Points International's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar. 5.14 | About: Points International, (PCOM)

Points International Ltd. (NASDAQ:PCOM)

Q4 2013 Earnings Conference Call

March 5, 2014 4:30 PM ET

Executives

Kimberly Esterkin – IR

Robert MacLean – CEO

Anthony Lam – CFO

Analysts

Drew McReynolds – RBC Capital Markets

Michael Malouf – Craig-Hallum

Sameet Sinha – B. Riley

Pradeep Sangha – PI Financial Corp

Andrew D’Silva – Merriman Capital

Edward Woo – Ascendiant Capital

Operator

Greetings and welcome to the Points International Fourth Quarter and Fiscal Year 2013 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 would now like to turn the conference over to your host, Kimberly Esterkin from 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 fourth quarter and fiscal year 2013 financial results. Joining me today on the call are Rob MacLean, Points Chief Executive Officer, and Anthony Lam, Chief Financial Officer. Before we begin, we’d like to remind you that the 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 questions. Although management believes these forward-looking statements are reasonable, such statements are not guarantees of future performance or action, and are subject to important risks and uncertainties that are difficult to predict.

Certain material assumptions are applied in making these 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 2013 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 to Rob MacLean.

Robert MacLean

Thank you, Kimberly. Good afternoon and thank you for your participation today. We’re pleased to share our fourth quarter and full year 2013 results. We finished 2013 by delivering revenues of approximately 202 million or growth of roughly 45% over 2012. This substantial growth reflects the contribution from new products and partners launched over the last 12 months as well as increased transactional activity among existing partners. Adjusted EBITDA also came in as expected at 7.4 million, and reflects solid profitability in our business, enabling us to make important investments in product development, geographic expansion and our open platform strategy which I’ll elaborate more on momentarily. Fuming our performance has been the continued expansion of the Points loyalty commerce platform. In 2013, Points launched 15 new products with over five new partners. Most notably, we welcomed Southwest Rapid Rewards to the Points loyalty commerce platform, launching our core Buy, Gift and Transfer products last June.

Since the initial launch, we’ve expanded our mutual business through Southwest additional participation in our Points connect program. As one of the largest, most honored and innovative airlines in the world, we’re thrilled to be partnering with Rapid Rewards to help increase their programs member engagement while at the same time, drive growth to both of our respective businesses. Also joining our loyalty commerce platform over the course of 2013 are Finnair, SVM Fuel Circle, Speedway and China Rewards. As is evident, Points business today is more diversified than ever expanding in several industrial verticals and geographies. In addition, we continue to grow our business organically launching new products with existing partners and driving increased transactional activity through marketing and promotional efforts. In fact, total transactional activity increased by more than 20% over the course of last 12 months. Geographic expansion was of particular focus in 2013 and we made solid progress in both Europe and Asia. The rapidly developing Chinese loyalty marketplace remains a significant opportunity for Points, and we were excited to announce the October launch of China Rewards, the first coalition loyalty program in China that enables members to earn and redeem a common currency across all participating merchants.

2013 was also an investment year for Points in which we added key product functionality as well as began to set the groundwork for our open platform strategy. The opportunities that we’ve invested against are diverse, spending from mobile to enhance payment functionality to white labeled products for our loyalty program partner, and a number of new and innovative ideas that we believe can bring value to the loyalty economy. Through continued platform and geographic expansion in combination with product innovation, we’re driving growth for both Points and the broader loyalty industry. We are confident that continued investments in expanding our core business and advancing our open platform strategy will further reinforce Points’ positioning as leader and enabler within the global loyalty industry. As we turn specifically to new business, today marks a very important development in the execution of our partner pipeline. We are extremely pleased to announce our latest partner addition Hilton worldwide and the Hilton Honors program to our partner network. With approximately 4,000 hotels across 10 unique brands in nine different countries, the Hilton Honors program is one of the world’s largest loyalty programs offering its approximately 38 million members, extensive opportunities to earn and redeem loyalty points.

