Q2 2020 Points International Ltd Earnings Call
Good afternoon, everyone and thank you for participating in today's conference call to discuss points internationals financial results for the second quarter ended July there used to downtown.
They were today's prepared remarks, our chief Executive Officer, Robert Clean President Christopher Barnard <unk>, Chief Financial Officer, Eric Georgia. Following their prepared remarks, the management team will open the call it three questions.
Well, we go further I would like to turn the call over to Sean Manchuria Gateway Investor Relations points International I read Roger.
He leaves the company Safe Harbor that provide important cautions regarding regarding forward looking statements.
Please go ahead.
Thank you.
Please be reminded that the remarks on this conference call may contain or refer to forward looking statements within the meaning of Canadian at U.S. Securities laws.
Management May also make additional forward looking statements in response to your questions. Although management believes these forward looking statements are reasonable such statements are not guarantees of future performance or action and are subject to important risks and uncertainties that are difficult to predict.
Certain material assumptions are applied in making forward looking statements and they don't proved to be correct.
Important factors that could cause actual results to differ materially and the assumptions used in making such statements.
Were included in our second quarter financial results press release issued prior to this call as well as other documents filed with the Canadian and U.S. Securities regulators.
Except as required by law a company does not undertake any obligation to update or revise any forward looking statements.
The result of new information future events or otherwise.
That I'll turn the call over to points as Chief Executive Officer, Rob Maclean Rob.
Thanks, Sean and good afternoon, everyone.
Although we are still operating in uncertain times amid the cobot 19 pandemic trends in our industry and business are generally moving into right direction.
We generated sequential month over month improvements across most financial metrics during the second quarter and reported positive adjusted EBITDA and arguably the most difficult period in the history of travel and hospitality.
But more importantly, as we look to next year and beyond we built strong momentum in our pipeline.
In fact, our pipeline is even stronger now than it was to start the year in all three lines of our business. We had been focused on supporting our partners throughout this unprecedented time and I'm proud of the high level of service our teams have consistently delivered.
During the health and safety ever team members continues to be a top priority.
Our team has remained at full capacity and they continue to wear to work remotely and seamlessly.
Having our team productive has been crucial to our ability to support our loyalty program partners, especially as they become more engaged in marketing and merchandising our revenue generating services as part of their recovery efforts.
Before I discuss those initiatives further I first want to contextualize the trends in our business within the broader loyalty industry.
Travel and hospitality market remains volatile as on and off again, Lockdowns and stay at home recommendations across the world continue to restrict travel patterns.
A result transactions related to immediate travel are still significantly below pre coded levels, which continues to impact our hospitality and airline partners revenue streams.
Even at certain economies around the world have reopened and restrictions remain influx, we likely will not returned to pre covance levels and travel and hospitality for quite some time.
Within this environment operators are still looking to leverage their loyalty assets to bring in immediate economics and keep their best customers their loyalty program members highly engaged.
For example, United recently use their mileage plus program assets and cash flows as collateral for their recent almost 7 billion dollar debt financing.
This is a clear and tangible example of how valuable. These large scale loyalty programs have become and we were pleased to be identified as one of the largest partners of mileage plus.
Having seen similar decisions play out in the past economic downturns. We believe this continues to be a strong indication of the importance and value of our partners loyalty programs globally.
Marketing campaigns have become a crucial point of focus for both the industry and our business as many loyalty customers are comfortable buying ahead for future travel needs.
In our business near nearly all of our business development and new partner discussions today revolve around how our partners can utilize loyalty rewards and promotions to return to growth in 2021, and how the programs. We launch this year can prepare them for the return of strong consumer travel demand.
During the quarter, we were fully occupied with new deployments for several existing partners like Air Canada, While also launching new partners around the world such as quick go in the UK and Qatar in the Middle East.
Our ability to launch new partners and programs amid the pandemic while building a strong pipeline speaks to the resiliency and strong foundation of our business.
Well see programs are clearly more important than ever.
While these trends are promising we're not out of the woods yet.
Activity in sales volumes are of course still down from pre kobin levels across all three lines of business and visibility on the industry landscape and timing for recovery will continue to evolve.
