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Good afternoon, everyone, and thank you for participating in today's conference call to discuss Points International's financial results for the second quarter ended June 30, 2020. 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 up for any questions. Before we go further, I would like to turn the call over to Sean Mansouri of Gateway Investor Relations, Points International's IR adviser, as he reads the company's safe harbor that provides important cautions regarding forward-looking statements. Sean, 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. 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, I'll turn the call over to Points' Chief Executive Officer, Rob MacLean. Rob?
Thanks, Sean, and good afternoon, everyone. Although we are still operating in uncertain times amid the COVID-19 pandemic, trends in our industry and business are generally moving in the right direction. We generated sequential month-over-month improvements across most financial metrics during the second quarter and reported positive adjusted EBITDA in 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 at the start of the year. In all 3 lines of our business, we have 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. Preserving the health and safety of our team members continues to be a top priority. Our team has remained at full capacity, and they continue 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. The 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. As a result, transactions related to immediate travel are still significantly below pre-COVID levels, which continues to impact our hospitality and airline partners' revenue streams. Even as certain economies around the world have reopened and restrictions remain influx, we likely will not return to pre-COVID levels in 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 used their MileagePlus program assets and cash flows as collateral for their recent almost $7 billion 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 MileagePlus. 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, 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 launched 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 Quidco in the U.K. 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. Loyalty programs are clearly more important than ever. While these trends are promising, we're not out of the woods yet. Activity and sales volumes are, of course, still down from pre-COVID levels across all 3 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 month-to-month activity, and this difficulty has only been exacerbated with the COVID-related headwinds. As a result, we are continuing to suspend guidance on performance for this year, along with our longer-term outlook for 2022. We will continue to closely monitor the industry landscape, along with the financial and strategic positions of our partners during this time. While we can't fully 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 -- with a strong operational foundation to navigate our recovery. Now I'll hand it over to Erick to review our financial performance for the second quarter, and then Christopher will highlight some of our partner activity and provide further perspective on the road ahead. Erick?
Thanks, Rob, and afternoon, everyone. Unless noted otherwise, all figures on today's call are in U.S. dollars and presented in accordance with IFRS. Keeping with the structure that we used last quarter, I'll provide a very brief overview of our results for Q2 since we already previewed most results in early July. Total revenue in the second quarter of 2020 was $40.9 million compared to $100.2 million in the 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 3 lines of business, with financial results and transaction levels improving sequentially throughout the quarter. With that said, our transaction volumes across all 3 of our operating segments remained well below pre-COVID 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 announcing in July that this program would be redesigned and extended until December 19, 2020. At this time, we expect to be eligible for funding throughout the program's turn. However, the expected monthly benefit we receive should gradually decline throughout the remaining term based on the redesigned 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 $300,000 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 due to COVID-related impacts on the travel industry. However, we remain optimistic about the long-term prospects of this segment given the partner demand we see for these services and our visibility into the pipeline. In our continued financial response to the pandemic, preserving capital is our first priority. We have worked diligently to mitigate expenses and maintain sufficient liquidity and continue to manage our costs and limit or cease discretionary spending where possible. Most hiring and material capital expenditures are still paused, and we have ceased 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 have better visibility on the shape and timing of recovery from the COVID-19 pandemic. 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, were 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 in June, bringing our balance down to $35 million as of June 30, 2020. Our balance sheet remains strong, and we continue to believe that we are well capitalized to weather the near- and long-term effects of the COVID-19 pandemic. As Rob mentioned, due to ongoing volatility across the industry, we have limited visibility on how market conditions may evolve for our business in the coming months. However, based on current trends in our business, we believe that Points is well capitalized as we look forward, and 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 Christopher. Chris?
Thanks, Erick. 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. With that said, I want to highlight some of the key deployments that we launched during the second quarter, and then I'll preview some of the initiatives that we have in store. In June, we launched a new partnership with Qatar Airways' Privilege Club, another partnership we share with Amadeus. Initially led by our LCR services, which are now in market, we expect to deploy additional services with Qatar later this year. As we stressed in the past, one of our key levers to accelerating our growth is a 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. Staying with LCR performance. During the quarter, we ran successful campaigns with Air Canada, Marriott and Finnair, among others, and we see a growing commitment by many of our loyalty program partners to market our services as they plan their recovery strategies. In our Platform Partners business, we added Virgin Australia's Velocity Program to the Choice Privileges in exchange in May and recently launched an Alaska Mileage plan program with GetYourGuide, a leading tours and activities sites. As we mentioned on our May update, we also connected Citibank's ThankYou Points with Emirates' Skywards program during the second quarter. These initiatives have allowed us to keep building upon our impressive roster of financial services 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-COVID. Our sales and marketing teams have done an incredible job of staying active in business development, be it for new program launches of current partners or targeting new partners for our roster. Across our lines of business, we recognize that programs we put in 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 and is deploying more services now when programs are seeking new opportunities will ultimately drive results in 2021 and beyond as the industry climbs back to normalcy. Although we still expect a high degree of 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 monetize loyalty programs has all laid a solid foundation for our journey ahead. They're well capitalized to weather the effects of the pandemic, and currently -- current industry trends and strong pipeline momentum have left us well positioned to see through this turbulent period. We're incredibly grateful for the dedicated work from our teams across the globe, and we thank our partners and shareholders for their continued support. Operator, we'll now open it up for questions.
