Aimia Inc.

Ladies and gentlemen, thank you for standing by and welcome to the EMEA Inc. first quarter 2020 results call. At this time, all participants' lines are in a listen-only mode. After this period's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. I would now like to hand the comments over to your speaker today, Mr. Tom Tran, Director of Investors. Thank you. Please go ahead, sir.

Thank you, Brandi, and welcome everyone to this morning's call. Today's presentation is available on CDAR and will be available on our website. Before we get underway, I'd like to remind everyone to review our four looking statements and the cautions and risk factors pertaining to the statements, which can be found on slide two of the Q1 Highlights presentation. The presentation refers to several non-GAAP metrics to help you better understand the results of the business. For all of our non-GAAP metrics, a definition and a reconciliation to their most comparable GAAP metric can be found on pages three and four. As usual, you will find a full GAAP income statement on page five. With me on the call today are speakers Phil Middleman, AMIA's new CEO, and Steve Leonard, our CFO. Phil will begin with our strategic highlights before handing over to Steve to take you through the results of the quarter. We will have time for your questions at the end. With that, let me hand it over to Phil.

Thanks, Tom. Hello, everyone. I'm extremely proud to be speaking to you as AMIA's new CEO and of the work this reconstituted board has achieved in such a short period of time. In only 75 days since our board was reconstituted, we have made a remarkable amount of progress. We have announced a new corporate strategy overseen by new management and a new board of directors with long track records of creating stakeholder value, highlighted by a new ownership mentality at the board level, with each board member having purchased significant amounts of stock in the open market. Aligned with our new corporate strategy, we have established an ad hoc investment committee to manage the deployment of the company's cash and liquid investments. We've also announced a significant transaction to merge our two remaining operating loyalty subsidiaries into Cognitive, highlighting the substantial value that has been created in the loyalty solutions business while greatly simplifying AMIA's corporate structure. We've refreshed and improved our relationships with key partners, including Aeromexico, where the working relationship is now very strong. As we announced last night, AMIA has signed a binding letter of intent with Aeromexico to negotiate certain amendments to the CPSA and a shareholder agreement that will ensure strong alignment of shareholders' interests in PLM and establish a minimum sales price at an adjusted EBITDA multiple of 7.5 times, with a minimum floor of $400 million for AMIA stake in PLM. We have also announced this morning that the company has made an investment in Clear Media Limited, one of the largest outdoor advertising firms in China, with market shares of more than 70% in top-tier cities, totaling approximately $75 million Canadian dollars. We will cover these two announcements in greater detail later in my remarks. Last, but by no means least, we have significantly cut costs and right-sized the corporate expenses of the leaner corporate team, reducing our overall corporate expenses from last year's $27 million to a $15 million run rate, with further savings likely. I'll now walk you through the process that the company undertook, leading to the announcement of its new strategy and the recently announced transactions that support the future strategic direction and vision for AMIA. In early March, The Board formed a special committee to evaluate the company's future strategic direction. A thorough and comprehensive process was undertaken by an ad hoc strategic review committee of independent directors comprised of Karen Bazian, Charles Frischer, Sandra Hannington, and David Rosenkranz, who chaired the committee. This group evaluated all available strategic options for AMIA to determine which would generate the most attractive long-term returns for stakeholders. After careful deliberations, the Special Committee recommended to the Board of Directors to change the company's corporate strategy to become an investment holding company focused on deploying its cash and tax assets towards the acquisitions of free cash flow generating businesses in diverse industries. AMU will now seek to make long-term investments in public and private companies on a global basis through controlling of minority stakes. We will target companies that exhibit durable economic advantages, evidenced by a well-established track record of substantial free cash flow generation over complete business cycles guided by a strong, experienced management team. As evidenced by our investment in Clear Media, Amy is now positioned to invest wherever a suitable opportunity can be identified, thus diversifying the corporation away from its prior loyalty-only investment mandate into a more broad and