Points.com Q3 2021 Earnings Call Transcript

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Provided by Quartr
November 10, 2021

There are 6 speakers on the call.

Operator

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Points International's financial results for the Q3 ended September 30, 2021. Delivering today's prepared remarks are Chief Executive Officer, Robert MacLean President, Christopher Barnard and Chief Financial Officer, Eric Giorgio. Following their prepared remarks, the management team will open the call up for any questions. As a reminder, today's conference is being recorded. Before we go further, I would like to turn the call over to Cody Saa of Gateway Investor Relations, and Points International's IR Advisor as he reads the company's Safe Harbor that provides important cautions regarding forward looking statements.

Operator

Cody, please go ahead.

Speaker 1

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.

Speaker 1

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 Q3 financial results press release issued prior to this call as well as other documents filed with the Canadian and U. S. Securities regulators.

Speaker 1

Except 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 Points' Chief Executive Officer, are Rob MacLean. Rob?

Speaker 2

Thanks, Cody, and good afternoon, everyone. During the Q3, We continue to drive year over year revenue and profitability improvements as the travel and hospitality industries recover from the pandemic last year. We generated our 4th straight quarter of sequential gross profit growth and our transaction volumes grew year over year with both baseline and campaign driven activity performing well. While we did experience some negative impacts from the Delta variant in the second half of the third quarter, particularly with our U. S.

Speaker 2

Partners. It has since recovered and it has so far shown to be more of a temporary effect than an indication of a longer term pattern. We continue to see the strongest transaction levels with these U. S.-based domestic carriers and hotel brands as the U. S.

Speaker 2

Benefited from easing travel restrictions and broad vaccine availability. As we continue to monitor recovery trends, I'm proud of the resilience we've demonstrated supporting our partners and driving business development in this dynamic environment. As you may recall, Q3 of 20 20 had the steepest pandemic related impacts for our own business and for our partners and their peers. While full recovery to Pre COVID levels has since proven gradual and choppy across our industry, travel and hospitality operators have consistently benefited from the strength of their loyalty programs over the last 18 months. We have seen loyalty programs consistently outperformed their related airlines and hotels throughout the pandemic.

Speaker 2

A number of our loyalty program partners have returned to pre COVID for better performance well in advance of overall airline performance, which in some cases remain well below 50% of pre pandemic levels. These results have not only highlighted the growing importance of loyalty and the resilience of those business models, but also highlighted a and significant opportunity for growth for the airlines and hotel industries. In addition, after several major carriers leveraged their loyalty as collateral to help their businesses stabilize at the outset of the pandemic, the long term value of these assets has taken on a new profile. I will also note a recent asset securitization report found that credit ratings on these securitizations remained relatively stable over the past 18 months. As such, loyalty programs have remained a consistent and expansive source of value for operators and form a strong foundation for the industry's continued recovery.

Speaker 2

As a result of these factors and the resulting recognition of the The significant value of the industry's loyalty programs, we are seeing a market change in the posture and objectives of our partners. Broadly, our partners are recognizing the strength of their businesses and are looking to drive much more substantial growth in the future. While we saw this reflected in our very strong business development trends over the past 18 months, we are now seeing these new growth expectations from partners positively impacting our ongoing operational performance and our long term expectations. In addition to new partners joining our platform, We are enhancing existing relationships by developing and launching new products, adding powerful product extensions and executing on much more comprehensive marketing and merchandising efforts in support of this new mandate for outsized growth that the industry is pursuing. Throughout the pandemic, we expected that loyalty would play an early and important part in the recovery, delivering short to mid term growth for the company.

Speaker 2

However, as we look further ahead and evaluate our position within the loyalty industry, The new and more aggressive posture from our loyalty programs gives us confidence in the long term growth potential of our business. We believe the growth targets we provided before the pandemic remain achievable in the long term, and we continue to evaluate the timing of these targets as the travel recovery continues to take shape. In addition to the financial value that loyalty programs have preserved, we are demonstrating the operational value that our loyalty products and services provide our partners as we collectively navigate this new normal of and systemic recovery. During Q3, we rapidly expanded the number of exchange opportunities across the platform with both longstanding financial service partners and newer programs like Built Rewards, a partnership we introduced in the Q2. We continue to gain transaction or traction with our new product innovations, launching additional deployments of our subscription and accelerate anything services.

Speaker 2

We also significantly expanded the reach of our buy service with the Marriott Bonvoy program in October, taking over the top up channel that is embedded directly in the redemption flow. Chris will have more to say on each of these launches and others later in the call, but I'm proud of the clear progress we've made with strengthening our end market deployments and meaningfully growing our global footprint. And lastly, on our previous call, we announced the new multi service and multi year partnership with a prominent Asia Pacific carrier. I'm pleased to announce that this new partnership is with Eva Air's Infinity Mileage Lands program and our initial slate of services we'll be launching with them imminently. As we emerge from the pandemic, we are making swift progress on our core growth drivers.

