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Points International Reports First Quarter 2020 Results

TORONTO, May 13, 2020 (GLOBE NEWSWIRE) -- Points International Ltd. (TSX: PTS) (Nasdaq: PCOM) (Points or the Company), the global leader in powering loyalty commerce, is reporting financial results for the first quarter ended March 31, 2020.

Unless otherwise noted, all comparisons are on a year-over-year basis and all amounts are in USD. The complete first quarter Condensed Consolidated Interim Financial Statements and Management’s Discussion & Analysis, including segmented results, are available at www.sedar.com and www.sec.gov.

First Quarter 2020 Financial Summary (vs. Q1 2019)

• Total revenue was $82.7 million compared to $95.9 million.

• Gross profit increased to $13.8 million compared to $13.4 million.

• Net income was $1.1 million or $0.08 per diluted share, compared to $1.8 million or $0.12 per diluted share.

• Adjusted EBITDA1 was $3.6 million compared to $4.6 million.

Recent Operational Highlights

• Loyalty Currency Retailing

  • Launched new suite of services with Air Canada’s Aeroplan program

Points Travel

  • Launched a white label hotel booking site for Quidco, the UK’s largest cash back consumer site

Platform Partners

  • Launched new exchange partnership with Aimia/HSBC’s My Rewards, which are now transferable into both Emirates and Etihad frequent flyer miles
  • Initiated real time exchange availability between Citi Thankyou Points and Emirates Skywards miles

Management Commentary

“As we navigate the COVID-19 pandemic, our top priority continues to be the health and safety of our employees and ongoing support for our partners,” said Rob MacLean, CEO of Points International. “All of our teams have been working from home since early March, and the transition to remote work has had minimal impact on our operations. Our team’s response to this unprecedented time has been exceptional and we continue our track record of quality deployments and operations while we maintain our operations at full capacity.

“The pandemic continues to take a heavy toll on the travel industry, with grounded planes and hotel closures affecting our loyalty partners’ revenue streams. We are encouraged by the various travel stimulus and loan packages that have been introduced by governments around the world to assist the travel industry. Many of our key partners in the U.S. and internationally have already received funds from these programs, and we are closely monitoring any further developments in that process.

“We believe loyalty programs will be a key part of our customers’ return to normal. While current health restrictions have changed consumer behavior and mobility patterns across the globe, those changes still present solid opportunities for our business. We’re continuing to see activity from what we call “future-use buyers” – people who purchase large amounts of points and miles for future travel needs, especially when they’re part of strong and creative offers. Historically these types of offers have represented approximately 65% of our LCR transactions and are highly targeted at consumers who see the long-term value in their loyalty programs.

“During this restricted travel period, while we have obviously seen a very steep drop in transactions aimed at immediate travel, we have nevertheless seen some impressive results with creative offer constructs in recent weeks, as consumers continue to engage with their favorite loyalty programs and purchase miles that they will use in the future. In fact, a strong offer marketed with a large partner in the past few weeks drove the busiest day of traffic in our history. We followed that up last week with another important partner, deploying another strong campaign that delivered another record day of traffic and gross sales activity.  

“With these volumes in mind, we have taken aggressive expense mitigation steps to maximize our liquidity in the wake of this new environment. In addition to cutting non-essential spend, suspending new hiring and pursuing available government assistance, we have limited all capital expenditures, deferred tax payments in certain jurisdictions, suspended share buyback activity under our current Normal Course Issuer Bid (“NCIB”) program and paused further funding of our Restricted Share Unit (“RSU”) program. Furthermore, we drew down $40 million on our credit facility in March as a precautionary move, which provided total funds available of just over $107 million at March 31. We are planning against multiple recovery scenarios, and given our strong cash position today, we believe we have sufficient liquidity to weather this global pandemic.

“COVID-19 is far from the first crisis we have faced in our 20-year history. In fact, some of the most defining components of our operating model came from adaptations we made during difficult times, including how we approached and collaborated with our partners during periods of industry stress. The actions we take today to support our partners can have lasting effects far beyond the current pandemic, and in the spirit of good partnership, we are fully committed to doing all that we can to help our partners during this unprecedented time.”

