Aimia Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 12, 2023

There are 7 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the EMEA, Inc. 1st Quarter 2023 Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Friday, May 12, 2023.

Operator

I would now like to turn the conference over to Albert Matuszak, Head of Investor Relations and Communications. Please go ahead.

Speaker 1

Thank you, Brian, and welcome everyone to this morning's call. Today's presentation is available on SEDAR and on our 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, my name is Albert Matussek, Head of IR and Communications. With me on the call today are speakers Phil Mittelman, 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.

Speaker 1

With that, let me hand it over to Phil.

Speaker 2

Thanks, Albert, and good morning to everyone on the phone and webcast today. We are pleased to announce the successful closing of the Bozzetto and Tuff Ropes transactions as well as Zetto Debt Financing, 2 cash generating businesses with significant value creation potential for our stakeholders. Furthermore, we are very excited by Strength being exhibited by all of our current portfolio holdings. On May 9, Aimia closed the Bozetto transaction And the associated debt financing at the subsidiary level. Aimia invested $206,300,000 for an equity stake of 94% in Pizzetto, Investing alongside the management team who purchased 6% of the company at the same valuation as Aimia.

Speaker 2

We look forward to working with this remarkable management team As they continue to grow this business organically and through strategic acquisitions, and it is in advanced discussions with a potential target in the Americas. On March 17, we closed the Tuff Ropes transaction and acquired 100% of the company for $239,200,000 Following this acquisition, The leadership team has actively engaged with customers, suppliers and employees, and the response has been overwhelmingly positive. The team is exploring new opportunities for potential strategic partnerships And is actively pursuing an accretive acquisition target in the U. S. Self Ropes expects adjusted EBITDA margins to grow above 20% Within the next 2 years based on reasonable assumptions such as operational improvement initiatives as well as the optimization of product mix.

Speaker 2

Turning to our financial results. We ended the Q1 of 2023 in a strong financial position with over $318,000,000 of investable cash and liquid securities, A diversified portfolio of holdings that we believe are poised to deliver strong results in 2023. In addition, The company has tax losses of approximately $660,000,000 that will help shield a sizable portion of our taxable income and capital gains for years to come. As a reminder, at the end of 2022, Aimia utilized $130,000,000 of capital losses to repatriate a portion of the PLM gains. Turning to our holdings.

Speaker 2

Clear Media is seeing a sharp recovery in demand beginning in its Q2 of 2023 as China emerged from its COVID lockdown, and we expect Clear Media to accelerate the digitization of its panel portfolio. TradeX's enhanced asset light model is achieving some of the highest gross margins to date. TradeX projects a return to EBITDA profitability by the Q3 of this year. Eric Gosselin, currently the COO, will be named CEO on June 1, as founder Ryan Davidson focused on business development. Cognitive's new CEO, Tim Sullivan, is overseeing the launch of its new AI powered product, Cognitive Pulse, which has been met with industry wide praise and excitement.

Speaker 2

Cognitive continues to undertake a series of initiatives to reduce costs and increase efficiency, which is expected to drive Towards EBITDA positivity by the end of the year in 2023. In addition, Cognitive is securing additional sources of financing through divestitures Capital A is experiencing a strong rebound in its airline business, generating its 1st profitable quarter And with that, let me turn the floor over to Mike to provide you some further color on our investment portfolio. Mike?

Speaker 3

Yes. Thanks, Bill, and good morning to everyone. As announced earlier this week, we closed the Bezzetto transaction and the associated debt financing. Amy invested $206,300,000 for an equity stake of 94% of the company. We're very pleased to have Bozetta's executive management team Invest $13,300,000 of their proceeds alongside Aimia into this new investment venture, which represents a minority position of 6%.

