Q3 2003 Results
[200/News Release] PTS V POINTS INTERNATIONAL LTD NOV 21 2003 07:06 AM Q3
2003 Results --->@NEWS RELEASE POINTS INTERNATIONAL LTD. ("PTS-V")
-
Highlights include continued revenue growth
Points International Ltd., operator of the only independent loyalty
program currency exchange - at www.points.com - reported financial results
for the period ending September 30, 2003.
"During the quarter, Points continued to focus on key business
expansion, including recent major developments in our most important
corporate relationships," said Rob MacLean, CEO of Points. "Through 2003,
we have invested significant effort and resources on critical partnerships
such as American AAdvanvtage, InterActiveCorp and eBay, and we are excited
about the potential for our business' continued healthy growth rate."
"Points has built and launched several additional solutions for the
eBay Anything(tm) Points program - solutions that enhance both eBay's new
loyalty program and our pointsxchange(r) offering," MacLean noted.
"Expansion of our eBay relationship includes integration work related to
the new MBNA Anything(tm) Points credit card and integration of several
Anything(tm) Points earn partners such as Lending Tree and Sprint. This,
along with the pointsxchange, has been a critical factor in the successful
launch of eBay's program."
Financial highlights:
* Revenue of $1.65 million ($US 1.18 million) for Q3 2003, compared with
revenue of $729,467 ($US 486,311) earned during Q3 2002, and $1.46 million
($US 1.04 million) reported for Q2 2003. The quarter-over-quarter revenue
growth rate was 13% from Q2 to Q3 2003 and 126% from Q3 2002. The majority
of revenues continue to be based on core, recurring transactions.
* General & Administrative expenses were $2.16 million, up from $1.71
million for Q2 2003. The growth in G&A expenses relates to investment for
the acquisition of new partners and the expansion of the eBay relationship.
This managed growth in G&A expenses is expected to continue at a similar
pace through Q4 2003.
* Non-cash expenses accounted for $1.11 million of the $1.63 million
quarterly net loss (including $730,353 in amortization of assets and
$384,625 in accrued interest). Points expects amortization expenses to drop
significantly after 2003 as certain assets become fully amortized.
* Points has now powered the online exchange, sale and transfer of over 2.6
billion points and miles.
* Exchange volume during Q3 2003 represents the second best quarter ever,
with volumes 3.6 times those for Q1 2003, and more than the total volume
for all of 2002. The cumulative number of miles exchanged increased by 32%
during Q3 2003. *The average volume of points per member exchange
transaction also continued to grow through the quarter, increasing to
20,900 from 18,300 during Q2 and 12,700 during Q1.
Key business developments during Q3 2003 and to date
* As previously announced, Points completed a new multi-year agreement with
cornerstone partner American Airlines AAdvantage, the world's largest and
most powerful loyalty program. This commitment offers significant growth
potential for Points, extending a number of existing short-term agreements
through 2007, including those for pointsxchange(r), pointspurchase(tm) and
pointstransfer(tm).
* In the first quarter of our relationship with eBay, Points worked closely
with this major new loyalty player to launch two program enhancements. The
recently announced eBay Anything(tm) Points credit card from MBNA and other
integrations are great steps forward for both the Anything(tm) Points
program and for Points growing support role.During Q3 2003, Points
established a relationship with Cendant Corp.'s new loyalty initiative,
Trip Rewards.pointsxchange has attracted 33 participants, representing over
142 million member accounts and approximately 7,000 exchange opportunities
(including gift certificate programs). Points was excited to add new
pointsxchange relationships with KidsFutures, BabyMintz and NestEggs.
Additionally, Points has a total of 38 custom solutions products deployed,
including over 8 with eBay alone.
More about Points International Ltd. and www.points.com
Points operates the only independent loyalty points exchange - at
www.points.com - allowing consumers to exchange points and miles from one
participating loyalty program to another to achieve the rewards they want
faster than ever before.
