Aimia : Q4 2023 Conference Call Transcript

FINAL TRANSCRIPT

Aimia Inc.

Fourth Quarter 2023 Results Conference Call

Event Date/Time: March 26, 2024 - 8:30 a.m. E.T.

Length: 35 minutes

"While Cision has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. Cision will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."

• Bien que Cision ait fait des efforts commercialement raisonnables afin de produire cette transcription, la société ne peut affirmer ou garantir qu'elle ne contient aucune erreur. Cision ne peut être tenue responsable pour toute perte de profits ou autres dommage ou responsabilité causé par ou découlant directement, indirectement, accessoirement ou spécialement de toute erreur liée à l'utilisation de ce texte ou à toute erreur qu'il contiendrait. »

CORPORATE PARTICIPANTS

Joe Racanelli

Aimia Inc. - Vice President, Investor Relations & Communications

Tom Finke

Aimia Inc. - Executive Chairman

Steve Leonard

Aimia Inc. - Chief Financial Officer

CONFERENCE CALL PARTICIPANTS

Surinder Thind

Jefferies - Analyst

Brian Morrison

TD Securities - Analyst

2

PRESENTATION

Operator

Good morning and welcome to the Aimia Inc. Fourth Quarter 2023 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 *, 0 for the Operator.

This call is being recorded on Tuesday, March 26, 2024.

I would now like to turn the conference over to Joe Racanelli. Please go ahead. Joe Racanelli - Vice President, Investor Relations & Communications, Aimia Inc.

Thank you, Operator, 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 fourth quarter and year-end periods earlier this morning. All of materials including the news release, MD&A, and financial statements are available from our website and SEDAR+.

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 website.

Some of the statements made during today's call may constitute forward-looking information about our future results, and our future results may differ materially from what we discuss. Please refer to the risks and uncertainties that may affect our future performance that are referenced in our presentation and in our MD&A.

3

In addition, we will be making note of GAAP and non-GAAP financial measures. Reconciliation of these is provided.

Following today's presentation, please reach out to me if you have any outstanding questions or require any clarification on the matters discussed today.

So with that, I'd like to turn the call over to Tom. Please, go ahead, Tom. Tom Finke - Executive Chairman, Aimia Inc.

Thank you, Joe. Good morning and thank you for joining us today. Since becoming Executive Chairman in January, I've had the pleasure of speaking with many of you.

For the benefit of those who I've not yet to meet, I'd like to begin my remarks with a brief introduction of my experience and a summary of the reasons why I decided to invest in Aimia and join the board as Chairman.

My career has been spent in the banking and asset management industry, most recently as Chairman and CEO of Barings LLC, a $350 billion global asset management company. This experience trained me how to evaluate companies, work with management teams to achieve strategic objectives, and, most of all, how to unlock value for investors. It's from this lens that I viewed Aimia as an undervalued company when I decided to participate in the private placement closed in October of last year.

Developments in 2023 and more recently have reinforced my belief in Aimia's potential upside. However, this will only be achieved through responsible investment decisions and a focus on achieving our operating goals at our majority-owned subsidiaries.

Our presentation today is one that will set the baseline for Aimia going forward given the significant changes in our portfolio in 2023. Most notably, we made two transformative acquisitions last year: Bozzetto, a sustainable specialty chemicals company, and Tufropes, an industrial ropes

4

manufacturer. Last year, we also facilitated the merger of Tufropes with Cortland Industries creating a global ropes business, which has been rebranded Cortland International.

In the partial year we have owned these companies, Bozzetto's results were in line with our expectations. At Cortland, we looked to improve performance by focusing on integration initiatives and prudent capital investment. Steve will expand on these items in his section.

Since becoming Executive Chairman, I've often been asked what impact recent management changes have had on our strategy and focus. The simple answer is that we are now laser-focused on executing on our operating strategies at Bozzetto and Cortland, prudently monetizing the minority investments held in the Holding Company segment and strengthening the balance sheet at the holding company.

Achieving these goals will take time. Some things we can do in 2024. Some will take longer to realize. That said, everything we do will be focused on value creation for shareholders. Let me spend a couple minutes to review our path to value creation.

