Aimia Q1 2024 Earnings Call Transcript

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May 15, 2024

There are 6 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Aimia Inc. First Quarter 2024 Results Conference Call. Answer session. This call is being recorded on Wednesday, May 15, 2024. I would now like to turn the conference over to Joe Racanelli.

Operator

Please go ahead.

Speaker 1

Thank you, Julie, and good morning, everyone. With me today are Aimia's Executive Chairman, Tom Fink and our Chief Financial Officer, Steve Leonard. Before we begin, I'd like to point out a couple of items. First, we issued our financial results for the Q1 earlier this morning and all our materials including our news release, MD and A, financial statements are available from our website as well as on SEDAR Plus. We will be using a presentation today and for those listening to our discussion by phone, a copy is available from the IR section of our website.

Speaker 1

I'd like to point out that some of the statements that we're making during today's call may constitute forward looking information and future results may differ materially from what we discuss. Please refer to the risks and uncertainties that may affect our future performance referenced in our presentation and MD and A. In addition, we will be making note of GAAP and non GAAP financial measures. Reconciliation is provided in the appendix of our presentation. And following today's presentation, for those who have follow-up questions, please reach out to me and we'll be able to provide any clarification and set up follow on discussions.

Speaker 2

With that, I'd like to turn the

Speaker 1

call now over to Tom Fink. Please go ahead, Tom.

Speaker 2

Thank you, Joe. Good morning, everyone, and thank you for joining us today. Since the start of the 2024 year, we have been busy on a number of fronts, primarily focused on creating value and strengthening our performance. Our results for the Q1 provide a clear indication of the progress we have made. Our gains in Q1 were largely driven by the strong performances of our core business, Bozetta and Cortland, who each experienced increased customer demand and improved market conditions.

Speaker 2

Rosetta's organic growth was also complemented by the solid revenue and adjusted EBITDA contributions from its tuck in acquisition of Starchem, which closed in early January. Another important development in Q1 was the monetization of more than $11,000,000 worth of shares of Capital A Stock. Combined, these developments have created momentum that we sustain through 2024. This progress coupled with the feedback from investors paved the way to formalize a new strategic focus, one that we believe will strengthen our ability to create increased value for shareholders. I will expand our new strategic focus in my closing remarks and will now ask Steve to review our financial results in more detail.

Speaker 2

Steve?

Speaker 3

Thank you, Tom. Good morning, everyone. Turning to our consolidated results on Slide 7. Q1 was marked by improvements in each of our key financial metrics compared to Q4 2023. Most notably, consolidated revenue grew 22 percent to $122,000,000 Gross margins improved to 28.3% from 23.8%.

Speaker 3

Adjusted EBITDA was $6,700,000 which represented a turnaround of more than $10,000,000 from Q4's EBITDA loss of $4,000,000 These gains were driven by stronger performances of each of our subsidiaries versus the prior quarter. And finally, our net loss improved to $4,200,000 from $59,000,000 in Q4 of 2023. Looking at the performance of our subsidiaries more closely, starting with Bozzetto on Slide 8, our Specialty Chemical business experienced both organic and accretive growth in Q1. The accretive growth stem from its acquisition of StarChem, the chemicals company based in Honduras that was acquired in early January. This acquisition which resulted in 15,500,000 of cash outflows in the quarter, net of cash acquired related to the acquisition was driven by Bozetto's goal of expanding its presence in North America and diversifying its product mix.

Speaker 3

Preliminary results from the acquisition have been encouraging. StarChem contributed $7,300,000 of revenue $1,500,000 of adjusted EBITDA in Q1. Excluding Starkem's contributions, Bazeto's revenue grew by 6.9% to 80,800,000 on a year over year basis and adjusted EBITDA grew by 27% to 14,000,000 on a year over year basis. Vazero's organic growth was due to a number of factors including improved customer demands, better product mix and improved margins. The results of Cortland International for Q1 are presented on Slide 9.

