Aimia Inc
TSX:AIM
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Aimia Inc
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Good morning, ladies and gentlemen, and welcome to the Aimia Inc. Third Quarter 2021 Results Conference Call. [Operator Instructions]This call is being recorded on Thursday, November 11, 2021. I would now like to turn the conference over to Tom Tran, Head of Investor Relations. Please go ahead.
Thank you, Miranda, and welcome, everyone, to this morning's call. Today's presentation is available on SEDAR and the company's website. Before we get underway, I would like to remind everyone to review our forward-looking statements, and the cautions and risk factors pertaining to the statement.With me on the call today are speakers Phil Mittleman, Aimia's CEO; Michael Lehmann, our President; and Steve Leonard, our CFO. Phil will begin with our strategic highlights, followed by Michael, who will cover the performance of our investments before handing the call over to Steve to take you through the results of the quarter. We will have time for your questions at the end.And with that, let me hand it over to Phil.
Thanks, Tom, and good morning, everyone, on the phone and webcast today. We'll begin with our strategic highlights for the third quarter.Our third quarter results demonstrated exciting and significant progress as we continue maximizing the value of our existing holdings while deploying capital into new investment opportunities. PLM continued to demonstrate a strong recovery in its operating performance. Aimia received a distribution of $6.3 million in the third quarter, bringing the total distributions from PLM to $21.4 million, on a year-to-date basis.As we announced in October, in conjunction with the recent disclosures made in the bankruptcy proceedings of Aeromexico relating to PLM, Aimia confirms that it is in discussions with Aeromexico for a potential transaction to divest our 48.9% equity stake in PLM. These discussions continue to advance, and we look forward to providing an update at the appropriate time.Kognitiv continues to develop a strong pipeline of new prospective clients to onboard to their collaborative commerce platform under the leadership team led by Shawn Pearson, who is recently named Chief Executive Officer, in addition to his role as President of Kognitiv. At Clear Media, the planned privatization of the business was completed, led by a blue chip consortium of investors comprised of Clear Media's current CEO as well as JCDecaux, Ant Financial, and the China Wealth Growth Fund. We are very excited about Clear Media's prospects. Members of the consortium such as JCDecaux, the world's largest out-of-home advertising company are also leaders in the digitization of outdoor advertising street furniture.We expect Clear Media's management team to execute on its growth-oriented plan to expand its digital footprint amongst its 61,000 commercial panels with the goal of attracting new higher-margin advertising revenue streams and clientele. With less than 1% of its panels currently digitized, we believe there are remains significant runway for digital penetration over the coming years.Moving to our investment in AirAsia. We are very pleased to see AirAsia resume its domestic travel, and the government's plan to start reopening their borders, as the region moves away from its 0 COVID strategy. Additionally, it has announced its transformation from an airline into a digital travel, and lifestyle services holding company.Aimia owns an equity stake of over 3% of AirAsia, which was acquired from the sale of our previous holding in the BIGLIFE Loyalty program to AirAsia, and additional shares acquired through a private placement. Air Asia's share price has performed well, and it was up 18% in the third quarter, and continued to climb higher after the country announced measures that lifted travel restrictions on interstate, and international travel in Malaysia.AirAsia also recently announced a reorganization into a holding company to separate its core airline business from its portfolio of digital assets, in which we see significant upside potential in companies such as BigPay, 1 of the fastest-growing fintech companies in Southeast Asia. BigPay recently secured up to USD 100 million in financing from South Korean conglomerate SK Group. According to a recent Credit Suisse report, AirAsia's portfolio of digital businesses has achieved unicorn status with a combined valuation of over USD 1 billion. AirAsia continues to raise new capital from various sources. And we believe that AirAsia will merge from the pandemic as a stronger airline and holding company, uniquely positioned to capitalize on the sizable pent-up demand for low-cost air travel across Southeast Asia, while enhancing the value of its digital assets.Moving to our new investments. Aimia invested CAD 44 million as the lead investor of the most recent funding round for TRADE X, an innovative solutions provider to the global preowned car industry through its B2B cross-border automotive trading platform at a pre-money valuation of USD 250 million. Aimia's current equity ownership stake in TRADE X is 12.3%.TRADE X continues to commercialize its core product with major automotive customers and continues to exhibit rapid growth, and profitability as it expands its reach globally to Europe, Africa, South America and China, amongst others.After having generated $74 million in gross vehicle sales in the first half of this year, TRADE X generated gross vehicle sales of $87 million in the third quarter alone, and positive EBITDA. With recent sales volume activity demonstrating strong