We look forward to partnering with Hilton to help increase their program’s member engagement while at the same time drive continued growth to both of our respective businesses. We will provide further details on our Hilton Partnership following the launch of services. Another significant and recent win for Points is the addition of MasterCard worldwide through our growing network of partners. Points will be partnering with MasterCard’s loyalty division to add value to the dozens of bank loyalty programs around the world that leverage the MasterCard loyalty platform. Through this relationship, the issuing banks on MasterCard’s loyalty platform will gain the opportunity to deliver greater flexibility to consumers through exchange and trade of airline Miles, hotel points and other loyalty currencies. Based on the popularity of travel and experiences, these enhanced rewards management and monetization options are expected to drive engagement and value to those reward programs that opt to participate. We’re very excited about the opportunity to deliver these unique capabilities which are currently unavailable to consumers that are members of many current credit card based rewards programs. The financial services industry has been a high priority for Points for sometime, so we’re especially excited that MasterCard has chosen to partner with Points and we view this as a real testament to the value of Points’ loyalty commerce platform can provide.

And finally we recently launched Spirit Airlines on our platform giving pre-Spirit members the ability to buy and gift their free Spirit miles. Spirit Airlines is renowned for its creative marketing and its unique approach to frequent flier perks, and this imitative is just one more way in which its members can get more by doing exactly what they want and need with their rewards. As mentioned, launch phase of our new larger partners programs can vary considerably and add variability to in-year performance. As such, we expect these aforementioned products will begin to contribute to our results in the second half of 2014 and more meaningfully so, in 2015. With respect to MasterCard in particular, we expect limited near time monetization of the partnership, but do expect it to lead increased opportunities within the financial services sector as we engage with the dozens of issuing banks over time. Despite progress against our pipeline to-date, the new partner and product pipeline remains robust. We’re currently in various stages of discussions with numerous loyalty program partners across a number of verticals and geographies, and are reinforced that our pipeline consists of several opportunities that are larger than ever before and have the potential to have the significant contributor to our financial performance.

Given the size and scale of many of these opportunities we continue to take the conservative approach in our timing expectations for the on-boarding of these new partners. As is evident, 2013 was a record year for Points. We made significant progress across all fronts, financially, operationally and strategically. Not only did the organic business grow nicely, but we were able to complement this growth with meaningful and strategic new partner relationships. 2014 will be a year in which we continue to allocate resources to maximize the value and performance of our existing partnerships, execute against our robust pipeline of new business opportunities, and invest in our open platform strategy.

I’ll be back momentarily to discuss our focus and expectations as we look forward to 2014, but I’ll firsthand the call over to Anthony to discuss our fourth quarter results in more detail.

Anthony Lam

Thanks Bob. As a review of the results for the fourth quarter 2013, please be reminded that all of the numbers mentioned on our call today are in US dollars and all figures are presented in accordance with International Financial Reporting Standards. We are all very pleased to report that the fourth quarter revenue reached a new quarterly record for Points at 69.1 million, which is up 69% from 40.8 million in the fourth quarter 2012. Revenue performance was led by strong transactional growth from both our existing and new reseller partners. Principal revenue accounted for nearly all of its change, increasing 75% year-over-year due to the impact of new partners launched over the last 12 months. Gross margin dollars totaled 10.3 million, up from 8 million in the prior year period. Once again, growth in margin dollars reflects the impact of new partnerships launched over the last 12 months. Gross margin percentage for the quarter was 14.9%, down from 19.6% in the prior year period. The decline in gross margin percentage was largely driven by the relative mix of partner activity during the quarter, along with our recent partner launches which typically carry a lower gross margin percentage. As we mentioned on previous earnings calls, the addition of larger partnerships throughout the year, we can expect to see meaningful growth in margin dollars coupled with margin percentages in line with the second half of 2013. I’ll now move to discuss some of our key operating expenses in the fourth quarter.

Total ongoing operating expenses which consisted of employment expenses, marketing, technology and other expenses was 6.9 million. This was up slightly from 6.4 million in the prior year period, and reflects the continuation of the investments in key roles and technology as we advance our open platform strategy. The largest component of our ongoing operating expense line is employment cost, which totaled 5.2 million in the quarter, up 19% from 4.4 million in the fourth quarter of 2012. We ended the quarter with a total staff complement of 151, up from 128 in the year ago period. The scaled staff that we’ve added throughout the year was primarily within our technology, product management and marketing areas. These are areas of continued focus on investment as they align with our long term objectives. We are committed to executing on our long-term strategy and we will continue to work hard to attract new talent for the organization. Marketing expenses were 223,000, down from 439,000 in the prior year period. This expense line is comprised of consumer marketing, public relations and promotional activities, and varies period to period in line with our various marketing and promotional initiatives. As we continue to 2014, we can expect to see this line item move back to levels that we saw in Q4 of 2012.