[Operator Instructions] And our first question is from Gary Prestopino with Barrington Research.
A 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 signing some new business, your sales are up sequentially on a monthly basis, that $10.5 million number would probably be the low point for the year. Is that kind of a good assumption?
Gary, it's Erick here. I think that's a fair assumption. And just to kind of be clear on the metrics there. So our adjusted operating expenses came in at around $6.7 million. Now net of subsidies that was obviously higher, around $9 million. I think as we go through the year, the run rate that we had provided back on our Q1 call, which was around $2.9 million, $3 million per month excluding subsidies, I think that's still a pretty good target to figure. 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. I just want to get a handle on that. And then in terms of outside or looking in here, the airline industry is in such a state of flux, and all year about our people are not flying and all that, 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, are -- 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 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"?
Gary, it's Rob. Yes, the last point is there's a little bit of a yes in there for sure. I think your first question, it's more -- it's a reasonable spread. I would say we've had large hotels very active, we've had large airlines active, we've had smaller kind of regional airlines active. Over time, during the -- really since the April period, one of the things we've been pleased about is as we've demonstrated pretty significant demand from the membership basis with our partners when we're running campaigns and getting -- 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. So we're seeing a pretty good spread of more and more of our partners, deciding that, look, there's still an opportunity: one, to engage the members, their most valuable asset and the members of those loyalty programs; and two, we can generate some very low-cost, high-profit revenues by engaging with some of these programs that we work together with the loyalty program. So I think 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 the airlines and the hotels will use the loyalty programs to kind of be an early point of generating economics because there's a base of 30 million, 60 million, 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. We've got a tremendous number of campaigns planned here for the back half of the year.
And our next question is from Greg Gibas with Northland Securities.
Congrats on maintaining the profitability in the challenging market and bringing customers on board, too. It's good to see. I 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 was in April compared to the next couple of months?
Yes. Greg, it's Erick here again. So I'd say with respect to Q2, I mean, it's obviously not our tendency to speak to monthly performance. But I think for purposes of Q2, we certainly don't mind adding some transparency there. I'd say the back half of March and April were certainly the low points across all 3 segments. Points Travel being hit the hardest. But really across all 3, we threw out a number of roughly 20% gross profit of our average 2019 gross profit on a monthly basis. And so what was encouraging for us after getting out of April, seeing that number tick up to 50% in May and 70% in June, I'd say LCR was 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 COVID-based economics are actually fixed fee, so it does provide a pretty steady base for us there.
Got it. That's really helpful. I appreciate the color there. Nice to see the launch of Qatar Airways in the quarter. I guess -- I think it came kind of late in the quarter. So I was just wondering if you could maybe talk to how you expect that partnership to ramp over the next couple of quarters, and then maybe when those additional LCR services would kick in.
Yes. It's Rob, Greg. Yes, Qatar is another success story coming for us in the Middle East. We've had really good success with other kind of growing carriers in that region, Emirates, Etihad, et cetera. So we're excited about 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 our first campaigns. So they've had an incumbent product that we took over and then obviously, modernized and put on to our platform. So we're not starting from scratch on educating that membership base. So we feel like we're going to hit the ground running pretty well with Qatar. They'll be -- they're like all of our airline partners. They're looking for ways to engage their members and to generate economics out 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 for me. I 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. For instance, I mean, if a lot of -- nearly 100% of miles purchases right now are future use and not immediate use, I guess, is there any concern to whether that will catch up with consumers who are maybe holding a lot of miles that have been used yet?
No. Short answer is no. Again, the size and scale of these databases of membership is amazing, right? You look at somebody, I think United disclosed recently, there are 80 million-plus members. So the number of members that today are active in these -- and driving some of the economics that you're 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 over time reengage with travel, there should be lots of headroom from that standpoint. The airlines and the hotels themselves are very, very sophisticated in terms of revenue management and inventory management. I'd have a high degree of confidence that as they put more birds in the air and open up more hotels, there will be more than enough room to accommodate some of their most important and engaged 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.
And our next question is from Ed Woo with Ascendiant Capital.
Yes. Also, congratulations on managing through the quarter. My question is can you give any color on July?
Yes. Ed, it's Erick here. So I think -- I mean we certainly talked on the monthly results for Q2. And for us, it was important to be transparent during the 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 org right now. So I think sticking with our quarterly calls and commenting on the quarterly performance going forward is what we are going to do.
As much as we love these calls, Ed, I'm not sure I want to get into them on a monthly basis.
Bummer. My next question was going to ask you how today went, but I guess I won't do that. You talked about, obviously, the performance for the quarter is driven by your promotional campaign. I know you mentioned that transaction levels are down. But what about campaigns, number of campaigns running? Are you seeing a return back to normal? Or is it also reduced campaigns as well?