momentum, we expect TRADE X to continue to grow its business at a rapid rate. The addressable market for exporting used cars is immense, and is estimated to be approximately USD 100 billion annually.We believe TRADE X is poised to capture a meaningful share of this global trading volume by automating and streamlining global vehicle commerce through its highly scalable AI-powered digital platform. The company is actively pursuing a robust pipeline of accretive acquisition targets, including its recently closed acquisition of Techlantic in September.We believe TRADE X repress an outstanding opportunity in a business with tremendous growth prospects as it scales its platform, and expand its geographical footprint, and we look forward to sharing more positive developments over the coming quarters.Moving to our new investment in a second special purpose vehicle. In November 2020, Aimia announced an initial commitment of $6.4 million to a special purpose vehicle created to pursue a leverage buyout of a target as of September 30, 2021, the fair value of the special purpose vehicle increased to $8.1 million.Following the early success of this investment, in November, the company made a new investment of $12.4 million in a second special purpose, vehicle which was created to pursue a similar buyout strategy.Subsequent to the end of the quarter, we realized a tax shelter gain of $9.7 million from the sale of our entire stake in Newmark, representing a return on investment of 107%.Finally, as discussed previously, in 2020, we rapidly cut costs and rightsized our corporate expenses, and achieved cash flow breakeven at the holding company with cash operating expenses, preferred dividends, and taxes, covered by PLM dividends, and other investment activities.For 2021, inclusive of PLM dividends, and cash gains on the sale of JCDecaux and Newmark, we expect to be cash flow positive at the holdco level.And with that, let me turn the floor over to Mike to provide you some further updates on our holdings. Mike?
Thanks, Phil, and good morning to everyone. We'll begin our discussion with PLM, where I'll be speaking to the operating performance in USD, which is PLM's functional currency. PLM's operating metrics continue to trend positively as the member base grew 6% over last year to 7.3 million enrolled members in the third quarter. Gross billings were $49.6 million in the third quarter, up 89% over last year, and up 12% over last quarter, as the travel industry continues to demonstrate signs of recovery.During the quarter, gross billings rebounded to roughly 70% of the billings generated during the third quarter of 2019. We expect the travel industry to continue recovering as regions such as North and South America, Asia and Europe, open their borders to fully vaccinated travelers.Revenues were $45.4 million in the third quarter, up 68% over last year. Adjusted EBITDA was $14 million in the quarter, up 37% over last year and up 13% over last quarter.Further, free cash flow was a positive $23.6 million, an increase of $17.4 million compared to the same period in the prior year. The improvement was mainly driven by higher gross billings. Moving on to Kognitiv. For the quarter, revenues from continuing operations were $14 million, an improvement of $1 million over last quarter. Adjusted EBITDA from continuing operations was a loss of $8.5 million, an improvement of $3.5 million over last quarter, partly due to a onetime benefit of the Canada Emergency Wage Subsidy, as well as Kognitiv's continued focus on cost efficiency. Kognitiv is making great strides on the commercialization of its business as it transitions towards a higher-margin subscription-based Platform-as-a-Service offering.Kognitiv also continues to attract top talent to further advance its collaborative commerce product offering. The company is executing its cost synergy plan in order to further align with its new business following the sale of the ISS business to IRI, which represented approximately $20 million in annual sales in 2020.Kognitiv's profitability has been delayed due to the sale of ISS, and its focus on investing in the development of its collaborative commerce platform to deliver against its growth plans. Based on Kognitiv's business plan, revenue growth is forecasted to significantly improve in 2022, and reach adjusted EBITDA profitability by 2023.Moving on to our Investment Management business. Revenue for the quarter from investment management fees were approximately $700,000, and earnings were a positive $100,000. Assets under management were $199.8 million in the third quarter, a decline of 1% year-on-year.And finally, moving on to Clear Media. As expected, the planned privatization of Clear Media was completed following the acquisition of all of the outstanding chairs of Clear Media on September 27. The listing of shares of Clear Media was withdrawn from the Hong Kong Stock Exchange, and Aimia now owns a 10.85% indirect stake in privatized clear Media.JCDecaux a member of the consortium recently reported in their quarterly results that outdoor advertising activity in China is almost back to pre-Covid levels. In Clear Media interim report the company indicated that the group's total revenue for the 6 months ended June 30, 2021, increased by 74% year-on-year, which represented 86% of the revenue generated during the third quarter of 2019.Clear Media maintained it's positive outlook as it continues to project materially higher revenues in 2021 compared to 2020. We are very excited about Clear Media's prospects.And with that let me turn it over to Steve to take you through some financial results. Steve?