Technology expenses, which cover the cost of maintaining and protecting our production environment, user application licenses as well as general technology upkeep and enhancements, totaled 241,000, up from 159,000 in the fourth quarter of 2012. The modest increase in this expenditure line in 2013 has supported improvements in our production infrastructure, enhancements to payment processing and coverage user licenses for our new staff. In 2014, we can expect to see this expense line follow a similar growth pattern to 2013. Adjusted EBITDA for the quarter increased to 3.4 million, which is up 118% from 1.6 million in the prior year period. Record revenue and gross margin dollars in the quarter combined with a steady total of operating cost structure have resulted in the more than doubling of adjusted EBITDA in the fourth quarter. Amortization expense totaled 715,000, compared to 728,000 in the fourth quarter of 2012. In 2014, we can expect this line item to be at or modestly lower than prior [ph] levels.

Finally, the company reported fourth quarter net income of approximately $2.3 million or $0.15 per diluted share. This resulted in a significant improvement of 700,000[ph] or $0.06 per diluted share that we saw in the fourth quarter of 2012, net of the non-recurring deferred tax asset of 4.9 million that was recognized in that prior year period. As of December 31, 2013, total funds available comprised of cash and cash equivalents together with security deposits, restricted cash and amounts with our payment processors totaled approximately 74.9 million and we remain debt free. Net operating cash which we define as total funds available, plus amounts payable to our loyalty program partners totaled 18.8 million at the end of the fourth quarter of 2013. This compares to 16.2 million at the end of December 2012. We are very pleased to continue to generate sufficient cash to fund our current and working capital requirements as well as anticipated capital expenditures. Finally, we finished the year with weighted average shares outstanding of 15,241,989 shares and 15,531,444 shares on a fully diluted basis.

Thank you all for your attention. With that, I’ll hand the call back over to Rob.

Robert MacLean

Great. Thanks Anthony. While much of our commentary is historically focused on pipeline development and execution, much work has and will continue to be done on maximizing the value and performance of our existing partnerships. In fact, 2014 will mark an increased focus on our existing relationships as Points invest in the products and capabilities to maximize our respective businesses. We will look to proactively engage with each one of our loyalty program partners and develop unique products to meet their individualized needs. At the same time, we will leverage our earnings and expertise in our products management in order to maximize the value we deliver to each of our partners. Since we last spoke, we’ve advanced our mobile functionality, optimizing our retailing and merchandizing products for mobile device usage, and as it relates to our open platform strategy, our efforts remain very much on track. We continue to develop our own products and services as well as enable third party product partners to connect and operate on our platform with our own operating products.

Reflecting on our performance in 2003, and our early performance in 2014, as well as new products and partners launched or announced to-date we’re initiating guidance for 2014 as follows: Revenue growth for 2014 is anticipated to be in the range of 25% to 40% which contemplates growth of our organic business as well as the contribution from new partners and products announced or launched since 2013. I’d like to reiterate, during this sustained high growth period for the company, there continues to be many moving pieces influencing near term performance. The anticipated potential contribution from new large partner programs is significant, but can be variable based on timing and role of schedules. In addition to the timing of existing partner activities throughout the year, various changes in redemption structures amongst certain loyalty program partners experienced in 2013 and planned for 2014, adds complexity to our business forecasting. Regardless of these uncertainties, as indicated by our annual guidance, we see strong growth opportunities for Points in 2014.

With respect to profitability, investment spend is expected to occur rather consistently throughout the year. As a result, we expect the business to demonstrate meaningful leverage, particularly in the back half of ‘14 as we deliver for strong revenue growth throughout the year. Therefore, for the full year, we are anticipating adjusted EBITDA prior to strategic investments to be in the range of 16 million to 20 million, with contribution weighted to back half of the year. This strong profitable growth will enable us to further invest in capturing the large market opportunity available to us. To that end, we anticipate investing $5 million to $6 million in 2014 against our long-term strategic plan. Investment in core product development, improving data and transaction capabilities, advancing our consumer strategy and expanding and enhancing our open platform strategy, will all continue to be key areas of focus throughout 2014.

