Points.com Inc

TSX:PTS

Earnings Call Transcript 2022-Q1

[Operator]

Good afternoon, everyone. Thank you for participating in today's conference call to discuss Points Financial Results for the First Quarter Ended March 31, 2022. Delivering today's prepared remarks are Chief Executive Officer, Rob MacLean; President, Christopher Barnard; and Chief Financial Officer, Erick Georgiou. Following their prepared remarks, the management team will open the call for any questions. Before we go any further, I would like to turn the call over to Jackie Keshner of Gateway Group, Points IR Advisor, as she reads the company's safe harbor that provides important cautions regarding forward-looking statements. Jackie? Please go ahead, ma'am.

[Jackie Keshner;Gateway Group]

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 first quarter 2022 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, 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's Chief Executive Officer, Rob MacLean. Rob?

[T. MacLean, executive]

Thanks, Jackie, and good afternoon, everyone. While we are here today to discuss our Q1 2022 performance, which Erick will touch on in a moment, I will focus my comments on the Plusgrade transaction we announced on Monday. As we disclosed, we have entered into a definitive agreement to be acquired by Plusgrade, a market-leading technology company at the forefront of ancillary revenue and merchandising in the global travel industry. Under the terms of the transaction, Plusgrade will acquire Points in an all-cash transaction for a total consideration of approximately $385 million or $25 per share, representing a 52% premium to our 20-day volume weighted average as of the close of May 6. This is a historic moment for Points and our senior management and Board are in full unanimous support of the transaction, which provides strategic benefits to both Points and Plusgrade. From an operational perspective, Plusgrade has extensive experience collaborating with airlines to improve booking optionality for their passengers as well as target customers who are likely to place quality offers on seat upgrades. Plusgrade's large partner base and core offerings are a strong complement to the growing platform capabilities and enduring partnerships we have built with our loyalty program partners. With our unique operating models, we believe there are a few other companies that would deliver similar strategic benefits to our respective businesses. From a financial perspective, the purchase price premium reflects the belief in our continued robust operating performance and expectations for growth in the future. We are grateful for the support our shareholders have shown us from the lows of the pandemic to the stronger position we occupy today, and we believe this transaction offers them a substantial premium over our current market value with the cash purchase price offering certainty of value and liquidity. Plusgrade is also a very credible purchaser with significant financial backing from both Novacap and CDPQ. From a strategic perspective, the Plusgrade transaction will enable us to better execute on our core growth drivers with expanded resources, greater breadth and more opportunities for diversification. As we plan to continue to invest in our business, we expect that combining with Plusgrade's robust platform and operating model will provide significant incremental scale and support to our growth initiatives. In an industry with ramping consumer demand and a strong appetite for growth among travel and hospitality operators, this partnership has come at a perfect time. In our over 20 years of operations, our team has worked tirelessly to execute on our new business pipeline buying cross-sell opportunities to increase service deployments within our current partner base and continuously enhance the services we have in market. I'd like to thank the entire Points team for helping us reach the strong position we are in today as we prepare to enter our next phase of growth. Joining forces with Plusgrade is what will become a truly global leader and provider of value-adding and revenue-generating services for partners in the airline, hospitality, rail and financial service industries is an exciting future. Additionally, we have benefited from a supportive group of shareholders over the past number of years and are pleased to have created this compelling outcome. I'll now hand it over to Erick, who will briefly review our financial performance for the first quarter, and then Christopher will provide some additional highlights and perspective on our partner activity. Erick?

[Erick Georgiou, executive]