Thanks, Mike. And Good morning to everyone. Let's begin by covering the consolidated results before we move to the segment performance and cash movements in the quarter.In the third quarter, total income was $7 million, mostly due to the fair value change of $6.3 million in AirAsia. And reported expenses were $3.1 million down $5.7 million, from $8.8 million in the same quarter of last year, driven by decrease in compensation and benefit expenses, related to the share-based compensation, and other performance rewards which were lower by $2.7 million year-on-year.Within the Holdings segment, total income was $6.5 million, up from negative $1.5 million in the same quarter last year. Total expenses were $2.7 million in the third quarter of 2021 down from $8.3 million in the same quarter last year. Within total expenses, corporate operating expenses which includes compensation, professional and advisory fees, as well as technology and other office expenses were $3.5 million in the quarter, down from $5.5 million in the same period last year. Due to the decrease in share-based compensation, and performance awards as previously mentioned.Excluding share-based compensation and other performance awards, corporate cash operating costs were $3.7 million in the quarter compared to $3 million in the same period last year as a result of expense phasing. Year-to-date through September, corporate cash operating cost were $11.2 million, and we remain on [indiscernible] activity or target annualized holdco cash operating expenses of around $14 million for 2021.Moving on to cover the major cash movements for the quarter. We ended the third quarter with cash excluding liquid investments of [ $ 70.1 ] million, including liquid investments, total cash ended $136 million. Main movements in cash this quarter compared to last quarter were at $6.3 million distribution receive form P&L, and $44 million investment in TRADE X. We paid preferred dividends at $3.1 million and [indiscernible] tax of $1.3 million. We made a $2.5 million investment in an externally managed investment fund. In corporate cash operating cost were $3.7 million.Subsequent to the end of the quarter, including net proceeds of $18.7 million from the sale of our investment in Newmark and a $12.4 million investment in a new special purpose vehicle. Aimia's pro forma cash plus liquid investments totaled a $124.2 million.And with that, let me turn it now over to Phil to wrap up with a few concluding remarks.
Thanks, Steve. This is an exciting time to be a shareholder of Aimia. Aimia has been successfully transformed into a lean opportunistic holding company with an exciting portfolio of assets including our new investment in TRADE X. Our discussions with Aeromexico continue to advance and we look forward to providing an update at the appropriate time.Aimia's prospects have been brighter and we continue to work tirelessly to deliver strong returns towards stakeholders.
Operator, that concludes today's prepared remarks. Please go ahead and prompt the questions.
[Operator Instructions] Your first question will be coming from Brian Morrison with TD Securities.
Either, Phil, or Mike. I just -- I appreciate you are not going to talk about an update on PLM, but maybe you can just talk about an update on the tax consequences before you've said it could be done on a tax efficient basis.Can may be you just update us on, what that would -- wouldn't help?
Sure, Brian. Hey, Brian. It's Phil. Let me actually hand it back to Steve, out tax expert, but...