We will work diligently to execute against this plan and continue our practice of adding even more loyalty program to our loyalty commerce platform, and developing products and services that are relevant to our partners. Overall, we remain very confident about our continued long-term leadership in this business and are making the right investments to deliver strong growth for years to come. Our focus in 2014 is to execute on our current business plan, growing both our organic business and executing against our new partner launch schedule to drive strong top-line growth for the foreseeable future, and position Points to scale profitably in the years to come. Thank you all for your attention. We will now open up the call for your questions. Operator?

Question-and-Answer Session

Operator

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from Drew McReynolds from RBC Capital Markets.

Drew McReynolds – RBC Capital Markets

Yeah. Thanks very much. Good afternoon and congrats on a great year.

Robert MacLean

Thanks, Drew.

Drew McReynolds – RBC Capital Markets

Just a couple of clarifications with respect to guidance, obviously pretty positive announcement around Hilton and MasterCard and then you continue to make progress from the open platform. Just in terms of kind of those three buckets, just what are you assuming I guess for 2014 in terms of that contribution?

Robert MacLean

Thanks again for the compliment. We have – we’re pretty happy about Hilton being able to announce that today. We haven’t historically made those kinds of announcements very often until we’ve launched. So, there is some variability as to when that goes live and so we have an assumption in there based on our current schedule. So we have included some material numbers in there for a new relationship with Hilton. We think obviously they are of very, very significant potential partner, they are more than 4,000 hotels approaching 40 million members, they are one of the largest – we think about them one of the most innovative hotel programs out there. So we’re quite pleased and excited about that one.

As far as MasterCard, obviously a very, very significant long-term opportunity for us, as you saw in our release, the reach of an organization like MasterCard is really spectacular. The idea we can interact alongside of them with dozens of loyalty currencies issuing bank loyalty currencies is really something that we think adds great long-term value for the business and our shareholders. We have not put anything in the 2014 guidance and numbers for MasterCard as we’ve indicated. We see it really as an opportunity now to go in and start interacting with those individual bank issuers and that will take a little bit of time. So, not anticipating anything material in 2014 for MasterCard. And similarly for the open platform, while we have live activity on there, fairly nominal amounts in the guidance for the open platform strategy, we obviously see opportunities to grow that business and we’ll be investing against that, but very little in the guidance at this stage.

Drew McReynolds – RBC Capital Markets

Okay, Rob. That’s actually very clear and very helpful. Appreciate that. And then just on the open platform, obviously it’s a longer term initiative here. In terms of tangibles like what we can – what you can discuss tangibly to investors and to analysts as we go through 2014? Is there anything you can kind of give us in terms of kind of benchmarks or achievements that you hope to see?

Robert MacLean

Yeah, I think 2013 our objective was very much to kind of demonstrate to ourselves and to our partners and practically to third party product partners that we could get that platform live and doing actual transactions. And we obviously started that work on the open platform in 2013, and I was quite pleased that by the end of the year we had live transactions with our partners going kind of top to bottom. So we were able to demonstrate that concept of opening up our technology to a third party to development we actually achieved it. I would describe that as a relatively thin layer of transaction capabilities, and so ‘14 much more of a building out the rest of those transaction capabilities and the functionality, and then bringing on more third party business ideas on to that platform. So that will be more what we’re focused on here in ‘14 and we’ll report regularly on progress there as material partner show up on the platform for sure.

Drew McReynolds – RBC Capital Markets

Okay, that’s great. And then just a point of clarification on the Hilton announcement, are they joining as a principal partner or they starting off as kind of commission based partner and may be down the road principal?

Robert MacLean

Principal off the gate.

Drew McReynolds – RBC Capital Markets

Okay. Fabulous.

Robert MacLean

That will be a multi-year, multi-product relationship.

Drew McReynolds – RBC Capital Markets

Okay, that’s superb. And then I guess just lastly, may be one for Anthony, to put the current strategic investments of $5 million $6 million 2014 perspective, can you just kind of roughly tell us what that amount was in 2013?

Anthony Lam

Well 2013 was in and around the $3 million mark, and we’re just continuing on with that program. And largely headcount, largely key strategic roles that we’ve been adding that will add value to us longer run.

Drew McReynolds – RBC Capital Markets

Okay. Sorry I missed the actual number?

Anthony Lam

It was roughly 3 million.

Drew McReynolds – RBC Capital Markets

Roughly 3 million perfect. Thanks very much guys.