balanced investment holding company. We believe that leveraging the skills of a world-class board to oversee our new management team's effort is the right combination to unlock the future value of the company's substantial assets and investments that deploy its capital. To support the company, the corporation's new strategic focus, we announced two M&A transactions that are aligned with our vision and direction for the company. The first M&A transaction is the acquisition of Middleman Brothers, which provides a company with key management skills and expertise to execute on the new corporate strategy. This transaction was evaluated by the Strategic Review Committee, comprised of independent directors, which unanimously recommended that AMIA's Board of Directors approve the acquisition. I have been appointed interim CEO of AMIA to lead the execution of this new strategy, and upon closing of the transaction, I will be appointed permanently. Chris Middleman will be joining AMIA's CIO and will become a member of the Board of Directors. While Chris will continue to manage Middleman Brothers' portfolio independently, he will also provide added insights towards our goal of acquiring operating businesses that can capitalize on AMIA's nearly $700 million in various forms of tax loss assets. This transaction received a third-party fairness opinion and was structured in a highly favorable way for AMIA, tying the majority of the stock compensation to future earn-out hurdles. including a significant increase in Middleman Brothers assets under management and or AMIA stock, trading at a weighted average of $6 per share over a 20-day period. I'm excited and confident to lead and execute AMIA's new strategic vision, and I look forward to working closely with the board to execute on our new and promising core strategy. The second M&A transaction is the merger of Loyalty Solutions and Cognitive to form a visionary leader in loyalty. For years, AMI's stakeholders have watched our loyalty businesses lose money, with over $80 million in cash burned over the past two years. I am very proud to announce that our successful transformation of these businesses has led to significant improvement, resulting in our announcement today of the first quarter's solid adjusted EBITDA performance of $3.6 million for the loyalty solutions segment. Loyalty Solutions is well-positioned to accelerate its growth as a result of the merger with Cognitive, with each providing cost and business synergies that should dramatically accelerate their growth trajectories. Amy was presented an exciting opportunity in Cognitive, whose proprietary AI peer-to-peer technology allows their partners to distribute and apply rewards via the loyalty capital network to maximize yield and consumer lifetime value. Cognitive's extensive investment in technology will enhance and further enable the loyalty solutions platform and represent a significant acceleration of our combined business models, which are fully funded, with the likely potential to become EBITDA and cash flow positive in 2021, with accelerating growth in that period and beyond that far exceeds our previous internal projections for our loyalty services division. Importantly, Cognitive's management board of directors bring an invaluable array of talented business acumen to the newly merged entity. This transaction is structured similarly to our highly successful investment in Cardlytics, where AMIA contributed certain IP, operating expertise, and board presence, along with funding, into a tech-forward company, which was subsequently bought public in an IPO. We believe this merged entity has the potential for a monetization event that would provide a similar positive outcome. Concurrent with this merger, AMIA and Cognitive Investors will contribute $35 million Canadian dollars in exchange for 12% yielding convertible preferred shares in the newly merged entity, of which AMIA will be contributing $21 million and existing Cognitive Investors and board members will fund the remaining $14 million. This investment made side-by-side with Cognitive Investors signals a strong vote of confidence in the future of the newly merged and financed business with a healthy equity valuation. It also greatly simplifies AMIA's holding company structure and ring fences these operations outside of the parent company and into an external holding that we will be a minority owner of, providing significant upside to AMIA stakeholders while limiting future risk. Integration planning is well underway and client responses on both sides have been very positive. We remain on track to close the transaction by the end of this month. The Board has also worked with the AMIA's management to dramatically reduce corporate costs, leading to a leaner corporate structure. These reductions create immediate and significant stakeholder value through a substantial reduction in annualized operating run rate expenses from $27 million in 2019 to approximately $15 million with further cuts targeted. Corporate operating run rate expenses of $15 million include expenses related to