Points.com Inc.
Q3 2014 Earnings Call Transcript

Published: 6 Nov 2014

[Operator:]

Greetings and welcome to the Points International Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kimberly Esterkin of Addo Communications. Thank you. You may now begin.

[Kimberly Esterkin:]

Good afternoon, everyone, and thank you for joining us today to discuss Points International's second quarter 2014 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 would like to remind you that the remarks on this conference call contain or refer to forward-looking statements within the meaning of Canadian and US 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 third quarter 2014 financial press release as well as other documents filed with the Canadian and US 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 turn the call over to Rob MacLean.

[Rob Maclean:]

Thank you, Kimberly. Good afternoon, everyone, and thanks for joining us for our third quarter earnings call. As I will convey today, Points' business remained strong, the broader loyalty industry healthy and our outlook for the future optimistic. We continue to deliver solid growth in our current business and are working on several exciting and significant opportunities that promise to further our successful track record of executing against our new partner and product pipeline. The value we continue to generate for the loyalty industry is evident in our financial results. Year-to-date revenues were up 43%, driven by healthy organic growth as well as the onboarding of new loyalty programs over the past 12 months. Entering 2014, we told you that we would increase our focus on driving the performance of our existing partners through improved marketing and promotional activities. We're pleased to have delivered against this promise and we've also made several advancements on the technology front, which I will touch upon momentarily. We expect these advancements to drive further efficiencies with both our existing and new partners. We also continue to benefit from our geographic diversity. Despite ongoing pockets of weakness in Europe, largely we believe due to the broader economic concerns of the region, our North American business is strong. While we remain conservative on the overall performance of our existing business in Europe in the near term, we're encouraged by the many new business opportunities in other regions of the globe. In terms of profitability, adjusted EBITDA expanded 58% year-to-date, led by revenue and gross margin dollar growth. We continue to view gross margin dollar growth as a key metric in measuring Points' success and our growth in the metric has been solid. Year-to-date growth in gross margin dollars has been roughly 28%, reflecting the contribution from new partnerships launched over the last 12 months as well as increased transactional activity among our existing partnership base. We're also increasingly efficient at dropping these incremental gross margin dollars to the bottomline. Adjusted EBITDA as a percentage of gross margin, the key internal measure we use to assess our operating efficiency, was 22% year-to-date, up from 18% compared with the prior nine-month period, as growth in gross margin has outpaced our incremental investment spend. Moving on to our partners and pipeline, since the start of 2014, we have launched 30 products and added eight partners to our loyalty commerce platform, including Hilton, Spirit Airlines, Etihad and Jet Airways. As previously mentioned, our PointsHound acquisition has also proven to be a strong channel for partner development and has allowed us to expand relationships with a number of our preexisting partners. We've added JetBlue to the PointsHound roster and most recently announced a partnership with Asia Miles, Asia's leading travel and lifestyle reward program. We're also seeing new opportunities develop with the PointsHound business as we engage with many of our current partner programs. We expect to see a number of partners take advantage of these new opportunities as we move into 2015. Despite our new partner success, our pipeline remains robust. As I've spoken to in the past, we believe that our targeted addressable opportunity represents an additional $800 million incremental revenue for the company. While this is a long-term target, we're currently in discussions with several potential new and meaningful partners and have active proposals in the hands of partners or prospective partners, representing well over $100 million in incremental annual revenues. Still as we mentioned previously, larger opportunities present even more unpredictable timelines, making it difficult to determine when such partnerships may launch. In addition, there is no guarantee that we will win all of our [ph] APAC business. Nevertheless we discuss these potential revenues to illustrate to the market that the scale of the opportunity we are pursuing is significant, both in the near and long term. In addition, we are in the final stages of completing a strategic partnership with Collinson Latitude, a likeminded, innovative and successful global loyalty company headquartered in London. We've been working together with Collinson Latitude over the past two years with considerable success. Today, we work together on six earn malls with partners throughout Europe and North America and we are currently in advanced discussions with partners to more than double our current success together. Our existing partnership has proven to be a great fit with significant opportunities to expand the relationship into the future. Collinson Latitude has offices in New York, London, Dubai and Singapore with earning and redemption capabilities in over 150 countries, providing complementary services and products to Points for the loyalty industry. Collinson Latitude is part of Collinson Group, which has over 25 years of experience in travel and financial services loyalty and includes ICLP and Priority Pass within its portfolio. Our core buy gift, transfer, connect and Collinson Latitude's RewardAll and iRedeem products have been in strong demand with our loyalty partners and have consistently delivered great results. As we finalize the long-term relationship, we will more aggressively leverage each other's business development resources and product expertise to reach an even larger portion of the global loyalty industry. We're very pleased with the opportunity to partner with a great company such as Collinson Latitude and see this as an excellent example of how our belief in more together is being executed. So as is evident, Points has made solid progress so far this year, marked by revenue growth, incremental profitability flow and product and pipeline development. Taking into account our year-to-date performance and robust partner and product pipeline, while also considering the ongoing softness in Europe, Points is reiterating our financial guidance for the year ending December 31, 2014, as follows. Revenue is expected to grow in the range of 25% to 40% over 2013. Adjusted EBITDA is expected to be in the range of $16 million to $20 million prior to making strategic investments. And strategic investments are expected to be in the range of $5 million to $7 million for 2014. I'll be back momentarily to discuss in more detail the progress we've made on our platform and consumer initiatives. But first, I'll turn the call over to Anthony to discuss our third quarter financial results. Anthony?