Speaker 3

This investment provides for further alignment with Aimia and our shareholders. Concurrent with the closing, we secured debt financing of $139,500,000 With a weighted average coupon of 8.1 percent and total leverage will be roughly 3 times as we previously targeted. Transaction costs and debt financing fees totaled $19,100,000 excluding the transaction costs of 12,300,000 And accounting for cash on hand of $14,200,000 the enterprise value at closing was 333,000,000 Representing approximately 7 times fiscal 2022 pro form a adjusted EBITDA. For the fiscal year 2022, Rosetta reported revenue of $320,600,000 and adjusted EBITDA of 45,000,000 Including the recent Lavaco transaction that closed at the end of 2022, pro form a annual revenue was 335,300,000 And adjusted EBITDA was approximately $47,000,000 Given the Bozzetto acquisition closed after this quarter ended, The results of Pizetto have not been recorded in Aimia's financial statements for the quarter. Pizetto is one of the world's largest ESG focused providers of specialty chemicals.

Speaker 3

Through its innovative technologies, It is deeply interconnected with its clients' production process and allows for efficiencies and superior Final product quality. Their focus on ESG formulations allows for a lower environmental impact We're currently in advanced discussions with a potential target in the Americas, which would significantly increase and diversify Vazeto's geographical and end market footprint, as well as give greater exposure to different trends, drivers And structural long term growth. We see significant opportunities to grow this business, both organically and through accretive acquisitions. On March 17, we closed the Tuff Ropes transaction for $239,200,000 Since the acquisition, The leadership team has met with 2 thirds of its top customers spanning across Europe, North America and Asia and the feedback has been exceptional. During these discussions, the management team has uncovered many opportunities for further collaboration, both by gaining client wallet share as well as evaluating new business opportunities, one of which is already underway.

Speaker 3

These opportunities are within general maritime and aquaculture and are both through our distribution channel as well as direct to client. In addition, Top Ropes is in discussions For a potential acquisition in the U. S. Within the high performance ropes industry, we'll report back at the proper time. For the Q1 on a pro form a basis, Tuff Ropes reported adjusted EBITDA of $5,000,000 on revenues of 25,000,000 As previously disclosed, Tupperas expects adjusted EBITDA margins to grow to above 20% within the next 2 years Based on its reasonable assumptions on operational improvement initiatives, as well as on the optimization of product mix.

Speaker 3

In the near term, with operational initiatives underway, we expect EBITDA margins to be in the range of 18% on a full year basis. For the full fiscal year ending March 31, 2023, Pep Roach achieved revenue of approximately 114,300,000 And adjusted EBITDA of $20,700,000 on a pro form a basis. Fiscal 2023 revenues came in slightly below expectations Due to a delay in shipments associated with the post closing transaction, as well as the timing of customer orders, which are expected to be reversed over the next two quarters. As we previously discussed, we continue to explore debt financing for Tuff Ropes, In line with our general strategy of reasonable leverage on our operating assets. Moving on to Clear Media.

Speaker 3

Clear Media is seeing a sharp recovery in demand for its outdoor advertising displays beginning in March and has continued into the 2nd quarter As China has ended its mobility restrictions and we expect Clear Media to rapidly accelerate their digital panel conversions in 2023. Moving on to TradeX. TradeX generated gross vehicle sales of $156,700,000 in the quarter, Down from $248,300,000 recorded in the same period last year, mainly the result of focusing its business away from Being primarily volume focused and embracing its enhanced higher margin asset light business model. The company will continue to benefit as the number of Global car dealers utilizing its online trading platform grows. TradeX continues to streamline and innovate the process of cross border used car trading by announcing a strategic partnership with PAID, allowing dealers globally to perform reliable vehicle inspection, which ensures a trustworthy purchasing process and protect sellers from any condition dispute upon delivery.

Speaker 3

Moving on to Cognitive. In the Q1, revenues from continuing operations were $11,500,000 Adjusted EBITDA from continuing operations Was a loss of $5,600,000 a significant improvement of $4,000,000 from a loss of $9,600,000 in the prior year's quarter. We expect to see a continued reduction in losses as the year progresses and is expected to drive the company for its positive EBITDA by year end 2023. We would also like to welcome John Ott, an executive with deep experience in enterprise sales, Who has recently joined as Chief Revenue Officer at Cognitive. Next up is Capital A.