We are optimistic about our prospects given the month over month improvements in April may and June.
However, I want to remind shareholders that we have long stated this is a business where monthly results are heavily impacted by the timing of marketing campaigns and promotions.
It has always been difficult to gauge and predict performance based on market month activity and this difficulty has only been exacerbated with the covered related headwinds.
As a result, we're continuing to suspend guidance on performance for this year, along with our longer term outlook for 2022.
We will continue to closely monitored the industry landscape, along with the financial and strategic positions of our partners. During this time.
Well, we can't tell me predict how our journey will progress over the next several quarters, our deep and growing client relationships record pipeline and 20 year track record of high quality deployments provides us with strong up with a strong operational foundation to navigate out recovery.
Now I'll hand, it over to Eric to review, our financial performance for the second quarter and then Christopher will highlight some of our partner activity and provide further process perspective on the road ahead Eric.
Thanks, Rob and afternoon everyone.
Unless noted otherwise all figures on todays call or in U.S. dollar and presented in accordance with IRS.
Keeping up with a structure that we use last quarter I'll provide a very brief overview of our results for Q2 century already previewed most results in early July.
Total revenue and the second quarter of twice warranty was 40.9 million compared to 100.2 million in a year ago quarter.
Gross profit, which is our more appropriate proxy for our top line was 7 million compared to 14.4 million last year. After adjusting for a 6 million tax rebate related to prior years.
From a monthly perspective April represented a low point for all three lines of business with financial results and transaction levels improving sequentially throughout the quarter.
With that said our transaction volumes across all three of our operating segments remained well below pre covered levels.
Adjusted operating expenses in the second quarter came in at 6.7 million compared to 9.4 million in Q2 2019.
A decrease of 29%.
The primary reason for the decrease was the recognition of 2.3 million related to the Canadian emergency wage subsidy program, which was recorded as an offset to our employment costs.
This program has since been extended past its initial 12 week period.
With the Canadian government announced in July.
Program would be redesigned and extended until December 19th 2020.
At this time.
We expect to be eligible for funding throughout the programs churn.
However, the expected monthly benefit we receive should gradually decline throughout the remaining term based on to redesign funding formulas.
After factoring in our sequential improvement during the quarter.
And the expense mitigation efforts, we implemented at the start of the pandemic, we generated adjusted EBITDA of approximately $300000 in the second quarter.
Which was ahead of our original expectations at the start of the pandemic.
During the second quarter, we took a onetime impairment charge of 1.8 million related to our points travel segment.
Kobin related impacts on the travel industry.
However, we remain optimistic about the long term prospects of the segment.
On the partner demand, we see pretty services and our visibility into the pipeline.
And our continued financial response to the pandemic preserving capital is our first priority.
We have worked diligently to mitigate expenses and maintain sufficient liquidity I continue to manage our cost and limit or sees discretionary spending where possible.
Most hiring and material capital expenditures are still pause and we have sees share buyback activity since March.
On that note, we recently decided to renew our share buyback program. This month.
While we are currently not active in the market and do not intend to be in the near term.
This renewal positions us to initiate activity, if and when we had better visibility on the shape and timing of recovery from the covert 19 conduct.
As for our cash and liquidity position, we were pleased to be cash flow positive during the quarter.
Total funds available, which included borrowings on our credit facility, where approximately 107 million at the end of the second quarter compared to the same number at the end of the first quarter.
Given our strong performance in the second quarter, we elected to repay 5 million on our credit facility engine.
Bringing our balance down to 35 million as of June Thirtyth, Tony Tony.
Our balance sheet remains strong and we continue to believe that we are well capitalized.
Sure, whether the near and long term effects of the coven, 19%.
As Rob mentioned due to ongoing volatility across the industry. We have limited visibility on how market conditions may have all for our business and the coming months. However, based on current trends in our business, we believe that points as well capitalized as we look forward.
We expect to be adjusted EBITDA positive for the full year.
That said, we will continue to operate with caution by continuing to prudently manage our expenses and resources.
With that I'll turn it over to Chris.
Yes.