[Anthony Lam:]

Thanks, Rob. As I review the results for the third quarter 2014, please be reminded that that all the numbers mentioned on our call today are in US dollars and all the figures are presented in accordance with International Financial Reporting Standards. We are very pleased to report record quarterly revenues of $61.4 million, an increase of 13% from $54.4 million in Q3 of 2013. Our revenue growth can be attributed to increased transactional activity from new partners and products introduced and deployed in the past year. Principal revenues accounted for nearly all of the revenue growth during the third period, increasing 12% to $58.8 million, up from $52.5 million in the prior-year period. Gross margin dollars in management's view continues to be an important measure of financial performance as it represents the amount of revenue retained and available to fund ongoing operating activity as well as investments in strategic opportunities. In the third quarter, gross margin dollars totaled $10.2 million. This compares to $8.7 million in the prior-year period, an increase of 17% year-over-year. Year-to-date on a year-over-year basis, gross margin dollars have grown to $29.3 million, an improvement of 28%. As a percentage of sales, gross margin dollars was almost 17%, up from 16% in the prior-year quarter and up sequentially from 15% in the second quarter of 2014, reflecting the relative mix of partner and product activity. As we've shown in previous years, we start the fiscal year with lower gross margin profile and end at a higher gross margin profile, as we realize volume-based incentives throughout the course of the year. Overall, we continue to expect gross margins to be in the 15% to 16% range for the full year. 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 $7.6 million, an increase of $1.2 million or 18% from the third quarter of 2013. The increase in ongoing operating expense was primarily attributable to the Corporation's investment strategy, which involves in-year spending to improve our technological infrastructure, including our open platform, and development of new products that are not anticipated to yield revenue and gross margin in 2014. Employment cost in the quarter totaled $5.6 million, up from $4.9 million in the third quarter of 2013. Including our PointsHound acquisition, we've grown the Points' team to 178 staff on a full-time equivalent basis at the end of the third quarter. This is up from 142 in the year-ago period. As mentioned on previous calls, in the past 12 months, we have continued to add key roles in line with the Corporation's investment strategy. Additional product and technical resources have been focused on modernizing and advancing core technology infrastructure, consumer-facing products and improved data analytics. Looking ahead, the employment costs are expected to remain at the third quarter levels for the final quarter of 2014. Marketing expenses for the third quarter were $523,000, up from $267,000 in the prior-year period and $328,000 in the second quarter of 2014, primarily due to increased loyalty partner engagement activities, costs related to our partner conference, increased marketing research cost and higher advertising cost. We expect this expenditure to grow largely in the fourth quarter of 2014. Technology expenses, which cover the cost of maintaining and protecting our production environment, these are application licenses as well as general technology upkeep and enhancements, were $308,000 compared to $214,000 in the prior-year period. The increase in technology expenses was largely due to the timing of IT system maintenance activities as well as additional software license cost. This expenditure line is expected to remain steady for the final quarter of 2014. Other operating expenses comprise rent, insurance, professional, legal and accounting fees as well as public company cost. This line item was approximately $1.2 million, up slightly from $1.1 million in the prior-year period. Generally these expenses remain relatively steady and we only anticipate a marginal increase as we approach the end of the year. Adjusted EBITDA grew 12% to $2.6 million from $2.3 million in the third quarter of 2013. On a year-to-date basis, adjusted EBITDA has increased to $6.4 million, up 58% over the comparable prior-year period. Growth in revenue and gross margin together with a steady operating cost combined to drive the year-over-year increase in adjusted EBITDA. As Rob mentioned, if we look at adjusted EBITDA as a percentage of gross margin, we're becoming increasingly efficient at dropping incremental gross margin dollars to the bottomline. We consider this to be an in-home measure of operating efficiency as it measures our ability to generate profitability after funding both ongoing operating expenses as well as making strategic investments. Adjusted EBITDA as a percentage of gross margin dollars was 22% year-to-date, up from 18% for the first nine months of 2013. Amortization expense decreased $322,000 or 40% to $481,000. This decrease can be attributed to certain assets being fully amortized at the end of 2013. Amortization is expected to be close to $600,000 in the final quarter of 2014. Finally, the company reported third quarter net income of approximately $1.7 million or $0.10 per diluted share compared to $1.1 million or $0.07 per diluted share in the third quarter of 2013. As of September 30, 2014, total funds available comprised of cash and cash equivalence together with security deposits, restricted cash and amounts with our payment processors totaled approximately $64.2 million. We remain debt free. Net operating cash, which we define as total funds available less amounts payable to loyalty program partners, totaled $19.9 million at the end of the third quarter compared to $16.2 million as of September 30, 2013. We are very pleased to continue to generate sufficient cash to fund our current and working capital requirements as well as anticipated capital expenditures. As of September 30, 2014, we have weighted average shares outstanding of 15,405,587 shares and 15,605,681 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 Anthony mentioned, our balance sheet is strong and provides us with the flexibility to execute a multi-pronged growth