and this in the footer part:
Points International Ltd.: Form 6-K - Filed by newsfilecorp.com

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 August, 2019

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: August 1, 2019 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

99.1 Condensed Consolidated Interim Financial Statements for the period ended June 30, 2019
   
99.2 Management's Discussion and Analysis for the period ended June 30, 2019
   
99.3 Form 52-109F2 Certification of Interim Filings - CEO
   
99.4

Form 52-109F2 Certification of Interim Filings - CFO

   
99.5 News Release dated August 1, 2019


Points International Ltd. - Exhibit 99.1 - Filed by newsfilecorp.com

 

 

Condensed Consolidated Interim Financial Statements

Points International Ltd.
June 30, 2019

 

 

 


Contents

 

  Page
   
   
Condensed consolidated interim financial statements  
Condensed consolidated interim statements of financial position 2
Condensed consolidated interim statements of comprehensive income 3
Condensed consolidated interim statements of changes in shareholders’ equity 4
Condensed consolidated interim statements of cash flows 5
Notes to the condensed consolidated interim financial statements 6-18

 

 


 

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   Note     June 30,     December 31,  
          2019     2018 (a)
ASSETS                  
Current assets                  
       Cash and cash equivalents       $  58,301   $  69,131  
       Restricted cash         -     500  
       Funds receivable from payment processors         9,256     13,512  
       Accounts receivable   12     18,707     9,318  
       Prepaid taxes         202     383  
       Prepaid expenses and other assets   10     3,452     3,618  
Total current assets       $  89,918   $  96,462  
                   
Non-current assets                  
       Property and equipment         2,441     2,351  
       Right-of-use assets   3(a)     3,610     -  
       Intangible assets         13,379     13,952  
       Goodwill         7,130     7,130  
       Deferred tax assets         2,370     2,645  
Total non-current assets       $  28,930   $  26,078  
Total assets       $  118,848   $  122,540  
                   
LIABILITIES                  
Current liabilities                  
     Accounts payable and accrued liabilities   12   $  10,478   $  9,489  
     Income taxes payable         1,270     117  
     Payable to loyalty program partners         59,379     69,749  
     Current portion of lease liabilities   3(a)     1,260     -  
     Current portion of other liabilities   10     801     1,680  
Total current liabilities       $  73,188   $  81,035  
                   
Non-current liabilities                  
     Lease liabilities   3(a)   2,844     -  
     Other liabilities         87     495  
     Deferred tax liabilities         403     -  
Total non-current liabilities       $  3,334   $  495  
Total liabilities       $  76,522   $  81,530  
                   
SHAREHOLDERS’ EQUITY                  
     Share capital         52,057     53,886  
     Contributed surplus         -     4,446  
     Accumulated other comprehensive income (loss)         28     (646 )
     Accumulated deficit         (9,759 )   (16,676 )
Total shareholders’ equity       $  42,326   $  41,010  
Total liabilities and shareholders’ equity       $  118,848   $  122,540  
Guarantees and Commitments   8              
Credit Facilities   11              

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

(a) The Corporation has initially applied IFRS 16 at January 1, 2019, using the modified retrospective approach. Under this approach comparative information is not restated. See Note 3(a).

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)

          For the three months     For the six months  
    Note       ended     ended  
          June 30,     June 30,     June 30,     June 30,  
          2019     2018(a)   2019     2018(a)
REVENUE                              
     Principal       $  94,289   $  91,398   $  184,295   $  174,705  
     Other partner revenue         5,941     6,461     11,878     12,264  
Total Revenue   4     100,230     97,859     196,173     186,969  
     Direct cost of revenue   12     79,778     84,158     162,355     159,752  
Gross Profit       $  20,452   $  13,701   $  33,818   $  27,217  
                               
OPERATING EXPENSES                              
     Employment costs         7,567     7,050     15,203     13,764  
     Marketing and communications         429     385     808     788  
     Technology services         659     552     1,276     1,047  
     Depreciation and amortization         1,126     900     2,268     1,766  
     Foreign exchange loss (gain)         398     85     154     (73 )
     Other operating expenses         1,893     2,360     3,473     4,513  
Total Operating Expenses       $  12,072   $  11,332   $  23,182   $  21,805  
                               
     Finance income         (257 )   (127 )   (519 )   (204 )
     Finance costs   3(a)   36     -     112     -  
                               
INCOME BEFORE INCOME TAXES       $  8,601   $  2,496   $  11,043   $  5,616  
                               
     Income tax expense         2,325     684     3,010     1,546  
NET INCOME       $  6,276   $  1,812   $  8,033   $  4,070  
                               
OTHER COMPREHENSIVE INCOME (LOSS)                              
     Items that will subsequently be reclassified
     to profit or loss:
                   
     Unrealized gain (loss) on foreign exchange
     derivatives designated as cash flow hedges
      246     (320 )   484     (750 )
     Income tax effect         (65 )   85     (128 )   198  
     Reclassification to net income of loss (gain) on
     foreign exchange derivatives designated as cash
     flow hedges
      159     (150 )   408     (321 )
     Income tax effect         (42 )   40     (108 )   85  
                               
     Foreign currency translation adjustment         (6 )   -     18     -  
                               
Other comprehensive income (loss) for the period, net of income tax     $  292   $  (345 ) $  674   $  (788 )
                               
TOTAL COMPREHENSIVE INCOME       $ 6,568   $  1,467   $ 8,707   $  3,282  
EARNINGS PER SHARE                              
     Basic earnings per share   6   $  0.46   $  0.12   $  0.58   $  0.28  
     Diluted earnings per share   6   $  0.45   $  0.12   $  0.57   $  0.28  

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

(a) The Corporation has initially applied IFRS 16 at January 1, 2019, using the modified retrospective approach. Under this approach comparative information is not restated. See Note 3(a).

3 | P a g e

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  
    Note     Number of     Amount                          
          Shares                                
                                           
Balance at December 31, 2018         14,111,864   $  53,886   $  4,446   $  (646 ) $  (16,676 ) $  41,010  
Net income         -     -     -     -     8,033     8,033  
Other comprehensive income, net of tax         -     -     -     674     -     674  
Total comprehensive income         -     -     -     674     8,033     8,707  
Effect of share option compensation plan   7     -     -     282     -     -     282  
Effect of RSU compensation plan   7     -     -     2,047     -     -     2,047  
Share issuances – options exercised         2,338     28     (7 )   -     -     21  
Settlement of RSUs   7     -     1,348     (4,317 )   -     -     (2,969 )
Shares purchased and held in trust   7     -     (1,460 )   -     -     -     (1,460 )
Shares repurchased and cancelled   5     (452,189 )   (1,745 )   (2,451 )   -     (1,116 )   (5,312 )
Balance at June 30, 2019         13,662,013   $  52,057   $  -   $  28   $  (9,759 ) $  42,326  
                                           
Balance at December 31, 2017         14,561,450   $  56,394   $  10,647   $  374   $  (24,468 ) $  42,947  
Net income         -     -     -     -     4,070     4,070  
Other comprehensive loss, net of tax         -     -     -     (788 )   -     (788 )
Total comprehensive income         -     -     -     (788 )   4,070     3,282  
Effect of share option compensation plan   7     -     -     36     -     -     36  
Effect of RSU compensation plan   7     -     -     2,107     -     -     2,107  
Share issuances – options exercised         74,966     1,041     (690 )   -     -     351  
Settlement of RSUs   7     -     1,244     (3,780 )   -     -     (2,536 )
Shares purchased and held in trust   7     -     (2,956 )   -     -     -     (2,956 )
Shares repurchased and cancelled   5     (418,556 )   (1,633 )   (4,168 )   -     -     (5,801 )
Balance at June 30, 2018         14,217,860   $  54,090   $  4,152   $  (414 ) $  (20,398 ) $  37,430  

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 six months  
          ended     ended  
        June 30,       June 30,     June 30,     June 30,  
    Note     2019     2018 (a)   2019     2018 (a)
Cash flows from operating activities                              
Net income for the period     $ 6,276   $  1,812   $  8,033   $  4,070  
Adjustments for:                              
   Depreciation of property and equipment         290     247     578     468  
   Depreciation of right-of-use assets   3 (a)   295     -     578     -  
   Amortization of intangible assets         541     653     1,112     1,298  
   Unrealized foreign exchange (gain) loss         51     (851 )   (72 )   (431 )
   Equity-settled share-based payment transactions   7     1,112     1,168     2,329     2,143  
   Finance costs         36     -     112     -  
   Deferred income tax expense (recovery)         332     (177 )   442     (371 )
Unrealized net gain (loss) on derivative contracts
designated as cash flow hedges
      405     (470 )   892     (1,071 )
Changes in non-cash balances related to operations   9     (14,898 )   3,852     (13,427 )   12,669  
Interest paid         (36 )   -     (112 )   -  
Net cash provided by (used in) operating activities     $ (5,596 ) $  6,234   $  465   $  18,775  
                               
Cash flows from investing activities                              
Acquisition of property and equipment         (148 )   (424 )   (668 )   (738 )
Additions to intangible assets       $ (252 )   (226 )   (539 )   (523 )
Net cash used in investing activities       (400 ) $  (650 ) $  (1,207 ) $  (1,261 )
                               
Cash flows from financing activities                              
Payment of lease liabilities         (246 )   -     (458 )   -  
Proceeds from exercise of share options         -     351     21     351  
Shares repurchased and cancelled   5     (2,856 )   (4,357 )   (5,312 )   (5,801 )
Purchase of share capital held in trust   7     (861 )   (152 )   (1,460 )   (2,956 )
Taxes paid on net settlement of RSUs       $ (4 )   (2,536 )   (2,969 )   (2,536 )
Net cash used in financing activities       (3,967 ) $  (6,694 ) $  (10,178 ) $  (10,942 )
                               
Effect of exchange rate fluctuations on cash held         (57 )   851     90     431  
Net increase (decrease) in cash and cash equivalents     $  (10,020 ) $  (259 ) $  (10,830 ) $  7,003  
Cash and cash equivalents at beginning of the period     $ 68,321   $  70,776   $  69,131   $  63,514  
Cash and cash equivalents at end of the period     $ 58,301   $  70,517   $  58,301   $  70,517  
                               
Interest received     $ 248   $  86   $  510   $  146  
Taxes received     $ -   $  110   $  -   $  110  
Taxes paid     $ (572 ) $  (554 ) $  (1,186 ) $  (1,681 )

Amounts received and paid for interest and taxes 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.
(a) The Corporation has initially applied IFRS 16 at January 1, 2019, using the modified retrospective approach. Under this approach comparative information is not restated. See Note 3(a).

5 | P a g e

POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted (Unaudited)

1. REPORTING ENTITY

Points International Ltd. (the “Corporation”) is a company domiciled in Canada. The address of the Corporation’s registered office is 111 Richmond Street West, Suite 700, Toronto, ON, Canada M5H 2G4. The condensed consolidated interim financial statements of the Corporation as at and for the three and six months ended June 30, 2019 comprise the Corporation and its wholly-owned subsidiaries: Points International (US) Ltd., Points International (UK) Ltd., Points.com Inc., Points Travel Inc., Points Development (US) Ltd., Points Holdings Ltd. and its wholly-owned subsidiary, Points International (Singapore) Private Limited. The Corporation’s 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

Consists primarily of products and services that facilitate the sale or transfer of loyalty currency direct to loyalty program members.

Platform Partners

A portfolio of technology solutions that enables the broad distribution of loyalty currencies across loyalty program and third party channels.

Points Travel

White-label travel booking solution for the loyalty industry that allows consumers to earn and redeem their loyalty currency while making hotel bookings and car rentals online.

The Corporation’s operations are not subject to significant seasonal fluctuations.

The consolidated financial statements of the Corporation as at and for the year ended December 31, 2018 are available at www.sedar.com or www.sec.gov.

2. BASIS OF PREPARATION

The condensed consolidated interim financial statements for the three and six months ended June 30, 2019 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 second quarter 2019 condensed consolidated interim financial statements include only significant changes and transactions occurring since December 31, 2018 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 Corporation’s annual audited consolidated financial statements for the year ended December 31, 2018. All amounts are expressed in thousands of United States dollars (“USD”), except per share amounts, or as otherwise indicated.

The condensed consolidated interim financial statements were authorized for issue by the Board of Directors on August 1, 2019.

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 Corporation’s annual audited consolidated financial statements for the year ended December 31, 2018.

6 | P a g e

POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted (Unaudited)

(a) New standards adopted in 2019

IFRS 16, Leases (“IFRS 16”)

Effective January 1, 2019, the Corporation adopted IFRS 16 which specifies how to recognize, measure, present and disclose leases. The standard introduces a single, on-balance sheet lessee accounting model, requiring lessees to recognize right-of-use assets and lease liabilities representing its obligation to make lease payments, unless the underlying leased asset has a low value or is considered short term.

The Corporation adopted IFRS 16 using a modified retrospective approach. Accordingly comparative information presented for 2018 has not been restated. On transition to IFRS 16, the Corporation elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Corporation applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17, Leases and IFRIC 4, Determining whether an Arrangement contains a Lease were not reassessed. The Corporation’s leases primarily consist of leases for office premises with terms ranging from 2 to 4 years. The lease term includes periods covered by an option to extend if the Corporation is reasonably certain to exercise that option.

At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of remaining lease payments, discounted at the Corporation’s incremental borrowing rate as at January 1, 2019. Right-of-use assets are measured at an amount equal to the lease liabilities, adjusted for any prepaid or accrued lease payments relating to that lease.

The Corporation has elected to use the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:

  • applied a single discount rate to a portfolio of leases with reasonably similar characteristics;
  • excluded initial direct costs from the measurement of the right-of-use assets at the date of initial application; and
  • relied upon the Corporation’s assessment of whether leases are onerous under the requirements of IAS 37, Provisions, contingent liabilities and contingent assets as at December 31, 2018 as an alternative to reviewing our right-of-use assets for impairment.

The Corporation has elected not to separate non-lease components and will instead account for the lease and non-lease component as a single lease component. In addition, the Corporation has elected not to recognize right-of-use assets and lease liabilities for some leases of low value assets. The lease payments associated with these leases are recognized as an expense on a straight-line basis over the lease term.

