Points.com Inc.
Q1 2015 Earnings Call Transcript

Published: 5 May 2015

[Operator:]

Greetings and welcome to the Points International First Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host Kimberly Esterkin, Investor Relation. Please go ahead.

[Kimberly Esterkin:]

Good afternoon everyone and thank you for joining us today to discuss Points International's first quarter 2015 financial results. Joining me today on the call are Rob MacLean, Point's Chief Executive Officer; and Anthony Lam, Chief Financial Officer. Before we begin, we’d like to remind you that remarks on this conference call contain or refer to forward-looking statements within the meaning of the 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 actions 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 are included in our first quarter 2015 financial results press release as well as other documents filed with the Canadian and U.S. security 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 now turn the call over to Points Chief Executive Officer, Rob MacLean.

[Rob MacLean:]

Thank you Kimberly. Good afternoon and thanks for your participation today. I'll begin today's call with a review of our high level performance for the quarter, as well as provide an update on a number of recent business developments. Anthony will then walk you through our quarterly results in more detail before opening the call up to your questions. So, let's jump right into it. I am pleased to report that 2015 is off to a strong start with Points delivering robust top and bottom-line growth, as well as demonstrating operating leverage in our core business. Importantly, our performance was right inline with our expectations and we are on-track to deliver against our guidance for 2015. We continue to expand the breadth and depth of our Loyalty Commerce Platform. Since the beginning of the year we've signed or launched 14 new products and added two new loyalty program partners to our platform including the addition of five legacy partners under our PointsHound products. The development of our platform, a key element of our long term strategy has enabled us to continue to innovate and fuel growth within the broader loyalty industry, an addressable market of roughly $2.5 billion to $3.5 billion in size. For the quarter, revenues totaled $67.1 million, up 15% from the $58.3 million in the prior year period. Growth in revenues largely reflects the contribution from new products and partners launched over the last 12 months, as well as solid growth from our existing products and partners. Gross margin dollars totaled $11.3 million, or 16.8% of revenue, up approximately 37% from the first quarter of 2014. The strong year-over-year improvements reflects the contribution from new products and partners launched over the last 12 months including United and Hilton as well as solid growth from our existing products and partners. It should be noted that the first quarter incorporates U.S. Airways, moving from our principal to an agency partner, shifting our revenue mix and resulting in an increase in revenues from higher margin commission business during the first quarter. We expect that our business mix will return to historical patterns for the remainder of the year and as a result our full year gross margin percentage will moderate over the coming quarters to be at or around 15% of revenues for the full year. Adjusted EBITDA was $3.6 million, a nearly 200% year-over-year increase from $1.2 million in the first quarter of 2014. Adjusted EBITDA as a percentage of gross margin, in the internal measure we used to assess our operating efficiency more than doubled to 32% for the quarter, demonstrating our strong business foundation and the inherent leverage in our business model. As a reminder, beginning in the second quarter we have started to absorb the restructuring of the American U.S. Airways relationship. The impact of which is contemplated in our full year guidance. Delving into our partner developments during the quarter, on the North American side of the equation, in January we officially completed the conversion of United Airlines, buy, gift, and transfer products on to our platform. As a result, since February we've be operating as a principal partner with marketing and merchandising activities fully in market. United has become one of our most engaged partnerships and we are very pleased with United's performance today. We see many opportunities to continue to grow the relationship into the future and we'll keep you updated on our progress. We also continue to be encouraged by partner traction we are experiencing in the international loyalty market including in Europe, the Middle-East and Asia. We recently added Alitalia, Finnair, and Saudi to our PointsHound Partners and anticipate further EMEA based loyalty programs signing up as we progress through the year. We