Thanks, Eric as Rob mentioned at the start of the call strong promotional activity has driven our performance improvements during the second quarter and our strong pipeline has ensured that we will play a key part in our recovery in the quarters and years ahead.
We've got said I want to highlight some of the key deployments that we launched during the second quarter and that'll preview some of the initiatives that we haven't store.
In June we launched new partnership with Cotter Airways privilege club another partnership will share with Amadeus.
Initially led by our LCR services, which are now in market, we expect to deploy additional services have caught our later this year.
As construction in the past one of our key levers to accelerating our growth is I'm more focused regional strategy.
And with recently opening our Dubai office after a very successful launch with Emirates, we're optimistic about the opportunity to continue expanding our middle eastern presence, where our services seem to have very strong reception.
And with LCR performance during the quarter, we ran successful campaigns with air Canada Marriott in Finnair, among others and we see a growing commitment by many of our loyalty program partner some market our services.
They plan their recovery strategies.
And our platform partners business, we added version Australia's velocity program to the choice privileges exchange in May and recently launch in Alaska Mileage plan program would get your guide a leading tours and activity sides.
As you mentioned our May update.
We also connected citibank's, thank you points with the Emirates Skywards program during the second quarter.
These initiatives have allowed us to keep building upon our impressive roster of financial service exchange opportunities and to deepen our presence in that vertical.
Another key growth driver going forward.
As Rob mentioned earlier, our sales pipeline is even stronger than it was pre coated our sales and marketing teams have done an incredible job of staying active and business development. If for no new program launches the current partners for targeting new partners for our roster.
Across our lines of business, we recognize that programs, we marketed market this year likely won't deliver historical performance levels. Initially.
However, these long term deals and our proven track record of nearly 100% customer retention over the last number of years.
Pulling more services now when programs are seeking new opportunities will ultimately drive results in 2021 and beyond.
Industry climbs back to normal.
Although we still expect a high degree of volatility or volatility for the next several quarters. The work we put in over the last few years to deepen existing partnerships add new logos and enhance our technology to better monetized loyalty programs as all laid a solid foundation for our journey ahead, well capitalized to weather the effects of the pandemic.
Currently current industry trends and strong pipeline momentum have left it left up well position to see through this turbulent period.
Incredibly grateful for the dedicated work from our teams across the globe.
We thank our partners and shareholders for their continued support.
Operator, we'll now open it up for questions.
Thank you Sir.
This time, we will be conducting the question and answer essentially if you like to ask your question. Please press star one on your telephone keypad, a confirmation told will indicate your line is in the question. Keith You May proceed aren't too she would like to your question from the Q for participants using speaker equipment. It may be necessary to begin your hands it before Christian just aren't keys.
One moment, please what we pull for questions.
And our first question is from Gary Prestopino Barrington Research. Please proceed with your question.
Good afternoon gentlemen.
Couple of questions here first of all just on the operating expenses. This 10.5 million that you did this quarter I would assume given what you're talking about where you're you're signing some new business. You know your sales are up sequentially on a monthly basis that that 10.5 million number would probably be the low.
Points for the year is that kind of a a good assumption.
Hey, Gary its hair care I think that's a fair assumption and just to kind of nuclear on on the metrics. There. So our adjusted operating expenses.
Canada at around 6.7 million now net of.
Subsidies that was obviously higher right around 9 million I think as we go through the year. The run rate that we had provided back on or Q1 call, which is around 2.93 million per month, excluding subsidies I think that's still a pretty good targets a bigger.
The wage subsidy is likely to decline throughout the year, although we fully expect to participate in that but it should go down. So I think you will see the expense line tick up as the amount of the subsidy goes down.
Okay. That's I just wanted to get a handle on that and then in terms of you know outsider looking in here. The airline industry is such a state of flux and all you hear about our people are not flying and all et cetera et cetera. So it's great that you're starting to get more of these marketing programs from some of your partners, but by and large or.
Or is it more or less the larger airlines that are starting to really pick up their interest in doing these programs or is it spread just across the board and then the other question would be is.
Given their interest in these marketing programs are are they kind of basically looking at this and saying boy business travel is not coming back for a long time, and we really got to focus more or less on what the consumer can do for us.