central operating costs such as public company disclosure and board costs, executive leadership, financial reporting, insurance, treasury, tax, M&A, and rent. In conjunction with these savings and following the close of the loyalty solutions and cognitive merger, and acquisition of Middleman Brothers, AMIA's total employee count will be reduced from 450 to approximately 20, as a substantial portion of the staffing will be shifted to the newly merged entity. With those changes will also come substantially reduced operational complexity. This business simplification will help investors better understand the go-forward AMIA story that will consist of a leaner corporate team guided by a highly skilled board, focused on growing the value of its five core holdings in the soon-to-be merged Cognitive, PLM, Big Life, Middleman Brothers, and Clear Media. Each investment is ring-fenced from the parent, which remains debt-free and cash-rich. Going forward, any further acquisitions AMIA makes will be structured as ring-fenced, stand-alone entities that are not financially entangled with AMIA's parent and will not expose AMIA to any risk other than its equity commitment to the investment. Post-transactions, reflecting for the company's new equity investment in Clear Media and AMIA will retain approximately $190 million on a pro forma basis in cash and liquid investments while maintaining an attractive capital structure reflecting the various stock buybacks in 2019, which represented over 40% of the outstanding common shares. As announced last night, AMIA has signed a binding letter of intent with Aeromexico to negotiate certain amendments to the CPSA, including a 20-year extension of its term through 2050, as well as certain amendments to the shareholder agreement, including granting Aeromexico a seven-year option to purchase AMIA's 48.9% equity interest in PLM, and it adjusted EBITDA multiple of 7.5 times, with a minimum floor of $400 million for AMIA's state, subject to its final agreement on certain terms and conditions. The amendments to the CPSA are intended to strengthen the relationship between Aeromexico and PLM to grow and improve the program, and align PLM shareholder interest regarding PLM profitability and value. As part of this agreement, PLM is funded using cash from its balance sheet, $50 million U.S. to Aeromexico in the form of an intercompany loan following the execution of this binding letter of intent, with an additional U.S. $50 million of additional liquidity to be funded by PLM to Aeromexico in the form of prepurchases of award tickets upon the final amendments to the CPSA. Both loans will be secured by Aeromexico's 51.1% equity interest in PLM. We are happy to provide additional liquidity to our valued partner through these unprecedented times. Subject to market conditions, AMIA and Aeromexico will explore alternatives to strengthen PLM's balance sheet and enhance distribution to shareholders. We believe providing Aeromexico with added liquidity and the option to acquire full control of its loyalty program allows both shareholders' interests to be fully aligned going forward. We expect a renewed relationship with Aeromexico will enhance the value of PLM for all stakeholders in the year to come. Finally, let me talk about our new and exciting investment in Clear Media that we announced this morning. AMIA invested approximately $75 million in Clear Media Limited, one of the largest outdoor advertising firms operating in China, with market shares of more than 70% in top-tier cities like Beijing, Shanghai, and Guangzhou, and publicly listed on the Hong Kong Stock Exchange. The investment in Clear Media Limited was acquired through a series of common share purchases totaling 58.8 million common shares. which included 19.6 million common shares previously held by clients of Middleman Investment Management, an average cost of HK$7.12 per share, reflecting the same price that would have been paid to the clients of Middleman Investment Management through the current tender offer. This investment was made in anticipation of a pending change of control transaction, which, if completed, would see current controlling shareholder Clear Channel Outdoor sell its 50.9% stake in Clear Media to Ever Harmonic Global, which is owned 40% by Clear Media's CEO, 30% by Ant Financial, which is controlled by Jack Ma, 23% of JC Deco, a public company and leader in the outdoor advertising space, and 7% by JSC Capital Management Limited. We believe an investment in clear media represents an outstanding opportunity for AMIA stakeholders, diversifying our holdings and taking advantage of the COVID-19-related economic malaise in the U.S. and China. AMIA now owns a large stake in the leader in the outdoor advertising market in China, that's debt-free with more than a 20-year track record, strong growth and free cash flow generation, and 19 years as a public company, backed by a blue-chip consortium of investors and a highly skilled management team. I'll now hand it over to Steve. He'll focus on our financial highlights before I wrap up with closing remarks.