strategy whether that being through additional platform and product enhancements, partner developments or similar to PointsHound, strategic investments or acquisitions. We will be diligent in our deployment of cash and balance these opportunities against other considerations to enhance and drive shareholder value. The opportunities which are pursuing all serve to strengthen our loyalty commerce platform and to drive innovation in our core business. Last month, we held our annual partner conference, where over 60 colleagues from our partner loyalty programs joined us in Toronto to hear updates on the advancements we are making in our business. As we outlined to our partners, we see opportunity to leverage new technologies and architectures to scale our business more rapidly and efficiently than ever before. We are certain that our move to a more open API-driven transactional platform will accomplish a number of things. First, it will allow us to leverage our experience and growing access to data to significantly expand our core business of retail and loyalty currency. Enhanced capabilities on segmentation, real-time scoring and automated offer generation will allow us to increase our products' penetration into our partners' databases. All of these advancements will enable us to be less reliant upon our partners' infrastructures as well as share increasing amounts of data and learnings in a much more efficient manner. We've been building out our capabilities over the past 18 months and already have a number of transactional products up and running. Ultimately over the next year-and-a-half, a large focus of ours will be to transition all of our products over to the new loyalty commerce platform. We're currently in the process of transitioning our core retailing products and once migrated, we expect to see a meaningful impact on the business as we leverage new capabilities. While the aforementioned product platform advancements were very well received during our partner conference, we along with our partners are very enthused by the investments we are making in the consumer side of our business. Specifically, we will soon be re-launching Points.com loyalty wallet on the new platform. In doing so, we will be able to add new transaction opportunities much more effectively as well as more efficiently address the mobile opportunity across platforms through responsive design. A key attribute we're building into the loyalty commerce platform is the ability to integrate third-party products, which enables us to distribute our multi-currency transaction capabilities via numerous distribution partnerships. All transactions will take place in the secure and sanctioned environment of the Points.com loyalty wallet. That said, the wallet itself won't be restricted to the Points.com website and will instead be made accessible to other distribution partners. First step in terms of distribution partnerships will be our current loyalty program partners. Our proposition is well suited to assist and managing their current relationships while also expanding their programs' reach by offering direct access to new loyalty currencies as well as redemption and earn opportunities. Given the relative ease that we can also internationalize the product on our new platform, we're especially excited to be able to leverage this investment in new markets like China as well as for new partners like MasterCard. In addition, we're eager to offer this sanctioned access to additional loyalty currencies and a wide range of distribution channels. We believe an early adopter of this functionality will be the growing group of digital wallet providers who have all been top of mind lately after Apple Pay's recent launch. These innovative companies from Google, PayPal, MasterCard and Visa to the lesser known startups have all stated their intention to include loyalty information and transactions in their various propositions. One of Points' core competencies is product and platform integrations and we look forward to leveraging this knowledge in the distribution of our loyalty digital wallet. We believe the offer of a sanctioned and managed platform that provides consumers the ready access to their multitude of loyalty programs will be very well received by the digital wallet industry. In fact, we're at the advanced stages of agreeing to launch our service to power the loyalty component of one of the world's leading financial institution's digital wallets by mid-2015. Active discussions are also underway with numerous other digital wallet providers and we'll keep you posted on our progress. We're convinced that this distributed capability is applicable to not only the digital wallet industry, but also to other businesses as well. Travel is an obvious large opportunity, given the overlapping consumer base. And with our acquisition of PointsHound, we've added a number of highly skilled individuals to our West Coast team. They've become important contributors to progressing our consumer and digital wallet initiatives and we believe PointsHound itself will be a great showcase for others in the online travel space to show how integrated loyalty can significantly boost their business, while also driving tremendous value to our loyalty program partners. While loyalty programs, financial services, digital wallets and online travel will be our initial focus, the greenfield opportunity is tremendous. As is evident, we continue to deliver on our existing opportunity with growth in revenues, gross margin flow-through and improvements in our adjusted EBITDA. We also are working hard to capture the massive long-term potential of the business by developing our platform, onboarding new partners and innovating the way in which the loyalty industry conducts business. Through the continued execution of this plan, we believe that we will drive value for Points' shareholders and our company. In addition, the Board of Directors in conjunction with the management and its advisors is actively evaluating our capital allocation strategy, including considering such actions as employing a share repurchase plan to drive further shareholder value. We will update you as our discussions progress. With that, we conclude our prepared remarks. Operator, we will now open up the call to questions.