Hi, Gary it's Rob.
Yeah, I think the last last point is that there's a little bit of or the yes in there for sure I think your first question. It's more it's it's a reasonable spread I would say we've had a large hotels very active we've had large airlines active we've had smaller kind of regional airlines active.
Over time during the you know really since the April period, what are the things. We've been pleased about is as we've demonstrated pretty significant demand from the membership bases with our partners when we're running campaigns and getting a keeping them active in the market more and more of our other partners who may have been quiet.
In the market during the pandemic, we're seeing some of these great responses and are now stepping in and so we're seeing a pretty good spread up more and more of our partners.
Deciding that look there's still an opportunity one to engage the members are most valuable asset the members a little below the programs.
Two we can generate the very low cost high profit revenues by engaging with some of these programs that that we work together with the loyalty program. So I think that's that's positive I think your comment there about the airlines flying airplanes around right now is a pretty expensive proposition.
And as we've said for some time, we expect and we've seen this in previous difficult.
Environments that they have the airlines and hotels will use the loyalty programs too.
To be an early.
Early point of generating economics, because that Theres a base of 30, 60 90 million consumers in there that you don't have to necessarily they may not be ready to fly, but there is an opportunity to generate economics by engaging those customers. So we expect to see that continue going forward and we've got a tremendous number camp.
Pains plan here for the back half the year.
Okay. Thank you so much.
Next question from Greg.
He was with Northland Securities. Please proceed with your question.
Good afternoon, guys. Thanks for taking my questions and congrats on maintaining the profitability in the challenging market and bringing customers onboard to conceive.
It was just wondering if you could provide a little bit more color on how the performance trended within the quarter, perhaps on a monthly basis. I mean, you mentioned sequential improvement not too much of a surprise there but.
How should we think about how low the low point wasn't April compare to the next couple of months.
Yeah, Hey, Greg its hair care again, so I'd say with respect to Q2, I mean, you know, it's obviously not our our tendency to speak to monthly performance, but I think for purposes of Q2, we certainly don't mind, adding some transparency there.
I would say the back half of March and April were certainly the low points across all three segments.
Points travel being hit the hardest, but really across all three you know we threw out a number of roughly 20% gross profit of our average 2019 gross profit on on a monthly basis and so what was encouraging for us after getting out of April seen that number tick up to 50.
Percent, and then 70% and in June and say LCR with certainly carrying much of the economics on the promotional side.
And platform partners has been more or less steady, it's certainly down, but I'd say roughly 45% or so of the co that based economics are actually fixed fee. So it does provide a.
Pretty steady they force there.
Got it that's really helpful. Appreciate the color there.
Nice to see the launch of Qatar Airways in the quarter I guess, some I think it can kind of late in the quarter. So I was just wondering if you could maybe talk to how you expect that partners at the ramp over the next couple of quarters and then.
Maybe when those additional LCR services would kick in.
Yes, it's a it's Rob Greg Yes, Qatar is a another success story coming for us in the Middle East We've had really good success with other it kind of growing carriers in that region.
He said that he had a et cetera. So we're excited about the but the the prospects for Qatar. It did start very late in Q2.
It is a full suite of products in terms of our LCR proposition. So we'll be active here in August in their first campaigns. So you know they've had they had an incumbent product that we took over and then obviously modernized and put onto our platform. So we're not starting from scratch.
On educating that membership base.
So we feel like although not hit the ground running pretty well with Qatar they'll be up there like all of our airline partners, they're looking for ways to engage their members and to generate economics of the loyalty program and we're going to be working hard to maximize that for them.
Great. That's good to hear last one from me was just kind of wondering if there's any concern relating to maybe the supply and demand of miles once travel does open back up more significantly.
Kind of for instance, I mean, if a lot of nearly 100% of miles purchases right now our future use and not immediate use.
I guess is there any concern to whether that will catch up with consumers, where maybe holding a lot of miles that have been used yet.
Uh huh.
No short answer is no again, the size and scale of these databases of of membership.
Is amazing I'd look at somebody think United disclose recently, there 80 million plus members.
