Aimia Inc. (AIM.TO), a holding company with investments in various sectors, reported its Fourth Quarter 2023 results on March 26, 2024. Despite facing macroeconomic and geopolitical headwinds that weakened customer demand and caused shipping disruptions, Aimia ended the year with increased liquidity of $137 million.
The company's recent acquisitions, Bozzetto and Tufropes, which later merged with Cortland Industries to form Cortland International, have shown positive revenue and adjusted EBITDA, although their Q4 performance was affected by these challenges. Aimia's focus remains on value creation for shareholders through integration and growth strategies for its subsidiaries, while also planning to monetize its minority investments to strengthen its balance sheet.
Key Takeaways
- Aimia Inc. experienced a decline in Q4 revenue and adjusted EBITDA due to market challenges.
- The company's liquidity improved to $137 million, partly thanks to a private placement.
- Bozzetto's Q4 revenue was $70 million, with adjusted EBITDA of $10.4 million.
- Cortland's Q4 revenue dropped to $29.7 million, with adjusted EBITDA of $2.5 million.
- Approximately 30% of Aimia's business was impacted by shipping disruptions in the Red Sea (NYSE:SE).
- The company is in the process of searching for a new CEO.
- Clear Media, a subsidiary of Aimia, faced softer performance and a write-down of $27 million.
Company Outlook
- Aimia is working on operational excellence and integration strategies for its subsidiaries.
- The management is focused on creating value for shareholders and strengthening the balance sheet.
- Improvement is expected in 2024, but at a slower pace than initially anticipated.
Bearish Highlights
- Q4 was challenging due to weaker customer demand and shipping disruptions.
- The EBITDA margin was lower than expected, but corrective measures are in progress.
Bullish Highlights
- Bozzetto and Cortland generated positive full-year results despite Q4 challenges.
- Aimia's liquidity increased significantly over the year.
Misses
- Aimia reported a decline in Q4 revenue and adjusted EBITDA.
- Clear Media's performance led to a significant write-down.
Q&A Highlights
- The cash at the holding company level is $61 million, with an expected $32 million from earn-outs.
- The search for a new CEO is ongoing.
- Monetization of minority investments is planned but can be delayed for better market conditions.
Full transcript - None (AIMFF) Q4 2023:
Operator: Good morning, ladies and gentlemen, and welcome to the Aimia Inc. Fourth Quarter 2023 Results Conference Call. At this time all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. [Operator Instructions] This call is being recorded on Tuesday, March 26, 2024. I would now like to turn the conference over to Joe Racanelli please go ahead.
Joe Racanelli: Thank you, operator, and good morning, everyone. With me are Aimia's Executive Chairman, Tom Finke; 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 fourth quarter and year-end periods earlier this morning all of our materials including the news release MD&A and financial statements are available from our website and SEDAR Plus. We will be using a presentation today and for those listening to our discussion by phone, a copy is also available from the IR section of our website. Some of the statements made during today's call may constitute forward-looking information about our future results and our future results may differ materially from what we discuss. Please refer to the risks and uncertainties that may affect our future performance that are referenced in our presentation and in our MD&A. In addition, we will be making note of GAAP and non-GAAP financial measures. A reconciliation of these is provided. Following today's presentation please reach out to me if you have any outstanding questions or require any clarification on the matters discussed today. So with that, I'd like to turn the call over to Tom. Please go ahead Tom.
