Aimia Inc.

Good morning, ladies and gentlemen, and welcome to the IMEA Inc. First Quarter 2025 Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, May 13, 2025. I would now like to turn the conference over to Joe Raconnelli, please go ahead.

Thank you, operator, and good morning, everyone. Joining me on today's call are AMIA's Executive Chairman, Reece Somerton, and AMIA's President and CFO, Steven Leonard. Before we begin, I'd like to point out a couple of items. We issued our financial results for the first quarter earlier this morning, and all of our materials, including the news release, MD&A, financial statements, are available from our website and CDAR+. We will be using a presentation today, and for those listening to our discussion by phone, a copy of the presentation is available from the IR section of our website. Now, some of the statements made on today's call may constitute forward-looking information, and our future results may differ materially from what we discussed. Please refer to the risks and uncertainties section of our financial statement, our MD&A, and as well as the annual information form. In addition, we will be making note of GAAP and non-GAAP financial measures. Reconciliation of these is provided in the appendix of our presentation. Following today's presentation after a Q&A session, if you do have any other points to discuss with us, please reach out to me and we'll make arrangements to do so. With that, I'd like to turn the call now to Rhys. Please go ahead, Rhys.

Thanks, Joe. Good morning and thank you for joining us today. I think... On balance, there's much to be pleased about with these results. On a consolidated basis, we increased adjusted EBITDA, lowered Holco costs to below $3 million, and on a non-operational basis, we generated a gain of almost $54 million from the completion of our substantial issuer bid. We also benefited from the positive impact on foreign currency fluctuations. Efforts to rein in SG&A expenses both at the Holco level and at our core holdings, we're also contributing factors to our improved financial performance. Our core holdings didn't have any significant impact from tariffs in Q1. We continue to monitor the impact of tariffs on these businesses and remain cautiously optimistic about the outlook for both Bizetto and Cortland for the remainder of the year. As a result, we are reiterating our guidance for the year. At the end of March, We optimized the size of our board, which we've alluded to before, and adjusted director compensation, generating savings of $1.3 million. But that leaves us at this current juncture. Much work is, in fact, still needed to address the discount our shares are trading at relative to our estimates of net asset value and the balance sheet value, and to utilize efficiently the $1 billion of tax loss carry forwards not being utilized currently. In my closing remarks, I will expand on our strategy going forward and outline some of the steps we plan to take. But first, Steve will provide a summary of our financial results and operational highlights for the first quarter.