Speaker 3

Capital A, formerly AirAsia, continues to experience a strong rebound in all four of its businesses. In Q4 2022, Capital A recorded its first positive net profit since COVID began. While revenue has grown substantially, it remains only 77% of the level it reached during Q4 2019. However, EBITDA is 108% of Q4 2019 due to better seat pricing and expense management. This was accomplished while only operating 56% The group operated 14,800,000 seats in the Q1 of 2023, which is 71% of Q1 2019 levels, with a load factor of 89% at par with pre pandemic levels.

Speaker 3

And with that, let me turn it over to Steve to take you through some of the financial results. Steve?

Speaker 4

Thanks, Mike. Before I begin covering the consolidated financial results Starting in the Q2, we will be presenting our consolidated income statement as well as our segment reporting with a focus on the operating results of our new holdings in Besetto and Tuff Ropes. Our goal is to provide additional clarity and insight into each of our holdings. Let me now cover the consolidated results before we move to the segment performance and cash movements in the quarter. Starting with our consolidated results.

Speaker 4

In the Q1, income from investments was $14,100,000 compared to a loss of $14,300,000 last year. The income from investments in the quarter was mainly due to an increase in fair value of investments Equity instruments of $10,800,000 interest, dividend and other investment income of $7,200,000 And revenue of $2,000,000 mainly associated with the 14 day stub holding period of tough ropes. Our total expenses were $33,200,000 for the quarter, which included a number of non recurring expenses. These included transaction costs of $11,600,000 non cash costs of $10,800,000 related to the Paladin carried interest And option rights, activism related costs of $1,000,000 and accelerated amortization of a MIM intangible asset for $1,100,000 Excluding these items, total expenses were $7,300,000 of which $3,400,000 were related to the Tuff Ropes business for the 14 day period held since acquisition, where we had No comparables versus the prior year. Accounting for all these items, total expenses were approximately $4,000,000 which is in line with the prior year's quarter.

Speaker 4

For the Holdings segment, corporate operating expenses were $5,400,000 in the quarter, up by $1,300,000 mainly due to the expenses incurred related to the shareholder activism. Moving on to cover the major cash movements for the quarter. We started the quarter with cash and cash equivalents of 505,000,000

Speaker 5

The main movements

Speaker 4

in the quarter were $256,000,000 used to fund the Tuff Ropes acquisition. As a note, this funding was offset by working capital adjustment To derive our $239,000,000 net consideration and it's been funded by the sellers By having liquid mutual fund securities of $17,000,000 which are being converted to cash in the 2nd quarter, $8,900,000 of transaction costs were related to the Tuff Ropes acquisition and $4,700,000 of HoldCo costs. We also had the $3,000,000 of dividends and the $1,300,000 of Part VI tax. Moving on to the pro form a unrestricted cash and liquid securities to reflect the Buzzetto acquisition as of March 31, 2023. We had $318,600,000 prior to the Buzzetto acquisition Cash and liquid securities and we ended up funding $206,000,000 to acquire the 94% stake in Bizetto.

Speaker 4

In turn, Besetto had $14,000,000 in cash on hand at closing. Taking these two cash movements into consideration, We estimate the pro form a cash and liquid investments of $126,000,000 post closing. This liquidity position provides sufficient cash and liquid resources to support the funding of our holdco as well as opportunities to support our businesses Or renew the NCIB. Should we conclude financing on Tuff Ropes, we would expect up to $100,000,000 in additional liquidity. And with that, let me turn it back over to Phil to wrap up with a few concluding remarks.

Speaker 4

Phil?

Speaker 2

Thanks, Steve. Since the close of the PLM transaction last summer, we have been carefully planning to redeploy the proceeds to create value for our shareholders. We said at the time that we will return a portion of our We reviewed a robust pipeline of potential targets around the world and narrowed our focus to the most compelling candidates. We knew we could act swiftly when presented with the right opportunities, and we did so with the recent acquisitions of Tuff Ropes and Bassetto. We are very excited to have completed the purchase of these two businesses Check all of our boxes.

