Q2 2021 Points International Ltd Earnings Call

Yeah.

[music].

Good afternoon, everyone. Thank you for participating in today's conference call to discuss point points International's financial results for the second quarter ended June 30 of 2021.

Delivering today's prepared remarks are chief Executive Officer, Robert Mclean, President, Christopher Barnard and Chief Financial Officer, Erick Georgiou following their prepared remarks, the management team will open up the call to you for any questions.

Before we go further I would like to turn the call over to Cody slot of Gateway Investor Relations.

International IR adviser as he reads the company's safe Harbor that provides important cautions regarding forward looking statements.

Cody. 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 and 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 may not prove 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.

As required by law the company does not undertake any obligation to update or revise any forward looking statements whether as a result of new information future events or otherwise with that said I'll turn the call over to point to as Chief Executive Officer, Rob Maclean.

Thanks, Cody and good afternoon, everyone.

During the second quarter, we continued to drive strong sequential and year over year growth sustaining our momentum from Q1.

Our top and Bottomline performance outpaced our expectations, representing our third consecutive quarter of sequential growth across our key financial metrics.

On an operational level, our transaction metrics also improved relative to last quarter with further acceleration across both marketing and promotional activity as well as baseline activity tied to near term travel.

This momentum reflects the benefits of an ongoing travel industry recovery the execution of our growth strategy and our commitment to business development and flexible partnerships.

As we continue to monitor the pace of recovery around the world our team's resilience and hard work has positioned us well for the road ahead.

From a macroeconomic standpoint, the recovery trends, we began seeing at the end of the first quarter strengthened throughout the second quarter.

<unk> nation rates continued to rise, particularly in the U S with consumer demand for travel and travel frequency you have accelerated.

In June alone the TSA recorded the highest level of travel throughput since the beginning of March 2020.

The pace of global recovery remains fluid, especially with spiking concerns in case counts surrounding the delta virus variants.

We are continuously monitoring changes in global health protocols, but remain cautiously optimistic about current trends in our business.

Mid this landscape many of our hotel and airline partners have seen improvements in their respective businesses.

Our U S partners have experienced increased demand as they benefited from vaccination tailwind.

In fact, we generated record quarterly financial results with one of our U S based partnerships in the second quarter. While these growth patterns vary across our base with many partners below pre COVID-19 levels. We're pleased to support their ongoing returned to normal and to help address travelers' pent up demand around the world.

We have provided this support for our partners in advance that the recovery of our own business through our continued execution on our three core growth drivers.

We've deepened several existing relationships through new services, New service launches like the subscription service, we now offer with southwest Airlines and the new accelerate anything service, we launched throat during the pandemic.

So far we have for deployments of our accelerate anything service and market, including our most recent launch with the Etihad guest program in July.

By offering loyalty customers flexible innovative new options for earning and using their points and miles were both advancing the capabilities of our platform and providing our partners additional forms of support ones that do not necessarily rely on frequent travel activity.

As we explore and deploy these new services. We're also continuing to build new partnerships within and outside of the travel.

Our most recently announced partnership with built rewards allows us to collaborate with an innovative program focusing on rewards for renters, bringing our extensive capabilities into a new and exciting territory.

On the travel front, we have been able to support our long running partnership with frontier Airlines by expanding our partnership with home chef, which we first announced in Q2.2019.

Announcements like these signals that both our financial performance and strategic trajectory are starting to regain their pre COVID-19 COVID-19 momentum.

You'll hear more about our recent launches from Christopher later in the call and I'm extremely proud of our team's commitment and business development progress to date.

Looking ahead, we continue to have a very healthy pipeline of business and I expect discussions with both new and existing partners to remain very positive.

Underscoring our new service in partnership launches is our third growth driver our work to leverage our growing automated marketing capabilities to further enhance and expand the services we have in market.

As we announced last quarter, we are increasingly adopting a platform focused approach and are working to optimize our offerings accordingly.

This has enabled us to transform existing capabilities into more flexible options like our accelerate anything service and introduce new capabilities altogether, such as our subscription service.

The continued enhancement of our services directly translates into more seamless adaptable and broad range of options for our partners and their members.

Loyalty programs scale and steady source of value have made them, an essential resource for customers and operators throughout the pandemic and these features have made them an equally steady pillar for industrywide recovery.

On a financial level, they've served as an important source of liquidity for challenge the airlines and hotels.

On an operational level, they allowed active loyalty customers to continue earning points and miles through a growing range of ways preparing customers for today's accelerating return to travel.

