Nov 11, 2021
Operator
Good morning, ladies and gentlemen and welcome to the Aimia Inc third quarter 2021 results conference call. At this time, all lines are in listen-only mode.
Following the presentation, we will conduct a question-and-session. [Operator Instructions].
This call is being recorded on Thursday, November 11, 2021. I would now like to turn the conference over to Tom Tran, Head of Investor Relations.
Please go ahead.
Tom Tran
Thank you Miranda and welcome everyone to this morning's call. Today's presentation is available on SEDAR and the company's website.
Before we get underway, I would like to remind everyone to review our forward-looking statements and the cautions and risk factors pertaining to the statement. With me on the call today are speakers Phil Mittleman, Aimia's CEO, Michael Lehmann, our President and Steve Leonard, our CFO.
Phil will 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.
Phil Mittleman
Thanks Tom and good morning everyone on the phone and webcast today. We will begin with our strategic highlights for the third quarter.
Our third quarter results demonstrated exciting and significant progress as we continue maximizing the value of our existing holdings while deploying capital into new investment opportunities. PLM continued to demonstrate a strong recovery in its operating performance.
Aimia received a distribution of CAD6.3 million in the third quarter bringing the total distributions from PLM to CAD21.4 million on a year-to-date basis. As we announced in October, in conjunction with the recent disclosures made in the bankruptcy proceedings of Aeromexico relating to PLM, Aimia confirms that it is in discussions with Aeromexico for a potential transaction to divest our 48.9% equity stake in PLM.
These discussions continue to advance and we look forward to providing an update at the appropriate time. Kognitiv continues to develop a strong pipeline of new prospective clients to onboard to their collaborative commerce platform under the leadership team led by Shawn Pearson, who was recently named Chief Executive Officer in addition to his role as President of Kognitiv.
At Clear Media, the planned privatization of the business was completed, led by a blue chip consortium of investors comprised of Clear Media's current CEO as well as JCDecaux, Ant Financial and the China Wealth Growth Fund. We are very excited about Clear Media's prospects.
Members of the consortium such as JCDecaux, the world's largest out-of-home advertising company are also leaders in the digitization of outdoor advertising street furniture. We expect Clear Media's management team to execute on its growth oriented plan to expand its digital footprint among its 61,000 commercial panels with a goal of attracting new, higher margin advertising revenue streams and clientele.
With less than 1% of its panels currently digitized, we believe there remains significant runway for digital penetration over the coming years. Moving to our investment in AirAsia.
We are very pleased to see AirAsia resume its domestic travel and the government's plan to start re-opening their borders as the region moves away from its zero COVID strategy. Additionally, it has announced a transformation from an airline into a digital travel and lifestyle services holding company.
Aimia owned an equity stake of over 3% of AirAsia which was acquired from the sale of our previous holding in the Biglife loyalty program to AirAsia and additional shares acquired through a private placement. AirAsia share prices performed well and was up 18% in the third quarter and intend to climb higher after the country announced measures that lifted travel restrictions on interstate and international travel in Malaysia.
AirAsia also recently announced a reorganization into a holding company to separate its core airline business from its portfolio of digital assets in which we see significant upside potential in companies such as Big Pay, one of the fastest growing fintech companies in Southeast Asia. Big Pay recently secured up to $100 million in financing from South Korean conglomerate SK Group.
According to a recent Credit Suisse report, AirAsia's portfolio of digital businesses achieved unicorn status with a combined valuation of over $1 billion. AirAsia a continues to raise new capital from various sources and we believe that AirAsia will emerge from the pandemic as a stronger line and holding company, uniquely positioned to capitalize on the sizable pent-up demand for low cost air travel across Southeast Asia while enhancing the value of its digital assets.
Moving to our new investments. Aimia invested CAD44 million as the lead investor of the most recent funding round for TRADE X, an innovative solutions provider to the global pre-owned car industry through its B2B cross-border automotive trading platform at a pre-money valuation of $250 million.
Aimia's current equity ownership stake in TRADE X is 12.3%. TRADE X continues to commercialize its core product with major automotive customers and continues to exhibit rapid growth and profitability as it expands its reach globally to Europe, Africa, South America and China amongst others.