Speaker 2

Both companies are global players in growing markets with solid financial track record, sustainable competitive advantages, We'll form the foundation of the new Aimia with plans to grow both organically and through carefully planned accretive acquisitions. We will continue to execute our maximizing the value of our current portfolio holdings while redeploying our capital into new investments to significant upside. 2023 is off to Strong start for our entire portfolio, and we look forward to providing you further updates as soon as we can. We look forward to a very exciting 2023.

Speaker 1

Operator, that concludes today's prepared remarks. Please go ahead and prompt for questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a 3 tone prompt acknowledging your request. If you would like to withdraw your request, please press the star followed by the number 2. First question, we have Surinder Thind with Jefferies.

Operator

Please go ahead.

Speaker 5

Thank you. A few questions here related to the portfolio holdings. I'd like to start with Tuff Ropes. Can you provide any additional color on kind of what impacted the timing of customer orders? It sounded like it was a combination of Customers waiting to deal with the deal closed, but was there other things here that we should consider In terms of what is the general outlook for the remainder of the year?

Speaker 2

Hey, sir. How are you? Yes, there were Duration and licensing issues that we could only take care of after closing. So there was a lot of red tape involved. We also were redomiciling the company to Canada, which added a little Additional complexity that caused shipment delays, which we expect to be pushed into the next two quarters.

Speaker 2

So those are the primary reasons for those issues.

Speaker 5

So at this point, should we assume that things are On a operating on a fully normalized basis?

Speaker 2

Yes. Yes. We're fully normalized now.

Speaker 5

Got it. And in this environment, any color on what demand looks like?

Speaker 2

We're seeing signs of strengthening demand. We're also, more importantly, seeing signs of opportunities that could have dramatic impacts on our EBITDA. So we're seeing we immediately were met with a potential joint venture opportunity with 1 of the largest distributors, which would be very meaningful. Pursuing that. As we mentioned, we met with all the top most of the top customers and many of them validated our thesis, which was that This company has not really been actively marketing their products around the world.

Speaker 2

So one of the customers said, well, we hadn't heard from you in 2 years. So glad you're here because we want to expand our relationship. So we're very excited about what we're seeing there. So overall, we're seeing the kind of demand that we expected, but we're finding opportunities To grow this materially outside of just organic growth, we're also pursuing, as we mentioned, an acquisition in the U. S, which would Provide a whole another platform for us here and would also potentially allow us to utilize some of our U.

Speaker 2

S. NOLs. So we're pursuing that as well.

Speaker 3

Hi, it's Mike Lehman. It's Mike, if I could just jump in a second. So just to expand on a little bit what Phil said. The discussions with both existing and new customers have been going extraordinarily well. The future collaboration That we've been discussing has not only been on growing existing client wallet share, increasing business with existing clients, but also it's multifaceted, creating new opportunities and new products For those existing clients, and through distributors creating products for new markets, All right.

Speaker 3

So the largest of which is maritime and shipping customers, But it's really across the board. We're seeing opportunities that through the due diligence process, we highlighted. And now that we're out there seeing 20, 30, 40 of the top customers, we Recognizing that not only are those opportunities that we highlighted in due diligence there, but There's a lot more as well. And as Phil said, one of the opportunities is already ongoing and In the works, which is really exciting. And our the research and development within the company Is examining other ways to continue to participate with new clients and as well as develop the new markets that we discussed.

Speaker 5

That's helpful. And then just related to that in terms of as you've identified These opportunities as you have these discussions with the existing clientele for new opportunities, Can you talk about the harvesting of that? Is the idea that we'll see the impact in 2024 or should we begin to see the Impact on growth or before that?

Speaker 3

No, we're anticipating you'll be able to see growth before 2024. New products that will take a while to get through R and D and get through testing and certification, etcetera, But expanding current wallet share within customers, either direct to customer Or distribution channels, we're looking to increase those relationships immediately. So that could be over the next several quarters.

