Aimia Inc. has announced its Q1 2024 financial results, revealing a strong performance from its core businesses. Bozzetto and Cortland, Aimia's main holdings, have shown significant growth. Bozzetto's organic expansion and the acquisition of StarChem have resulted in a revenue increase of $7.3 million and an adjusted EBITDA of $1.5 million.
Cortland has seen a 14% revenue growth and a 60% rise in adjusted EBITDA from Q4 2023, due to improved customer demand and product mix. Aimia ended the quarter with $98.2 million in cash and cash equivalents and plans to enhance shareholder value through various strategic initiatives, including a normal course issuer bid.
Key Takeaways
- Bozzetto's growth bolstered by StarChem acquisition, contributing significantly to revenue and adjusted EBITDA.
- Cortland experienced a 14% rise in revenue and a 60% increase in adjusted EBITDA, attributed to better customer demand and product mix.
- Aimia focused on cost-cutting at Kognitive and anticipates Clear Media's sales to rebound in upcoming quarters.
- The company's strategic focus for 2024 includes growing core holdings, monetizing noncore assets, and optimizing capital structure.
- Aimia plans a normal course issuer bid to return capital to shareholders.
Company Outlook
- Aimia's strategy for 2024 is to unlock the growth potential of Bozzetto and Cortland.
- The company aims to continue monetizing noncore assets and optimize its capital structure for increased financial flexibility.
Bearish Highlights
- Challenges in Q4 due to logistics, especially exports out of India, although there has been improvement in Q1.
- Cortland's performance, while showing growth, is at the lower end of expectations.
Bullish Highlights
- Aimia's core businesses, Bozzetto and Cortland, are the primary drivers of the company's value.
- Positive movements in cost-cutting initiatives and strategic focus on core holdings.
Misses
- No immediate resolution with a dissident shareholder, though the company remains open to discussions.
- No immediate exit point for Kognitive, as the company hopes for an attractive exit in the midterm.
Q&A Highlights
- CEO Tom Finke emphasized the importance of Bozzetto and Cortland to Aimia's value and the optimization of the capital structure.
- Finke and executive Steve Leonard discussed the improvement from Q4 and strategies to maximize long-term value.
- Aimia's investment in the Chinese consumer market through Clear Media is tied to the market's recovery.
- The company is looking to transition Kognitive to a full SaaS model and minimize future investments in it.
Aimia Inc. (AIM) has demonstrated resilience and strategic acumen in its Q1 2024 financial results. With a clear focus on its core businesses and strategic initiatives aimed at enhancing shareholder value, Aimia Inc. is positioning itself for sustained growth and financial flexibility in the coming year.
Full transcript - Aimia Inc (AIM) Q1 2024:
Operator: Good morning, ladies and gentlemen. And welcome to the Aimia Inc. First Quarter 2024 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 [Operator Instructions]. This call is being recorded on Wednesday, May 15, 2024. I would now like to turn the conference over to Joe Racanelli. Please go ahead.
Joe Racanelli: Thank you, Julie. 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 first quarter earlier this morning. And all of our materials including our news release, MD&A and financial statements are available from our Web site 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 also available from the IR section of our Web site. 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&A. In addition, we will be making note of GAAP and non-GAAP financial measures. A 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. With that, I'd like to turn the call now over to Tom Finke. Please go ahead, Tom.
Tom Finke: 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 first quarter 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, Bozzetto and Cortland, who each experienced increased customer demand and improved market conditions. Bozzetto'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 million worth of shares of Capital A stock. Combined, these developments have created momentum that we plan to 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. Steve?
Steve Leonard: 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% to $122 million. Gross margins improved to 28.3% from 23.8%. Adjusted EBITDA was $6.7 million, which represented a turnaround of more than $10 million from Q4's EBITDA loss of $4 million. These gains were driven by stronger performances of each of our subsidiaries versus the prior quarter. And finally, our net loss improved to $4.2 million from $59 million 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 $15.5 million of cash outflows in the quarter, net of cash acquired related to the acquisition, was driven by Bozzetto's goal of expanding its presence in North America and diversifying its product mix. Preliminary results from the acquisition have been encouraging. StarChem contributed $7.3 million of revenue and $1.5 million of adjusted EBITDA in Q1. Excluding StarChem's contributions, Bozzetto's revenue grew by 6.9% to $80.8 million on a year-over-year basis and adjusted EBITDA grew by 27% to $14 million on a year-over-year basis. Bozzetto'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. Given that Cortland International came into being with the integration of two separate businesses, Tufropes 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 macro, economic and geopolitical headwinds. While some of those challenges remain, particularly with respect to shipping through the Red Sea (NYSE:SE), Cortland benefited in Q1 from stronger customer demand and improved product mix. As a result of 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 noncore assets on Slide 12. There were a number of important developments in Q1 worth noting. At Kognitive, 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 $3.2 million in Q1 from $5.6 million 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. In Q1, we monetized $11.4 million worth of Capital A shares. As at March 31, we held 56.2 million Capital A shares, a total we expect to monetize through the balance of 2024. Turning to our liquidity. We ended Q1 with $98.2 million in cash and cash equivalents. This marked a decline of $10.9 million from our cash position at the end of '23. The major impact to our liquidity are presented in the waterfall slide on Slide 11. Changes to our liquidity were driven by a number of developments. Inflows included monetization of $11.4 million of Capital A shares, $4.4 million from the redemption of other investments and outflows included the $15.5 million related to the acquisition of StarChem and $7 million of shareholder activism related expenses and $3 million in dividend -- preferred dividend payments. In Q2, we expect to receive approximately $33 million from the earnout of the PLM transaction, and we have 56 million of common shares and 20 million of warrants and Capital A collectively valued at $13 million 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 past two quarters and the visibility we have to the upcoming performance, we are providing guidance for some of our key metrics. As presented on Slide 12, we anticipate adjusted EBITDA for Bozzetto and Cortland to be in the range of $80 million to $85 million 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 million excluding onetime costs. In terms of the onetime costs, we anticipate they'll be in the range of $13 million to $14 million. 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. And I will now turn it back to Tom for his closing remarks. Tom?