Speaker 3

Given that Cortland International came into being with the integration of 2 separate businesses, Tuff Ropes and Cortland Industrial in Q3, any comparisons to prior periods would not be meaningful. Cortland International made progress in Q1 relative to the period when it experienced a number of macroeconomic and geopolitical headwinds. While some of those challenges remain, particularly with respect to shipping through the Red Sea, Cortland benefited in Q1 from stronger customer demand and improved product mix. As a result, these more favorable conditions, Cortland experienced revenue growth of 14% and adjusted EBITDA of 60% in Q1 from Q4 2023. Turning to the performances of our non core assets on Slide 12.

Speaker 3

There were a number of important developments in Q1 worth noting. At Cognitive, Q1 was marked by continued progress against its cost cutting and reorganization initiatives. The company saw an improvement to its bottom line reducing its adjusted EBITDA loss to 3,200,000 dollars in Q1 from $5,600,000 in the last year's compared to last year. At Clear Media, the advertising company continues to experience soft demand for its billboard and advertising displays on account of the slow recovery of China's economy, particularly in consumer spending, which drives advertising demand since the start of the global pandemic. Clear Media sales are expected to improve in the coming quarters based on encouraging long term outlook for the Chinese economy.

Speaker 3

In Q1, we monetized $11,400,000 worth of Capital A shares. As at March 31, we held 56,200,000 Capital A shares, a total we expect to monetize through the balance of 2024. Turning to our liquidity, we ended Q1 with $98,200,000 in cash and cash equivalents. This marked a decline of $10,900,000 from our cash position at the end of 2023. The major impacts to our liquidity are presented in the waterfall slide on Slide 11.

Speaker 3

Changes to our liquidity were driven by a number of developments. Inflows included monetization of $11,400,000 of Capital A Shares, dollars 4,400,000 from the redemption of other investments and outflows included the $15,500,000 related to the acquisition of Starkem and $7,000,000 of shareholder activism related expenses and $3,000,000 in dividend preferred dividend payments. In Q2, we expect to receive approximately $33,000,000 from the earn out of the PLM transaction and we have $56,000,000 of common shares and $20,000,000 of warrants and capital A collectively valued at $13,000,000 as of March 31, left to sell. Managing costs and preserving liquidity will be key priorities for its balance of 2024. As a result of the progress achieved in the last two past two quarters and the visibility we have to the upcoming performance, we are providing guidance for some of our key metrics.

Speaker 3

As presented on Slide 12, we anticipate adjusted EBITDA for Bozzetto and Cortland to be in the range of $80,000,000 to $85,000,000 on a combined basis for fiscal year 2024. This total excludes the impact of the Holdings segment. At the Holdings segment level, we anticipate costs for the year to be approximately $13,000,000 excluding one time costs. In terms of the one time costs, we anticipate there'll be in the range of $13,000,000 to $14,000,000 These costs include expected costs for shareholder activism, settlement and employee severance, most of which were incurred in Q1 and advisory services expenses related to an integration project related to go to market initiatives at Cortland. That concludes my presentation.

Speaker 3

I will now turn it back to Tom for his closing remarks. Tom?

Speaker 2

Thanks, Steve. Before I get into our updated strategy, I'd like to share with you some of the context and background that went into our decision making process. Developments over the past 5 months in particular provided an opportunity for us to reassess our strategic direction and the ability to create shareholder value. Some of these activities are listed on Slide 15 and include the search for a new CEO, strengthening our Board and governments with the appointment of Rob Feingold as Director, increased interactions with our subsidiaries and improving our disclosures to highlight the contributions of Bevytta McQuartland. And finally, we increased our engagement with shareholders who shared with us their feedback on Aimia's direction and ways for us to create value for investors.