After having generated CAD74 million in gross vehicle sales in the first half of this year, TRADE X generated gross vehicle sales of CAD87 million in the third quarter alone and positive EBITDA. With recent sales volume activity demonstrating strong momentum, we expect TRADE X to continue to grow its business at a rapid rate.
The addressable market for exporting used cars is immense and is estimated to be approximately $100 billion annually. We believe TRADE X is poised to capture a meaningful share of this global trading volume by automating and streamlining global vehicle commerce to its highly scalable AI-powered digital platform.
The company is actively pursuing a robust pipeline of accretive acquisition targets including its recently closed acquisition of Techlantic in September. We believe TRADE X represents an outstanding opportunity in a business with tremendous growth prospects as it scales it's platform and expands its geographical footprint and we look forward to sharing more positive developments over the coming quarters.
Moving to our new investment in a second special purpose vehicle. In November 2020, Aimia announced an initial commitment of CAD6.4 million to a special purpose vehicle created to pursue a leveraged buyout of a target.
As of September 30, 2021, the fair value of the special purpose vehicle increased to CAD8.1 million. Following the early success of this investment, in November the company made a new investment of CAD12.4 million in a second special purpose vehicle which was created to pursue a similar buyout strategy.
Subsequent to the end of the quarter, we realized a tax shelter gain of CAD9.7 million from the sale of our entire stake in Newmark, representing a return on investment of 107 %. Finally, as discussed previously, in 2020 we rapidly cut costs and rightsized our corporate expenses and achieved cash flow breakeven at the holding company with cash operating expenses, preferred dividends and taxes covered by PLM dividends and other investment activities.
For 2021, inclusive of PLM dividends and cash gains on the sale of JCDecaux and Newmark, we expect to be cash flow positive at the holdco level. And with that, let me turn the floor over to Mike to provide you some further updates on our holdings.
Mike?
Michael Lehmann
Thanks Phil and good morning to everyone. We will begin our discussion with PLM where I will be speaking to the operating performance in USD.
which is PLM's functional currency. PLM's operating metrics continue to trend positively as the member base grew 6% over last year to $7.3 million enrolled members in the third quarter.
Gross billings were $49.6 million in the third quarter, up 89% over last year and up 12% over last quarter as the travel industry continues to demonstrate signs of recovery. During the quarter, gross billings rebounded to roughly 70% of the billings generated during the third quarter of 2019.
We expect the travel industry to continue recovering as regions such as North and South America, Asia and Europe open their borders to fully vaccinated travelers. Revenues were $45.4 million in the third quarter, up 68% over last year.
Adjusted EBITDA was $14 million in the quarter, up 37% over last year and up 13% over last quarter. Further, free cash flow was a positive $23.6 million, an increase of $17.4 million compared to the same period in the prior year.
The improvement was mainly driven by higher gross billings. Moving out to Kognitiv.
For the quarter, revenues from continuing operations were CAD14 million, an improvement of CAD1 million over last quarter. Adjusted EBITDA from continuing operations was a loss of CAD8.5 million, an improvement of CAD3.5 million over last quarter, partly due to a one-time benefit of the Canada Emergency Wage Subsidy as well as Kognitiv's continued focus on cost efficiency.
Kognitiv is making great strides on the commercialization of its business as it transitions towards a higher margin subscription-based Platform-as-a-Service offering. Kognitiv also continues to attract top talent to further advance its collaborative commerce product offering.
The company is executing it costs synergy plan in order to further align with its new business following the sale of the ISS business to IRI, which represented approximately CA20 million in annual sales in 2020. Kognitiv's profitability has been delayed due to the sale of ISS and it's focus on investing in the development of its collaborative commerce platform to deliver against its growth plans.
Based on Kognitiv's business plan, revenue growth is forecasted to significantly improve in 2022 and reach adjusted EBITDA profitability by 2023. Moving onto our investment management business.
Revenue for the quarter from investment management fees were approximately CAD700,000 and earnings were a positive CAD100,000. Assets under management were CAD199.8 million in the third quarter, a decline of 1% year-over-year.
And finally moving on to Clear Media. As expected, the planned privatization of Clear Media was completed following the acquisition of all of the outstanding shares of Clear Media on September 27.
The listing of shares of Clear Media was withdrawn from the Hong Kong Stock Exchange and Aimia now owns a 10.85% indirect stake in privatized Clear Media. JCDecaux, a member of the consortium, recently reported in their quarterly results that outdoor advertising activity in China is almost back to pre-COVID levels.