Operator

Thank you. Our next question comes from Mike Malouf from Craig-Hallum Capital Group.

Michael Malouf – Craig-Hallum

Great. Thanks for taking my question and let me give you my congratulations on a good year as well. So, nice job.

Robert MacLean

Thanks, Mike.

Anthony Lam

Thanks, Mike.

Michael Malouf – Craig-Hallum

Let me ask a little question in other words a lot of press recently about Delta switching to more of a dollar spaced program caused a little bit of uproar in the some of the miles markets. Can you talk a little bit about how some of these shifts particularly with this one, as will or could affect you guys looking over the next couple of years?

Robert MacLean

Yeah the Delta change specifically is primarily I don’t want to get too far, but they really drive that strategy, but I’ll give you my perspectives on how it impacts our business which frankly we think is very, very limited impact on our business. But they’re really trying to coordinate the earning of Miles with the profitability of their respective customers. And this is a quite old issue for the industry, where our top tier customers earn that status either by flying a bunch of frequency, a lot of different flights or flying long distances. I think just over time as the industry has often talked about, that’s gone a little bit out of sync but the profitability on the customer flying 50, 60 or 70 times will actually be greater than flying three or four times long-haul. So I think that’s really just trying to coordinate the profitability of their respective membership with the more closely with the program. So, for most of our business, we’re much more focused on the redemption side of the equation and so very little to no change on that side. I really don’t see this having any significant impact on our business and our products and services as we go forward.

Michael Malouf – Craig-Hallum

Okay, great. It looks like obviously you’re not emphasizing this but on the commission side or the other partner revenue that remains fairly stagnant or flat. I’m wondering if you could talk a little bit about, are you working to try and get some of those partners in that bucket over to the principal side. And if so, can you talk a little bit about how that’s going?

Robert MacLean

It’s a little bit self-explanatory so much – those programs where its agency or the other non-principal just frankly aren’t growing as quickly as the programs that we are managing and running via the principal proposition. So that obviously good news for us because we’re able to demonstrate to the industry and to our partners that when we have more influence and more involvement, we’re frankly able to drive higher growth. So it enables us to get into those conversations. I wouldn’t say there’s a lot of those conversations underway where we’re trying to convert people across, but there are a number and I do see opportunities where we’ve been able to demonstrate on our principal relationship just a stronger performance, stronger growth and we use that with a select number of agency relationships on a regular basis. So that would be the way I would characterize it.

Michael Malouf – Craig-Hallum

Okay. And then one more quick question on MasterCard. Can you give us an example of how you envision the MasterCard relationship is actually working for you and sort of take us through example of revenue situation for you?

Robert MacLean

Yeah I mean I think the simplest way we’re quite excited there is all kinds of interesting opportunities within organization as MasterCard in their reach worldwide. But a very simple example would be take a bank in China that sits on their loyalty platform, that’s something would be a potential bank currency or loyalty program currency that could through points.com have a relationship with their consumers to take that Chinese bank currency and convert it across points.com into any of our partners Miles and Points. So it’s really designed to give consumers of all of these various programs more utility and more value and they will do that by being able to redeem their currency across points.com and interact with our platform. So for us we like that opportunity again to bunch of net new loyalty currencies. We also like the fact that as those exchanges or trades or exchanges happen it also funnels value revenue etcetera into our existing partners which is great for our network and our economy as well. Those are the kinds of things that I would point as being just a very simple example of how we will benefit from the MasterCard relationship.

Michael Malouf – Craig-Hallum

Great. Thanks a lot.

Operator

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

Sameet Sinha – B. Riley

Yeah thank you very much. Rob, can you clarify in the press release when you speak about year-over-year revenue growth you mostly indicate impact from new partners while in the global comment he was speaking about organic as well as new partner growth. That’s one thing. The second thing is from Southwest perspective obviously the hedge a little bit of a hiccup in the third quarter, can you give us some color on is that back on track and going smoothly? And then the third thing is can you elaborate in your prepared comments you mentioned increased complexity in forecasting. Can you just talk a little more to it?