Now more than ever we are confident in our ability to enhance loyalty programs inherent value and flexibility our focus on adapting our own service suite and developing our pipeline supports our partners and strengthens our runway for future growth.

The solid financial and operational Foundation, we've built has allowed us to definitely navigate some significant challenges throughout our industry over the past year, coupled with our resilient growth strategy, we remain well positioned for the second half of 2021.

I will now hand, it over to Eric to review, our financial performance for the second quarter, and then Christopher will provide some additional highlights and perspective on our partner activity Eric.

Thank you, Rob and thanks for joining everyone.

Unless noted otherwise all figures on today's call are in U S dollars and presented in accordance with <unk>.

As Rob mentioned reopening tailwind have continued to benefit our operations with Q2, representing our third consecutive quarter of sequential growth across our core financial metrics.

We generated revenue of $103 million in the second quarter of 2021 compared to $40.9 million in the year ago quarter, an increase of 152% on a year over year basis.

For context, our last quarter with over $100 million in revenue, whereas the fourth quarter of 2019.

More notably revenue in the second quarter increased 58% sequentially from the first quarter of 2021.

Gross profit was $12.3 million in the second quarter of 21 seven.

76% or $5.3 million from the year ago quarter due to our continued recovery from COVID-19 related impacts.

On a sequential basis gross profit increased 37% from $9 million in Q1 'twenty one.

We remain highly encouraged by the continued positive.

The momentum we have generated over the past several quarters.

Consistent with what we started seeing in the back half of Q1 or.

Q2 top line results benefited from continued improvements in both our marketing and promotional performance, which generated the bulk of our activity throughout COVID-19, and also in our traditional baseline activity, which is more closely oriented towards short term travel.

This sustained improvement in our transaction metrics was generally widespread across our partner base with renewed strength among our U S carrier and hotel partners.

As we have gained more confidence in our topline and underlying transaction metrics. We believe we are now on a solid growth trajectory.

Accordingly, we have started easing some of the spending restrictions that we put in place at the outset of the pandemic to strengthen our core growth drivers.

Operating expenses in the second quarter of 2021 were $11.6 million, an increase from $10.6 million in the year ago quarter, and a $1.4 million increase over $10.2 million in the first quarter of 2021.

The increase over Q1 was primarily driven by the expected decrease in funding we received from wage subsidies.

Formats, and the easing of some spending restrictions were put in place over one year ago and.

And to a lesser extent the impact of foreign exchange headwinds on the Canadian dollar.

Share based compensation expenses increased.

In the second quarter and are expected to gradually rise and normalize over the coming quarters in line with our historical trend.

From a wage subsidy perspective, we recognized approximately 650000 as an offset to operating expenses, representing both a sequential decrease of 600000 in a year over year decline of $1.6 million relative to the prior year quarter.

While the Canada emergency wage subsidy program has now been extended to September.

We believe that Q2 was the final quarter for our participation and at this time, we do not anticipate any further subsidies.

We continue to monitor expenses in line with our topline performance and also continued to realize cost savings as a result of decreased travel and other expenses that we would've typically incurred prior to the COVID-19 pandemic.

One final note on the expense side last quarter, we reclassified our operating expenses on our income statement and functional.

We made this change to more accurately reflect how we view our business internally and to more closely align with other tech enabled platform companies.

As a supplement to our standard financial disclosure our earnings release issued today contains the comparative quarters in 2020 and this reclassified format.

Moving to the bottom line adjusted EBITDA for the second quarter of 2021 came in at $3.4 million up more than 10 times from approximately 300000 in the year ago quarter and up significantly compared to $1.2 million in Q1 'twenty one.

The increase was largely driven by the aforementioned increases in our gross profit.

Turning to our balance sheet.

Our total funds available were approximately $95 million at the end of Q2, representing a significant increase from approximately $79 million at the end of 2020, which included $15 million of borrowings.

The increase was reflective of both the proceeds from a bought deal financing in the first quarter of 2021 and higher overall sales activity across the platform at the end of the second quarter.

Partially offset by the full repayment of 50 million of borrowings on our credit facility during the first quarter.

As we continue into the second half of 2021.

We remain comfortable with our liquidity position and are well capitalized for the road ahead.

Lastly, we have decided to renew our share buyback program in September.

While we are currently not active in the market.

We do not intend to be in the near term.

<unk> positions us to initiate activity in an opportunistic fashion as part of our overall capital allocation program.

In summary continued sequential and year over year improvements across our core financial metrics as well as our balance sheet strength are currently positioned us well to accelerate our growth through the second half of this year.

