Aimia Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the AMIA Inc. Second Quarter 2020 Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to turn the call over to your moderator today, Tom Tran, Head of Investor Relations. Please go ahead.

Thank you, Marcella, 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 would like to remind everyone to review our four looking statements and the cautions and risk factors pertaining to the statement. With me on the call today are speakers Phil Middleman, AMIA CEO, Michael Leenan, our newly appointed president, and Steve Leonard, CSO. So we'll begin with our strategic highlights, followed by Michael, who will cover the performance of our investments before handing the call over to Steve to take you through the results of the quarter. We will have time for your questions at the end. And with that, let me hand it over to Phil.

Thanks, Tom. Good morning to everyone on the phone and webcast today. I'm excited to share the significant progress that we've made at the company, and I'm delighted to have Michael Lehman, AMIA's new president, joining us for his first call. We are lucky and proud to have Mike join us at this critical stage in our company's transformation. So let me begin by covering our strategic highlights. Our second quarter results reflect an important period for AMIA, marking the continuation of significant changes in our business and strategy. In a very short period, we have rapidly transformed the business to become an investment holding company with a lean cost structure comprised of five core holdings, no debt, $191 million in cash, and approximately $700 million in tax losses. Year-to-date, we've bought back 3 million shares under the company's latest NCIB, established in June 2017. and management and directors personally have bought more than 1 million shares in the open market during this tumultuous year, showing our unwavering confidence in AMIA's current value and future prospects. AMIA has rapidly cut costs and right-sized the corporate expenses of the leaner team and simplified structure, and is on track to achieving an annualized operating expense run rate of $15 million, or an annualized cash run rate of $12 million, excluding stock-based compensation, as compared to $27 million in 2019, with further savings being evaluated. Our new strategy provides a broader and more balanced mandate, enabling greater flexibility for the company to capitalize on the best possible investment opportunities globally. This strategic pivot is highlighted by our $76 million investment in Clear Media, one of the largest outdoor advertising firms in China, which is acquired at a very attractive multiple of five times EBITDA at an opportunistic time, participating alongside a blue-chip consortium of growth-oriented investors. Mike will elaborate further on this exciting new investment later in his remarks. We closed the Cognitive transaction, combining AMIA loyalty solutions with Cognitive, concurrent with an investment by AMIA of $20.4 million in Cognitive's convertible 12% preferred equity. AMIA now retains a significant stake in an exciting technology company with substantial potential upside, while at the same time limiting future risk to the holdco. Additionally, we acquired Middleman Investment Management, which will help us execute our new corporate strategy, providing a platform to potentially acquire other managers, while providing AMIA with key management roles at CEO and CIO. This acquisition has already proven its synergistic benefits by providing the investment opportunity in clear media. We also enhance the executive team in this corner with the addition of Michael Lehman, who is appointed president of the company, and Chris Middleman joining as chief investment officer and a newly appointed member of our board of directors. Mike brings an established investment management pedigree, most recently as a top executive and partner at one of Wall Street's most successful value investing firms, Third Avenue Management. We enhanced and extended our PLM relationship with Aeromexico this quarter with the signing of an enhanced shareholder agreement in CPSA between Aeromexico and PLM, which incorporated numerous modifications that strengthened the loyalty program. We took advantage of the severe market decline caused by COVID, buying a high-quality portfolio of equities which we sold when valuations quickly normalized for a tax-sheltered gain of $7 million, which was deployed toward repurchases of the company's common shares through our NCIB, under which we have bought back 3 million shares year-to-date. Last, and by no means least, in July, we received $67 million, previously held in a restricted cash account established at the time of the airplane sale. This was in addition to $2 million that was held in escrow related to the transaction, and we are in the process to recover a $33 million deposit related to a tax assessment when we held the airplane business, which we're attempting to recover through a notice of objection. Our strategic vision is to continue to build a diversified portfolio of investments that can deliver