||||||||
Balance at September 30, 2018 | 14,222,182 | $ | 54,320 | $ | 4,366 | $ | (131 | ) | $ | (18,922 | ) | $ | 39,633 | ||||||
Balance at December 31, 2016 | 14,878,674 | $ | 58,412 | $ | 9,881 | $ | (127 | ) | $ | (27,848 | ) | $ | 40,318 | ||||||
Net income | - | - | - | - | 2,189 | 2,189 | |||||||||||||
Other comprehensive income, net of tax | - | - | - | 712 | - | 712 | |||||||||||||
Total comprehensive income | - | - | - | 712 | 2,189 | 2,901 | |||||||||||||
Effect of share option compensation plan | 7 | - | - | 223 | - | - | 223 | ||||||||||||
Effect of RSU compensation plan | 7 | - | - | 2,834 | - | - | 2,834 | ||||||||||||
Share issuances options exercised | 7 | 16,988 | 395 | (335 | ) | - | - | 60 | |||||||||||
Settlement of RSUs | 7 | - | 1,255 | (1,255 | ) | - | - | - | |||||||||||
Share capital held in trust | 7 | - | (1,053 | ) | - | - | - | (1,053 | ) | ||||||||||
Shares repurchased | 5 | (162,347 | ) | (644 | ) | (865 | ) | - | - | (1,509 | ) | ||||||||
Balance at September 30, 2017 | 14,733,315 | $ | 58,365 | $ | 10,483 | $ | 585 | $ | (25,659 | ) | $ | 43,774 |
The accompanying notes are an
integral part of these condensed
consolidated interim financial
statements.
4 | P a g e |
Points International Ltd.
Condensed Consolidated Interim Statements of Cash Flows
Expressed in thousands of United States dollars
(Unaudited)
For the three months | For the nine months | ||||||||||||
Note | ended | ended | |||||||||||
September | September | September | September | ||||||||||
30, 2018 | 30, 2017 | 30, 2018 | 30, 2017 | ||||||||||
Cash flows from operating activities | |||||||||||||
Net income for the period | $ | 1,476 | $ | 605 | $ | 5,546 | $ | 2,189 | |||||
Adjustments for: | |||||||||||||
Depreciation of property and equipment | 247 | 238 | 715 | 649 | |||||||||
Amortization of intangible assets | 611 | 791 | 1,909 | 2,368 | |||||||||
Unrealized foreign exchange loss (gain) | (127 | ) | 716 | (558 | ) | 1,425 | |||||||
Equity-settled share-based payment transactions | 7 | 1,054 | 1,321 | 3,197 | 3,057 | ||||||||
Deferred income tax recovery | (337 | ) | (46 | ) | (708 | ) | (444 | ) | |||||
Unrealized net loss (gain) on derivative contracts desig- | |||||||||||||
nated as cash flow hedges | 385 | 381 | (686 | ) | 969 | ||||||||
Changes in non-cash balances related to operations | 9 | (17,426 | ) | 3,975 | (4,757 | ) | (5,808 | ) | |||||
Net cash provided by (used in) operating activities | $ | (14,117 | ) | $ | 7,981 | $ | 4,658 | $ | 4,405 | ||||
Cash flows from investing activities | |||||||||||||
Acquisition of property and equipment | (60 | ) | (267 | ) | (798 | ) | (1,025 | ) | |||||
Additions to intangible assets | (189 | ) | (358 | ) | (712 | ) | (1,029 | ) | |||||
Settlement of short-term investment, net of interest | - | 10,033 | - | 10,033 | |||||||||
Net cash provided by (used in) investing activities | $ | (249 | ) | $ | 9,408 | $ | (1,510 | ) | $ | 7,979 | |||
Cash flows from financing activities | |||||||||||||
Proceeds from exercise of share options | - | 60 | 351 | 60 | |||||||||
Shares repurchased | 5 | (557 | ) | (1,439 | ) | (6,358 | ) | (1,509 | ) | ||||
Purchase of share capital held in trust | 7 | - | (857 | ) | (2,956 | ) | (1,053 | ) | |||||
Taxes paid on net settlement of RSUs | (53 | ) | - | (2,589 | ) | - | |||||||
Net cash used in financing activities | $ | (610 | ) | $ | (2,236 | ) | $ | (11,552 | ) | $ | (2,502 | ) | |
Effect of exchange rate fluctuations on cash held | 127 | (716 | ) | 558 | (1,425 | ) | |||||||
Net increase (decrease) in cash and cash equivalents | $ | (14,849 | ) | $ | 14,437 | $ | (7,846 | ) | $ | 8,457 | |||
Cash and cash equivalents at beginning of the period | $ | 70,517 | $ | 40,512 | $ | 63,514 | $ | 46,492 | |||||
Cash and cash equivalents at end of the period | $ | 55,668 | $ | 54,949 | $ | 55,668 | $ | 54,949 | |||||
Interest Received | $ | 212 | $ | 156 | $ | 358 | $ | 204 | |||||
Taxes Received | $ | - | $ | 114 | $ | 110 | $ | 114 | |||||
Taxes Paid | $ | (542 | ) | $ | (506 | ) | $ | (2,223 | ) | $ | (3,011 | ) |
Amounts received for interest were reflected as operating cash flows in the condensed consolidated interim statements of cash flows.
The accompanying notes are an integral part of these
condensed consolidated interim financial statements.
5 | P a g e |
POINTS INTERNATIONAL LTD.
NOTES TO THE
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
1. REPORTING ENTITY
Points International Ltd. (the Corporation) is a company domiciled in Canada. The address of the Corporations registered office is 111 Richmond Street West, Suite 700, Toronto, Ontario, Canada, M5H 2G5. The condensed consolidated interim financial statements of the Corporation as at and for the three and nine months ended September 30, 2018 comprise the financial results of the Corporation and its wholly-owned subsidiaries, Points International (US) Ltd., Points International (UK) Ltd., Points.com Inc., Points Development (US) Ltd. and Points Travel Inc. The Corporations shares are publicly traded on the Toronto Stock Exchange (TSX) as PTS and on the NASDAQ Capital Market (NASDAQ) as PCOM.
The Corporation operates in three reportable segments (see note 4 below):
Segment | Principal Activities |
Loyalty Currency Retailing |
Loyalty currency retailing operations for the Corporations loyalty partners retail consumers. |
Platform Partners |
A portfolio of technology solutions that enables the broad distribution of loyalty currencies across loyalty partner program and third party channels. |
Points Travel |
White-label travel booking solution for the loyalty industry that allows retail consumers to earn and/or use their loyalty currency while making certain online hotel and car bookings. |
The Corporations operations are not subject to significant seasonal fluctuations.
The consolidated financial statements of the Corporation as at and for the year ended December 31, 2017 are available at www.sedar.com or www.sec.gov.
2. BASIS OF PREPARATION
The condensed consolidated interim financial statements for the three and nine months ended September 30, 2018 have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB).
The notes presented in these third quarter 2018 condensed consolidated interim financial statements include only significant changes and transactions occurring since December 31, 2017, and are not fully inclusive of all disclosures required by International Financial Reporting Standards (IFRS) for annual financial statements. These condensed consolidated interim financial statements should be read in conjunction with the Corporations annual consolidated financial statements for the year ended December 31, 2017. All amounts are expressed in thousands of United States dollars, except per share amounts, or as otherwise indicated.
The condensed consolidated interim financial statements were authorized for issue by the Board of Directors on November 13, 2018.
3. SIGNIFICANT ACCOUNTING POLICIES
Except as described below, the condensed consolidated interim
financial statements follow the same accounting policies and methods of
application as those disclosed in the Corporations annual audited consolidated
financial statements for the year ended December 31, 2017.
6 | P a g e |
POINTS INTERNATIONAL LTD.
NOTES TO THE
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
(a) New standards adopted
Effective January 1, 2018, the Corporation adopted the following standards issued by the IASB.
| IFRS 15, Revenue from Contracts with Customers (IFRS 15); |
Effective January 1, 2018, the Corporation adopted the new standard and its amendments using the full retrospective transition method. As a result, all comparative information in these financial statements has been restated. The accounting policies set out in note 3(b) have been applied in preparing the condensed consolidated interim financial statements as at and for the three and nine months ended September 30, 2018, and the comparative information presented in these condensed consolidated interim financial statements as at and for the three and nine months ended September 30, 2017.
The application of IFRS 15 did not result in adjustments to the statement of financial position at January 1, 2017 or December 31, 2017, nor did it impact cash flow totals from operating, investing or financing activities. Certain adjustments were identified with respect to the classification and presentation of revenue and expenses which are summarized below:
|
Certain revenues previously classified as net are recognized as gross under IFRS 15. In determining whether the Corporation acts as a principal or an agent for each respective product and business line, the Corporation identified the specified good or service in the contract and then evaluated whether the Corporation controls that good or service before it is transferred to the customer. Factors considered in making the determination include whether the Corporation is primarily responsible for fulfilling the promise to provide the specified good or service, has inventory risk and/or has discretion in establishing the prices for the specified goods and services provided. Through this analysis, Management has concluded that: |
o |
The Corporation acts as principal for certain buy/gift transactions relating to loyalty partners where it was determined that the Corporation obtains control of the loyalty currency. The Corporation also acts as a principal in the delivery of certain services, including transfer, reinstate, hosting and website development services provided to loyalty partners. | |
o |
The Corporation acts as an agent for certain buy/gift transactions relating to loyalty partners where it was determined that the Corporation does not obtain control of the underlying loyalty currency. In addition, the Corporation acts as an agent for all of the Platform Partners offerings along with the Points travel products. |
|
Under IFRS 15, the Corporation reclassified interest earned on funds held as part of the sales process that does not represent revenue from contracts with customers to a separate line item called Finance Income. | |
|
Under IFRS 15, the Corporation has reclassified losses arising on certain Points Travel promotional offers, from marketing expenses to revenue. The reclassified amount represents the transaction price that the Corporation is entitled to in exchange for the services provided. |
Please refer to note 3(b) for the Corporations revised revenue
recognition policy.
7 | P a g e |
POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED
CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
Reconciliation of condensed consolidated statement of comprehensive income for the three months ended September 30, 2017
As | Loyalty | Points | Interest | Restated | |||||||||||
Originally | Currency | Travel | Reclassification | ||||||||||||
Presented | Retailing | ||||||||||||||
REVENUE | |||||||||||||||
Principal | $ | 87,200 | 565 | - | - | $ | 87,765 | ||||||||
Other partner revenue | 3,927 | (69 | ) | (34 | ) | - | 3,824 | ||||||||
Interest | 71 | - | - | (71 | ) | - | |||||||||
Total Revenue | $ | 91,198 | 496 | (34 | ) | (71 | ) | $ | 91,589 | ||||||
EXPENSES | |||||||||||||||
Direct cost of revenue | 79,772 | 496 | - | - | 80,268 | ||||||||||
Marketing and communications | 422 | - | (34 | ) | - | 388 | |||||||||
Total Expenses | $ | 90,283 | 496 | (34 | ) | - | $ | 90,745 | |||||||
Finance income | - | - | - | 71 | 71 | ||||||||||
Income before Income Taxes | $ | 915 | - | - | - | $ | 915 | ||||||||
NET INCOME | $ | 605 | - | - | - | $ | 605 |
Reconciliation of condensed consolidated statement of comprehensive income for the nine months ended September 30, 2017
As | Loyalty | Points | Interest | Restated | |||||||||||
originally | Currency | Travel | Reclassification | ||||||||||||
presented | Retailing | ||||||||||||||
REVENUE | |||||||||||||||
Principal | $ | 248,549 | 1,175 | - | - | $ | 249,724 | ||||||||
Other partner revenue | 11,116 | (133 | ) | (196 | ) | - | 10,787 | ||||||||
Interest | 158 | - | - | (158 | ) | - | |||||||||
Total Revenue | $ | 259,823 | 1,042 | (196 | ) | (158 | ) | $ | 260,511 | ||||||
EXPENSES | |||||||||||||||
Direct cost of revenue | 225,928 | 1,042 | - | - | 226,970 | ||||||||||
Marketing and communications | 1,587 | - | (196 | ) | - | 1,391 | |||||||||
Total Expenses | $ | 256,538 | 1,042 | (196 | ) | - | $ | 257,384 | |||||||
Finance income | - | - | - | 158 | 158 | ||||||||||
Income before Income Taxes | $ | 3,285 | - | - | - | $ | 3,285 | ||||||||
NET INCOME | $ | 2,189 | - | - | - | $ | 2,189 |
| IFRS 9, Financial Instruments (IFRS 9) |
IFRS 9 supersedes IAS 39 Financial Instruments Recognition and Measurement. The standard set out revised guidance for classifying and measuring financial instruments, introduced a new expected credit loss model for calculating impairment of financial assets and includes new guidance for the application of hedge accounting. The standard also requires that when a financial liability measured at amortized cost is modified or exchanged, and such modification or exchange does not result in derecognition, that the adjustment to the amortized cost of the financial liability is recognized in profit or loss. The Corporation has adopted IFRS 9 on a retrospective basis without restating comparative periods as it was not possible to do so without the use of hindsight.
The standard does not have an impact on the Corporations
results and may allow for simplified effectiveness testing going forward. The
Corporation has determined that there is no effect on the current or prior year
financial statements with regards to the adoption of IFRS 9. Please refer to
note 3(c) for the Corporations revised financial instrument policy.
8 | P a g e |
POINTS INTERNATIONAL LTD.
NOTES TO THE
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
The Corporation also adopted new amendments to the following accounting standards effective for our interim and annual consolidated financial statements commencing January 1, 2018. These changes did not have a material impact on our financial results.
| IFRS 2, Share-based Payment; and |
| IFRIC Interpretation 22, Foreign Currency Translation and Advance Consideration |
(b) Revenue recognition
The Corporations revenue is categorized as principal or other partner revenue, and is primarily generated through the sale of loyalty currencies, through services provided to loyalty partners program members, and through technology and marketing services provided to loyalty partners.
Contracts with customers
The Corporation records
revenue from contracts with customers in accordance with the five steps in IFRS
15 as follows:
1. |
Identify the contract with a customer; |
2. |
Identify the performance obligations in the contract; |
3. |
Determine the transaction price, which is the amount the Corporation expects to be entitled to; |
4. |
Allocate the transaction price among the performance obligations in the contract based on their relative stand-alone selling prices; and |
5. |
Recognize revenue when or as the goods or services are transferred to the customer. |
Principal Revenue
Principal revenue groups together
several streams of revenue that the Corporation realizes in delivering goods or
services to various loyalty programs and their customers. The following is a
list of revenue streams and the related revenue recognition policy.
(i) |
Reseller revenue is transactional revenue for the sale of loyalty currencies that occurs in contracts for which the Corporation takes a principal role in the retailing or wholesaling of loyalty currencies to loyalty program customers. The customer obtains control of the loyalty currency, and hence the performance obligation is satisfied, on completion of the transaction which aligns with the point in time the loyalty currency is transferred and payment is received. The Corporations role as the principal in the transaction is determined by the contractual arrangements in place with the loyalty program partner and their members. In this instance, the Corporation has determined that it obtains control of the loyalty currency prior to transferring it to the customer, this is due in part to inventory risk that is assumed by the Corporation. Other factors considered in making the determination include the fact that the Corporation is primarily responsible for fulfilling the promise to provide the specified good, and often has discretion in establishing the prices for the specified goods. Revenue is recorded on a gross basis. |
(ii) |
Service revenue is transactional revenue for the provision of transfer and reinstate services provided to loyalty program members. The Corporation is primarily responsible for fulfilling the promise to provide the services. Transfer and reinstate service revenue is recognized at the point in time the transaction is completed, which is also when payment is received. |
(iii) |
Hosting services are provided to loyalty program partners throughout the term of the loyalty program partner agreement. In addition to hosting services, technical design and development work is performed at the commencement of a business relationship with a loyalty program partner. These technical design and development activities are set-up activities that do not transfer a service to the customer. Consequently, there is only one performance obligation in the arrangement. The Corporation receives up-front fees, which are recorded as deferred revenue, to cover the cost of setting up the loyalty program web interface and customizing the look and feel of the site to that of the loyalty program partner. The hosting services begin, and hence revenue recognition commences when the loyalty program partner website is functional. Revenue is recognized on a straight-line basis over the life of the term of the partner agreement. Costs that relate directly to the contract are capitalized to the extent that they are expected to be recovered and are amortized as the services are transferred. |
9 | P a g e |
POINTS INTERNATIONAL LTD.
NOTES TO THE
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
(iv) |
Customized technical design and development services are provided to loyalty program partners who require custom programming or web-design work. These services are distinct from hosting services provided to the loyalty program partner. Revenue is allocated to the customization services on the basis of relative stand-alone selling prices and recognized over time based on percentage-of-completion. Progress towards completion is generally measured based on the total hours incurred to date on a contract relative to the total estimated hours. |
Other Partner Revenue
Other partner revenue is
primarily transactional revenue for facilitating the sale of loyalty currencies
or other goods or services to loyalty program members for which the Corporation
takes an agency role. The Corporations role as an agent is determined by the
contractual arrangement in place with the loyalty program partner and their
members. In this instance, the Corporation has determined that it does not
obtain control of the loyalty currency or other goods and services prior to
transferring them to the customer, this is due in part to the absence of
inventory risk. Other factors considered in making the determination include the
fact that the Corporation is not primarily responsible for fulfilling the
promise to provide the specified good and generally has limited discretion in
establishing the prices for the specified goods. Revenue is recorded on a net
basis.