Thank you, Rhys. Good morning, everyone. I'd like to begin my remarks with a review of our consolidated results. As you'll note from slide seven, Q1 was marked by improvements to a number of our key financial metrics when comparing our performance to last year. Consolidated revenue grew by 6% to 129.8 million, or 2% on a constant currency basis. Gross profit was up almost 4% to 35.6 million. Adjusted EBITDA increased to 19.7 million, up from 6.7 million. Net earnings were 400,000, up from a loss of 4.5 million. These improvements were driven by a combination of factors, including the solid performance from our core holdings, and the 10.1 million decline in Holco costs. To put the decline in Holco costs in perspective, Q1 24 included 6.9 million of shareholder activism costs and 1.6 million of expenses related to termination benefits for former executives. What's important to take away from our consolidated results for Q1 is that our strategy to improve the operational performance at our core holdings and reduce Holco costs is working. We reported Earnings per share of 55 cents in Q1. This was due primarily to a 53.8 million net gain from the substantial issue completed in February 25. A breakdown of the net gain under IFRS is presented on slide eight. As you'll note, the gain is essentially determined from the difference between the carrying value of the preferred shares exchanged and the conversion value of the shares, which is net of the notes issued The value of the notes issued in the exchange less transaction costs. In simple terms, the gain was triggered because the preferred shares were acquired at a discount to their fair value, face value. The gain effectively boosted our EPS for Q1, recognizing the value transfer to our common shareholders. Turning the performance of our core holdings, starting with Bizetto on slide nine. Results of our specialty chemical business, were again solid in Q1 when compared to the performance in the preceding quarters. In Q1-25, Zetto generated revenue of $89.1 million, up from $88.1 million for the same period last year. On a constant currency basis, Zetto's revenue was down 2% or $1.8 million due to lower volume sold by the textile solution sector. This revenue decline was partially offset by improved pricing and product mix at Bizetto's dispersion solution sector. In Q1-25, Bizetto generated adjusted EBITDA of $17 million, which represents a margin of 19.1%. These results were achieved through strategic procurement and improving product mix, as well as reducing SG&A expenses by $1.4 million, excluding the transaction-related items in both quarters. In the same period last year, Bizetto generated adjusted EBITDA of $15.5 million and a margin of 17.6%. Results of Cortland International for the first quarter are presented on slide 10. Cortland grew in Q125 by almost 20% from last year to $40.7 million. On a constant currency basis, Cortland grew its revenue by $4.3 million, or 13%. The growth was driven by increased market demand, particularly among customers within the fishing and agriculture and marine and shipping industries. Additional factors driving Cortland's growth included improved product mix. Cortland's adjusted EBITDA grew by 35% to 5.4 million, while the adjusted EBITDA margin improved to 13.3% in Q125. The improvements were largely driven by higher gross profit and by the positive impact of the business transformation and operational improvement initiatives, we started in prior periods aimed at building Cortland's market share and strengthening its sales force and launching new products. We ended the first quarter with 94.7 million of cash, down slightly from 95.4 million at the end of 24. Slide 11 shows the waterfall of cash movements in Q125. We generated 12.2 million cash flow from operations, reduced by 5.9 million of Part 6.1 tax related to dividends paid in 2024. Part 6.1 tax will be significantly reduced going forward due to the decrease in preferred shares following the completion of the SIP in February. Other cash movements this quarter included 3.8 million of CapEx, 3.8 million of transaction costs related to the SIP, 1.9 million of Bizetto debt repayments, and 1.6 million related to the share buyback under the NCIB. As measured by the 22.4 million of adjusted EBITDA for Bizetto and Cortland on a combined basis, and the 2.7 million of Holco costs, our results for Q1 put us on track to achieve our guidance for the year. We're often asked about the impacts of tariffs on our core holdings. Bizetto and Cortland have seen modest impacts by the introduction of new tariffs to the global economy. Each core holding benefits from its diversity of its geographical markets and product mix, providing mitigation and sales opportunities. It's for this reason that we've maintained our guidance for the year. As illustrated on slide 12, we continue to forecast adjusted EBITDA in 25 in the range of 88 to 95 million for our core holdings on a combined basis. and expect hold cost to be below $11 million. Needless to say, we closely monitor the macroeconomic developments and the impacts on tariffs on the performance of our core holdings closely, and we'll adjust our outlook if necessary. We continue to receive positive feedback from investors on the valuation metrics we shared previously and thought it would be helpful to update them again relative to our position at March 31st. As a reminder, the metrics presented on slide 13 are taken from our financial disclosure materials available on Cedar Plus and our website. This information is presented here in a simplified manner to help investors with their modeling. I should point out with the completion of the substantial issuer bid in February, we have added 142.6 million of debt related to the 2030 notes. And we've also provided Bizetto's long-term debt to the slide. This concludes my summary of financial results, and I'd like to turn the call back to Rhys for his closing remarks. Rhys?