Speaker 2

Yes, Surinder, when we first announced this deal and our stock went down, one of the main things we were hearing was, oh, this is a commodity business, you guys bought a commodity business. And that is couldn't be further from the truth. What you learn about this business is, which is pretty incredible, is that one net We'll hold up to $20,000,000 worth of fish. So you can imagine how important that net is to the person dragging it. So if A fish comes and bites pieces of net off, dollars 20,000,000 of the fish can fly out your window.

Speaker 2

So the quality of these nets is critical. And when we were diligent in this, what we heard from anonymous professionals, even the competitors, were saying, look, Tuff Ropes has some of the best product out there. There are competitors that white label it because their product is just better than theirs. These are leaders in the industry. When we went and visited every one of their factories, we saw women sitting on the floor with the nets.

Speaker 2

And my first reaction was, wow, You're so automated. You know, you don't automate that and they said, no, you don't understand. This is a skill set that is so valuable. You know, tying these nets at the end of these nets and The quality of these nets is the reason that they don't break and it's the reason that our quality is so high. These are some of the highest paid women in India, highly skilled.

Speaker 2

And so this is not like some simple thing where you're just making that. So some of the technological advances Mike was referring to is putting sensors on the nets That alert the boat when there's a rip in the net or a tear or any type of damage to it. That allows you to maybe save $14,000,000 worth of the $20,000,000 that's going to escape. I mean, these are huge numbers. So this is a very important part of the business, and we're Fanning it and it's very high margin and we're very excited about the future of that business.

Speaker 5

Got it. And then moving on to Clear Media here, we've now kind of had a quarter to 2 quarters where The Chinese economy has started to open up. Any color on how we should think about the revenue trajectory here in a Turn to normal now that the conditions themselves or the factors influencing them have normalized?

Speaker 2

Yes. I think, first of all, let me just say that the period that Clear Media went through over the past couple of years, I would almost look at it like You had the ability to do a prepackaged bankruptcy without a prepackaged bankruptcy. You went and you could go in and cancel bad contracts. You could improve terms. So it's actually been a very healthy process for them to for the launching point they're at now.

Speaker 2

So I think the same thing happened with Capital A. When they were Going through their period in COVID, they basically went to people and said, look, we're going to file bankruptcy unless you do A, B and C, and they restructured their whole and cost structure. And now Kapolei is triply as profitable as it was at the same time at the same load size they were back in 2019. So Clear Media has been by no means impaired. And in fact, the businesses and the structure and their deals have been enhanced over this period of time.

Speaker 2

So in terms of How quickly that launch proceeds, first of all, it will be more profitable quicker because of the Deals they had in place and because of unprofitable leases that were jettisoned and others that were signed up. And remember, this new consortium Includes the Chinese government, so licensing becomes, you would imagine, more favorable and the ability to get things lined up for the digitization rollout. So When we first invested, we invested $75,000,000 We thought it was the perfect timing. It was the depths of COVID. We paid 5 times normalized EBITDA.

Speaker 2

So The day we bought it for $75,000,000 we thought it was worth $150,000,000 Today it's on our books for $50,000,000 because we've just been prudent taking write downs has been currency over time. So we think that when you saw the last from the first time we bought it, it was a very, very quick snapback. It It was recovering very quickly. And then the 2nd wave of COVID hit and then the 0 COVID policy was enacted, so it shut everything down. So We can't predict with precise timing, how fast it recovers except to say that right now they're seeing the strongest demand Recovery that to date, I think you're going to see a rapid recovery and you're going to see a focus, an accelerated focus on digitizing the panels, Obviously, increases revenue and profitability dramatically.

Speaker 2

So very excited about that going forward. Right partners, Company is in a perfect position in the economy and that business has now got a hurricane at its back and we're very excited about it going forward.