When deciding the most appropriate basis for presenting revenue on either a gross or net basis, both the legal form and substance of the agreements between the Corporation, its partners and their program members are reviewed to determine each partys respective role in the transaction. This determination requires the exercise of judgment. In making this assessment, management considers whether the Corporation:
|
acts on behalf of the loyalty partner or the program member in identifying the customer in certain arrangements; |
|
controls the good or service being provided, prior to it being transferred to the customer; |
|
has primary responsibility for providing the goods and service to the customer; |
|
has inventory risk before or after the customer order; and |
|
has discretion in establishing prices for the specified goods and services |
(c) Financial instruments
All financial assets and financial liabilities are recognized on the Corporations consolidated statements of financial position when the Corporation becomes a party to the contractual provisions of the instrument.
(i) Classification and measurement of financial instruments
Under IFRS 9, the Corporations financial instruments are defined as follows:
Asset/Liability | Measurement |
Cash and cash equivalents | Amortized cost |
Restricted cash | Amortized cost |
Funds receivable from payment processors | Amortized cost |
Accounts receivable | Amortized cost |
Accounts payable and accrued liabilities | Amortized cost |
Payable to loyalty program partners | Amortized cost |
Derivatives | Measurement |
Expenditure derivatives | FVTOCI |
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POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED
CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
Financial assets held at amortized cost require the asset to be measured using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
Derivatives may be in an asset or liability position at a point in time historically or in the future. For derivatives designated as cash flow hedges for accounting purposes, the effective portion of the hedge is recognized in accumulated other comprehensive income and the ineffective portion of the hedge is recognized immediately in profit or loss.
(ii) Impairment of financial instruments
IFRS 9 requires impairment of financial assets to consider the expected lifetime credit losses at initial recognition, which is anticipated to result in earlier recognition of losses. IFRS 9 realigns hedge accounting to more closely reflect the Corporations risk management strategy.
(d) New standards and interpretations not yet adopted
The IASB has issued the following new standard. This standard has not yet been adopted by the Corporation and could have an impact on future periods.
| IFRS 16, Leases (effective January 1, 2019). |
This new standard is described in detail in the Corporations 2017 audited consolidated financial statements. The Corporation continues to assess the impact of this standard on its consolidated financial statements and the Corporation is progressing with its implementation of this standard.
Management is currently evaluating the implementation alternatives for the required January 1, 2019 implementation date. The application of IFRS 16 will result in an increase in leased assets and financial liabilities on the statement of financial position. The balances will primarily comprise of the leases for the three premises the Corporation leases for offices in Toronto, San Francisco and London. In the Statement of Comprehensive Income, there will be a reduction in Operating Expenses offset by an increase in amortization and interest costs, resulting in a minimal impact on Net Income.
4. OPERATING SEGMENT
The Corporations reportable segments are Loyalty Currency Retailing, Platform Partners, and Points Travel. These operating segments are organized around differences in products and services.
During the nine months ended September 30, 2018, the
Corporation re-defined the measure of segment profit or loss to Contribution
from Adjusted EBITDA. The Corporation determined that Contribution was the more
appropriate measure of segment profit or loss used by the Chief Operating
Decision Maker (CODM) in reviewing segment results and making resource
allocation decisions. Contribution is defined as gross profit (total revenue
less direct cost of principal revenue) for the relevant operating segment less
direct adjusted operating expenses. Direct adjusted operating expenses are
expenses which are directly attributable to each operating segment. Assets and
liabilities are not provided to the CODM at the operating segment level and are
therefore not allocated to the operating segments for reporting purposes. The
Corporation has restated the disclosures for the three and nine months ended
September 30, 2017 to reflect this change in segment performance measure. There
have been no changes in the Corporations reportable segments.
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POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED
CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
For the three months ended September 30, | Loyalty | |||||||||||
2018: | Currency | Platform | Points | Total | ||||||||
Retailing | Partners | Travel | ||||||||||
Total revenue | 91,950 | 1,940 | 468 | 94,358 | ||||||||
Direct cost of principal revenue | 81,572 | 167 | 37 | 81,776 | ||||||||
Gross profit | 10,378 | 1,773 | 431 | 12,582 | ||||||||
Direct adjusted operating expenses | 3,048 | 831 | 1,390 | 5,269 | ||||||||
Contribution | 7,330 | 942 | (959 | ) | 7,313 | |||||||
Indirect adjusted operating expenses1 | 3,434 | |||||||||||
Finance income | (242 | ) | ||||||||||
Equity-settled share-based payment expense | 1,054 | |||||||||||
Income tax expense | 693 | |||||||||||
Depreciation and amortization | 858 | |||||||||||
Foreign exchange loss | 40 | |||||||||||
Net income | 1,476 |
For the three months ended September 30, 2017: | Loyalty | |||||||||||
(restated, see Note 3(a)) | Currency | Platform | Points | Total | ||||||||
Retailing | Partners | Travel | ||||||||||
Total revenue | 89,326 | 1,824 | 439 | 91,589 | ||||||||
Direct cost of principal revenue | 80,105 | 152 | 11 | 80,268 | ||||||||
Gross profit | 9,221 | 1,672 | 428 | 11,321 | ||||||||
Direct adjusted operating expenses | 2,840 | 1,100 | 1,121 | 5,061 | ||||||||
Contribution | 6,381 | 572 | (693 | ) | 6,260 | |||||||
Indirect adjusted operating expenses1 | 3,141 | |||||||||||
Finance income | (71 | ) | ||||||||||
Equity-settled share-based payment expense | 1,321 | |||||||||||
Income tax expense | 310 | |||||||||||
Depreciation and amortization | 1,029 | |||||||||||
Foreign exchange gain | (75 | ) | ||||||||||
Net income | 605 |
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POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED
CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
For the nine months ended September 30, | Loyalty | |||||||||||
2018: | Currency | Platform | Points | Total | ||||||||
Retailing | Partners | Travel | ||||||||||
Total revenue | 274,063 | 5,883 | 1,381 | 281,327 | ||||||||
Direct cost of principal revenue | 241,018 | 437 | 73 | 241,528 | ||||||||
Gross profit | 33,045 | 5,446 | 1,308 | 39,799 | ||||||||
Direct adjusted operating expenses | 9,668 | 2,828 | 4,049 | 16,545 | ||||||||
Contribution | 23,377 | 2,618 | (2,741 | ) | 23,254 | |||||||
Indirect adjusted operating expenses1 | 10,127 | |||||||||||
Finance income | (446 | ) | ||||||||||
Equity-settled share-based payment expense | 3,197 | |||||||||||
Income tax expense | 2,239 | |||||||||||
Depreciation and amortization | 2,624 | |||||||||||
Foreign exchange gain | (33 | ) | ||||||||||
Net income | 5,546 |
For the nine months ended September 30, 2017: | Loyalty | |||||||||||
(restated, see Note 3(a)) | Currency | Platform | Points | Total | ||||||||
Retailing | Partners | Travel | ||||||||||
Total revenue | 253,863 | 5,786 | 862 | 260,511 | ||||||||
Direct cost of principal revenue | 226,500 | 433 | 37 | 226,970 | ||||||||
Gross profit | 27,363 | 5,353 | 825 | 33,541 | ||||||||
Direct adjusted operating expenses | 8,172 | 3,566 | 3,068 | 14,806 | ||||||||
Contribution | 19,191 | 1,787 | (2,243 | ) | 18,735 | |||||||
Indirect adjusted operating expenses1 | 9,717 | |||||||||||
Finance income | (158 | ) | ||||||||||
Equity-settled share-based payment expense | 3,057 | |||||||||||
Income tax expense | 1,096 | |||||||||||
Depreciation and amortization | 3,017 | |||||||||||
Foreign exchange gain | (183 | ) | ||||||||||
Net income | 2,189 |
1 Indirect adjusted operating expenses comprise
costs that are shared among the Loyalty Currency Retailing, Platform Partners
and Points Travel operating segments, including costs associated with various
corporate functions, such as Finance, Human Resources, Legal and certain
expenses associated with information technology infrastructure.
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POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED
CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
Enterprise-wide disclosures - Geographic information
Three months ended | Nine months ended | |||||||||||||||||||||||
For the period ended September 30, | 2018 | 20171 | 2018 | 20171 | ||||||||||||||||||||
Revenue | ||||||||||||||||||||||||
United States | $ | 85,236 | 90% | $ | 78,333 | 86% | $ | 248,099 | 88% | $ | 228,434 | 88% | ||||||||||||
Europe | 4,474 | 5% | 10,306 | 11% | 19,759 | 7% | 23,726 | 9% | ||||||||||||||||
Canada and other | 4,648 | 5% | 2,950 | 3% | 13,469 | 5% | 8,351 | 3% | ||||||||||||||||
$ | 94,358 | 100% | $ | 91,589 | 100% | $ | 281,327 | 100% | $ | 260,511 | 100% |
1restated, see Note 3(a)
Revenue earned by the Corporation is generated from sales to loyalty program partners directly or from sales directly to members of loyalty programs with which the Corporation partners. Revenues by geographic region are shown above and are based on the country of residence of each of the Corporations loyalty partners. At September 30, 2018, substantially all of the Corporation's assets were in Canada.
Dependence on loyalty program partners
For the three month period ended September 30, 2018, there were three (2017 three) loyalty program partners for which sales to their members individually represented more than 10% of the Corporations total revenue. In aggregate, sales to the members of these partners represented 75% (2017 70%) of the Corporations total revenue.
For the nine month period ended September 30, 2018, there were three (2017 three) loyalty program partners for which sales to their members individually represented more than 10% of the Corporations total revenue. In aggregate, sales to the members of these partners represented 70% (2017 70%) of the Corporations total revenue.
5. CAPITAL AND OTHER COMPONENTS OF EQUITY
Authorized with no Par Value
Unlimited common shares
Unlimited preferred shares
Issued
At September 30, 2018, all issued shares are fully paid. The holders of common shares are entitled to receive dividends, if any are declared, and are entitled to one vote per share.
Accumulated other comprehensive income (loss)
Accumulated other comprehensive income (loss) is comprised of
the unrealized gains/losses on foreign exchange derivatives designated as cash
flow hedges. The hedging reserve comprises the effective portion of the
cumulative net change in the fair value of cash flow hedging instruments related
to hedged transactions that have not yet occurred.
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POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED
CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
Normal Course Issuer Bid (NCIB)
On March 8, 2017, the Board of Directors of the Corporation approved a plan to repurchase the Corporations common shares. On August 9, 2017 the Toronto Stock Exchange ("TSX") accepted the Corporations notice of intention to make a normal course issuer bid to repurchase up to 743,468 of its common shares (the "2017 Repurchase"), representing 5% of its 14,869,374 common shares issued and outstanding as of July 31, 2017. The Corporation has entered into an automatic share purchase plan with a broker in order to facilitate the 2017 Repurchase. By June 30, 2018, a total of 743,468 shares were repurchased and cancelled under this NCIB.
On August 14, 2018 the NCIB program was renewed with a total of 710,893 shares to be repurchased under this 2018 plan (the 2018 Repurchase), representing 5% of its 14,217,860 shares issued and outstanding as of July 31, 2018. The Corporation has entered into an automatic share purchase plan with a broker in order to facilitate the 2018 Repurchase.
The primary purpose of the 2017 and 2018 Repurchases is for cancellation. Under the automatic share purchase plan, the Corporation may repurchase shares at times when the Corporation would ordinarily not be permitted to due to regulatory restrictions or self-imposed blackout periods. Repurchases will be made from time to time at the brokers' discretion, based upon parameters prescribed by the Corporations written agreement. Repurchases may be effected through the facilities of the TSX, the NASDAQ Capital Market ("NASDAQ") or other alternative trading systems in the United States and Canada. The actual number of common shares purchased and the timing of such purchases will be determined by the broker considering market conditions, stock prices, the Corporations cash position, and other factors.
During the three months ended September 30, 2018, the Corporation repurchased and cancelled 39,000 common shares (2017 153,047) at an aggregate purchase price of $557 (2017 - $1,439), resulting in a reduction of stated capital and contributed surplus of $149 and $408 respectively (2017 - $608 and $831). These purchases were made under the 2018 Repurchase and are included in calculating the number of common shares that the Corporation may purchase pursuant to the 2018 NCIB.
During the nine months ended September 30, 2018, the Corporation repurchased and cancelled 457,556 common shares (2017 162,347) at an aggregate purchase price of $6,358 (2017 - $1,509), resulting in a reduction of stated capital and contributed surplus of $1,782 and $4,576 respectively (2017 - $644 and $865). These purchases were made under the 2017 and 2018 Repurchase and are included in calculating the number of common shares that the Corporation may purchase pursuant to the respective NCIB.
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
For the three month period | ||||||
ended September 30, | ||||||
Thousands of US dollars, except per share amounts | 2018 | 2017 | ||||
Net income available to common shareholders for basic and diluted earnings per share | $ | 1,476 | $ | 605 | ||
Weighted average number of common shares outstanding basic | 14,230,930 | 14,833,256 | ||||
Effect of dilutive securities share-based payments | 103,304 | 10,335 | ||||
Weighted average number of common shares outstanding diluted | 14,334,234 | 14,843,591 | ||||
Earnings per share - reported: | ||||||
Basic | $ | 0.10 | $ | 0.04 | ||
Diluted | $ | 0.10 | $ | 0.04 |
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POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED
CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
For the nine month period | ||||||
ended September 30, | ||||||
Thousands of US dollars, except per share amounts | 2018 | 2017 | ||||
Net income available to common shareholders for basic and diluted earnings per share | $ | 5,546 | $ | 2,189 | ||
Weighted average number of common shares outstanding basic | 14,371,139 | 14,857,141 | ||||
Effect of dilutive securities share-based payments | 97,871 | 11,126 | ||||
Weighted average number of common shares outstanding diluted | 14,469,010 | 14,868,267 | ||||
Earnings per share - reported: | ||||||
Basic | $ | 0.39 | $ | 0.15 | ||
Diluted | $ | 0.38 | $ | 0.15 |
a) Basic earnings per share
Earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period.
b) Diluted earnings per share
Diluted earnings per share represents what the net income per share would be if instruments convertible into common shares had been converted at the beginning of the period, or at the time of issuance, if later. In determining diluted earnings per share, the average number of common shares outstanding is increased by the number of shares that would have been issued if all share options with a strike price below the average share price for the period had been exercised at the beginning of the period, or at the time of issuance, if later. The average number of common shares outstanding is also decreased by the number of common shares that could have been repurchased on the open market at the average share price for the year by using the proceeds from the exercise of share options. Share options with a strike price above the average share price for the period are not adjusted because including them would be anti-dilutive.
For the three and nine months ended September 30, 2018, 106,239 options that were out of the money (2017 563,995 and 577,131 for the three and nine month periods, respectively) were excluded from the diluted weighted average number of common shares calculation as their effect would have been anti-dilutive.
The average market value of the Corporations shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding during the three and nine months ended September 30, 2018 and 2017, respectively.
7. SHARE-BASED PAYMENTS
As at September 30, 2018, the Corporation had two share-based compensation plans for its employees: a share option plan and a share unit plan.
Share option plan
Under the share option plan,
employees, directors and consultants are periodically granted share options to
purchase common shares at prices not less than the market price of the common
shares for the preceding five consecutive days prior to the date of the grant.
The options generally vest over a period of up to three years and expire at the
end of five years from the date of grant. Under the plan, share options can only
be settled in equity. Under the share option plan the number of net options
available to grant is 10% of the larger of the outstanding shares as at March 2,
2016 or any time thereafter.
The options available to grant as at September 30, 2018 are
shown in the table below:
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POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED
CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
Shares outstanding as at March 2, 2016 | 15,298,602 |
Percentage of shares outstanding | 10% |
Net options authorized | 1,529,860 |
Less: options issued and outstanding | (316,114) |
Options available to grant September 30, 2018 | 1,213,746 |
The options available to grant as at September 30, 2017 are shown in the table below:
Shares outstanding as at March 2, 2016 | 15,298,602 |
Percentage of shares outstanding | 10% |
Net options authorized | 1,529,860 |
Less: options issued and outstanding | (615,843) |
Options available to grant September 30, 2017 | 914,017 |
The fair value of each option grant is estimated at the date of grant using the Black-Scholes option pricing model. The Corporation did not grant any share options during the three and nine month periods ended September 30, 2018 or September 30, 2017. Expected volatility is generally determined by the historical amount the Corporations daily share price fluctuated over the expected life of the option.