The impact on transition to IFRS 16 is summarized below:

    Jan. 1, 2019  
Prepaid expenses and other assets $  (109 )
Right-of-use assets $  4,102  
Current portion of other liabilities $  (120 )
Current portion of lease liabilities $  1,203  
Lease liabilities $  3,272  
Other liabilities $  (362 )

When measuring lease liabilities for leases that were classified as operating leases under IAS 17, the Corporation discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted average rate applied is 5.30% .

7 | P a g e

POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted (Unaudited)

    Jan. 1, 2019  
Operating lease commitment at December 31, 2018 as disclosed in the Corporation’s 2018 consolidated financial statements $  7,401  
Discounted using the incremental borrowing rate at January 1, 2019 $  6,573  
Recognition exemption for leases of low-value assets   (6 )
Extension options reasonably certain to be exercised   365  
Certain costs for which the Corporation is contractually committed under lease contracts but are not accounted for as a lease liability, such as variable lease payments not tied to an index or rate   (2,457 )
Lease liabilities recognized at January 1, 2019 $  4,475  

IFRS 16 replaces the straight-line operating lease expense recorded under IAS 17 with a depreciation charge for right-of-use assets and interest expense on lease liabilities, which resulted in a decrease in operating expenses, an increase in depreciation expense and an increase in finance costs. During the three and six months ended June 30, 2019, the Corporation recognized depreciation of right-of-use assets of $295 and $578 (2018 – nil), respectively, and finance cost from these leases of $36 and $112, respectively. During the second quarter of 2019 and year-to-date, the expense related to variable lease payments not included in the measurement of lease obligations was $197 and $389, respectively.

The Corporation has applied judgment to determine the lease term for some lease contracts that include renewal options. The assessment of whether the Corporation is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognized.

The Corporation also make judgements in determining the incremental borrowing rate used in measuring the lease liabilities, reflecting the rate that the Corporation would have to pay for a loan of similar term, with similar security, to obtain an asset of similar value.

Other accounting standards adopted in 2019

The following standards or amendments are also effective from January 1, 2019, but they do not have a material impact on the Corporation’s condensed consolidated interim financial statements:

  • IAS 28, Investments in Associates and Joint Ventures;
  • IAS 19, Employee Benefits; and
  • IFRIC 23, Uncertainty over Income Tax Treatments.

(b) Right-of-use assets and Lease liabilities

At inception of a contract, the Corporation assesses whether a contract is or contains a lease based on whether the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.

The Corporation recognizes right-of-use assets and lease liabilities at the lease commencement date. After the initial adoption date, the right-of-use asset is initially measured at cost, which comprises:

  • The amount of the initial measurement of the lease liability;
  • Any lease payments made at or before the commencement date, less any lease incentives received;
  • Any initial direct costs incurred; and
  • An estimate of costs to dismantle or remove the underlying asset, or restore the asset to the condition required by the terms and conditions of the lease.
8 | P a g e

POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted (Unaudited)

Subsequent to initial measurement, right-of-use assets are measured at cost less any accumulated depreciation and impairment losses, and adjusted for certain remeasurements of the lease liability. The right-of-use asset are depreciated on a straight-line basis over the term of the lease, or the estimated useful life of the right-of-use assets if the Corporation expects to obtain the ownership of the leased asset at the end of the lease. The lease term includes the non-cancellable period of the lease and optional renewable periods that the Corporation is reasonably certain to extend.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Corporation’s incremental borrowing rate. Generally, the Corporation uses its incremental borrowing rate as the discount rate.

After initial recognition, the lease liability is measured at amortized cost using the effective interest method. The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or if the Corporation changes its assessment of whether it will exercise a purchase option, extension option or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset.

The lease liability is also remeasured when the underlying lease contract is amended. When there is a decrease in contract scope, the lease liability and right-of-use asset will decrease relative to this change with the difference recorded in net income prior to the remeasurement of lease liability.

(c) Foreign Operations and Functional Currency

During the second quarter of 2019, Points Holdings Ltd. and Points International (Singapore) Private Limited were incorporated. Points Holdings Ltd. uses the US dollar as its functional currency and Points International Singapore Private Limited uses the Singapore dollar as its functional currency.

4. OPERATING SEGMENTS

The Corporation’s reportable segments are Loyalty Currency Retailing, Platform Partners, and Points Travel. These operating segments are organized around differences in products and services.

The Corporation’s measure of segment profit or loss is represented by Contribution, which is 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 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. There have been no changes in the Corporation’s determination of its reportable segments.

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POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted (Unaudited)

For the three months ended June 30, 2019:



  Loyalty
Currency
Retailing
    Platform
Partners
    Points
Travel
    Total  
Total revenue $  97,784   $  1,901   $  545   $  100,230  
Direct cost of revenue   79,581     197     -     79,778  
Gross profit   18,203     1,704     545     20,452  
Direct adjusted operating expenses   3,326     981     1,765     6,072  
Contribution $  14,877   $  723   $  (1,220 ) $  14,380  
Indirect adjusted operating expenses1                     3,364  
Finance income                     (257 )
Finance costs                     36  
Equity-settled share-based payment expense                     1,112  
Income tax expense                     2,325  
Depreciation and amortization                     1,126  
Foreign exchange loss                     398  
Net income                   $  6,276  

For the three months ended June 30, 2018(a):   Loyalty
Currency
Retailing
    Platform
Partners
    Points
Travel
    Total  
Total revenue $  95,506   $  1,906   $  447   $  97,859  
Direct cost of revenue   83,998     136     24     84,158  
Gross profit   11,508     1,770     423     13,701  
Direct adjusted operating expenses   3,366     982     1,389     5,737  
Contribution $  8,142   $  788   $  (966 ) $  7,964  
Indirect adjusted operating expenses1                     3,442  
Finance income                     (127 )
Equity-settled share-based payment expense                     1,168  
Income tax expense                     684  
Depreciation and amortization                     900  
Foreign exchange loss                     85  
Net income                   $  1,812  

(a) The Corporation has initially applied IFRS 16 at January 1, 2019, using the modified retrospective approach. Under this approach comparative information is not restated. See Note 3(a).

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POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted (Unaudited)

For the six months ended June 30, 2019:   Loyalty
Currency
Retailing
    Platform
Partners
    Points
Travel
    Total  
Total revenue $  191,402   $  3,792   $  979   $  196,173  
Direct cost of revenue   162,014     337     4     162,355  
Gross profit   29,388     3,455     975     33,818  
Direct adjusted operating expenses   6,511     1,928     3,328     11,767  
Contribution $  22,877   $  1,527   $  (2,353 ) $  22,051  
Indirect adjusted operating expenses1                     6,664  
Finance income                     (519 )
Finance costs                     112  
Equity-settled share-based payment expense                     2,329  
Income tax expense                     3,010  
Depreciation and amortization                     2,268  
Foreign exchange loss                     154  
Net income                   $  8,033  

For the six months ended June 30, 2018(a):   Loyalty
Currency
Retailing
    Platform
Partners
    Points
Travel
    Total  
Total revenue $  182,113   $  3,943   $  913   $  186,969  
Direct cost of revenue   159,446     270     36     159,752  
Gross profit   22,667     3,673     877     27,217  
Direct adjusted operating expenses   6,620     1,997     2,659     11,276  
Contribution $  16,047   $  1,676   $  (1,782 ) $  15,941  
Indirect adjusted operating expenses1                     6,693  
Finance income                     (204 )
Equity-settled share-based payment expense                     2,143  
Income tax expense                     1,546  
Depreciation and amortization                     1,766  
Foreign exchange gain                     (73 )
Net income                   $  4,070  

(a) The Corporation has initially applied IFRS 16 at January 1, 2019, using the modified retrospective approach. Under this approach comparative information is not restated. See Note 3(a).

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.

Enterprise-wide disclosures - Geographic information

    Three months ended     Six months ended  
For the period  
2019
   
2018
 
2019
   
2018
 
ended June 30                                                
Revenue                                                
 United States $  90,529     90%   $  86,304     88%   $  175,682     90%   $  162,865     87%  
 Europe   5,101     5%     6,512     7%     10,690     5%     15,285     8%  
 Other   4,600     5%     5,043     5%     9,801     5%     8,819     5%  
  $  100,230     100%   $  97,859     100%   $  196,173     100%   $  186,969     100%  
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POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted (Unaudited)

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 Corporation’s loyalty partners. As at June 30, 2019, substantially all of the Corporation's assets were in Canada.

Dependence on loyalty program partners

For the three month period ended June 30, 2019, there were three (2018 – three) loyalty program partners for which sales to their members individually represented more than 10% of the Corporation’s total revenue. In aggregate, sales to the members of these partners represented 69% (2018 – 67%) of the Corporation’s total revenue.

For the six month period ended June 30, 2019, there were three (2018 – three) loyalty program partners for which sales to their members individually represented more than 10% of the Corporation’s total revenue. In aggregate, sales to the members of these partners represented 70% (2018 – 67%) of the Corporation’s total revenue.

5. CAPITAL AND OTHER COMPONENTS OF EQUITY

Normal Course Issuer Bid (“NCIB”)

On March 8, 2017, the Board of Directors of the Corporation approved a plan to repurchase the Corporation’s common shares. On August 9, 2017 the TSX accepted the Corporation’s notice of intention to make a NCIB 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 had 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 Corporation’s written agreement. Repurchases may be effected through the facilities of the TSX, the 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 Corporation’s cash position, and other factors.

During the three months ended June 30, 2019, the Corporation repurchased and cancelled 232,548 common shares (2018 – 285,093) at an aggregate purchase price of $2,856 (2018 - $4,357), resulting in a reduction of share capital and contributed surplus of $900 and $1,037, respectively (2018 - $1,134 and $3,223), in addition to an increase in accumulated deficit of $919 (2018 - nil). 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.

During the six months ended June 30, 2019, the Corporation repurchased and cancelled 452,189 common shares (2018 – 418,556) at an aggregate purchase price of $5,312 (2018 - $5,801), resulting in a reduction of share capital and contributed surplus of $1,745 and $ 2,451 , respectively (2018 - $1,633 and $4,168), in addition to an increase in accumulated deficit of $1,116 (2018 - nil). 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.

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POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted (Unaudited)

6. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

    For the three months ended June 30  
    2019     2018  
Net income available to common shareholders for basic and diluted earnings per share $  6,276   $  1,812  
Weighted average number of common shares outstanding – basic   13,777,844     14,410,539  
Effect of dilutive securities   179,165     102,344  
Weighted average number of common shares outstanding – diluted   13,957,009     14,512,883  
Earnings per share – reported            
             Basic $  0.46   $  0.12  
             Diluted $  0.45   $  0.12  

    For the six months ended June 30  
    2019     2018  
Net income available to common shareholders for basic and diluted earnings per share $  8,033   $  4,070  
Weighted average number of common shares outstanding – basic   13,890,236     14,442,405  
Effect of dilutive securities   146,061     76,216  
Weighted average number of common shares outstanding – diluted   14,036,297     14,518,621  
Earnings per share – reported            
             Basic $  0.58   $  0.28  
             Diluted $  0.57   $  0.28  

a)    Diluted earnings per share

For the three and six months ended June 30, 2019, 109,169 options and 109,169 options, respectively, (2018 – 106,239 and 106,239) 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 Corporation’s 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.

7. SHARE-BASED PAYMENTS

As at June 30, 2019, the Corporation had two share-based compensation plans for its employees: a share option plan and a share unit plan.

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POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted (Unaudited)

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 on the day prior to the date of grant. The options generally vest over a three-year period or based on performance metrics and expire at the end of five or six years from the grant date, or may be subject to non-market performance conditions established by the Board of Directors. There were no share options granted in the second quarter of 2019 and 2018. In the six month period ended June 30, 2019, the Corporation granted 108,000 performance-based share options (2018 – nil) to executives to acquire shares of the Corporation, which vest on the achievement of the associated performance targets. On the date of grant, the Company estimates the expected vesting date for purposes of estimating the option life and recording the related expense. These options vest as performance targets are satisfied and expire at the end of six years. Under the plan, share options can only be settled in equity.

The share option plan authorized the number of net options for grant to be determined based on 10% of the larger of the outstanding shares as at March 2, 2016 or any time thereafter. The options available for grant as at June 30, 2019 and 2018 are shown in the table below:

    June 30, 2019     June 30, 2018  
Shares outstanding as at March 2, 2016   15,298,602     15,298,602  
     Percentage of shares outstanding   10%     10%  
Net options authorized   1,529,860     1,529,860  
     Less: options issued & outstanding   (1,142,457 )   (420,115 )
Options available for grant   387,403     1,109,745  

The fair value of each option grant is estimated at the date of grant using the Black-Scholes option pricing model. Expected volatility is determined by the amount the Corporation’s daily share price fluctuated over a period commensurate with the expected life of the options. The fair value of options granted during the six months ended June 30, 2019 were calculated using the following assumptions.

  2019
Dividend yield NIL
Risk free rate 31.60% - 1.64%
Expected volatility 40.79% - 43.76%
Expected life of options in years 3.10 – 6.00
Weighted average fair value of options granted (CAD) $5.23 - $7.54

A summary of the status of the Corporation’s share option plan as of June 30, 2019 and 2018, and changes during the six months ended on those dates is presented below.

  2019 2018
  Number Weighted Average   Weighted Average
  of Exercise Price Number of Exercise Price
  Options (in CAD$) Options (in CAD$)
Beginning of period 1,229,040 $15.00 615,843 $16.00
Granted 108,000 $17.05 - -
Exercised (2,338) $12.34 (192,861) $14.22
Expired and forfeited (192,245) $22.71 (2,867) $15.94
End of period 1,142,457 $13.90 420,115 $16.82
Exercisable at end of period 196,857 $12.05 408,266 $16.96

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POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted (Unaudited)

As at June 30, 2019:

   Options outstanding Options exercisable
    Weighted average Weighted   Weighted
Range of   remaining average Number average
Exercise Prices Number of contractual life exercise price of exercise price
(in CAD$)  options (years) (in CAD$) options (in CAD$)
$5.00 to $9.99       22,280 1.70 $    9.89    22,280 $    9.89
$10.00 to $14.99 1,011,008 4.66 $  13.65 173,408 $  12.27
$15.00 to $19.99     109,169 4.67 $  17.08      1,169 $  19.82
  1,142,457     196,857  

As at June 30, 2018:

     Options outstanding Options exercisable
    Weighted average Weighted   Weighted
    remaining average Number average
Range of Exercise Number of contractual life exercise price of exercise price
Prices (in CAD$) options (years) (in CAD$) options (in CAD$)
$5.00 to $9.99    22,280 2.70 $    9.89    22,280 $    9.89
$10.00 to $14.99 291,596 1.81 $  12.29 279,747 $  12.30
$15.00 to $19.99     1,169 1.25 $  19.82     1,169 $  19.82
$20.00 and over 105,070 0.71 $  30.84 105,070 $  30.84
  420,115     408,266  

Share unit plan

On March 7, 2012 the Corporation implemented an employee share unit plan (the “Share Unit Plan”) under which employees are periodically granted Restricted Share Units (“RSUs”). The RSUs vest either on grant date, over a period of up to three years after the grant date or in full on the third anniversary of the grant date. During the three and six months ended June 30, 2019, 17,805 and 352,339 RSUs were granted, respectively (2018 – 6,255 and 414,433 RSUs). As at June 30, 2019, 510,262 RSUs were outstanding (2018 – 691,074 RSUs).