We remain closely attuned to the varying pace of recovery across our geographies and partner pace with the current trends give us optimism a better industry is progress in further confidence in our strategy and financial Foundation.

With that I'll turn it over to Christopher.

Thanks, Eric.

Throughout Q2, we continue to grow the depth and breadth of our services portfolio.

Our recent deployments highlight how we are executing on our three core growth drivers.

Continue to aggressively build our pipeline of new loyalty program partners worldwide, and we expect to continue to announce and launch new relationships in the second half of the year.

We continue to deepen current partnerships by launching net new services with several of our recent launches expanding the flexibility of our overall platform and developing our presence in key regions didn't introducing our services within new types of loyalty program.

And as Rob mentioned earlier, our efforts to advance and expand our platforms capabilities continue to be focused on increased automation and data analytics capabilities that will improve our in market performance.

You see this as a key driver in assisting our partners in driving incremental economics as they continue to look forward to a sustained return to pre COVID-19 activity level.

From a regional growth perspective, we opened an office in Singapore in 2019, as a means to strengthen our foothold and partner opportunities in the APAC region.

As global recovery trends continue we're slowly, but surely returning to the pre tax pre pandemic regional expansion initiatives and looking to build additional APAC relationships.

In fact, we're pleased to have recently signed a long term and comprehensive partnership with a leading APAC region flag carrier it will see us launching a number of services in the coming months.

We're also in the final stages of additional business in the region and look forward to highlighting this progress with pending announcements as a service at launch.

Lately after opening our offices in Dubai in 2019, we've also made substantial progress with our regional expansion efforts in the middle East.

We launched our accelerating anything service with the Qatar Airways privileged club program in the second quarter and more recently with the Etihad guest program in July adding to our Q1 deployment with the Emirates Skywards program.

These launches not only deepen our footprint in the region, but also demonstrates strong market traction with one of our newer adaptable services extend the program's relevance beyond pure travel.

Accelerating anything allows members to accelerate any of the prior loyalty earnings income.

<unk> milestones your credit card spending similar activities.

Expands our acceleration of options beyond those that rely on travel activity alone.

This launch is one example of our ability to enhance current partnerships through not only adding new capabilities to their service suite, but also launching services do not necessarily dependent on frequent travel activity.

Continuing with the middle Eastern region.

Also announced the launch of our hotel and car rewards deployment for <unk> privilege cloud program in the second quarter, enabling members to earn and redeem their miles on hotel bookings and car rental.

Our ability to rapidly expand our Qatar services suite in the first year of our partnership demonstrates our deep commitment to developing new and existing relationships across geographies.

Returning briefly to Emirates recently, I think two of the UAE flagship loyalty program Emirates, Skywards program and the <unk> program through the Q2 deployment of our exchange services, which enables mashraq customers to convert their cell endpoints into skywards miles.

This capability gives mashreq customers greater optionality on how they can use their rewards to earn credit and debit card purchases, providing a strong start to our new relationship with <unk> and an additional value to our existing relationship with Emirates.

Turning to North America Cross sell activity, we announced our subscription services with southwest Airlines rapid rewards in April allowed.

Allowing members to build towards a balanced or monthly points deposit regardless of how frequently they travel we deployed our transfer service Radisson hotels are you to adding another one of our core services to the top of capability that we added in Q4 of last year.

We also facilitate a new partnership between Frontier Airlines, one of our longest running Denver based airline partners and home shop, one of the largest meal kit delivery services in the country.

Through our platform frontier miles members can now earn up to 700 miles through their first five orders on home shop.

As Rob mentioned earlier, we launched our partnership with home chef in mid 2019, taking one of our newer non travel engagements before the onset of the pandemic.

Being able to continue to grow this partnership with supporting one of our legacy airline partners is a testament to the resilience of our growth and diversification strategy.

Recently, we further diversified our vertical presence through our new partnership with Bill's rewards rewards program allows renters to earn points on rent and build path towards homeownership.

Foreign exchange service members can use the point they accumulate on the regular rent payments by seamlessly converting their built rewards the miles or points of their preferred traveler Hotel program.

Travel operators from which they can choose include several of our larger partners and we expect this selection to expand over time. Additionally, additional loyalty programs are integrated.

Working with new type of loyalty program is an exciting opportunity for us and we look forward to further supporting built rewards growth by leveraging our partnership network.

And lastly, we saw more expansion of our exchange services across the platform in July we increased the number of exchange options with the city. Thank you rewards program initiating the first real time exchange availability with the American Airlines advantage program.

And in August we added air Canada's Aeroplan miles.