Yes. It's Rob. We're certainly reengaging more and more of our partners to kind of get out and back out into the marketplace and run these campaigns. The good news, bad news. The -- perhaps the bad news is some are very active, some are still relatively quiet just given what's happening with their own respective organizations. And so it's few -- far fewer campaigns that we -- than we would be running in a pre-COVID environment. Good news on that is more and more of our partners are kind of lifting their heads up and saying, "Okay. Now I've got a bit more visibility. We're now heading towards recovery. We want to start reengaging with our membership, both from an economic standpoint and from a communication standpoint." 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 -- as I think about going through the back half of this year, I'd be very surprised that we don't have of -- activity really across the board with all of our partners in some form or another. So lots of -- again, back to that comment around headroom, lots of headroom in the next 6 to 12 months to get the campaign activity up.
Great. And my last question is has there been any real change in economics at all? Have you guys have been more promotional? Or has it been pretty constant?
I'd say, certainly, as Erick would have described, in those very, very early days, some of the activity that we -- and campaigns we've come out with have been quite rich, right? And really in the context of, in some way, shocking the system to just make sure consumers were given offers that were interesting and exciting to them. And so I would say on -- in general, the offers, the value proposition through a lot of the campaigns for these tens of millions of members that are engaged in these programs was very, very good. And I think that was part of what enabled some of the really positive results around a number of those campaigns. Again, I think you'll see that continue as our airline and hotel partners reengage and 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. Congratulations and best of luck.
Thank you.
Thanks, Ed.
Thanks, Ed.
Our next question is from Drew McReynolds with RBC.
A couple of things. Rob, last call -- last time on the call, you talked about, I guess, activity return or building in 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., particularly. Just wondering, as you see your campaign to build and the activity build, is that still the expectation to come out of North America before Europe starts to rev its engines? Or is that just not really holding or it's too soon to tell?
Yes. It's -- I think there's a little bit of too soon to tell. There's certainly been some variability, and that's not surprising. It's a little bit of the turbulence that the U.S. domestic market has faced here in the last, I guess, 3 or 4 weeks. In particular, we do see a little bit of a shift. Now look, some of it is just driven by when our partners are reengaging. So we've done some activity recently, some campaigns in the Middle East that have gone really, really well. I'm not sure that's a direct corollary to travel. It's really when some of our partners are reengaging with their membership base. So our business isn't necessarily moving in the same -- with 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 -- or international U.S. travel still seems to be consistent. 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 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 look, I think that's going to continue to evolve. The core premise of U.S. domestic before U.S. international still feels like it's holding.
Okay. Great. And on your relationship with Aeroplan and what was announced earlier this year, of course, the new Aeroplan launches this fall. Just is there kind of an opportunity? Or what kind of impact does that have on your relationship with them and what you do for them?
Yes. It's a great question. We were really -- we worked with Aeroplan for quite some time, as you know. We launched some new products and services with that team in -- late in the first quarter. And then some marketing and campaign activity into the second quarter, which has been fantastic. There is more business coming that -- as you'd expect, as they relaunch Aeroplan, and they've got some really innovative ideas. And I think a great vision for what that program -- how it's going to evolve, we'll continue to play a part in that. And you'll see us, I say too much, doing some activity and launching some new products in association with that. So good news for us, good news for Aeroplan members as well in my view.
Okay. Got it. One last one then for me. Thank you for the adjusted EBITDA outlook on an annual basis. Maybe, Erick, can I push you a little more? Can you stay adjusted EBITDA positive in Q3 and in Q4?
Yes. I don't think we want to get into that quite yet through at this stage. I mean -- I think it's going to be perhaps a little bumpy, and there's still some uncertainty there where giving quarterly guidance just doesn't feel like the right move right now.
And our next question is from Gary Prestopino, Barrington Research.
Just a question on your sales and account management effort. Could you just refresh my memory? Do you have salespeople in all regions of the world that you operate? Or is everything out of Toronto?
Gary, it's Chris. We have sales in most regions. We have -- obviously, the head office has some sales activity. We have salespeople based in Europe as well. We opened a Dubai office at the end of last year. And we opened a Singapore office as well at the end of last year. The one region that we don't have direct coverage is Africa. And we don't have direct coverage in Latin America either. But we -- obviously, we work those 2 regions out of our Toronto office or our European EMEA office.
Okay. Because I just -- as an outsider looking in, I just want to try to understand exactly 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 if you could maybe address how they may have changed their selling efforts somewhat, if any. Any change?
Well, yes. We're selling to a known audience. So -- and I think our salespeople are out there consistently in front of the potential partners. And so I think just the environment has led to a lot more interest from the industry and certainly a lot more interest in speeding up the discussions given that majority of our services are focused on revenue generation.I'd also kind of bring up our relationship with Amadeus, who 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 continuing with that partnership. And that their realization of Amadeus and obviously, their airline customers desire for revenue. And as Amadeus is going through the same challenges, the rest of the travel industry is going as they've 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.
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.
Great. Thank you. Again, we'd like to thank everyone for listening to today's call, and look forward to speaking with you when we report our third quarter results. Thanks again, and have a great evening.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.