  Number of RSUs Weighted Average Fair Value (in CAD$)
Balance at January 1, 2019 657,727 $ 11.50
Granted 352,339 $ 17.03
Vested (460,015) $ 12.54
Forfeited (39,789) $ 13.79
Balance at June 30, 2019 510,262 $ 14.19

  Number of RSUs Weighted Average Fair Value (in CAD$)
Balance at January 1, 2018 711,936 $ 10.16
Granted 414,433 $ 13.77
Vested (424,188) $ 11.59
Forfeited (11,107) $ 12.34
Balance at June 30, 2018 691,074 $ 11.41

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 RSU’s vesting period and charged to profit or loss with a corresponding increase in contributed surplus.

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POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted (Unaudited)

Under the Share Unit Plan, share units can be settled in cash or shares at the Corporation’s 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 through a share purchase trust on a periodic basis. During the three months ended June 30, 2019, 72,000 share units were purchased by the trust at a cost of $861 (2018 – 13,952 share units at a cost of $152). During the six months ended June 30, 2019, 132,000 share units were purchased by the trust at a cost of $1,460 (2018 – 262,067 share units at a cost of $2,956). In addition, commencing in 2018, the Corporation paid withholding taxes in cash rather than reselling shares held in trust into the market. During the second quarter of 2019, 7,851 RSUs (2018 – 339,635) vested, for which the Corporation settled 7,464 RSUs (2018 – 164,359) through the issuance of shares held in trust and paid $4 (2018 – $2,536) of withholding taxes. For the six months ended June 30, 2019, 460,015 RSUs (2018 – 424,188) vested, for which the Corporation settled 228,002 RSUs (2018 – 248,912) through the issuance of shares held in trust and paid $2,969 (2018 – $2,536) of withholding taxes.

The Corporation accounts for the share-based awards granted under both 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. For the three and six months ended June 30, 2019, the compensation cost for all share-based awards that has been charged against profit or loss and included in employment costs is $1,112 and $2,329 (2018 - $1,168 and $2,143), respectively.

8. GUARANTEES AND COMMITMENTS

    Total     Year 1(2)   Year 2     Year 3     Year 4     Year 5+  
Direct cost of revenue(1)   320,848     29,756     84,392     81,211     50,679     74,810  

(1)

For certain loyalty partners, the Corporation guarantees a minimum level of purchase of points/miles, for each contract year, over the duration of the contract term between the Corporation and loyalty program partner. Management evaluates each guarantee at each reporting date and at the end of each contract year, to determine if the guarantee was met for that respective contract year.

(2)

The guarantees and commitments schedule is prepared on a rolling 12-month basis.

9. SUPPLEMENTAL CASH FLOW INFORMATION

Changes in non-cash balances related to operations are as follows:

    Three months ended     Six months ended  
For the period ended June 30,   2019     2018     2019     2018  
Decrease in restricted cash $  500   $  -   $  500   $  -  
(Increase) Decrease in funds receivable from payment processors   (1,678 )   (1,031 )   4,256     7,641  
(Increase) Decrease in accounts receivable   (11,617 )   1,882     (9,389 )   2,362  
Decrease in prepaid taxes   172     27     181     74  
Decrease in prepaid expenses and other assets(1)   165     342     57     423  
Decrease in other assets   -     23     -     34  
Increase (Decrease) in accounts payable and accrued liabilities   1,888     (539 )   989     (732 )
Increase in income taxes payable   1,223     380     1,153     293  
Decrease in other liabilities(1)   (294 )   (76 )   (804 )   (48 )
(Decrease) Increase in payable to loyalty program partners   (5,257 )   2,844     (10,370 )   2,622  
  $  (14,898 ) $  3,852   $  (13,427 ) $  12,669  

(1)

The Corporation has adopted IFRS 16 at January 1, 2019, using the modified retrospective approach. Please refer to note 3(a) for the transitional impact of adopting IFRS 16.


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POINTS INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted (Unaudited)

10. FINANCIAL INSTRUMENTS

Determination of fair value

For financial assets and liabilities that are valued at other than fair value on the condensed consolidated interim statement of financial position (funds receivable from payment processors, security deposits, accounts receivable, accounts payable and accrued liabilities and payable to loyalty program partners), fair value approximates the carrying value at June 30, 2019 and December 31, 2018 due to their short-term maturities.

Fair value hierarchy

The Corporation has determined the estimated fair values of its financial instruments based on appropriate valuation methodologies, as disclosed below. However, considerable judgment is required to develop certain of these estimates. Accordingly, these estimated values are not necessarily indicative of the amounts the Corporation could realize in a current market exchange. The estimated fair value amounts can be materially affected by the use of different assumptions or methodologies. The methods and assumptions used to estimate the fair value of each class of financial instruments are discussed below.

The table below analyzes financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

  • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
  • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
  • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

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 carrying value of financial assets and financial liabilities measured at fair value in the condensed consolidated interim statements of financial position as at June 30, 2019 and December 31, 2018 are as follows:

As at June 30, 2019   Carrying Value     Level 2  
Assets:            
           
     Foreign exchange forward contracts designated as cash flow hedges(i) $  91   $  91  
             
Liabilities:            
           
     Foreign exchange forward contracts designated as cash flow hedges(i)   (77 )   (77 )
             
  $  14   $  14  

As at December 31, 2018   Carrying Value     Level 2  
             
Liabilities:            
           
     Foreign exchange forward contracts designated as cash flow hedges(i) $  (878 ) $  (878 )
  $  (878 ) $  (878 )

(i)

The carrying values of the Corporation’s foreign exchange forward contracts are included in prepaid 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 June 30, 2019 and December 31, 2018 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
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted (Unaudited)

11. CREDIT FACILITIES

The Corporation’s bank facility agreement with Royal Bank of Canada expired on May 31, 2019. The Corporation did not have any borrowings during the three and six months ended June 30, 2019 (December 31, 2018 – nil).

12. PRIOR YEAR TAX REBATE

The Corporation filed for a tax rebate of $6,027, net of fees, related to prior years and was accepted by the tax authorities during the second quarter of 2019. The amount was included as a reduction of direct cost of revenue in the condensed consolidated interim statements of comprehensive income. The related receivables and fees payable were recorded in accounts receivable and accounts payable and accrued liabilities in the condensed consolidated interim statements of financial position, respectively.

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Points International Ltd. - Exhibit 99.2 - Filed by newsfilecorp.com

POINTS INTERNATIONAL LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS

INTRODUCTION

Our Management’s Discussion and Analysis (“MD&A”) of financial condition and results of operations contains references to Points International Ltd. and its subsidiaries using words “we,” “our,” and “us.”

This MD&A should be read in conjunction with our unaudited condensed consolidated interim financial statements (including the notes thereto) as at and for the three and six months ended June 30, 2019, the 2018 annual MD&A and the 2018 audited annual consolidated financial statements and notes thereto and other recent filings with Canadian and US securities regulatory agencies, 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 August 1, 2019 and was reviewed by the Audit Committee and approved by the Corporation’s 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, gross profit, Adjusted EBITDA, contribution, 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,” “continue,” “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 our expectations, estimates and projections regarding future events. Certain significant forward-looking statements included in this MD&A include statements regarding: revenue growth and expected gross profit and Adjusted EBITDA; our pipeline opportunities including expected cross-selling opportunities; our ability to generate cash through normal course operations to fund capital expenditure needs and current operating and working capital requirements, including current lease obligations; the financial obligations with respect to revenue guarantees; and receipt of funds for tax rebates.

Although we believe the expectations reflected in such forward-looking statements are reasonable, such statements are not guarantees of future performance and involve certain 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 we will be able to maintain our existing contractual relationships and products, that such products continue to perform in a manner consistent with our past experience, that we will be able to generate new business from our pipeline at expected margins, in-market and newly launched products and services will perform in a manner consistent with our past experience and we will be able to contain costs. Our ability to convert our pipeline of prospective partners and product launches and cross-sell existing partners 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 we will be successful in maintaining our existing contractual relationships or maintaining existing products with existing partners. Other important assumptions, factors, risks and uncertainties are included in the press release announcing our second quarter 2019 financial results, and those described in our other filings with applicable securities regulators, including our AIF, Form 40-F, annual and interim MD&A, annual consolidated financial statements and condensed consolidated interim financial statements and the notes thereto. These documents are available at www.sedar.com and www.sec.gov.

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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, we do 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.

BUSINESS OVERVIEW

We are the global leader in providing loyalty e-commerce and technology solutions to the loyalty industry, connecting loyalty programs, third party brands and end consumers across a global transaction platform. We partner with leading loyalty brands by providing solutions that help make their programs more valuable and engaging, while driving revenue and increasing profitability to the program. We do not manage our own loyalty program, nor do we offer the core technology that operates a loyalty program. Our business is focused on becoming an important strategic partner to the world’s most successful loyalty programs by cooperating with them on valuable, private label, ancillary services.

At its simplest, our products and services are designed to benefit loyalty programs by: (1) increasing loyalty program revenues and profitability through the sale of loyalty program currency or related travel and loyalty services direct to end consumers or third parties; (2) driving efficient cost management to loyalty program operators by offering non-core redemption options; and (3) enhancing loyalty program member engagement. Our sales process begins with loyalty programs, of which we now have commercial agreements with nearly 60 leading loyalty brands around the world. Most of our contracts enable us to transact directly or indirectly with the loyalty programs’ member base to facilitate the sale, redemption or earning of loyalty currency online. Our commercial agreements with loyalty program partners are typically for fixed terms of three to five years. Contracts will generally renew with either an annual evergreen clause or a new contract extension for a set term.

Our Loyalty Commerce Platform (“LCP”) is the backbone of our product and service offerings. The LCP offers a consistent interface for loyalty programs and third parties, providing broad access to loyalty transaction capabilities, program integration, analytics, reporting, security and real-time fraud services. We have direct integrations with approximately 60 loyalty programs and third parties, including merchants and other technology companies in the loyalty and travel space.

Collectively, our network of loyalty program partners represents over 1 billion loyalty program accounts. Our platform and integrations typically provide us with full debit and credit functionality, enabling us to deposit or withdraw loyalty currency from each of these accounts. We view these integrations as a strategic asset that uniquely positions us to connect third party channels with highly engaged loyalty program members and the broader loyalty market. In addition, our platform is positioned to collect transaction related insights that we can leverage to increase online conversion percentages, transactions, and ultimately revenues for us and our partners.

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Our loyalty partner network includes the following leading loyalty brands:

•       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 •       World of Hyatt
•       Delta Air Lines SkyMiles •       InterContinental Hotels Group
•        JetBlue TrueBlue •       Wyndham Rewards
•       LATAM Pass •       Emirates Skywards
•       Lufthansa’s Miles & More •       Chase Ultimate Rewards
•       Amtrak Guest Rewards •       Citi ThankYou
•       Etihad Guest •       Velocity Frequent Flyer

Our organization integrates extensive knowledge and expertise in the loyalty and travel sectors with the agility and innovation of a technology start up, allowing us to better serve our loyalty program partners while maintaining our technical and marketing leadership. We are headquartered in Toronto, Canada with regional offices in San Francisco, United States, London, United Kingdom and Singapore.

Points International Ltd.’s shares are dual listed on the Toronto Stock Exchange under the trading symbol PTS and on the NASDAQ Capital Market under the trading symbol PCOM.

The Loyalty Industry

Since their inception, loyalty programs have changed the way consumers interact with their associated brands and how they purchase products and services. Businesses have leveraged loyalty to strengthen their brand, enrich relationships with existing customers, and attract and engage new customers. Loyalty programs are increasingly seen not only as strategic marketing assets of an organization, but also as highly profitable and cash-generative businesses, particularly in the travel and financial services sectors.

As the prominence of loyalty program co-branded credit cards has increased, the size and profitability of the loyalty industry has grown significantly. Many loyalty programs, particularly in the airline and hospitality verticals, have long-term contracts with banks in which they sell significant volumes of points and miles to credit cards on an annual basis to give to customers for every day spend. Likewise, similar commercial arrangements now exist with loyalty programs and retailers who are looking to add loyalty as a consumer incentive to their brand.

These types of commercial arrangements have established a massive global industry fueled by the sale and redemption of loyalty currency. Today, it is estimated that the majority of loyalty currency issued in North America is now sold by loyalty program operators to third parties, including credit card companies and other merchants. While loyalty program operators must account for the issuance of this currency as a future obligation on their balance sheet to account for its eventual redemption, the cost of each mile or point is significantly lower than what they are sold for. Given the size and scale of some frequent flyer programs, many North American airlines have generated significant revenues from their loyalty programs that can account for a significant proportion of overall airline profits. At the same time, there is a need for loyalty programs to actively manage the resulting loyalty liability with cost-effective redemption options. According to Bond Brand Loyalty’s “The Loyalty Report 2017”, the cumulative points liability for all US loyalty programs was estimated to be valued at roughly US$100 billion.

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Overall loyalty program membership continues to grow. According to the Colloquy group, a leading consulting and research firm focused on the loyalty industry, the number of loyalty 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, 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.

As the loyalty market continues to change, we have been evolving to meet our partners’ needs by leveraging our unique position in the loyalty industry. We believe that a continued focus on innovation will maintain our leading market position in technology and marketing services, enabling us to enhance existing products and services while delivering new loyalty solutions to market that meet the needs of our partners and their members.