also made strives in Asia, signing one of China's largest airlines, Hainan Airlines during the first quarter and are currently in advancing discussions with a number of additional perspective partners in the region. Hainan Airlines marks Points first commercial deal for our core buy and gift products in the people's Republic of China. And we are excited about Points long term potential in that broader region. Hainan is one of the larger loyalty programs in China and while our initial launch with the airline will be made available to their international loyalty program members only, it provides us with an exciting initial relationship to build upon as we further develop our presence in the emerging Asian loyalty market. We're pleased to be bringing new partnerships to market in Asia and look forward to further announcements coming out of this region in 2015. Our European business also showed some encouraging signs for the first quarter as revenue from this region grew nearly 45% over the prior year period. PointsHound has been integral to furthering our development within Europe and we've been quite pleased with the response of our European partnership base as they had in regards with PointsHound's product offerings. As we mentioned on our fourth quarter call, beginning in the first quarter we executed a new agreement with the major European loyalty program to host and power their white labeled hotel booking platform. Based on the same proven PointsHound multi currency bonus proposition, this program's members will ultimately be able to earn meaningful bonus miles on hotel bookings conducted through our white labeled service fully managed by Points. Members will be able to redeem miles either as a top-up payment or for full payment based on an industry changing economic model. We'll provide further updates on this relationship as we get closer to the official launch of the service in late 2015. We expect meaningful gross margin contributions from this partnership to be generated in 2016. As you would expect, we've been actively developing our pipeline for this new white labeled PointsHound products and are very pleased with other partner's responses to the offering thus far. So ultimately while we're certainly pleased with our first quarter results in Europe, we do remain cautious on our full year outlook for this region due to broader economic concerns, as well as foreign exchange pressure against the Euro and British Pound. Speaking further of opportunities to capture growth, we continue to concentrate on our platform as a key area of investment. We are focused on expanding our platform's marketing and merchandising capabilities including responsive design, personalized offers, and mid and back office efficiencies, as well as transitioning all of our legacy loyalty partners over to the new platforms to take full advantage of it's improved capabilities. In the second half of the year we will be re-launching our current web based Points.com consumer service as a fully distributable loyalty wallet. Based on our open loyalty commerce platform, this new version will be mobile friendly as well as easily integrated into various distribution channels. We believe that there is a tremendous opportunity in offering fully sanctioned loyalty program transactions to various third parties, be they mobile wallet's, other mobile apps, online travel and retail services, or point of sale providers. Integral to this progress, in the Loyalty Wallet space, was our 2014 acquisition of PointsHound, a great loyalty centric Company in the online travel space that truly enhances our consumer presence. Our San Francisco team have been significant contributors to the development of our consumer strategy including our Loyalty Wallet and Points.com consumer platform. As a result of the strong progress we've made with our loyalty wallet in particular, we expect to be in market with the third party digital wallet provider in the second half of 2015. We anticipate that our loyalty wallet will be a complementary to the expanding digital wallet landscape while also providing functionality and value for other channel opportunities such as financial services and online travel spaces. We're especially pleased that our profitable business growth and solid balance sheet enables us to continue to make investments in our platform while at the same time return value to our shareholders. Our stock buyback program as announced in the first quarter is one example of how we're doing this. Since this initiation in March, we repurchased roughly 112,000 shares of common stock for a total of $1.1 million. Going forward, we will continue to execute against our buyback program. Before speaking about our guidance for the current fiscal year, I'd like to turn the call over to Anthony to discuss our first quarter financial performance in further detail. Anthony?