Thanks, Steve. Since becoming executive chairman at the end of March, I've shared my vision on how AMIA can unlock its value with a number of investors. I thought it would be helpful to share this vision more broadly today. As illustrated on slide 15, our path to enhancing shareholder value really centers on three key steps. Firstly, reduce whole co-costs, and we have a plan in place there. Two, reduce the discount AMIA shares are trading relative to the intrinsic value of the assets. And then three, allocate capital effectively with the goal of utilizing tax losses. The first two steps of our strategy will be our priorities over the next 12 months. Success at each stage will earn us the right to proceed with allocating capital effectively to new investments. With the ultimate goal being of realizing tax-loss carry-forwards, our investments may take the form of equity investments in undervalued companies, whereby AMIA gains a controlling stake. But that's in the future, and only if we can qualify on reducing whole-code costs and reducing the discount that AMIA shares are trading relative to intrinsic value. Following this blueprint, this will put us on the road to becoming a permanent capital company. We have already made headway on our first priority, reducing holdco costs. Earlier this spring, Steve and I launched a line-by-line review of all AMIA holdco costs, looking for potential savings. In 2025, we plan holdco costs to be below $11 million, down from $12 million in 2024. We've already started by reducing the size of our board, which was an important first step. This measure alone will generate annual savings of $1.3 million, including cash costs of $350,000. Other opportunities, as presented on slide 16 for cost saving, include reducing office rent, audit fees, and software licenses. We've already started to implement these cost-saving measures, and you'll see the benefit of this both in the second half of 2025 and into 2026. We should have firmer plans, which we will release in our second quarter results in August. On the longer-term ambition, annual holdco costs should be below 1.5% of our net asset value, which is far better than the benchmark of several of our peers, especially some recently announced permanent capital vehicles. Closing the discount that our shares are trading is a second priority. We will be able to achieve this in a number of ways, including being more aggressive with our share buyback program. In Q1, we acquired almost 700,000 shares. To date, we have purchased 4.2 million shares, or 60% of the 7 million shares available in our current program, as you can see on slide 17. Given our increased focus on reducing the discount of share price relative to NAV, We plan to renew the NCIB in June when the current program expires. We will share more details of the renewal once the parameters are finalized with the TSX. Another way for us to reduce the share price discount will be to extract value from our core and non-core holdings. We are advanced with plans to obtain reliable valuations of our assets, ensuring that we receive a fair return on our investments. In the coming months, we will share more details as we make progress with these plans. As you have heard, Q1 was marked by progress on multiple fronts. Most significantly, our core holdings combined to generate $22.4 million of adjusted EBITDA, and we reduced our whole code costs to $2.7 million. These results put us on track to reach our guidance for the year. In the coming months, we expect to build on this momentum and plan to take concrete steps to transition AMIA into a permanent capital vehicle. The goal, as you have heard, are to reduce Holco costs, close the discount that our share price trades at relative to NAV, and then, if we qualify, effectively allocate capital for new investments. We look forward to providing updates on the progress. Before we open the call to questions, And just a reminder that everybody can ask questions on this call. I would like to remind everyone that we'll be holding our AGM in Toronto on May 21. I hope to meet as many of you as possible who can make it in person. Thank you for your time today. We'll hand back to Joe.

Operator, if you wouldn't mind providing instructions on how to pose questions, please.

Operator? Thank you.

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone, and you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. And if you use a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question.

Your first question comes from Jarender Sint with Jefferies. Please go ahead.

Thank you. Rhys, are you able to provide maybe any more color in terms of a strategic update or your thoughts on a go-forward basis? When we think about what you want the whole code to look like, And if there's the potential to maybe look at a sale of one or both core assets and then just kind of reboot the holdco?

Yeah, thanks. It's a good question. I think the first answer to that is we want the holdco to have lower expenses. And so before we do anything else, we need to implement our strategy of reducing holdco costs materially. We've given some guidance on that, but I think there's going to be more to do. And you'll probably see much more evidence of it in 2026 than 2025 as some of the expenses have a runoff. So once you've done that and work on, remember that second step that we brought up, which is kind of closing the discount to NAV. Now to do that, we need to know what a market value is for these assets. And so we will, and we are advancing that as quickly as possible. And I think You know, we'll break from the history of AMIA and we'll report things when we are ready to announce anything material, obviously. But we are moving very, very rapidly in that direction. And once we've done that, if those two steps are closed, so let's say we've reduced whole co-costs and we've closed the discounts materially, then at that point we can look at it and decide how we allocate the capital. And that capital allocation decision is really what excites me in the longer term. We only get there, though, if we can fulfill the first two steps.

That's helpful.

And then when we think about just your willingness to buy back shares or the aggressiveness, how do you think about that in the current environment relative to maybe making investments to, let's say, get, growth rebooted it like Bizetto or something like that. Where is that trade-off?

Because obviously the discount reflects the challenges of the underlying assets.