sustainable value for stakeholders, uniquely accessible to investors through AMIA's common stock. As a permanent capital vehicle that can invest in both public and private investments for an indefinite period, AMIA has the unique ability to hold investments for long durations of time, ensuring investment decisions are made with a long-term view, allowing for maximum value to be realized with maximum tax efficiency. Within our current portfolio, we are focused on the ongoing enhancement of our existing investments, When possible, we employ an active owner's mentality to growing our investments by acting as strategic partners to complement our holding's existing management teams to drive opportunities for additional value creation. At the same time, we are also continually evaluating and aggressively pursuing new investments to deploy capital to build this portfolio further with a focus on assets that can generate additional cash flow and distributions that can be upstream to the holding company. At the end of June, in addition to our investments, we held $191 million in cash approximately $700 million in valuable tax losses with no debt and preferred shares that provide an attractive source of long-term financing. We view this as an optimal holding company structure. The company's capital allocation priorities are to deploy its cash towards investments that we expect will earn an IRR greater than 15% on a CAGR basis by seeking long-term investments in public and private companies on a global basis through controlling and 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 strong, experienced management teams. Ideally, these investments will utilize the company's operating capital tax losses to further enhance stakeholder value. Any potential investment will be structured as a ring-fenced, stand-alone entity that is not financially entangled with AMIA and will not expose the parent company to any risk other than its initial investment. If we deem it necessary to use leverage for potential investment, it will only be incurred at the subsidiary level. In addition to pursuing acquisitions of controlling stakes, we will consider participating as minority investors in significantly larger transactions and or co-investing in outstanding opportunities alongside like-minded investors. We will remain patient and disciplined, waiting for, identifying, and capitalizing on the best investment opportunities we can find, and will continue to buy back our common stock opportunistically. We believe AMIA's stock is significantly undervalued and provides a significant amount to loan. Finally, let me spend a moment to provide you an update on our progress with Aeromexico and PLM. We are encouraged to see Aeromexico take the necessary steps to address the significant impacts of COVID-19 on its business. Aeromexico has commenced proceedings under Chapter 11 to implement the restructuring that is expected to provide the airline with additional liquidity and the ability to cut costs during this unprecedented reduction in airline travel. We believe Aeromexico will emerge from this process as a much stronger airline and thus further strengthen the loyalty program. We expect our definitive agreement with Aeromexico will remain intact, including the recently signed 20-year CPSA extension between PLM and Aeromexico, as well as the option to acquire AMIA's stake in PLM at $400 million U.S. or 7.5 times EBITDA, whichever is higher, and adjusted for net cash on the balance sheet. The CPSA, as recently amended, is being honored during the bankruptcy process, and we expect it to be formally assumed by Aeromexico during the Chapter 11 process. We will pursue a leverage recap of PLM's balance sheet when the right conditions are in place, and we expect a healthier Aeromexico will be in a stronger position to acquire our stake in the future. In the meantime, we expect dividends from PLM to return as the business returns to normalcy. We have seen encouraging recent improvements in worldwide air travel. with Labor Day weekend volume exceeding 1 million worldwide travelers for the first time since March. Despite the COVID-induced crisis impacting our airline-based loyalty businesses, PLM and Big Life generated positive operating cash flow in the quarter, a testament to the resilience of the coalition business model in the face of the worst downturn the airline industry has ever experienced. It is refreshing to see the markets begin to appreciate and understand the durability and value of these programs. We believe loyalty programs are the most valuable part of an airline's ecosystem and can serve an instrumental role in creating value and liquidity for the carrier during distressed times. As 49% owners of PLM, we recognize a substantial value inherent in the PLM business, and we are working tirelessly to ensure that we are maximizing the value of PLM, and we are considering all options that we believe will benefit AMIA stakeholders. We look forward to sharing more of our progress with you as soon as we can. And with that, let me turn the floor over to Mike to provide you some further updates on our investment portfolio. Mike?