Points.com Inc.
Q4 2014 Earnings Call Transcript

Published: 5 Mar 2015

[Operator:]

Greetings and welcome to the Points International Fourth Quarter and Fiscal Year 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] I’d now like to turn the conference over to your host Kimberly Esterkin of Investor Relation. Thank you ma’am, you may now begin.

[Kimberly Esterkin:]

Good afternoon everyone and thank you for joining us today to discuss Points International's fourth quarter and fiscal year 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’d like to remind you that remarks on this conference call contain or refer to forward-looking statements within the meaning of Canadian and U.S. securities laws. Management may also make additional forward-looking statements in response to your question. 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 fourth quarter 2014 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 turn the call over to Rob MacLean.

[Rob MacLean:]

Thank you Kimberly. Good afternoon and thanks for your participation today. 2014 was one of the strongest years in Points history. We delivered record revenue, gross margin and adjusted EBITDA in 2014 and demonstrated strong year-over-year growth. And with our successful execution against our new business pipeline, we are well positioned for solid 2015. As our guidance will show, we will continue to demonstrate meaningful growth across both revenue and adjusted EBITDA in 2015. I will first update you on our 2014 highlights as well as the number of the recent business developments at Points. Anthony will then walk you through our fourth quarter results in more detail before opening the call up to your questions. We finished 2014 with record revenues of $255 million, an increase of 26% over the prior year period. This strong growth was largely due to the contribution from new partners and products launched over the last 12 months, most notably Southwest Airlines, Rapid Rewards program midway through 2013 and the Hilton HHonors program in mid-2014. Gross margin dollars totaled $39.7 million, or 16% of revenue, up approximately 20% from $33.1 million, or 16% of revenue, in 2013. Adjusted EBITDA was $9.1 million or 22% year-over-year increase. Adjusted EBITDA as a percentage of gross margin a key internal measure we used to assess our operating efficiency was 23%, up slightly year-over-year as growth and gross margin has outpaced our incremental investment spend. This continued growth trajectory is a strong sign of the size and scale of the opportunity in front of Points. With these results, we’ve delivered a five year CAGR of 26% on revenues and 70% on adjusted EBITDA and we expect our strong track record of growth to continue into the future. On the new business front, we expanded the breadth and depth of our Partner Network by continuing to execute against our new partner and product pipeline. Taking into account, the new products and partnerships added from our PointsHound acquisition, we announced or launched 43 products and added nine new partners to our platform in 2014, including new partnerships with Hilton Hotels, Spirit Airlines and the Etihad Guest Program. And notably in December, we announced the most comprehensive long-term strategic partnership in the history of our company with United Airlines' MileagePlus Program. Points will power it’s Buy, Gift, Transfer and Reinstate Miles solutions as well as several other ancillary products available to MileagePlus members. This past January, we efficiently completed the conversion of the Buy, Gift and Transfer products onto our Loyalty Commerce Platform. To date in 2015, we’re seeing solid traction from MileagePlus members and look forward to continuing to build our partnership over the coming years. Since our acquisition of PointsHound in April, we’ve been encouraged by the new business opportunities that we’re developing with the PointsHound model among our existing partnership base. We’re pleased to announce that we recently executed a new agreement with a major European travel loyalty program to host and power their White Label Hotel booking platform. Based on the same proven PointsHound multi-currency bonus proposition, this programs members will soon be able to earn meaningful bonus miles based on hotel bookings conducted through a White Label service fully managed by Points. Soon after launch, they will also be able to redeem miles either as a top up payments or full payment based on an industry changing economic model. We will provide further updates on this new relationship as we get closer to launch of the service in late 2015 and expect meaningful gross margin to be generated in 2016. Even with our success that adding new partners and products in 2014, our pipeline remains robust. Our previously announced partnership with Collinson Latitude is proving to be a great fit and we expect that this new expanded partnership will result in new business development opportunities for us in the future, particularly in Asia. Furthermore, we continue to be in discussions with prospective partners across the multiple geographies and verticals. As we mentioned previously, predicting the timing of new partner signings and launch days can be difficult to determine, however the scale of the opportunities we are pursuing continues to be significant. Now a quick update on the American Airlines and US Airways merger. As announced in mid-December, the upcoming consolidation of the U.S. Airways Dividend Miles and American Airlines Advantage programs will lead to restructuring elements of these partnerships in 2015, including the departure of the Buy, Gift and Transfer products, resulting in lower revenue and gross margin from these partnerships going forward. While we’re disappointed by AA’s decision, we expect to maintain a robust relationship with combined program on an ongoing basis. We will continue to manage the wholesale activities associated with our connect and select platforms as well as operate certain redemption programs for American, leveraging the strength of our platform to drive these and further user engagement. In addition, we will continue to manage the Buy, Gift and Transfer products for the U.S. Airways