[Anthony Lam:]

Thanks, Rob. As I review the results of the first quarter 2015, please be reminded that all the numbers mentioned on our call today are in U.S. dollars and all the figures are represented in accordance with International Financial Reporting Standards. Revenues for the first quarter totaled $67.1 million, an increase of roughly 15% from $58.3 million in the prior year quarter. This marks the strongest first quarter revenue performance in our history and a robust start to our 2015 fiscal year. Principal revenues, which totaled $62.6 million in the first quarter, increased approximately 12% on a year-over-year basis. The growth in principal revenues in the first quarter was primarily attributed to the impact of new product and partner launches during the quarter, as well as a 10% increase in our organic business driven by continued success in our marketing efforts. As Rob will touch on shortly, we continue to see strength across the bulk of our business. Gross margin dollars continues to be an important measure of our financial performance as it represents the amount of revenue retained and available to fund ongoing operating activity and strategic investments. In our first quarter, gross margin dollars totaled $11.3 million, up 37% on a year-over-year basis. As a percentage of total revenue, gross margin dollars were 16.8%. Unique to our first quarter was our business activity with U.S. Airways, buy, gift, and transfer products, which have been recorded on a net basis under other partner revenue for the whole quarter. Revenue streams in these products will not continue beyond the first quarter. In fact, much of our year-over-year increase in other partner revenue can be attributed to these products in Q1. For the balance of 2015, you can expect other partner revenue to return to a run rate similar to that as last three quarters of 2014. As Rob mentioned, we continue to expect that full year gross margin percentage will moderate over the coming quarters and be at or around 15% of revenues on a full year basis. We continue to anticipate that more of our incremental gross margin dollars in 2015 will fall to the bottom line demonstrating the inherent leverage in our business model. I'll now move on to discuss some of our key operating expenses for the quarter. Total ongoing operating expenses which consist of employment expenses, marketing, technology and other expenses were $7.7 million, which was up 9% from $7.1 million in Q1of 2014. Employment cost in the quarter totaled $5.9 million, an increase of approximately 8% compared to $5.5 million in the prior year quarter. The increase in employment cost on a year-over-year basis is a result of the investments we've made to strengthen our core team which includes absorbing growth in our PointsHound San Francisco office with mandates to contribute to more robust consumer online offerings, a private labeled version of PointsHound and ongoing loyalty wallet abilities, this office has been a great extension of our very robust platform integration and infrastructure teams here in Toronto. New team additions continue to be in the areas that will continue to enhance our marketing capabilities, as well as product and technical innovation. As of March 31, 2015, we've grown our Points team to just over 185 staff on a full time affiliate basis and this is up from roughly 160 in the year ago period. As mentioned on our last call, we expect our employment cost to increase approximately 10% over the 2014 level. Marketing expenses for the quarter were $275,000, up from $198,000 in the prior-year period. As mentioned on our previous call, we expect marketing expenses will grow in 2015 with cost in this line item approximating $2 million for the full year as we drive ongoing growth in our core business. Technology expenses, which cover the cost of protecting our production environment, maintaining our online redundancy capabilities, PCI compliance, user application license, as well as general technology upkeep and enhancements, were $270,000, up from $219,000 in the first quarter of 2014. We expect to see this line item grow to the $1.5 million range on a full year basis. Other operating expenses comprise of rent, insurance, professional, legal and accounting fees as well as public company cost. For the first quarter, this line item was $1.3 million compared to $1.1 million in the prior year period. The year-over-year increase in this line item can be largely attributed additional ongoing operating costs associated with the Crew acquisition. As mentioned on our previous call, we expect this line item to be inline with full year 2014, running at approximately $1.4 million, $1.5 million per quarter. Adjusted EBITDA for the quarter totaled $3.6 million, up significantly from $1.2 million in the prior year period. This year-over-year increase was largely due to an incremental margin added from new partner launches in the second half of 2014 which include the Hilton HHonors and United MileagePlus programs and to a lesser extent the impact of a weakening dollar and thereby Canadian based expenditures. As mentioned earlier in our call, beginning in the second quarter, we could start to absorb the restructuring of the American Airlines U.S. Airways relationship, the impact of which has been contemplated in our full year guidance for 2015. Further, I would like to highlight that we continue to expect year-over-year growth rates for gross margin and adjusted EBITDA to be higher in the first half of 2015 than in the second half of the year as we allowed significant partner additions in the second half of last year as well as begin to absorb the impact of the industry consolidation. Amortization expense in the first quarter was $877,000, as compared to $544,000 in the year-ago period. The year-over-year increase can be attributed to amortization of new products launch in the first quarter, as well as amortization of assets acquired in the Crew Marketing acquisition. We expect amortization expenses of approximately $4 million on an annualized basis in 2015. Finally, the company reported first quarter net income of approximately $1.7 million or $0.11 per diluted share up 287% compared to 440,000 or $0.03 per diluted share in 2014. As of March 31, 2015 total fund available comprised of cash and cash equivalent together with security deposits, restricted cash, and amounts with our payment processors totaled approximately $52.7 million and we remain debt free. Net operating cash, which we define as total funds available less amounts payable to loyalty program partners, totaled $9.1 million at the end of the first quarter and this was flat compared to the prior year quarter. We are very pleased to continue to generate sufficient cash to fund our current working capital requirements, anticipated capital expenditures and share buyback activity. As a result of our strong cash position, we’ve repurchased 112,176 of our common stock for a total of $1.1 million at an average price of $9.80 per share. As of March 31, 2015 we have weighted average shares outstanding of 15,666,589 shares and 15,759,278 shares on a fully diluted basis. Thank you all for your attention. With that I’ll hand the call back over to Rob.