A summary of the status of the Corporations share option plan as of September 30, 2018 and 2017, and changes during the nine months ended on those dates is presented below.
2018 | 2017 | |||||||||||
Weighted | Weighted | |||||||||||
Average | Average | |||||||||||
Number of | Exercise Price | Number of | Exercise Price | |||||||||
Options | (in CAD$) | Options | (in CAD$) | |||||||||
Balance at January 1 | 615,843 | $ | 16.00 | 723,995 | $ | 15.25 | ||||||
Exercised | (296,862 | ) | $ | 13.56 | (80,973 | ) | $ | 9.74 | ||||
Expired and forfeited | (2,867 | ) | $ | 15.94 | (27,179 | ) | $ | 14.58 | ||||
Balance at September 30 | 316,114 | $ | 18.30 | 615,843 | $ | 16.00 | ||||||
Exercisable at September 30 | 304,265 | $ | 18.54 | 521,538 | $ | 16.67 |
As at September 30, 2018:
Options outstanding | Options exercisable | ||||
Weighted | Weighted | ||||
Weighted average | average | average | |||
remaining | exercise | Number | exercise | ||
Range of Exercise | Number | contractual life | price | of | price |
Prices (in CAD$) | of options | (years) | (in CAD$) | options | (in CAD$) |
$5.00 to $9.99 | 22,280 | 2.44 | $ 9.89 | 22,280 | $ 9.89 |
$10.00 to $14.99 | 187,595 | 1.61 | $ 12.26 | 175,746 | $ 12.27 |
$15.00 to $19.99 | 1,169 | 1.00 | $ 19.82 | 1,169 | $ 19.82 |
$20.00 and over | 105,070 | 0.46 | $ 30.84 | 105,070 | $ 30.84 |
316,114 | 304,265 |
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POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED
CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
As at September 30, 2017:
Options outstanding | Options exercisable | ||||
Weighted | Weighted | ||||
Weighted average | average | average | |||
remaining | exercise | Number | exercise | ||
Range of Exercise | Number | contractual life | price | of | price |
Prices (in CAD$) | of options | (years) | (in CAD$) | options | (in CAD$) |
$5.00 to $9.99 | 39,401 | 3.44 | $ 9.89 | 39,401 | $ 9.89 |
$10.00 to $14.99 | 352,002 | 2.55 | $ 12.27 | 257,697 | $ 12.25 |
$15.00 to $19.99 | 119,370 | 0.48 | $ 15.98 | 119,370 | $ 15.98 |
$20.00 and over | 105,070 | 1.46 | $ 30.84 | 105,070 | $ 30.84 |
615,843 | 521,538 |
Share unit plan
On March 7, 2012, the Corporation implemented an employee share unit plan, under which employees are periodically granted Restricted Share Units (RSUs). The RSUs vest either immediately, over a period of up to three years or in full on the third anniversary of the grant date. A total of 6,076 and 420,509 RSUs have been granted for the three and nine months ended September 30, 2018 (2017 16,719 and 371,592 RSUs). As at September 30, 2018, 675,456 RSUs were outstanding (2017 724,447 RSUs).
Weighted Average Fair Value | ||||||
Number of RSUs | (in CAD$) | |||||
Balance at January 1, 2018 | 711,936 | $ | 10.16 | |||
Granted | 420,509 | $ | 13.82 | |||
Vested | (437,042 | ) | $ | 11.62 | ||
Forfeited | (19,947 | ) | $ | 12.03 | ||
Balance at September 30, 2018 | 675,456 | $ | 11.44 |
Weighted Average Fair Value | ||||||
Number of RSUs | (in CAD$) | |||||
Balance at January 1, 2017 | 480,302 | $ | 12.17 | |||
Granted | 371,592 | $ | 9.42 | |||
Vested | (97,621 | ) | $ | 16.38 | ||
Forfeited | (29,826 | ) | $ | 12.22 | ||
Balance at September 30, 2017 | 724,447 | $ | 10.19 |
The fair value of each RSU, determined at the date of grant using the volume weighted average trading price per share on the TSX during the immediately preceding five trading days, is recognized over the RSUs vesting period and charged to profit or loss with a corresponding increase in contributed surplus.
Under the Share Unit Plan, share units can be settled in cash
or shares at the Corporations discretion. The Corporation intends to settle all
share units in equity at the end of the vesting period. To fulfill this
obligation, the Corporation has appointed a trustee to administer the program
and purchase shares from the open market on a periodic basis through a share
purchase trust. There were no share units purchased by the trust during the
three months ended September 30, 2018 (2017 76,500 share units purchased at a
cost of $857) and 437,343 share units purchased by the trust at a cost of $2,956
for the nine months ended September 30, 2018 (2017 97,437 share units
purchased at a cost of $1,053). In addition, commencing in March, 2018, the
Corporation paid withholding taxes in cash rather than reselling shares held in
trust into the market. The Corporation paid $53 and $2,589 for the three and
nine months ending September 30, 2018, (2017 - $0 and $0). As of September 30,
2018, 200,154 of the Corporations common shares were held in trust for this
purpose (2017 83,649 shares held in trust).
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POINTS INTERNATIONAL LTD.
NOTES TO THE
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
The Corporation accounts for the share-based awards granted under both the share option and share unit plans in accordance with the fair value based method of accounting for equity settled share-based compensation arrangements per IFRS 2, Share-based Payment. The estimated fair value of the awards that are ultimately expected to vest is recorded over the vesting period as part of employment costs. The compensation cost for all share-based awards that has been charged against profit or loss and included in employment costs for the three and nine month periods ended September 30, 2018 is $1,054 and $3,197 (2017 - $1,321 and $3,057).
8. GUARANTEES AND COMMITMENTS
Total | Year 1 | (3) | Year 2 | Year 3 | Year 4 | Year 5+ | ||||||||||||
Operating leases(1) | $ | 8,389 | $ | 2,132 | $ | 1,939 | $ | 1,874 | $ | 1,836 | $ | 608 | ||||||
Principal revenue(2) | 287,010 | 30,385 | 185,440 | 46,078 | 25,107 | - | ||||||||||||
$ | 295,399 | $ | 32,517 | $ | 187,379 | $ | 47,952 | $ | 26,943 | $ | 608 |
(1) |
The Corporation is obligated under various non-cancellable operating leases for premises and equipment and service agreements for web hosting services. | |
(2) |
For certain loyalty partners, the Corporation guarantees a minimum level purchase of points/miles, for each contract year, over the duration of the contract term between the Corporation and Loyalty Partner. Management evaluates each guarantee at each interim reporting date and at the end of each contract year, to determine if the guarantee will be met for that respective contract year. | |
(3) |
The guarantees and commitments schedule is prepared on a rolling 12-month basis. If a revenue guarantee has been met, it is removed from the principal revenue disclosure above. |
9. SUPPLEMENTAL CASH FLOW INFORMATION
Three months ended | Nine months ended | |||||||||||
For the period ended September 30, | 2018 | 2017 | 2018 | 2017 | ||||||||
Decrease (increase) in funds receivable from payment processors | $ | 105 | $ | (391 | ) | $ | 7,746 | $ | (1,100 | ) | ||
Decrease (increase) in accounts receivable | (1,608 | ) | (1,647 | ) | 754 | (2,926 | ) | |||||
Decrease (increase) in prepaid expenses and other assets | (162 | ) | (567 | ) | 335 | (1,580 | ) | |||||
Decrease in other assets | - | - | 34 | 2 | ||||||||
Increase (decrease) in accounts payable and accrued liabilities | (200 | ) | 1,437 | (932 | ) | 484 | ||||||
Increase (decrease) in income taxes payable | (74 | ) | (211 | ) | 219 | (1,412 | ) | |||||
Increase (decrease) in other liabilities | (660 | ) | (162 | ) | (708 | ) | (89 | ) | ||||
Increase (decrease) in payable to loyalty program partners | (14,827 | ) | 5,516 | (12,205 | ) | 813 | ||||||
$ | (17,426 | ) | $ | 3,975 | $ | (4,757 | ) | $ | (5,808 | ) |
10. FINANCIAL INSTRUMENTS
Determination of fair value
The fair value of funds receivable from payment processors, accounts receivable, accounts payable and accrued liabilities and payable to loyalty program partners, approximate their carrying values at September 30, 2018 due to their short-term maturities.
Fair value hierarchy
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POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED
CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
The Corporation has determined the estimated fair values of its financial instruments based on appropriate market inputs and valuation methodologies and assumptions, as disclosed below. Considerable judgment is required to develop certain of these estimates. The estimated fair value amounts can be materially affected by the use of different assumptions or methodologies.
The table below analyzes financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
Quoted market prices for an identical asset or liability represent a Level 1 valuation. When quoted market prices are not available, the Corporation maximizes the use of observable inputs within valuation models. When all significant inputs are observable, the valuation is classified as Level 2. Valuations that require the use of significant unobservable inputs are considered Level 3. The fair value of financial assets and financial liabilities measured at fair value in the consolidated balance sheet as at September 30, 2018 and December 31, 2017 are as follows:
As at September 30, 2018 | Carrying Value | Level 2 | ||||
Assets: | ||||||
Foreign exchange contracts designated as cash flow hedges(i) | $ | 17 | $ | 17 | ||
Liabilities: | ||||||
Foreign exchange contracts designated as cash flow hedges(i) | (195 | ) | (195 | ) | ||
$ | (178 | ) | $ | (178 | ) |
As at December 31, 2017 | Carrying Value | Level 2 | ||||
Assets: | ||||||
Foreign exchange contracts designated as cash flow hedges(i) | $ | 550 | $ | 550 | ||
Liabilities: | ||||||
Foreign exchange contracts designated as cash flow hedges(i) | (43 | ) | (43 | ) | ||
$ | 507 | $ | 507 |
(i) |
The carrying values of the Corporations forward contracts are included as current assets in prepaid expenses and other assets and current portion of other liabilities in the condensed consolidated interim statements of financial position. |
There were no material financial instruments categorized in
Level 1 or Level 3 as at September 30, 2018 and December 31, 2017 and there were
no transfers of fair value measurement between Levels 2 and 3 of the fair value
hierarchy in the respective periods.
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POINTS INTERNATIONAL
LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS (unaudited)
11. CREDIT FACILITIES
On May 30, 2018, the Corporation amended its bank credit facility agreement with Royal Bank of Canada to extend the expiry date of the credit facility. The following two facilities are available to the Corporation as of September 30, 2018:
Revolving operating facility (Facility #1) of $8,500 available until May 31, 2019. The interest rate charged on borrowings from Facility #1 ranges from 0.35% to 0.75% per annum over the bank base rate.
Term loan facility (Facility #2) of $5,000 to be utilized solely for the purposes of financing the cash consideration relating to acquisitions made by the Corporation. This facility is available until May 31, 2019. The interest rate charged on borrowings from Facility #2 ranges from 0.40% to 0.80% per annum over the bank base rate.
There have been no borrowings to date under these facilities.
The Corporation is required to comply with certain financial and non-financial
covenants under the agreement. The Corporation is in compliance with all
applicable covenants on its facilities during the three months ended September
30, 2018.
21 | P a g e |
POINTS INTERNATIONAL LTD.
MANAGEMENT'S DISCUSSION
AND ANALYSIS
INTRODUCTION
The following managements discussion and analysis (MD&A) of the performance and financial condition of Points International Ltd. and its subsidiaries (which are also referred to herein as Points or the Corporation) should be read in conjunction with the Corporations unaudited condensed consolidated interim financial statements (including the notes thereto) as at and for the three and nine months ended September 30, 2018, the 2017 annual MD&A and the 2017 audited annual consolidated financial statements and notes thereto and other recent filings with Canadian and US securities regulatory authorities, which may be accessed at www.sedar.com or www.sec.gov.
All financial data herein has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB) and all dollar amounts herein are in thousands of United States dollars unless otherwise specified. This MD&A is dated as of November 13, 2018 and was reviewed by the Audit Committee and approved by the Corporations Board of Directors.
FORWARD-LOOKING STATEMENTS
This MD&A contains or incorporates forward-looking statements within the meaning of United States securities legislation and forward-looking information within the meaning of Canadian securities legislation (collectively, forward-looking statements). These forward-looking statements relate to, among other things, revenue, earnings, changes in costs and expenses, capital expenditures and other objectives, strategic plans and business development goals, and may also include other statements that are predictive in nature, or that depend upon or refer to future events or conditions, and can generally be identified by words such as may, will, expects, anticipates, intends, plans, believes, estimates or similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These statements are not historical facts but instead represent only the Corporations expectations, estimates and projections regarding future events. Certain significant forward-looking statements included in this MD&A include statements regarding: revenue growth and guidance; the size of the Corporations pipeline opportunities; evolving the Corporations open platform strategy; improving data and transactional capabilities; expected gross profit and gross margin; the Corporations ability to generate cash through normal course operations to fund capital expenditure needs and current operating and working capital requirements, including under current operating leases; and the financial obligations with respect to revenue guarantees.
Although the Corporation believes the expectations reflected in such forward-looking statements are reasonable, such statements are not guarantees of future performance and involve certain
1
risks and uncertainties that are difficult to predict. Undue reliance should not be placed on such statements. Certain material assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements. Known and unknown factors could cause actual results to differ materially from those expressed or implied in the forward-looking statements. In particular, the financial outlooks herein assume the Corporation will be able to maintain its existing contractual relationships and products, that such products continue to perform in a manner consistent with the Corporations past experience, that the Corporation will be able to generate new business from its pipeline at expected margins, in-market and newly launched products and services will perform in a manner consistent with the Corporations past experience and the Corporation will be able to contain costs. The Corporations ability to convert its pipeline of prospective partners and product launches is subject to significant risk and there can be no assurance that the Corporation will launch new partners or new products with existing partners as expected or planned nor can there be any assurance that the Corporation will be successful in maintaining its existing contractual relationships or maintaining existing products with existing partners. Other important assumptions, factors, risks and uncertainties are included in the press release announcing the Corporations second quarter 2018 financial results, and those described in Points' other filings with applicable securities regulators, including Points AIF, Form 40-F, annual and interim MD&A, and annual and interim consolidated financial statements and the notes thereto. These documents are available at www.sedar.com and www.sec.gov.
The forward-looking statements contained in this MD&A are made as at the date of this MD&A and, accordingly, are subject to change after such date. Except as required by law, Points does not undertake any obligation to update or revise any forward-looking statements made or incorporated in this MD&A, whether as a result of new information, future events or otherwise.
USE OF NON-GAAP MEASURES
The Corporations financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). Management uses certain non-GAAP measures, which are defined in the appropriate sections in the body of this MD&A, to better assess the Corporations underlying performance. These measures are reviewed regularly by management and the Corporations Board of Directors in assessing the Corporations performance and in making decisions about ongoing operations. These measures are also used by investors as an indicator of the Corporations operating performance. Readers are cautioned that these terms are not recognized GAAP measures and do not have a standardized GAAP meaning under IFRS and should not be construed as alternatives to IFRS terms, such as net income.
2
In the second quarter of 2018, the Corporation changed its performance measure of segment profit or loss to Contribution1 from Adjusted EBITDA2. This change was made as the Corporation determined that Contribution is the more appropriate measure of segment profit or loss and is now used by the Chief Operating Decision Maker (CODM) when reviewing the segment results and making resource allocation decisions. The Corporation continues to report Adjusted EBITDA within the MD&A as the Corporation believes that this non-GAAP financial measure may be useful to investors and analysts in their evaluation of corporate performance and results.
BUSINESS OVERVIEW
Points International Ltd.
Points is the global leader in providing loyalty e-commerce solutions to the loyalty industry. Loyalty programs generate substantial economic benefits and are increasingly seen as strategic marketing and business assets for their parent companies. The Corporation does not compete directly with loyalty programs, but rather acts as a business partner by providing products and services that help make programs more valuable and engaging. The Corporation delivers e-commerce solutions to loyalty programs on both a privately branded and Points branded basis.
The Corporations products and services are available to numerous loyalty program partners simultaneously through the Loyalty Commerce Platform (LCP), which is the backbone of Points product and service offerings. The LCP has been designed as an Application Program Interface (API) driven transactional platform that provides internal and external product developers easy access to the loyalty industry. The LCP offers a consistent interface for third party developers and loyalty programs that is self-serve capable, providing broad access to loyalty transaction capabilities, program integration, analytics, reporting, security and fraud services. With direct integrations into approximately 60 loyalty program partners and access to over 1 billion loyalty program members, the LCP uniquely positions the Corporation to connect third party channels with highly engaged loyalty program members and the broader loyalty market.
_________________________________________________
1
Contribution is a non-GAAP financial measure and is defined as Gross Profit for
the relevant operating segment less direct adjusted operating
expenses3.
2 Adjusted EBITDA is a non-GAAP financial
measure and is defined as net income as presented in the consolidated statement
of comprehensive income but excludes income taxes, depreciation, amortization,
foreign exchange gains and losses and share-based compensation. Refer to the
Performance indicators and Non-GAAP financial measures section for definition
and explanation.