In Clear Media's 2021 interim report, the company indicated that the group's total revenue for the six months ended June 30, 2021 increased by 74% year-on-year which represented 86% of the revenue generated during the third quarter of 2019. Clear Media maintained its positive outlook as it continues to project materially higher revenues in 2021 compared to 2020.
We are very excited about Clear Media's prospect. And with that, let me turn it over to Steve to take you through some financial results.
Steve?
Steve Leonard
Thanks Mike and good morning to everyone. Let's begin by covering the consolidated results before we move to the segment performance and cash movements in the quarter.
In the third quarter, total income was CAD7 million, mostly due to the fair value change of CAD6.3 million in AirAsia. And reported expenses were CAD3.1 million, down CAD5.7 million from the CAD8.8 million in the same quarter last year, driven by a decrease in compensation and benefit expenses related to the share-based compensation and other performance awards which were lower by CAD2.7 million year-on-year.
Within the holding segment, total income was CAD6.5 million, up from negative CAD1.5 million in the same quarter last year. Total expenses were CAD2.7 million in the third quarter of 2021, down from CAD8.3 million in the same quarter last year.
Within total expenses, corporate operating expenses which includes compensation, professional and advisory fees as well as technology and other office expenses were CAD3.5 million in the quarter, down from CAD5.5 million in the same period last year due to the decrease in share-based compensation and other performance awards, as previously mentioned. Excluding share-based compensation and other performance awards, corporate cash operating costs were CAD3.7 million in the quarter compared to CAD3 million in the same period last year as a result of expense fees.
Year-to-date through September, corporate cash operating costs were CAD11.2 million and we remain on track to achieve our target annualized holdco cash operating expenses of around CAD14 million for 2021. Moving on to cover the major cash movements for the quarter.
We ended the third quarter with total cash excluding liquid investments of CAD70.1 million. Including liquid investments, total cash ended at CAD136 million.
Main movements in cash this quarter compared to last quarter were a CAD6.3 million distribution received from PLM, a CAD44 million investment in TRADE X. We paid preferred dividends of CAD3.1 million and related Part VI tax of CAD1.3 million.
We made a CAD2.5 million investment in an externally managed investment fund and corporate cash operating costs were CAD3.7 million. Subsequent to the end of the quarter, including net proceeds of CAD18.7 million from the sale of our investment in Newmark and a CAD12.4 million investment in a new special purpose vehicle, Aimia's pro forma cash plus liquid investments totaled CAD124.2 million.
And with that, let me turn it now over Phil to wrap up with a few concluding remarks.
Phil Mittleman
Thanks Steve. This is an exciting time to be a shareholder of Aimia.
Aimia has been successfully transformed into a lean opportunistic holding company with an exciting portfolio of assets including our new investment in TRADE X. Our discussions with Aeromexico continue to advance and we look forward to providing an update at the appropriate time.
Aimia's prospects have never been brighter and we continue to work tirelessly to deliver strong returns to our stakeholders.
Tom Tran
Operator, that concludes today's prepared remarks. Please go ahead and pass the questions.
Operator
[Operator Instructions]. Your first question will be coming from Brian Morrison from TD Securities.
Please go ahead.
Brian Morrison
Either Phil or Mike, I appreciate you are not going to talk about an update on PLM. But maybe you can just talk about an update on the tax consequences?
Before, you have said that it could be potentially done on a tax efficient basis. Can you maybe just update us on what that would entail?
Phil Mittleman
Sure. Hi Brian.
It's Phil. I am actually going to hand that to Steve, our tax expert.
Go ahead, please.
Steve Leonard
Hi Brian. Yes.
We hold the investments through U.K. holdco structure and when we originally designed the structure, we did so with a future view down the road of exiting potentially tax efficiently.
We haven't disclosed the details but I can assure you that upon a transaction, we would do so in a very tax efficient manner.
Brian Morrison
Okay I guess the exciting things from the quarter that I take away here is really TRADE X and the volumes that you provided, obviously I think it's benefiting from the current auto shortage. But with that in mind, can you maybe just talk to us about what kind of growth you have?
What kind of visibility you have into the rapid growth on the path to monetization here? I assume it might be an IPO.