Slide 7 presents our path to value creation, illustrating our four key pillars.

First and foremost, we are focused on operating our company in a transparent and disciplined manner and establishing clear investment and capital management strategies.

Next, Aimia is focused on assisting the management teams at Bozzetto and Cortland to help them achieve their strategic objectives and growth goals.

In addition to our focus on managing our core holdings, Aimia will continue to pursue the monetization of minority investments in the holding company's portfolio. Steve and I will go into more detail about this portfolio later.

5

Finally, as we realize on our non-control investments, we will seek to strengthen our balance sheet so we can implement a responsible capital allocation and investment strategy.

Slide 8 is a summary of the major acquisitions that Aimia completed in 2023.

We acquired Bozzetto for $258 million for a 94.1 percent stake in the company. This acquisition was driven by Bozzetto's compelling business model and its consistent history of profitability. Roberto Curreri and his team are proven operators in their industry and have demonstrated the ability to achieve their growth objectives even in the face of economic headwinds.

We also acquired Tufropes, a manufacturer of synthetic ropes and netting solutions and integrated it with the tuck-in acquisition of Cortland Industrial. Combined, the acquisitions totalled $263 million and have been rebranded at the corporate level as Cortland International.

In November, Stuart Janke, a 30-year veteran of the ropes industry, was promoted to CEO. He and his team are focused on the integration of Cortland and Tufropes and executing on sales channel strategies that we are confident will improve performance going forward.

As previously mentioned, a cornerstone of our strategy is to invest in our core platform companies to help drive growth. Bozzetto's acquisition of StarChem, presented here on Slide 9, is an example of this approach. This tuck-in acquisition, which closed in early January of this year, was valued at $24.1 million for 65 percent of the business.

The acquisition is strategic on a number of levels. Most significantly, the acquisition allows Bozzetto to expand its market presence in North America and strengthen its customer relationships in the textile industry. Initial results have been encouraging, and we look forward to the continued integration.

On Slide 10, we provide an example of how we are opportunistically monetizing our minority investments.

6

Capital A operates AirAsia, and we acquired shares in the company following the sale of our equity stake in the airline's loyalty program in 2021. Since October 2023, we have sold approximately $23 million worth of shares, of which $11.1 million was sold in the fourth quarter. As of last week, we still hold more than 56 million shares of Capital A.

I will now turn the call over to Steve to discuss our financial highlights for the fourth quarter and the fiscal year.

Steve Leonard - Chief Financial Officer, Aimia Inc.

Thank you, Tom. Good morning, everyone.

Starting with Slide 12, Aimia generated consolidated revenue of $291 million in fiscal year 2023. Of this total, $192 million was generated by Bozzetto and $99 million by Cortland.

I should point out that revenue and related operating results we have reported for Bozzetto and Tufropes Cortland are from their respective dates of acquisition and do not represent 12 months of operations.

On a full year, pro forma basis, assuming we closed these transactions on Jan 1, 2023, consolidated revenue would have been $438 million, or 50 percent more than our consolidated revenues reported.

Slide 13 shows two of our key financial metrics, namely revenue and adjusted EBITDA, both for the quarter and year ended December 31.

Given that we have reported Cortland and Bozzetto since their respective acquisition dates, which is less than 12 months, year-over-year comparisons are not meaningful. To help gauge our progress and performance, our Q4 consolidated results are compared against our performance in Q3.

7

Our results in Q4 for revenue and adjusted EBITDA were softer than the prior period. In Q4, we generated $100 million of revenue, down 12.4 percent from the preceding quarter. The decline was driven by a number of macroeconomic and geopolitical developments that weakened customer demand at both Bozzetto and Cortland.

We generated an adjusted EBITDA loss of $4 million in the quarter, which compares to positive EBITDA of $9.7 million in the preceding quarter. Including the softness on the revenue side from the operating businesses, we had an impact on adjusted EBITDA in the quarter that related at the Holdings segment with $9.4 million of costs related to investor activism. I'll explain the segments in a little more detail later.