First Quarter 2020 Financial Results

Total revenue in the first quarter of 2020 was $82.7 million compared to $95.9 million in the prior year quarter. Principal revenue was $75.9 million compared to $90.0 million, and other partner revenue increased to $6.8 million compared to $5.9 million.

Gross profit in the first quarter increased to $13.8 million compared to $13.4 million in the prior year quarter. The increase was primarily driven by growth in the Loyalty Currency Retailing and Points Travel segments.

Adjusted operating expenses2 in the first quarter of 2020 were $10.4 million compared to $9.0 million in the prior year quarter. The increase was primarily a result of higher other operating expenses and increased personnel related expenses due to additional resources hired over the last 12 months. The Company did not account for the benefit of any government wage subsidies in the quarter ended March 31, 2020.

Net income was $1.1 million or $0.08 per diluted share, compared to $1.8 million or $0.12 per diluted share in the prior year quarter.

Adjusted EBITDA1 in the first quarter was $3.6 million compared to $4.6 million in the prior year quarter. Effective margin3, which is defined as adjusted EBITDA as a percentage of gross profit, was 26.1% compared to 34.7% from the prior year period. Both declines were due to lower volumes in March related to COVID-19.

At March 31, 2020, total funds available, comprised of cash and cash equivalents, funds receivable from payment processors, and cash held in trust were $107.2 million compared to $86.8 million at December 31, 2019. As a precautionary measure, the Company drew down $40 million on its credit facility which is reflected in the March 31, 2020 cash balance.

2022 Long-Term Goals

Given the uncertainty surrounding the pandemic, we are suspending our previously disclosed longer-term goals of exiting 2022 with gross profit in the high-$90 million range and adjusted EBITDA in the mid-$40 million range. While they remain our clear goals, the delayed timing of achieving them is dependent not only upon the continued execution of our growth strategies but also on the broader global recovery from the COVID-19 pandemic.

____________________________________

1 Adjusted EBITDA (Earnings before income tax expense, depreciation and amortization, foreign exchange, finance costs and equity-settled share-based compensation) is considered by management to be a useful supplemental measure when assessing financial performance.  Management also believes that adjusted EBITDA is an important indicator of the Company’s 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. See Non-GAAP Financial Measures.

2 Adjusted operating expenses consist of employment expenses excluding equity-settled 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 operating expenses, which we believe to be the most directly comparable IFRS measure. See Non-GAAP Financial Measures.

3 Effective margin measures our ability to generate profitability after we have funded operating expenses and is used by Management as a key internal measure of operating efficiency. Effective margin is not a measure of financial performance under IFRS. See Non-GAAP Financial Measures.

Conference Call

Points will hold a conference call today at 4:30 p.m. Eastern time to discuss its first quarter 2020 results, followed by a question-and-answer session.

Date: Wednesday, May 13, 2020
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: 13702898

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations 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 May 27, 2020.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13702898

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. Currently, 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 sells loyalty points and miles directly to consumers; its Platform Partners service, which offers earn and redemption opportunities via third-party or loyalty channels; and its Points Travel service helps loyalty programs increase revenue from hotel and car rental bookings while offering members more opportunities to earn and redeem loyalty rewards more broadly. Points is headquartered in Toronto, with offices in San Francisco, London, Singapore, and Dubai.

