Aimia, Inc. (OTCPK:AIMFF) Q2 2022 Earnings Conference Call August 12, 2022 8:30 AM ET
Company Participants
Steven Leonard – CFO
Philip Mittleman – CEO & Director
Michael Lehmann – President & Director
Conference Call Participants
Brian Morrison – TD Securities
Operator
Good morning, ladies and gentlemen, and welcome to the Aimia Inc. Second Quarter 2022 Results Conference Call. [Operator Instructions].
This call is being recorded on Friday, August 12, 2022. I would now like to turn the conference over to Steven Leonard. Please go ahead.
Steven Leonard
Thank you, Sergio, 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’d 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 my name is Steve Leonard, Aimia’s CFO. Phil will begin our strategic highlights, followed by Michael, who will cover the performance of our investments. Before handing the call over to me — for me to take you through the results for the quarter, we’ll have time for your questions at the end.
With that, let me hand it over to Phil.
Philip Mittleman
Thanks, Steve, and good morning to everyone on the phone and webcast today. We continue to advance our strategy of maximizing the value of our existing holdings while seeking to deploy capital towards new investment opportunities to deliver strong returns for our stakeholders. With $580 million in cash and liquid investments, no debt and approximately $750 million in tax losses, we continue to actively pursue an exciting pipeline of opportunities with long track records of free cash flow generation.
To recap the strategic highlights of the second quarter. Beginning with PLM. This is our first chance to comment on the transaction since it closed. We are very pleased to report that we received $537 million in cash on closing or $5.84 per common share, which was $45 million more than when we announced the proposed transaction in February.
The proceeds are net aside from some transaction-related fees and we do not expect to pay any additional cash taxes on this transaction. In addition, we are eligible to receive an earn-out of approximately $27 million on a net basis should the PLM program achieve targeted annual gross billings by 2024. Aimia intends to deploy most of the proceeds towards the acquisition of majority or significant minority stakes in cash-generative businesses operating in either the U.S. or Canada that will ideally utilize our sizable tax losses.
We will also use a portion of the proceeds to continue to repurchase shares under our NCIB, which we renewed in the quarter. So far this year, we have repurchased over 2 million shares, including 1.4 million shares under the current program. We have 6.3 million shares available to repurchase under the current NCIB program supported by an automated share purchase plan. As we discussed previously, we continue to opportunistically buy back our common stock as we see a significant discount to our intrinsic net asset value.
Moving to TRADE X. TRADE X continues to grow as it opens new global trade quarters to facilitate cross-border automotive transactions across Europe, Latin America, Africa, the Middle East and Asia. TRADE X recently announced the opening of a new quarter in the Dominican Republic, where there are exciting opportunities for imports into this Caribbean nation. While we have seen headwinds in the fundraising market for technology and growth companies, TRADE X continues to execute on its commercial strategy to achieve approximately $1 billion in gross vehicle sales this year.
Moving to Kognitiv. Recently, Kognitiv is successful in securing a multiyear contract extension with National Australia Bank that will utilize the collaborative commerce platform. Kognitiv continues to focus on strengthening of its pipeline with several new global brands across different verticals that are prime benefits to candidates — triumph candidates to benefit from its approach to empowering business to grow, adapt and transform through collaborative commerce.
Moving to our investment in Clear Media. The slowing Chinese economy and recent COVID-related shutdowns have created a challenging operating environment for advertising in China, and Clear Media is facing a situation that is similar to the first half of 2020 and has responded to the situation by implementing cost-saving initiatives. Clear Media is a high-quality business that stands to benefit from its sizable market position and enhanced digital offering.
Moving to our investment in Capital A. AirAsia continues to see the benefit of increased travel as the Southeast Asia region emerges from COVID restrictions. In the second quarter operating results, the airline carried 5.6 million passengers, more than 7x the volume carried in the same period in 2021. This represents about 43% of 2019 passenger levels, so there’s still room to recover, but the trend is very positive.
This low-cost airline is uniquely positioned to capitalize on the sizable pent-up demand for travel across Southeast Asia, while Capital A continues to develop and enhance the value of its digital assets. And with that, let me turn the floor over to Mike to provide you some further updates on our investment portfolio. Mike?
Michael Lehmann
Thanks, Phil, and good morning to everyone. I’m going to begin with a review of TRADE X. Including acquisitions were completed in the fourth quarter of 2021, TRADE X generated gross vehicle sales of $222 million in the second quarter of 2022 or $471 million year-to-date, which is holding to our full year estimate of approximately $1 billion in growth vehicle sales.