OUR OPERATING STRUCTURE

Our business combines attributes of both a platform and a marketing services business to offer a portfolio of consumer or business facing products and services that facilitate either the accrual or redemption of loyalty currency (points or miles). Accrual transactions are typically focused on generating revenue for our loyalty program partners while redemption transactions are focused on offering additional engagement options for program members.

Core to our operations is the LCP, an open, Application Program Interface (“API”) based transaction processing platform that we leverage for all aspects of the business. The key functions of the LCP include direct, real time integrations into our partners’ loyalty program databases that allow for customer validation and information sharing as well as debit and/or credit of loyalty program currency. Of growing importance to our business is the marketing automation capability that we continue to develop as part of the LCP’s functionality. Lastly, security, fraud mitigation, auditing and reporting functions are also centralized via the LCP.

All of the services we offer benefit from this unified operating infrastructure in two key ways. First, they allow us to launch and manage multiple products and services with increased efficiency. Secondly, our ability to aggregate and anonymize the consolidated data flowing across the platform from many programs, regions and transaction types facilitates our automated marketing and merchandising efforts.

Leveraging the LCP, we operate in three segments, each of which contain multiple loyalty products and services.

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 buy, gift, transfer, reinstate, accelerator and status miles services. These offerings provide loyalty program members the ability to buy loyalty program currency (such as frequent flyer miles or hotel points) for themselves, as gifts for others, purchase status miles to reach a tier status, perform a transfer of loyalty currency to another member within the same loyalty program or reinstate previously expired loyalty currency.

Loyalty Currency Retailing services provide high margin revenue to our loyalty program partners while increasing member engagement by unlocking the value of loyalty currency in the members’ accounts. We have direct partnerships with over 30 loyalty program partners who leverage at least one of our Loyalty Currency Retailing solutions. All loyalty program partners who leverage our loyalty currency retailing services are within the airline or hospitality verticals. Typically, we find our solutions competing with the internal technology departments of loyalty programs, leading to a “buy vs. build” decision. We have had success in becoming an outsourcing solution to loyalty programs that previously provided these same services in-house. Given this dynamic, the length of our sales cycle for these solutions can be difficult to predict.

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We take a principal role in the retailing of loyalty currencies in approximately two thirds of our loyalty program partnerships in this segment. As principal, we will sell loyalty program currency direct to the program members at a retail rate while purchasing points and miles at a wholesale rate from the program partner. Under a principal arrangement, we will typically provide the loyalty program partner an annual revenue guarantee for the term of the commercial agreement. In addition, we will pay for all credit card related fees and assume all credit risk by providing real-time fraud detection and risk mitigation services. We also have a substantial level of responsibility with respect to marketing, analytics, pricing and commercial transaction support. Revenue earned under a principal arrangement is included in Principal revenue in our condensed consolidated interim financial statements and represents the gross amount of the retail transaction collected from loyalty program members. Wholesale costs paid to loyalty programs for loyalty currency are included in Direct cost of revenue in our condensed consolidated interim financial statements.

Alternatively, we may assume an agency role in the retailing and wholesaling of loyalty currencies, which is determined by the contractual arrangement in place with the loyalty program partner and their members. In these arrangements, we typically take a less active role in the retailing of loyalty currency and earn a commission on each transaction. Revenue earned under an agency arrangement is included in Other partner revenue in our condensed consolidated interim financial statements and represents the amount of the commission earned. In these arrangements, we typically take less risk in the relationship and have less control as it relates to the sale of loyalty currency to end consumers.

Platform Partners
The Platform Partners segment is comprised of a broad range of applications that are connected to and enabled by the functionality of the LCP. The LCP provides third parties transaction level access to loyalty program members and the ability to access the loyalty currencies of our program partners. Loyalty programs, merchants, and other consumer service applications leverage the LCP to broadly distribute loyalty currency and loyalty commerce transactions through multiple channels.

Included in Platform Partners are multiple third-party managed applications that are enabled by the LCP, many of which are redemption-based services that offer efficient cost management solutions to loyalty programs. Also included in this segment are earn-based services, where merchants who partner with us can purchase loyalty currency to offer to their customers as an award for every day shopping. The majority of revenue in this segment is earned on a commission or transaction fee basis, which is included in Other partner revenue in our condensed consolidated interim financial statements. In addition, we generate revenue from recurring monthly hosting fees on certain services, which are recorded in Principal revenue in our condensed consolidated interim financial statements.

Points Travel
The Points Travel segment connects the world of online travel bookings with the broader loyalty industry. In 2014, we acquired Accruity Inc., the San Francisco based start-up operator of the PointsHound loyalty-based hotel booking service. Leveraging the PointsHound technology, we developed our Points Travel product, the first white-label online travel service specifically designed for loyalty programs.

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We partner with loyalty programs to provide a seamless travel booking experience for loyalty program members, enabling members to earn and redeem their loyalty currency while making hotel bookings and car rentals online.

We currently have commercial arrangements with 11 travel-based loyalty programs who leverage at least one of our white-label Points Travel services. Our external competition for winning loyalty programs business for these services is high, as we typically compete against the major online travel agencies (“OTAs”). When we win new business and deploy these services to market, the sales ramp is typically slower than that experienced with our other loyalty solutions, mainly due to increased online competition for booking hotels or car rentals from OTAs or direct with hotels and car rental companies. However, we believe the opportunity for financial growth within this segment is high given the continued growth and overall size of the online travel market.

Revenue in this segment is primarily generated from commissions, which are typically the gross amount charged to end consumers for hotel bookings or car rental, less the wholesale cost to acquire the hotel room or car rental, cost of loyalty currencies delivered to the consumers and paid to the loyalty program, and other direct costs for online hotel bookings and car rentals. The majority of revenue in this segment is included in Other partner revenue in our condensed consolidated interim financial statements.

KEY GROWTH DRIVERS

Growing the Number of Loyalty Program Partners
Throughout most of our history, adding new loyalty program partners has been an important source of growth. Continuing to grow the number of Loyalty Program partners connected to our platform remains a key growth factor and important part of our strategy. As of June 30, 2019, we had commercial relationships with nearly 60 loyalty program partners. Approximately 80% of our current partners are travel based programs. In addition, approximately 80% of our loyalty program partners are based out of either North America or Europe.

The majority of our loyalty program partners are global, with end consumers and transactions originating from around the world. For that reason, the LCP was designed and operates as a global e-commerce platform, providing multiple currency and payment options as well as language specific end user experiences. We feel the investments we have made on our platform and products position us well to acquire new loyalty program partners in other geographic markets.

While we currently have a broad set of relationships with travel-based programs in North America and Europe, we believe there are substantial growth opportunities to add additional loyalty program partners, particularly in the Asia Pacific and South American loyalty markets. We also believe there is significant opportunity to partner with loyalty programs in other verticals, specifically the financial services vertical. We continue to focus on adding business development resources with travel and loyalty expertise combined with specific geographic and vertical experience to further diversify our revenue and loyalty program network.

Cross-sell Existing Partners
We believe our existing network of loyalty program partners represents a significant opportunity to cross-sell additional products and services. At the beginning of a new loyalty program partnership, most programs will typically deploy a small subset of our total products and services. As we demonstrate the benefits of our platform, we focus sales efforts with these partners on additional products and services that best fit their program, typically with limited incremental marketing and sales expense. As we launch new functionality and products across our three operating segments, we expect that our opportunity to cross-sell additional services to existing partners that do not currently leverage our full platform will increase.

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Retaining and Growing Existing Loyalty Program Partner Deployments
The ability to retain and grow our in-market products and services with existing loyalty program partners remains an important growth driver for us and underlines many of the investments we make in our product and data capabilities. We believe our continued focus on product, technology and data analytics has been and will continue to be a critical driver of growth. With integrations into approximately 60 leading loyalty programs, the LCP has positioned us to continually improve our ability to consume loyalty data and personalize offers, increasing the effectiveness of our marketing campaigns and our partners’ profitability while minimizing member communications. We believe the market awareness for our products and services among loyalty program members is generally low and that increasing this awareness through effective marketing and product innovation can increase the penetration of our products and services. Lastly, we indirectly benefit from the growth in our loyalty program partners membership bases as well as the growth in the loyalty market in general.

HOW WE ASSESS PERFORMANCE AND NON-GAAP FINANCIAL MEASURES

Our financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”). We use certain non-GAAP measures, which are defined below, to better assess our underlying performance. These measures are reviewed regularly by management and the Board of Directors in assessing our performance and in making decisions about ongoing operations. In addition, we use these measures to determine components of management compensation. We believe that these measures are also used by investors, analysts and other interested parties as an indicator of our 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. The reconciliations for these non-GAAP measures from the closest GAAP measure are contained below.

Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”)
We believe that Adjusted EBITDA is useful to management and investors as a supplemental measure to evaluate our operating performance.

Adjusted EBITDA is a non-GAAP financial measure, which is defined as earnings before income tax expense, finance costs, depreciation and amortization, equity-settled share-based payment expense, foreign exchange, and other one-time costs or benefits such as a tax rebate related to prior periods. We exclude these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in our business performance. Adjusted EBITDA is a component of our management incentive plan and is used by management to assess our operating performance. 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.

Effective Margin
Effective margin is a non-GAAP financial measure, which is calculated by dividing Adjusted EBITDA by Gross Profit (defined below). We use Effective margin as a key internal measure of operating efficiency. This measure demonstrates our ability to generate profitability after we have funded operating expenses.

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Reconciliation of Net Income to Adjusted EBITDA

    For the three months ended  
(In thousands of US dollars)                        
(unaudited)   June 30, 2019     June 30, 2018     $Variance     % Variance  
Net income $  6,276   $  1,812   $  4,464     246%  
Income tax expense   2,325     684     1,641     240%  
Finance costs   36     -     36     -  
Depreciation and amortization   1,126     900     226     25%  
Foreign exchange loss 398 85 313 368%
Equity-settled share-based payment expense   1,112     1,168     (56 )   (5% )
Prior years tax rebate, net of fees   (6,027 )   -     (6,027 )   -  
Adjusted EBITDA $  5,246   $  4,649   $  597     13%  

    For the six months ended  
(In thousands of US dollars)                        
(unaudited)   June 30, 2019     June 30, 2018     $Variance     % Variance  
Net income $  8,033   $  4,070   $  3,963     97%  
Income tax expense   3,010     1,546     1,464     95%  
Finance costs   112     -     112     -  
Depreciation and amortization   2,268     1,766     502     28%  
Foreign exchange loss (gain) 154 (73 ) 227 (311% )
Equity-settled share-based payment expense   2,329     2,143     186     9%  
Prior years tax rebate, net of fees   (6,027 )   -     (6,027 )   -  
Adjusted EBITDA $  9,879   $  9,452   $  427     5%  

Gross Profit and Gross Margin
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. We view gross profit as an integral measure of financial performance as it represents an internal measure of ongoing growth and the amount of revenues that are available to fund ongoing operating expenses, including incremental spending that is in line with our long-term strategic goals. Gross profit is a component of our management incentive plan and is used by management to assess our operating performance. In general, we seek to maximize the gross profit generated from each loyalty partner relationship.

Gross margin is a non-GAAP financial measure and is defined by management as Gross profit as a percentage of Total revenue.

Reconciliation of Total Revenue to Gross Profit

    For the three months ended  
(In thousands of US dollars)                        
(unaudited)   June 30, 2019     June 30, 2018     $Variance     % Variance  
Total Revenue $  100,230   $  97,859   $  2,371     2%  
Less:                        
   Direct cost of revenue   79,778     84,158     (4,380 )   (5% )
Gross profit $  20,452   $  13,701   $  6,751     49%  
Gross margin   20%     14%              

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    For the six months ended  
(In thousands of US dollars)                        
(unaudited)   June 30, 2019     June 30, 2018     $Variance     % Variance  
Total Revenue $  196,173   $  186,969   $  9,204     5%  
Less:                        
   Direct cost of revenue   162,355     159,752     2,603     2%  
Gross profit $  33,818   $  27,217   $  6,601     24%  
Gross margin   17%     15%              

Adjusted Operating Expenses

Adjusted operating expenses is a non-GAAP financial measure, which is defined as Employment Costs, Marketing and Communications, Technology Services and Other Operating Expenses, excluding equity-settled share-based payment expense. Adjusted operating expenses are predominantly cash-based expenditures. The closest GAAP measure is Total Operating Expenses in the condensed consolidated interim financial statements and the reconciliation from Total Operating Expenses to Adjusted Operating Expenses is shown below.

Reconciliation of Total Operating Expenses to Adjusted Operating Expenses

    For the three months ended  
(In thousands of US dollars)                        
(unaudited)   June 30, 2019     June 30, 2018     $Variance     % Variance  
Total Operating Expenses $  12,072   $  11,332   $  740     7%  
Subtract (add):                        
   Depreciation and amortization   1,126     900     226     25%  
   Foreign exchange loss   398     85     313     368%  
   Equity-settled share-based payment expense   1,112     1,168     (56 )   (5% )
Adjusted Operating Expenses $  9,436   $  9,179   $  257     3%  

    For the six months ended  
(In thousands of US dollars)                        
(unaudited)   June 30, 2019     June 30, 2018     $Variance     % Variance  
Total Operating Expenses $  23,182   $  21,805   $  1,377     6%  
Subtract (add):                        
   Depreciation and amortization   2,268     1,766     502     28%  
   Foreign exchange loss (gain)   154     (73 )   227     (311% )
   Equity-settled share-based payment expense   2,329     2,143     186     9%  
Adjusted Operating Expenses $  18,431   $  17,969   $  462     3%  

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.

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    For the three months ended  
(In thousands of US dollars)                        
(unaudited)   June 30, 2019     June 30, 2018     $Variance     % Variance  
Adjusted Operating Expenses $  9,436   $  9,179   $  257     3%  
Less:                        
Indirect Adjusted Operating Expenses   3,364     3,442     (78 )   (2% )
Direct Adjusted Operating Expenses $  6,072   $  5,737   $  335     6%  

    For the six months ended  
(In thousands of US dollars)                        
(unaudited)   June 30, 2019     June 30, 2018     $Variance     % Variance  
Adjusted Operating Expenses $  18,431   $  17,969   $  462     3%  
Less:                        
Indirect Adjusted Operating Expenses   6,664     6,693     (29 )   -  
Direct Adjusted Operating Expenses $  11,767   $  11,276   $  491     4%  

Contribution

Contribution is a non-GAAP financial measure and is defined as Gross profit for the relevant operating segments less direct adjusted operating expenses for those segments. We believe that contribution is a key financial measure to assess the underlying profitability of our three operating segments, as this metric excludes all indirect adjusted operating expenses that are shared by the three operating segments. This is the measure used by the Chief Operating Decision Maker when reviewing segment results and making resource allocation decisions.