3 Direct adjusted operating expenses is a
non-GAAP measure and is defined as expenses which are directly attributable to
each operating segment.
3
The Corporation is directly integrated with and provides e-commerce solutions to leading loyalty programs, including:
· AF-KLM Flying Blue | · Southwest Airlines Rapid Rewards |
· Alaska Airlines Mileage Plan | · United Airlines MileagePlus |
· American Airlines AAdvantage | · Virgin Atlantic Flying Club |
· ANA Mileage Club | · Hilton Honors |
· British Airways Executive Club | · Hyatt Gold Passport |
· Delta Air Lines SkyMiles | · InterContinental Hotels Group |
· JetBlue TrueBlue | · La Quinta Returns |
· LATAM Pass KMS | · Marriott Rewards |
· Lufthansas Miles & More | · Chase Ultimate Rewards |
· Amtrak Guest Rewards | · Citi ThankYou |
· Etihad Guest | · Velocity Frequent Flyer |
· Emirates Skywards | · Copa Airlines ConnectMiles |
The Corporations headquarters are located in Toronto, Canada and its shares are dual listed on the Toronto Stock Exchange as PTS and on the NASDAQ Capital Market as PCOM.
UNDERSTANDING OUR BUSINESS AND THE LOYALTY INDUSTRY
The Corporation has three operating segments which are organized based on how Management views business activities:
Loyalty Currency Retailing:
The Loyalty Currency Retailing segment provides products and
services designed to help loyalty program members unlock the value of their
loyalty currency and accelerate the time to a reward. Included in this segment
are the Corporations buy, gift and accelerator products and transfer and
reinstate services. These offerings provide loyalty program members the ability
to buy loyalty program currency (such as frequent flyer miles or hotel points)
for themselves or as gifts to others, perform a transfer of loyalty currency to
another member within the same loyalty program or reinstate previously expired
loyalty currency.
The Corporation has direct partnerships with approximately 35 loyalty programs who leverage the Loyalty Currency Retailing services and the functionality offered by the LCP. Loyalty Currency Retailing services provide high margin revenue and profitability to Points loyalty programs while increasing member engagement by unlocking the value of loyalty currency in the members accounts.
Revenue in this segment is primarily derived through the online sale of loyalty currencies direct to loyalty program members at retail rates while purchasing points and miles at wholesale rates. The Corporation may take a principal role in the retailing of loyalty currencies. As part of this principal role, the Corporation may have a contractual obligation to fulfill a revenue guarantee to
4
the loyalty program based on the terms of the contract between the Corporation and the loyalty program. Under a principal arrangement, the Corporation will assume credit and/or inventory risk in the form of the revenue guarantee to the loyalty program and will have a substantial level of responsibility with respect to marketing, pricing and commercial transaction support. Revenue earned under a principal arrangement is included in Principal Revenue in the Corporations consolidated financial statements. Alternatively, the Corporation may assume an agency role in the retailing and wholesaling of loyalty currencies, where it takes a less active role in the relationship and receives a commission on each transaction. Revenue earned under an agency role is included in Other Partner Revenue in the Corporations consolidated financial statements.
Platform Partners:
The Corporations Platform Partners
segment comprises a broad range of applications that are connected to and
enabled by the functionality of the LCP. Loyalty programs, merchants and other
consumer service applications leverage the LCP to broadly distribute loyalty
currency and loyalty commerce transactions through multiple channels, including
loyalty program, co-branded, and 3rd party channels.
Included in Platform Partners are multiple third party managed applications that are enabled by the LCP including the Points Loyalty Wallet, one of the Corporations newest services. Revenue in this segment is earned on a commission or set fee basis per transaction or from recurring monthly fixed fees and are predominantly included in Other Partner Revenue in the consolidated financial statements.
Points Travel:
The Points Travel segment connects the world
of online travel bookings with the broader loyalty industry and consists of the
Corporations Points Travel product and its PointsHound product.
In 2014 the Corporation acquired Accruity Inc., the San Francisco based start-up operator of the PointsHound loyalty-based hotel booking service, which today continues to offer consumers the ability to earn loyalty currency from 20 loyalty programs. Leveraging the PointsHound technology, the Corporation developed its Points Travel product, the first white-label travel hotel booking service specifically designed for loyalty programs. Points partners with loyalty programs to provide a seamless travel booking experience for loyalty program members and enables the members to earn and redeem their loyalty currency while making hotel and car bookings online. Points Travel offers a rewarding value proposition for loyalty program members as they can earn high levels of points/miles per night for a hotel booking or redeem points/miles in whole or with cash for hotel stays and car rentals. To date, the Corporation has 10 loyalty program partners in market leveraging a combination of earn and redemption functionality for online hotel and car bookings.
Revenue in this segment is generated from commissions, which are typically the gross amount charged to end consumers less the wholesale cost of hotel rooms or car rentals, cost of loyalty
5
currencies delivered to the consumers and other directly related costs for online hotel and car rental bookings or redemptions. Revenue in this segment is recorded on the date of check-out for hotel bookings, and on the last day of rental for car bookings. This revenue is included in Other Partner Revenue in the Corporations consolidated financial statements.
The Loyalty Industry
Year-over-year, loyalty
programs continue to generate a significant source of ancillary revenue and cash
flows for companies that have developed and maintain these loyalty programs.
According to the Colloquy group, a leading consulting and research firm focused
on the loyalty industry, the number of loyalty program memberships in the US
increased from 3.3 billion in 2014 to 3.8 billion in 2016, representing an
increase of 15% (source: 2017 Colloquy Loyalty Census Report, June 2017). As the
number of loyalty memberships continues to increase, the level of
diversification in the loyalty landscape is evolving. While the airline, hotel,
specialty retail, and financial services industries continue to be dominant in
loyalty programs in the US, smaller verticals, including the restaurant and drug
store industries are beginning to see larger growth in their membership base.
Further, newer loyalty concepts, such as large e-commerce programs, daily deals,
and online travel agencies, are becoming more prevalent. As a result of this
changing landscape, loyalty programs must continue to provide innovative value
propositions in order to drive activity in their programs.
In response to these market changes and customer dynamics, the Corporation has implemented a strategy to leverage its unique position in the global loyalty industry. By continuing to focus on innovation and enhance its LCP, the Corporation aims to advance its Loyalty Currency Retailing segment while also diversifying its revenue streams into areas that match its capabilities and strategy.
6
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The
following information is provided to give a context for the broader comments
elsewhere in this report.
For the three months ended | ||||||||||||
(In thousands of US dollars, except | 30-Sept-18 | 30-Sept-174 | Variance | Variance | ||||||||
share and per share amounts) | $ | % | ||||||||||
(unaudited) | ||||||||||||
Consolidated | ||||||||||||
Revenue | $ | 94,358 | $ | 91,589 | 2,769 | 3% | ||||||
Gross profit1 | 12,582 | 11,321 | 1,261 | 11% | ||||||||
Gross margin2 | 13% | 12% | ||||||||||
Adjusted operating expenses3 | 8,703 | 8,202 | 501 | 6% | ||||||||
Adjusted EBITDA | 4,121 | 3,190 | 931 | 29% | ||||||||
Total Expenses | 92,431 | 90,745 | 1,686 | 2% | ||||||||
Net income | $ | 1,476 | $ | 605 | 871 | 144% | ||||||
Earnings per share | ||||||||||||
Basic | $ | 0.10 | $ | 0.04 | 0.06 | 150% | ||||||
Diluted | $ | 0.10 | $ | 0.04 | 0.06 | 150% | ||||||
Weighted average shares outstanding | ||||||||||||
Basic | 14,230,930 | 14,833,256 | (602,326 | ) | (4% | ) | ||||||
Diluted | 14,334,234 | 14,843,591 | (509,357 | ) | (3% | ) | ||||||
Total Assets | 102,205 | 106,573 | (4,368 | ) | (4% | ) | ||||||
Total Liabilities | 62,572 | 62,799 | (227 | ) | (0% | ) | ||||||
Shareholders Equity | 39,633 | 43,774 | (4,141 | ) | (9% | ) | ||||||
Loyalty Currency Retailing | ||||||||||||
Revenue | 91,950 | 89,326 | 2,624 | 3% | ||||||||
Gross profit1 | 10,378 | 9,221 | 1,157 | 13% | ||||||||
Direct adjusted operating expenses | 3,048 | 2,840 | 208 | 7% | ||||||||
Contribution | 7,330 | 6,381 | 949 | 15% | ||||||||
Platform Partners | ||||||||||||
Revenue | 1,940 | 1,824 | 116 | 6% | ||||||||
Gross profit1 | 1,773 | 1,672 | 101 | 6% | ||||||||
Direct adjusted operating expenses | 831 | 1,100 | (269 | ) | (24% | ) | ||||||
Contribution | 942 | 572 | 370 | 65% | ||||||||
Points Travel | ||||||||||||
Revenue | 468 | 439 | 29 | 7% | ||||||||
Gross profit1 | 431 | 428 | 3 | 1% | ||||||||
Direct adjusted operating expenses | 1,390 | 1,121 | 269 | 24% | ||||||||
Contribution | (959 | ) | (693 | ) | (266 | ) | (38% | ) |
1 Gross profit is a non-GAAP financial measure
and is defined as Total Revenue less Direct Cost of Principal Revenue. Refer to
the Performance indicators and Non-GAAP financial measures section for
definition and explanation.
2 Gross margin is a non-GAAP
financial measure and is defined as Gross Profit as a percentage of Total
Revenue. Refer to the Performance indicators and Non-GAAP financial measures
section for definition and explanation.
3 Adjusted operating
expenses is a non-GAAP financial measure and is defined as Total Expenses less
Direct Cost of Principal Revenue, Depreciation and Amortization, Foreign
Exchange Loss (Gain) and Share-Based Compensation. Refer to the Performance
indicators and Non-GAAP financial measures section for definition and
explanation.
4 Results for the three months ended September 30,
2017 have been restated under IFRS 15.
7
For the nine months ended | ||||||||||||
(In thousands of US dollars, except | 30-Sept-18 | 30-Sept-174 | Variance | Variance | ||||||||
share and per share amounts) | $ | % | ||||||||||
(unaudited) | ||||||||||||
Consolidated | ||||||||||||
Revenue | $ | 281,327 | $ | 260,511 | 20,816 | 8% | ||||||
Gross profit1 | 39,799 | 33,541 | 6,258 | 19% | ||||||||
Gross margin2 | 14% | 13% | ||||||||||
Adjusted operating expenses3 | 26,672 | 24,523 | 2,149 | 9% | ||||||||
Adjusted EBITDA | 13,573 | 9,176 | 4,397 | 48% | ||||||||
Total Expenses | 273,988 | 257,384 | 16,604 | 6% | ||||||||
Net income | $ | 5,546 | $ | 2,189 | 3,357 | 153% | ||||||
Earnings per share | ||||||||||||
Basic | $ | 0.39 | $ | 0.15 | 0.24 | 160% | ||||||
Diluted | $ | 0.38 | $ | 0.15 | 0.23 | 153% | ||||||
Weighted average shares outstanding | ||||||||||||
Basic | 14,371,139 | 14,857,141 | (486,002 | ) | (3% | ) | ||||||
Diluted | 14,469,010 | 14,868,267 | (399,257 | ) | (3% | ) | ||||||
Total Assets | 102,205 | 106,573 | (4,368 | ) | (4% | ) | ||||||
Total Liabilities | 62,572 | 62,799 | (227 | ) | (0% | ) | ||||||
Shareholders Equity | 39,633 | 43,774 | (4,141 | ) | (9% | ) | ||||||
Loyalty Currency Retailing | ||||||||||||
Revenue | 274,063 | 253,863 | 20,200 | 8% | ||||||||
Gross profit1 | 33,045 | 27,363 | 5,682 | 21% | ||||||||
Direct adjusted operating expenses | 9,668 | 8,172 | 1,496 | 18% | ||||||||
Contribution | 23,377 | 19,191 | 4,186 | 22% | ||||||||
Platform Partners | ||||||||||||
Revenue | 5,883 | 5,786 | 97 | 2% | ||||||||
Gross profit1 | 5,446 | 5,353 | 93 | 2% | ||||||||
Direct adjusted operating expenses | 2,828 | 3,566 | (738 | ) | (21% | ) | ||||||
Contribution | 2,618 | 1,787 | 831 | 47% | ||||||||
Points Travel | ||||||||||||
Revenue | 1,381 | 862 | 519 | 60% | ||||||||
Gross profit1 | 1,308 | 825 | 483 | 59% | ||||||||
Direct adjusted operating expenses | 4,049 | 3,068 | 981 | 32% | ||||||||
Contribution | (2,741 | ) | (2,243 | ) | (498 | ) | (22% | ) |
1 Gross profit is a non-GAAP financial measure and
is defined as Total Revenue less Direct Cost of Principal Revenue. Refer to the
Performance indicators and Non-GAAP financial measures section for definition
and explanation.
2 Gross margin is a non-GAAP financial measure
and is defined as Gross Profit as a percentage of Total Revenue. Refer to the
Performance indicators and Non-GAAP financial measures section for definition
and explanation.
3 Adjusted operating expenses is a non-GAAP
financial measure and is defined as Total Expenses less Direct Cost of Principal
Revenue, Depreciation and Amortization, Foreign Exchange Loss (Gain) and
Share-Based Compensation. Refer to the Performance indicators and Non-GAAP
financial measures section for definition and explanation.
4
Results for the nine months ended September 30, 2017 have been restated under
IFRS 15.
8
BUSINESS DEVELOPMENTS AND OUTLOOK
The Corporation generated strong year over year growth in gross profit and adjusted EBITDA for the quarter ended and nine months ended September 30, 2018, driven by the strength of the Corporations Loyalty Currency Retailing segment. Given the Corporations strong year to date performance, Management remains confident regarding its previously provided full year expectations. For the year ended 2018, the Corporation expects to generate year over year gross profit growth between 10% and 20%. From a profitability perspective, the Corporation expects to increase full year 2018 adjusted EBITDA between 30% and 40% over 2017 levels.
Loyalty Currency Retailing
Revenue for the Loyalty Currency Retailing segment increased $2,624 or 3%, to $91,950 for the quarter ended September 30, 2018, as compared to Q3 2017. Gross profit for the third quarter of 2018 increased $1,157 or 13% to $10,378 on year over year basis. Organic growth from existing partnerships and the impact of new partnerships and products launched over the last twelve months were the primary drivers of the year over year growth in revenue and gross profit. Direct adjusted operating expenses in Q3 2018 increased 7% or $208 compared to Q3 2017, largely due to increased employment costs that were attributed to the segment. The segment continues to generate strong bottom line profitability, with contribution of $7,330 for the quarter ended September 30, 2018, an increase of 15% over Q3 2017.
To date in 2018, the Corporation has continued to launch new loyalty program partnerships and products in this segment. In the third quarter of 2018, the Corporation broadened its service offering with the Emirates Skywards program, the loyalty program of Emirates Airline, by extending the reach of its Buy functionality into the flight booking path. In addition, Points launched its new Extend service with Emirates, allowing members to extend the expiration date on existing, non-expired Skywards miles. These new launches expand on an already broad set
9
of services utilized by Emirates, a new long-term partner of the Corporation that was launched in the second quarter of 2018. Earlier in the year, the Corporation expanded its product offering with LATAM Airlines in the second quarter of 2018, an existing partner within the Loyalty Currency Retailing segment. Points launched its Accelerator product with LATAM in the second quarter, enabling LATAM Pass members to receive specialty price offers to double or triple the number of miles earned from flights and other eligible accrual transactions.
Platform Partners
Platform Partners revenue of $1,940 for the quarter ended September 30, 2018 increased 6% relative to the prior year quarter. In line with revenue, gross profit for the segment increased 6% to $1,773, compared to $1,672 in Q3 2017. Direct adjusted operating expenses attributable to the segment decreased by $269, or 24% in Q3 2018 to $831, mainly due to lower employment costs attributable to this segment. Overall, the Platform Partners segment generated contribution of $942 in Q3 2018, an improvement of 65%, or $370 relative to Q3 2017.
Early in the second quarter, Points announced a new partnership with Drop Tank, a leading fuel loyalty technology company under which Points will power Marathon Petroleum Company LPs new rewards program, MakeItCount. By leveraging Points LCP, MakeItCount members can now earn loyalty currency on fuel and featured non-fuel items, including points in Southwest Airlines Rapid Rewards and La Quinta Returns programs.
Points Travel
Revenue in the Points Travel segment for the quarter ended September 30, 2018 increased 7% to $468 compared to $439 for the similar period in 2017. Gross profit was $431 in the third quarter 2018, relatively flat with Q3 2017 gross profit of $428. During the second quarter and into the third quarter of 2018, the Corporations largest loyalty program partner in this segment temporarily shut down their Points Travel site due to operational issues with one of their third party providers relating to the new General Data Protection Regulations (GDPR). This shut down was entirely out of the Corporations control. The Points Travel site was brought back online at the beginning of August 2018. This temporary shut down adversely impacted gross profit for this segment in the third quarter of 2018 and is expected to have a negative impact on gross profit in the fourth quarter of 2018.
