Revenue for Q1 2009 was reported at $21.1 million, a 30% increase over previous year Q1. Principle revenue represented $19.8 million or 94% of total revenues. The company reported a 48% increase for this revenue stream over previous year Q1.
Sequentially from Q4, revenues were down approximately 3% from Q4, 2008. There is typically some seasonality in revenues, so the sequential decline is not unexpected.
The Company lost $1.1 million or $0.01 loss per share for Q1 2009 versus $0.9 net income, or $0.01 EPS during Q1, 2009.
Management still maintains revenue guidance of between $85 million and $95 million for FY 2009 with positive annual EBITDA. Guidance would suggest that management is anticipating significantly better quarterly performance for the remainder of 2009. Since revenue is over 90% recurring, the company has historically had pretty good visibility on future performance.
The company continues to provide margin concessions to its biggest clients (in particular Delta Airlines (DAL.NYSE)) in order to drive more transactions, and more revenue. As its clients continue to grind Points International on margins, investors should begin to wonder if the shift to the principal model has delivered the margin leverage that was originally expected.
The company has finally signed Continental Airlines as a client (Global Points Exchange). This is good news, although the potential for GPX continues to be speculative. Today the service is still in beta and there are 134 trades posted on the website, up by a dozen or so from earlier this year. The company does not publish results for this program, so the daily volume of trades is not known. Also, Management signalled that it was about to ramp investment into the points.com consumer portal. Transactions on the consumer site represent 11% of the total volume of reported total transactions for the quarter. There are approximately 2.1 million registered users, up 15% from Q1 2008. However, the website is not perceived by consumers to be a destination, and traffic levels have averaged in the 100k - 200k range per month for some time.
Investors may like the bullish outlook for the remainder of 2009, however there should continue to be some concerns regarding the 3 quarters of reported declining margins on the principal revenue. The aggressive investment focus on the consumer portal may concern some investors since that line of business has remained (over many quarters) a small contributor to total sales and profits.
What will the analysts think? Expectations for this company have declined significantly since the beginning of 2008. The margin performance should continue to be a concern to some, and the GPX story may begin to lose its lustre. As a result, today investors should expect mixed opinions from analysts that cover the story and it is unlikely that there would be upward adjustment to forecasts and targets.
Disclosure: I do not own shares of PTS or DAL.
Showing posts with label loyalty systems. Show all posts
Showing posts with label loyalty systems. Show all posts
3/11/09
Points International (PTS.TO): Nice top-line, but where is the leverage?
Points International reported Q4 and FY 2008 earlier today. The revenue line was ahead of its top-line guidance for the year at between $65.0 million and $75.0 million. Actual annual sales performance was $75.6 million, which happens to also fall above my expectations of $75.3 million. The company has a solid $22.8 million balance sheet and no debt. During this recession, Companies with solid balance sheets that exceed guidance are usually viewed positively by the market. As a SaaS provider with over 95% recurring revenue and a first mover lock on its niche, one would expect this listing to fit squarely within the Top 30 Small-Cap Tech Stocks on the TSX.
But wait...
A closer look at bottom-line performance may erode some of the first-look "looks good" sentiment in the market. Despite growing revenues dramatically throughout the year, operating earnings have eroded since the first quarter. EBITDA was negative $0.54 million for Q3, and only $0.04 million for Q4 2008 on record sales $21.7 million. This is incongruous with the intent of the wholesale model (described by the Company as Principal Revenue) when it was first introduced to the market during 2007. Expectations at the time were that real contribution margins would initially triple, and then with the introduction of new higher margin clients, operating earnings would increase from there. Based on its reported earnings, the margins that it receives from the wholesale points business is around 14.8%. It is certainly an improvement over the average of 8% that it was generating in commissions, although it is a far cry from a triple. With over 96% of its revenue now reflected in the wholesale model, there is a lot more clarity in the results. It would appear that PTS is getting the squeeze as a wholesaler. Passengers may be utilizing their loyalty currency with greater frequency, but Points International appears to be bearing the brunt of price discounting risk - possibly passed on by its airline clients.