The presentation of contribution provides 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  
(In thousands of US dollars)   June 30,                    
(unaudited)   2019     June 30, 2018     $Variance     % Variance  
Gross profit $  20,452   $  13,701   $  6,751     49%  
Less:                        
   Direct adjusted operating expenses   6,072     5,737     335     6%  
Contribution $  14,380   $  7,964   $  6,416     81%  

    For the six months ended  
(In thousands of US dollars)         June 30,              
(unaudited)   June 30, 2019     2018     $Variance     % Variance  
Gross profit $  33,818   $  27,217   $  6,601     24%  
Less:                        
   Direct adjusted operating expenses   11,767     11,276     491     4%  
Contribution $  22,051   $  15,941   $  6,110     38%  

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SELECTED FINANCIAL INFORMATION

The following information is provided to give context for the broader comments elsewhere in this report.

    For the three months ended  
(In thousands of US dollars, except share                        
and per share amounts) (Unaudited)                        
    June 30,     June 30,              
    2019     2018     $Variance     % Variance  
Consolidated                        
   Principal revenue $  94,289   $  91,398   $  2,891     3%  
   Other partner revenue   5,941     6,461     (520 )   (8% )
   Total revenue   100,230     97,859     2,371     2%  
   Gross profit   20,452     13,701     6,751     49%  
   Gross margin   20%     14%              
   Adjusted operating expenses   9,436     9,179     257     3%  
   Finance income   257     127     130     102%  
   Adjusted EBITDA   5,246     4,649     597     13%  
   Effective margin   26%     34%              
   Total operating expenses   12,072     11,332     740     7%  
   Net income $  6,276   $  1,812   $  4,464     246%  
Earnings per share                        
   Basic $  0.46   $  0.12   $  0.34     283%  
   Diluted $  0.45   $  0.12   $  0.33     275%  
Weighted average shares outstanding                        
   Basic   13,777,844     14,410,539     (632,695 )   (4% )
   Diluted   13,957,009     14,512,883     (555,874 )   (4% )
Total assets $  118,848   $  115,763   $  3,085     3%  
Total liabilities   76,522     78,333     (1,811 )   (2% )
Total shareholders’ equity $  42,326   $  37,430   $  4,896     13%  

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    For the six months ended  
(In thousands of US dollars, except share                        
and per share amounts) (Unaudited)   June 30,     June 30,              
    2019     2018     $Variance     % Variance  
Consolidated                        
   Principal revenue $  184,295   $  174,705   $  9,590     5%  
   Other partner revenue   11,878     12,264     (386 )   (3% )
   Total revenue   196,173     186,969     9,204     5%  
   Gross profit   33,818     27,217     6,601     24%  
   Gross margin   17%     15%              
   Adjusted operating expenses   18,431     17,969     462     3%  
   Finance income   519     204     315     154%  
   Adjusted EBITDA   9,879     9,452     427     5%  
   Effective margin   29%     35%              
   Total operating expenses   23,182     21,805     1,377     6%  
   Net income $  8,033   $  4,070   $  3,963     97%  
Earnings per share                        
   Basic $  0.58   $  0.28   $  0.30     107%  
   Diluted $  0.57   $  0.28   $  0.29     104%  
Weighted average shares outstanding                        
   Basic   13,890,236     14,442,405     (552,169 )   (4% )
   Diluted   14,036,297     14,518,621     (482,324 )   (3% )
Total assets $  118,848   $  115,763   $  3,085     3%  
Total liabilities   76,522     78,333     (1,811 )   (2% )
Total shareholders’ equity $  42,326   $  37,430   $  4,896     13%  

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FINANCIAL INFORMATION BY SEGMENT

    For the three months ended  
                         
(In thousands of US dollars) (Unaudited)   June 30, 2019     June 30, 2018     $Variance     % Variance  
Loyalty Currency Retailing                        
   Principal revenue   93,673     90,737     2,936     3%  
   Other partner revenue   4,111     4,769     (658 )   (14% )
   Total revenue   97,784     95,506     2,278     2%  
   Gross profit   18,203     11,508     6,695     58%  
   Direct adjusted operating expenses   3,326     3,366     (40 )   (1% )
   Contribution   14,877     8,142     6,735     83%  
Platform Partners                        
   Principal revenue   616     638     (22 )   (3% )
   Other partner revenue   1,285     1,268     17     1%  
   Total revenue   1,901     1,906     (5 )   -  
   Gross profit   1,704     1,770     (66 )   (4% )
   Direct adjusted operating expenses   981     982     (1 )   -  
   Contribution   723     788     (65 )   (8% )
Points Travel                        
   Principal revenue   -     23     (23 )   (100% )
   Other partner revenue   545     424     121     29%  
   Total revenue   545     447     98     22%  
   Gross profit   545     423     122     29%  
   Direct adjusted operating expenses   1,765     1,389     376     27%  
   Contribution   (1,220 )   (966 )   (254 )   26%  

    For the six months ended  
(In thousands of US dollars) (Unaudited)   June 30, 2019     June 30, 2018     $Variance     % Variance  
Loyalty Currency Retailing                        
   Principal revenue   183,153     173,389     9,764     6%  
   Other partner revenue   8,249     8,724     (475 )   (5% )
   Total revenue   191,402     182,113     9,289     5%  
   Gross profit   29,388     22,667     6,721     30%  
   Direct adjusted operating expenses   6,511     6,620     (109 )   (2% )
   Contribution   22,877     16,047     6,830     43%  
Platform Partners                        
   Principal revenue   1,125     1,270     (145 )   (11% )
   Other partner revenue   2,667     2,673     (6 )   -  
   Total revenue   3,792     3,943     (151 )   (4% )
   Gross profit   3,455     3,673     (218 )   (6% )
   Direct adjusted operating expenses   1,928     1,997     (69 )   (3% )
   Contribution   1,527     1,676     (149 )   (9% )
Points Travel                        
   Principal revenue   17     46     (29 )   (63% )
   Other partner revenue   962     867     95     11%  
   Total revenue   979     913     66     7%  
   Gross profit   975     877     98     11%  
   Direct adjusted operating expenses   3,328     2,659     669     25%  
   Contribution   (2,353 )   (1,782 )   (571 )   32%  

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SEGMENTED RESULTS AND OPERATING HIGHLIGHTS

Loyalty Currency Retailing
Total revenue for the Loyalty Currency Retailing segment increased $2,278 or 2%, to $97,784 for the quarter ended June 30, 2019, primarily due to organic growth from our existing principal partnerships and to a lesser extent, new partners added over the last twelve months.

Gross profit for the second quarter of 2019 was $18,203, an increase of $6,695 or 58% over the prior year period. The primary driver of this increase was the impact of a tax rebate of $6,027 related to prior years that was confirmed in the second quarter of 2019.

We believe it is appropriate to exclude the impact of this tax rebate related to prior years from gross profit when assessing the performance of the loyalty currency retailing segment. Gross profit in the second quarter of 2019, after excluding the impact of the prior years tax rebate, was $12,176, an increase of 6% over the second quarter of 2018. Gross profit during the period was adversely impacted by two factors: (1) stronger performance in the first half of 2018 from one of our hotel partners due to heightened promotional activity ahead of a scheduled merger with another hotel loyalty program partner; and (2) the departure of a long-time Middle East partner in the back half of 2018 resulting from geopolitical issues beyond our control. These two factors were more than offset by underlying growth in the segment from new partners launched over the last twelve months and organic growth experienced from existing partnerships.

Direct adjusted operating expenses in the second quarter of 2019 was relatively flat compared to the same period in 2018, decreasing 1% or $40. Contribution for the second quarter of 2019 was $14,877, an increase of $6,735 or 83% over the second quarter of 2018. Similar to the increase in gross profit, the primary driver of this increase was the impact of a tax rebate of $6,027 related to prior years that was confirmed in the second quarter of 2019. Excluding the impact of this tax rebate related to prior periods, contribution for the segment was $8,850, an increase of $708 or 9% relative to the second quarter of 2018, in line with the change in gross profit.

From a business development perspective, we expanded our relationship with the Emirates Skywards program, launching our accelerator service in the second quarter of 2019. Skywards members can now boost their miles earned from completing a flight booking with Emirates.

Platform Partners
Total revenue for the platform partners segment was $1,901 for the quarter ended June 30, 2019, flat with the comparable prior year period. Similarly, gross profit in the second quarter of 2019 was $1,704, a decrease of $66 or 4% from the prior year period. Gross profit in the second quarter was impacted by new economics associated with a contract renewal with one of our larger partners in this segment that came into effect at the beginning of 2019. The new contract structure is more heavily weighted to a transaction fee based model compared to a fixed fee model, which lessened the overall contribution from this partner in the short term but has greater long-term economic potential over the term of the contract. Direct adjusted operating expenses attributable to the segment were $981 in the second quarter of 2019, flat with the second quarter of 2018. The Platform Partners segment generated contribution of $723 in the second quarter of 2019, a decrease of $65, inline with the year-over-year decrease in gross profit.

In the second quarter of 2019, we leveraged the LCP to connect existing loyalty program partners with strong retail brands. First, we expanded our Wyndham hotels partnership by adding them to the Marathon Fuel program offering and launching an online earn mall, enabling program members the ability to earn Wyndham Rewards for online shopping activity. In addition, we connected the Hilton Honours program with the popular ride sharing service Lyft, to incentivize riders with Hilton Honours points. Lastly, we connected the United Airlines’ MileagePlus program with Home Chef, a popular meal kit delivery service. Mileage plus members can now earn frequent flyer miles when they sign up and make their first purchase with Home Chef.

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Points Travel
Total revenue in the Points Travel segment in the second quarter of 2019 increased 22% to $545. Similarly, gross profit in the second quarter of 2019 was $545, an increase of 29% over the second quarter of 2018.

The increase in gross profit was largely driven by a temporary shut down of a Points Travel site for a portion of the prior year period, which adversely impacted gross profit in the second quarter of 2018. The shut down resulted from compliance issues encountered by our largest loyalty program partner in the segment which were outside of our control. During the second quarter of 2019, we continued to fund customer acquisition costs with a higher than normal portion of our available margin, which partially offset the impact of the prior period site shutdown. This has resulted in compressed per transaction margins and lower gross profit growth in the second quarter of 2019, but resulted in increased overall booking volume relative to the prior year period.

Direct adjusted operating expenses for the quarter ended June 30, 2019 were $1,765, an increase of 27% over the comparable prior year quarter, mainly due to increased personnel related expenses attributable to the Points Travel segment. As a result, a contribution loss of $1,220 was generated in the second quarter of 2019 compared to a contribution loss of $966 in the same period in 2018.

REVIEW OF CONSOLIDATED PERFORMANCE

Revenue, Gross Profit, and Gross Margin

Consolidated revenue for the three months ended June 30, 2019 was $100,230, an increase of $2,371 or 2% over the comparable prior year period. Consolidated revenue for the six month period ended June 30, 2019 was $196,173, an increase of $9,204 or 5% over the six month period ended June 30, 2018. The year- over-year increase in consolidated revenue in both periods was primarily driven by organic growth from existing principal partnerships in the Loyalty Currency Retailing segment, and to a lesser extent, the impact of new partner launches in 2018. Organic revenue growth in the second quarter of 2019, which we calculate as the year-over-year growth in revenue from existing partnerships and products that have been in market for at least one year, was approximately 4% on the consolidated business, after adjusting for the departure of a middle east carrier in the latter half of 2018.

For the second quarter of 2019, consolidated gross profit was $20,452, an increase of 49% over the comparable prior year period. Consolidated gross profit for the six month period ended June 30, 2019 was $33,818, an increase of 24% over the comparable prior year period. A primary driver of the year over year increases was the impact of a tax rebate of $6,027 related to prior years that was confirmed in the second quarter of 2019. We believe it is appropriate to exclude the impact of this tax rebate related to prior years from gross profit when assessing our performance. Excluding the impact of the tax rebate related to prior years, gross profit for the second quarter of 2019 was $14,425, a quarterly record and represents an increase of 5% over the comparable prior year period. For the six months ended June 30, 2019, gross profit was $27,791 after excluding the impact of the prior years tax rebate, an increase of 2% over the six months ended June 30, 2018.

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The primary driver of the growth in gross profit, after excluding the impact of the prior years’ tax rebate, was organic growth from in market deployments in the loyalty currency retailing segment, and the impact of new partnerships launched over the last twelve months. As expected, the year-over-year growth was partially offset by two main factors: (1) stronger performance in the first half of 2018 from one of our hotel partners due to heightened promotional activity ahead of a scheduled merger with another hotel loyalty program partner; and (2) the departure of a long time Middle East partner in the back half of 2018 resulting from geopolitical issues beyond our control.

Gross margin for the second quarter of 2019 increased to 20% compared to 14% in the same period in 2018, largely due to the impact of the prior years’ tax rebate. Excluding the impact of the tax rebate related to prior years, gross margin was 14% in the second quarter of 2019, relatively flat with the comparable prior year period. Gross margin for the six months ended June 30, 2019 was 17% compared to 15% for the six months ended June 30, 2018, largely due to the impact of the prior years tax rebate. Excluding the impact of the prior years’ tax rebate, gross margin for the six months ended June 30, 2019 was 14%, a slight decline from 15% for the six month period ended June 30, 2018. This slight decline was primarily due to a higher proportion of sales from our agency partnerships in the Loyalty Currency Retailing segment for the six months ended June 30, 2018, driving consolidated gross margin higher in the prior year period.

Total Operating Expenses and Adjusted Operating Expenses

For the second quarter of 2019, we incurred consolidated total operating expenses of $12,072, an increase of $740 or 7% over the comparable prior year period. Total operating expenses for the six month period ended June 30, 2019 was $23,182, an increase of $1,377 or 6% over the comparable period in 2018. The increase over the prior year periods was primarily due to increased employment costs from increasing resource levels relative to the prior year. In addition, depreciation and amortization expense increased in the three and six month periods ended June 30, 2019 on a year-over-year basis, which was offset by lower operating expenses, both resulting from the implementation of IFRS 16, Leases.