Direct adjusted operating expenses for the quarter ended September 30, 2018 increased $269 or 24% year over year, largely due to increased employment costs attributable to the segment. As a result, a contribution loss of $959 was generated in the segment in Q3 2018 compared to a contribution loss of $693 in Q3 2017.
To date in 2018, the Corporation focused on adding new loyalty programs to its suite of Points Travel services and expanding its hotel distribution offering on its Points Travel sites. In the third
10
quarter of 2018, the Corporation added mileage earning capabilities on both Hotel and Car rental bookings to the Etihad Points Travel service to compliment the previously launched redemption service in the fourth quarter of 2017. In the second quarter of 2018, the Corporation announced and launched a new partnership with the Singapore Airlines KrisFlyer frequent flyer program, enabling members the ability to redeem their miles for hotel and car bookings across the globe. In addition, the Corporation launched a new partnership with Air Europas SUMA loyalty program in May of 2018, enabling SUMA members the ability to earn and redeem miles when booking hotels
In addition to adding new loyalty program partners, the Corporation announced a new hotel distribution partnership with the Priceline Partner Network in the second quarter of 2018. With this new partnership, Points has increased its wholesale access to a broader range of hotels around the world, strengthening its competitive position in the marketplace.
KEY CHANGES IN FINANCIAL RESULTS COMPARED TO 2017
REVENUE, GROSS PROFIT AND GROSS MARGIN
The Corporation generated consolidated revenue of $94,358 for the three months ended September 30, 2018, an increase of $2,769 or 3% over the third quarter of 2017. Consolidated revenues for the nine month period ended September 30, 2018 were $281,327, an increase of $20,816 or 8% over the nine month period ended September 30, 2017. The increase in consolidated revenue was primarily driven by organic growth from existing partnerships in the Loyalty Currency Retailing segment, which saw strong consumer response to promotional activities during the quarter with specific partners. Organic revenue growth across all segments in the third quarter, which is defined as the growth in existing partnerships and products that have been in market for at least one year, was approximately 1%.
Consolidated gross profit for the third quarter of 2018 was $12,582, an increase of $1,261 or 11% from the third quarter of 2017. Consolidated gross profit for the nine month period ended September 30, 2018 was $39,799, an increase of $6,258 or 19% over the nine month period ended September 30, 2017. The majority of the year over year growth was generated in the Loyalty Currency Retailing segment, resulting from organic growth from existing partners and products and the impact of new partners and products launched in 2017 and to date in 2018. The Corporation also generated increased gross profit in the Points Travel segment in the nine month period ended September 30, 2018, increasing $483 or 59%. Gross profit from the Platform Partners segment was $5,446 in the nine month period ended September 30, 2018, relatively flat with the prior year period.
Gross margin for the third quarter of 2018 was 13% compared to 12% in the same period in 2017. The increase was primarily due to the relative mix of partner and product revenue in the Loyalty Currency Retailing segment and increased gross profit in the Points Travel segment.
11
Gross margin for the nine month period ended September 30, 2018 was 14% versus 13% in the prior year period, due to the relative mix of partner and product revenue.
Total Expenses and Adjusted Operating Expenses
The Corporation incurred consolidated total expenses, as disclosed in the condensed consolidated interim financial statements, of $92,431 for the third quarter of 2018, an increase of $1,686 or 2% over the comparable prior year period. For the nine month period ended September 30, 2018, the Corporation incurred total expenses of $273,988, an increase of $16,604 or 6% over the comparable nine month period in 2017. The majority of this increase was driven by higher direct costs of principal revenue, in line with the increase in principal revenue.
The Corporation incurred consolidated adjusted operating expenses of $8,703 in the third quarter of 2018, an increase of $501 or 6% compared to the third quarter of 2017. For the nine month period ended September 30, 2018, consolidated adjusted operating expenses were $26,672, an increase of $2,149 or 9% over the comparable nine month period in 2017. The increases were primarily due to increased employment expenses across all three segments resulting from increased resourcing levels, and to a lesser extent, increased professional fees.
Net Income and Adjusted EBITDA
The Corporation generated consolidated net income of $1,476 for the third quarter of 2018, an increase of $871 or 144% compared to the prior year quarter.
The Corporation generated consolidated Adjusted EBITDA of $4,121 during the third quarter of 2018, an increase of $931 or 29% compared to the third quarter in 2017, primarily due to the growth in gross profit outpacing the growth in adjusted operating expenses.
12
REVIEW OF CONSOLIDATED PERFORMANCE
This section discusses the Corporations consolidated net income and other expenses that do not form part of the discussion above.
For the three months ended | ||||||||||||
(In thousands of US dollars) | ||||||||||||
(unaudited) | Sept 30, 2018 | Sept 30, 2017 | Variance $ | Variance % | ||||||||
Adjusted EBITDA | $ | 4,121 | $ | 3,190 | 931 | 29% | ||||||
Deduct (add): | ||||||||||||
Share-based compensation | 1,054 | 1,321 | (267 | ) | (20% | ) | ||||||
Depreciation and amortization | 858 | 1,029 | (171 | ) | (17% | ) | ||||||
Foreign exchange loss (gain) | 40 | (75 | ) | 115 | 153% | |||||||
Income tax expense | 693 | 310 | 383 | 124% | ||||||||
Net income | $ | 1,476 | $ | 605 | 871 | 144% |
For the nine months ended | ||||||||||||
(In thousands of US dollars) | ||||||||||||
(unaudited) | Sept 30, 2018 | Sept 30, 2017 | Variance $ | Variance % | ||||||||
Adjusted EBITDA | $ | 13,573 | $ | 9,176 | 4,397 | 48% | ||||||
Deduct (add): | ||||||||||||
Share-based compensation | 3,197 | 3,057 | 140 | 5% | ||||||||
Depreciation and amortization | 2,624 | 3,017 | (393 | ) | (13% | ) | ||||||
Foreign exchange loss (gain) | (33 | ) | (183 | ) | 150 | 82% | ||||||
Income tax expense | 2,239 | 1,096 | 1,143 | 104% | ||||||||
Net income | $ | 5,546 | $ | 2,189 | 3,357 | 153% |
Share-based compensation
The Corporation incurs certain employment related expenses that are settled in equity-based instruments. During the third quarter of 2018, share-based compensation expense was $1,054, a decrease of $267 or 20% over the same period in 2017. For the nine month period ended September 30, 2018, share-based compensation was $3,197, an increase of $140 or 5% over the comparable year period. The increase in share-based compensation expense reflects a higher number of restricted share units granted during the period due to annual grants of RSUs and higher resourcing levels relative to the prior year.
Depreciation and amortization
Depreciation and amortization expense in the third quarter of 2018 decreased $171, or 17% to $858, from the third quarter of 2017. Depreciation and amortization for the nine month period
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ended September 30, 2018 was $2,624, a decrease of $393 or 13% from the comparable year period. The decrease from the prior year periods was due to certain intangible assets becoming fully amortized during the year ended 2017, resulting in less amortization in the current periods.
Foreign exchange loss (gain)
The Corporation is exposed to Foreign Exchange (FX) risk as a result of transactions in currencies other than its functional currency, the US dollar. FX gains and losses arise from the translation of the Corporations balance sheet, revenue and expenses. The Corporation holds balances in foreign currencies (e.g. non-US dollar denominated cash, accounts payable and accrued liabilities, and deposits) that give rise to exposure to foreign exchange risk. At period end, non-US dollar monetary balance sheet accounts are translated at the period-end FX rate. The net effect after translating the balance sheet accounts is recorded in the condensed consolidated interim statement of comprehensive income for the period.
The majority of the Corporations revenues in the third quarter of 2018 were transacted in US dollars, and to a lesser extent, the EURO. The direct cost of principal revenue is denominated in the same currency as the revenue earned, minimizing the FX exposure related to the EURO. Adjusted operating expenses are incurred predominantly in Canadian dollars, exposing the Corporation to FX risk.
As part of the risk management strategy of the Corporation, management enters into foreign exchange forward contracts extending out to approximately one year to reduce the foreign exchange risk with respect to the Canadian dollar. These contracts have been designated as cash flow hedges. The Corporation does not use derivative instruments for speculative purposes.
For a derivative instrument designated as a cash flow hedge, the effective portion of the derivatives gain or loss is initially reported as a component of other comprehensive income and is subsequently recognized in income when the hedged exposure affects income. Any ineffective portion of the derivatives gain or loss is recognized in current income. For the quarter ended September 30, 2018, the Corporation reclassified a loss of $132, net of tax, from other comprehensive income into net income (2017 - reclassified a gain of $141, net of tax, from other comprehensive income into net income). For the nine month period ended September 30, 2018, the Corporation reclassified a gain of $104, net of tax, from other comprehensive loss into net income (2017 - reclassified a gain of $97, net of tax, from other comprehensive income into net income). The cash flow hedges were effective for accounting purposes during the three months ended September 30, 2018. Realized gains from the Corporations hedging activities, in 2018, were driven by the changes in the relative strength of the US dollar compared to the Canadian dollar.
For the quarter ended September 30, 2018, the Corporation recorded a foreign exchange loss of $40 compared with a foreign exchange gain of $75 in the third quarter of 2017. For the nine
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month period ended September 30, 2018, the Corporation recorded a foreign exchange gain of $33, which was a decrease of $150 or 82% as compared to the comparable period in 2017. Foreign exchange gains and losses fluctuate from period to period due to movements in foreign currency rates.
Income tax expense
The Corporation is subject to income tax in multiple jurisdictions and assesses its taxable income to ensure eligible tax deductions are fully utilized. The Corporation recorded an income tax expense of $693 for the quarter ended September 30, 2018 compared to $310 in the prior year quarter. The year to date income tax expense for the period ended September 30, 2018 was $2,239 as compared to $1,096 in the period ended September 30, 2017. This increase is mainly due to the higher net income recognized by the Corporation in the three and nine month period to September 30, 2018, as compared to the prior three and nine month period.
Net income and earnings per share
For the three months ended | ||||||||||||
(In thousands of US dollars, | ||||||||||||
except per share amounts) | ||||||||||||
(unaudited) | Sept 30, 2018 | Sept 30, 2017 | $Variance | % Variance | ||||||||
Net income | $ | 1,476 | $ | 605 | 871 | 144% | ||||||
Earnings per share | ||||||||||||
Basic | $ | 0.10 | $ | 0.04 | 0.06 | 150% | ||||||
Diluted | $ | 0.10 | $ | 0.04 | 0.06 | 150% |
For the nine months ended | ||||||||||||
(In thousands of US dollars, | ||||||||||||
except per share amounts) | ||||||||||||
(unaudited) | Sept 30, 2018 | Sept 30, 2017 | $Variance | % Variance | ||||||||
Net income | $ | 5,546 | $ | 2,189 | 3,357 | 153% | ||||||
Earnings per share | ||||||||||||
Basic | $ | 0.39 | $ | 0.15 | 0.24 | 160% | ||||||
Diluted | $ | 0.38 | $ | 0.15 | 0.23 | 153% |
The Corporation reported net income of $1,476 for the quarter ended September 30, 2018 compared with net income of $605 for the quarter ended September 30, 2017. For the nine months ended September 30, 2018, the Corporation reported net income of $5,546 compared to $2,189 in the prior year period. This increase was largely due to the increase in gross profit in the current period.
The Corporation's basic earnings per share is calculated on the basis of the weighted average number of outstanding common shares for the period, which amounted to 14,230,930 common shares for the quarter ended September 30, 2018, compared with 14,833,256 common shares for the quarter ended September 30, 2017. The Corporation reported basic earnings per share
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and diluted earnings per share of $0.10 for the third quarter of 2018 compared to $0.04 basic earnings per share and diluted earnings per share for the third quarter of 2017.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated Balance Sheet Data as at | Sept 30, | December 31, | $ | % | ||||||||
(In thousands of US dollars)(unaudited) | 2018 | 2017 | Variance | Variance | ||||||||
Cash and cash equivalents | $ | 55,668 | $ | 63,514 | (7,846 | ) | (12% | ) | ||||
Restricted cash | 500 | 500 | - | - | ||||||||
Funds receivable from payment processors | 7,483 | 15,229 | (7,746 | ) | (51% | ) | ||||||
Total funds available | $ | 63,651 | $ | 79,243 | (15,592 | ) | (20% | ) | ||||
Total current assets | $ | 72,723 | $ | 89,404 | (16,681 | ) | (19% | ) | ||||
Total current liabilities | 62,158 | 75,660 | (13,502 | ) | (18% | ) | ||||||
Working Capital1 | $ | 10,565 | $ | 13,744 | (3,179 | ) | (23% | ) |
1 Working Capital is a Non-GAAP financial measure. Refer to the Performance indicators and Non-GAAP financial measures section for definition and explanation.
The Corporations financial strength is reflected in its balance sheet. As at September 30, 2018, the Corporation continues to remain debt free with total funds available of $63,651. The Corporations working capital was $10,565 at September 30, 2018 compared to working capital of $13,744 as at December 31, 2017. The decrease in working capital for the period ended September 30, 2018 was due to the shares repurchased during the year from the completion of the 2017 Normal Course Issuer Bid (NCIB) and the commencement of the 2018 NCIB for a total cash outlay of $6,358. In addition, cash outlays related to the Corporations Share Unit plan, including purchases of shares held in trust and payment of the statutory withholding taxes on the Restricted Share Unit settlements, were $5,545. These large cash payments were partially offset through cash generated from the Corporations normal course operations. Consistent with the prior periods, working capital continues to be positive.
As at September 30, 2018, the following two credit facilities are available through the Corporations principal banker until May 31, 2019. The first facility is a revolving operating facility in the amount of $8,500 at an interest rate range of 0.35% to 0.75% per annum over the bank base rate. The second facility is a term loan facility of $5,000 to be used solely for the purpose of financing the cash consideration relating to acquisitions made by the Corporation, at an interest rate range of 0.40% to 0.80% per annum over the bank base rate. There have been no borrowings to date under these facilities.
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Sources and Uses of Cash | ||||||||||||
For the three months ended | ||||||||||||
(In thousands of US | ||||||||||||
dollars) (unaudited) | Sept 30, 2018 | Sept 30, 2017 | $ | Variance | % Variance | |||||||
Operating activities | $ | (14,117 | ) | $ | 7,981 | (22,098 | ) | (277% | ) | |||
Investing activities | (249 | ) | 9,408 | (9,657 | ) | (103% | ) | |||||
Financing activities | (610 | ) | (2,236 | ) | 1,626 | 73% | ||||||
Effects of exchange rates | 127 | (716 | ) | 843 | 118% | |||||||
Change in cash and cash equivalents | $ | (14,849 | ) | $ | 14,437 | (29,286 | ) | (203% | ) |
For the nine months ended | ||||||||||||
(In thousands of US | ||||||||||||
dollars) (unaudited) | Sept 30, 2018 | Sept 30, 2017 | $ | Variance | % Variance | |||||||
Operating activities | $ | 4,658 | $ | 4,405 | 253 | 6% | ||||||
Investing activities | (1,510 | ) | 7,979 | (9,489 | ) | (119% | ) | |||||
Financing activities | (11,552 | ) | (2,502 | ) | (9,050 | ) | (362% | ) | ||||
Effects of exchange rates | 558 | (1,425 | ) | 1,983 | 139% | |||||||
Change in cash and cash equivalents | $ | (7,846 | ) | $ | 8,457 | (16,303 | ) | (193% | ) |
Operating Activities
Cash flows from operating activities, which decreased in the quarter ended September 30, 2018 compared to the prior year quarter, are primarily generated from funds collected from miles and points transacted from the various products and services offered by the Corporation and are reduced by cash payments to loyalty partners and payment of operating expenses. Cash flows from operating activities can fluctuate depending on the timing of promotional activity and partner payments. In the third quarter of 2018, the Corporation experienced a decrease in cash flows from operating activities compared to the prior year quarter primarily due to the timing of payments to loyalty program partners and the timing of receipts from the Corporations payment processors. In the nine months ended September 30, 2018 the change in cash flow from Operating activities remained flat at 6% compared to the prior year period.
Investing Activities
Cash used in investing activities during the third quarter of 2018 included cash used for internally developed intangible assets and the purchase of property and equipment. The change in cash flow from investing activities in the three and nine months ended September 30, 2018 compared to the prior year period was due to a short-term investment of $10,033 that settled into cash in the third quarter of 2017.
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Financing Activities
Cash flows used in financing activities during the three and nine months ended September 30, 2018 were primarily related to the purchase and cancellation of shares under the Corporations NCIB and additional cash outlays to acquire shares held in trust for the future settlement of RSUs. Additionally, starting Q2 2018 the Corporation initiated cash payments on the withholding taxes of RSUs that vested in the period. In the three months and nine months ended September 30, 2018 the cash paid on the withholding taxes of vested RSUs were $53 and $2,589 respectively.
