Aimia Inc.

Good morning, ladies and gentlemen, and welcome to AMIA 3rd Quarter 2025 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a questioning-answer session. If anyone has any difficulties hearing the conference, please press 4-0 for operator assistance at any time. I would now like to turn the conference over to Joe Racanelli, VP, Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Joining me on today's call are India's Executive Chairman, Reece Somerton, and our present CFO, Stephen Leonard. Before we begin, I'd like to point out that we issued our financial results for the third quarter earlier this morning. All of our materials, including the news release, MD name, financial statements, are available on our website in CDAR+. We will be using a presentation today, and for those listening to our discussion by phone, a copy is available from the IR section of our website. Some of the statements made today on today's call may constitute forward-looking information, and our future results may differ maturely from what we discussed. 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. Reconciliation of these is provided in the appendix of our presentation and in the news release as well. Now, following today's presentation, and if we don't get a chance to answer your questions, please reach out. I'll be happy to have a follow-on discussion with you. Please go ahead, Rhys. Thanks, Chuck. Good morning. Good afternoon, everyone. It's great that we can report results to you which shows that we generated our first profit for equity holders in three years and we saw measurable growth in adjusted EBITDA and cash flow from operations. This was despite Q3 being marked by some pretty difficult macroeconomic headwinds, which the underlying companies we own navigated really well. And we'll discuss that in a bit more detail. But when you look at what drove this improved results performance, what you'll notice is that reducing holdco costs was a big feature. and we still have work to do there. We'll continue to be doing that. Where does that leave us now? Well, combined with our increased liquidity and efforts to close the discount of our share price, we ended Q3 ready to focus on the third step of our strategy, and that is to start to deploy or allocate the capital that we have to new investments. And I'll talk a little bit more about that towards the end of the presentation. But first, I'm going to hand over to Steve, who will review our financial results in a bit more detail. Steve? Thank you, Rhys. Good morning and afternoon, everyone. I'd like to begin my remarks with a review of our consolidated results. As you will note from slide seven, we experienced improvements to several key financial metrics against the backdrop of macroeconomic and geopolitical challenges. Of note, SG&A expenses declined 11% to $26.3 million. Operating income grew 37% to $7.8 million. Adjusted EBITDA increased by 35% to $20.3 million. Cash flow from operations grew by $13.8 million. And we generated net earnings of $1.4 million, which represents a turnaround of $3.6 million. Improvements on a year-over-year basis were largely due to reduced wholesale costs, including the absence of shareholder activism costs incurred last year, and to the positive impact of foreign currency fluctuations relative to the Canadian dollar. Turning to the performance of our core holdings, starting with Bizetto on slide 8, the results of our specialty chemical business in Q3 underscore the strength of its business model and its diversified product and and market mix, which led it to outperform its specialty chemical peers. In Q325, Bizetto saw a 3.3% revenue increase on a year-over-year basis. On a constant currency basis, Bizetto's revenue was down 3.8%. The decline was attributable to softness experienced by its textile solution sector due to the impact of U.S. tariffs on several Asian markets that Bizetto sells into. Bizetto's textile solutions are used in these markets to manufacture textiles that are then exported into the U.S. and other markets. This revenue decline was offset by improved pricing and product mix at Bizetto's water solutions and dispersion solution sectors, whose products are mainly sold outside of the U.S. In Q3-25, Bizetto generated adjusted EBITDA of $16.8 million. which represents a margin of 18.9%. In the same period last year, Bizetto's generated adjusted EBITDA of $14.5 million on a margin of 16.9%. The year-over-year improvements were driven by reduced SG&A costs and favorable product mix. Courtland results from the third quarter are presented on slide 9. In Q3-25, Courtland generated revenue of $37.6 million down 12.8% from last year. On a cost and currency basis, Cortland revenue declined by $5.9 million or 13.7%. Similar to other