Dividend Miles program on an agency basis until the Airline fully combines with American through the end of the current quarter. Notwithstanding the AA U.S. Airways decision, we are confident that the contribution from new partners and products as well as growth from existing partners when enable us to deliver strong growth in fiscal 2015. Over the last decade, we’ve built a solid business foundation and while we never like to reduce the scope of our services with the major loyalty program, a strong foundation enables us to better absorb individual partner movements, while still expanding on our revenue and profitability. As we look at opportunities to more rapidly capture growth, our efforts in 2014 were largely focused on strengthening and growing our open platform strategy, improving functionality on our core retailing products and evolving the consumer side of our business. We believe that the addressable loyalty market is $2.5 billion to $3.5 billion providing significant opportunity for growth well into the future, so continuing to invest against this tremendous green space remains the focus. In 2014, we advanced our Loyalty Commerce Platform, an API-driven transactional platform that provides external developers easy access to loyalty transaction capabilities based on our direct integrations with many of our loyalty program partners. In the second quarter of 2014, partnership with the new third-party, Vigorate, we successfully launched [indiscernible] auction products seamlessly connecting both parties by our newly developed open APIs. And just recently in January of 2015, Vigorate again connected with one of our leading programs leveraging our open APIs, launching the auction product with Hilton Hotels, all for a minimal cost and effort on the partners or Points behalf. In addition, we expanded the functionality of our core retailing products during the year, including an enhanced user interface improved transaction flow and automated offer generation. With the launch of Hilton Hotels in June 2014, we successfully integrated our biomass functionality directly into the hotel booking pack, improving the distribution of our most successful products. Each of these newly developed capabilities will not only make us more efficient, but will also allow us to increase member conversion and ultimately increase the reach of our products into our partner’s membership basis. Through 2015, we plan to continue to enhance our loyalty commerce platforms, marketing and merchandising capabilities. We will focus our development efforts on key areas including responsive design, personalized offers and mid and back office efficiencies. The transition of our core retailing products of the new platform is in progress and we will focus on transitioning all of our loyalty program partners over the next 12 months. We expect the new capabilities, we have developed over the 18 months, to drive growth in our core business and enhance the strength of our existing partnerships. We targeted 12 to 18 months payback on these of investments, have comfortably met these objectives in recent years and anticipate similar results for these current projects. In addition to our open platform, 2014 marked the beginnings of some meaningful investments against the consumer side of our business, an area where we see tremendous growth potential. With our PointsHound acquisition, we acquired a great loyalty-centered product in the online travel space that enhances our consumer presence and helps to drive revenue growth for our partners. More importantly, we added team of highly talented technology and product professionals to our San Francisco office, who bring with them a solid consumer base in background in the loyalty industry, and have the significant contributors to the development of our consumer strategy. 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 fully responsive to mobile use as well as easily integrate into various distribution channels. We believe that there is a tremendous opportunity in offering fully-sanctioned loyalty program transactions to various third parties with mobile wallets, other mobile apps, online travel and retail services, as well as point of sale providers. Facilitating this interaction between relevant channels and the loyalty industry will offer tremendous engagement and monetization opportunities to both our loyalty program partners as well as the new channel. As we mentioned in our last call, we are in active discussions with several digital wallet providers, who will be able to benefit from the distributed functionality our royalty wallet will bring. Leading with the financial services, travel and telco industries, we’re confident in our plans to deploy this industry leading functionality in the second half of 2015. We’re very excited about the advancements we’re making to modernize our products, make them more efficient, and broaden their user base. Our strong balance sheet enables us to continue to make these investments in our business, while at the same time return value to our shareholders. Subsequent to the fourth quarter in February, our Board of Directors authorized the stock buyback program. In 2015, we plan to make repurchases of our common stock from time-to-time based on our capital needs, stock price and general market conditions. Our buyback program signals management’s confidence and our financial position as well as our future prospects. And while we do not typically comment on the moves in our stock price, it has been a significant focus and investor concern of late. We do not control the movements in our stock price, but let me reinforce that we do not think our valuation today reflects the overall health and strength of our business. Our stock buyback announcement is a testament to this belief. Our business continues to run smoothly and we remain very positive about the future prospects of the company, we just wrapped up one of the strongest years in our history and are forecasting another year of robust growth ahead. Before speaking about our guidance about the current fiscal year, I’d like to turn the call over to Anthony to discuss our fourth quarter financial performance in further detail. Anthony?