Speaker 2

These recent developments and shareholder feedback gave me and the other members of senior leadership team the opportunity to assess a number of considerations, including, is the holding company structure optimal frame? How can we close the gap between our share price in Aimia's intrinsic value? What catalysts or milestones will generate a higher share price? How should Aimia best use its available capital? And what should be the focus of Aimia's investment strategy going forward?

Speaker 2

Well, not all these broad questions can be answered in full now. They did help set the stage for landing on our near term priorities. Our realigned strategy summarized here on Slide 16 centers on 3 key objectives for 2024. 1st, unlock the growth potential of

Speaker 4

our core holdings, Bozetta and Corning.

Speaker 2

2 global companies operate in the specialty markets with significant organic and accretive growth potential. 2nd, continue to responsibly monetize our core our non core assets in an expedited manner. And 3rd, optimizing Avianca's capital structure to support increased financial flexibility and returning capital to shareholders. We are targeting an initial return of capital through the launch of a normal course issuer bid later this year with amounts to be determined pending receipt of our anticipated or now from the PLM transaction, completion of certain strategic developments and based on our liquidity requirements going forward. These priorities reflect a number of realities, such as the fact that both Pazzetta and Cortland are cash flow generating companies with international customers and favorable market outlooks.

Speaker 2

Our objectives will be supported by a number of underlying goals, including continuing the integration of Starkem at Poseta, executing on a consultant led analysis to optimize Cortland's go to market strategy and maximize its operational efficiency, optimizing Aimia's capital structure at the holding company's subsidiary levels. And finally, identifying other opportunities to return capital to shareholders. I am confident that the successful completion of each of these 2024 goals will serve as catalyst for AIMUS market value We'll also help to reduce the current gap that currently exists between our share price and the intrinsic value of the underlying comp. I want to thank you again for joining us today and I will now open it up to questions.

Operator

Thank you. Your first question comes from Surinder Thind from Jefferies. Please go ahead.

Speaker 4

Thank you. I'd like to start with the just the key considerations for the priorities you think about strategic future direction of the company. At what point do you think you'll have answers to all of the questions that you kind of have posed on Slide 15?

Speaker 2

That's Greg. Thanks, Surinder for that question. The reality is I think you have to look at the priorities of what we set out for this year. I think it's an ongoing process. For one, as we reset the management team with the new CEO, we will make other decisions in terms of the longer strategic initiatives.

Speaker 2

That said, I think we have to be realistic about what is the company today. And the company's value is driven by Bozzetta and Cortland. So how do we maximize that? Are there things such as optimizing our capital structure that we could do this year that we can get into and then longer term, where do we go strategically with these core assets, we'll build off of those efforts.

Speaker 4

Got it. And then I guess just focusing on the core assets, maybe starting with Bozetto or even with Cortland, when we think about the quarter over quarter improvement that's highlighted, how much of that is improvement in demand is like seasonality? How much is fundamentals? And then how much is maybe one time items such as the issues and any improvement in some of the issues around the Red Sea shipping and those kinds of things?

Speaker 3

I surrender, Steve Leonard. I would say you have to look at each of the businesses a little bit differently in terms of the impact. While Bozzetto did experience some challenges in Q4 relative to logistics associated with the Red Sea. It did have a much more harsh impact on our Cortland business, especially with exports out of India that were getting routed through the Red Sea. So you'll see in Q4 of 2023, the performance was quite low and we had cited that.

Speaker 3

And now on in Q1 of this year, we have the improvement. So I would say that part of the improvement that we had in Q1 this year was tied to some shipments that got held back or rerouted through the channels with customers. We had part of the benefit on Cortland quarter over quarter was tied to the Red Sea element, less so with Bozzero.

Speaker 1

And the reason for less so on Bozzetto is because of your ability to increase localized production in various facilities.

Speaker 4

And then just I guess how do you see fundamentals at each company at this point in time relative to where you believe demand should be?