Contractual Obligations and Commitments
Total | Year 1 | (3) | Year 2 | Year 3 | Year 4 | Year 5+ | ||||||||||||
Operating leases(1) | $ | 8,389 | $ | 2,132 | $ | 1,939 | $ | 1,874 | $ | 1,836 | $ | 608 | ||||||
Principal revenue(2) | 287,010 | 30,385 | 185,440 | 46,078 | 25,107 | - | ||||||||||||
$ | 295,399 | $ | 32,517 | $ | 187,379 | $ | 47,952 | $ | 26,943 | $ | 608 |
(1) The Corporation is obligated under various non-cancellable
operating leases for premises and equipment and service agreements for web
hosting services.
(2) For certain loyalty partners, the Corporation
guarantees a minimum level purchase of points/miles, for each contract year,
over the duration of the contract term between the Corporation and Loyalty
Partner. Management evaluates each guarantee at each interim reporting date and
at the end of each contract year, to determine if the guarantee will be met for
that respective contract year.
(3) The guarantees and commitments schedule is
prepared on a rolling 12-month basis. If a revenue guarantee has been met, it is
removed from the principal revenue disclosure above.
Operating lease and principal revenue obligations will continue to be funded through working capital. The Corporation has made contractual commitments on the minimum value of transactions processed over the term of its agreements with certain loyalty program partners. Under this type of guarantee, in the event that the sale of loyalty program currencies are less than the guaranteed amounts, the Corporation would be obligated to purchase additional miles or points from the loyalty program partner equal to the value of the revenue commitment shortfall. The Corporation has recorded an asset within Other Assets on the Balance Sheet of $2,597 due to reward currencies acquired as a result of a revenue guarantee shortfall in prior years.
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BALANCE SHEET VARIANCES
Consolidated Balance Sheet Data as at | Sept 30, | December 31, | ||||
(In thousands of US dollars) (unaudited) | 2018 | 2017 | ||||
Cash and cash equivalents | $ | 55,668 | $ | 63,514 | ||
Restricted cash | 500 | 500 | ||||
Funds receivable from payment processors | 7,483 | 15,229 | ||||
Accounts receivable | 6,987 | 7,741 | ||||
Prepaid expenses and other assets | 2,085 | 2,420 | ||||
Total current assets | $ | 72,723 | $ | 89,404 | ||
Property and equipment | 2,211 | 2,128 | ||||
Intangible assets | 14,068 | 15,265 | ||||
Goodwill | 7,130 | 7,130 | ||||
Deferred tax assets | 3,446 | 2,557 | ||||
Other assets | 2,627 | 2,661 | ||||
Total non-current assets | $ | 29,482 | $ | 29,741 | ||
Accounts payable and accrued liabilities | $ | 7,066 | $ | 7,998 | ||
Income taxes payable | 914 | 695 | ||||
Payable to loyalty program partners | 53,362 | 65,567 | ||||
Current portion of other liabilities | 816 | 1,400 | ||||
Total current liabilities | $ | 62,158 | $ | 75,660 | ||
Other liabilities | 414 | 538 | ||||
Total non-current liabilities | $ | 414 | $ | 538 | ||
Total shareholders equity | $ | 39,633 | $ | 42,947 |
Cash and cash equivalents
The Corporations cash and cash equivalents balance decreased $7,846 as at September 30, 2018 compared to the end of 2017. The decrease in cash and cash equivalents was due to changes in working capital balances, investment in property and equipment and intangible assets, corporate income tax payments and purchases of shares held in trust and under the NCIB.
Funds receivable from payment processors
The Corporations funds receivable from payment processors balance decreased $7,746 compared to the end of 2017, which is attributable to the volume of sales at the end of the quarter in Q4 2017 relative to the end of Q3 2018. In general, the Corporation will experience a higher balance when promotions are timed towards the end of the period when the receivable balances have not been settled in cash by payment processors.
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Accounts receivable
The Corporations accounts receivable balance decreased $754 compared to the end of 2017 primarily due to timing of payments received, with lower outstanding balances as at September 30, 2018. The Corporation is confident that the full amount of the outstanding accounts receivable balance will be collected.
Accounts payable and accrued liabilities
The Corporations accounts payable and accrued liabilities balance decreased $932 compared to the end of 2017, primarily due to the payment of the Corporations annual employee incentives in the first quarter of 2018.
Income taxes payable
The Corporations income taxes payable increased $219 compared to the end of 2017 due to the increase in income taxes driven by the increase in revenues and operating income.
Payable to loyalty program partners
The Corporations payable to loyalty program partners decreased $12,205 compared to the end of 2017, which is primarily attributable to the timing of payments made to loyalty partners and timing of promotional activity during the quarter. The Corporation will typically remit funds to loyalty program partners approximately 30 days after the month of loyalty currency sales.
Cash from Exercise of Options
In Q3 2018, there were 104,001 options exercised for a total of 43,322 common shares.
Certain options are due to expire within 12 months from the date of this MD&A. If exercised in full, issued and outstanding common shares will increase by 101,014 shares.
Securities with Near-Term Expiry Dates Outstanding Amounts as at November 13, 2018 (exercise price in CAD$).
Security Type | Month of Expiry | Number | Exercise Price |
Option | March 17, 2019 | 99,845 | 30.84 |
Option | September 29, 2019 | 1,169 | 19.82 |
Total | 101,014 |
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OUTSTANDING SHARE DATA
As of November 13, 2018, the Corporation has 14,187,882 common shares outstanding.
As of the date hereof, the Corporation has outstanding options to acquire up to 310,889 common shares. The options have exercise prices ranging from $9.89 to $30.84 with a weighted average exercise price of $18.09. The expiration dates of the options range up to August 22, 2021.
The following table lists the common shares issued and outstanding as at November 13, 2018 and the securities that are currently convertible into common shares along with the maximum number of common shares issuable on conversion or exercise.
Common Shares | Proceeds | |
Common Shares Issued & Outstanding | 14,187,882 | |
Convertible Securities: Share options | 310,889 | CAD$ 5,623,068 |
Common Shares Issued & Potentially Issuable | 14,498,771 | CAD$ 5,623,068 |
Securities Excluded from Calculation: | ||
Options Available to grant from ESOP | 1,218,971 |
SUMMARY OF QUARTERLY RESULTS
(in thousands of US dollars, except per share amounts) | ||||
Three month period ended | Total | Basic earnings | Diluted earnings | |
Revenue1 | Net income | per share | per share | |
September 30, 2018 | $ 94,358 | $ 1,476 | $ 0.10 | $ 0.10 |
June 30, 2018 | 97,859 | 1,812 | 0.12 | 0.12 |
March 31, 2018 | 89,110 | 2,258 | 0.16 | 0.16 |
December 31, 2017 | 88,131 | 1,191 | 0.08 | 0.08 |
September 30, 2017 | 91,589 | 605 | 0.04 | 0.04 |
June 30, 2017 | 85,807 | 732 | 0.05 | 0.05 |
March 31, 2017 | 83,115 | 852 | 0.06 | 0.06 |
December 31, 2016 | 81,955 | (3,674) | (0.24) | (0.24) |
September 30, 2016 | 82,442 | 335 | 0.02 | 0.02 |
June 30, 2016 | 83,864 | 931 | 0.06 | 0.06 |
March 31, 2016 | 73,560 | 893 | 0.06 | 0.06 |
December 31, 2015 | 80,228 | 961 | 0.06 | 0.06 |
September 30, 2015 | 81,133 | 961 | 0.05 | 0.06 |
1 2017 revenues have been restated to reflect the impacts of IFRS 15. Revenues prior to the year ended 2017 were not restated by the Corporation.
Generally, increases in transaction levels, revenues and gross profit will drive higher overall profitability. The Corporations revenues are primarily impacted by retaining and growing existing partnerships and products in markets, new partnerships and products launched during the year, and the level and type of promotional activity offered to loyalty program members. In the absence of any new partner or products launched during a period, quarterly revenues will be primarily impacted by the Corporations ability to grow existing partnerships through marketing and promotional activity carried out with loyalty program members, which will vary quarter over quarter. In addition, revenues can be impacted by external factors such as growth in the overall loyalty industry growth and growth in the Corporations loyalty program partners member bases.
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Through the addition of new partnerships year after year, the Corporation has been able to generate increased revenues on a consistent basis. In addition, the Corporation has been able to grow revenues with existing partnerships year over year as it improves its direct marketing and data analytics capabilities and enhances the functionality of the LCP and associated products. Revenue growth has also come from the ability to sell additional loyalty products and services to existing partners.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
For the Corporations accounting policies and critical accounting estimates and judgments, refer to the Corporations MD&A and audited annual consolidated financial statements for the year ended December 31, 2017. The preparation of the consolidated financial statements in accordance with IFRS, requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. Significant changes in these assumptions, including those related to our future business plans and cash flows, could materially change the amounts we record. Actual results may differ from these estimates.
In 2018, the Corporation has adopted the following new standards and amendments to existing standards:
| IFRS 15, Revenue from Contracts with Customers (IFRS 15) |
Effective January 1, 2018, the Corporation adopted the new standard and its amendments using the full retrospective transition method. As a result, all comparative information in these financial statements has been restated. The accounting policies set out in note 3(b) in the Corporations September 30, 2018 condensed consolidated interim financial statements, have been applied in preparing the condensed consolidated interim financial statements as at and for the three and nine months ended September 30, 2018, and the comparative information presented in these condensed consolidated interim financial statements as at and for the three and nine months ended September 30, 2017.
The application of IFRS 15 did not result in adjustments to the statement of financial position at January 1, 2017 or December 31, 2017, nor did it impact cash flow totals from operating, investing or financing activities. Certain adjustments were identified with respect to the classification and presentation of revenue and expenses which are summarized below:
Certain revenues previously classified as net are recognized as gross under IFRS 15. In determining whether the Corporation acts as a principal or an agent for each respective product and business line, the Corporation identified the specified good or service in the contract and then evaluated whether the Corporation controls that good or service before it is transferred to the customer. Factors considered in making the determination include
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whether the Corporation is primarily responsible for fulfilling the promise to provide the specified good or service, has inventory risk and/or has discretion in establishing the prices for the specified goods and services provided. Through this analysis, Management has concluded that:
|
The Corporation acts as principal for certain buy/gift transactions relating to loyalty partners where it was determined that the Corporation obtains control of the loyalty currency. The Corporation also acts as a principal in the delivery of certain services, including transfer, reinstate, hosting and website development services provided to loyalty partners. | |
|
The Corporation acts as an agent for certain buy/gift transactions relating to loyalty partners where it was determined that the Corporation does not obtain control of the underlying loyalty currency. In addition, the Corporation acts as an agent for all of the Platform Partners offerings along with the Points travel products. |
Under IFRS 15, the Corporation reclassified interest earned on funds held as part of the sales process that does not represent revenue from contracts with customers to a separate line item called Finance Income. This amount will remain a part of the Corporations Adjusted EBITDA calculation.
Under IFRS 15, the Corporation has reclassified losses arising on certain Points Travel promotional offers, from marketing expenses to revenue. The reclassified amount represents the transaction price that the Corporation is entitled to in exchange for the services provided.
| IFRS 9, Financial Instruments (IFRS 9) |
IFRS 9 supersedes IAS 39 Financial Instruments Recognition and Measurement. The standard sets out revised guidance for classifying and measuring financial instruments, introduced a new expected credit loss model for calculating impairment of financial assets and includes new guidance for the application of hedge accounting. The standard also requires that when a financial liability measured at amortized cost is modified or exchanged, and such modification or exchange does not result in derecognition, that the adjustment to the amortized cost of the financial liability is recognized in profit or loss. The Corporation has adopted IFRS 9 on a retrospective basis without restating comparative periods as it was not possible to do so without the use of hindsight.
The standard does not have an impact on the Corporations results and may allow for simplified effectiveness testing going forward. The Corporation has determined that there is no effect on the current or prior year financial statements with regards to the adoption of IFRS 9. Please refer to note 3(c) in the Corporations September 30, 2018 condensed consolidated interim financial statements, for the Corporations revised financial instrument policy
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The Corporation also adopted new amendments to the following accounting standards effective for our interim and annual consolidated financial statements commencing January 1, 2018. These changes did not have a material impact on our financial results.
IFRS 2, Share-based Payment; and
IFRIC Interpretation 22, Foreign Currency Translation and Advance
Consideration
The IASB has issued new standards and amendments to existing standards. These changes have not yet been adopted by Corporation and could have an impact on future periods.
| IFRS 16, Leases (effective January 1, 2019). |
This new standard is described in detail in the Corporations 2017 audited consolidated financial statements. Management is currently evaluating the implementation alternatives for the required January 1, 2019 implementation date. The application of IFRS 16 will result in an increase in leased assets and financial liabilities on the statement of financial position. The balances will primarily comprise of the leases for the three premises the Corporation leases for offices in Toronto, San Francisco and London. In the Statement of Comprehensive Income, there will be a reduction in operating lease expenses offset by an increase in amortization and interest costs, resulting in a minimal impact on Net Income and a net increase in Adjusted EBITDA.
PERFORMANCE INDICATORS AND NON-GAAP FINANCIAL MEASURES
REVENUE, DIRECT COSTS OF REVENUE AND GROSS PROFIT
The Corporations revenue is primarily generated by transacting points and/or miles online. Revenue is principally derived from the sale or transfer of loyalty currencies directly to loyalty program members. The Corporation categorizes its revenue in three ways: principal revenue, other partner revenue and interest income.
Principal Revenue:
Principal revenue includes all principal
revenue derived from reseller sales, technology design, development and
maintenance revenue, and hosting fees. Under a reseller arrangement, the
Corporation takes on a principal role whereby it purchases points and miles from
loyalty program partners at wholesale rates and resells them directly to
consumers. The Corporation has a substantial level of responsibility with
respect to operations, marketing, pricing and commercial transaction support. In
addition, the Corporation may assume additional responsibility when assuming a
principal role, such as credit and/or inventory risk.
Other Partner Revenue:
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Other partner revenue includes transactional revenue that is realized when the Corporation assumes an agency role in the retailing and wholesaling of loyalty currencies for loyalty program partners and other revenue received from partners which is not transactional in nature. The Corporation also earns Other Partner Revenue through commissions, per transaction charges, and recurring fixed fees from the products and services it provides through its Platform Partners segment and commission for online bookings or redemptions of hotel accommodations or car rentals through its Points Travel segment.
Gross profit, defined by management as total revenues less direct costs of revenue, is a non-GAAP financial measure which does not have any standardized meaning prescribed by IFRS and is therefore unlikely to be comparable to similar measures presented by other issuers. Gross profit is viewed by management to be an integral measure of financial performance as it represents an internal measure of ongoing growth and the amount of revenues retained by the Corporation that are available to fund operating expenses, including incremental spending that is in line with the long term investment strategy of the Corporation. Management continues to drive a shift in the Corporations revenue mix toward reseller relationships (with higher partner engagement) that are expected to lead to sustained profitability for the Corporation. In general, the Corporation seeks to maximize the gross profit generated from each loyalty partner relationship. For this reason, these new deals and products are expected to be accretive to overall profitability.
Direct cost of principal revenue consists of variable direct costs incurred to generate principal revenues earned under the reseller model, which include the wholesale cost of loyalty currency paid to partners for the purchase and resale of such currency, and credit card processing fees.
Revenue and gross profit growth is dependent on various factors, including the timing and size of promotional campaigns that are placed in market by the Corporation, the growth in loyalty program partners membership base, and the effectiveness of merchandising and marketing efforts and channels initiated by the Corporation to generate incremental revenues.
Reconciliation of Revenue to Gross Profit
For the three months ended | For the nine months ended | |||||||||||
(In thousands of US dollars) | Sept 30, | |||||||||||
(unaudited) | Sept 30, 2018 | 20171 | Sept 30, 2018 | Sept 30, 20171 | ||||||||
Revenue | $ | 94,358 | $ | 91,589 | $ | 281,327 | $ | 260,511 | ||||
Less: | ||||||||||||
Direct cost of principal revenue | 81,776 | 80,268 | 241,528 | 226,970 | ||||||||
Gross profit | $ | 12,582 | $ | 11,321 | $ | 39,799 | $ | 33,541 |
1 Results for the three and nine months ended September 30, 2017 have been restated under IFRS 15.
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ADJUSTED OPERATING EXPENSES
Adjusted operating expenses is a non-GAAP financial measure, which is defined as Employment Costs, Marketing and Communications, Technology Services and Operating Expenses, excluding equity-settled share-based payment expense. Adjusted operating expenses are predominantly cash based expenditures. The closest GAAP measure is Total Expenses in the consolidated financial statements and the reconciliation from Total Expenses to Adjusted Operating Expenses is shown below.