We hold the investment through U.K. holdco structure and we -- when we originally design the structure we did do with a future yield down the road, exiting potentially, tax efficiently, we have not disclosed the details but I can assure you that upon the transaction, we would do so, in a very tax efficient manner.
Okay. I guess the exciting thing from the quarter that i take away here is really TRADE X, and the volumes that you've provided, obviously i think it's benefitting from the current auto shortage but with that in mind, can you maybe just talk to us about, what kind of growth you have, what kind of visibility you have in the rapid growth, the path to monetization here, I assume that might be an IPO, but maybe just the current situation, and acquisition outlook in path to monetization, if you could?
Sure. TRADE X, is a very exciting investment. Probably in my career, 1 of the most exciting have come across. We -- we first in terms of growth opportunities, when we first learned about TRADE X, it was relatively a new company and we saw that they were doing business with this group of blue chip partners that was this, it was to us unbelievable, that these companies would work with such an early stage company and we called those companies, and we've said, why you are doing business with this effectively a startup, when you guys are the leaders in the industry. And the response was these guys do it better more efficiently than anyone we know. They are getting us better prices, better product and we love them.And so, that's really how we started that relationship. And in terms of the growth opportunities there were limitless. We've -- TRADE X is trading in what you've seen in the used car business and i think the heightened interest in the used car business came from obviously the shortage in new cars. So by that, it forced people to search for used cars in other areas, in other geographies. And that's what TRADE X was, and they are not just there expanding into other trade quarters, for example, last month alone, TRADE X, traded cars from China to Europe, from Chicago to Nigeria, from China to Mexico, and Canada and then Nigeria, and from Japan to Kenya. So I mean it's incredible but in the economics of these transactions are incredible. So to be profitable almost from an inception. Growing at the rate they are growing with the partners that they have, it's incredibly exciting opportunity. So there is a scene of we have to is a good promise or they are managing the growth, that's really our focus is. You can almost grow too fast.So we are managing that growth. We have attracted a great group of great management team, great partners and so far it's incredibly exciting. In terms of potential monetization, you've seen you can obviously see there are, it was not pure play comp really for them and it could close this 1 out there, is probably all of 1, but if you look at the multiples you think we get, obviously they are tremendous, so we had an opportunity to get into this set of a very low valuation, and we are very happy with it. And I think that the in terms of monetization, I think it's noteworthy, we are evaluating opportunities as they come. And we will let you when we decide whatever our next move is.
Okay. And I guess, just a follow up on that. I guess to the current auto shortage situation, is that maybe go forward in the monetization event.
The auto short, this is volume, TRADE X makes more money when they have more volume. So prices helped. I guess you're getting a percentage of the price as a fee, but volume is more important. So I think the auto shortage in some people's perception is like, wow, that's why these businesses are doing so well. But in reality, I think it's just a kind of raise the awareness of, of the opportunity set out there.And obviously, the used car market has -- there's a lot of obviously heightened interest in it, but it's like -- I would say, like the first time you used eBay, you didn't know you could buy something at auction online. And then you've used it ever since, and that's a kind of what's happening here as people are discovering. Well, I can sell parts in Nigeria. And now I can get a better price going to Kenya, I can do that. And so I think the shortage, we look forward to the shortage going away. We look forward to the volume increasing, and we look forward to prices dropping because I think that's going to help these businesses get more supply or more transactions.So I wouldn't see direct correlation between the shortage and an event. I just think it's heightened interest in this sector.