Speaker 3

Just with regarding to timing, surrender, you have to remember, when the mobility restrictions were lifted, it was December For January, as those listed, it's been widely reported that the COVID outbreak Substantially increased for the early part of the Q1, and that kind of led people to kind of hunker down and to get through that period. So It was really only in March where we started to see normal activity, normal mobility, people getting back out, people getting back to work And the marketing dollars will clearly follow that and they have been. So there are Current active marketing plans that are getting put back in place and clearly that's a Clear Media is a huge beneficiary to that. So the timing is, I would say, uncertain to get back to normal, But we're certainly on a very, very strong trajectory starting in March and flowing through into the Q2.

Speaker 5

Thank you. And then, 1 or 2 more quick ones. Moving on to TradeX here. When I think about the revenue profile and the transformation that the business has been going through, Would you say that on a run rate basis that all AllSeq platform sales have stabilized at this point?

Speaker 2

I think just so everyone has a little background and I know we've touched on it, but just to kind of remind everybody, Tradex started last year on a All full speed ahead, buy as much inventory as you can, limitless supply, limitless financing available, ramp up revenues as fast as you can. It was following the exact trajectory of an exciting tech play. They raised 12 point more than double the valuation we paid and they were targeting a raise there of additional money and they were ramping using all that money to load up on inventory anticipating Sales into these new corridors. So suddenly the music stopped in the middle of the year. The tech funding just shut off for everybody.

Speaker 2

The used car market went through a pullback. Everything kind of froze and TradeX was forced to adjust their model. They had to go through a period of liquidating inventory, Just refocusing their model on no longer speculating. They wanted to get to a point where we had the proper Credit facility in place, which we now do, and focus on riskless transactions, transactions that are not relying on price moves up or down. So where we got today after all of that change, we obviously and we mentioned we have a new CEO starting.

Speaker 2

We have a COO who's been fantastic, who's Migrating to the CEO position on the first and Ryan is focusing on business development. And as such, we're seeing some very strong traction in Nigeria, for example, where we're Seeing the highest margins we've ever seen there and significant volume. So in terms of normalization, we're much more we stopped focusing on volume. We focus on profitability. We got the right credit facility in place.

Speaker 2

We've got we cut costs where necessary. It's a very asset light model now. We are 100 And funded by the credit facility, transactions are only done when there's a buyer and seller and it's riskless for TradeX. So that resulted in us getting to this kind of launching pattern at launching point, I think, from a revenue standpoint. The company is projecting dramatic increase in those revenues, But we're much more concerned to focus on just maintaining profitability and growing it, and we see a clear path there.

Speaker 2

So I would say Definitely stabilized. Now focusing on growth again and the right type of growth. And we're very excited and I think that they're on the right path now.

Speaker 5

And any color on the new margin profile versus the old in terms of the differences in the business model?

Speaker 2

We want to give a lot more color on these subsidiaries. I think it's we're trying to be prudent and let these kind of Mature for a couple of quarters before we start to give numbers. But I'll say that, for example, in some of the territories we've opened, we're seeing margins as high as And that's significant increase from the type of margins we're seeing in just kind of like Canada, U. S, for So I think what's evolving here is a very specialized market That they've opened up and that nobody else is transacting in. For example, Nigeria is a great example.

Speaker 2

Nigeria, People are paying as much as $450,000 for a G Wagon over in Nigeria. The process of getting a G Wagon into Nigeria It is impossible almost for most people, but TradeX spends a lot of time and money partnering with the right people in Nigeria, So There was a cost to get there. There were some missteps, but they've righted that. And I think the margins for us, Steve didn't believe them at first. And so we were pretty stunned to see what they're doing.

Speaker 2

Hopefully, if they maintain that, we're going Very profitable company.

Speaker 5

Thank you. That's it for me.

Speaker 2

Thanks, Victor.

Operator

Thank you. Next question, we have Brian Morrison with TD Securities. Please go ahead.

Speaker 6

Hey, good morning. Maybe I can do a little bit higher level questions here. Just in terms of the acquisition or pardon me, the closing of the acquisitions of Tuff Ropes and Bezetta, It sounds like all of your free cash flow from these acquisitions will go towards M and A. Will any of that be repatriated back to the parent company?