The company continues to develop its platform and expand its trade orders, which presents certain operational challenges on the cost and trade financing side, where we’re confident that the path to growth is on the right trajectory.
Moving on to Kognitiv. In the second quarter, revenues from continuing operations were $14.4 million, an increase of $1.3 million or 10% over the same period last year, mainly due to new clients and improved revenues from travel and hospitality clients albeit still dampened by travel restrictions related to COVID-19. Adjusted EBITDA from continuing operations was a loss of $10.3 million, an improvement of $1.7 million over the same period last year, which improved mainly due to lower operating expenses.
Kognitiv continues to maximize to focus on maximizing revenue growth from existing clients by expanding its current client subscription base through member growth as well as widening the scope of their service engagements. Kognitiv continues to be focused on expense reduction initiatives to improve its cost structure by removing inefficiencies and ancillary costs as it aligns its commercial delivery model.
Moving on to Clear Media. Due to the continued mobility restrictions within many of China’s largest cities, including Beijing, Guangzhou and Shanghai, demand for out-of-home advertising such as Clear Media’s bus shelters, has been temporarily reduced. This is creating a challenging operating environment for all outdoor advertisers in China.
Total revenue for the 6 months ended June 30, 2022 was 341 million, down 47% from the same period last year and similar to the first half of 2020 when there were similar COVID-related shutdowns throughout China. Given this tough environment, we recorded a reduction to our carrying value in the quarter of $8 million.
This adjustment was based on the current weakening environment, marketing demand and the time we now expect for the business to return to its historical revenue and EBITDA levels. Once the mobility restrictions are lifted, we’re anticipating a similar rebound within the outdoor advertising market that the rest of the world is currently seeing.
But until that time, Clear Media’s recovery is being delayed. Next up is Capital A. Southeast Asia has seen a resurgence in air travel as the region has relaxed or removed all COVID requirements for travelers. As was expected, pent-up demand within Malaysia, Indonesia, the Philippines and Thailand drove dramatically better operating metrics for each of Capital A’s airlines.
And finally, turning to our Investment Management business. Revenue for the quarter from investment management fees were approximately $500,000, and earnings before income taxes was a loss of $400,000, including $200,000 in nonrecurring expenses and noncash amortization of intangibles.
Assets under management were $132.2 million at the end of the second quarter, down 29.4% sequentially, largely due to the negative performance of concentrated value-oriented portfolio, which was impacted by the broad-based weakness in the global equity markets.
And with that, let me turn it over to Steve to take you through the financial results. Steve?
Steven Leonard
Thanks, Mike. Let’s begin by covering the consolidated results before we move to the segment performance and cash movements in the quarter. Starting with our consolidated results. In the second quarter, loss from investments was $32 million compared to $9.7 million of income last year.
Negative performance was mainly related to $8.8 million noncash equity pickup of our share of Kognitiv’s net loss. million of a negative net change in fair value of our marketable securities and $8 million reduction in the carrying value of our Clear Media investments.
Reported expenses were $3.5 million, down from $5.9 million in the same quarter of last year, mainly driven by a decrease of a $1.5 million of share-based compensation and $0.5 million in professional fees and other expenses. Within total expenses, corporate operating expenses, which includes compensation, professional and advisory fees as well as insurance technology and other office expenses were $3.1 million in the second quarter, down from $5 million in the same period last year, again, to lower share-based compensation, professional fees and other expenses.
Moving on to cover the major cash movements for the quarter. We ended the second quarter with total cash, excluding liquid investments of $10.2 million. Including marketable securities of $36.3 million, not held in Precog, total cash and marketable securities were $46.5 million at the end of the quarter. And the main movements in cash this quarter were proceeds from the sale of Capital A shares of $1.8 million, $2.6 million to repurchase shares under the NCIB, $3.2 million of preferred dividends and related Part VI tax of $1.3 million, and holding cash operating costs were $3.4 million.
Available tax losses approximated $750 million at the end of the second quarter, comprised of $390 million in capital losses and $360 million in net operating losses, mostly in the U.S. and Canada and some in the U.K. As mentioned earlier, we intend to utilize these tax losses to mitigate taxes associated with our investment strategy. And with that, let me turn it back over to Phil to wrap up with a few concluding remarks. Phil?
Philip Mittleman
Thanks, Steve. We are extremely pleased with the outcome of our PLM divestiture, completing a transaction with an airline-related asset during a worldwide pandemic with Aeromexico and bankruptcy proceedings was a very complex and difficult achievement to say the least. I’d like to take this opportunity to thank the entire Aimia management team and its board and advisers for their tireless efforts in getting this done. We’d also like to thank Aeromexico and PLM teams for a long successful partnership, their careful management of PLM and the airline through the most difficult period in aviation history and their tireless efforts to structure and execute this transaction.