Yeah, I think the discount reflects a few things. There's a fairly high correlation with permanent capital vehicles and higher Holco costs and big discounts. So by closing that, by reducing whole-core costs, we think you end up reducing the discount that these companies should trade at. Secondly, if you look at our two core investments, they're both very cash flow generative. So it's not as though we're stifling them in any way by conducting a share buyback and preventing reinvestment of their cash flows. So what we're allocating to buybacks is really what we have at the whole-core level already And some of that cash is upstream to the whole from the core holdings. If there's investments to be made there, we'll definitely look at it. But we look at it through the lens of what is the most efficient form of capital allocation. And so when you think about buybacks, every share we buy back, we add significant value relative to the price we pay. And so it's a very simple and easy decision. We know what the quality of the underlying assets are like. And so we can, you know, we have that knowledge and we have confidence that buying shares back makes a lot of sense at this level.

That's helpful and understood on the early part of the strategic strategy here.

And then in terms of just when we think about tariffs and your commentary around kind of the limited impacts if i was to rewind part of the strategy with some of the core holdings was um greater penetration into the us how does the the tariffs or the potential volatility around that impact that strategy at this point i surrendered steve i mean we're still

We're still in the early innings. You know, as we said, our Q1, I mean, there was some wind that we faced in our sights on the tariff on Bizetto. You probably saw by my comments, the textile side of the business was a little softer. And that, you know, was basically because some of the clients in the Bizetto side of the business downstream were ultimately going to be selling into the U.S. and were delaying production or purchases, pending what was going to happen with the tariffs. But conversely, Bizetto was able to take advantage outside of the U.S. in other markets, particularly in the dispersion side of it, with different initiatives relative to different verticals that they're approaching. So there was some mitigation there. And it gives us some comfort in terms of what we're thinking about for the full year. It's still a strategy for Bizetto to gain more access to the US market. That was primarily through the Honduras acquisition. So again, it's early days because we have to monitor more closely what's going on between that country and the US in terms of what's going to happen on tariffs. On the Cortland side, as you know, we have a big operation in India, and we're producing in India, but we also have a footprint in the U.S., and that gives us an advantage not only because we have domestic production in the U.S., but it also gives us an advantage in terms of how different products will be measured in terms of what's going to be sold to the end customer, how much is going to be produced in India versus in the U.S., et cetera. So, again, as many companies, we're still in the evaluation stage, but we're not seeing, you know, at least in the first three, four months to date, significant impact on our business.

That's helpful. Thank you. Thank you.

The next question comes from Brian Morrison with City Cohen. Please go ahead.

Yeah, good morning.

Rhys, step one, the holdco process seems well underway. And step two also sounds like reducing share price discount, whether it be potential monetization of your core assets or your buyback sounds like it's progressing as well. So I want to focus on step three here because it's a little bit of a change of course. And the old management team stated a similar strategy and then went off kilter or off strategy investments. So help me get comfort in the process in terms of the team that determines the idea generation, the governance on these investments, and your clear criteria for capital allocation. I assume other than utilizing the NOLs would be top of mind. I want to know what goes into your capital allocation strategy.

Yeah, that's what excites me the most about this. Cutting hold code costs and reducing discounts is kind of the easy part. I would say that you are right about being well down the line on reducing the whole co-costs. I think on step two, there's a lot of work that we've done and a lot more work still to do there. With all these things, it does take time. We will continue to push that very, very hard. And I'll go back to the point that we can only get to stage three once we've really executed well on stages one and two or steps one and two. What we do then I think will be interesting from a capital allocation point of view. When we look at companies, at least in my history of investing, we've kind of allocated capital successfully to companies that are out of favor are on the smaller end of the market cap spectrum but equally what we like is companies that have very strong balance sheets and net cash balance sheets who have very high or very strong free cash flow generative underlying businesses and so that that's where I if we get to that stage, what we'll really look forward to sharing ideas about. And we think that there is a very wide pool of public assets listed in various markets, which have exposure to the US and Canada, where they are perhaps forgotten about by the current markets, which has continue to ignore high free cash flow generators on the value side of the market. So what we'll do is speak to all investors in AMIA about that when the time is right. But we have targets already in mind, probably seven or eight companies that we think would fulfill our criteria. And then it would be a case of executing on it. And we'd only execute if the valuation made enormous sense. And if we could do it once we have a very efficient AMIA to manage those assets with, we wouldn't even think about doing anything before steps one and two are done.