[Anthony Lam:]

Thanks, Rob. As I review the results for the fourth quarter of 2014, please be reminded that all the numbers mentioned on our call today are in U.S. dollars and all the figures presented are in accordance with International Financial Reporting Standards. Revenues for the fourth quarter totaled $64.8 million, an increase of 6% from $61.4 million sequentially. On a year-over-year basis Q4 revenues were off 6% from $69.1 million in Q4 2013. Principle revenues, which totaled $61.8 million in the fourth quarter, declined 8% on a year-over-year basis. Principle revenues in the fourth quarter of 2013 were adversely impacted by a combination of factors. First, we continue to see the pockets of weakness with some of our European partners with revenues from this region coming in below our expectations. Second, as Rob mentioned earlier, we experienced reduced activity with AA and U.S. Airways as I commenced the process of combining progress. This process start to impact us in the fourth quarter and as a result of this reduced activity, growth in our organic business was also flat in 2014 growing only marginally on a full year basis. It’s worth noting that if we adjust for the impact of this consolidation activity, the growth in our organic business was well over 10% in the fourth quarter. And as Rob will touch on momentarily, we continue to see strength across the bulk of our business. Full year revenues continue to grow at record levels increasing 26% on a year-over-year basis to $255 million, largely due to the addition of new partners over the last 12 months. In the fourth quarter, gross margin dollars totaled $10.4 million up both sequentially and on a year-over-year basis. As a percentage of sales, gross margin dollars were 16% and in line with prior periods. For the full year 2014 on a year-over-year basis gross margin dollars grew to $39.7 million, an improvement of 20% leading us with full year gross margin of approximately 16%. Gross margin dollars continues to be an important measure of financial performance as we represent the amount of revenue retained and available to fund ongoing operating activity and strategic investments. I’ll now move on to discuss some of our key operating expenses for the quarter. Total ongoing operating expenses, which consists of employment expenses, marketing, technology and other operating expenses were approximately $7.7 million, an increase of 12% from $6.9 million in Q4 2013 and essentially flat on a sequential basis. Employment cost in the quarter totaled $5.3 million, flat to the prior year period and down slightly on a sequential basis. On a full year basis, employment costs in 2014 were $22.5 million, up 19% from $18.9 million in 2013. Over the past 12 months, we’ve continued to add to our team including additional marketing, product and technological resources, focus on modernizing and advancing on loyalty commerce platform and core retailing products, enhancing our consumers facing products and improving our data analytics capabilities. As of December 31, 2014, we’ve grown the Points' team to 177 staffs on a full-time equivalent basis; this is up from 151 in the year ago period. Looking ahead to 2015, employment costs are expected to increase approximately 10% over 2014 levels as we absorb the full year costs associated with additional resources we added in 2014 including those added to our – in our new San Francisco office. We were will also make some modest staff additions to 2015, which will be largely focused on a consumer strategy and driving growth in our core business. Marking expenses for the fourth quarter was $330,000, up from $223,000 in the prior year period, but lower than the $523,000 incurred in the third quarter. We expect marketing expenses will grow in 2015 with costs and this line item approximating $2 million for the full year. Technology expenses which cover the cost of protecting our production environment maintaining online redundancy capabilities, user applications licenses as well as general technology upkeep and enhancements were essentially flat over the prior year period and down slightly on a sequential basis. Looking at 2015, you can expect to see this in line grows to $1.5 million range on a full year basis. Other operating expenses comprised rent, insurance, professional, legal and accounting fees as well as public company costs. For the fourth quarter of 2014, this line item was $1.8 million compared to $1.2 million in the prior year period and $1.2 million sequentially. The year-over-year increase in this line item can be largely attributed to the $500,000 that we spent on the acquisition of Crew Marketing. Adjusting for these costs, this line item was essentially flat over the prior year and sequential periods. 2015 these costs will include some additional ongoing operating costs, largely associated with the Crew acquisition. As a result, we expect this line item to be in line with full-year 2014 running at approximately $1.4 million to $1.5 million each quarter. Adjusted EBITDA for the quarter totaled $2.7 million, down from $3.4 million in the prior year period, but up from $2.6 million sequentially. Growth in gross margin dollars were slowed by the AA U.S. Airways consolidation adversely impacting the incremental profitability that we expected to generate during the fourth quarter. This combined with the Crew Marketing acquisition cost of approximately $0.5 million with the main drivers behind the year-over-year decrease in adjusted EBITDA in the fourth quarter. For the full-year 2014 adjusted EBITDA was $9.1 million, up 22%, compared to $7.4 million to 2013. The overall increase in adjusted EBITDA can be attributed to growth in gross margin dollars outpacing our incremental investment spent during the year. Amortization expense declined to $581,000 from $715,000 in the prior year period, it was up from $481,000 sequentially. The year-over-year decrease can be attributed to certain assets being fully amortized at the end of 2015. Amortization is expected to increase from $2.2 million in 2014 to approximately $4 million on an annualized basis in 2015, reflecting the amortization of assets acquired in the Crew Marketing acquisition and amortization of products currently in development that will be ready for use in 2015. Finally, the company reported fourth quarter net income of approximately $1.5 million or $0.09 per diluted share. Net income for the full-year 2014 was $4.7 million, or $0.30 per diluted share, up 30% to $3.6 million or $0.23 per diluted share in 2013. As of December 31, 2014, total funds available comprised of cash and cash equivalents together with security deposits, restricted cash and amounts with our payment processors totaled approximately $45.1 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 fourth quarter compared to $18.8 million at the end of December 31, 2013. The year-over-year change in net operating cash was due to the use of funds on our acquisitions of Crew Marketing and PointsHound during the year. We will continue to generate positive operating cash flow throughout the year, building on our already strong financial position. We are very pleased to continue to generate sufficient cash to fund our current working capital requirements, anticipated capital expenditures and share buyback activity. I’ll also add that the company has received the necessary regulatory approval to proceed with the Board sanctioned share buyback mentioned earlier on our call. As of December 31, 2014, we have weighted average shares outstanding of $15,402,258 shares and $15,627,059 shares on a fully diluted basis. Thank you all for your attention. I’ll now hand the call back to Rob.