Tom Finke: Thank you, Joe. Good morning and thank you for joining us today. Since I become an Executive Chairman in January, I've had the pleasure of speaking with many of you for the benefit of those who have not yet to me, I'd like to begin my remarks with a brief introduction of my experience and a summary of the reasons why decide to invest in Aimia and join the Board as Chairman. My career has been spent in the banking asset management industry, most recently as Chairman and CEO of Barings LLC, a $350 billion global asset management company. This experience train me how to evaluate companies work with management teams to achieve strategic objectives and most of all how to unlock value for investors. It’s from this lens that I viewed Aimia as an undervalued cap company when I decided to participate in the private placement closed in October of last year. Developments in 2023 and more recently have reinforced my belief in Aimia's potential upside. However, this will only be achieved through responsible investment decisions and a focus on achieving our operating goals at our majority owned subsidiaries. Our presentation today is one that will set the baseline for Aimia going forward given the significant changes in our portfolio in 2023, most notably we made two transformative acquisitions last year, Bozzetto, a sustainable specialty chemicals company and Tufropes, an industrial ropes manufacturer. Last year we also facilitate the merger of Tufropes with Cortland industries, creating a global ropes business, which has been revamped branded Cortland International. In the partial year, we have owned these companies. Bozzetto results were in line with our expectations. At Cortland, we look to improve performance by focusing on integration initiatives and prudent capital investments. Steve will expand on these items in his section. Since becoming the Executive Chairman, I have been asked what impact recent management changes have had on our strategy and focus. The simple answer is that we are now laser-focused on executing on our operating strategies at the Bozzetto and Cortland prudently monetizing the minority investments held in the holding company segment and strengthening the balance sheet at the holding company. Achieving these goals will take time. Some things we can do in 2024. Some will take longer to realize. That said everything we do will be focused on value creation for shareholders. Let me spend a couple of minutes to review our path to value creation. Slide 7 presents our path to value creation illustrating our four key pillars. First and foremost, we are focused on operating our company in a transparent and disciplined manner and establishing clear investment and capital management strategies. Next, Aimia's focus on assisting the management teams at Bozzetto and Cortland to help them achieve their strategic objective objectives and growth goals. In addition to our focus on managing our core holdings, Aimia will continue to pursue the monetization of minority investments in the holding company portfolio. Steve and I will go into more details about this portfolio later. Finally, as we realize on our non-control investments, we will seek to strengthen our balance sheet so we can implement a responsible capital allocation and investment strategy. Slide 8 is a summary of the major acquisitions Aimia completed in 2023. We acquired Bozzetto for $258 million for a 94.1% stake in the company. This acquisition was driven by Bozzetto’s compelling business model and its consistent history of profitability. Roberto Curreri and his team are proven operators in their industry and have demonstrated the ability to achieve their growth objectives even in the face of economic cut. We also acquired Tufropes, a manufacturer of synthetic ropes and netting solutions and integrated it with the tuck-in acquisition Cortland Industrial. Combined the acquisitions totaled $263 million and have been rebranded at the corporate level as Cortland International. In November, Stuart Janke, a 30 year veteran in the ropes industry was promoted to CEO. He and his team are focused on the integration of Courtland and Tufropes and executing on sales channel strategies that we are confident will improve performance going forward. As previously mentioned, a cornerstone of our strategies is to invest in our core platform companies to help drive growth. Bozzetto’s acquisition of StarChem presented here on slide 9 is an example of this approach. This tuck-in acquisition which closed in early January of this year was valued at $24.1 million for 65% of the business. The acquisition is strategic on number of levels. Most significantly, the acquisition allows Bozzetto to expand its market presence in North American -- America and strengthen its customer relationships in the textile industry. Initial results have been encouraging and we look forward to the continued integration. On slide 10, we provide an example of how we are opportunistically monetizing our minority investments. Capital A operates AirAsia and we acquired shares in the company following the sale of our equity stake in the airline's loyalty program in 2021. Since October 2023, we have sold approximately $23 million worth of shares, of which $11.1 million was sold in the fourth quarter. As of last week, we still hold more than $56 million shares on Capital A. I will now turn the call over to Steve to discuss our financial highlights for the fourth quarter and the fiscal year.
Steve Leonard: Thank you, Tom. Good morning, everyone. Starting with slide 12, Aimia generated consolidated revenue of $291 million in fiscal year 2023. Of this total, $192 million was generated by Bozzetto and $99 million by Cortland. I should point out that revenue and related operating results we have reported Bozzetto, Tufropes and Cortland are from their respective dates of acquisition and do not represent 12 months of operations. On a full year pro forma basis, assuming we close these transactions on January 1, 2023, consolidated revenue would have been $438 million or 50% more than ever. Consolidated revenues reported. Slide 13 shows two of our key financial metrics namely revenue and adjusted EBITDA both for the quarter and year ended December 31. Given that we have reported Cortland and Bozzetto since their respective acquisition dates, which is less than 12 months year-over-year comparisons are not meaningful. To help gauge our progress and performance, our Q4 consolidated results were against our performance in Q3. Our results in Q4 for revenue and adjusted EBITDA were softer than the prior period. In Q4, we generated $100 million of revenue, down 12.4% from the preceding quarter. The decline was driven by a number of macro