Speaker 3

Yes. We kind of in both businesses, I mean, we've given guidance today. We did it collectively for the 2 businesses, but you could take the Q1 results and look at that relative to if it was repeated in the next four quarters, it's close to the bottom end of the range. So we kind of see where both businesses, there'll be some puts and takes, but some improvement over the quarter we're expecting, which would get us into the higher end of that guidance range. But Q1 would be a good barometer with some improvement going out through the rest of the year.

Operator

Your next question comes from Brian Morrison from TD. Please go ahead.

Speaker 5

Thank you. Good morning.

Speaker 3

Good morning, Brian.

Speaker 4

Good morning.

Speaker 5

Hey, maybe my first question is for Tom. When I look at the key considerations for priorities, I look at 0.2 and see determine if holding company structure is optimal and then I look at 0.7 and see determine best use of available capital. I assume that 0.7 refers to potentially NCIB. What does determining if the holding company structure is optimal mean?

Speaker 2

Yes. Thanks, Brian. I look at that more longer term as part of the longer term considerations. So if you look at us having 2 core subsidiaries, is there a more efficient structure? One of the issues we look at is, we have $700,000,000 of net operating losses that are being underutilized.

Speaker 2

So is there, if you will, ways we could better structure the company to utilize those. But I think that's more of a longer term decision in the near term. I think focusing on our the things we can control in 2024 with respect to the underlying subsidiaries and improving our financial flexibility, we'll prioritize those.

Speaker 5

Okay. If I move to the operations, Bozzetta seems to be performing, tracking initial expectations. I'm not sure why we don't see more progress throughout the year because it looks like you're just annualizing the current results. And then I guess second and so maybe just address why? And secondly, with respect to Cortland, what needs to be done here?

Speaker 5

I mean, if you just annualize the current results, it looks to be half of what the expectations were at the time of acquisition. What needs to be done at Cortland in order to improve its financial performance?

Speaker 3

So I mean, Brian, we've gone out with guidance. We always wanted to debate and deliberate where we see things. And I know the initial reaction would take Q1 and multiply it by 4. Our comfort level is that's a good base on Q1. There's obviously some initiatives going on and we're expecting some sequential growth that will likely get us a little higher towards the end of the higher end of the range and hopefully we can outperform that.

Speaker 3

You're right that Bozzetto is holding to the initial business plan numbers, whereas Cortlandt has come in on the low end. And that's one of the reasons, I don't know if you saw my prepared remarks that we're launching or we launched a project and initiative to get an acceleration of the business in terms of hitting where we wanted to achieve. And that was the difference between the two acquisitions was Bozzetta we bought, it was pretty much a fully contained business. I mean they've added Starchem recently, but seasoned management team that had been in place for well over 5 years and had a proven capability. Whereas with the tough ropes in Cortland, it was more of a combination and integration thesis.

Speaker 3

And we're still working out some of the kinks on that.

Speaker 2

Yes. And I'd add to that on Portland. Brian, the way you have these two businesses, I do think since Stuart came in as CEO just in November, he's done a lot to sort of get the company focused on a number of initiatives in the short term that can take advantage of the operating capacities in India, the sales channel strategies in U. S. That said, there's a lot more we can do.

Speaker 2

If you look at ropes industry and the netting industry, it's fairly fragmented. We want to position the company to grow and succeed and be obviously not just hit financial metrics, but hit sales and operating metrics. So as Steve said, when we bought Poseto, this is a very well run company by the same management team when we bought it, that continue to grow their business, diversify their product offering and with Starkem expand their geographic reach.

Speaker 5

Okay. If I just turn gears here for a moment, non core assets, it looks like Clear Media falls under that category. And I guess my focus there is, it's at the trough of the cycle. What can we do near term in order to maximize value? It looks to me like you sort of just have to wait this one out.

Speaker 5

And then in terms of cognitive, it's been a long time coming. Can we potentially do something in order to maximize value or minimize value destruction on that one?