Speaker 2

We'll do that as needed or if we want to, but our current plans are to grow these businesses and use the cash flows to continue to grow them. We have, as we mentioned, a couple of acquisitions, for example, that are underway. Both of those anticipate Being 100% debt, but you never know. Going forward, there might be ones that require equity. There are Some capital investment we're making to grow these businesses.

Speaker 2

So in the meantime, we're going to we plan on keeping the cash in the subs. Some of them are also restricted by debt covenants, as you know. So there's some periods of time where you can't take dividends even if you wanted to, but we're not planning to. So We're budgeting ourselves so that we can spend a couple of years growing these businesses, keeping their internal cash flow there, And at the same time, I have enough capital to aggressively buy back our stock and obviously maintain our other businesses and be available for other opportunities that may arise.

Speaker 6

Okay. I want to get your buyback in a minute, but can I just ask a question on Tuff Ropes with respect to the status of the financing? Is it in process? Is it delayed because of the underperformance of Tuff Ropes? The demographics, geographics where Maybe just update us on the status of the financing.

Speaker 2

Yes. Well, there's no real underperformance of Tuphros. There was the delays that were Associated with the closing. There was a period, for example, of 2 weeks where we weren't allowed to transact or buy or sell any product because we don't have the proper licenses. So There is no concern about underperformance there.

Speaker 2

We're in very advanced discussions on a debt deal for Tuff Rose. I wouldn't be concerned about it. I would just David, these companies and banks are committing to us and it's like a marriage, and they want to know who they're marrying. The activism stuff that came out was Not helpful. Definitely delayed things a little bit.

Speaker 2

We rectify that and we're very confident that we'll Close a transaction for Tuff Ropes that is on our terms and the proper terms and we're not in a rush. We want to do it right. We that being in the $100,000,000 range, and we're definitely confident that that will take place.

Speaker 6

Yes. Phil, I'm actually using the wording out In terms of the top ropes and bazette, can you just expand upon what your relationship is with Palatin?

Speaker 2

Sure. This has been I'm glad you asked because there's been a lot of misinformation out there about Palatin. I'd love to set the record straight. So Collin was referred to us by one of our board members who has a long successful track record in private equity. He told us that He knew a group that had 2 deals under exclusivity that were exactly what we're looking for, but they had a non compete until the time was April 1.

Speaker 2

And so they couldn't raise any funds To finance these transactions. So they were left with 2 deals that they were likely going to lose, and they fit the bill exactly. When we met with them, they were very like minded, Very smart guys, long track record, primarily at Castle Harlan, great history of and track record of Success in private equity deals. And in fact, their 2 most successful deals happen to be in India and in the chemical business in Europe. So it was really their expertise This is very valuable in those respects.

Speaker 2

We went and did the diligence on these deals. We're very excited about them. We knew that these guys needed The capital, so the deal, we think we made a great deal for Aimia and has been a lot of value add from First of all, they have been scouring the world for part of their jobs to scour the world for M and A opportunities for These acquisitions, which they've been doing, they've brought us, I would say, at least 5 potential targets for each of these entities. They brought us Tough ropes, which had never been in the market, like these are deals that we're not out competing with Blackstone. We're not going into We had to find opportunities that Aimia could take advantage of that preferably other people didn't have access to.

Speaker 2

So Tuff Ropes, they had spent almost 3 years quoting the Management of tough reps to get them to sell. So this was a deal that wasn't available to the general market. They brought it to us. We jumped in, in the 7th inning, And we took advantage. With Bizetto, for example, Bizetto was going to auction themselves.

Speaker 2

And then you saw the debt markets in Europe You know, froze. You saw raw materials skyrocket. You saw fuel prices skyrocket, and it was pulled. And we saw that as an opportunity, swept right in, Made a deal, I think we paid a lot less than they would have gotten otherwise. And even by the time we closed, things had stabilized.