[Rob MacLean:]

Thanks Anthony. As you can certainly see Points core business remains strong and we continue to successfully execute against our robust business pipeline. The first quarter put us in a solid position to reiterate our full year guidance as follows; We continue to anticipate revenue growth of 15% to 20% over 2014. Please keep in mind that this guidance range only contemplates contributions from partners and products that have been announced or are currently in market today. Our revenue guidance also takes into consideration the impact of a restructured AA U.S. Airways relationship and our new principal strategic partnership with United Airlines. With respect to seasonality, we expect to more even quarterly revenue cadence throughout the year due mainly to refinements in our marketing approach and changes to our partner on product mix. Furthermore, we anticipate more of our incremental gross margin dollars in 2015 to fall to the bottom line. While we will continue to invest against our core technology and product initiatives in 2015, and we’ll be absorbing the impact of industry consolidation, we will demonstrate improved leverage in bottom line growth with adjusted EBITDA expected to increase 15% to 25% over the prior year. And last but certainly not least, we will continue to generate positive operating cash flow to 2015 which of the circumstances deem appropriate, while enable us to continue to buyback shares. We have a strong first quarter that was inline with our expectations and we remain very confident on our long-term growth outlook. The strength of our platform coupled with our investments in the growth and innovation of the broader royalty industry positions Points for solid 2015. Thank you again for your time today. We will now open up the call to questions. Thank you.

[Operator:]

[Operator Instructions] The first question is from Pardeep Sangha of PI Financial. Please go ahead.

[Pardeep Sangha:]

Good afternoon and thank you for taking my call. Maybe if you can just give us a bit more color on the Chinese Airline, Hainan Airlines sort of how that came about and if its actually live now and sort - and you did mention something about international guest only or something like that, so you just give us a little more understanding on that particular deal?

[Rob MacLean:]

Sure, thanks Pardeep. So as shareholders would know, we have viewed the Asian marketplace and China within the Asian region as being a really interesting loyalty market for us as we look into the future obviously in a fairly emerging environment today. So for us, seeing Hainan come on board to our platform and our technology for us is a good early sign of getting adoption there. We've been saying for sometime and believe that the loyalty marketplace in China in particular is in fairly early stages, big membership basis but really just starting to make the move to migrate across from a building membership basis to starting to monetize the currencies and the loyalty programs. So Hainan would one of the four largest airlines in China and one of the airlines that have a fairly significant and expanding international market. So it's an early stage to the relationship and so that’s why we would make the comments and caution the market that, while we’re really pleased about getting our first deal in China because we’re only going to be dealing with - be international consumers in their loyalty program, it will be a fairly minor impact to our '15 results, but we think it’s a really interesting opportunity to build from and use as a jump off point for other relationships in this market as well.

[Pardeep Sangha:]

So at some point, continually you can go from just international to all their membership base?

[Rob MacLean:]

Yes, absolutely.

[Pardeep Sangha:]

Okay. I don’t think I heard just anything about MasterCard or the banking in terms of why are you with those relationships in that whole vertical market.

[Rob MacLean:]

Financial services continues to be a big opportunity for us as we spoke about a month or so when we were on the call, continue to pursue financial services at a variety of levels kind of essential to that strategy is the relationship with MasterCard. As I've said, I think recently we are going to be in the phase now of having successfully connected the platform, our platform with MasterCard’s loyalty platform. And now we are in the mode of - out speaking with the various banks there sitting on the MasterCard loyalty platform to deploy our products and services. So some interesting conversations going there, I think as I mentioned previously the financial services sector is a little slower moving sector than what we’ve experienced in airlines, hotels and even some other retail space but continues to be a pretty significant opportunity for us.

[Pardeep Sangha:]

So, I’m not hearing much difference from the last time you talked about the MasterCard, correct if I'm wrong, what's been the progress since last time we talked about it.

[Rob MacLean:]

I think very similar to where we were six weeks or so ago when we spoke in discussions with a variety of international banks. And they will progress, I would say we're progressing but they are slow moving set of market opportunities for certain.

[Pardeep Sangha:]

In terms of seasonality you mentioned on the board seasonality being a bit more even doubt. Last year Q2 was a exceptionally higher than normal and now with Q2 in this quarter we’re expecting some hip on the American Airlines. Can you just give us a bit more color in terms of how this, how we should look at it on annual basis quarter-to-quarter-to-quarter in terms of your seasonality and what the addition of new customers and deletion of old our customers and things of that nature.