Reconciliation of Total Expenses to Adjusted Operating Expenses
For the three months ended | For the nine months | |||||||||||
ended | ||||||||||||
(In thousands of US dollars) | Sept 30, | Sept 30, | Sept 30, | |||||||||
(unaudited) | Sept 30, 2018 | 2017 | 2018 | 2017 | ||||||||
Total Expenses | $ | 92,431 | $ | 90,745 | $ | 273,988 | $ | 257,384 | ||||
Subtract (add): | ||||||||||||
Direct cost of principal revenue | 81,776 | 80,268 | 241,528 | 226,970 | ||||||||
Depreciation and amortization | 858 | 1,029 | 2,624 | 3,017 | ||||||||
Foreign exchange loss (gain) | 40 | (75 | ) | (33 | ) | (183 | ) | |||||
Share-based compensation | 1,054 | 1,321 | 3,197 | 3,057 | ||||||||
Adjusted Operating Expenses | $ | 8,703 | $ | 8,202 | $ | 26,672 | $ | 24,523 |
DIRECT AND INDIRECT ADJUSTED OPERATING EXPENSES
Adjusted operating expenses are allocated to either direct adjusted operating expenses or indirect adjusted operating expenses. Direct adjusted operating expenses are expenses which are directly attributable to each operating segment. Indirect adjusted operating expenses comprise costs that are shared among the Loyalty Currency Retailing, Platform Partners and Points Travel operating segments, including costs associated with various corporate functions, such as Finance, Human Resources, Legal and certain expenses associated with information technology infrastructure.
For the nine months | ||||||||||||
For the three months ended | ended | |||||||||||
(In thousands of US dollars) | Sept 30, | Sept 30, | Sept 30, | |||||||||
(unaudited) | Sept 30, 2018 | 2017 | 2018 | 2017 | ||||||||
Adjusted Operating Expenses | $ | 8,703 | $ | 8,202 | $ | 26,672 | $ | 24,523 | ||||
Less: | ||||||||||||
Indirect Adjusted Operating Expenses | 3,434 | 3,141 | 10,127 | 9,717 | ||||||||
Direct Adjusted Operating Expenses | $ | 5,269 | $ | 5,061 | $ | 16,545 | $ | 14,806 |
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CONTRIBUTION
Contribution is a non-GAAP financial measure which is defined as gross profit less direct operating expenses. Management believes that contribution is a key measure of the performance of the Corporations segments as this metric excludes all indirect adjusted operating expenses that are shared by the three operating segments. The presentation of contribution is to provide additional useful information to investors and analysts and the measure does not have any standardized meaning under IFRS. Contribution should therefore not be considered in isolation and other issuers may calculate contribution differently.
Reconciliation of Gross Profit to Contribution
For the three months ended | For the nine months ended | |||||||||||
(In thousands of US dollars) | Sept 30, | Sept 30, | ||||||||||
(unaudited) | Sept 30, 2018 | 20171 | Sept 30, 2018 | 20171 | ||||||||
Gross profit | $ | 12,582 | $ | 11,321 | $ | 39,799 | $ | 33,541 | ||||
Less: | ||||||||||||
Direct adjusted operating expenses | 5,269 | 5,061 | 16,545 | 14,806 | ||||||||
Contribution | $ | 7,313 | $ | 6,260 | $ | 23,254 | $ | 18,735 |
1 Results for the three and nine months ended September 30, 2017 have been restated under IFRS 15.
ADJUSTED EBITDA
Adjusted EBITDA is a non-GAAP financial measure, which is defined as earnings before income tax expense, depreciation and amortization, share-based compensation, impairment charges and foreign exchange. Management excludes these items because they affect the comparability of the Corporations financial results and could potentially distort the analysis of trends in business performance.
Management believes that Adjusted EBITDA is an important indicator of the Corporations ability to generate liquidity through operating cash flow to fund future working capital needs and fund future capital expenditures and uses the metric for this purpose. The presentation of Adjusted EBITDA is to provide additional useful information to investors and analysts and the measure does not have any standardized meaning under IFRS. Adjusted EBITDA should therefore not be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS. Other issuers may calculate Adjusted EBITDA differently.
27
Reconciliation of Net Income to Adjusted EBITDA
For the three months ended | For the nine months ended | |||||||||||
(In thousands of US dollars) | ||||||||||||
(unaudited) | Sept 30, 2018 | Sept 30, 2017 | Sept 30, 2018 | Sept 30, 2017 | ||||||||
Net income | $ | 1,476 | $ | 605 | $ | 5,546 | $ | 2,189 | ||||
Income tax expense | 693 | 310 | 2,239 | 1,096 | ||||||||
Depreciation and amortization | 858 | 1,029 | 2,624 | 3,017 | ||||||||
Foreign exchange loss (gain) | 40 | (75 | ) | (33 | ) | (183 | ) | |||||
Equity-settled share-based payment expense | 1,054 | 1,321 | 3,197 | 3,057 | ||||||||
Adjusted EBITDA | $ | 4,121 | $ | 3,190 | $ | 13,573 | $ | 9,176 |
Adjusted EBITDA by Segment
For the three months ended | For the nine months ended | |||||||||||
(In thousands of US dollars) | ||||||||||||
(unaudited) | Sept 30, 2018 | Sept 30, 2017 | Sept 30, 2018 | Sept 30, 2017 | ||||||||
Loyalty Currency Retailin3g | $ | 5,963 | $ | 5,007 | $ | 19,194 | $ | 14,787 | ||||
Platform Partners | (132 | ) | (452 | ) | (771 | ) | (1,381 | ) | ||||
Points Travel | (1,710 | ) | (1,365 | ) | (4,850 | ) | (4,230 | ) | ||||
Adjusted EBITDA | $ | 4,121 | $ | 3,190 | $ | 13,573 | $ | 9,176 |
WORKING CAPITAL
Management defines Working Capital as total current assets less total current liabilities. Management believes that this non-GAAP financial measure provides a useful measure of the Corporations liquidity. Other issuers may include other items in their definition of Working Capital therefore it may not be comparable to similar measures presented by other issuers.
28
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
I, Robert MacLean, Chief Executive Officer of Points International Ltd., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A, (together, the interim filings) of Points International Ltd. (the issuer) for the interim period ended September 30, 2018.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer and I have, as at the end of the period covered by the interim filings:
(a) |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that: | ||
(i) |
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and | ||
(ii) |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and | ||
(b) |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP. |
5.1 Control framework: The control framework the issuer's other certifying officer and I used to design the issuer's ICFR is the Internal Control Integrated Framework (COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.
5.2 ICFR -- material weakness relating to design: N/A.
5.3 Limitation on scope of design: N/A.
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on July 1, 2018 and ended on September 30, 2018 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
Date: November 13, 2018
/s/ Robert MacLean
_______________________
Robert MacLean
Chief Executive Officer
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
I, Erick Georgiou, Chief Financial Officer of Points International Ltd., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A, (together, the interim filings) of Points International Ltd. (the issuer) for the interim period ended September 30, 2018.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer and I have, as at the end of the period covered by the interim filings:
(a) |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that: | ||
(i) |
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and | ||
(ii) |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and | ||
(b) |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP. |
5.1 Control framework: The control framework the issuer's other certifying officer and I used to design the issuer's ICFR is the Internal Control Integrated Framework (COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.
5.2 ICFR -- material weakness relating to design: N/A.
5.3 Limitation on scope of design: N/A.
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on July 1, 2018 and ended on September 30, 2018 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
Date: November 13, 2018
/s/
Erick Georgiou
Erick Georgiou
Chief Financial Officer
Points International Reports Third Quarter 2018 Results
Gross Profit up 11% to $12.6 Million
Net Income Increased 144% to $1.5 Million
Adjusted EBITDA up 29% to $4.1 Million
TORONTO November 13, 2018 Points International Ltd. (TSX: PTS) (Nasdaq: PCOM) (Points or the Company), the global leader in powering loyalty commerce, is reporting financial results for the third quarter ended September 30, 2018. Points adopted International Financial Reporting Standard 15 - Revenue from Contracts with Customers (IFRS 15) - effective January 1, 2018 and applied these new accounting policies retrospectively. Accordingly, 2017 comparative amounts have been restated.
Unless otherwise noted, all comparisons are on a year-over-year basis and all amounts are in USD. The complete third quarter Condensed Consolidated Interim Financial Statements and Management Discussion & Analysis, including segmented results, are available at www.sedar.com and www.sec.gov.
Third Quarter 2018 Financial Highlights (vs. Year-Ago Quarter)
Total revenue increased 3% to $94.4 million compared to $91.6 million.
Gross profit1 increased 11% to $12.6 million compared to $11.3 million.
Net income increased 144% to $1.5 million or $0.10 per share, compared to $0.6 million or $0.04 per share.
Adjusted EBITDA2 increased 29% to $4.1 million compared to $3.2 million.
Recent Operational Highlights
Renewed its multi-year agreement with the Etihad Airways Guest program, extending the term for three years across both Loyalty Currency Retailing and Points Travel Services
Launched previously announced mileage earning capabilities to the Etihad Points Travel Service to complement existing Travel redemption services
Broadened its service offering with the Emirates Skywards program in the third quarter, launching the previously announced Extend product and expanded the reach of its Buy product, enabling Skywards members the ability to use their miles balance plus cash to top up more seamlessly for flight awards
Added Frontier Airlines to the list of participating Loyalty Programs and also agreed to an enhanced marketing relationship with Groupon in order to more aggressively roll out its loyalty initiative
The Board of Directors approved the renewal of Points Normal Course Issuer Bid and Automatic Share Purchase Plan (ASPP) for the period August 14, 2018 to August 13, 2019
_____________________________________________________
1
Gross profit is defined as total revenues less the direct cost of
principal revenue. Gross profit is considered by management to be an integral
measure of financial performance and represents the amount of revenues retained
by the Company after incurring direct costs. However, gross profit is not a
recognized measure of profitability under IFRS.
2 Adjusted EBITDA
(Earnings before income tax expense, depreciation and amortization, foreign
exchange and share-based compensation) is considered by management to be a
useful supplemental measure when assessing financial performance. Management
believes that adjusted EBITDA is an important indicator of the Companys ability
to generate liquidity through operating cash flow to fund future capital
expenditures and working capital needs. However, adjusted EBITDA is not a
measure of financial performance under IFRS and should not be considered a
substitute for Net Income, which we believe to be the most directly comparable
IFRS measure.
Management Commentary
Q3 was highlighted by another solid quarter of double-digit growth in our two most important financial metrics gross profit and adjusted EBITDA, said Rob MacLean, CEO of Points International. In fact, this was our fifth consecutive quarter of double-digit growth for both metrics, driven by the continued momentum in our core Loyalty Currency Retailing segment, or LCR, which benefited from new client wins over the last year and ramping existing client programs.
In Points Travel, we worked to get one of our larger partners back on plan after experiencing a temporary freeze between May and August as they dealt with internal GDPR compliance matters. This freeze affected gross profit and contribution for the quarter, however we expect to have this client back at full ramp as we enter 2019. Despite this temporary setback, we are pleased with the business development success we have seen so far in 2018, launching new Points Travel services with Singapore Airlines, Amtrak Guest Rewards, Air Europa, and most recently, expanding our services with the Etihad Guest program. While this focus on new business added some initial costs in 2018, we feel well positioned for growth in Points Travel in 2019 and beyond.
We remain on track to deliver another record year of gross profit and adjusted EBITDA. Led by the continued ramp of new client wins over the last year, as well as growth from existing partnerships across all three operating segments, we are pleased with the direction of our diversification strategy. Continued success in our enhanced, data-led marketing efforts are an important contributor to our success. We plan to carry this momentum and continue executing across all three of our business segments as we exit 2018.
Third Quarter 2018 Financial Results
Total revenue in the third quarter of 2018 increased slightly to $94.4 million compared to $91.6 million in the year-ago quarter. Principal revenue was $88.7 million compared to $87.8 million, and other partner revenue increased 48% to $5.7 million compared to $3.8 million.
Gross profit in the third quarter increased 11% to $12.6 million compared to $11.3 million in the year-ago quarter. The increase was primarily driven by continued organic growth from existing partners and the benefit of ramping up new partner launches over the last year.
Total adjusted operating expenses3 in the third quarter of 2018 were $8.7 million compared to $8.2 million in the year-ago quarter.
Net income increased 144% to $1.5 million or $0.10 per share, compared to $0.6 million or $0.04 per share in the year-ago quarter.
Adjusted EBITDA in the third quarter increased 29% to $4.1 million compared to $3.2 million in the year-ago quarter. This was primarily driven by the aforementioned increase in gross profit. As a percentage of gross profit, adjusted EBITDA improved 460 basis points to 32.8% compared to 28.2% from the prior year, reflecting improved operating leverage.
At September 30, 2018, total funds available, comprised of cash and cash equivalents together with restricted cash and funds receivable from payment processors, was $63.7 million compared to $79.2 million at December 31, 2017. The Company remains debt free.
During the third quarter, Points repurchased for cancellation approximately 39,000 shares of common stock at an average price of $14.28 per share through its Automatic Share Purchase Plan in conjunction with its Normal Course Issuer Bid (NCIB).
_____________________________________________________
3
Adjusted operating expenses consist of employment expenses excluding share-
based compensation, marketing and communications, technology services and other
operating expenses. Adjusted operating expense is not a measure of financial
performance under IFRS and should not be considered a substitute for total
expenses, which we believe to be the most directly comparable IFRS measure.
2018 Outlook
Points continues to expect gross profit to increase between 10% and 20% compared to 2017. The Company also continues to expect adjusted EBITDA to increase between 30% and 40% compared to $13.2 million in 2017.
Segmented Disclosure
Beginning in the second quarter of 2018, Points added additional transparency to its business segment performance disclosure. Contribution by segment is provided as the key performance measure in the financial statements. Contribution is defined as gross profit for the relevant operating segment less direct adjusted operating expenses4. This addition was made as the Company determined that contribution is the most appropriate measure when assessing each segments operating performance and more accurately reflects the value of shared resources in driving the Companys performance. Adjusted EBITDA by segment continues to be disclosed in the Companys Management Discussion & Analysis.
Conference Call
Points will hold a conference call today at 4:30 p.m. Eastern time to discuss its third quarter 2018 results, followed by a question-and-answer session.
Date: Tuesday, November 13, 2018
Time: 4:30 p.m. Eastern
time (1:30 p.m. Pacific time)
Toll-free dial-in number: 1-877-407-0784
International dial-in number: 1-201-689-8560
Conference ID: 13684329
Please call the conference telephone number 5-10 minutes prior to the start time, and an operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios at 1-949-574-3860.
A replay of the conference call will be available after 7:30 p.m. Eastern time on the same day through November 27, 2018.
Toll-free replay number: 1-844-512-2921
International
replay number: 1-412-317-6671
Replay ID: 13684329
About Points International Ltd.
Points (TSX: PTS) (Nasdaq: PCOM) provides loyalty e-commerce and technology solutions to the world's top brands to power innovative services that drive increased loyalty program revenue and member engagement. The Company has a growing network of nearly 60 global loyalty programs integrated into its unique Loyalty Commerce Platform. Points offers three core private or co-branded services: its Loyalty Currency Retailing service, which retails loyalty points and miles directly to consumers; its Platform Partners service, which offers developers transactional access to dozens of loyalty programs and hundreds of millions of members via a package of APIs; and its Points Travel service, which helps loyalty programs increase revenue from hotel bookings, while enabling members to more effectively earn and redeem loyalty rewards. Points is headquartered in Toronto with offices in San Francisco and London.
For more information, please visit company.points.com, follow Points on Twitter (@PointsLoyalty) or read the Points blog. For Points' financial information, visit investor.points.com.
Caution Regarding Forward-Looking Statements
_____________________________________________________
4
Direct adjusted operating expenses is a non-GAAP measure and is defined as
expenses which are directly attributable to each operating segment.
This press release contains or incorporates forward-looking statements within the meaning of United States securities legislation, and forward-looking information within the meaning of Canadian securities legislation (collectively, "forward-looking statements"). These forward-looking statements include, among other things, opportunities for new products and partners and incremental revenue, including the expected launch of announced products and partner relationships, potential for growth in revenue and gross margin, and our guidance for 2018 with respect to gross profit and adjusted EBITDA expectations. These statements are not historical facts but instead represent only Points' expectations, estimates and projections regarding future events.
Although Points believes the expectations reflected in such forward-looking statements are reasonable, such statements are not guarantees of future performance and are subject to important risks and uncertainties that are difficult to predict. Certain material assumptions or estimates are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Undue reliance should not be placed on such statements. In particular, the financial outlooks herein assume Points will be able to maintain its existing contractual relationships and products, that such products continue to perform in a manner consistent with Points' past experience, that Points will be able to generate new business from our pipeline at expected margins, our in-market and newly launched products and services will perform in a manner consistent with the Company's past experience and we will be able to contain costs. Our ability to convert our pipeline of prospective partners and product launches is subject to significant risk and there can be no assurance that we will launch new partners or new products with existing partners as expected or planned nor can there be any assurance that Points will be successful in maintaining its existing contractual relationships or maintaining existing products with existing partners. Other important risk factors that could cause actual results to differ materially include the risk factors discussed in Points' annual information form, Form-40-F, annual and interim management's discussion and analysis, and annual and interim financial statements and the notes thereto. These documents are available at www.sedar.com and www.sec.gov.
The forward-looking statements contained in this press release are made as at the date of this release and, accordingly, are subject to change after such date. Except as required by law, Points does not undertake any obligation to update or revise any forward-looking statements made or incorporated in this press release, whether as a result of new information, future events or otherwise.