[Rob MacLean:]

Thanks Anthony. With approximately 200 products utilized by over 50 global loyalty partners by year end, Points Loyalty Commerce Platform is certainly among the most recognized and respected worldwide. Importantly Points core business remains strong and outlook is optimistic. Taking into consideration, the contribution from new partners and products as well as anticipated change in mix of certain partner contributions, revenues are expected to increase in the range of 15% to 20% over 2014. This guidance range only contemplates contributions from partners and products that have been announced or are in market today including the impact of both AA U.S. reduction as well as our new strategic partnership with United. We anticipate that we will continue to see softness in Europe throughout the year though we expect contribution from this region to represent an overall lower portion of our economics in 2015, due to the larger North American partners added over the last 12 months. With respect to profitability, we expect 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 and improved bottom line growth with adjusted EBITDA expected to increase 15% to 25% over fiscal 2014. In contrast to previous years however we anticipate a more even quarterly contribution from our gross margin dollars and adjusted EBITDA in 2015, due largely to refinements in our marketing approach as well as changes to our partner and product mix. Year-over-year growth rates for gross margin and EBITDA will be slightly higher in the first half of the year, due to the timing of new partner launches in the second half of 2014. Our anticipated strong profitable growth in 2015 will enable us to further capture the large market opportunity available to us, while simultaneously delivering strong returns to our shareholders. We will continue to generate positive operating cash flow during the year, which if the circumstances are appropriate will enable us to buyback shares. Going forward, we will work diligently to execute against our strategic plan, adding more loyalty programs to our platform and developing products and services that are relevant to our current partners. We remain very confident in our long-term growth opportunities and look forward to continued success in 2015. I want to thank all of our investors, loyalty program participants and loyalty partners for their feedback and consistent support over the past 12 months. And that we’ll now open up the call to your questions. Operator?

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Pardeep Sangha from PI Financial.

[Pardeep Sangha:]

Hi, good afternoon. Just with regards to pipeline, I know in the past you’ve talked about the pipeline being $50 million to $100 million sort of range. I just want to get some clarification on that in terms of what you’re seeing in the pipeline now, especially since United Airlines is kind of come out of that pipeline. And then just to confirm – so your guidance of 15% to 20% revenue does not include and that comes out of this pipeline throughout the year?

[Rob MacLean:]

That’s correct, Pardeep. It’s Rob. Pipeline remains very robust. We’ve had a good couple of years obviously in knocking down opportunities as we’ve indicated to the marketplace. Again, I’d remind the market, we think the opportunity here is $2.5 billion to $3.5 billion addressable market. So, we would continue to expect our pipeline to remain really strong for quite a while. The guidance we put out today is exactly as you described. It’s based on business that we’ve launched or announced in market today only. Any new deals, which we would fully expect to knockdown during the course of the year, will be accretive to that.

[Pardeep Sangha:]

And then clarification – so with United now out of the pipeline – has the pipeline shrunk considerably like from down to 100 million, 50 million or is this still in the $50 million to $100 million range?

[Anthony Lam:]

Yes, it’s still in that range…

[Pardeep Sangha:]

Okay. And then in terms of EBITDA guidance, I mean last year you said that you kind of had strategic investments of about $5 million to $7 million. And if you can kind of clarify where did that eventually end up for last – for 2014? Where was that final number at for strategic investments in the $5 million to $7 million range? And then for this year, in 2015, what would we sort of roughly suggest that strategic investments are like in terms of investment spending you’re doing?

[Rob MacLean:]

Yes, I think we can – we would be in the high-end of that range for 2014 in the 5 to 7. And I think as we look at the items that we described in the prepared remarks where we will be continuing to develop our technology and platform and business launch in a more traditional R&D type analysis. You would be looking at more in the neighborhood of $3.5 million to $4.5 million, you know, very similar to where we would have been in 2014.