Personally, I have always been skeptical of the viability of the consumer portal and have never in the past modeled revenues associated with Points.com, or the Global Points Exchange (GPX). Although creating a secondary trading market seems like a reasonable idea with future earnings potential, the airlines need to better understand that the trading fees are incremental revenue streams (found money) with high margins. Earning $1 a hundred times is the same as earning $100 once. However, doing a hundred trades creates a market, whereas 1 trade is not a market. Basically, the high trading fees (however they are justified) appear to be slowing adoption and impairing the liquidity required to make a secondary market viable and profitable. On the beta site there are still only 130 trades posted at any time, up by only 30 posts since July.
There has been a lot of management effort and development costs applied to the GPX project. Airlines are signing up to the program, which also presumably brings many cross-sell opportunities for other PTS solutions if the GPX stalls. There are still a couple more quarters of "wait-and-see" goodwill left in the market, but the wick may burning on this concept.
Looking forward, the guidance for revenue of between $85 million and $95 million during FY 2009 is a modest 12% to 25% forecasted increase in sales. Considering that 95% of its revenue streams are supposed to be recurring, and sales are benefitting from recent launches at British Airways, Northwest Airlines, and Hawaiian Air, there appears to be not much forecasted growth momentum.
Shareholders would likely be satisfied with modest top-line guidance as long as the wholesale model demonstrates the potential for earnings leverage. Otherwise, the much vaunted conversion to the Principal Revenue model may have been a whole lotta whatever.
Earlier this year PTS would have ranked in the lower half of the Top 30 Small-Cap Tech Stocks, but with this 4th quarter profit result, it may have fallen out of the rankings for the time being. With some earnings momentum over the next couple of quarters, it could return to the list.
As a reminder, there are over 300 tech and cleantech small-cap stocks listed on the combined TSX and TSXV exchanges. Being ranked among the top 30 is pretty tough.
Disclosure: I do not own PTS shares, nor do I own any airline shares.
But wait...
A closer look at bottom-line performance may erode some of the first-look "looks good" sentiment in the market. Despite growing revenues dramatically throughout the year, operating earnings have eroded since the first quarter. EBITDA was negative $0.54 million for Q3, and only $0.04 million for Q4 2008 on record sales $21.7 million. This is incongruous with the intent of the wholesale model (described by the Company as Principal Revenue) when it was first introduced to the market during 2007. Expectations at the time were that real contribution margins would initially triple, and then with the introduction of new higher margin clients, operating earnings would increase from there. Based on its reported earnings, the margins that it receives from the wholesale points business is around 14.8%. It is certainly an improvement over the average of 8% that it was generating in commissions, although it is a far cry from a triple. With over 96% of its revenue now reflected in the wholesale model, there is a lot more clarity in the results. It would appear that PTS is getting the squeeze as a wholesaler. Passengers may be utilizing their loyalty currency with greater frequency, but Points International appears to be bearing the brunt of price discounting risk - possibly passed on by its airline clients.
Personally, I have always been skeptical of the viability of the consumer portal and have never in the past modeled revenues associated with Points.com, or the Global Points Exchange (GPX). Although creating a secondary trading market seems like a reasonable idea with future earnings potential, the airlines need to better understand that the trading fees are incremental revenue streams (found money) with high margins. Earning $1 a hundred times is the same as earning $100 once. However, doing a hundred trades creates a market, whereas 1 trade is not a market. Basically, the high trading fees (however they are justified) appear to be slowing adoption and impairing the liquidity required to make a secondary market viable and profitable. On the beta site there are still only 130 trades posted at any time, up by only 30 posts since July.
There has been a lot of management effort and development costs applied to the GPX project. Airlines are signing up to the program, which also presumably brings many cross-sell opportunities for other PTS solutions if the GPX stalls. There are still a couple more quarters of "wait-and-see" goodwill left in the market, but the wick may burning on this concept.