Robert MacLean

Sure. I think let me see if I’ve got that. So organic growth versus net new partnerships driving the 2013 results – it is both. Obviously our business continues to growth organically we expect comfortably saying that knowing that double digits and we experienced that for some time, and obviously more growth on the principal relationships than on the agency relationships as we talked about earlier. Obviously when you bring on some large new partners as we did in 2013 that net new partner component is significant is a significant driver of the growth. But it’s certainly is would be both of those components named material contributors to our growth. Second question around Southwest specifically we haven’t – we never call out specific partner performance. What I would say is that when we look at all of the new partners that we’ve brought on through 2013, we’re quite comfortable that those programs are taking advantage of all of the different activities that we’ve been put on the table. We’re seeing more and more of those services being taken up by the new partners and we’re quite comfortable with how that all of those partners are performing. Last one was sorry last question was around increased

Sameet Sinha – B. Riley

The complexity in forecast.

Robert MacLean

They are kind of related in so much when you’re bringing on large partners, newer partners, we’ve got timing, volatilities. So we’re making announcement today very significant announcement around Hilton not able to really say when exactly that goes live although it’s – we’re in a very good position on that. But those things got coupled with the fact that we’ve got some changes that are happening in redemption structures in the industry well publicized changes in terms of how redemptions are being valued. Some of those moving pieces you put all of that into the pot, it just leaves to a slightly wide arrangement probably we would typically have in terms of guidance. So those are kind of some big moving pieces, notwithstanding some of those moving pieces, we’re still pretty comfortable we’re talking about 25% to 40% growth and just the predictability on how each of those plays out, gives us a sense that we should be prudent to having that arrange at this kind of 35% to 40% level.

Sameet Sinha – B. Riley

And just a clarification, you also mentioned something about Hilton how much Hilton included in your guidance? Is that a material or did you say non-material number?

Robert MacLean

Yeah I think we are optimistic that the size and scale of Hilton as a program gives us and then pretty significant opportunities. So I think I’d probably be uncomfortable getting into any core detail on a specific partner’s economics.

Sameet Sinha – B. Riley

And finally, just in terms of Europe, has that turned around or is it still kind of lagging?

Robert MacLean

Yeah we had a better fourth quarter in Europe for sure. When we think about on a year-over-year basis, it was essentially flat back half of the year being performing much better. Early part of 2014, we’re seeing good signs so we’re optimistic that kind of positive trend recovery in Europe is moving in the right direction. So early days ‘14 but the signs are positive on that becoming back into a fairly significant growth phase.

Sameet Sinha – B. Riley

Great. Thank you.

Operator

Thank you. Our next question comes from Pradeep Sangha from PI Financial Corp.

Pradeep Sangha – PI Financial Corp

Hi. Thank you. Hello Rob, Anthony. First of all it’s with regard to MasterCard. What’s been the response so far you’ve gotten from issuer potential issuer banks with regards to the whole MasterCard partnership? And then are you sort of selling at fiduciary banks or when do you expect to actually sort of start selling sort of the MasterCard points platform to them?

Robert MacLean

I’ll answer kind of the second question first. So we would expect to be selling at certainly in 2014 no question. We just announced that obviously I think last week or 10 days or so ago. So given the materiality and the reach of that relationship we felt from a disclosure standpoint we had to have that announce when we did when we signed the contract. But it is – we’re at the start line here now. So we’re completing the technology linkages so that we have the platforms connected and then that enables us to be out interacting with the MasterCard team and their various issuing banks. So we expect to see that. I’d say before the middle of the year we’ll be full board on the sales process.

Pradeep Sangha – PI Financial Corp

And the other part of the question was, what response you had so far if any from banks?

Robert MacLean

Yeah. Because we haven’t started that process until we have the platforms in place and then get it on the road, so I would expect it to be done here in the first half, we haven’t gotten any direct feedback from the programs. What I would say is and I don’t want to go overstep too much, MasterCard and ourselves are obviously pretty excited by the opportunity. I think we’re quite optimistic that they would not have put us at the top of their priority list and gotten this exercise that they didn’t have a very high degree of confidence that the value proposition that we’ll jointly bring to these issuers was very important to the issuers. And they know these banks very well, they’re running their platform, their loyalty program activity etcetera. So we feel pretty optimistic that we have a great partner.

Pradeep Sangha – PI Financial Corp

Just with regard to the revenue sort of coming here seasonality wise, Q1 is usually sort of down 10% 12% from Q4. Should we be expecting similar sort of seasonality and then ramping up in Q2, Q4?