For the second quarter of 2019, consolidated adjusted operating expenses were $9,436, an increase of 3% over the comparable prior year period. For the six month period ended June 30, 2019, consolidated adjusted operating expenses were $18,431, an increase of $462 or 3% over the comparable six month period in 2018. The increase was primarily attributable to increased employment costs associated with the impact of additional resources added throughout 2018 and the first half of 2019. The increase in employment was partially offset by a reduction to other operating expenses, which was due to lower professional fees incurred in the second quarter of 2019 combined with the impact of the new IFRS 16, Leases standard. Under the new standard, straight-line operating lease expenses are replaced with depreciation charges for right-of-use assets and interest expense on lease liabilities, which resulted in a decrease in adjusted operating expenses compared to the prior year quarter.

Finance income

Finance income is derived from interest earned on cash and cash equivalents. Finance income for the second quarter of 2019 was $257, an increase of $130 over the prior year quarter. Finance income for the six month period ended June 30, 2019 was $519, an increase of $315 over the comparable prior year period. The increase was primarily due to the investment of funds in higher yield accounts relative to the prior year.

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Adjusted EBITDA and Effective Margin

Adjusted EBITDA in the second quarter of 2019 was $5,246, an increase of $597 or 13% over the second quarter of 2018. Adjusted EBITDA for the six months ended June 30, 2019 was $9,879, an increase of $427 or 5% over the comparable prior year period. The increase in Adjusted EBITDA was primarily the result of increased gross profit combined with a slight increase in adjusted operating expenses relative to the prior year periods. Effective margin in the second quarter of 2019 was 26% compared to 34% in the second quarter of 2018. After excluding the impact of the tax rebate related to prior years from gross profit for the second quarter of 2019, effective margin was 36%, an increase of 2% over the prior year quarter.

Equity-settled share-based payment expense

We incur certain employment related expenses that are settled in equity-based instruments. During the second quarter of 2019, equity-settled share-based payment expenses decreased $56 or 5%, compared to the prior year quarter, due to the timing of Restricted Share Units (“RSUs”) settlements. Year-to-date equity-settled shared-based payment expenses was $2,329, an increase of $186 or 9% over the comparable prior year period. The year-over-year increase was due to the impact of performance-based options issued to management at the end of 2018.

Prior years tax rebate, net of fees

The Corporation filed for a tax rebate of $6,027, net of fees, related to prior years and was accepted by the tax authorities during the second quarter of 2019. We anticipate receiving the funds related to the tax rebate in the third quarter of 2019.

Depreciation and amortization

For the second quarter of 2019, depreciation and amortization expense was $1,126, an increase of 25% compared to the prior year period. Year-to-date depreciation and amortization was $2,268, an increase of 28% over prior year. The increase was primarily due to the impact of IFRS 16, Leases, which resulted in additional depreciation expense on right-of-use assets for the three month and six month period ended June 30, 2019 of $295 and $578, respectively.

Foreign exchange gain/loss

We are exposed to Foreign Exchange (“FX”) risk as a result of transactions in currencies other than our main functional currency, the US dollar. Unrealized FX gains and losses arise from the revaluation of our balance sheet at the period end rate and realized FX gains and losses arise from the settlement of non-US dollar transactions. We hold balances in foreign currencies (e.g. non-US dollar denominated cash, accounts payable and accrued liabilities, and deposits) that give rise to exposure to FX risk.

The majority of our revenues in the second quarter of 2019 were transacted in US dollars. We also generate revenues in EUROs, British Pounds, and other currencies. The direct cost of revenue is primarily denominated in the same currency as the revenue earned, minimizing the FX exposure related to these currencies. Adjusted operating expenses are incurred predominantly in Canadian dollars, exposing us to FX risk. We enter into FX forward contracts to mitigate our exposure to the Canadian dollar.

17


For the quarter ended June 30, 2019, we recorded a foreign exchange loss of $398 compared with a foreign exchange loss of $85 in the comparable prior year period. For the six month period ended June 30, 2019, we recorded a foreign exchange loss of $154, compared with a foreign exchange gain of $73 in the comparable prior year period. Foreign exchange gains and losses fluctuate from period to period due to movements in foreign currency rates.

Income tax expense

We are subject to income tax in multiple jurisdictions and assess our taxable income to ensure eligible tax deductions are fully utilized. For the second quarter of 2019, we incurred income tax expense of $2,325, compared to $684 in the second quarter of 2018. Year-to-date income tax expense was $3,010, compared to $1,546 in the comparable prior year period. The increase was primarily attributable to higher income before taxes, as the effective consolidated tax rate remained consistent at 27% in each of the reported periods.

Finance costs

Finance costs consist of interest expense related to lease liabilities. On January 1, 2019, we implemented IFRS 16, on a modified retrospective basis, which replaced straight-line operating lease expenses with depreciation charges for right-of-use assets and interest expense on lease liabilities. Finance costs for the three months and six months ended June 30, 2019 was $36 and $112, respectively (2018 - nil and nil).

Net Income and earnings per share

    For the three months ended  
(In thousands of US dollars,                        
except per share amounts)                        
(Unaudited)   June 30, 2019     June 30, 2018     $Variance     % Variance  
Net income $  6,276   $  1,812   $  4,464     246%  
Earnings per share                        
   Basic $  0.46   $  0.12   $  0.34     283%  
   Diluted $  0.45   $  0.12   $  0.33     275%  

    For the six months ended  
(In thousands of US dollars,                        
except per share amounts)                        
(Unaudited)   June 30, 2019     June 30, 2018     $Variance     % Variance  
Net income $  8,033   $  4,070   $  3,963     97%  
Earnings per share                        
   Basic $  0.58   $  0.28   $  0.30     107%  
   Diluted $  0.57   $  0.28   $  0.29     104%  

Net income for the three month period ended June 30, 2019 was $6,276, an increase of $4,464 or 246% compared to the prior year period. Year-to-date net income was $8,033, an increase of $3,963 or 97% over prior year. The primary driver of the increases to net income was due to a tax rebate related to prior years that was recorded during the quarter. Excluding the impact of the prior years tax rebate, net income for second quarter of 2019 was $1,846, flat compared to same period in the prior year. Excluding the impact of the prior years tax rebate, net income for the six month period ended June 30, 2019 was $3,603, a decrease of $467 from prior year comparable period. The decline was attributable to higher employment costs due to additional resources added throughout 2018 and first half of 2019.

18


Basic earnings per share are calculated on the basis of the weighted average number of outstanding common shares for the period, which amounted to 13,777,844 common shares for the three month period ended June 30, 2019, compared with 14,410,539 common shares for the three month period ended June 30, 2018. The weighted average number of outstanding common shares for diluted earnings per share was 13,957,009 common shares for the three month period ended June 30, 2019, compared with 14,512,883 common shares for the three month period ended June 30, 2018. Basic and diluted earnings per share was $0.46 and $0.45 respectively for the period ended June 30, 2019 compared to $0.12 basic and diluted earnings per share for the same period ended 2018. Excluding the impact of the prior years tax rebate, basic and diluted earnings per share was $0.13 for the three month period ended June 30, 2019.

LIQUIDITY AND CAPITAL RESOURCES

Consolidated Balance Sheet Data as at                        
(In thousands of US dollars) (unaudited)   June 30, 2019     Dec 31, 2018     $Variance     % Variance  
Cash and cash equivalents $  58,301   $  69,131   $  (10,830 )   (16% )
Restricted cash   -     500     (500 )   (100% )
Funds receivable from payment processors   9,256     13,512     (4,256 )   (32% )
Total funds available $  67,557   $  83,143   $  (15,586 )   (19% )

Our sources of liquidity are primarily our total funds available, cash provided from operating activities, and any borrowings we may have under our credit facility. Total funds available, which we calculate as cash and cash equivalents, funds receivable from payment processors, and any restricted cash, was $67,557 as at June 30, 2019. Total funds available can fluctuate between periods due to changes in working capital balances, the timing of promotional activity and partner payments, and the timing of receipts from our payment processors. Our credit facility agreement with the Royal Bank of Canada expired on May 31, 2019. For the six months ended June 30, 2019, we had no borrowings under the credit facilities.

We have been able to generate sufficient cash through normal course operations to fund capital expenditure needs, current operating and working capital requirements, and purchases of shares under our Normal Course Issuer Bid (“NCIB”). Our ability to generate sufficient cash flows and/or obtain additional sources of funding may be affected by the risks and uncertainties discussed within this MD&A.

Sources and Uses of Cash

    For the three months ended  
(In thousands of US dollars)                        
(Unaudited)   June 30, 2019     June 30, 2018     $Variance     % Variance  
Operating activities $  (5,596 ) $  6,234   $  (11,830 )   (190% )
Investing activities   (400 )   (650 )   250     (38% )
Financing activities   (3,967 )   (6,694 )   2,727     (41% )
Effects of exchange rates   (57 )   851     (908 )   (107% )
Change in cash and cash equivalents $  (10,020 ) $  (259 ) $  (9,761 )   3,769%  

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    For the six months ended  
(In thousands of US dollars)                        
(Unaudited)   June 30, 2019     June 30, 2018     $Variance     % Variance  
Operating activities $  465   $  18,775   $  (18,310 )   (98% )
Investing activities   (1,207 )   (1,261 )   54     (4% )
Financing activities   (10,178 )   (10,942 )   764     (7% )
Effects of exchange rates   90     431     (341 )   (79% )
Change in cash and cash equivalents $  (10,830 ) $  7,003   $  (17,833 )   (255% )

Operating Activities

Cash flows used in operating activities were $5,596 for the second quarter of 2019, a decrease from the comparable prior year period. Cash flows from operating activities are primarily generated from funds collected from miles and points transacted from the various products and services we offer and are reduced by cash payments to loyalty partners, and payment of operating expenses. Cash flows from operating activities may vary significantly between periods due to changes in working capital balances and the timing of our promotional activity. In the second quarter of 2019, the Corporation experienced a $11,830 decrease in cash flows from operating activities compared to the prior year quarter, primarily due to the receivable related to the prior year tax rebate and timing of payments to loyalty program partners. We anticipate receiving the funds related to the tax rebate in the third quarter of 2019.

Investing Activities

Cash used in investing activities during the second quarter and year-to-date of 2019 included cash used for the purchase of property and equipment and internally developed intangible assets. We continue to invest our research and development efforts on creating new features and functionality to our existing services.

Financing Activities

Cash flows used in financing activities during the second quarter of 2019 primarily related to 232,548 shares repurchased for cancellation under our NCIB in the amount of $2,856. In addition, $861 of cash was used to acquire shares held in trust for the future settlement of RSUs. On a year-to-date basis, 452,189 shares were repurchased for cancellation under our NCIB in the amount of $5,312, $1,460 of cash was used to acquire shares held in trust for future settlement of RSUs, and $2,969 of withholding taxes was paid on the net settlement of RSUs.

Contractual Obligations and Commitments

    Total     Year 1     Year 2     Year 3     Year 4     Year 5+  
(unaudited)                                    
Direct cost of revenue(1) $  320,848   $  29,756   $  84,392   $  81,211   $  50,679   $  74,810  

(1) For certain loyalty partners, we guarantee a minimum level of points/miles purchases for each contract year, over the duration of the contract term with the loyalty partner. We evaluate each guarantee at each reporting date and at the end of each contract year, to determine if the guarantee will be met for that respective contract year.
(2) 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 disclosure above.

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Our principal revenue obligations represent contractual commitments on the minimum value of transactions processed over the term of our agreements with certain loyalty program partners in our Loyalty Currency Retailing segment. Under this type of guarantee, in the event that the sale of loyalty program currencies is less than the guaranteed amounts, we would be obligated to purchase additional miles or points from the loyalty program partner equal to the value of the revenue commitment shortfall. As at June 30, 2019, loyalty currency held for future resale of $1,971 was recorded as prepaid expenses and other assets on the condensed consolidated interim statement of financial position. We fund our principal revenue obligations through working capital.

Financial Instruments

We have customers and suppliers that transact in currencies other than the US dollar which gives rise to a risk that earnings and cash flows may be adversely affected by fluctuations in FX exchange rates. We are primarily exposed to the Canadian dollar, the EURO and the British Pound. Revenues earned from our partners based in Canada are contracted in and paid in Canadian dollars. We use these funds to fund the Canadian operating expenses thereby reducing our exposure to foreign currency fluctuations. As part of our risk management strategy, we enter into FX forward contracts extending out to approximately one year to reduce the FX risk with respect to Canadian dollar denominated disbursements. These contracts have been designated as cash flow hedges. We do not use derivative instruments for speculative purposes.

For a derivative instrument designated as a cash flow hedge, the effective portion of the derivative’s 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 derivative’s gain or loss is recognized in current income. For the second quarter of 2019, we reclassified a loss of $117, net of tax, from other comprehensive income into net income (2018 – a gain of $110, net of tax). On a year-to-date basis, we reclassed a loss of $300, net of tax, from other comprehensive income into net income (2018 – a gain of $236, net of tax). The cash flow hedges were effective for accounting purposes during the quarter ended June 30, 2019. Realized losses from our hedging activities in the three months ended June 30, 2019 were driven by the changes in the relative strength of the US dollar compared to the Canadian dollar.

As at June 30, 2019, forward contracts with a notional value of $14,580, and in a net asset position of $14 (December 31, 2018 – $878 in net liability position), with settlement dates extending to April 2020, have been designated as cash flow hedges for hedge accounting treatment under IFRS 9, Financial Instruments. These contracts are intended to reduce the FX risk with respect to anticipated Canadian dollar denominated expenses.

Cash from Exercise of Options

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 163,046 shares.

Securities with Near-Term Expiry Dates – Outstanding Amounts as at June 30, 2019

Security Type Date of Expiry Number Exercise Price (CAD$)
Option September 29, 2019 1,169 $19.82
Option March 16, 2020 161,877 $12.34
Total   163,046  

21


BALANCE SHEET

(In thousands of US dollars) (unaudited)            
Consolidated Balance Sheet Data as at   June 30, 2019     Dec 31, 2018 (1)
Cash and cash equivalents $  58,301   $  69,131  
Restricted cash   -     500  
Funds receivable from payment processors   9,256     13,512  
Accounts receivable   18,707     9,318  
Prepaid taxes   202     383  
Prepaid expenses and other assets   3,452     3,618  
Total current assets $  89,918   $  96,462  
Property and equipment   2,441     2,351  
Right-of-use assets   3,610     -  
Intangible assets   13,379     13,952  
Goodwill   7,130     7,130  
Deferred tax assets   2,370     2,645  
Total non-current assets $  28,930   $  26,078  
             
Accounts payable and accrued liabilities $  10,478   $  9,489  
Income taxes payable   1,270     117  
Payable to loyalty program partners   59,379     69,749  
Current portion of lease liabilities   1,260     -  
Current portion of other liabilities   801     1,680  
Total current liabilities $  73,188   $  81,035  
             
Lease liabilities   2,844     -  
Other liabilities   87     495  
Deferred tax liabilities   403     -  
Total non-current liabilities $  3,334   $  495  
Total shareholders’ equity $  42,326   $  41,010  

(1)

The Corporation has initially applied IFRS 16 at January 1, 2019, using the modified retrospective approach. Under this approach comparative information is not restated.