Looking forward, the guidance for revenue of between $85 million and $95 million during FY 2009 is a modest 12% to 25% forecasted increase in sales. Considering that 95% of its revenue streams are supposed to be recurring, and sales are benefitting from recent launches at British Airways, Northwest Airlines, and Hawaiian Air, there appears to be not much forecasted growth momentum.
Shareholders would likely be satisfied with modest top-line guidance as long as the wholesale model demonstrates the potential for earnings leverage. Otherwise, the much vaunted conversion to the Principal Revenue model may have been a whole lotta whatever.
Earlier this year PTS would have ranked in the lower half of the Top 30 Small-Cap Tech Stocks, but with this 4th quarter profit result, it may have fallen out of the rankings for the time being. With some earnings momentum over the next couple of quarters, it could return to the list.
As a reminder, there are over 300 tech and cleantech small-cap stocks listed on the combined TSX and TSXV exchanges. Being ranked among the top 30 is pretty tough.
Disclosure: I do not own PTS shares, nor do I own any airline shares.
11/18/08
Points Adds Midwest to the GPX...Now 8 Programs Live
This morning Points International announced that Midwest Airlines has joined the GPX. It is a modestly sized program representing 2.5 million members. As of today, 16% of the trades posted on the system included Midwest Miles.
Over the past few weeks, the total number of trades posted daily has been been between 100 and 110. However, it is difficult to understand the trading liquidity at this point. Does a trade typically stay posted for week? day? or hour before it gets executed?
Notwithstanding, more parters represent more liquidity, which can only contribute to the ultimate success of the concept as it leaves the beta phase, likely at the end of this year, or at the beginning of 2009. I believe that there are few more GPX partners that have been announced including Taca and Mexicana which have yet to launch. There is good possibility that the Company can exit 2008 with double-digit partner base for the GPX. This is ahead of my expectations going into the year. I have not attributed any Global Points Exchange revenue into my 2008 forecast of sales at $75.2 million. It looks like the Company could be poised to beat my, (and consensus) sales forecasts for the year.
Over the past few weeks, the total number of trades posted daily has been been between 100 and 110. However, it is difficult to understand the trading liquidity at this point. Does a trade typically stay posted for week? day? or hour before it gets executed?
Notwithstanding, more parters represent more liquidity, which can only contribute to the ultimate success of the concept as it leaves the beta phase, likely at the end of this year, or at the beginning of 2009. I believe that there are few more GPX partners that have been announced including Taca and Mexicana which have yet to launch. There is good possibility that the Company can exit 2008 with double-digit partner base for the GPX. This is ahead of my expectations going into the year. I have not attributed any Global Points Exchange revenue into my 2008 forecast of sales at $75.2 million. It looks like the Company could be poised to beat my, (and consensus) sales forecasts for the year.
11/13/08
PTS Signs Middle East Partner for GPX
Deal with Turkish computer distributor Hitit is designed to establish extensions into the Middle East. Local partnerships are integral to success in the region. Management at both Guestlogix and Vendtek Systems can attest to that. However, it could take several months to see the first GPX partnership to come to fruition.
Success with the GPX rollout notwithstanding, I am hopeful that more outsourced principal deals continue to come on stream to offset the margin contraction of the Delta Airlines relationship. Over 90% of this Software as a Service (SaaS) provider's current revenue is derived from managing consumer solutions for approximately 25 major loyalty programs in the world.
The bottom line is that as long as PTS continues to execute (and doesn't give away margin), the world economic conditions should continue to benefit performance.
Success with the GPX rollout notwithstanding, I am hopeful that more outsourced principal deals continue to come on stream to offset the margin contraction of the Delta Airlines relationship. Over 90% of this Software as a Service (SaaS) provider's current revenue is derived from managing consumer solutions for approximately 25 major loyalty programs in the world.
The bottom line is that as long as PTS continues to execute (and doesn't give away margin), the world economic conditions should continue to benefit performance.
11/11/08
Point International (PTS.TO); extends GPX - key to liquidity
Headline: InterContinental Hotels Group's Priority Club(R) Rewards Joins Loyalty Program Marketplace.