economic and geopolitical developments that weaken customer demand at both Bozzetto Cortland. We generated an adjusted EBITDA loss of $4 million in the quarter, which compares to positive EBITDA of $9.7 million in the preceding quarter. Including the softness on the revenue side from the operating businesses, we had an impact on adjusted EBITDA in the quarter that related to Holding Segment with $9.4 million of costs related to investor activism. I'll explain the segments in a little more detail later. Our consolidated net loss for the fourth quarter and full year were significantly impacted by changes in the value of fit, in the value of our investments and the equity pickup as outlined on Slide 14. Starting with TRADE X. The business was unable to restructure its trade financing or securing of proceeds from the sale of its subsidiary Wholesale Express to satisfy its obligations and continue operations. As such, it was placed into receivership by one of its creditors in late December 2023. For the quarter, we recorded an overall loss of $23.7 million including a fair value loss of $20.8 million on the convertible notes and $2.9 million credit loss on a bridge loan. For the year we recorded an overall fair value loss of $82.3 million on the preferred shares and convertible notes plus the $2.9 million credit loss. For Clear Media in the fourth quarter and for the year, we recognized an unrealized fair value loss of $27 million related to slower than expected recovery of China's economy, which impacted the Clear Media business. Lastly our equity pickup on the Kognitiv results amounted to a net loss of $20.7 million for the full year, it is important to note that Kognitiv has made progress on narrowing its losses, with Q4 2023 cutting the adjusted EBITDA loss by more than half versus the prior year quarter. Combined these non-cash developments continued -- you recognize an overall non-cash loss of $130 million. This was partially offset by non-cash gain of $19.3 million, related to the PLM earnout. We achieved over 99% of the targeted gross billings in fiscal year 2023. We expect to receive a $32 million cash payment, related to the earnout in Q2 of this year, subject to final confirmation of the amount due based on PLMs, fiscal year 2023 Audited Financial statements. Turning to our liquidity slide. As you can see the waterfall chart, we ended the year with total liquidity of $137 million, up from $87.7 million where we started and in our on October 1. The increase was largely due to private -- the private placement that generated more than $30 million in net proceeds.
--: We ended the year, with a total liquidity of $137 million which was comprised of $109 million in cash and $28 million of marketable securities. I should point out of the $109 million in cash and cash equivalents held by Aimia, $48.7 million is held in Bozzetto and $11.3 million held in Cortland. Turning to our segmented results. Starting on Slide 17, Bozzetto generated positive results for both the fourth quarter and full year for both revenue and adjusted EBITDA. As a sustainable specialty chemicals company generated revenue of $70 million in Q4, down $7.4 million from Q3 2023. The quarter-over-quarter decline was largely attributable to softer demand due to shipping disruptions in the Red Sea, which is a key transportation route, used to reach Bozzetto customers. Revenue was also impacted by lower raw material costs that were partially passed on to customers. Bozzetto’s adjusted EBITDA for fourth quarter 2023 was $10.4 million, representing a margin of 14.8%. Bozzetto’s totals for Q4 2023 were down from $11.7 million or 15.4% respectively from Q3 2023, which had -- which was a very strong comparable quarter. Since we acquired the business on May 9, Bozzetto generated adjusted EBITDA of $30.6 million over this eight month period at a margin of 15.9%. On a pro forma basis for 12 months, Bozzetto would have generated revenue of $297 million in 2023 and $46.1 million of adjusted EBITDA, which would represent a margin of 15.5%. Despite some of the headwinds we faced in Q4, Bozzetto’s results were more in line with expectations for the year. Cortland's financial highlights. Turning now to Slide 18. Cortland generated revenue of $29.7 million for Q4 2023, down 22.6% from $38.4 million generated in Q3 2023. The quarter-over-quarter decline was attributable to a number of factors including softer customer demand caused by economic uncertainty, which had some pressure on pricing and delays to customer deliveries due to shipping disruptions in the Red Sea, which is a key transportation route used to reach Cortland customers. Cortland adjusted EBITDA for Q4 2023 was $2.5 million, which represents a margin of 8.4%. Cortland's adjusted EBITDA totals for Q4 2023 was down from $5.7 million and 14.8% respectively from Q3 2023 results. The declines were due to the factors already cited. On a full year basis, Cortland's adjusted EBITDA for fiscal year 2023 was $11.3 million, representing a margin of 11.4%. Due to the headwinds experienced in Q4, Cortland's performance for the year was below our expectations. This concludes my review of financial highlights. I will now turn the call back to Tom for his closing remarks.
Tom Finke: Thanks Steve. On Slide 20, I'd just like to summarize some summarized some of the key highlights. Obviously, this Q4 and all of 2023 were active periods for the company and we completed a number of important milestones and also quite frankly address the number of challenges. As we look forward, we -- as Steve mentioned, we have the earn-out potential at PLM, which will be approximately $32 million of incoming cash in the second quarter. We continue to work hard on the integration of [indiscernible]. We'll continue to monetize capital rates and investments and also continue to work opportunistically on our other non-controlled investments. I'd be remiss if I didn't touch on one very important point with you. As pre-leasing announced, Aimia's Board has engaged an executive search firm is meeting with potential CEO candidates. Our Board is very focused on this search and finding a proven executive that can lead Aimia forward. In summary, for the change in management in January, we have set Aimia on a path as focused on maximizing the performance of our core holdings, strategically monetizing non-core investments, reducing costs at the holding company level, and establishing a more transparent and disciplined investment and operating strategy. All of this is aimed at unlocking value to the benefit of all our shareholders. We look forward to continue to provide updates in the course of the year. And at this time, I'll ask the operator to open the lines to questions.