As an additional exchange option with our longest tenured financial service program Chase Ultimate rewards.

The recent deployments and new services, we launched demonstrate that our teams continued business development and platform optimization progress in line with our core growth drivers.

Within knees. We're also returning some of the key acceleration initiatives, we introduced before the pandemic.

A growing suite of services, we have deployed to date are strong the developments in our expansion strategy for new regions as we ramp our business development efforts, we are primed to continue to diversify our partnership base.

In terms of partnerships and product themselves were directly growing our non travel vertical presents to expanding pre pandemic partnerships like home chef and using our growing capabilities to service new innovative programs like built rewards.

Yes, we are doing so in a way that benefits our travel partners.

We support their ongoing returned pre pandemic level.

As we collectively recover from the pandemic our teams focus on flexibility and innovation is central to the value provide our partner network optimizing our platform and expanding our services positions us well for continued recovery.

As we enter the second half of 2021, and we are emerging from the pandemic as a stronger and more efficient company.

Three growth drivers are proven and resilient our focus on developing new global partnerships launching new services for current partners and continuing continuously improving our services we have in market.

Good us to build a robust set of partnerships and opportunities for our recovery.

Further our strong balance sheet and prudent cost management allowed us to preserve value for our partners and our shareholders alike.

That's a strong foundation.

Strong financial Foundation for our continued return to growth.

I'm very proud of the team's diligent work to date and the important role of loyalty programs will continue to play in the industry's recovery.

We are advancing that roll as we optimize our platform.

Support the growth of both our business and our partner network.

Operator, we can now open the call up for questions.

Thank you at this time, we'll be conducting a question and answer session.

If you'd like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

You May press star two if he would like to remove your question from the queue.

This instead of using speaker equipment may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

Thank you. Our first question is from the line of drew Mcreynolds with RBC capital markets. Please proceed with your questions.

Yeah, Thanks, very much and good afternoon, everyone.

Just two questions for me and maybe a follow up.

Just on the gross margin in the quarter of 12%.

Obviously there is.

Some some evolving mix in there, but just interested to unpack that a little bit and it.

If you have any kind of comment on how that could or should trend over the back half of the year that would be great.

And then secondly, maybe specific for you Eric Thanks for the Opex granularity that's great.

I guess the just the modeling question would be in terms of.

The Opex in Q2.

Excluding the government subsidies is that more or less.

Kind of a base we build upon.

Let me get into the back half, adding a little bit more of a kind of some of those cost restrictions that are inevitably going to be east. Thank you.

Yes. Thanks drew so maybe starting on the expense side. So I would think of expenses going forward is likely growing sequentially quarter to quarter.

We've been very careful obviously and how we monitor that and.

How would you sort of spending restrictions that we had put in place at the onset of the pandemic recap reversing relatively flat during COVID-19, which is important for us on the on the partner side.

I think what Youll see is doing now is slowly turning on the tap so to speak in concert with topline growth. So I would kind of model that way on the gross margin side, what I would say I think mix is probably the right word for that it's obviously always impacted by the mix of principal partners and agency partners.

I would say impacting that too.

The level of campaign activity that we had in the market in the second quarter Alright. Thank Rod mentioned, we had one LP.

L. P that had a record quarter that was obviously driven by <unk>.

Very substantial marketing activity that does tend to bring with it lower per unit economics, I wouldn't consider that a long term trend for this business.

We will see how that plays out in Q3 and Q4.

Okay.

That's great and then one last follow up for me.

I don't know who to ask this but so it's so great to see the sequential improvement and frankly, a little bit of an eye popping revenue number here in Q2, so great to see that in terms of the.

Turning to glass upside down here, but where do you see kind of the greatest kind of laggards or pockets of weakness.

Either by vertical or.

Or geography.

Yes.

Hey, Joe it's Rob.

Yeah, I think clearly the U S.

Ben.

The driver of our second quarter results.

The U S market, we've heard lots about that with the airlines and hotels domestically has been very strong there's still lots of room to grow really in all of the other.

Fiction.

The European market.

It's still pretty.

Pretty impacted the airlines in particular have not had an opportunity to kind of get growth back the way the U S carriers have at least in the domestic market. So.

I think there's really good signs and all of those regions for us.

But long way to go which should contribute to our growth going forward.

Okay Super Thanks, very much.

Yeah.

The next question comes from the line of Gary <unk> with Barrington Research. Please proceed with your question.

Hey, good afternoon, everyone.

Just a couple of questions here, just so I understand exchange availability programs is that where the credit card companies allow you to use the miles you charge to exchange or airlines.