Speaker 2

We have a competitive debt Situation, we got a great deal there. Raw material prices have been dropping. Fuel prices have been dropping. The supply chain has stabilized. So The Bozzetto I'm sorry, the Paladin relationship is one that provided us these opportunities.

Speaker 2

They had these deals. The deal that we made with them was And it is different than I think a lot of people interpret. For starters, the fee that they get is nominal. They receive a fee and a few $100,000 a year per deal. They have a long list of duties to help us within those deals and we're a small team.

Speaker 2

So for example, we're not Spending our time scouring every orifice of the world for M and A opportunities, they are. They've Help us a lot on the ground in India, bringing the right personnel in to help us with tough ropes. They have their chemical expertise that's helped us with the Zetto. So They're doing a lot of service. And for such a small team, at Aimia, we're 3 people basically.

Speaker 2

It's almost like an extension of our management team at these holdings. They live and breathe these deals. They have the right, as we've said, to buy up to 20% of each. They can't cherry pick. They can't do 1 or the other.

Speaker 2

They can't do 12% of 1 and 18 So the other is all or nothing on both. So it's important that we're aligned that way. They have to if they do purchase that 20%, they pay us 8% warehousing fee, and they only have a year to do that. So we would get paid 8% on that. And then they receive a carried interest of 20%, but only after we received an 8% Compounded annual return.

Speaker 2

So it's a very productive relationship, very helpful to us. The value add they bring It's very much worth the money we spend and would spend. And we're very excited about the relationship and it's and going forward, I think They're going to add a lot more value than they would cost us.

Speaker 6

Okay. Thank you for clarifying that. If I can turn to your Cash position. It looks like you have $50,000,000 on hand pre your tough ropes financing pre liquid assets. Should we expect to see some monetizations of your liquid assets near term?

Speaker 6

And then your NCIB, it's not going to get you to your $100,000,000 target. Just your thoughts on Other potential return of capital to shareholders?

Speaker 2

Sure. So once we close the Tuff Ropes debt transaction, We'll have we'll be in the range of kind of $250,000,000 of Available kind of when you talk about liquid investments, these are readily salable securities including Capital A. We're at $200,000,000 without reaching into some of those pockets. So we're confident that we're going to have plenty of cash to execute We need to execute. And yes, we will monetize those when the time is right.

Speaker 2

I think AirAsia, for example, Capital A has a lot of upside. So we'll let that run. But we're not looking to be long term investors in airlines either. So Those are at the top of the list of liquidations. We shut down one of our SPVs.

Speaker 2

You should expect us over time to be liquefying the Those types of investments and to be selling the minority stakes we own when the time is right and focusing on the cash flowing businesses and redeploying into that. I think We've learned and the market has told us clearly that they don't want to value these minority investments. It's hard to, because they don't have enough information. Don't blame them. And we don't need to focus our resources on opaque investments that people can value.

Speaker 2

So going forward, you're going to see us Redeploying this capital into either deals that enhance and expand the current 2 businesses we just purchased or you might see a third, But it will share the same characteristics and cash flow type of free cash flow generation that you're going to see from these 2. In terms of the buyback, we obviously think our stock is extremely undervalued, and we would like to aggressively buy it back As rapidly and as sizably as we can. I think it's the NCIB, which you mentioned renews in June. Beyond that, there are other buyback mechanisms we would employ. I think when you talk about return of capital, I think as long as the stock price is anywhere near Where it is now, buybacks are far more preferable to us than dividends and to our stakeholders.

Speaker 2

So We're going to utilize this mechanism as quickly as we can and then we will focus on other mechanisms such as sieves We're direct issuer bids.

Operator

Appreciate the color.

Speaker 2

Thanks, Brian.

Operator

Thank you. And there are no further questions. I'll turn the call over for any closing remarks.

Speaker 1

Thank you everyone for joining today's call and webcast. I wish you a great rest of the day. Thank you.

Operator

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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Earnings Conference Call
Aimia Q1 2023
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