[Pardeep Sangha:]

Okay. And if you can provide an update on the MasterCard and the financial vertical in terms of what you would think as a bank and can we expect to see something announced in the first half of this year?

[Rob MacLean:]

Yeah, I think I’ll address a couple of things there. From a MasterCard standpoint as we talked about in November, finished up the integration to the MasterCard platform, which was – went very well, very pleased with how that that integration played out. We’re now in that stage of working with the MasterCard teams directly with their bank clients and their bank partners that are on that platform and so ongoing conversations and active conversations with the banks and their respective royalty programs are now taking advantage of the various Points products that are part of the relationship. So that would be – when we talked about the pipeline adding more and more of those MasterCard clients into the pipeline is really where we are at this stage. I would say the other component I would mention on the financial services as we indicated in the fourth quarter – third quarter was – we’re advancing our discussions and technology build around the loyalty wallet and our distribution of that loyalty wallet with the large financial provider. And I think we indicated that in the fourth quarter and working diligently to have that launch here in 2015. So, lots of activity happening on the financial services front.

[Pardeep Sangha:]

So jus to add some more color on the – with the banks, the size of that kind of deals that you’re looking at – these banks is that in similar size to some of your airline partners?

[Rob MacLean:]

As you would expect the MasterCard global relationship on that platform as a whole variety of sizes our loyalty programs and banks associated with it. So we would expect as we exploit that relationship and make progress with that partners. If you will have a mix of larger, smaller, mid-sized various geographies North America and is kind of a heavy dose of international, so a whole variety of size and scale there Pardeep.

[Pardeep Sangha:]

Last question, do you – looking back do you feel that the discussions with the banks have taken longer than you expected when you’ve first signed the agreement with MasterCard?

[Rob MacLean:]

I probably wouldn’t be the first CEO that said the big multibillion dollar banks approach markets very methodically. So I would say we knew going into this relationship as you recall in our descriptions of the MasterCard relationship. We think it’s a fantastic opportunity, great endorsement for our technology and products and services that we’ve built, but we’ve been trying to be quite conservative from a time and pace because we’ve recognized that. That industry just moves at a different pace than we would as a younger online technology company. So we always want things to move more quickly and I think we’ve recognized in this industry – we can only push so hard with these guys.

[Pardeep Sangha:]

Okay, thank you.

[Operator:]

Thank you. Your next question comes from Ed Woo from Ascendiant Capital.

[Ed Woo:]

Yes, congratulations and thanks for taking my question. I just had a clarifying question. Do you say that for 2015 that the growth will be slightly higher in the first half of revenue in EBITDA than the second half is that correct?

[Anthony Lam:]

Yes, that’s right. And it’s a little more even this year than we’ve seen in previous years, but slightly – we would expect that growth rate at this stage to be slightly bigger in the first half of the year.

[Rob MacLean:]

That’s right.

[Ed Woo:]

Great. And then just touching on the American U.S. air deal, you mentioned that you started to see the effect in the fourth quarter. And also when do you think you should start to I guess wind that down in 2015 you think is after to the end of this current quarter?

[Rob MacLean:]

Yes, we saw a very significant impact as the industry consolidation required those two partners to align their business. We saw very different and change behavior in the fourth quarter. Obviously that impacted our results as we described in the prepared remarks. When we think about 2015, so American Airlines and the advantage program today is operating – we’re operating a number of products but not the Buy, Gift and Transfer, so that’s in place today. And as we indicated the U.S. Airways Dividend Miles business, we’ll remain on our platform through the end of the first quarter at this stage the plan would be to roll off at the end of the first quarter, we’ll obviously – if they have delays in their plans, we would be continuing to operate that, but that’s the plan as it sits today. What I would point out is that now is an agency relationship here in the first quarter with U.S. Airways and so that’s all baked into our guidance. Pretty please that at the end of the day, pretty significant impact on our overall business, but when we look at our guidance, our ability to replace that business with partners like United and Hilton and Southwest, the ongoing strength of the core foundational business is really let us to spot that, even though we have a pretty significant partner adjustment, we’re able to deliver growth across all measures as we indicated at the end of December as we look into 2015. So really more of a reflection on the progress we made as the business not any single partner to payment at this stage. And while we will continue to work with American and the New American as they merged their two programs. I know you expect to see us continue to pursue opportunities to grow that business again.

[Ed Woo:]

Great. Do you have - can you adding the color on whether they are doing it in-house, not doing it anymore or do you see somebody else?

[Anthony Lam:]

Yes. In-house.

[Ed Woo:]

In-house, great. But then the last question I have for you is – your comment on the problems I know you mentioned that, Europe will be a little bit less as a percentage I know that your North American business is stronger. You also mentioned that there are some weakness in Europe. But what do you see out there on in the travel industries, particularly as – we head into the summer, summer months?