I get that, Rhys. But what I'm trying to understand is, You know, maybe share with us what your track with Milkwood is over like a one, five, 10 year timeframe. I'm just, I'm trying to digest why investors other than the NOL access would allocate capital to AMIA rather than to invest, do so themselves. And how will investments by AMIA differ from those of your own investments at Milkwood?

I think there would be some overlap with those investments potentially. But if you just think about the nature of permanent capital vehicles, the attraction is not to own shares in public markets, but really to own 100% of companies. And I think that's really where there's an opportunity here, is to build up stakes in public companies and eventually turn them into wholly owned holdings of AMIA. And that's really the attraction. of a permanent capital vehicle into the long term. As regards Milkwood, I don't want to sort of obfuscate what we're doing right now, and that's talking about AMIA, but you're welcome to go onto the Milkwood website and we'd be very happy to provide any investors in AMIA with access to our letters. And you'll be able to see exactly how we've done and the investments that we've made. But this is, you know, our focus, if you like, is definitely on AMIA. And when the time is right for us to allocate capital, we will share all the details with you. But it will be along very similar lines to what we've done in the past. Okay. But just last – well, we're going to need two questions.

But you say that some of these investments could overlap. Would these be investments that you currently hold, or would they be new investments? Because I know that you and MIFIC, specifically Children's Place, have a relationship there, and I just want to understand, you know, I'm not sure that we want to see, or maybe that's not fair. I'm wondering if there's any potential related party investments that could get vended into AMIA over time.

Yeah, no, I can categorically say we don't own any Children's Place The only relationship we have is we share some interest in looking at companies in a very similar way, as well as having some board representation on similar companies. But the idea is not to invest in any of MESAC's current investments. In fact, I don't even think I know what all Mesax investments are. So that's not the idea at all. We come up with our own ideas. And I think if you had to go and look at our letters, you would see what kind of investments we make. Now, to answer your first part of your question, I think you said, is anything in the existing portfolio of milk we're going to end up in AMIA? We would evaluate it each time, but I would suspect that that won't be the case in the short term. It might be the case in the long term. Okay. I appreciate it.

I'm sorry to ask those questions, but I appreciate the clarification. I think they're very valid.

Thank you.

Okay. And, Steve, the state of your tax deposit, can you just fill me in on that, and then I'll pass the line?

Yeah, Brian, I was hoping to have – more firm news this quarter, but I would say we're, like, we're in the ninth inning, and I think we'll have news between now and our Q2 results.

You know, yeah, we're very close to concluding something. All right. Thank you. Thank you very much.

Thanks, Ben. Reese and Steve, we got a couple of questions in via text, and if you wouldn't mind. So, first is, what type of companies would you invest in?

Yeah, I think what we've said is when we get to that point, we want to be able to utilize the tax losses. So that is most likely that we'll invest in companies eventually that are in the US and Canada to draw down on that. But operationally, I think what we want to do is find companies that have sustainable, strong free cash flow generative ability, that are good companies, and have very, very solid balance sheets with a net cash position. But we'll share more details when and if the time comes to do that.

Next question. Can you expand on what you mean by determining the value of holdings? Does that entail the potential sale of these assets?

Yeah. Remember what I said earlier was that we will break from the past and we don't want to promise something and then you know, take a long time to deliver it. What we would much rather do is come back to shareholders of AMIA once we have something to say. But rest assured, we are working very, very hard at having something to say.

And a question for Steve. What are your plans for interest payments related to the 23 notes? Will you pick them or pay out the interest?

No, we're going to pay them. They're in our we disclosed in our NDNA our next 12 months use of cash and it's in there. So we'll have a June payment coming up. And right now the current plan is to pay the notes, the interest on the notes.

Okay. And you talked about planning to renew the NCIV. Is that going to happen in June or when is the timing on that?

Yeah, that comes up for renewal in June and we're, process is underway. And We expect to renew it in early June.

Hey, well, thank you for joining us. That's the extent of our questions for today. And as Reece mentioned, we are hosting our annual general meeting next week in Toronto. We're hopeful that many of you will be able to attend in person. We will have and provide links for a webcast of our AGM and we'll also provide through that link opportunity for anyone to post questions. So thank you, and if you do already follow up, please reach out to us.

Have a good day, everyone.

There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call.

Thank you for your participation. You may now disconnect.