rope and netting manufacturing companies, Cortland experienced softer sales in the quarter, albeit did better than peers we track. Cortland's rope sales to marine and shipping customers fell due to market uncertainty associated with the introduction of tariffs, and we have seen some competitive pricing on netting solutions. I should point out that Cortland's revenue in the comparative period last year was buoyed by strong project sales in North America within the oil and gas sector, which did not reoccur in 2025. Despite a top-line revenue decline, Cortland generated a 2% increase in its adjusted EBITDA and improved its margin to 14.6% from 12.5% compared to last year. The improvements were largely driven by lower SG&A costs. In Q3 2024, Cortland incurred $1 million of professional and advisory fees related to a business transformation initiative. We ended the third quarter with $106.5 million of cash, up from $70.5 million at the end of Q2. Slide 10 shows a waterfall of cash movements in the quarter. Key drivers. for the increase in liquidity included a $29.3 million refund from the CRA, the Canadian Tax Authority, $15.1 million of net cash flow from operations, and $1.8 million from the sale of an idle facility at Bizetto. Cash outflows in the quarter included $3.3 million of common share buybacks, including tax, $4.2 million of CapEx investments, and $2 million of principal repayments on the Bizetto credit facilities. Looking at our liquidity more closely, slide 11 shows a breakdown of our cash position by segment at the end of September. Over the next 12 months, our cash requirements will include less than $9 million of local costs, $13.9 million of interest payments on our 2030 notes, $10.8 million on the Vizzetto senior debt financing, and $9.6 million of Vizzetto interest payments. I should point out that our September 30 liquidity outlook exclusively anticipated $8.5 million refund from Revenue Quebec associated with the tax settlement and operating cash flows from Bizetto and Cortland over the next 12 months. Through the nine-month period, Bizetto and Cortland generated $66.5 million of adjusted EBITDA on a combined basis, putting us on track to reach our guidance for 2025. As illustrated on slide 12, our forecast for adjusted EBIT on 2025 for the two businesses is between $88 and $95 million. We continue to monitor macroeconomic developments and the impact on these core holdings and we'll adjust our outlook if necessary. Similarly, we are on track to lower our holdco costs to $9 million per year. Some of the cost savings we have made on whole code costs include reduced audit and professional fees, lower rent, lower insurance, and reduced director fees, stemming from the optimization of our board earlier this year. This concludes my summary of the financial results. I would now like to return and call back to Reece for his closing remarks. Thank you, Steve, and particularly well done on reducing the whole code costs. So on slide 14, we instituted a three-step strategy about six months ago when I took on the role as executive chairman. And just to remind you what those three steps were, the first was reduce whole-care costs. The second, reduce the discount that the shares trade at. And the third, allocate capital effectively. And so how are we doing with those three? Well, We've made progress, we believe, on cost-cutting initiatives as far as the whole code is concerned. As I said earlier, there's still more work to do there, and we will continue that into 2026. I think we're very confident that we'll achieve a good result there. Then on step two, we brought back about 2 million worth of shares. we are getting pretty confident about the value, the market value of our call holdings as a result of the actions that we have taken so far and also getting to know the business group better. Why is that important? Because knowing the market value of what you own gives you options on what you do next and that's obviously the really exciting part. As I've discussed in the past, these options include creating additional value from existing assets, whether that's through new investments or making adjustments to how they operate. Another option is, of course, to realize value for them based on the market value of those underlying assets. I'm really excited about the opportunities ahead, but I want to make the make it very clear that we will proceed with proper due diligence and oversight of the next steps. As we weigh our options, I would also point out that we are well positioned to allocate any new capital that comes our way. We've already received capital from the CRA settlements and we have a list of potential investments which we would look forward to talking about more in the coming periods. We're undergoing this