Just a couple of comments on used car pricing. So what's interesting is as -- we expect prices to normalize, right? Because everybody know knows that pricing -- used car pricing is up, and it's driving inflation, partially driving inflation due to the supply bottleneck. But what's likely going to occur is there's going to be a debottlenecking of the new car supply chain. And as greater access of new cars increases the global supply of used cars because if you want to buy a new car, you're going to sell your current car, right?So it's very circular. So the greater access to new cars is increasing the global supply of used cars, and trade benefits primarily from unit volume. So the net-net, this is going to be a huge positive for us because there is a pent-up demand for new cars.And as that, as that surfaces, the used car market should substantially increase. And as that supply, if you think about that, as that supply dramatically increases the market is going to need a mechanism to clear that supply. And that's what TRADE X does. They're the matchmaker, matching buyers and sellers, and generating a commission in the middle, and the logistics aspect is part of their moat. Being able to solve for the cross-border complexities, which most auto companies do, focusing on the compliance, the regulations, vehicle inspections, currency payments, financing, all of those things are difficulties, right?And most car companies decide not to try to bridge that gap. And TRADE X is solving that for them. That's a huge positive here.
Yes. I think, Brian, [indiscernible] they said that less than 1% or 1.5% of the dealers in the U.S. knew how to transact cross-border, just to Canada, let alone to Nigeria, or any of these other places. And when you go to -- TRADE X has this proprietary AI-powered brain technology that backs up their platform. And when you go there, you put your car there and you say -- or let's say, I'm interested in buying or let's say, I want to sell my Toyota Tercel to Canada. They're going to say to you, we can push a button here, and we'll sell it to you to Canada for $17,000, and it will be done within 20 days, or you could sell it to Nigeria for $34,000, and it's going to take 90 days, and you have to put a higher deposit up, but it's up to, you and you'll get these options that you never knew existed before.And all the complexities and the logistics of going in these other countries has been is being handled by TRADE X, including currency hedging. So these opportunities are vast. And when you just look at China alone, there is a gigantic amount of vehicles in China that can be exported that are going to be hopefully flowing through TRADE X.So these are things that didn't exist before. They're creating markets. And people don't know how to do it, don't want to know how to do it, including the leaders in the industry, the biggest used car sellers that you can imagine in this world are using TRADE X to sell their vehicles. It's really exciting.
Yes. No, I take that. Okay. I appreciate the update on all the progression guys.
[Operator Instructions] Your next question will be coming from Hamzah Mazari from Jefferies.
It's actually Ryan Gunning on for Hamzah.Just my question. My first question, I know you guys are pretty restricted in what you can say about PLM. But is there any color you can provide on potential timing of the potential transaction?
So we can't comment on that specifically. I would just say that currently, and these states move around all the time. Obviously, currently, they are scheduled to have a confirmation hearing in December to hopefully emerge from bankruptcy.So that's the only kind of time line I can give you. I'm not -- I can't comment specifically on a potential transaction that we might have with PLM, but that's kind of the directional target for the bankruptcy to end.
Got it. That's helpful. And then on TRADE X, it sounds like a pretty exciting opportunity. So is there a potential to maybe take that stake up from the 12.3%?
We're very excited about the investment, and like all our investments, we're always evaluating opportunities like that. And if we elect to do so, we'll let you know.
Great. And my last question, just on Clear Media. I know it's approaching pre-pandemic revenue, but has the outlook on the business changed at all in light of recent slowing of China's economy?And is there any kind of update on the digitalization process being made there?
We just completed the privatization of this business. And so we're still figuring out the information flow that we can disclose to the public and what we can and can't say from them. So that will be ironed out in the near future, and we'll know more about what we can say and we can't say. I would say that we remain very excited about the prospects.We paid a very low valuation for the shares. We think that the upside is tremendous. We love the partners there. We think that the, the fears of government intervention like you've seen in some of the other companies, we hope and are optimistic that they will not affect Clear Media just based on the type of business that Clear Media is, and the partner group involved.So we'll give you more information as soon as we have it, and we are -- we want to obviously keep our shareholders as updated as possible. So we're working to get that those mechanics in place, and we'll let you know more information as soon as we can.
Got it. Very helpful. Thanks, Phil. That's it for me.
There are no further questions at this time. So I would like to turn the conference back over to you Mr. Tom Tran. Please go ahead.
Thank you, everyone, for joining today's call and webcast. If you have any questions, please reach out to Investor Relations.
That will conclude your conference for today. We'd like to thank you for participating, and we now suggest that you disconnect your lines.