[Anthony Lam:]

Well, I can’t probably provide too much insight into travel broadly. But when we think about our business, the loyalty programs, the growth really, we’re seeing growth in terms of membership, adoption of loyalty, kind of reach of loyalty programs, really across the board is Asia, Europe, Middle East, North America. So from a loyalty program perspective, we see recent stacks that North America went out 3.5 billion memberships. So we continue to see loyalty expand and that even though Europe from a revenue perspective is soft and has been soft for some time, there is still pockets of really interesting opportunities that we’re seeing in Europe and – as we announced in the prepared remarks, we think there is some pretty exciting news coming around our PointsHound acquisition and some of the new business that we’re doing with – it was a very significant European player here late in 2015 so we’re – we’ll be moving into development stage of that kind of product enhancement. So they remains interesting prospects and pockets, even in markets that have been struggling somewhat when it comes to Europe. If I think about Asia, we’re very active in the Asian marketplace. Our relationship with Collinson is largely focused on the Asia marketplace. They have a very significant presence there. So I know our teams have been spending a fair amount of time there in the last six weeks with some really good opportunities that I think will bear some fruit for us. We have a continued activity in China as well that we just – we’re very kind of interested in watching how that market is evolving and I think you’ll see us continued to develop those markets through the course of 2015 and onward. So globally when I think about the loyalty industry and prospects for us continues to be very robust. And that’s not a surprise. If we’re today talking about guiding to that kind of growth numbers that we’re talking about, it’s still early days when you compare that to what we believe is the opportunity at $2.5 billion to $3.5 billion, so a pretty robust opportunity in front of us.

[Ed Woo:]

Great. Well, thank you and good luck.

[Rob MacLean:]

Thank you.

[Operator:]

Thank you. Your next question comes from Sameet Sinha from B. Riley.

[Sameet Sinha:]

Thank you. Actually I want to delve into Europe a little more, obviously we’ve been seeing – three out of the last four quarters have been – at what point does it settle down and there has to be a baseline where it could just settle down and potentially just stay flat versus – continue to be down year-over-year. Second question, in terms of the – that the way you think about the business, American U.S. both of these going off to platform. Is this the structure change in the industry that one of your clients has been able to take this business in-house and then obviously over the years we’ve seen most of it going the other way around so it’s pretty surprising that this one client decided to go the other way that’s it and then I have a follow up.

[Rob MacLean:]

Sure. So I’ll address Europe first. I wish I had more clarity to be very frank. I think when we look out to Europe, we’re calling 2015 to be flat to down slightly. That’s kind of where we would expect that to be. So we feel like its bottoming out at this stage and that’s where the existing business that we have in place. When you think about some of pockets I described earlier, the new announcement that we’ll provide more color on as we get a little bit closer to launch, I think those are the kinds of things as we introduce some new PointsHound products some of this new approach to the private branded version of PointsHound will allow us as a business inside that European opportunity kind of – start to kind of growing again in a fairly – we think in a reasonably significant way. But I think most of our partner’s are indicating its still, they are still being pretty conservative in their approach to 2015, and we see that really across the board. But I guess I would assess it as being, we feel like this is largely at the bottom, so time will tell on that. Second question around and U.S. Airways I’ll clarify they are not coming off the platform, some of products and obviously not in significant products for us from an economic standpoint they will take in-house. We think that is very inconsistent with what we’ve been seeing in this industry. So we think it is very much kind of one-off approach, I will be very frank with you, the proposals that we walk through with these partners, we’re substantially provided substantially greater returns and substantially greater revenues and profits and for a variety of reasons, they are taking the pause on it. So it is very inconsistent with what we are seeing in the rest of the industry, and when we talk about recent partner acquisitions like Southwest, like Hilton, like United, it’s quite counter to that decision. So we think that’s really more indicative of where the industry is going and our pipeline which suggest in the ongoing deals that we’re closing and the activities that’s in the pipeline is absolutely counter to what we are experiencing on this one partner. Now if you think about over the last 15 years, we have essentially had two partner departures of any significance. And in both of those cases they were associated with attractively mega mergers and we don’t really see too many more mega mergers on the horizon and so as the result don’t see, there is kind of a odd behavior at least from our perspective of our behavior continuing. It really is very counter to what we’ve seen in the rest of the industry. And its not – its not anything more sophisticated than, as we continue to enhance the platform, we see partners that are very interested in this core propositions, but also very interested in tapping into all of the incremental products and services that we’re developing, that we’re able to bring to the platform through our relationships with third-party product partners such as, as I mentioned, whether its [indiscernible] or the Collinson Group, all of those kind that enhanced products and services that we can bring to the industry very efficiently, very quickly are really important elements for the industry and are really also part of their decision, as to why they want comment on Points Platform. I would say from an American Airlines and the new advantages perspective, that’s still significantly a part of the value proposition for them, and while we will continue to have an ongoing relationship with the Advantage Program.