Our consolidated net loss for the fourth quarter and full year were significantly impacted by changes in the value of our investments and the equity pickup as outlined in Slide 14.

Starting with TRADE X. The business was unable to restructure its trade financing or secure enough proceeds from the sale of its subsidiary, Wholesale Express, to satisfy its obligations and continue operations. As such, it was placed into receivership by one of its creditors in late December of '23.

For the quarter, we recorded an overall loss of $23.7 million including a fair value loss of $20.8 million on the convertible notes and $2.9 million credit loss on a bridge loan.

For the year, we recorded an overall fair value loss of $82.3 million on the preferred shares and convertible notes, plus the $2.9 million credit loss.

For Clear Media in the fourth quarter and for the year, we recognized an unrealized fair value loss of $27 million related to slower-than-expected recovery of China's economy, which impacted the Clear Media business.

8

Lastly, our equity pickup on the Kognitiv results amounted to a net loss of $20.7 million for the full year. It is important to note that Kognitiv has made progress on narrowing its losses with Q4 2023 cutting the adjusted EBITDA loss by more than half versus the prior-year quarter.

Combined, these non-cash developments continued to recognize an overall non-cash loss of $130 million. This was partially offset by a non-cash gain of $19.3 million related to the PLM earnout.

We achieved over 99 percent of the targeted gross billings in fiscal year '23. We expect to receive a $32 million cash payment related to the earnout in Q2 of this year subject to final confirmation of the amount due based on PLM's fiscal year 2023 audited financial statements.

Turning to our liquidity slide. As you can see, the waterfall chart, we ended the year with total liquidity of $137 million, up from $87.7 million where we started on October 1st. The increase was largely due to the private placement that generated more than $30 million in net proceeds.

Other positive impacts included the $17.1 million from the redemption of an SPV and $11 million in proceeds we generated from the sale of Capital A shares.

These increases were offset by a decrease in fair value of marketable securities of $6 million and payments and other expenses of $26.1 million, which included $8.7 million in cash costs of shareholder activism, interest expense on the Bozzetto financing of $8 million, which is paid on a semi-annual basis, and $6 million of CapEx in the quarter.

We ended the year with a total liquidity of $137 million, which was comprised of $109 million in cash and $28 million in marketable securities.

I should point out, of the $109 million in cash and cash equivalents held by Aimia, $48.7 million is held in Bozzetto and $11.3 million is held in Cortland.

Turning to our segmented results, starting on Slide 17.

9

Bozzetto generated positive results for both the fourth quarter and full year for both revenue and adjusted EBITDA. Sustainable specialty chemicals company generated revenue of $70 million in Q4, down $7.4 million from Q3 2023.

The quarter-over-quarter decline was largely attributable to softer demand due to shipping disruptions in the Red Sea, which is a key transportation route used to reach Bozzetto customers. Revenue was also impacted by lower raw material costs that were partially passed on to customers.

Bozzetto's adjusted EBITDA for fourth quarter '23 was $10.4 million, representing a margin of 14.8 percent. Bozzetto's totals for Q4 2023 were down from $11.7 million or 15.4 percent respectively from Q3 2023, which was a very strong comparable quarter.

Since we acquired the business on May 9th, Bozzetto generated adjusted EBITDA of $30.6 million over this eight-month period at a margin of 15.9 percent.

On a pro forma basis for 12 months, Bozzetto would have generated revenue of $297 million in 2023 and $46.1 million of adjusted EBITDA, which would represent a margin of 15.5 percent.

Despite some of the headwinds we faced in Q4, Bozzetto's results were more in line with expectations for the year.

Cortland's financial highlights, turning now to Slide 18.

Cortland generated revenue of $29.7 million for Q4 2023, down 22.6 percent from $38.4 million generated in Q3 2023. The quarter-over-quarter decline was attributable to a number of factors, including softer customer demand caused by economic uncertainty, which had some pressure on pricing, and delays to customer deliveries due to shipping disruptions in the Red Sea, which is a key transportation route used to reach Cortland customers.

10