transformation from where we were at the start of the year or even six months ago, and we expect this transformation will accelerate over the next several months. Moving on to slide 15, progress on the shared buyback. And that just indicates that we've bought back about 8.9% of the shares since June 2024. And we're down now to just over 19 million shares. I'd like to make a point about the share buyback. If you look at it, we, on a monthly basis, announce the number of shares that we've acquired in the market. And that's led Fonte to ask, Why have you tempered your buybacks recently? Just to be clear about this, the buyback is available, but during blackout periods, it's difficult for us, more challenging to execute buybacks as freely as we can during non-blackout periods. So just bear that in mind when you see the monthly share buybacks. But the important point here is we will buy back shares as long as we see And we see that Barbex will be a real opportunity to continue to close that discount that the shares trade at. And then slide 16, old and interesting slide, updated valuation metrics. And I just wanted to draw out a couple of points from this slide. The first is that the very first number, net book value attributable to common shareholders at $295 million. Now that number impacts it mostly on the way down when assets get valued lower. It's hardly ever assets that are valued higher. So we put that number in there to show that we expect that number to grow over time. And we would expect strong growth out of that number into the future. And then the other two numbers that I will draw out are kind of allied to that. It's the bottom two, and that's the capital tax losses and NOLs. That's over a billion dollars, those two numbers combined. Now, that value isn't reflected anywhere in the net worth value, but we have every intention of utilising that value into the future. And so on the following slide, the tax loss carry forward, what we've included is just an extract from annual accounts, which just gives you an idea about when those losses start to expire and also the fact that they are mostly focused on Canada and the US. Now, that's on the NRL. The capital losses, well, they are available on taxable gains at the whole co-level and they have no exploration. So we have a little bit of time on our side before we need to start being able to utilize these tax losses in those jurisdictions. I think that's important because it should give investors in AMIA some, you know, charity and confidence that we, you know, the process that we're going to is going to get us to a point where we can start allocating capital to benefit from these operating tax losses that we have. On to the next slide, slide 18. I'm measuring the value creation. This is our net book value for a common share, and you can see it's stabilized down at 326 per share, but we want this number to start growing, and we think that as the group changes, you'll see this number start to increase continually. So to summarize, the third quarter was marked with improvements to several financial metrics and of course a lot of progress on our three-step strategy. Our focus in the coming months will be to continue with this momentum and execute against that strategy. In particular, we will begin to make investments in companies that meet our specific criteria. These criteria, as discussed previously, will include investing in companies that provide an opportunity reach a controlling interest but more importantly they generate strong cash flows that have very strong balance sheets mostly carrying cash on the balance sheets and of course they have to be significantly undervalued and that's how we're going to create value our other priorities include achieving our guidance for the year which Steve spoke about earlier, and continuing to reduce our whole-care costs, which are really in our control and we're confident of doing that, and executing on the shared buyback program in line with the various constraints we have and different reasons for being in blackout periods. So we look forward to providing updates on this program. Thank you for your time, and we'll now hand over for questions to Jonathan. Operator, if you would ask or poll the participants for a Q&A, please. And then, Reese, I'll also ask some questions that have come in after we've gone through a set of questions from people on the call.

Thank you. Ladies and gentlemen, should you have a question, please press the star followed by the one on your touchdown phone. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, Please lift the handset before pressing any keys. Once again, that is star 1 should you wish to ask a question. And your first question is from Brian Morrison from TD Callen. Your line is now open.