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Surinder Thind with Jefferies. Please go ahead.
Surinder Thind: Thank you. Tom, just a couple of questions here and maybe Steve as well. I think the first thing I'd like to understand is if we were to start with Bozzetto, can you provide any color on kind of the seasonality components in related to the quarter-over-quarter change in revenues? And then just any color on run rate organic growth, like where are we at this point in the cycle?
Steve Leonard: Yeah. Surinder, its Steve. Yes, there are seasonality for the short time we hope help them is not noticeable. It's more difficulty as I mentioned we were not able to provide year-over-year analysis. So we've been doing a quarter-over-quarter. And really what we saw in Q4 was some softness relative to the logistics challenges with the Red Sea and then some raw material pricing. But the raw material pricing is really -- it's not a concern because Bozzetto although the revenue line may come down hold their margin or their gross margin. And you'll see the margins for the quarter were still strong. It's early today for the year, but they're doing well out of the gate. We're not going to give any forward information beyond that. And but overall, we're very happy with the Bozzetto team, how they're managing the business.
Surinder Thind: Got it. And then I guess on the Cortland side, I'll ask the same questions on just seasonality organic growth. And then -- but you also mentioned just pressure on pricing? And then just maybe an update on where we are in the integration process as well. Just to better understand if there's any details you can provide?
Steve Leonard: Maybe Tom could add a bit on integration or just talk to the financials. With Courtland you don't seem a bit larger with the logistics or a larger challenge as they as they export where they're exporting from the Indian-based manufacturing site and quite a bit of their shipping does go through the Red Sea. So they've had to reroute and get and engage with their customers on timing et cetera. So that's impacted some of the performance in Q4. And as well obviously on typically the shipping costs are passed along to customers and their customers are looking at their all-in costs and where they can source product sort of had a little bit of pressure on pricing so that's what's impacting the Cortland business. Tom will speak to integration.
Tom Finke: Integration Surinder, if realistically I kind of look back to as Stuart took over in November where we really started, I think making progress on the integration. And one of the strategies or if you will the rationale when you acquired Cortland imperative with tough growth is in India we have a lot of production capacity. And Cortland sells a number of what I'll call a higher level higher value added ropes. That said, you have to do work to prepare those operations, certify them to make these if you will higher value on a road. So it's projects like that that are underway. Certainly, we've made a lot progress. We have a very strong COO in India who's made a lot of changes in the last several months. But that's part of the goals that we have for Stuart and the team is really to execute on the integration through the course of this year and, hopefully, also allow us to break into new sales channels with the extra capacity.
Surinder Thind: Got it. And then just one follow-up maybe or just philosophically, when you think across the rest of the portfolio. And if we were to look at, let's say, something like Clear Media and you think about the strategy of trying to monetize not specifically that asset, but the rest of the portfolio, where is the trade-off in terms of monetizing it in the near-term versus how patient you're willing to be in giving up the opportunity cost, right? Because obviously, when you think about China, you think about geopolitical tension, you think about market issues. There's a whole host of things. So, is there -- are you just willing to be patient at this point? Or how do we think about something like that where maybe those assets or resources could be better used or deployed elsewhere?
Tom Finke: Yeah. That's a very good question. The way we think about it, where we are today with our minority holdings is some very different situations, right? As it relates to Clear Media, we're certainly seeing signs that things are turning around. There is a very strong management team there that Steve, and I recently met with. And it's not that we'll wait forever for some home run, but we just think, in the near term. Let them continue to perform as they kind of have their strategy for rebuilding their revenue and earnings. And an investment like that is not as liquid and would take a process to sell as something like capitalized shares, where we feel -- the other side of this is, we could sit here and say, should we hold the shares forever because we think there's more and more upside. Or should we responsibly reduce our position, and we've taken the latter view given that the shares have come up in the last year from where they were. So, we're going to look at each situation and balance what's the right decision on the timing of monetization and the ability to monetize at a fair value, but we're also not going to sit around forever and just hope for things that might not manifest.
Surinder Thind: Got it. Thank you very much. I appreciated the color there. That's it for me.
Tom Finke: Thanks, Surinder.
Steve Leonard: Thank you.
Operator: Your next question comes from Brian Morrison with TD (TSX:TD) Securities. Please go ahead.