Speaker 2

To speak on our 3 core growth drivers, The launches we announced and deployed this quarter embody several successful cross sell opportunities and growth within our existing services, and we are active with business development conversations across multiple geographies and verticals. Furthermore, as our transaction levels and broader industry continues to recover, I want to reiterate that our strategy continues to be reinforced throughout this period. Undoubtedly, we are better able to execute as geographies reopen and travel operators can refocus on more fully expanding their consumer loyalty options. But even when our industry was challenged, our team continued to push on business development opportunities and maintain a robust pipeline, ensuring that we were fully equipped to move quickly and effectively once the recovery was underway. This dedication has allowed us to ramp several of our pre pandemic launches and execute on our growth drivers in recent months.

Speaker 2

We stayed focused and proactive throughout one of the most difficult periods in our industry's history and have emerged from it even stronger than we were before. I will now hand it over to Eric to review our financial performance for the Q3 and then Christopher will provide some additional highlights and perspective on our partner activity. Eric?

Speaker 3

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 IFRS. Our financial results in the Q3 reflect a continued recovery from the lows of 2020.

Speaker 3

We have continued to execute on our growth drivers and drive and strong year over year improvements amid the ongoing recovery from the pandemic throughout our industry. We generated revenue of $86,900,000 in the Q3 of 2021 compared to $37,400,000 in the year ago quarter, an increase of 132% on a year over year On a sequential basis, our 3rd quarter top line performance was softer than last quarter due to the relative mix of and principal versus commission sales through the period, which was influenced by the timing of our marketing activity with certain partners. Gross profit was $12,400,000 in the Q3 of 2021, up 117% from $5,700,000 from the year ago quarter due to our continued recovery from the lows of the pandemic last year. More importantly, gross profit increased for the 4th consecutive quarter, up slightly from $12,300,000 in Q2. Factoring in the sequential reduction in revenue, Our gross margin increased on a sequential basis as expected, moving closer to pre pandemic levels.

Speaker 3

On an operational level, our marketing and and performance remains strong throughout the quarter as they have throughout the pandemic. Outside of some delta variant related impacts in August September, Transaction volumes associated with our traditional baseline activity continued to show signs of recovery and we currently expect and positive recovery transaction trend to continue across our platform into Q4. Offering expenses in the Q3 of 2021 were $13,500,000 an increase from $9,000,000 in the year ago quarter and from $11,600,000 in the Q2 of 2021. As we announced on our last call, Q2 2021 was our last quarter participating in the Canada Emergency Wage Subsidy Program, which partially drove the increases in our operating expenses for Q3 on a sequential and year over year basis. We recognized $1,800,000 in subsidies in the year ago quarter and roughly $650,000 in the Q2 of 2021.

Speaker 3

The increase in operating expenses was also driven by the continued easing of some spending restrictions we had put in place over 1 year ago at the outset of the and pandemic as we started to hire additional resources focused on growth. Adjusted EBITDA for the Q3 of 2021 came in at $2,000,000 up significantly from negative $1,100,000 in the year ago quarter, but down compared to $3,400,000 in Q2 2021. The year over year increase was primarily driven by the higher levels of gross profit I mentioned earlier, with the sequential softness due to higher expenses as a result of our eased spending restrictions and non participation in the subsidy program. Turning to our balance sheet. Total funds available were approximately $93,000,000 at the end of Q3, representing a significant increase from approximately of $79,000,000 at the end of 2020.

Speaker 3

We remain comfortable with our liquidity position as we progress into the Q4 of 2021 and prepare for 2022. Our progress throughout Q3 and since the beginning of 2021 demonstrates our strong ability to navigate the evolving trends in our industry. Based on the trends we are seeing to date, we currently expect Q4 to continue the quarter to quarter momentum we have driven throughout the past year. We continue to leverage our strong operational foundation to execute on our pipeline and keep our business well positioned for long term growth. Lastly, I wanted to mention an upcoming change that will impact our public company name in 2022.

Speaker 3

In order to optimize our corporate tax structure and minimize future income tax in Canada, we will be completing an amalgamation of 2 of our Canadian legal entities, which will be effective January 1, 2022. As part of this amalgamation process, our legal name at the public company level will change from Points International Limited to points.cominc in 2022. The rationale for this change is for tax planning purposes only and does not result in any changes to our underlying business. And with that, I'll turn it over to Christopher.