We wish Aeromexico tremendous success moving forward with Club Premier as a wholly-owned loyalty program. With this transaction behind us, we are now focused on deploying our capital into cash-generative businesses while we continue to buy back our common stock. We are actively conducting diligence on new potential investments, and we look forward to providing you further updates in due course.
Unidentified Company Representative
Operator, that concludes today’s prepared remarks. Please go ahead and prompt for questions.
Question-and-Answer Session
Operator
[Operator Instructions]. Your first question comes from Brian Morrison from TD Securities.
Brian Morrison
Congratulations on getting PLM more over the finish line. I guess the next question, however, is I know you’re not going to go into detail about reallocating the proceeds. But maybe just you’ve had some time with the process getting dragged out to evaluate many opportunities. I’m wondering what the duration is to reallocate these proceeds. I know there’s no firm hard date, but can you give us some sort of color?
Philip Mittleman
Brian, it’s Phil. We — listen, we’ve been actively looking at target since before this transaction closed. We’ve been in advanced diligence on a lot of opportunities. And we obviously want to put the cash to work as quickly as we can. We know idle cash doesn’t really benefit anybody. But at the same time, we’re not forcing a transaction that doesn’t make sense.
And as you know, the worldwide markets have had some pretty serious dislocation. So the opportunities have increased. You see private equity firms stepping back as the debt markets are uncertain, and you’ve seen sellers kind of adjusting their expectations downward, and that takes a little time. So we’re trying to take advantage of that.
The good news is, with the amount of cash that we have, we don’t have to be as relying on debt markets as other firms might. So — so we’re seeing some great opportunities. So we’re working as quickly as we can to get the cash to work. But as I said, we’re not forcing anything. But I would say that we feel the urgency that I’m sure you feel and others feel because it’s frustrating to see our stock not react to the assets and the cash that we have on the balance sheet.
But we think that will change once we — you start to see the type of deals that we’re pursuing. — and you get 1 or 2 of those under our belt and you have that backbone of earnings, and I think that will change things. So we recognize the urgency and we feel it.
Brian Morrison
Okay. So let’s take that 1 step further. So your share price is — you’ve got net cash of about $3.50 per share when you track the press. So essentially, you’ve got about $1 per share for all of your remaining assets.
That’s about $90 million. So I agree with you, there’s a dislocation here other than just active being active with your NCIB. Is there any other sort of ways to create value with it for Aimia shareholders at this point in time through capital returns or another purchasing preps or whatever it might be.
Philip Mittleman
I mean I think the #1 way that we’re going to recognize value is by creating value and by increasing our NAV. And the way we’re going to do that is by investing wisely, but also creating value that people can actually see in these other assets and you say that they’re only valuing them at $1 a share. It’s because we understand there’s a lack of clarity on what’s going on in some of these things that you just can’t — it’s hard to predict where these things wind up and how you get a value marker and when and what you can provide to the market. So that’s frustrating. So I think we have to be clear and disclose as much as we can on those. — and create value as much as we can in those while we deploy this capital into value-creating things.
We’re not focusing on just buybacks and — and that’s not the way we’re going to create the real value for Aimia shareholders. It’s a balancing act. And obviously, we’re committed to it and you see us buying back our stock aggressively. We think it’s significantly undervalued. But it’s a combination. Invest it wisely and create value in what we have. And I think people will refocus on that once they see deals come in with this capital that they can point to and they can kind of clearly value and give them confidence to buy and hold their stock.
Brian Morrison
All right. I guess the last question I have when you’re talking about private market valuations being tricky as TRADE X looks like you’re actually that is the 1 private investment that seems to be going quite well at this point in time. Just wondering what you think the next market would be or would be another round of financing? Or when can we think of when we might see a monetization event on that one?
Philip Mittleman
Yes. I mean I guess, value markers come in really 2 form of transactions, either you’re raising money or you’re doing a transaction of some type of event. So I think with the equity in the tech markets the way they are for equity and debt right now, I think as we’re focusing on organic growth, just recycling the capital that they have and growing that way. So as soon as we see an opportunity to do some type of transaction at a value that we think is beneficial for stakeholders, we’ll do it. In the meantime, we’re going to continue focusing on growing it prudently using the capital that they have.
Operator
Mr. Leonard, there are no further questions at this time. Please proceed.
Steven Leonard
Okay. Thank you, everyone. That will wrap up the call, and we look forward to talking to you at our next quarter call. Thank you.
Operator
Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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