Pointsxchange(r) has to date attracted close to 33 partners, including
industry leaders eBay (Anything Points), American Airlines (AAdvantage),
InterContinental Hotels (Priority Club(r) Rewards), Air Canada (Aeroplan),
Delta Air Lines (Sky Miles), Imperial Oil (Esso Extra),
GiftCertificates.com, Fairmont Hotels & Resorts, Cathay Pacific Airways
(Asia Miles), American West Airlines (FlightFund), Alaska Airlines,
(Mileage Plan), Sprint, JCPenney and many more.
Through a portfolio of custom technology solutions, Points is building
rewarding partnerships with the world's leading loyalty players. Additional
Points Solutions include the innovative pointspurchase(tm) and pointsgift
solutions, which power the online sale of miles and points to members of
leading loyalty programs.
Points Solutions, including pointsxchange, are internationally
marketed to travel providers and loyalty programs through a distribution
alliance with Sabre, the leading provider of technology, distribution and
marketing services for the travel industry.
Points shares trade on the TSX Venture exchange under the symbol PTS.
//st
ATTACHMENT:
POINTS INTERNATIONAL LTD.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Three-month period ending September 30, 2003
POINTS INTERNATIONAL LTD.
UNAUDITED INTERIM CONSOLIDATED BALANCE SHEETS
as at Sept. 30, 2003
assets
Sept. 30, 2003 Dec. 31, 2002
CURRENT
Cash and short-term deposits $21,833,287 $7,341,700
Accounts receivable 770,543 267,632
Prepaid and sundry assets 846,469 657,367
23,450,299 8,266,699
LONG-TERM INVESTMENTS 151,629 151,629
FUTURE INCOME TAXES RECOVERABLE 590,000 590,000
CAPITAL ASSETS 836,520 1,764,199
INTANGIBLE ASSETS (Note 3) 1,507,545 1,956,539
DEFERRED COSTS 2,920,804 410,954
TOTAL ASSETS $29,456,797 $13,140,020
liabilities
CURRENT
Accounts payable and accrued liabilities $889,870 $1,017,955
Deposits 10,545,584 8,946,631
Current portion of obligation
under capital leases 154,898 407,128
11,590,352 10,371,715
LONG-TERM CONVERTIBLE DEBT 7,677,500 7,182,500
LONG-TERM CONVERTIBLE PREFERRED SHARE 12,807,478 -
32,075,330 17,554,215
shareholders' equity
CAPITAL STOCK 17,726,761 14,361,033
WARRANTS 2,785,737 425,588
RETAINED EARNINGS (23,131,032) (19,200,816)
(2,618,534) (4,414,195)
$29,456,797 $13,140,020
POINTS INTERNATIONAL LTD.
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
for the periods ended Sept. 30
9 Month 9 Month 3 Month 3 Month
Period Period Period Period
Jan- Jan- July- July-
Sept.30/03 Sept.30/02 Sept.30/03 Sept.30/02
REVENUE
Points.com $4,166,147 $1,412,088 $1,539,780 $707,546
Interest Income 243,179 44,264 107,786 21,921
TOTAL REVENUE 4,409,326 $1,456,352 1,647,566 729,467
GENERAL AND
ADMINISTRATION 5,378,154 5,168,636 2,160,978 1,656,786
OPERATING LOSS -
before interest,
amortization and
other deductions (968,828) (3,712,284) (513,412) (927,319)
Other interest
expenses 9,538 38,138 2,625 9,303
Interest on
convertible
debt 495,000 495,000 165,000 165,000
Amortization of capital assets, intangible assets and deferred costs
2,049,372 1,684,011 730,353 623,450
Interest on Series Two Preferred Share
407,477 - 217,000 -
2,961,387 2,217,149 1,114,978 797,753
LOSS -
From continuing
operations (3,930,216) (5,929,433) (1,628,391) (1,725,072)
DISCONTINUED OPERATIONS
Loss from discontinued
operations - (115,945) - -
Share of loss of disposed significantly influenced investments
- - - -
NET LOSS (3,930,216) (6,045,378) (1,628,391) (1,725,072)
DEFICIT - Beginning of period
(19,200,816) (11,393,437) (21,502,641) (15,713,743)
DEFICIT - End of period
$(23,131,032) $(17,438,815) $(23,131,032) $(17,438,815)
LOSS PER SHARE FROM CONTINUING OPERATIONS
$(0.07) $(0.11) $(0.03) $(0.03)
NET LOSS PER SHARE
$(0.07) $(0.12) $(0.03) $(0.03)
POINTS INTERNATIONAL LTD.