[Sameet Sinha:]

One final question, in terms of the, – if you were to characterize this pipeline that you have now the [indiscernible] out of it. Can you talk about the verticals that your potential customers are the pipeline represents?

[Anthony Lam:]

Yes. And it’s very consistent with where we have been for the last number of years. We still see airline and travel, hospitality type programs that are very interesting and feeling like there is great opportunities there. Financial services is probably where we are in deeper on the financial services side, both from the wallet perspective that I mentioned earlier as well as relationship, such as Mastercard. And from a retail standpoint, from a fuel, those are all areas of our verticals that we are just seeing become more and more engaged in loyalty across the board. So very consistent with what we have seen in the last two, three quarters as we report on that. Second kind of element of that is geographies, obviously we see good opportunities here in North America. If you think about our last net new partners here in the last while has been a number of big programs in the North American marketplace. We see great opportunities from a geography standpoint in throughout Asia, Middle East, very active discussions in kind of the European Middle East area. So that the snapshot where we have opportunities to do business from a geography and a vertical standpoint continues to be pretty diverse, I think that’s good for us, as a business, as different geographies seem to have. We are dealing with economic environment at different times which is positive and allows us to mute some of the impacts of kind about macro level in Europe, when we’re seeing such strong growth in the North American marketplace four, five years ago was really flip, so that was a real positive for us and similarly from a vertical standpoint. We think some of these verticals that haven’t historically been in or as sophisticated in loyalty. Well in some ways be more rapid grower than what we have seen in kind of travel and hospitality who our programs that while we are really excited about. And they have scale, they don’t grow quite as quickly as some of these net new verticals. So, good combination of different geographies and verticals for us in terms of the pipeline.

[Sameet Sinha:]

Great. Thank you.

[Operator:]

Thank you. Our next question comes from Andrew De Silva from Merriman Capital.

[Andrew De Silva:]

Hey, guys, thanks for taking my call. I just have a couple of quick questions I will list them up for you and then just move on from there. First, what is the minimum amount of Points in miles you are obligated to purchase from your loyalty partners, as part of your minimum guaranty this year. And then if you could provide a little bit of color as to what percent of revenues came out of Europe this year that would be helpful as well.

[Anthony Lam:]

So from a geography standpoint it really varies depending on the size and scale of the opportunity, I think as we described to investors historically we will work guarantees into our ongoing pitch and ongoing relationship for a couple of reasons. First and foremost by providing our guarantee and giving our partners visibility into how big an opportunity might be and what we’re willing to kind of indicate right out the gate its helped partners to get internal resources prioritize to be able to interact with us and in a simplest form there, if we can guarantee $3 million, or $4 million, or $5 million to a partner, they can use that information to go to their internal IT organizations and say hey, there is a really big business opportunity here and we want to prioritize your resources to be able to tap into that the Points platform. So that’s one of the primary reasons we head down a guarantee path. The second serious component of that is by providing guarantees we’re able to ensure that the team here at Points is operating and running the bulk of those on a Buy, Gift and Transfer activities. And that’s important because we’re just – we’re very good at it. And when we’re putting our guarantee on the table part of the requirement to provide that guarantee is that our team here is able to drive the pricing, the marketing, the merchandising and leverage the kind of IP and intelligence that we’ve developed over a number of years, to really drive maximum growth with our partners in terms of the buy, gift, and transfer type products. So the guarantee has been proven to be really helpful it varies depending on the size and scale of the business opportunity, in some cases it’s a couple of million dollars but its material to it, perhaps a smaller loyalty program in other cases its more substantial but as of percentage of the overall opportunity kind of in the 50% to 60% of our anticipated sales. So there is no one answer to that for you Andrew but and then obviously the miles and point is going to fall into the calculus but proven to be a pretty effective tool for us. When I think about Europe your second question I think we’re now calling Europe from a revenue gross margin standpoint was kind of in the 13%, the 17% range in 2014 that will come down to kind of 10% on revenues and in around 13% on gross margin. And that’s a combination of relatively flat performance it is slightly down in Europe, but more impacted by the fact that we’ve added so much in the North American marketplace over the last couple of years. So it’s a percentage of our overall business, Europe is a much smaller part today than it was even yesterday.

[Andrew De Silva:]

Okay. I got it. And then if you could also just let us know how these loyalty program changes that we’re seeing in the market today are becoming – they’re becoming lot more probably when it seems Southwest is that they’re changing their other program sometime in April, in this April squeezing a member to somewhat it is harder for members now to reach milestone and if that’s the case, is that impacting their ability to top off their programs just frequently, utilizing your platform?