[Operator:]

(Operator Instructions) Our first question comes from the line of Andrew De Silva with Merriman Capital.

[Andrew De Silva:]

Just have a couple of quick questions for you. First off, what was your year-over-year organic growth with legacy partners? And can you break it out Europe versus the rest of the world, so we kind of get a sense of the impact in Europe? If you can also just break out what your incremental cash spend was during the quarter for strategic initiatives? Any color you have on why the sequential decline from your second quarter was so much more prominent than it was in previous years would be helpful as well.

[Rob Maclean:]

So sequential decline, largely due to seasonality. I think the two big drivers that we see in the third quarter is again following a very, very positive second quarter where we had campaign activity and promotional activity skewed there. You just get some natural seasonality on a quarter-to-quarter basis. The other thing I would say on top of that is we have seen some continued softness in the European marketplace, and that's just dragging on longer than, I think, probably us or our partners would like to see. So I think that's the primary contributors there. Year-on-year organic growth kind of in the same boat, lower than what we saw in a very, very strong quarter, continue to see us year-to-date tracking into double-digits, north of 10% in terms or organic growth. So still feel very, very positive about that. By and large, the partner base is all in a very good spot. We've got a couple of guys that are somewhat slower than the rest, but held the organic growth perspective for sure. In terms of the incremental cash spend, I'm not sure that we can or would break that out specifically. I think when we provided guidance that, as Anthony said, the keys that we're working on, R&D type oriented activity around the platform, product development, enhancing the consumer strategy, as I talked about, we're pretty pleased with the way that is all moving forward. And all of that really is captured in the $5 million to $7 million investment spend that we indicated early in 2014. So really just tracking along as we would normally expect.

[Andrew De Silva:]

Have you experienced any partner attrition or any transitions from a principal partners to an agency engagement in recent quarters or months?

[Rob Maclean:]

No, we have not.

[Operator:]

Our next question comes from the line of Pardeep Sangha of PI Financial Corp.