Cash and cash equivalents

Cash and cash equivalents balance decreased $10,830 as at June 30, 2019 compared to the end of 2018. The decrease in cash and cash equivalents was largely due to changes in working capital balances, shares repurchased and cancelled under our NCIB and purchases of shares held in trust for future settlements of RSUs.

Funds receivable from payment processors

Funds receivable from payment processors represents the gross value of retail transactions, or gross sales, charged to and paid by end consumers that are held with our payment processors. On average, cash collected from end consumers is typically deposited into our bank accounts by our payment processors two days from the date of sale. This balance decreased $4,256 compared to the end of 2018, which is largely attributable to the timing of sales activity at the end of the period relative to the prior year period and the timing of receipts from our payment processors. In general, this balance can vary significantly depending on the timing and richness of promotional activity at the end of a given period. Generally, if the end of a period contains a high level of promotional activity, the receivable from payment processors balance will be higher relative to a period with lower promotional activity at the end of a period.

22


Accounts receivable

Accounts receivable increased $9,389 compared to the end of 2018, primarily due to the receivable related to the tax rebate that was confirmed in the second quarter of 2019.

Right-of-use assets

On January 1, 2019, we adopted IFRS 16 and recognized right-of-use assets on our condensed consolidated interim statement of financial position, representing our control of and the right to use the underlying assets. As at June 30, 2019, right-of-use assets was $3,610 (2018 – nil).

Accounts payable and accrued liabilities

Accounts payable and accrued liabilities increased $989 compared to the end of 2018. The increase was primarily due to the accrual for consulting fees related to the prior years’ tax rebate, partially offset by the payment of our annual employee incentive in the first quarter of 2019.

Lease liabilities

On January 1, 2019, we adopted IFRS 16 and recognized lease liabilities on our condensed consolidated interim statement of financial position, representing our obligation to make future lease payments. As at June 30, 2019, the current and non-current portion of lease liabilities were $1,260 and $2,844, respectively (2018 – nil and nil).

Income taxes payable

Income taxes payable increased by $1,153 compared to the end of 2018, largely due to a $6,105 year-over-year increase in income before taxes which resulted primarily from the prior years tax rebate, resulting in a higher income tax provision in the second quarter of 2019.

Payable to loyalty program partners

Payable to loyalty program partners decreased $10,370 compared to the end of 2018, which is primarily attributable to the timing of payments made to loyalty program partners and the timing of sales activity in the previous month. On average, we remit funds to loyalty program partners for monthly sales activity approximately 30 days after the end of the month.

OUTSTANDING SHARE DATA

As of July 26, 2019, there were 13,591,792 common shares outstanding.

As of July 26, 2019, there were outstanding options exercisable for up to 1,142,457 common shares. The options have exercise prices ranging from $9.89 CAD to $19.82 CAD with a weighted average exercise price of $13.90 CAD. The expiration dates of the options range up to March 18, 2025.

23


The following table lists the common shares issued and outstanding as at July 26, 2019 and the securities that are currently convertible into or exercisable for common shares along with the maximum number of common shares issuable on conversion or exercise.

(Unaudited) Common Shares Proceeds
Common Shares Issued & Outstanding 13,591,792  
   Convertible Securities: Share options 1,142,457 CAD$ 15,880,319
Common Shares Issued & Potentially Issuable 14,734,249 CAD$ 15,880,319
Securities Excluded from Calculation:    
     Options Available for grant from ESOP(1) 387,403  

(1) “ESOP” is defined as the Employee Stock Option Plan. The number of options available for grant is calculated as the total share option pool less the number of outstanding share options.

THREE YEAR SUMMARY OF QUARTERLY RESULTS

(in thousands of US dollars, except per share amounts) (Unaudited)
Three month period ended Total   Basic earnings Diluted earnings
  Revenue Net income per share per share
June 30, 2019 $ 100,230 $ 6,276 $ 0.46 $ 0.45
March 31, 2019 95,943 1,757 0.13 0.12
December 31, 2018 94,918 2,246 0.16 0.16
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 88,133 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

Generally, increases in transaction levels, revenues and gross profit will drive higher overall profitability. Our operations are not subject to significant seasonal fluctuations. Our revenues are primarily impacted by retaining loyalty program partners and growing the performance of products deployed with these partners, adding new loyalty program partners, and cross-selling new products to existing loyalty program partners during the year. In the absence of launching any new loyalty program partners or new products, quarterly revenues will be impacted by the level of marketing and promotional activity carried out, which will vary quarter to quarter.

Historically, we have been able to consistently grow revenue by adding new loyalty program partnerships year after year. In addition, we have been able to grow revenues with existing partnerships year over year by improving our ability to consume loyalty data across the LCP to drive and inform our marketing efforts. Revenue growth has also come from our ability to sell additional loyalty products and services to existing partners.

Dependence on loyalty program partners
We depend on a limited number of large clients for a significant portion of our consolidated revenue. There were three loyalty program partners for which sales to their members represented 69% and 70% of our consolidated revenues for the three and six month period ended June 30, 2019 respectively (2018 – 67% and 67%). A decrease in revenue or gross profit from these partner relationships for any reason, including a fundamental change in their loyalty program, a change in contractual pricing, a significant shift in their redemption chart, or a decision to no longer outsource some or all of the products and services we provide, could have a material adverse effect on our consolidated revenue. As it relates to the LCR services we operate for these three partners, we act as principal where revenues are recognized on a gross basis. We believe gross profit is a more relevant metric to assess our partner concentration, as it represents the amount of revenues that are available to fund expenses and the economics we earn from our commercial arrangements with our loyalty program partners. For both the second quarter of 2019 and year-to-date, gross profit generated through commercial arrangements with 12 loyalty program partners represented approximately 80% of our consolidated gross profit.

24


CONTROLS AND PROCEDURES

On January 1, 2019, we implemented a new accounting system, which resulted in changes to controls and procedures pertaining to financial reporting.

Other than the item described above, there have been no changes in our internal controls over financial reporting this quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

For the Corporation’s accounting policies and critical accounting estimates and judgments, refer to the Corporation’s MD&A and audited annual consolidated financial statements for the year ended December 31, 2018. 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 2019, we adopted the following new standards and amendments to existing standards:

  • IFRS 16, Leases (“IFRS 16”)

Effective January 1, 2019, the Corporation adopted IFRS 16 which specifies how to recognize, measure, present and disclose leases. The standard introduces a single, on-balance sheet lessee accounting model, requiring lessees to recognize right-of-use assets and lease liabilities representing its obligation to make lease payments, unless the underlying leased asset has a low value or is considered short term.

The Corporation adopted IFRS 16 using a modified retrospective approach. Accordingly, comparative information presented for 2018 has not been restated. On transition to IFRS 16, the Corporation elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Corporation applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17, Leases and IFRIC 4 , Determining whether an Arrangement contains a Lease were not reassessed. The Corporation’s leases primarily consist of leases for office premises with terms ranging from 2 to 4 years. The lease term includes periods covered by an option to extend if the Corporation is reasonably certain to exercise that option.

At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of remaining lease payments, discounted at the Corporation’s incremental borrowing rate as at January 1, 2019. Right-of-use assets are measured at an amount equal to the lease liabilities, adjusted for any prepaid or accrued lease payments relating to that lease.

25


The Corporation has elected to use the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:

  • applied a single discount rate to a portfolio of leases with reasonably similar characteristics;
  • excluded initial direct costs from the measurement of the right-of-use assets at the date of initial application; and
  • relied upon the Corporation’s assessment of whether leases are onerous under the requirements of IAS 37, Provisions, contingent liabilities and contingent assets as at December 31, 2018 as an alternative to reviewing our right-of-use assets for impairment.

The Corporation has elected not to separate non-lease components and will instead account for the lease and non-lease component as a single lease component. In addition, the Corporation has elected not to recognize right-of-use assets and lease liabilities for some leases of low value assets. The lease payments associated with these leases are recognized as an expense on a straight-line basis over the lease term.

The impact on transition to IFRS 16 is summarized below:

(Unaudited)   Jan. 1, 2019  
Prepaid expenses and other assets $  (109 )
Right-of-use assets $  4,102  
Current portion of other liabilities $  (120 )
Current portion of lease liabilities $  1,203  
Lease liabilities $  3,272  
Other liabilities $  (362 )

The following standards are also effective from January 1, 2019, but they do not have a material impact on our condensed consolidated interim financial statements:

  • IAS 28, Investments in Associates and Joint Ventures;
  • IAS 19, Employee Benefits; and
  • IFRIC 23, Uncertainty over Income Tax Treatments.

26


Points International Ltd. - Exhibit 99.3 - Filed by newsfilecorp.com

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 June 30, 2019.

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 April 1, 2019 and ended on June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.

Date: August 1, 2019

/s/ Robert MacLean
_______________________
Robert MacLean
Chief Executive Officer


Points International Ltd. - Exhibit 99.4 - Filed by newsfilecorp.com

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 June 30, 2019.

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 April 1, 2019 and ended on June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.

Date: August 1, 2019

/s/Erick Georgiou
_______________________
Erick Georgiou
Chief Financial Officer


Points International Ltd. - Exhibit 99.5 - Filed by newsfilecorp.com


Points International Reports Second Quarter 2019 Results and
Increases Full Year Outlook

- Reports Record Quarterly Revenue, Gross Profit and Adjusted EBITDA -
- Progress Across Numerous Long Term Strategic Initiatives -

TORONTO August 1, 2019 Points International Ltd. (TSX: PTS) (Nasdaq: PCOM) (Points or the Company), the global leader in powering loyalty commerce, is reporting financial results for the second quarter ended June 30, 2019.

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

Second Quarter 2019 Financial Highlights (vs. Q2 2018)

  • Total revenue increased to a record $100.2 million compared to $97.9 million.

  • Gross profit1 increased 49% to $20.5 million compared to $13.7 million. Excluding the benefit of an approximate $6.0 million tax rebate that was confirmed in the second quarter for claims related to prior periods, gross profit was up 5% to $14.4 million, a quarterly record.

  • Net income increased to $6.3 million or $0.45 per diluted share, compared to $1.8 million or $0.12 per diluted share. Excluding the impact of the aforementioned tax rebate related to prior periods, net income was flat compared to the prior year.

  • Adjusted EBITDA2 increased 13% to a record $5.2 million compared to $4.6 million.

Recent Operational Highlights

  • Launched a new Accelerator service (LCR) with Emirates Airlines.

  • Launched, via Platform Partners, the integration between Hilton and Lyft to power the new relationship that sees users link accounts in order to earn points on each ride.

  • Entered into multi-year partnership with Home Chef; starting with the United Airlines MileagePlus program, members will now earn frequent flyer miles when they sign up and make Home Chef purchases.

  • Added Wyndham Hotel rewards to the Marathon Fuel, Platform Partners offering.

  • Initiated deployment work to add Redemptions to an existing Points Travel partnership, targeted for a Q3 launch.

_________________________________________________
1
Gross profit is defined as total revenue less the direct cost of 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, finance costs and equity-settled share-based compensation and other one-time costs or benefits such as a tax rebate related to prior periods) 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.




  • Commenced regional Singapore office activities, including initial personnel decisions to capitalize on growth opportunities in the APAC region.

Management Commentary

“We are very pleased to report a record second quarter across all our key operating metrics - gross profit and adjusted EBITDA,” said CEO Rob MacLean. “As we continue to benefit from our investment in and focus on enhanced, data-led marketing initiatives, we have driven solid results which have mitigated the headwinds we faced to start the year. Building on this momentum, we are now well placed to continue executing on our other two key strategic drivers in the second half and we’re excited about both new partnerships launching as well as meaningful service additions to current ones.

“Along with entering new industry verticals, and increased focus on corporate development, our other key growth accelerant is to expand our geographical footprint to more efficiently close and service international partners. During the second quarter, we laid the groundwork to officially launch operations in Singapore with several new personnel. Although it is still early and we are in the process of ramping, we expect this new regional presence to build upon our momentum with new client wins and expanded engagements with current APAC partners.

“Given our strong performance during the second quarter, the ongoing success of current partnerships, and our pipeline expectations heading into the back half of the year, we are increasing our 2019 outlook. We now expect gross profit to range between $58.5 million to $64.5 million, with adjusted EBITDA ranging between $20.5 million to $23.5 million. With the momentum and strong performance in our underlying business, we are all-the-more confident in achieving our long-term financial goals set for 2022.”

Second Quarter 2019 Financial Results

Total revenue in the second quarter of 2019 increased 2% to $100.2 million compared to $97.9 million in the prior year quarter. Principal revenue increased 3% to $94.3 million compared to $91.4 million, and other partner revenue was $5.9 million compared to $6.5 million.

Gross profit in the second quarter increased 49% to $20.5 million compared to $13.7 million in the prior year quarter. Excluding the benefit of a $6.0 million tax rebate that was confirmed in the second quarter for claims related to prior periods, gross profit was $14.4 million, an increase of 5% over the prior year quarter. The increase was primarily driven by continued strong performance in the LCR segment, along with improvements in the Points Travel segment.

Adjusted operating expenses3 in the second quarter of 2019 were $9.4 million compared to $9.2 million in the prior year quarter.

Net income increased to $6.3 million or $0.45 per diluted share, compared to $1.8 million or $0.12 per diluted share in the prior year quarter. The improvement was a result of the aforementioned benefit from a tax rebate related to prior periods.

Adjusted EBITDA in the second quarter increased 13% to $5.2 million compared to $4.6 million in the prior year quarter. This does not include the benefit from the prior periods tax rebate. Effective margin, which is defined as adjusted EBITDA as a percentage of gross profit, was 25.7% compared to 33.9% from the prior year period.