I think that this could be considered a fairly important milestone for the Global Points Exchange (GPX). People can now essentially trade hotel rooms for flights with other people, and vice versa. The extension beyond air travel enhances the value of the service, and further extensions into other sectors should continue to add value.
I hope that the loyalty program participants in this secondary market begin to more aggressively re-evaluate pricing. It appears that some like Aeroplan have already made the decision to reduce transaction fees. Hopefully other market participants will follow.
As PTS exits 2008 with around $75 million in sales and a couple of million in EBITDA, this Company is poised to be a near monopoly player in a market that appears to be somewhat insensitive to the current recessionary cycles.
At $0.52 share price and a fully dilute market cap of less than $80 million, PTS is a stock to own for the long-term. Three years from now when it has the potential to generate $25 to 30 million in EBITDA, it will seem remarkably inexpensive.
I do not own this stock, nor do I receive any financial benefit from Points International.
I think that this could be considered a fairly important milestone for the Global Points Exchange (GPX). People can now essentially trade hotel rooms for flights with other people, and vice versa. The extension beyond air travel enhances the value of the service, and further extensions into other sectors should continue to add value.
I hope that the loyalty program participants in this secondary market begin to more aggressively re-evaluate pricing. It appears that some like Aeroplan have already made the decision to reduce transaction fees. Hopefully other market participants will follow.
As PTS exits 2008 with around $75 million in sales and a couple of million in EBITDA, this Company is poised to be a near monopoly player in a market that appears to be somewhat insensitive to the current recessionary cycles.
At $0.52 share price and a fully dilute market cap of less than $80 million, PTS is a stock to own for the long-term. Three years from now when it has the potential to generate $25 to 30 million in EBITDA, it will seem remarkably inexpensive.
I do not own this stock, nor do I receive any financial benefit from Points International.
11/7/08
Points International (PTS.TO) Reported Yesterday: Earnings Miss
Although sales were ahead of consensus expectations, margins were compressed and the Company missed on EBITDA and earnings. Based on the conference call, it sounds to me that the low margin Delta Airlines (DAL-NYSE) principal contract dominated sales for the quarter. Not only that, I think that Management increased its payment to Delta Airlines to induce the airline to promote Buy/Tranfer services more aggressively, which drove higher sales at lower margin.
The company needs to continue to sign large principal contracts and get them rolled out rapidly in order to diffuse the margin compression impact of Delta Airlines. This condition could become more acute as Delta rolls Northwest airlines into its loyalty operations over the next few months. The Company continues to announce new clients including three more during the conference call, although these are dwarfed in size by Delta.
During the conference call, Management adjusted its 2008 guidance towards the high end of its original guidance range of between $65 million and $75 million. I think that revenue could exceed its guidance for the year. However, due to the impact of a weakened economy on the airline sector, I don't believe that the earnings leverage is as strong as I had hoped for and forecasted at the beginning of the year.
Management has stated that it expects to return to EBITDA positive during Q4. This is due to an increase in sales from its dominant clients and the emergence of some of its newer, higher margin clients in its revenue mix. The mid-term outlook for the Company remains positive as consumers continue to leverage their loyalty points to get rewards during a U.S. recession.
We expect expenses to increase as the company invests in marketing for its core business, and for the launch and expansion of its GPX secondary trading platform. I think that the success of GPX will be dependent on the trading fees. Lower fees by the participating airlines would help drive more liquidity. Despite the investment, we still have a wait and see stance on this part of the business.
The Company has approximately $37 million of cash on its balance sheet and no debt, so it is in a very sound position to fund its growth towards market dominance during a period of constrained access to capital worldwide. During Q3, the Company invested in growth by sacrificing margin for market penetration.
In terms of earnings growth potential, cash, and cashflow, Points International ranks among the top 30 small cap tech stocks on the Toronto exchanges. I continue to think that Points International is great buy at current price levels. For long-term value investors, the stock is probably worth between $2.00 and $3.00 within 12 to 24 months. In the short-term, there is a greater than 50% chance that the stock could trade down to the $0.50 level again before recovering.
Subscribe to:
Posts (Atom)