Tom Finke: 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 five months in particular provide 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 governance with the appointment of Rob Feingold as Director, increased interactions with our subsidiaries and improving our disclosures to highlight the contributions of Bozzetto and Cortland. And finally, we increased our engagement shareholders who shared with us their feedback on Aimia's direction and ways for us to create value for investors. 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 and Aimia's intrinsic value? What catalysts or milestones will generate a higher share price? How should Aimia best use its available capital? And those should be the focus of Aimia's investment strategy going forward. While 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 three key objectives for 2024. First, unlock the growth potential of our core holdings, Bozzetto and Cortland. Two global companies operating in specialty markets with significant organic and accretive growth potential. Second, continue to responsibly monetize our core -- our noncore assets in an expedited manner. And third, optimizing its 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 having received of our anticipated earnout from the PLM transaction, completion of certain strategic developments and based on our liquidity requirements going forward. These priorities reflect a number of realties, such as the fact that both Bozzetto and Cortland are cash flow generating companies with international customers and favorable market outlooks. Our objectives will be supported by a number of underlying goals, including continuing the integration of StarChem at Bozzetto, executing on 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 Aimia's market value and will also help to reduce the current gap that currently exists between our share price and the intrinsic value of the underlying [comps]. I want to thank you again for joining us today. And I will now open it up to questions.
Operator: [Operator Instructions] Your first question comes from Surinder Thind from Jefferies.
Surinder Thind: Tom, I'd like to start with the -- just the key considerations for the priorities you think about the 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?
Tom Finke: 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. That said, I think we have to be realistic about what is the company today. And the company's value is driven by Bozzetto 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.
Surinder Thind: And then I guess just focusing on the core assets, maybe starting with Bozzetto or even with Cortland. When we think about the quarter-over-quarter improvement that's highlighted, how much of that is improving demand is like seasonality? How much is fundamentals? And then how much is maybe onetime items such as the issues and any improvement in some of the issues around the Red Sea shipping and those kinds of things?
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 ‘23 the performance was quite low and we [excited] that. And now on in Q1 of this year we have the improvement. So I would say that part of the improvement that we had 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 Bozzetto.
Tom Finke: And the reason for less so on Bozzetto is because of our ability to increase localized production in various facilities.
Surinder Thind: Fair enough. 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?
Steve Leonard: We kind of in both businesses, I mean, we've given guidance today, we did it collectively for the two 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 will 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: [Operator Instructions] Your next question comes from Brian Morrison from TD (TSX:TD).
Brian Morrison: 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?
Tom Finke: I look at that more longer term as part of the longer term considerations. So if you look at us having two core subsidiaries, is there a more efficient structure. One of the issues we look at is, we have $700 million of net operating losses that are being underutilized. 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 or the things we can control in 2024 with respect to the underlying subsidiaries and improving our financial flexibility, we'll prioritize those.
Brian Morrison: 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? 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?
Steve Leonard: 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 four. 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 -- higher end of the range and hopefully we can outperform that. You're right that Bozzetto is holding to the initial business plan numbers, whereas Cortland has come in on the low end. And that's one of the reasons, I don't know if you saw in 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 Bozzetto 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 five years and had a proven capability, whereas with the Tufropes in Cortland, it was more of a combination and integration thesis, and we're still working out some of the kinks on that.
Tom Finke: 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 US. That said, there's a lot more we can do. If you look at the 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, we bought Bozzetto. 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 StarChem expand their geographic reach.
Brian Morrison: If I just turn gears here for a moment, noncore assets, it looks like Clear Media is 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? And then in terms of Kognitiv, it's been a long time coming. Can we potentially do something in order to maximize value or minimize value destruction on that one?
Tom Finke: On Clear Media, I think you have to look that 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. They are a very strong sponsors in with JCDecaux. We don't really drive the bus on that one. 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 Kognitive. Clearly, yes, we want to minimize investment going forward there, but I'll let you make a couple of comments.
Steve Leonard: I mean, Kognitive, 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. But some of the legacy things, and I know you've heard this before that Aimia handed over with the Loyalty Solutions business was 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 US, 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.
Brian Morrison: So nothing near term is the message there. Last question and maybe you can, maybe you can't answer this, but with respect to any potential resolution with your dissident shareholder, I'm wondering if there's any progress that has or could be made prior to the AGM?
Tom Finke: 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. And hopefully, there will be recognition that the work we're doing here is certainly stabilizing the company. The first quarter was an improvement over the fourth quarter. 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.
Operator: And there are no further questions at this time. I will turn the call back over to the presenters for closing remarks.
Tom Finke: 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 dialog. 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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