[Rob MacLean:]

Yes. A couple of comments there we see across the board, notwithstanding media coverage or speculation on changes and impacts of loyalty programs. That loyalty participation is growing as rapidly today as it ever has, in terms of how many new members are coming in and participating in these programs. We’ve seen some evidence that memberships here in North America is an example you make some references to programs here in the U.S. market place. Membership going from $2.5 billion to $3.5 billion membership over the last roughly three years. So loyalty is gaining more momentum today than it’s ever had I think a lot of the kind of industry research would suggest financial services and retail are growing very rapidly, these are areas that haven’t historically have the kind of mass and scale of the travel programs. But many places would suggest that financial services are now at the largest loyalty program bases on the planet. So we’re seeing across the board that there is really significant engagement in growth in the loyalty space. But its on top of that is the programs that we work with again keep in mind we are largely focused on programs that let me kind of three criteria kind of currency based programs and that’s important because if you are a currency based program, we can help you monetize it. So that’s one of the characteristics we look for, second one is big and we see more large loyalty programs engaging with our products than we ever have in the past we look for a million plus members million plus active members in the kinds of relationships we target. There are just more of those programs out there today, that are crossing that million member threshold than we’ve ever seen in the past. And then third is really we want to work with programs that understand that the - economic model, the monetization model around their loyalty programs and I would also say that is a group that is much larger today than it’s ever been in the past. So if you fit that criteria I have model to monetize those massive databases, you have a big and growing membership base, a million plus members and if you have a standalone fungible currency, that can help you monetize, then you are really interesting to us. And when we look at that audience there are more of those customers and partners out there than they ever has been in the past. So we’re really – we really see very positive metrics, very positive indications in the industry that loyalty is growing and growing pretty rapidly.

[Andrew De Silva:]

So what about from like a existing partner like you Southwest as an example, I’m understand that overall market is trending upwards, but with an existing partner and then within that member, are you seeing the ability to top-up frequently, the frequency of their ability top-ups declining now as these loyalty programs particularly in hospitality are kind of squeezing the metrics to monetize it better. Is that what are you seeing? Or do you think – are you feeling that each member is still able to monetize as frequently as ever before?

[Rob MacLean:]

Yes, absolutely, the latter we’re seeing – again members at an individual level more actively around these kinds of currency engaged products than we’ve seen in the past. And that’s really indicative of the kind of growth you’re seeing in our business and that’s the best metric I can show you on that as we’re adding partners, we’re getting deeper into the databases, we’re getting more of their members engaged in our products. So we see a very healthy metrics from that standpoint. I don’t think you’ll see – I don’t think you’ll see loyalty slow down at all particularly in these environments of these businesses where they have figured out the monetization schemes to generate really significant profits, really significant growth out of their loyalty programs. It should be really clear for our investors that understand our business and are interested in our business that these loyalty programs are big successful businesses in their own right. Their motivation is to drive loyalty to their parent company, but also to be more profitable as ongoing businesses, so whether it’s the Rapid Rewards or the Advantage program or Mileage Plan or MileagePlus for United, these our big successful businesses that are growing inside of the Travel space. And so they’re not – we don’t see evidence, but they’re looking to do things to reduce the engagement of their members or reduce the economic performance of their programs. They’re tweaking and have been tweaking their rules and regulations for 35 years and they do that at opportuned times and then when they’ve done that they still continue to see really rapid growth. We’re amazed that times when we see some of the statistics around – some of our partners adding 50,000 to 100,000 new members every month. Some of these guides – the scale is tremendous. They’re adding 50,000 to 100,000 new members every month and they really do a little to know acquisition. So I think that our core premise and the evidence we see in the metrics is that loyalty in the kinds of programs that we interact with continues to be very healthy.

[Andrew De Silva:]

Great, great. And then last question has United transferred over from their legacy Crew Marketing platform to yours at this point? And if they have made that transition, do you have the date – their meaningful partners of couple weeks to make a big difference in the quarter?

[Rob MacLean:]

Yes. So, we have migrated the Buy, Gift and Transfer products, the core products, on to our platform. We completed that at the end of January. So very, very kind of clean proposition. The team at the Crew is very, very good and we’re very helpful in that that transition. If you think about the Crew acquisition as well, we through that have a platform that has a variety of additional products and services that are doing some really interesting things. So we’re really, really interested in some of those other elements, but the core Buy, Gifts and Transfer component that we’re very good at, that’s on our platform today and has been since – end of January, first of February.

[Andrew De Silva:]

Great, okay guys, thanks a lot and good luck this year.

[Rob MacLean:]

Okay, thank you.

[Operator:]

Thank you. That is our last question and this does concludes today’s teleconference. Thank you for joining. You may now disconnect.