For more information, visit company.points.com

Caution Regarding Forward-Looking Statements

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 or relate to but are not limited to, among other things, our expected monthly expenses for the remainder of 2020, our expected cash burn rate for the remainder of 2020, our ability to be cash flow positive, statements relating to plans we have implemented in response to the COVID-19 pandemic and its expected impact on us (including with respect to efforts to mitigate degradation in transaction volumes, our liquidity and capitalization and our cost mitigation efforts, our business pipeline and ability to sign and launch new loyalty program partnerships, our ability to sell additional products and services to existing loyalty program partners, and our growth strategies. 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, uncertainty around the duration and scope of the COVID-19 pandemic and the impact of the pandemic and actions taken in response on global and regional economies, economic activity, and all elements of the travel and hospitality industry may have a significant and materially adverse impact on our business.  In addition, the risks, uncertainties and other factors that may impact the results expressed or implied in such forward-looking statements include, but are not limited to: (i) airline or travel industry disruptions, such as an airline insolvency and continued airline consolidation; (ii) our dependence on a limited number of large clients for a significant portion of our consolidated revenue; (iii) our reliance on contractual relationships with loyalty program partners that are subject to termination and renegotiation; (iv) our exposure to significant liquidity risk if we fail to meet contractual performance commitments; (v) our ability to convert our pipeline of prospective partners or launch new products with new or existing partners as expected or planned; (vi) our dependence on various third-parties that provide certain solutions in our Platform Partners segment that we market to loyalty program partners; (vii) the fact that our operations are conducted in multiple jurisdictions and in multiple currencies and as such dramatic fluctuations in exchange rates of the foreign currencies can have a dramatic effect on our financial results and (viii) the risk of an event of default under our senior secured credit facility. These and other important risk factors that could cause actual results to differ materially are 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 Company’s 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 Company’s underlying performance. These measures are reviewed regularly by management and the Company's Board of Directors in assessing the Company’s performance and in making decisions about ongoing operations. In addition, we use certain non-GAAP measures to determine the components of management compensation. We believe that these measures are also used by investors as an indicator of the Company’s 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, CFA or Cody Slach
Gateway Investor Relations
1-949-574-3860
IR@points.com

 

Points International Ltd.    
Key Financial Measures and Schedule of Non-GAAP Reconciliations
       
Reconciliation of Gross Profit to Contribution [1]  
       
Expressed in thousands of United States dollars  
    For the three months ended
    March 31, 2020 March 31, 2019
       
Gross Profit $ 13,827 $ 13,366
Less:    
  Direct adjusted operating expenses [2]   6,370   5,695
Contribution $ 7,457 $ 7,671
       
       
[1] 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 Company’s segment profitability. However, Contribution is not a recognized measure of profitability under IFRS.
   
[2] 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
  March 31, 2020 March 31, 2019
     
Loyalty Currency Retailing    
Revenue $ 80,193   $ 93,618  
Gross Profit   11,596     11,185  
Direct adjusted operating expenses   3,800     3,185  
Contribution $ 7,796   $ 8,000  
     
Platform Partners    
Revenue $ 1,877   $ 1,891  
Gross Profit   1,640     1,751  
Direct adjusted operating expenses   923     947  
Contribution $ 717   $ 804  
     
Points Travel    
Revenue $ 603   $ 434  
Gross Profit   591     430  
Direct adjusted operating expenses   1,647     1,563  
Contribution $ (1,056 ) $ (1,133 )
     

 

Reconciliation of Net Income to Adjusted EBITDA [3]
     
Expressed in thousands of United States dollars  
  For the three months ended
  March 31, 2020 March 31, 2019
     
Net Income $ 1,118   $ 1,757  
Income tax expense   309     685  
Finance costs   88     76  
Depreciation and amortization   1,249     1,142  
Foreign exchange gain   (38 )   (244 )
Equity-settled share-based payment expense   879     1,217  
Adjusted EBITDA $ 3,605   $ 4,633  
     
     
[3] Adjusted EBITDA (Earnings before income tax expense, finance costs, depreciation and amortization, foreign exchange and equity-settled share-based payment expense) 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 Company’s 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 Operating Expenses to Adjusted Operating Expenses [4]
       
Expressed in thousands of United States dollars  
    For the three months ended
    March 31, 2020 March 31, 2019
       
Total Operating Expenses $ 12,501   $ 11,110  
Subtract (add):    
  Depreciation and amortization   1,249     1,142  
  Foreign exchange gain   (38 )   (244 )
  Equity-settled share-based payment expense   879     1,217  
Adjusted Operating Expenses $ 10,411   $ 8,995  
       