Speaker 4

Thanks, Eric. As Rob mentioned earlier, we are continuing to execute on our growth drivers across our new and existing service deployments as well as accelerating our growth in key strategic areas that we were tracking pre pandemic. We're proud to have continued leveraging the strength and flexibility of our platform so effectively and are well positioned to continue executing on a robust pipeline. To review some of our Q3 progress, we launched our Accelerate Anything service with Etihad Airways guest program in July, which strengthened our relationship and in market service suite in that long time Middle Eastern partner. We also increased our exchange options on the platform.

Speaker 4

In August, we increased our exchange service deployments by adding Air Canada's Aeroplan program as an additional exchange option with our longest running financial services program partner, Chase Ultimate Rewards. This is a testament to the value we continue to deliver to our partners, both within and outside of travel. We We continue to bolster our services with Air Canada in September, adding our Accelerate Anything capability and adding other exchange options to the program's integration with both Choice Privilege program as well as the Chase Ultimate Rewards program. As a long standing partner in our Tier Stratus product, We expanded the partnership with our buy gift services early last year and the global travel pause that have continued to rapidly grow our suite of services with Air Canada through and beyond the lows of the pandemic. The strong set of integrations and products we offer them today to treat the efficiency of our deployments and we will work to continue growing this relationship even further.

Speaker 4

While we're benefiting from the continued recovery of the travel and hospitality industries, we are also leveraging these trends to progress our non travel relationships. Last quarter, we announced our partnership with newly launched exchange service with the BILT Rewards program, a program that allows renters to earn on rent and build paths towards homeownership. Since establishing this relationship in Q2, We have since integrated Built Rewards with even more partners in Q3, enabling exchanges with Hyatt, IHG Hotels and Resorts and Air France KLM's Flying Blue program. This exciting and rapid expansion is an example of our execution on multiple growth drivers and accelerants. We've grown a new non travel partnership by enhancing our deployments with existing partners all around the world.

Speaker 4

We are pleased with the efficient progress we've made with BILT so far and we'll work to identify additional expansion opportunities across our network. We continue to expand the exchange options across form just after the quarter ended by enabling Choice Privilege Program to exchange with Citibank Thank you Rewards Program members. We made additional progress with geographic expansion subsequent to the quarter end. Just a few weeks ago, we deployed our Accelerate Anything product with prominent Latin American carrier Copa Airlines. This service, which is in market as the ConnectMiles Accelerator, and the option to pay for preferential rate to boost their miles balance and reach their reward goals sooner.

Speaker 4

The distinctive accelerator capability allows them to multiply all miles earned through flights, credit card spend, online shopping and third party transactions. As we've long discussed expanding our accelerator product beyond travel only usage has given consumers greater optionality. With the pace of recovery still being fairly choppy in certain geographies abroad, the transaction this product has gained sorry, the traction this product has with our international partners indicates the expanding engagement options for their members can only serve to benefit their rebound progress. As a further testament to our international progress, as Rob noted in his remarks, we are pleased to announce a new multi service agreement with EVA Airlines, the prominent APAC carrier we introduced last quarter. Our first deployment with a new partner will launch shortly and will be the first of what is expected to be a robust suite of services we plan to launch with them.

Speaker 4

We are playing a similar active role with to Marriott Bonvoy program, one of our long term hotel partners. Just after the quarter end, we launched our top up capability with them. This deployment represents a significant channel expansion of our existing buy services to their full redemption flow, allowing us to take over their existing channel through our platform. Being able to launch these legacy baseline offerings is an encouraging sign of both improving near term travel activity trends around the world and the resilience of our platform as a whole. This resilience is at the core of our ability to quickly and continually on our growth strategies as well as readily adapt to changes across the travel, hospitality and loyalty industries.

Speaker 4

While we still have limited visibility on how these broader industry dynamics may evolve over the coming months, we believe we are well positioned to maintain our momentum into Q4 for and into 2022 and beyond. We look forward to providing further updates on our progress working to continue optimizing the value we create for our shareholders, partners and loyalty customers around the world. As Rob mentioned earlier, the importance of loyalty has elevated during the pandemic, with our loyalty program partners looking to drive aggressive growth in the future. While the timing of when we return back to pre pandemic levels and The shape of the travel recovery are still difficult to predict for a broader partner base. Our long term growth targets remain intact.

Speaker 4

With our successful pipeline activity over the last 18 months combined with the encouraging trends we are seeing throughout 2021 and the growth mandates we are seeing from our partners reinforce our long term strategy and our growth targets. Operator, we can now open the call up for questions.

Speaker 5

Thank you, sir. At this time, this concludes our question and answer session. I would now like to turn the call back over to Mr. MacLean for closing remarks.

Speaker 2

Great. Thank you. We'd like to thank everyone for listening to today's call and look forward to speaking with you all again when we report our Q4 and full year 2021 results. Thanks again for joining

Speaker 5

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

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Earnings Conference Call
Points.com Q3 2021
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