[Rob MacLean:]

Pardeep, as you all know we try to keep our guidance levels at annual levels rather than quarter-to-quarter for sure. So, we’re going to continue to be thinking about our guidance really at a annual level. One comment I would say is we have communicated that the seasonality's are little less, seasonality this year than we’ve experienced in the past and that's really a function of the various mix of partners, campaigns, marketing and merchandising that we’re doing but expect that to be a little bit, less volatile than we've seen in previous years as we continue to add more partners from different parts of the world and different verticals in place. So, as we said expect a little less volatility in terms of the seasonality.

[Pardeep Sangha:]

Okay. I'll pass the line.

[Operator:]

The next question is from Drew McReynolds of RBC Capital Markets. Please go ahead.

[Drew McReynolds:]

Thanks very much. Good afternoon. Couple for me, first Rob, just on Europe, if you exclude the FX headwind that you’re experiencing, can you comment on whether you think your bottoming is there any kind of incremental green sheet sort of stake to talk off. And then just on the Points.com relaunch, wondering if you can just walk through kind of how just a few kind of that symbols of exactly this platform is changing just in terms of us going on in from a user perspective, what are the key kind of functionality differences that we should expect.

[Rob MacLean:]

Sure. Thanks Drew. So Europe is a bit of a tricky one. Those of you that have been following heard maybe fairly conservative with respect to Europe. The first quarter as we indicated in the prepared remarks came up quite strong. We saw year-over-year activity up about 45%. So I just - I want to be, we’re trying to be a bit prudent to bit careful, seeing some good I think your terms on green shoots that's a good way to describe it. The first quarter was very positive for us. When we think about the guidance and what we’re looking at for the next three quarters, we’re still trying to be relatively conservative. I want to see this sustain before we get too far ahead of ourselves. But we most certainly are seeing two things, one the core business that we have in place and have had in place for sometime, very good quarter. Some of the things that we were perhaps expecting to see recover late in 2014, we saw some good results on that activity here in early 2015. The second thing we're seeing in Europe are some fairly receptive partners for some net new ideas and some incremental business we mentioned at the last quarterly call that we had signed a significant deal with the large loyalty program. Around hotels booking and time that more directly to the loyalty program and really using our PointsHound experience in that acquisition too help to create private branded versions of that going forward. Obviously we are very pleased with that in our last call. We subject lot even - obviously working that pipeline and Europe has been very responsive to that model. So we see core business doing - seeing improvements and we’re also seeing some interest and excitement around net new ideas out of the European marketplace. So, we’re optimistic over the long haul. We’re just going to try to stay prudent in terms of the next three quarters until we see this kind of balance been sustained. So, but overall feeling pretty positive. Second question around Points.com, I think we talked a little bit about the digital wallet activity that and Points.com relaunch are really very closely linked. Part of the way we’re approaching the Points.com relaunch is to get that into an environment where we have a very enhanced mobile environment, a very enhanced distributable set of functionality being able to relaunch that technical backbone will allow us to have a much more robust Points.com blended proposition. It’s also critical for us then to be able to take that functionality and move that out into the digital wallet space. You heard me speak about how we see the payments and digital payments world evolving over time. We would expect to take that relaunch Points.com business and that would be an integral part of our participation in some of these digital wallets going forward. So, they're pretty closely linked and the functionality and distributability, the mobile capacity of the new Points.com will really be an important part of how we take that out and participate as a loyalty provider inside this emerging and massive mobile payment space.

[Drew McReynolds:]

Okay. That's helpful, thanks Rob. And Anthony just two for you, first I think I may have missed the kind of segmented extents guidance that you gave for employment cost. Are you still looking for about 10% up year-over-year?

[Anthony Lam:]

That is correct.

[Drew McReynolds:]

Okay. And your comment on year-over-year growth rates being higher I think in the first half first as the second half of this year I think that was pointed out last quarter. Is that specifically for EBITDA and gross margin or where we see the same variation on the top line as well?

[Anthony Lam:]

When you look at the topline I think is where you want to be looking at that. So, it's largely because we have - again we’re lapping some partners that we - some large partners that we had mid year last year.

[Drew McReynolds:]

Okay. Thanks for the clarification. That's it from me. Thank you.

[Operator:]

The next question is from Sameet Sinha of B. Riley. Please go ahead.