       
[4] Adjusted operating expenses consists of employment expenses excluding equity-settled share-based payment expense, marketing & communications, 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 operating 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   March 31,
2020
    December 31,
2019
             
ASSETS          
Current assets          
  Cash and cash equivalents 104,517   69,965
  Cash held in trust   1,154     2,534
  Funds receivable from payment processors   1,559     14,302
  Accounts receivable   14,512     21,864
  Prepaid taxes   195     194
  Prepaid expenses and other assets   1,866     2,153
Total current assets 123,803   111,012
             
Non-current assets          
  Property and equipment   2,335     2,371
  Right-of-use assets   2,761     3,060
  Intangible assets   12,799     12,806
  Goodwill   7,130     7,130
  Deferred tax assets   2,444     2,105
  Other assets   216     216
Total non-current assets 27,685   27,688
Total assets 151,488   138,700
             
LIABILITIES          
Current liabilities          
  Accounts payable and accrued liabilities 9,255   13,766
  Income taxes payable   598     2,326
  Payable to loyalty program partners   57,691     78,270
  Current portion of lease liabilities   1,210     1,323
  Current portion of other liabilities   2,006     797
Total current liabilities 70,760   96,482
             
Non-current liabilities          
  Long term debt   40,000     -
  Lease liabilities   1,745     2,209
  Other liabilities   86     95
  Deferred tax liabilities   864     722
Total non-current liabilities 42,695   3,026
Total liabilities 113,455   99,508
             
SHAREHOLDERS’ EQUITY          
  Share capital   48,826     45,799
  Contributed surplus   -     -
  Accumulated other comprehensive (loss) income   (818)     184
  Accumulated deficit   (9,975)     (6,791)
Total shareholders’ equity 38,033   39,192
Total liabilities and shareholders’ equity 151,488   138,700
             

 

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 ended
    March 31, 2020 March 31, 2019
       
REVENUE    
  Principal $ 75,870   $ 90,006  
  Other partner revenue   6,803     5,937  
Total Revenue $ 82,673   $ 95,943  
  Direct cost of revenue   68,846     82,577  
Gross Profit $ 13,827   $ 13,366  
       
OPERATING EXPENSES    
  Employment costs   7,708     7,636  
  Marketing and communications   422     379  
  Technology services   752     617  
  Depreciation and amortization   1,249     1,142  
  Foreign exchange gain   (38 )   (244 )
  Other operating expenses   2,408     1,580  
Total Operating Expenses $ 12,501   $ 11,110  
       
  Finance income   (189 )   (262 )
  Finance costs   88     76  
       
INCOME BEFORE INCOME TAXES $ 1,427   $ 2,442  
       
  Income tax expense   309     685  
NET INCOME $ 1,118   $ 1,757  
       
OTHER COMPREHENSIVE (LOSS) INCOME    
  Items that will subsequently be reclassified to profit or loss:        
  Unrealized (loss) gain on foreign exchange derivative designated as cash flow hedges   (1,485 )   238  
  Income tax effect   393     (63 )
  Reclassification to net income of loss on foreign exchange derivatives designated as cash flow hedges   99     249  
  Income tax effect   (26 )   (66 )
       
  Foreign currency translation adjustment   17     24  
Other comprehensive (loss) income for the period, net of income tax    
$ (1,002 ) $ 382  
TOTAL COMPREHENSIVE INCOME $ 116   $ 2,139  
       
EARNINGS PER SHARE    
  Basic earnings per share $ 0.08   $ 0.13  
  Diluted earnings per share $ 0.08   $ 0.12  
       

 

  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 dollars except number of shares (Unaudited) Share Capital     Contributed
surplus
    Accumulated
other
comprehensive
income (loss)
    Accumulated
deficit
    Total
shareholders’
equity
    Number of
Shares
    Amount                        
                                   