Robert MacLean

I wouldn’t comment on the percentage numbers. I really don’t want to get into the habit of quarterly guidance for sure that doesn’t surprise you. But I would say is seasonality patterns are we’re not anticipating dramatically different than what we’ve seen in the past. Q4 has always been a strong quarter for us in general. I think we’ll expect to see sequential growth during the course of the year on a quarter by quarter basis.

Pradeep Sangha – PI Financial Corp

Okay. And just on the guidance once again the 25% to 40% range. I’m just trying to understand. Is there a scenario here where you’ve got potential partners that you’re talking to in your pipeline and which have not been announced and you can actually close them in the year this year and launch them this year that would contribute to revenue that’s not in your guidance?

Robert MacLean

The answer has to be yes. You would know that we think we’re still on the pretty early days in terms of the opportunity here. We’ve talked publicly about us thinking this was a business opportunity in $2.5 million to $3.5 billion range. So we’re pretty pleased with the growth and what we’re delivering here but it contemplates a pretty robust pipeline. So lots of discussions underway. I think we’ve got a pretty good track record of building these relationships and getting products launched. So the answer has to be yes I just would caution the market and caution you the analysts, but our guidance is our guidance but that’s really what we’re focused on in terms of communication. But we’ve had all kind of opportunities out there so we’ll see how that plays out during the course of the year.

Pradeep Sangha – PI Financial Corp

And historically you’ve had roughly 15% kind of in that range of organic year-over-year growth so we can kind of expect that still and the rest above that is to get to the 25% to 40% is new stuff right? And that’s the kind of how to think about it or?

Robert MacLean

I mean we’ve said I guess I said few minutes ago we saw double digit growth in the organic business here in 2013. And that core business continues to be very healthy. So I wouldn’t call out a specific percentage but we like where the organic growth is.

Pradeep Sangha – PI Financial Corp

Okay. Thanks again guys.

Operator

Thank you. Our next question comes from Andrew D’Silva, from Merriman Capital.

Andrew D’Silva – Merriman Capital

Hey guys. Thanks for taking my call. I just had a few follow up questions. First off, when you’re thinking about the strategic investments, you’ve got 3 million in strategic investments last year and you had arranged this year, should we figure that, that 3 million or 5 million to 6 million is having on a top of 3 million or are you kicking it out of the actual mix?

Robert MacLean

Yeah, I think it’s kick the 3 million out and replace it with the five to six.

Andrew D’Silva – Merriman Capital

Okay. Perfect. And then the MasterCard announcement it’s probably one of the largest technological and structural foundation you’ve received particularly due to the breadth of the loyalty network. I know you mentioned you haven’t really seen any approach you but do you have any sense of how long a sales cycle might be with the issuer of that nature since they’ve been validated by MasterCard and MasterCard has been validating your platform already, do you think that will shorten the timeline for needing to launch?

Robert MacLean

Good question but check back with me in a few months. I don’t want to be suspicious it is – there is no question in my mind that familiarity the pre-existing relationship that MasterCard with these issuing banks, we’re optimistic that’s a positive to all of those elements you just described. But practically, I can’t give particularly good guidance on that until we get into the conversation, but we’re optimistic but we have a great partner now.

Andrew D’Silva – Merriman Capital

Right. If no one has approached you, since the announcement in a field what’s going on?

Robert MacLean

Well we have lots of approaches since the announcement.

Andrew D’Silva – Merriman Capital

Okay. Good, good. And then I know you typically don’t announce partner before they’re launched, Southwest was likely an exception do you – how much materially the impact did your P&L. Have you signed new partners that weren’t mentioned today and just waiting to announce them after a campaign launch? And if so, are those partners included in your guidance?

Robert MacLean

I think we clarified our guidance would include only the existing business or partners that we have either announced or launched. So, I think that answers your question. I think I probably wouldn’t comment on a deal signed or etcetera but we’ll announce those – typically we’ll announce those deals when we launch. So, I’d probably leave it at that.

Andrew D’Silva – Merriman Capital

Okay. And then, if you were to sign like a Southwest caliber partner again, would you announce them – would you sign them or would you wait until a campaign is actually launched?

Robert MacLean

Our preference is always to announce at launch of the relationship and there’s a bunch of reasons for that, and the least of which is it’s the simplest message for a consumer if we are announcing a new relationship they can go and actually experience it right away. So that they are governing policy and/or principal and it’s typically driven by the partners wanting that kind of a communication pattern as well. Wherever we had exceptions it’s really been driven by the kind of I guess or disclosure with [inaudible]. We have material so material that we get uncomfortable that we can’t wait to follow our normal procedure. So those are exceptional cases and we’ll probably be – we’ll follow that same process if we face another large partner in the future.