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
for the periods ended Sept. 30
9 Month 9 Month 3 Month 3 Month
Period Period Period Period
Jan- Jan- July- July-
Sept.30/03 Sept.30/02 Sept.30/03 Sept.30/02
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations
$(3,930,215) $(5,929,433) $(1,628,390) $(1,725,072)
Items not affecting cash
Amortization - capital assets
1,162,453 1,122,563 403,842 383,821
Amortization - deferred costs
319,766 246,570 137,460 82,190
Amortization - acquired technology
567,150 314,878 189,050 157,439
Shares issued in exchange for services
- 366,379 - 215,000
Warrants issued in exchange for services
2,775 2,775
Interest on Convertible Debenture
495,000 495,000 165,000 165,000
Interest on Series 2 Preferred Shares
407,478 - 217,000 -
(978,368) (3,381,268) (516,038) (718,847)
Changes in non-cash balances related to operations
778,853 3,176,409 (1,987,151) 416,993
CASH FLOWS USED IN OPERATING ACTIVITIES
(199,515) (204,859) (2,503,189) (301,854)
CASH FLOWS FROM INVESTING ACTIVITIES
Repayment of loans receivable
- 19,500 - -
Acquisition of intangible assets
(118,155) (105,164) (26,193) (101,654)
Purchase of capital assets, net of proceeds
(234,774) (61,064) (113,063) (1,500)
Fees paid on the acquisition of Points.com Inc.
- (139,750) - -
CASH FLOWS USED IN INVESTING ACTIVITIES
(352,929) (286,478) (139,256) (103,154)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of capital stock, net of issue costs
913,309 2,632,968 95,367 (13,126)
Issuance of warrants
2,700,000 - - -
Issuance of Series Two Preferred Share
12,400,000 - - -
Costs associated with the issuance of warrants and the Series 2 Preferred
Share
(717,048) - -
Repayment of obligations under capital lease
(252,230) (495,758) (16,514) (142,945)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
15,044,031 2,137,210 78,853 (156,071)
INCREASE (DECREASE) IN CASH FROM CONTINUING OPERATIONS
14,491,587 1,645,873 (2,563,592) (561,079)
CASH FLOWS USED IN DISCOUNTINUED OPERATIONS
- (115,945) - -
INCREASE IN CASH FROM ALL ACTIVITIES
14,491,587 1,529,928 (2,563,592) (561,079)
CASH AND SHORT-TERM INVESTMENTS - Beginning of period
7,341,700 2,894,380 24,396,879 4,985,387
CASH AND SHORT-TERM INVESTMENTS - End of period
$21,833,287 $4,424,308 $21,833,287 $4,424,308
//et
POINTS INTERNATIONAL LTD.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
1. Accounting policies
The company's interim financial statements have been prepared using
accounting policies consistent with those used for the preparation of its
annual financial statements. These interim financial statements should be
read in conjunction with its financial statements for the 12-month period
ended December 31, 2002. They contain all adjustments which management
believes necessary for fair presentation of the financial position, results
of operations and cash flows.
2. Segmented information
Reportable segments: The company has only one operating segment whose
operating results are regularly reviewed by the company's chief operating
decision maker and for which complete and discrete financial information is
available. The company's business is carried on in the industry of loyalty
program asset management. The attached consolidated balance sheets as at
September 30, 2003 and December 31, 2002 present the financial position of
this segment. The continuing operations reflected on the attached
consolidated statements of operations are those of this operating segment.
The discontinued operations relate to the company's previous segment ofInternet
business generation discontinued in 2001.
Enterprise-wide disclosures: $4,110,915 (September 30, 2002 -
$1,319,997) of the company's revenues were generated in the U.S. for the
nine month period, with the remaining revenues generated in Canada, Europe
and Asia. A significant majority of the company's assets are located in
Canada.
3. Economic dependence
For the nine-month period ended September 30, 2003, approximately 65%
of the company's revenues are from its two largest customers (77% at
September 30, 2002). In addition, as at September 30, 2003, 59% of the
company's deposits are due to these customers (68% as at December 31,
2002).