So.
The number of members that today are active in these and driving some of the economics that youre seeing here in our results are still a relatively small component of the overall membership base. What's good about that from our standpoint is again as more consumers overtime reengage with travel there should be lots of headroom.
On from that standpoint, the airlines in the hotels themselves are very very sophisticated in terms of.
Revenue management and inventory management.
I I have a high degree of confidence that as they.
But more birds in the air and open up more hotels there'll be more than enough room to accommodate some of their most important engage customers in their activity going forward. So I think you're really dealing with.
Such small relatively small percentages of the bases that are active today that shouldn't be a concern going forward at all.
Okay, but the fairpoint. Thank you.
Our next question is from Ed Woo with Ascendiant capital. Please proceed with your question.
Yes, I also congratulations on managing through the quarter. My question is how can you give any color on July.
Yeah, Hey that it's Eric here, So I think.
We certainly talked or you don't want to fund a monthly results for Q2 and for US is important to be transparent or in a trough of the pandemic I think at this stage.
And as you know I mean.
We have a pretty lumpy business in terms of marketing campaign cadence So I think.
Making that a habit is somewhat dangerous for our.
All right now so I think sticking with our quarterly calls and commenting on a quarterly performance going forward is what we're going to do as much as we love. These calls the Ed I'm not sure I want to get into them on a monthly basis [laughter].
Oh Bummer. My next question was going to actually held today, when I guess I want to do that.
You talked about obviously the performance for the quarter is driven by your promotional campaign I know you mentioned that transactions level are down, but what about campaign number all campaign running are you seeing a return back to normal or is it also reduced campaigns as well.
Okay.
Yeah, It's Rob, we're certainly reengaging more and more of our partners to kind of get get out and back out into the marketplace and run these campaigns.
You know the good news bad news that perhaps the bad news is some are very active summer are still relatively quiet just given what's happening with their own respective organizations.
So.
Far fewer campaigns that we would then we would be running in a pre tobin environment. Good news on that as more and more of our partners are kind of lifting their heads up and saying okay.
Now I've got a bit more visibility will now heading towards recovery, we want to start.
Reengaging with our membership both from an economic standpoint, and from a communication standpoint, and so when I look forward, our opportunity to get more and more of our partners active and participating in campaigns is encouraging and I think you know as I think about going through the back half of this year I'd be very surprised if we don't have.
Of activity really across the board with with all of our partners in some form or another so lots of again back to that comment around headroom left the headroom.
In the next six to 12 months to to get the campaign activity up.
Great and my last question is has there been any real change in economics at all at all have you guys had to be more promotional or has it been pretty constant.
You know I'd say burp, certainly as Eric would have described it knows very very early days some of the activity that we in campaigns, we've come out with have been quite rich right and really in the context of.
Somebody shocking the system, Tim just make sure consumers were given offers that got were interesting and exciting through them and so you know I would say on in general the of the offers the value proposition through a lot of the campaigns for these tens of millions of members that are in engaged in these program was very very good.
And I think that was part of what what enabled some of the really positive results around the number those campaigns again I think you'll see that continue a as our airline and hotel partners Reengage and the accelerate some of their recovery, they're going to want to get their most.
Profitable and engage customers back in the fold and you're going to continue to see really good offers out there in the marketplace.
Great well, thank you and congratulations and best of luck.
Thank you thanks.
Our next question is from June Mick Reynolds with RBC. Please proceed with your question.
Yes, thanks, very much a good afternoon.
Well a couple of things Rob last call last time of the call you talked about.
Yes activity, returning or building and North America was likely going to go before Europe just given.
More domestic travel focus.
But of course, we've seen what has happened with cases and what have you in the U.S. particular, just just wondering you know as you see or campaigns told me activity builds.
Is that still the expectation to come out of North America before Europe.
Starts to ramp its engines or or is that just not really holding or it's too too soon to tell.
Yes I.
I think theres, a little bit of too soon to tell there's certainly been some variability and that's not surprising.
You know, it's a little bit of the turbulence that the U.S. domestic market as space here in the last I guess three or four weeks in particular.