That was an exchange availability is.

Hey, Gerry it's Craig.

It is not for tickets for actually the airline miles. So you can take your chase ultimate rewards points and turn that to sky.

<unk> smiles.

Or we just launched Citibank thankyou points into advantaged American Airlines advantage miles right.

And smiles, okay, yes, so you're right.

Obviously, the customers, adding to their current mile balance and then redeeming for a flight with their larger balance of miles.

Okay great.

And I just want to make sure I was clear on that and then.

Could you talk about.

How.

The pipeline build from Q1 to Q2 and then.

How was it continued to build here is you're halfway through the quarter.

Yeah, Gary it's Rob.

I think as we've indicated the pipeline of new business has been quite strong really since the beginning of 2019 our 2020.

And we're up probably accelerated through Covid, we saw in the second quarter I think between the new partners coming on the platform and we've expanded it.

I'd expansion with <unk>.

11, or so of our partners with a variety of either.

New products or expansion on existing products I think that's very consistent with our growth drivers that you would have heard.

Christopher just sneak about so.

The pipeline has progressed continued to progress quite nicely I think as we look forward.

That is that trend is continuing we are not seeing any abatement in demand for our products and services from the industry, who remember are still looking to drive growth from their loyalty programs and we're just well positioned to help them with that.

Okay. Thank you erinn.

Yeah.

We're seeing the strength across different geographies as well, it's not limited to one so while some of the transaction volumes to drop a point earlier on the previous question vary around the world. We are seeing strong pipeline growth in all regions.

Okay.

And then any comments on what's going on with this delta variant.

Watching I think CNBC this morning listening to it and they said that some of these airlines are starting to.

Experienced cancellations. So I mean does that obviously that gives you cause for concern I would assume and it also would assume that maybe.

Why you didn't put out any guidance considering you had such a great quarter this quarter.

Yeah, Thanks, Gary it's Rob.

Yeah.

We're keeping an eye on it obviously.

We've not seen any slowdown in our business or in our pipeline and demand from our partners or their members to this point.

But I think we're like everybody else, we're certainly keeping an eye on that.

Looking forward.

Okay.

That's good to hear because I mean, 99% of the time the media Sensationalizes claims.

Tried to ask the question in a way that you could answer it.

And then in terms of.

In terms of.

The Asia Pacific carrier that you signed up I would assume that you have a disclosure issue there that you can't give us the name of that carrier.

Yes, and we don't typically try and try and coordinate the launch of the sorry, the announcement of the new partner when we launched the product. So I think as it was indicated we signed the agreement were.

Heavily into development of the products and when we get a little bit closer to launching and making it available to them the suite of products to their members we would typically anticipate.

I'll take that.

The brand at that time.

Okay. Thank you so much.

Great. Thanks, Gary.

As a reminder to ask a question today you May press Star one.

The next question comes from the line of Ed Woo with <unk> capital. Please proceed with your question.

Yes, congratulations on the quarter.

My question is was any of the promotions that you typically plan for the year pulled into the second quarter or do you think that because of the success that you had that youll just be launching more promotions and programs.

Back half of this year.

Yeah Yeah.

Rob Thanks for that.

Q2 was very strong as Eric indicated in his prepared remarks, our campaign activity was very strong we saw some good results baseline activity continued to improve.

That kind of activity that Eric has described is near term.

Near term travel driven.

So all went very very well it wasn't a case of bringing.

Kind of second half promos into Q2, it was really planned activity in Q2 that for the most part performed very very well.

We'll continue to see campaign activity through the second half of the year really on a broad basis, you mean, all of our partners as strong as Q2 was.

Think there's significant upside and opportunity.

For our business and certainly all of our partners who are.

Still working hard to see that revenue recover so fully expect to see robust marketing and merchandising plans in the second half of the year.

Great and then you mentioned that you know as revenue was coming back.

<unk>.

You're investing back in the business and maybe spending a little bit more are you guys going to be making big invest.

Investments back into platform product as well as on the travel product.

Yeah, Hey, Ed It's Eric here I think.

On the product side I mean, one that's something we're always investing and so it's a very fluid for us.

Our R&D team is a very core part of this company.

And they are constantly working on the platform. So I don't think Youll see us stop there.

Great well, thank you and good luck.

Thanks, Ed.

Thank you.

At this time. This concludes our question and answer session I would like to turn the call back over to Mr. Maclean for closing remarks.

We'd like to thank everyone for listening in today and on.

Today's call and look forward to speaking with you all when we report our third quarter results. Thanks again for joining us.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.