Andrew D’Silva – Merriman Capital

Okay, fair enough. And then, have you seen any increase in sales transactions now that you’ve already website up and launched and kind of two part technology question. Have you seen any loyalty buckets companies come to your door yet since you’ve announced your upcoming open platform?

Robert MacLean

So yes, and yes. On the mobile a big part of what we were doing in getting our existing product mix more optimized for mobile was really to make sure we were getting the kind of conversion rates, mobile devices that we’re experiencing are desktop devices. So we’re seeing in the early stages of that role overseeing that to be a much more in sync with what we experience on the desktop environment which is great. So that’s in early days a good sign for us. In terms of third parties approaching us and vice versa, we are, as I mentioned earlier, we’ll be active in 2014 in interacting with third party product partners and bringing them on to the loyalty commerce platform. Lots of those active conversations some of which we’ve been knocking on doors and a number of which have approached us. So, we’ve got to build in and a fairly robust pipeline on that side of the equation as well.

Andrew D’Silva – Merriman Capital

Here’s my last question, rewards investments you obviously added some to that this quarter or last quarter. Were there any milestones that were met in China that we should be thinking about because you added to those investments?

Robert MacLean

The funding was based on milestones so they had a team of milestones just after our last quarter end. So we did increase our investment really in line with meeting that milestone.

Andrew D’Silva – Merriman Capital

Yeah, I mean can you elaborate on what kind of milestones have you set for them?

Robert MacLean

They did a soft launch of their actual product in the marketplace, which was a key milestone there.

Anthony Lam

Yeah I think there are two or three key milestones there around the launch of the technology and have it operable. There is a threshold around membership as well and that really would be key driver for the last tranche of investment.

Andrew D’Silva – Merriman Capital

Perfect. That’s all I have guys. Thanks for taking my call.

Robert MacLean

Thanks.

Operator

Thank you. Our next question comes from Edward Woo from Ascendiant Capital.

Edward Woo – Ascendiant Capital

Yeah. Congratulations guys. I just had a question. The travel seems to be pretty strong right now how would you characterize it and how much it impacts your business and your outlook?

Robert MacLean

Sorry was that travel is strong?

Edward Woo – Ascendiant Capital

The travel industry seems to be pretty strong with suppliers, online traveling agents and how much obviously you guys are pretty tight to airlines and hotels and hospitality. How would you guys characterize it that industry right now and how much does it impact your business and outlook to the change in near term?

Robert MacLean

I think we said over the years when our partners are healthy when things are strong, that seems to be a good spot for us. We tend to get into conversations that are productive, we get into working with partners in a position to take on new idea and run with them. We like when the partners are in a good spot. It just led to lots of good business for us. I’m positive and I think we’re saying through much of 2013, the U.S. market place in particular has been performing very, very well for us. Europe had struggled a little bit and through ‘13 late ‘12 and into ‘13. So we’re starting to see that come back as I mentioned earlier as well. So for us, I mean I want to see all of our partners in the healthiest spot as possible because I think it’s fundamentally needs that the relationship with their customers and their core tool that they use for that being a loyalty program and that usually is a good spot for us.

Edward Woo – Ascendiant Capital

Great. And can you provide just a little bit more details on you mentioned earlier that some of the volatility in your guidance is due to changes in industry redemption programs?

Robert MacLean

Over the years, programs are along the way well make adjustments on for example how many miles it make take for us to light Europe or for domestic flight or those types of things. And programs would do that kind of periodically in restructuring or updating the redemption structures and we typically see some dips in performance are slowing in some of those periods and a fairly short term issue for us and we start to see pretty quick rebound through that. So we know we’ve seen some of that in the back half of ‘13 and we know that there is more of that activity kind of industry wide in ‘14 so that’s really the reference point there.

Edward Woo – Ascendiant Capital

Great. Well thanks for the color and definitely good luck.

Robert MacLean

Great. Thanks very much.

Anthony Lam

Thanks.

Operator

Thank you. Unfortunately, at this time we have run out of time for questions. I would like to thank all our participants who joined. You may now disconnect your lines.

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