  Balance at December 31, 2019 13,241,516   $  45,799   $  -   $  184   $  (6,791)   $  39,192
  Net income -     -     -     -     1,118     1,118
  Other comprehensive loss, net of tax -     -     -     (1,002)     -     (1,002)
  Total comprehensive income -     -     -     (1,002)     1,118     116
  Effect of equity-settled share-based payment -     -     879     -     -     879
  Share issuances – options exercised 50,299     506     (439)     -     -     67
  Settlement of RSUs -     2,759     (3,938)     -     -     (1,179)
  Shares repurchased and cancelled (67,483)     (238)     (804)     -     -     (1,042)
  Reclassification within equity [5] -     -     4,302     -     (4,302)     -
  Balance at March 31, 2020 13,224,332   $  48,826   $  -   $  (818)   $  (9,975)   $  38,033
                                   
                                   
  Balance at December 31, 2018 14,111,864     $ 53,886   $ 4,446   $ (646)   $ (16,676)   $ 41,010
  Net income -     -     -     -     1,757     1,757
  Other comprehensive income, net of tax -     -     -     382     -     382
  Total comprehensive income -     -     -     382     1,757     2,139
  Effect of equity-settled share-based payment -     -     1,217     -     -     1,217
  Share issuances - options exercised 2,338     28     (7)     -     -     21
  Settlement of RSUs -     1,277     (4,242)     -     -     (2,965)
  Shares purchased and held in trust -     (599)     -     -     -     (599)
  Shares repurchased and cancelled (219,641)     (845)     (1,414)     -     (197)     (2,456)
  Balance at March 31, 2019 13,894,561   $ 53,747   $ -   $ (264)   $ (15,116)   $ 38,367
                                   
  [5] The Corporation has adopted a policy that when contributed surplus is in debit balance, the amount is reclassified to accumulated deficit for financial statement presentation purposes.
   

 

Points International Ltd.          
Condensed Consolidated Interim Statements of Cash Flows      
Expressed in thousands of United States dollars          
(Unaudited)          
           
  For the three months ended
  March 31, 2020   March 31, 2019
           
Cash flows from operating activities          
Net income for the period $  1,118   $ 1,757
Adjustments for:          
Depreciation of property and equipment   339     288
Depreciation of right-of-use assets   299     283
Amortization of intangible assets   611     571
Unrealized foreign exchange gain   (1,087)     (123)
Equity-settled share-based payment transactions   879     1,217
Finance costs   88     76
Deferred income tax expense   170     110
Derivative contracts designated as cash flow hedges   (1,386)     487
Changes in cash held in trust   1,380     -
Changes in non-cash balances related to operations   (5,282)     1,471
Interest paid   (43)     (76)
Net cash (used in) provided by operating activities $  (2,914)   $ 6,061
           
Cash flows from investing activities          
Acquisition of property and equipment   (303)     (520)
Additions to intangible assets   (604)     (287)
Net cash used in investing activities $  (907)   $ (807)
           
Cash flows from financing activities          
Proceeds from long term debt   40,000     -
Payment of lease liabilities   (326)     (212)
Proceeds from exercise of share options   67     21
Shares repurchased and cancelled   (1,042)     (2,456)
Purchase of share capital held in trust   -     (599)
Taxes paid on net settlement of RSUs   (1,179)     (2,965)
Net cash provided by (used in) financing activities $  37,520   $ (6,211)
           
Effect of exchange rate fluctuations on cash held   853     147
           
Net increase (decrease) in cash and cash equivalents $  34,552   $ (810)
Cash and cash equivalents at beginning of the period $ 69,965   $ 69,131
Cash and cash equivalents at end of the period $ 104,517   $ 68,321
           
Interest Received $ 213   $ 262
Taxes Paid $ (1,842)   $ (614)
           
Amounts received in interest and paid in taxes were reflected as operating cash flows in the condensed consolidated interim statements of cash flows.          

 

Points International Ltd. logo

 

Source: Points International, Ltd.