_________________________________________________
3
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.




Excluding the impact of the tax rebate related to prior periods, effective margin increased 250 basis points to 36.4% .

At June 30, 2019, total funds available, comprised of cash and cash equivalents together with restricted cash and funds receivable from payment processors, was $67.6 million compared to $83.1 million at December 31, 2018. The decrease is primarily a result of timing of partner sales and promotions. The company remains debt free.

During the second quarter, Points repurchased for cancellation approximately 233,000 common shares at an average price of $12.28 per share through its Automatic Share Purchase Plan in conjunction with its Normal

Course Issuer Bid (“NCIB”).

Increased 2019 Outlook

Points has increased its 2019 outlook and now expects gross profit to range between $58.5 million and $64.5 million (previously $56.5 million to $62.5 million), reflecting approximately 9% to 20% growth compared to 2018. Points also now expects adjusted EBITDA to range between $20.5 million and $23.5 million (previously $19.5 million to $22.5 million), reflecting approximately 10% to 26% growth from 2018.

Points Announces Renewal of Share Repurchase

Points also announced today that the board of directors has approved a normal course issuer bid to repurchase up to 5% of its issued and outstanding common shares (the “Repurchase”), and that it intends to enter into an automatic share purchase plan with a broker in order to facilitate the Repurchase.

The Repurchase is subject to approval by the TSX, and is expected to commence on August 14, 2019. Points’ previous normal course issuer bid commenced on August 14, 2018 and will terminate on August 13, 2019.

Conference Call

Points will hold a conference call today at 4:30 p.m. Eastern time to discuss its second quarter 2019 results, followed by a question-and-answer session.

Date: Thursday, August 1, 2019
Time: 4:30 p.m. Eastern time (1:30 p.m. Pacific time)
Toll-free dial-in number: 1-855-327-6837
International dial-in number: 1-631-891-4304
Conference ID: 10007319

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 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 August 15, 2019.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 10007319

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, London and Singapore.

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

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, targeted launch of redemptions to an existing Points Travel partnership, expected benefits of our new regional presence in APAC, our ability to deliver on our long-term goals for 2022, our core growth strategies, our guidance for 2019 with respect to gross profit and adjusted EBITDA, and receipt of funds for tax rebates. 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 products and cross-sell existing partners 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 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

Gross Profit Information[1]

Expressed in thousands of United States dollars

    For the three months ended  
             
             
    June 30, 2019     June 30, 2018  
             
Total Revenue $  100,230   $  97,859  
Direct cost of revenue   79,778     84,158  
Gross Profit $  20,452   $  13,701  
Gross Margin   20%     14%  

[1] Gross Profit is defined as total revenues less the direct cost of 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.

Points International Ltd.
Key Financial Measures and Schedule of Non-GAAP Reconciliations

Reconciliation of Gross Profit to Contribution [2]

Expressed in thousands of United States dollars

    For the three months ended  
             
             
    June 30, 2019     June 30, 2018  
             
Gross Profit $  20,452   $  13,701  
Less:            
       Direct adjusted operating expenses [3]   6,072     5,737  
Contribution $  14,380   $  7,964  

[2] 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.
[3] 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.




Points International Ltd.
Key Financial Measures and Schedule of Non-GAAP Reconciliations

Contribution by Line of Business

Expressed in thousands of United States dollars

   
For the three months ended
 
             
             
    June 30, 2019     June 30, 2018  
             
Loyalty Currency Retailing            
Revenue $  97,784   $  95,506  
Gross Profit   18,203     11,508  
Direct adjusted operating expenses   3,326     3,366  
Contribution $  14,877   $  8,142  
             
Platform Partners            
Revenue $  1,901   $  1,906  
Gross Profit   1,704     1,770  
Direct adjusted operating expenses   981     982  
Contribution $  723   $  788  
             
Points Travel            
Revenue $  545   $  447  
Gross Profit   545     423  
Direct adjusted operating expenses   1,765     1,389  
Contribution $  (1,220 ) $  (966 )




Points International Ltd.
Key Financial Measures and Schedule of Non-GAAP Reconciliations

Reconcilation of Net Income to Adjusted EBITDA [4]

Expressed in thousands of United States dollars

    For the three months ended  
             
             
    June 30, 2019     June 30, 2018  
             
Net Income $  6,276   $  1,812  
Income tax expense   2,325     684  
Finance costs   36     -  
Depreciation and amortization   1,126     900  
Foreign exchange loss   398     85  
Equity-settled share-based payment expense   1,112     1,168  
Prior years tax rebate, net of fees   (6,027 )   -  
Adjusted EBITDA $  5,246   $  4,649  

[4] Adjusted EBITDA (Earnings before income tax expense, finance costs, depreciation and amortization, foreign exchange, equity-settled share-based payment expense and other one-time costs or benefits such as a tax rebate related to prior periods) 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.

Points International Ltd.
Key Financial Measures and Schedule of Non-GAAP Reconciliations

Reconciliation of Total Operating Expenses to Adjusted Operating Expenses [5]

Expressed in thousands of United States dollars

    For the three months ended  
             
             
    June 30, 2019     June 30, 2018  
             
Total Operating Expenses $  12,072   $  11,332  
Subtract (add):            
       Depreciation and amortization   1,126     900  
       Foreign exchange loss   398     85  
       Equity-settled share-based payment expense   1,112     1,168  
Adjusted Operating Expenses $  9,436   $  9,179  

[5] 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)

    June 30,     December 31,  
As at   2019     2018[6]  
             
ASSETS            
Current assets            
       Cash and cash equivalents $  58,301   $  69,131  
       Restricted cash   -     500  
       Funds receivable from payment processors   9,256     13,512  
       Accounts receivable   18,707     9,318  
       Prepaid taxes   202     383  
       Prepaid expenses and other assets   3,452     3,618  
Total current assets $  89,918   $  96,462  
             
Non-current assets            
       Property and equipment   2,441     2,351  
       Right-of-use assets   3,610     -  
       Intangible assets   13,379     13,952  
       Goodwill   7,130     7,130  
       Deferred tax assets   2,370     2,645  
Total non-current assets $  28,930   $  26,078  
Total assets $  118,848   $  122,540  
             
LIABILITIES            
Current liabilities            
       Accounts payable and accrued liabilities $  10,478   $  9,489  
       Income taxes payable   1,270     117  
       Payable to loyalty program partners   59,379     69,749  
       Current portion of lease liabilities   1,260     -  
       Current portion of other liabilities   801     1,680  
Total current liabilities $  73,188   $  81,035  
             
Non-current liabilities            
       Lease liabilities   2,844     -  
       Other liabilities   87     495  
       Deferred tax liabilities   403     -  
Total non-current liabilities $  3,334   $  495  
Total liabilities $  76,522   $  81,530  
             
SHAREHOLDERS’ EQUITY            
       Share capital   52,057     53,886  
       Contributed surplus   -     4,446  
       Accumulated other comprehensive income (loss)   28     (646 )
       Accumulated deficit   (9,759 )   (16,676 )
Total shareholders’ equity $  42,326   $  41,010  
Total liabilities and shareholders’ equity $  118,848   $  122,540  

[6] The Company has initially applied IFRS 16 at January 1, 2019, using the modified retrospective approach. Under this approach, comparative information is not restated.




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     For the six months ended  
    June 30, 2019     June 30, 2018[7]     June 30, 2019     June 30, 2018[7]  
                         
REVENUE                        
       Principal $  94,289   $  91,398   $  184,295   $  174,705  
       Other partner revenue   5,941     6,461     11,878     12,264  
Total Revenue   100,230     97,859     196,173     186,969  
       Direct cost of revenue   79,778     84,158     162,355     159,752  
Gross Profit $  20,452   $  13,701   $  33,818   $  27,217  
                         
OPERATING EXPENSES                        
       Employment costs   7,567     7,050     15,203     13,764  
       Marketing and communications   429     385     808     788  
       Technology services   659     552     1,276     1,047  
       Depreciation and amortization   1,126     900     2,268     1,766  
       Foreign exchange loss (gain)   398     85     154     (73 )
       Other operating expenses   1,893     2,360     3,473     4,513  
Total Operating Expenses $  12,072   $  11,332   $  23,182   $  21,805  
                         
       Finance income   (257 )   (127 )   (519 )   (204 )
       Finance costs   36     -     112     -  
                         
INCOME BEFORE INCOME TAXES $  8,601   $  2,496   $  11,043   $  5,616  
                         
       Income tax expense   2,325     684     3,010     1,546  
NET INCOME $  6,276   $  1,812   $  8,033   $  4,070  
                         
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
  246     (320 )   484     (750 )
       Income tax effect   (65 )   85     (128 )   198  
       Reclassification to net income of loss (gain) on foreign
       exchange derivatives designated as cash flow hedges
  159     (150 )   408     (321 )
       Income tax effect   (42 )   40     (108 )   85  
                         
       Foreign currency translation adjustment   (6 )   -     18     -  
Other comprehensive income (loss) for the period, net of income tax $  292   $  (345 ) $  674   $  (788 )
                         
TOTAL COMPREHENSIVE INCOME $  6,568   $  1,467   $  8,707   $  3,282  
                         
EARNINGS PER SHARE                        
       Basic earnings per share $  0.46   $  0.12   $  0.58   $  0.28  
       Diluted earnings per share $  0.45   $  0.12   $  0.57   $  0.28  

[7] The Company has initially applied IFRS 16 at January 1, 2019, using the modified retrospective approach. Under this approach, comparative information is not restated.




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                     Accumulated              
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, 2018   14,111,864   $  53,886   $  4,446   $  (646 ) $  (16,676 ) $  41,010  
Net income   -     -     -     -     8,033     8,033  
Other comprehensive income, net of tax   -     -     -     674     -     674  
Total comprehensive income   -     -     -     674     8,033     8,707  
Effect of share option compensation plan   -     -     282     -     -     282  
Effect of RSU compensation plan   -     -     2,047     -     -     2,047  
Share issuances – options exercised   2,338     28     (7 )   -     -     21  
Settlement of RSUs   -     1,348     (4,317 )   -     -     (2,969 )
Shares purchased and held in trust   -     (1,460 )   -     -     -     (1,460 )
Shares repurchased and cancelled   (452,189 )   (1,745 )   (2,451 )   -     (1,116 )   (5,312 )
Balance at June 30, 2019   13,662,013   $  52,057   $  -   $  28   $  (9,759 ) $  42,326  
                                     
                                     
Balance at December 31, 2017   14,561,450   $  56,394   $  10,647   $  374   $  (24,468 ) $  42,947  
Net income   -     -     -     -     4,070     4,070  
Other comprehensive loss, net of tax   -     -     -     (788 )   -     (788 )
Total comprehensive income   -     -     -     (788 )   4,070     3,282  
Effect of share option compensation plan   -     -     36     -     -     36  
Effect of RSU compensation plan   -     -     2,107     -     -     2,107  
Share issuances - options exercised   74,966     1,041     (690 )   -     -     351  
Settlement of RSUs   -     1,244     (3,780 )   -     -     (2,536 )
Shares purchased and held in trust   -     (2,956 )   -     -     -     (2,956 )
Shares repurchased and cancelled   (418,556 )   (1,633 )   (4,168 )   -     -     (5,801 )
Balance at June 30, 2018   14,217,860   $  54,090   $  4,152   $  (414 ) $  (20,398 ) $  37,430  




Points International Ltd.
Condensed Consolidated Interim Statements of Cash Flows
Expressed in thousands of United States dollars
(Unaudited)

    For the three months ended     For the six months ended  
    June 30, 2019     June 30, 2018[8]     June 30, 2019     June 30, 2018[8]    
                         
Cash flows from operating activities                        
Net income for the period $  6,276   $ 1,812   $  8,033   $ 4,070  
Adjustments for:                        
   Depreciation of property and equipment   290     247     578     468  
   Depreciation of right-of-use assets   295     -     578     -  
   Amortization of intangible assets   541     653     1,112     1,298  
   Unrealized foreign exchange (gain) loss   51     (851 )   (72 )   (431 )
   Equity-settled share-based payment transactions   1,112     1,168     2,329     2,143  
   Finance costs   36     -     112     -  
   Deferred income tax expense (recovery)   332     (177 )   442     (371 )
Unrealized net gain (loss) on derivative contracts
designated as cash flow hedges
  405     (470 )   892     (1,071 )
Changes in non-cash balances related to operations   (14,898 )   3,852     (13,427 )   12,669  
Interest paid   (36 )   -     (112 )   -  
Net cash provided by (used in) operating activities $  (5,596 ) $ 6,234   $  465   $ 18,775  
                         
Cash flows from investing activities                        
Acquisition of property and equipment   (148 )   (424 )   (668 )   (738 )
Additions to intangible assets   (252 )   (226 )   (539 )   (523 )
Net cash used in investing activities $  (400 ) $ (650 ) $  (1,207 ) $ (1,261 )
                         
Cash flows from financing activities                        
Payment of lease liabilities   (246 )   -     (458 )   -  
Proceeds from exercise of share options   -     351     21     351  
Shares repurchased and cancelled   (2,856 )   (4,357 )   (5,312 )   (5,801 )
Purchase of share capital held in trust   (861 )   (152 )   (1,460 )   (2,956 )
Taxes paid on net settlement of RSUs   (4 )   (2,536 )   (2,969 )   (2,536 )
Net cash used in financing activities $  (3,967 ) $ (6,694 ) $  (10,178 ) $ (10,942 )
                         
Effect of exchange rate fluctuations on cash held   (57 )   851     90     431  
                         
Net increase (decrease) in cash and cash equivalents $  (10,020 ) $ (259 ) $  (10,830 ) $ 7,003  
Cash and cash equivalents at beginning of the period $  68,321   $ 70,776   $  69,131   $ 63,514  
Cash and cash equivalents at end of the period $  58,301   $ 70,517   $  58,301   $ 70,517  
                         
Interest Received $  248   $ 86   $  510   $ 146  
Taxes Received $  -    $ 110   $ -   $ 110  
Taxes Paid $  (572 ) $ (554 ) $  (1,186 ) $ (1,681 )

Amounts received and paid for interest and taxes were reflected as operating cash flows in the condensed consolidated interim statements of cash flows.

(8) The Corporation has initially applied IFRS 16 at January 1, 2019, using the modified retrospective approach. Under this approach comparative information is not restated.