[Sameet Sinha:]

Yes, thank you very much. I also had a question regarding the .com relaunch. Historically there has been certain constraints and conflicts I guess to have a real marketable consumer product out there. Can you touch on those and if there is any - this version will be any different from the previous one and then I have a couple of follow-ups?

[Rob MacLean:]

I will say keep in mind that the Points.com consumer website today is a relatively small a very small part of our overall business. So while we’re relaunching that really in the context of being able to participate in the digital wallet space and provide the loyalty services in that emerging market as the primary driver, you’ll see - we’re still anticipating that the core size of Points.com business won’t dramatically change in 2015 and that’s again part of our guidance we've said look let's see how that all plays out before we start modifying the guidance. In terms of functionality, a little bit of, obviously usability is going to be dramatically improved, the ability to take that on to a mobile environment is obviously something we think is important. Being able to connect that Points.com proposition, but today we have between 3 million and 4.5 million consumers engaged in Points.com that topline of users changes dramatically when you move into a digital wallet. So, those are some of the things that we see changing in the near term around Points.com. I think the other thing to keep in mind as we move particularly into the financial services space and we’ve indicated that the initial digital wallet that we expect to participate in, is oriented around financial services. The exchange rates and the ability to trade currency is, I think a much better customer proposition when you introduce financial services currencies into that exchange activity. So that's one of the things that you think about improved customer proposition and functionality going forward that we're paying close attention too.

[Sameet Sinha:]

Okay. And secondly I wanted to also ask a question regarding Europe. Can you remind me what sort of organic growth rate or same client growth rates pad in the fourth quarter. And I know you want to be cautious regarding this geography but is there, do you think these are macro situation - things that are improving or is it just consumer behavior or your partner behavior that's changing, if you can elaborate on those that will be helpful.

[Rob MacLean:]

I think rather than getting the detail or organic growth by partner and by region, certainly slower that we were seeing in 2014 on the European front from an organic standpoint. Obviously 45% growth year-over-year gives you an indication that it has bounced back very aggressively in the first quarter. So organic growth is - it was very healthy in the first quarter. We are just a little bit cautious on, I want to see that sustain for few quarters before we call it - that we bottomed - the industry is bottomed out and we’re seeing a sustainable growth trajectory again. But to your second question, it is both we’re seeing core performance which I think is more types in macro economic drivers in the European marketplace. So core functionality and core modest sales and that activity I would attribute more there. But there is - the second point about being in more conversations with European partners about either net new ideas or coming on to the platform, is much more reflection of where I think their mindsets are. In some of these tough periods we have seen partners historically who look at incremental ways to extract value and economics out of their assets. And we said for many, many for years, one of the hidden assets inside, a lot of these airlines and hotel programs, hotel companies I should say, are the loyalty programs themselves. And so I do think we’re seeing some of that happen in Europe where under distressed times, they're spending more time internally thinking about how do we generate economics from some of our other assets and that's translating into opportunities for us, not unlike what we talked about with the PointsHound private branded opportunity last quarter. So, good times on both fronts but let's going to see that properly for a little bit before we get too excited.

[Sameet Sinha:]

Sure. And I know you will avoid giving much color on second quarter but if you can help us or if you just remind us about some of the things that happened in the second, third and fourth quarter of last year, so that we can keep in mind while modeling this current year that final things will be helpful.

[Rob MacLean:]

I think big moving pieces obviously you get into kind of full cycles with big new partners like Southwest in the second half of the year, you got the introduction of big partners like Hilton HHonors in the second half of 2014. So those are kind of big drivers that impact the seasonality. I couldn’t get into all the details but, if you look back over the last two or three, three or four years, we will see campaign management move around within quarters, we don’t really manage that on quarter-by-quarter basis. It's really where we see good opportunities to go touch these $500 million to $800 million consumers with messages, campaigns, promotions etcetera, it’s a drive the core business of retailing and merchandising MileagePlus. So it has over time as we get more and more partners on the platform because all of those campaigns and those promotions are happening at different stages year-over-year, you’re going to see less continuity or repeated seasonality on a year-over-year basis. So I'd say, just to recap three things big partner and Hilton you’re seeing things - big partners like Southwest flow through and you got campaigns moving into a more normalized environment, because we have so many partners now that you avoid some of the seasonality that we’ve seen in the past. I think the last thing I'd comment on there is, recall that we have just brought United onto the platform here at the beginning of the year. So what we're going to see in terms of how that rolls out across our platform and performance is to be determined and it will have an impact on our 2015 numbers in a way that obviously didn't impact 2014. So lots of new moving pieces, but all I think ultimately moving to a spot where we feel comfortable with 15% to 20% growth and 15% to 25% growth on the EBITDA line with all these various moving pieces.