Thank you, Rob, and thanks for joining, everybody. As always, all figures on today's call are in U.S. dollars. Our first quarter results reflected continued execution on our core growth drivers and the ongoing demand for our products and services. We generated quarterly records for both total revenue and gross profit in the quarter. Total revenue in the first quarter of 2022 increased significantly to a quarterly record of $127.4 million, a 96% increase over the year ago quarter and an 11% increase over the fourth quarter of 2021. Gross profit in the first quarter of 2022 was $18.7 million, more than doubling from $9 million in the year ago quarter and growing 9% on a sequential basis. The increases in both metrics primarily reflected sustained performance improvements from our marketing activity and the benefit from pandemic recovery tailwinds with many of our partners continuing to generate strong organic growth. The U.S. remains our strongest market, largely driven by ongoing recovery trends across many hospitality and domestic airline operators. Across our platform, we have also continued to benefit from the contributions of our newer partnerships and in-market services we deployed during the pandemic, which have ramped quickly over the past few years. Operating expenses increased sequentially and year-over-year in the first quarter of 2022 to $16.4 million, an increase from $10.2 million in the year ago quarter. The increase was attributable to the gradual easing of spending restrictions tied to the start of the pandemic, higher stock-based compensation and the effect of $1.2 million in wage subsidies we recorded in the year ago period, which had previously helped to offset our operating expenses. Adjusted EBITDA for the first quarter of 2022 came in at $6.7 million, up significantly from $1.2 million in the year ago quarter and $5.5 million in the fourth quarter of 2021. The increases were primarily driven by our strong gross profit performance during the quarter. Turning to our balance sheet, the strong sales activity we had during the quarter generated total funds available of approximately $145 million at the end of Q1, up significantly from approximately $109 million at the end of 2021. To summarize our first quarter performance, we continue to drive strong growth across our key financial metrics, driven by strong marketing activity and supported by sustained recovery related tailwinds, which increased transaction activity across the platform. While today's macro environment remains fluid and difficult to predict, we remain encouraged by our first quarter results and solid financial position and believe we will enter our next chapter of growth with Plusgrade from a position of strength. To echo Rob's earlier remarks, we believe the Plusgrade transaction comes at a very attractive valuation that provides strong value for our shareholders. We look forward to working with Plusgrade to drive progress on our growth strategy with even greater scale and resources. With that, I'll turn it over to Christopher.

[Christopher J. Barnard, executive]

Thanks, Erick. To review some of our commercial highlights from the quarter, much of our first quarter activity deepened our growing footprint in the Middle East and sustain the momentum we have generated with our exchange deployments. In February, we enabled Qatar Airways as an exchange option for the AIMIA's Air Miles Middle East program. Qatar joins Emirates Skywards and Etihad Airways Guest program as exchange options on the platform. In addition, we also added Turkish Airlines, Miles&Smiles program as another transfer auction for Citibank's ThankYou program in February. Rounding out our progress in the Middle East, we signed new partnership with Kuwait Airways subsequent to the end of the first quarter. Under this agreement, we will deploy several of our core service offerings, including our Buy, Gift, Transfer and Top-Up products as well as Accelerate Anything. Turning to some of our long-running North American partnerships, we launched our car redemption product with Air Miles Canada in January, complementing the existing hotel booking service we have powered for several years. With this new deployment, program members can now earn or redeem their miles when making a car booking online. As we announced in March, we also renewed our long-standing partnership with Marriott Bonvoy to a multi-year extension. As we previously shared, we've been engaged with Marriott for well over a decade and have actively expanded and enhanced our end market services for them most recently, adding our Top-Up capability directly into their booking flow in the fourth quarter of 2021. Finally, we made some additional international progress through deploying a new hotel booking service for EVA Air in March, our first service offering launched under our collaboration agreement with Rocket Travel, which we announced late last year. As Rob and Erick has mentioned, we are excited about our announcement earlier this week and feel that it represents a clear opportunity for our employees and partners moving forward. We are also pleased to have been able to engineer such a strong value for our shareholders. The significant premium reflects our long-term growth prospects and is backed up by blue-chip investors, offering our current shareholders both certainty and liquidity. I'd like to wrap up by offering thanks to our many long-term shareholders. We are very appreciative for the support we've received from you along the way. Thank you very much. Operator, we can now open up the call for questions.

[Operator]

[Operator Instructions] So at this stage, it seems that there are no questions. I'd now like to turn the call back over to Mr. MacLean for any closing remarks.

[T. MacLean, executive]

Thank you, operator. We would like to thank everyone for listening to today's call. We appreciate your support as we enter the next chapter of our growth trajectory, and we look forward to providing additional updates on the transaction and our operations moving forward. Thanks again for joining us today.

[Operator]

Thank you. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.