Non-GAAP Financial Measures
The Companys financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). Management uses certain non-GAAP measures, which are defined in the appropriate sections of this press release, to better assess the Companys underlying performance. These measures are reviewed regularly by management and the Company's Board of Directors in assessing the Companys performance and in making decisions about ongoing operations. We believe that these measures are also used by investors as an indicator of the Companys operating performance. Readers are cautioned that these terms are not recognized GAAP measures and do not have a standardized GAAP meaning under IFRS and should not be construed as alternatives to IFRS terms, such as net income.
Investor Relations Contact
Sean Mansouri or Cody Slach |
Liolios |
1-949-574-3860 |
PCOM@liolios.com |
Points International Ltd.
Key Financial Measures and Schedule of Non-GAAP Reconciliations Gross Profit Information5
Expressed in thousands of United States dollars
For the three months ended | ||||||
September 30, | September 30, | |||||
2018 | 20176 | |||||
Total Revenue | $ | 94,358 | $ | 91,589 | ||
Direct cost of principal revenue | 81,776 | 80,268 | ||||
Gross Profit | $ | 12,582 | $ | 11,321 | ||
Gross Margin | 13% | 12% |
Reconciliation of Gross Profit to Contribution7
Expressed in thousands of United States dollars
For the three months ended | ||||||
September 30, | September 30, | |||||
2018 | 2017 | |||||
Gross profit | $ | 12,582 | $ | 11,321 | ||
Less: | ||||||
Direct adjusted operating expenses8 | 5,269 | 5,061 | ||||
Contribution | $ | 7,313 | $ | 6,260 |
_____________________________________________________
5
Gross Profit is defined as total revenues less the direct cost of principal
revenue. Gross profit is considered by management to be an integral measure of
financial performance and represents the amount of revenues retained by the
Company after incurring direct costs. However, gross profit is not a recognized
measure of profitability under IFRS.
6 Results as at September 30, 2017 have been restated under IFRS 15
7 Contribution is defined as Gross profit less direct adjusted operating expenses. Contribution is considered by Management to be a useful supplemental measure when assessing financial performance. Management believes that Contribution is an important indicator of the Companys segment profitability. However, Contribution is not a recognized measure of profitability under IFRS.
8 Direct adjusted operating expenses is defined as expenses which are directly attributable to each operating segment. Direct adjusted operating expenses is not a measure of financial performance under IFRS.
Contribution by Line of Business
Expressed in thousands of United States dollars
For the three months ended | ||||||
September 30, | September 30, | |||||
2018 | 2017 | |||||
Loyalty Currency Retailing | ||||||
Revenue | 91,950 | 89,326 | ||||
Gross profit | 10,378 | 9,221 | ||||
Direct adjusted operating expenses | 3,048 | 2,840 | ||||
Contribution | 7,330 | 6,381 | ||||
Platform Partners | ||||||
Revenue | 1,940 | 1,824 | ||||
Gross profit | 1,773 | 1,672 | ||||
Direct adjusted operating expenses | 831 | 1,100 | ||||
Contribution | 942 | 572 | ||||
Point Travel | ||||||
Revenue | 468 | 439 | ||||
Gross profit | 431 | 428 | ||||
Direct adjusted operating expenses | 1,390 | 1,121 | ||||
Contribution | (959 | ) | (693 | ) |
Reconciliation of Net Income to Adjusted EBITDA9
Expressed in thousands of United States dollars
For the three months ended | ||||||
September 30, | September 30, | |||||
2018 | 2017 | |||||
Net Income | $ | 1,476 | $ | 605 | ||
Share-based compensation | 1,054 | 1,321 | ||||
Income tax expense | 693 | 310 | ||||
Depreciation and Amortization | 858 | 1,029 | ||||
Foreign exchange loss (gain) | 40 | (75 | ) | |||
Adjusted EBITDA | $ | 4,121 | $ | 3,190 |
_____________________________________________________
9
Adjusted EBITDA (Earnings before income tax expense, depreciation and
amortization, foreign exchange and share-based compensation) is considered by
management to be a useful supplemental measure when assessing financial
performance. Management believes that adjusted EBITDA is an important indicator
of the Companys ability to generate liquidity through operating cash flow to
fund future capital expenditures and working capital needs. However, adjusted
EBITDA is not a measure of financial performance under IFRS and should not be
considered a substitute for Net Income, which we believe to be the most directly
comparable IFRS measure.
Reconciliation of Total Expenses to Adjusted Operating Expenses10
Expressed in thousands of United States dollars
For the three months ended | ||||||
September 30, | September 30, | |||||
2018 | 2017 | |||||
Total Expenses | $ | 92,431 | $ | 90,745 | ||
Subtract (add): | ||||||
Direct cost of principal revenue | 81,776 | 80,268 | ||||
Depreciation and amortization | 858 | 1,029 | ||||
Foreign exchange loss (gain) | 40 | (75 | ) | |||
Stock-based compensation | 1,054 | 1,321 | ||||
Adjusted Operating Expenses | $ | 8,703 | $ | 8,202 |
_____________________________________________________
10
Adjusted operating expenses consists of employment expenses excluding share
based compensation, marketing, technology services, and other operating
expenses. Adjusted operating expenses is not a measure of financial performance
under IFRS and should not be considered a substitute for total expenses, which
we believe to be the most directly comparable IFRS measure.
Points International Ltd.
Condensed Consolidated Interim Statements of Financial Position
Expressed in thousands of United States
dollars
(Unaudited)
As at | September 30, | December 31, | ||||
2018 | 2017 | |||||
ASSETS | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | 55,668 | $ | 63,514 | ||
Restricted cash | 500 | 500 | ||||
Funds receivable from payment processors | 7,483 | 15,229 | ||||
Accounts receivable | 6,987 | 7,741 | ||||
Prepaid expenses and other assets | 2,085 | 2,420 | ||||
Total current assets | $ | 72,723 | $ | 89,404 | ||
Non-current assets | ||||||
Property and equipment | 2,211 | 2,128 | ||||
Intangible assets | 14,068 | 15,265 | ||||
Goodwill | 7,130 | 7,130 | ||||
Deferred tax assets | 3,446 | 2,557 | ||||
Other assets | 2,627 | 2,661 | ||||
Total non-current assets | $ | 29,482 | $ | 29,741 | ||
Total assets | $ | 102,205 | $ | 119,145 | ||
LIABILITIES | ||||||
Current liabilities | ||||||
Accounts payable and accrued liabilities | $ | 7,066 | $ | 7,998 | ||
Income taxes payable | 914 | 695 | ||||
Payable to loyalty program partners | 53,362 | 65,567 | ||||
Current portion of other liabilities | 816 | 1,400 | ||||
Total current liabilities | $ | 62,158 | $ | 75,660 | ||
Non-current liabilities | ||||||
Other liabilities | 414 | 538 | ||||
Total non-current liabilities | $ | 414 | $ | 538 | ||
Total liabilities | $ | 62,572 | $ | 76,198 | ||
SHAREHOLDERS EQUITY | ||||||
Share capital | 54,320 | 56,394 | ||||
Contributed surplus | 4,366 | 10,647 | ||||
Accumulated other comprehensive income (loss) | (131 | ) | 374 | |||
Accumulated deficit | (18,922 | ) | (24,468 | ) | ||
Total shareholders equity | $ | 39,633 | $ | 42,947 | ||
Total liabilities and shareholders equity | $ | 102,205 | $ | 119,145 |
Points International Ltd.
Condensed Consolidated Interim
Statements of Comprehensive Income
Expressed in thousands of United States dollars, except per
share amounts
(Unaudited)
For the three months | For the nine months | |||||||||||
ended | ended | |||||||||||
September | September | September | September | |||||||||
30, 2018 | 30, 201711 | 30, 2018 | 30, 201711 | |||||||||
REVENUE | ||||||||||||
Principal | $ | 88,689 | $ | 87,765 | $ | 263,394 | $ | 249,724 | ||||
Other partner revenue | 5,669 | 3,824 | 17,933 | 10,787 | ||||||||
Total Revenue | $ | 94,358 | $ | 91,589 | $ | 281,327 | $ | 260,511 | ||||
EXPENSES | ||||||||||||
Direct cost of principal revenue | 81,776 | 80,268 | 241,528 | 226,970 | ||||||||
Employment costs | 6,934 | 6,660 | 20,698 | 18,731 | ||||||||
Marketing and communications | 308 | 388 | 1,096 | 1,391 | ||||||||
Technology services | 545 | 489 | 1,592 | 1,390 | ||||||||
Depreciation and amortization | 858 | 1,029 | 2,624 | 3,017 | ||||||||
Foreign exchange (gain) loss | 40 | (75 | ) | (33 | ) | (183 | ) | |||||
Operating expenses | 1,970 | 1,986 | 6,483 | 6,068 | ||||||||
Total Expenses | $ | 92,431 | $ | 90,745 | $ | 273,988 | $ | 257,384 | ||||
Finance income | 242 | 71 | 446 | 158 | ||||||||
INCOME BEFORE INCOME TAXES | $ | 2,169 | $ | 915 | $ | 7,785 | $ | 3,285 | ||||
Income tax expense | 693 | 310 | 2,239 | 1,096 | ||||||||
NET INCOME | $ | 1,476 | $ | 605 | $ | 5,546 | $ | 2,189 | ||||
OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||
Items that will subsequently be reclassified to profit or loss: | ||||||||||||
Unrealized gain (loss) on foreign
exchange derivative designated as cash flow hedges |
205 | 573 | (545 | ) | 1,101 | |||||||
Income tax effect | (54 | ) | (151 | ) | 144 | (292 | ) | |||||
Reclassification to net income
of loss (gain) on foreign exchange derivatives designated as cash flow hedges |
180 | (192 | ) | (141 | ) | (132 | ) | |||||
Income tax effect | (48 | ) | 51 | 37 | 35 | |||||||
Other comprehensive income (loss) for the period, net of income tax | $ | 283 | $ | 281 | $ | (505 | ) | $ | 712 | |||
TOTAL COMPREHENSIVE INCOME | $ | 1,759 | $ | 886 | $ | 5,041 | $ | 2,901 | ||||
EARNINGS PER SHARE | ||||||||||||
Basic earnings per share | $ | 0.10 | $ | 0.04 | $ | 0.39 | $ | 0.15 | ||||
Diluted earnings per share | $ | 0.10 | $ | 0.04 | $ | 0.38 | $ | 0.15 |
_____________________________________________________
11Results
for the three and nine months ended September 30, 2017 have been restated under
IFRS 15.
Points International Ltd.
Condensed Consolidated Interim Statements of Changes in Shareholders
Equity
Attributable to equity holders of the Company | ||||||||||||||||||
Expressed in thousands of United States | Accumulated | |||||||||||||||||
dollars except number of shares | other | Total | ||||||||||||||||
(Unaudited) | Contributed | comprehensive | Accumulated | shareholders | ||||||||||||||
Share Capital | Surplus | income (loss) | deficit | equity | ||||||||||||||
Number of | Amount | |||||||||||||||||
Shares | ||||||||||||||||||
Balance at December 31, 2017 | 14,561,450 | $ | 56,394 | $ | 10,647 | $ | 374 | $ | (24,468 | ) | $ | 42,947 | ||||||
Net income | - | - | - | - | 5,546 | 5,546 | ||||||||||||
Other comprehensive loss, net of tax | - | - | - | (505 | ) | - | (505 | ) | ||||||||||
Total comprehensive income | - | - | - | (505 | ) | 5,546 | 5,041 | |||||||||||
Effect of share option compensation plan | - | - | 40 | - | - | 40 | ||||||||||||
Effect of RSU compensation plan | - | - | 3,157 | - | - | 3,157 | ||||||||||||
Share issuances options exercised | 118,288 | 1,348 | (997 | ) | - | - | 351 | |||||||||||
Settlement of RSUs | - | 1,316 | (3,905 | ) | - | - | (2,589 | ) | ||||||||||
Share capital held in trust | - | (2,956 | ) | - | - | - | (2,956 | ) | ||||||||||
Shares repurchased | (457,556 | ) | (1,782 | ) | (4,576 | ) | - | - | (6,358 | ) | ||||||||
Balance at September 30, 2018 | 14,222,182 | $ | 54,320 | $ | 4,366 | $ | (131 | ) | $ | (18,922 | ) | $ | 39,633 | |||||
Balance at December 31, 2016 | 14,878,674 | $ | 58,412 | $ | 9,881 | $ | (127 | ) | $ | (27,848 | ) | $ | 40,318 | |||||
Net income | - | - | - | - | 2,189 | 2,189 | ||||||||||||
Other comprehensive income, net of tax | - | - | - | 712 | - | 712 | ||||||||||||
Total comprehensive income | - | - | - | 712 | 2,189 | 2,901 | ||||||||||||
Effect of share option compensation plan | - | - | 223 | - | - | 223 | ||||||||||||
Effect of RSU compensation plan | - | - | 2,834 | - | - | 2,834 | ||||||||||||
Share issuances options exercised | 16,988 | 395 | (335 | ) | - | - | 60 | |||||||||||
Settlement of RSUs | - | 1,255 | (1,255 | ) | - | - | - | |||||||||||
Share capital held in trust | - | (1,053 | ) | - | - | - | (1,053 | ) | ||||||||||
Shares repurchased | (162,347 | ) | (644 | ) | (865 | ) | - | - | (1,509 | ) | ||||||||
Balance at September 30, 2017 | 14,733,315 | $ | 58,365 | $ | 10,483 | $ | 585 | $ | (25,659 | ) | $ | 43,774 |
Points International Ltd.
Condensed Consolidated Interim Statements of Cash Flows
Expressed in thousands of United States dollars
(Unaudited)
For the three months | For the nine months | |||||||||||
ended | ended | |||||||||||
September | September | September | September | |||||||||
30, 2018 | 30, 2017 | 30, 2018 | 30, 2017 | |||||||||
Cash flows from operating activities | ||||||||||||
Net income for the period | $ | 1,476 | $ | 605 | $ | 5,546 | $ | 2,189 | ||||
Adjustments for: | ||||||||||||
Depreciation of property and equipment | 247 | 238 | 715 | 649 | ||||||||
Amortization of intangible assets | 611 | 791 | 1,909 | 2,368 | ||||||||
Unrealized foreign exchange loss (gain) | (127 | ) | 716 | (558 | ) | 1,425 | ||||||
Equity-settled share-based payment transactions | 1,054 | 1,321 | 3,197 | 3,057 | ||||||||
Deferred income tax recovery | (337 | ) | (46 | ) | (708 | ) | (444 | ) | ||||
Unrealized net loss (gain) on derivative contracts designated as cash flow hedges | 385 | 381 | (686 | ) | 969 | |||||||
Changes in non-cash balances related to operations | (17,426 | ) | 3,975 | (4,757 | ) | (5,808 | ) | |||||
Net cash provided by (used in) operating activities | $ | (14,117 | ) | $ | 7,981 | $ | 4,658 | $ | 4,405 | |||
Cash flows from investing activities | ||||||||||||
Acquisition of property and equipment | (60 | ) | (267 | ) | (798 | ) | (1,025 | ) | ||||
Additions to intangible assets | (189 | ) | (358 | ) | (712 | ) | (1,029 | ) | ||||
Settlement of short-term investment, net of interest | - | 10,033 | - | 10,033 | ||||||||
Net cash provided by (used in) investing activities | $ | (249 | ) | $ | 9,408 | $ | (1,510 | ) | $ | 7,979 | ||
Cash flows from financing activities | ||||||||||||
Proceeds from exercise of share options | - | 60 | 351 | 60 | ||||||||
Shares repurchased | (557 | ) | (1,439 | ) | (6,358 | ) | (1,509 | ) | ||||
Purchase of share capital held in trust | - | (857 | ) | (2,956 | ) | (1,053 | ) | |||||
Taxes paid on net settlement of RSUs | (53 | ) | - | (2,589 | ) | - | ||||||
Net cash used in financing activities | $ | (610 | ) | $ | (2,236 | ) | $ | (11,552 | ) | $ | (2,502 | ) |
Effect of exchange rate fluctuations on cash held | 127 | (716 | ) | 558 | (1,425 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | $ | (14,849 | ) | $ | 14,437 | $ | (7,846 | ) | $ | 8,457 | ||
Cash and cash equivalents at beginning of the period | $ | 70,517 | $ | (40,512 | $ | 63,514 | $ | 46,492 | ||||
Cash and cash equivalents at end of the period | $ | 55,668 | $ | 54,949 | $ | 55,668 | $ | 54,949 | ||||
Interest Received | $ | 212 | $ | 156 | $ | 358 | $ | 204 | ||||
Taxes Received | $ | - | $ | 114 | $ | 110 | $ | 114 | ||||
Taxes Paid | $ | (542 | ) | $ | (506 | ) | $ | (2,223 | ) | $ | (3,011 | ) |
Amounts received for interest were reflected as operating cash flows in the condensed consolidated interim statements of cash flows.