[Sameet Sinha:]

Great. Thank you.

[Operator:]

The next question is from Andrew De Silva of Merriman Capital. Please go ahead.

[Andrew De Silva:]

Thanks for taking my call, just a few questions. First off with respect to margins in regards to mobile wallet. How do you think everything shakes out there? You mentioned starting off in the second half of this year, so should we assume they resemble Points.com margins which are very high or is it more going to resemble your reseller business margins, which are 14%, 15% range. And then if you can maybe provide a little clarity on what you consider a successful roll-out as far as who won at launches or we should watch for any metrics that we can chart as we move on here?

[Rob MacLean:]

That's a good question Andrew, I want to be - try to be as blunt as I can on this one. I think what we'll try to say to the market really over the last six months and particularly in this quarter and last quarter is that we believe there is a big opportunity long-term in terms of digital wallets and the payment industry, we're not expecting that to and not in a position that we want to provide any kind of financial returns here in 2015. We have to get our position in the marketplace established in 2015. And as we see results coming in with more and more partners, I think we’ll then be in a position to speak to the marketplace with a little more clarity on what the financial should look like. So I would reiterate the point we've been making for the last six months that there’s nothing significant in our guidance for 2015. We’re measuring success in 2015 on the wallet space more around, are we able to create the product and functionality that we think is sustainable and adds tremendous value to the payment ecosystem and we’re feeling very good about that. Secondly, are there loyalty wallet - digital wallet customers out there that are interested in what we can provide in terms of loyalty services, I think as I’ve said broadly in the past, every digital wallet we speak to without exception has a point in their roadmap where consumer loyalty is mission critical to their success. So the second thing we look to is, are we able to translate that into customers if you think about digital wallet as potential customers for our products, are we able to establish relationships with those folks. We’ve already indicated to the market that we signed one deal and we’ll expect to launch the world's first digital wallet loyalty overlay here in the second half of 2015. And obviously a success for us will mean having more of those loyalty wallets come to market over time. The last thing I think I would look at is, are we then able to engage the loyalty industry, which is one of those core assets that we developed over the last 10, 12 years, where we have this very unique and expensive access into the loyalty industry and 500 million to 800 million active consumers in these loyalty programs. Are we able to ensure that they participate as actively as possible and how the digital wallet marketplace emerges. So for us success will be good functionality and products, two, get loyalty wallet - digital wallet customers on board, and three, get our loyalty program partners engaged in the proposition, that's how we’ll deem success here in 2015 and early 2016.

[Andrew De Silva:]

Got it. And moving over to China with the recent announcement with Hainan. How is that partnership established, is it coming through China rewards I know you have a minority investment in there and with China rewards, is there any or all relationships that will involve some sort of reseller opportunity have to funnel through your platform as well or can they do their own thing out there?

[Rob MacLean:]

Good question. And those are independent relationships for sure, so the Hainan relationship will be on our platform on the loyalty commerce platform. Very similar sales process to what we experience in North American or other international markets, it's by just an exchange proposition. I think it's indicative of those what we were anticipating that those big programs starting to move more aggressively towards monetizing their databases and the buy, gift products are really right on target from that standpoint. The interesting thing is they will be coming on to the exchange proposition at Points.com and some of the things that we just talked about from a mobile standpoint. That is one thing we’re seeing in that market as those international carriers look at how to they expand their offering to their millions of members, is they want to have access to some of these western brands and currencies and so the exchange proposition that we had in place for sometime becomes an interesting proposition of where that Chinese consumer can take some Hainan currencies or other currencies and convert them across the recognizable western brands and vice versa. So that’s becoming - has been a product that is quite interesting to the Asian marketplace over the last three to six months.

[Andrew De Silva:]

Has consumer traction for the exchange products picked up at all since I know the corporate aspects picking up - are you seeing consumers more willing to take exchange and transact or even realizing that's natural optionality our there.

[Rob MacLean:]

In the China environment?

[Andrew De Silva:]

Across your platform in general?