[Pardeep Sangha:]

You had an $800 million number and a $100 million number. Can you just tell what you were saying there just for clarity?

[Rob Maclean:]

That was in reference the continued size and scale of our pipeline. Those of you that have followed us, we see the opportunity in that new partners and the value of the net new partners to continue to be very, very significant for us. We still feel like we're in pretty early days in terms of capturing all of the loyalty currencies coming on to our platform. That really is the continued reference to the $800 million of addressable market. We did dial up a little bit the near-term number well over $100 million worth of annual revenues that we have proposals actively in hands of partners or prospective partners in the marketplace today. So I think to reference that, the last quarter that was well over $50 million. That's now well over $100 million and we feel again very solid progress on the pipeline. So again, that's one that has always kept us quite excited that we're working on some pretty sizeable deals and are hoping to build on our track record of knocking big deals that you've seen over the last few years.

[Pardeep Sangha:]

By going from like $50 million to now $100 million, was that a function of new opportunities that have come onboard or is it just things coming further down your pipeline and now that they're further along and (inaudible) negotiations and so more better visibility? Which kind of category do they fall under?

[Rob Maclean:]

Yeah, I think it's both of those and just larger opportunities as well. So we had new players coming into more advanced conversations. We've had just progressed further with some and just some of them are larger as we dig deeper into and work on whether it's product one or product two that leads into product three and product four conversations that expands the size and scale of the opportunities. So all real positive contributions for that increase in the pipeline.

[Pardeep Sangha:]

Around MasterCard, is your integration work with MasterCard all completed now and are you now, just give me a sense, trying to actively selling in partnership with MasterCard, and how does that process work with selling to the banks with MasterCard? I mean is that a joint sale effort or who is pulling and who is pushing in that sort of process?

[Rob Maclean:]

We have completed the integration between ourselves and the MasterCard's loyalty platform. That work went on through this summer and is live and connected and operating today. So we are in full mode interacting with the bank customers of MasterCard. So we're spending time throughout North America and Latin America in particular in front of MasterCard's bank partners that have standalone loyalty currencies and showing them the benefits and how our relationship is working. And so we're moving directly into that phase now of selling with the banks alongside our friends at MasterCard.

[Pardeep Sangha:]

Once you sell to a bank, the process of turning them on is much more quicker than, say, an airline, and that you've done in the past, am I understanding that correctly, because you've already done this integration with MasterCard?

[Rob Maclean:]

That's a fair way to assess it. It becomes a commercial conversation rather than a technology conversation, because the platform itself is embedded and we can turn that on very quickly. So a simpler, cleaner story in terms of the sales process.

[Operator:]

Our next question comes from the line of Mike Malouf with Craig Hallum Capital Group.

[Mike Malouf:]

I'm wondering if you could just expand on the MasterCard. I know there's dozens of banks in that program. Can you give us a sense that now that you're complete with the integration, if you sign up one of these banks versus some mid-sized bank and the average of those banks, what does this actually mean to you guys on a financial basis and how do you get paid?

[Rob Maclean:]

We wouldn't specifically call out any individual partner, MasterCard or the bank itself. But let me answer it this way. What we're partnering with MasterCard on is to enable them to offer their customers, their banks our products and services in an efficient and timely cost-effective way. So they look at their customer base of banks globally that utility and ability to have currencies have more liquidity is really important to that emerging international loyalty space in the financial services sector. So strong belief that, hey, if we can make those currencies more liquid, you're going to make that program more valuable and that's a great customer service proposition to their bank customers. And so they see us and our product suite as a great way to help facilitate that. So between exchange, trade, redemptions, the buy miles product, transfer miles product, the gifting product, all are designed to help create liquidity and create utility and currencies globally. It helps that proposition. Underlying economics on the deal would be exactly the same as we're doing with other partners. So if you brought a bank on and they signed up and they were doing trading activity, exchanging activity, buy miles activity, it would really follow the same business model that we have in place today with our existing loyalty programs. So for us, it's an opportunity to expand our reach more rapidly into the financial services space. They have a particularly strong position in the international markets. And so for us, it's a great partnership, great endorsement, a great technologic connection. And now we have to go and prove with MasterCard and the banks that there is a great interest from the financial services business.