4. Comparative figures
Certain accounts of the fiscal 2002 comparative figures have been
reclassified to conform with the current period's presentation.
5. Stock-based compensation
Effective January 1, 2002 the company adopted CICA 3870 ("Stock-based
Compensation and Other Stock-based Payments"). As permitted by CICA 3870
the company has applied this change prospectively for new awards granted on
or after January 1, 2002. The company has chosen to recognize no
compensation when stock options are granted to employees and directors
under stock option plans with no cash settlement features. In periods prior
to January 1, 2002 the company recognized no compensation when stock or
stock options were issued to employees. Supplementary pro forma information
regarding net income is required by CICA 3870 as if the company had
accounted for its employee stock options granted after December 31, 2001
under the fair value method.
During the quarter ended September 30, 2003, 142,500 options were
issued to employees. The fair value for these options was estimated at the
date of granting using a Black-Scholes Option Pricing Model with the
following assumptions: weighted-average risk-free interest rates of 5%;
dividend yields of nil; weighted-average volatility factors of the expected
market price of the Company's common shares of 187%; and a weighted-average
expected life of the options of five years. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to
expense over the options' vesting periods. The company's pro forma net
income under Canadian GAAP would be reduced by $56,000 for the nine months
ended September 30, 2003. Basic earnings-per-share figures would not have
changed. The weighted average fair value of stock options granted during
the three months ended September 30, 2003 was $120,000.
6. InterActiveCorp transaction
On April 11, 2003, the company closed a transaction with
InterActiveCorp (formerly USA Interactive) (the "IAC Transaction") pursuant
to which IAC (through an affiliate of IAC created for this purpose), made a
Cdn$15.1 million investment in the company. Under the terms of the IAC
Transaction, the company issued one convertible Series Two Preferred Share
and common share purchase warrants (the "Warrants") for aggregate cash
consideration of $15.1 million.
As at September 30, 2003, the Series Two Preferred Share is
convertible, for no additional consideration, into 19,246,226 common shares
(19.9% of the common shares of the company (calculated on an adjusted
fully-diluted basis)). Of the total investment, $12.4 million has been
allocated to the purchase of the Series Two Preferred Share. The company is
required to redeem the Series Two Preferred Share on March 31, 2013 (if the
share has not been previously converted) at an amount equal to the greater
of $12,400,000 plus 7% per annum and the market value of the common shares
into which the preferred share could then be converted. The Warrants are
exercisable over three years to acquire up to 55% of the common shares of
the company (calculated on a adjusted fully diluted basis) less the number
of common shares issued or issuable on conversation of the Series Two
Preferred Share. As at September 30, 2003, the Warrants are exercisable to
acquire up to 72,909,483 common shares. The number of common shares
issuable on conversion of the Series Two Preferred Share and exercise of
the Warrants is subject to adjustment in certain circumstances. For
accounting purposes, the Series Two Preferred Share will be presented as a
liability and the annual 7% charge will be recorded as a non-cash expense
on the income statement.
More comprehensive disclosure is contained in the material change
report of the company dated March 21, 2003, and the company's 2002 Annual
Information Form, both filed on SEDAR.
7. Transaction with American Airlines
On September 4, 2003 (effective August 27, 2003), the Corporation
announced an agreement with American Airlines which significantly enhances
its commercial relationship. The agreement will fix certain revenues to the
Corporation over a period of five years. In consideration of the value of
the agreement to the Corporation, the Corporation issued 2,196,635 common
shares to American Airlines valued at $2,086,803.25. The shares have been
classified as deferred costs in the attached consolidated balance sheet and
will be amortized over a period of 5 years.
8. Subsequent Events (up to and including events of November 20, 2003)
As described in the Corporation's Management Information Circular of
May 16, 2003, the Corporation received final Exchange approval for the
issuance of the Excess Grant Shares and Excess Put Rights Shares on October
30, 2003. The Corporation expects to grant the Residual Put Rights in
respect of the Excess Put Rights Shares in the near future.
TEL: 416-596-6381 Investor Relations
Points International Ltd.
E-mail: christopher.barnard@points.com
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