[Rob MacLean:]

That still remains a very, very small part of our overall business and that really won’t change until we relaunch and package the Points.com proposition along with the wallet. So again really just giving a bit of indications to the market are some of the things we're working on but no change to that behavior until we relaunch the business.

[Andrew De Silva:]

Okay. And just last couple of questions here. If you could, may quantify the dollar amount or percent of your quarterly fixed expenses related to non-revenue generating initiatives year markedly in the past strategic investments. And then I have to ask a pipeline question, you minded some several meaningful partners, is it still continually being refilled and would you at least be able to comment if it as large it was maybe this time last year, when you reported so we can get a sense of how things are trending on a year-over-year basis?

[Rob MacLean:]

In terms of the first question, we've indicated $3.5 million to $4.5 million spent here in 2015 associated with classic R&D which will be the translation I think of your question, that hasn't changed since our last call on track there, feel like that’s the right kind of balance between taking advantage of opportunities going forward and ensuring we drive as much value to shareholders as possible. So no change there since the last call. Again similarly in terms of pipeline, we keep - we continue to see significant opportunities in the pipeline. We continue to have a good success in knocking that down. Obviously the change of United and AA/US becoming a restructured environment, is little bit interesting because its has brought in some of the pipeline but at the same time, I think I would view from my perspective the American Airlines relationship has now a pipeline opportunity to recover that overtime. So, pipeline continues to be very strong and that's not a surprise when we think about the addressable market here of $2.5 billion to $3.5 billion. On a go forward basis our pipeline will be strong for sometimes.

[Andrew De Silva:]

Thanks for taking my questions. Good luck this year.

[Rob MacLean:]

Great. Thank you.

[Operator:]

The next question is from Ed Woo of Ascendiant Capital. Please go ahead.

[Ed Woo:]

Congratulations on the quarter. I wanted to know what you're seeing out there. I know you talked a little bit for the European several markets but what are you seeing out there for the U.S. market. I know that, good royalty and maybe little oil, you’ll see lower aircraft but it seems to be having the opposite effect and how does that impact your business?

[Rob MacLean:]

Well, I can't comment on the airlines performance, obviously they're deploying - they’re putting out records quarters, I think almost all of the big carriers in America put out record quarter just recently. For us we said for many years, the healthier the industry is the better it is for our business over the long term. And I would say in specific to the North American marketplace, we see very healthy dynamics here. Four, five years ago we were seeing Europe very strong and the U.S. marketplace being somewhat challenge. Now we grew through that cycle because of the early stage nature of our business but very robust right now in terms of North America. I think the programs are doing well, we’re seeing record membership growths across our partnership base. We just had an industry conference last week that we sponsor where a number of our partners were on the stage talking about the health of their respective programs. A number of them are talking about and disclosing that they’re adding 50 to 150,000 new members every month, not every year, but every month. And so you see that at scale with all of the different programs that are in place here in North America, I would say this is as healthy as we've seen the U.S. loyalty market in some time. So that’s great, we've got good growth happening, we’ve got kind of innovation going on, we’ve got more programs coming to market, so feels like a pretty healthy U.S. marketplace.

[Ed Woo:]

Great. And my last question is going to backend of the pipeline, will we see more focus on international opportunities now that you’re doing a little bit more in China or is still going to be North America, Europe?

[Rob MacLean:]

Yes, we certainly have both - there are a significant number of international opportunities that we're advancing. So, you’ll continue to see a pretty normal set of results for us where we talked about for some time, you’re going to have diverse geography, I think one thing probably a little bit further along in Asia and backed up what we just announced with Hainan but good discussions in the Asian marketplace. So we're probably further advanced here than in the last call six or eight weeks ago, but good opportunities in Europe as I mentioned previously and there continues to be opportunities in the North American space. Also I will say, the verticals continue to vary. We seen strong airline and frequent flyer opportunities. We see solid hotel opportunities in front of us. Collinson programs that have been very successful in different markets are interesting and discussions continue to advance. And then this digital wallet marketplace that we started to identify as another vertical that's interesting to us, we see some pretty good opportunities in different verticals as well. So we’re planning for these days for sure.

[Ed Woo:]

Thank you and good luck.

[Rob MacLean:]

Great. Thank you.

[Operator:]

This concludes the question-and-answer session and today's teleconference. You may disconnect your lines at this time. Thank you for your participation.