Oh, thanks very much. Morning. You say you've gained confidence in the market value of your core holdings. I'm just wondering if you can maybe at a high level state to us what steps have been taken to gain such confidence and if you think you have visibility into potential timing of monetization of these assets. Yeah, good questions. So I think we were discussing this internally last couple of days. A lot of what we can disclose at this time doesn't tell you the work that's kind of going on underneath the surface here. And so maybe I can elaborate a little bit. We've spent a lot of time meeting with different players in the industry, different owners of similar assets to what we have. And I think what's clear is that there's trade buyers, financial buyers, competitors. There's no shortage of interest. in the assets that we earned. And that is what I can say about our underlying confidence in what the value of these assets are. If you go back six months, I think we could see what the numbers showed, but that doesn't tell you what potential market value might be of these assets. And so that goes up and down, as you would expect with market conditions, the demand for these assets. it's clear to me that these assets are in demand from various interested parties. Now, what I would say on that, to elaborate a little bit more, is that I've also grown in confidence in the businesses and understood them a bit better. And particularly, I think Roberto and Stefano have done an amazing job running are so well in a difficult environment. They're really outstanding managers. And, you know, when it comes to Cortland, Cortland is a very, very interesting business. And it's not a business that, you know, initially I might have thought, well, I'm not sure how solid or how strong that business is. I think I'm pretty confident that we can make some changes to that business which will enhance it, improve it, and I think it will be a very attractive business in the future. So I hope I've answered your question. In terms of timing, I don't think we want to go into the timing of things, but I would imagine, you know, if you think about what we want to do as a business and create this permanent capital vehicle, which it is, but to utilize it better, you know, we don't want to procrastinate at all. So we are moving as quickly as we possibly can, but we are cautious. We are doing all the appropriate due diligence and are managing the processes as confidently as we can. Okay, and then I want to maybe circle back onto this permanent capital vehicle you alluded to and identified your short list of target investments. I wanted to ask about the criteria that you stated that I think you said controlling interest has positive free cash, so it's undervalued. I mean, the global markets have had a very good run here. Maybe just talk about where you see the sweet spot in terms of potential size and geographies where you might find these attributes. Yeah, that's another good question. If you think about where we are, everything we look at, In the US, every time we kind of get excited about finding something there, it turns out it has some large SBC charge which doesn't go through the EBITDA line or maybe the business is not as strong as we initially thought. Where we are finding good businesses, and this is what I've alluded to before, is in the UK where there are facing issues from not having very high passive investment or investment ownership. They've got ongoing redemptions in the UK. And so you find relatively cheap valuations for a variety of reasons. They're also sitting with almost no gearing or net cash on the balance sheets, which is great for us. And you find one of the things that people don't really appreciate as much is you find that the management teams are significantly cheaper and probably as good as what you find in other countries. So I would say as a first stop in the fast-forward frame, obviously we want to run this for the next 30, 40 years, but as a first stop, I think you'll find our focus will be on UK-exposed companies. with our sheep. But equally, things change quickly. If valuation starts to present itself in other places, we have the flexibility of going there. But I want to stress that we can't allow that to happen for too long because we want to start utilising the tax losses. And so that's why I think we put the slide in there showing that the tax losses start to expire 2028 onwards. We want to be in a position where well before that we are starting to benefit from this asset. Would you consider potentially going down the risk scale a little bit and looking at paying down some of your high-cost debt or accelerating the buyback on annual with the discount to now that it's currently at? Yeah, absolutely. When you think about the large structure for this business, what you want is you would want debt at the subsidiary level and you don't necessarily want debt at the whole credit level. So you want to match cash flow with debt. And I think that's one of the shortcomings that we've identified. And we will rectify that in the time ahead. I think what you would expect going forward is a matching of the two. Ideally, we don't want to carry a lot of debt anyway. If we're buying companies that have no cash on the balance sheet, and we upstream some of that cash, it will enable us to continue to share Barbex. It will also enable us to use that for further investment. But I think if you were to look at this business in the years ahead, I wouldn't want there to be holdco debt hanging around. I don't mind debt if it's a bit of a holdco deal. Appreciate the call. And obviously on Barbex, um we you know uh we we love barbex and uh as much as we can while it's offered offers good value uh we will continue with the barbex thank you thank you and your next question is from sir anderson from jeffrey's