Speaker 2

Well, on Clear Media, I think you have to look at as a pretty much a pure play on the recovery of the Chinese consumer. That's what's really going to drive near and long term value there. That said, it is well run. There are very strong sponsors in with JCDecal. We don't really drive the bus on that one.

Speaker 2

It's more of an investment that in time as the economy in China on the consumer side turns around and their numbers improve, we can look at an exit point. Steve, I don't know if you want to talk about cognitive. Clearly, yes, we want to minimize investment going forward there, but I'll let you make a couple of comments.

Speaker 3

Yes. I mean, cognitive, like you said, Brian, it's been a long time and obviously we would like to get an attractive exit at an attractive point and they're kind of in an inflection area right now. Tim Sullivan, who leads that business has probably been the best CEO that we've had at that business since we've owned it. And he's doing a really good job. He's getting traction with the new product lines that are more SaaS based model.

Speaker 3

But some of the legacy things that I know you've heard this before that we Aimia handed over with the Loyalty Solutions business was a bit of a drag on their operating results. So they are taking out costs. The key there now is to grow the top line. They have a strong pipeline and they closed a large retailer towards the end of last quarter. We might have mentioned that, but a good size retailer covering the U.

Speaker 3

S. And on all three platforms of their new model. So it's kind of like a little bit of wait and see here. We don't see an exit point immediately, but we're hoping in the midterm we can move on once they hit the full SaaS model that they're running on.

Speaker 5

Okay. So nothing near term is the message there. Last question and maybe you can answer this, but with respect to any potential resolution with your distant shareholder, I'm wondering if there's any progress that has or could be made prior to the AGM?

Speaker 2

Well, I'm always hopeful. We have continued to try to keep an open line of communication. Yes, I wish I could say that there was news on that. There just isn't right now. So our focus is to continue to be openly communicate with our largest shareholder and all our shareholders going into the AGM.

Speaker 2

And hopefully, there'll be recognition that the work we're doing here is certainly stabilizing the company. The Q1 was an improvement over the Q4. And I think we're trying to establish the underpinnings for near term strategies to maximize value and set us up to make some longer term decisions to further increase that value. But we remain open to discussions with all shareholders.

Speaker 5

Okay. Thank you for your answers and good luck.

Speaker 2

Thanks, Brian. Thanks, Brian.

Operator

And there are no further questions at this time. I will turn the call back over to the presenters for closing remarks.

Speaker 2

Thank you, operator, and thanks everybody for joining our call today. As always, we are available for follow-up questions and do look forward to getting your input and feedback. It certainly helped Steve and I and the leadership team at the start of this year and we look forward to continuing that dialogue. And as I said, we'll keep updating you on our progress as the year moves forward. Thank you.

Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.

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Key Takeaways

  • Strong Q1 performance with consolidated revenue up 22% to $122 million, gross margin improving to 28.3%, adjusted EBITDA of $6.7 million versus a $4 million loss in Q4, and net loss narrowing to $4.2 million from $59 million.
  • Core subsidiaries drove growth: Bozzetto’s organic revenue rose 6.9% year-over-year and EBITDA grew 27% (excluding StarChem), while Cortland International delivered 14% revenue growth and 60% EBITDA improvement sequentially amid easing Red Sea shipping headwinds.
  • Strategic moves included the StarChem acquisition, which added $7.3 million in revenue and $1.5 million in EBITDA, and the monetization of $11.4 million in Capital A shares, with 56.2 million shares remaining to sell through 2024.
  • Liquidity remains strong at $98.2 million in cash, with an expected $33 million PLM earn-out in Q2; full-year guidance calls for combined adjusted EBITDA of $80–85 million for Bozzetto and Cortland, and holding-company costs of ~$13 million plus one-time items.
  • New 2024 strategy centers on unlocking growth in core holdings, expedited monetization of non-core assets, optimizing the capital structure, and returning capital to shareholders via a planned normal course issuer bid.
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Earnings Conference Call
Aimia Q1 2024
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