[Mike Malouf:]

Are you treating this somewhat like a principal basis for your guarantee and revenue to the bank, much like you with your other partners? Or are you just kind of going in and offering this as a solution?

[Rob Maclean:]

We're at the very early stages of engaging with the banks. It will probably early on be more of the latter would be my expectation. And again, that's a function I am moving into some of these newer markets and making sure we understand how those businesses operate and evolve. But over time, I suspect you get a better of both, right. You'll get larger banks and larger currency programs that we can provide more and more support and service to, will fall into our principal model. But I would expect it to start in the international markets on the latter.

[Mike Malouf:]

When you take a look at the wallet opportunity, you said you're in the late stage negotiation with a very large one hopefully for mid-2015, kind of the same question on that, is it similar to that or is it going to be a little bit different?

[Rob Maclean:]

It's certainly different. We do believe the wallet functionality will be very relevant to the way we execute on the MasterCard relationship and on the banks with the MasterCard relationship where if you're one of their larger banks on the platform, being able to deliver our loyalty wallet, which would give their customers the opportunity to see all of the various currencies and do all of the transactions that happen today on Points.com, but in fact be able to do that in a distributed loyalty wallet fashion feels very on strategy. So what we're doing is we're taking that functionality, the buy, the gifting, the exchanging, the trading, the tracking of all of your currencies and putting that in a module that we can place with a digital wallet. So we're not going to create and compete with these big providers that are creating payment systems and digital wallets. We're going to provide and we believe the bigger opportunity for us is to provide the loyalty wallet component inside those programs. So that's really what we're focused on building out. As I mentioned in my prepared remarks, we'll have that re-launched on the new platform here early in 2015 and you'll see deployed out on our existing product with PointsHound. That's our expectation and then roll that out into third-party distribution through the digital wallet by mid-'15. So we think it's a great opportunity to take this very unique view that we have and this very unique set of assets and be able to distribute that to where the customer wants to go. And we clearly thing that's a big part of what we'll be also doing here over the next 12 to 24 months.

[Operator:]

Our next question comes from the line Ed Woo with Ascendiant Capital.

[Ed Woo:]

I had a question in terms of how the overall travel industry, I know it's pretty stronger in the summer, did have any impact on your business? And what's your outlook for the travelling street and its possible impact on your business heading to 2015? I was wondering whether the market had any effect on your business and what is your outlook heading into next year.

[Rob Maclean:]

I think the only way I would answer that specifically, we continue to see Europe struggling. Just broadly speaking, the European travel market has been in more of a downturn for a longer period of time than probably we would have anticipated and certainly as we spend time with our international partners more than they would have expected. So that's probably the area that we've seen it impact our business. In the North American marketplace, it looks and feels quite healthy as we spend time with our partners, they seem to be in a very good spot, we're seeing good growth in travel in general. So it seems reasonably isolated. What I would say and I captured this a little bit in my prepared remarks, we are seeing other regions of the globe actually doing very well. So it seems to be reasonably isolated to what we're experiencing in Europe.

[Ed Woo:]

(inaudible) to your pipeline, but do you characterize it as being mid to more out of your core US North American airline partners or is it more of the same, if you could provide any type of color to it.

[Rob Maclean:]

It continues to be quite diversified. I'd say what has changed a little bit or what we're comfortable speaking to now, which we haven't done in the past, is we have the typical diversification geographically. We have opportunities here in North America. We've opportunities quite active in Latin America, in Asia and throughout Europe and the Middle East. So that geographic diversification continues. The verticals are reasonably diversified as well. Obviously the MasterCard discussions enable us to get into a wide variety of financial services. We have airlines, hotels, et cetera. So you're seeing good diversification on the verticals as well. What is new is when we think about our pipeline, the digital wallet and from a product standpoint, we're seeing pipeline build that we're spending time and energy against on that front. So we've spoken directly about events, discussions on digital wallets. That pipeline is building pretty quickly. So frankly, we're going to action that really as the industry moves forward. But over the last year, what our view was is that let's make sure we're part of the conversation and let's make sure that these digital wallets understand that the best pack to solving the loyalty conundrum with digital wallets is with and through Points. And so that pipeline is really what we're talking about for the first time today.

[Operator:]

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