your lines are open Hi, this is Logan on for Surrender. I was just wondering if you could give us more color on the sale of the idle manufacturing facility that you mentioned in your earnings release. Just wondering, like, how long, I guess, it's had access capacity. Anything else you can point out there? I think they're genuinely thought about capital. Sorry, Steve, I'll hand to you now, Steve. I think it's probably a little bit thought about our focus on making sure we can allocate capital even at the subsidiary level. Now, I don't think we've done enough there yet, and there's more opportunities to do that. But as a general point, I think we'll try to be as efficient as possible. For the details, I'll hand over to Steve. Yeah, it was an idle facility when we acquired the Bezzetto business. It was identified. There was certain As you can appreciate in any manufacturing, there were certain parameters that had to be cleared prior to disposing of the facility, and those were achieved. And it wasn't a large facility, but it wasn't something that was being in production for some time. And they realized around $2 million in proceeds. Got it. Thanks for the color there. And then lastly, I was wondering if you could give us an update on Clear Media. I know last quarter it seemed to sound like you were seeing some early green shoots. I was just wondering if you could give us an update there. Yeah, actually, yeah. I think we've seen signs of strength coming through in that business. Steve can give us some more details there. Yes, as we've commented in the past on Clear Media, a lot of the revenue generation is tied to consumer spending, which is still, although there's been some GDP growth in China, the consumer spending is still lagging. However, in the quarter, we saw some strong performance in the business tied to some high level of advertising in a particular industry, particularly in the online industry, which pulled through in terms of advertising on their panels. So things are turning around there. We're starting to see some positive signs. While the business was going through some tough times on the revenue side, they took out a significant amount of costs, both overhead and other operating costs, and that's positioning them well as the revenue is coming back. So we're looking for some future growth in that business, but the key indicator is going to be consumer spending. When that comes back, we'll see some good returns that clear media. Great. Thank you. We've received a couple of questions inbound so recent, Steve. First off, with respect to potential investments, would you consider – any debt financing in the short term to support those efforts? Yeah, I think we'll look at a mix if needed. If we look at the opportunities that we are exploring, we might not need to raise any debts. And like I said earlier, we have debt at the whole coverage we want to extinguish over time rather than take on more. We can look at all ways of allocating capital, and if Dave can answer our returns, we'll definitely look at it. I know you discuss this, but if you can clarify, how would the company benefit from its tax losses if you start making investments in the UK? Well, that's a good question, because it won't necessarily if we buy off companies entirely. but it's a means to an end. So over time, it will give us the cash flows and the size to be able to make further acquisitions in the US and Canada. So the reason that we need to move relatively quickly is that we have 2028 when those tax classes start to roll off. So we've got to be in a position where we can be executing on buying high-quality products cash generative businesses in the US and Canada by that time. So behind things in the UK or wherever else, that is, you know, part of the, you know, that's the first phase of, say, the requisitions to get us to having critical mass. And I want to point out that on the capital loss side, as long as we structure the acquisition through the hold code, when we ultimately divest of any of those, investments, any gain, taxable gain, will be shielded no matter where that business is operating, as long as we structure it through the whole code. So, the whole code costs were initially forecast for 11. They've gone down now to 9. How much further can they actually go? Well, I think you saw in Q3, I think our costs were around 2 million for the quarter. So, you know, we're still evaluating. There's a few things we're spending on that are not necessarily going to be recurring, but we were being approving in terms of the guidance where we said $9 million. I think year-to-date we were at $6.4 million, so, you know, We're definitely getting closer to the lower end, you know, below nine. And I think, as Reece said, I think there's a few other action items that we're looking at to lower the base. Okay. And then final question. Can you provide some color? Sorry. Sorry, Jared. Just to remind everybody that the target is to go below 1.5% of book value on an annual basis. So that, for me, has been the target from day one. And I think we will get well below that in the future. And then final question, can you provide some color on the 4 million capex spend in the quarter? I mean, that's split between the two businesses. I mean, obviously, they're spending for maintenance, also for safety or compliance. And Also, on the growth side, I would say that would be the smaller portion of the three categories. And, yeah, so, you know, whether that four is a recurring number, you know, I think in the past we've glided around 3% to 5% in revenue in terms of CapEx, and obviously we look at that very closely. So that concludes our call today, and we appreciate all the questions that we received. If you do have any further, please do reach out to us. We'll certainly make ourselves available. Thank you, everyone. Have a good day.