Brian Morrison: Hi. Good morning. Can we go back to Cortland? Your EBITDA is far off expectations from your Investor Day. Can you just break down what's the operational shortfall caused by economic uncertainty? How much is the shipping disruptions? And are these shipping issues, are they simply timing that will get pulled back into this year's sales or are they lost?
Steve Leonard: Yeah. Yeah, Brian, it's a few things. They were shipping about 30% of their business through that corridor and that's impacted, as I mentioned, they've had to look at different options to get their products to their customers. And part of it is timing, but I wouldn't put it all on timing because as I mentioned their customers look for other sources, that they do it is a competitive industry and they're looking at other sources. And hence, in some cases, they'll still get the product to the end customer, but they may have to take a little bit of a hit on the top line on the pricing. So yes, we were acknowledging in the quarter that you know the EBITDA margin was lower than we had obviously expected when we did the Investor Day. We didn't know what time of the Investor Day that these logistic challenges were coming through the Red Sea. That was after the fact the management team is working on the on shelf correcting some of these challenges. And I wouldn't expect Q4 to be indicative of what we would be seeing going forward. But that's about the best, I can say right now.
Brian Morrison: So with that comment Steve, should we expect the prior expectations at Investor Day are reasonable for 2024, if the shipping is pass-through or the geopolitical issues too big to think that's realistic? And then, I guess, I assume there's no update on potential access to leverage but maybe just comment on that.
Steve Leonard: Yeah. I would say that, as long as we have the issue with the logistics businesses impacted for Bozzetto, it has the ability to source production not only through its European channels but it is more global than it has operations around the world. That doesn't have to necessarily put product through that channel, whereas Cortland is a little more dependent as I mentioned. So as long as that's going to have a bit of an overhang on Cortland but there is elements as Tom spoke to the integration to move into a higher performance product. A lot of the things that we planned when we did the acquisitions, let's call it the investment thesis that are underway getting the technical specifications and getting into the higher margin and higher unit sale price products. And we're continuing to make progress on those. On the financing, we did take a pause through the end of the year. We're re-launching that. We'll probably have more of an update for you, when we release our first quarter results.
Brian Morrison: Okay. Steve, maybe just sticking with you for a moment, the cash at the holding company level you went through a quick driver correct? It's $49.1 million at the holdco and then pro forma we'll add in Cap As monetization in the PLM earn-out?
Steve Leonard: Yeah. So at the holdco level, we have about $61 million. So what was your number? You said Brian?
Brian Morrison: It is $49 million, when I subtract it out Bozzetto and Cortland.
Steve Leonard: Yeah. Yeah. $49 million, that's right. And then there's $32 million coming in. We expect a before we hit the end of the second quarter, relates to the earn-outs.
Brian Morrison: Okay. And then Clear Media can you -- I didn't see any update on financial performance. Have digital panels' revenue EBITDA, they have now troughed? And are we starting the tick-up from where does that business stand? There's no disclosure on it.
Steve Leonard: Yeah they are. They are they still you know incurred a little bit more softness. That's why we ended up taking an additional write-down in the quarter with the business. Having said that, some of what we explained at Investor Day, what they've been doing, as they've been renewing their leases on the panels'. These panels are leased in a number of cities in China. They've been working on addressing the cost structure, really with this with this needs is some momentum in the -- in the -- on the consumer front in China, which will pull through advertising dollars on the Panels. So the business was softer in '23. We're expecting some improvement in '24 from Clear Media, but not at the speed that we expected. And hence that's why we've done a write-down of $27 million in the quarter.
Tom Finke: And the other thing I'll add to that and it kind of goes back to the question -- Surinder's question to, the reality of our minority portfolio these days is, it is a much smaller part of the overall Aimia in terms of driving quite frankly building liquidity and things like that at the holding company. So, while still very important and we want to monetize it at the appropriate time, in the appropriate way. Yes, I think we can be prudent and wait for that and see things turn around, given just how much it would actually affect or not affect what we're doing. We're doing what we're doing regardless of when...
Brian Morrison: Understood. Alright. Thank you very much.
Steve Leonard: Thanks, Brian.
Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call over to management for closing remarks.
Tom Finke: Thank you, operator. Once again, I just like to thank everybody for their time today. There was a lot to go through today. And as I said, we have achieved a lot in 2023, but also in this year have set the company on a path, that's very focused on operational excellence and really strengthening the company through the course of the year. Steve and I will continue to provide updates in the course of the year and we look forward also to engaging more directly with all of you and invite you to set up calls with us, if you'd like to go into more detail. Again, thank you, and have a good day.
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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