We do see a little bit of a shift now look some of it is just driven by when our partners. Our reengaging. So we've done some activity recently some campaigns in the in the middle East that have gone really really well I'm not sure. That's it that's on direct are already to travel it's really when some of our partners are reengaging with there.
Membership base, so our business isn't necessarily moving in the same.
At the same cadence of where travel May go.
We are certainly as we speak with our partners.
The concept of domestic U.S. travel coming online before and growing before domestic or international U.S. travel still seems to be consistent.
You know, it's starting to see some of the middle eastern carriers and European carriers.
Do a little more flying I think some of the middle eastern carriers or are making more aggressive announcements in terms of how many aircraft, they're putting back or how much of the fleet is back in the air. So if I look I think that's going to continue to evolve the corporate premise of us domestic before U.S. international still feels like unfolding.
Okay, great and on your relationship with Arrow plan and what was announced earlier this year of course, the new airplane launches. This fall just is there kind.
Kind of an opportunity or or what kind of kind of impact does not have on on your relationship with them and what you do for them.
That's great question, we were really we've worked with their offline for quite some time as you know we launch some new products and services with that team in the late in the first quarter and.
And then some marketing and campaign activity into the second quarter, which has been which has been fantastic.
There is more business coming that as you'd expect as they re launch Aero plan and they've got some really innovative ideas and I think at a great vision for what that program, how it's going to evolve we will continue to play a part in that and you'll see us.
Let's say too much doing some activity in launching some new.
Products in association with that the good news for US good news for or airplane members as well in my view.
Okay got it one last one then for me. Thank you for the a adjusted EBITDA.
Outlook or you know on an annual basis, or maybe or kind of pushing a little more can you stay adjusted EBITDA positive in Q3 and in Q4.
Yeah, I I don't think we want to get into that.
Yet through at at Inkjet and I think it's going to be.
Perhaps a little bumpy and there's still some uncertainty there were giving quarterly guidance just doesn't feel like the right move right now.
Okay, No I understood. Thank you very much.
Thank you. Thank you.
And our next question is from Gary Prestopino Barrington Research. Please proceed with your question.
Just a.
Question on your sales and account management efforts could you just refresh my memory or do you have you up sales people in all regions of the world that you operate or is everything out a toronto.
Hey, Gary it's Chris.
We had sales in most regions, we have obviously at the head office has some sales activity.
We have salespeople based in Europe as well.
We opened at Dubai office at the end of last year, and we opened in Singapore office as while at the end of last year.
The one region that we don't have direct coverages Africa, and we don't have direct coverage in Latin America, either but we obviously we were those two regions that of our Toronto office or our European India Office.
Okay. Because it is what I'm just you know when outsider looking in and just one or trying to understand exactly you know if there were any real challenges that your salespeople had in the quarter I mean, it seems not to be we're still signing up new programs, but you know if you could could maybe address how they may have changed their selling efforts somewhat.
If any well any change yeah, we're selling to we're selling to known audience. So I think.
Our sales people are out there consistently in front of the potential partners and so I think just the environment has led to a lot more aggressive.
Interest from the industry and certainly not a lot more interest in speeding up the discussions.
Given that majority of our service they're focused on revenue generation I I'd also kind of bring up our relationship with Amadeus you have offices all over the world and have a very broad footprint in the airline community and so we leverage there that infrastructure on the sales side as well and certainly that trend is contained.
Hearing without partnership in that they're realization of Amadeus and obviously, they're airline customers desire for revenue.
And as Amadeus is going through the same challenges the rest of the travel industry is going as they have narrowed down their focus on some of those services that make immediate impact.
We're certainly on that list. So that's bolstered some of our sales international sales activity, especially.
Okay. Thank you.
Thank you.
At this time. This concludes our question answer session I would now that could turn the call back over to Mr. make lead for closing remarks.
Great. Thank you.
Again, we'd like to thank everyone for listening to todays call and look forward to speaking with you. When we report our third quarter results. Thanks, again and have a rating.
Ladies and gentlemen, this does conclude todays teleconference. You may disconnect. Your lines at this time. Thank you for your participation.