But maybe just the current situation and acquisition outlook and path to monetization, if you could?
Phil Mittleman
Sure. Yes.
TRADE X is a very exciting investment. And probably in my career, one of most exciting I have come across.
In terms of the growth opportunities, when we first learned about TRADE X, it was a relatively new company and we saw that they were doing business with this group of blue chip partners that was just it was almost unbelievable that these companies would work with such an early stage company. And we called those companies and we said, why are you doing business with effectively a startup when you guys are the leaders in the industry?
And the response was these guys do it better and more efficiently than anyone we know. They are getting us better prices, better products and we love them.
And so that's really how we started that relationship. And in terms of the growth opportunities, they are limitless.
TRADE X is trading and what you have seen in the used car business, I think the heightened interest in the used car business came from obviously the shortage of new cars. But that's forced people to search for used cars in other areas, in other geographies.
And that's what TRADE X does. They are expanding into other trade quarters.
For example, in the last month alone, TRADE X traded cars from China to Europe, from Chicago to Nigeria, from China to Mexico and Canada and Nigeria and from Japan to Kenya. So I mean, it's incredible and the economics of these transactions are incredible.
So to be profitable almost from inception, growing at the rate they are growing, with partners that they have, it's an incredibly exciting opportunity. So it's a good promise that we are managing the growth.
That's really our focus is, you can almost grow too fast. So we are managing that growth.
We have attracted a great group of great management team, great partners. And so far, it's incredibly exciting.
In terms of potential monetization, you have seen, you can obviously see, there is no pure play comp really for them. I think the closest one out there is probably Auto One.
But if you look at the multiples these things get, obviously they are tremendous. So we had an opportunity to get into this at a very low valuation and we are very happy with it.
And I think in terms of monetization, I think we are evaluating opportunities as they come. And we will let you know when we decide what our next move is.
Brian Morrison
Okay. And I guess just to follow-up on that.
I guess the current auto shortage situation, does that maybe pull forward a monetization event?
Michael Lehmann
The auto shortage, this is the volume, TRADE X makes more money when they have more volume. So prices help because you are getting a percentage of the price as a fee.
But volume is more important. So I think the auto shortage, in some people's perception, is like well that's why these businesses are doing so well.
But in reality, I think it's just kind of raise the awareness of the opportunity set out there and obviously the used car market, there's a lot of obviously heightened interest in it. But it's like, I would say like the first time you used eBay, you didn't you could buy something at auction online.
And then you have used it ever since. And that's kind of what's happening is people are discovering, well, I can sell cars to Nigeria and know that I can get a better price going to Kenya, I can do that.
And so I think the shortage, we look forward to the shortage going away. We look forward to the volume increasing and we look forward to prices dropping because I think that's going to help these businesses get more people have more transactions.
So we don't see a direct correlation between the shortage and an event. I just think it's heightened interest in this sector.
Brian Morrison
Right.
Michael Lehmann
So Brian, just a couple of comments on used car pricing. So what's interesting is, we expect prices to normalize, right.
Because everybody knows that used car pricing is up and it's driving inflation, partially driving inflation due to the supply bottleneck. But what's likely going to occur is there is going to be a debottlenecking of the new car supply chain and as greater access of new cars increases the global supply of used cars because if you want to buy a new car, you are going to sell your current car, right.
So it's very circular. So the greater access to new cars is increasing.
The global supply of used cars and TRADE X benefits primarily from unit volume, right. So net net this is going to be a huge positive for us because there is a pent-up demand for new cars and as that surfaces, the used car market should substantially increase.
If you think about that, as that supply dramatically increases, the market's going to need a mechanism to clear that supply. And that's what TRADE X does.
They are the match maker matching buyers and sellers and generating a commission in the middle and the logistics aspect is part of their mode, right. Being able to solve for the cross-border complexities which most auto companies can't do, focusing on the compliance, the regulations, vehicle inspections, currency payments, financing, all of those things are difficulties, right.
And most car companies decide not to try to bridge that gap and TRADE X is solving that for them. That's a huge positive here.
Phil Mittleman
I think, Brian, they said that less than 1% or 1.5% of the dealers in the U. S.
knew how to transact cross-border, just to kind of let alone to Nigeria or any of these other places. And when you go to, TRADE X has this proprietary AI-powered brain technology that backs up their platform and when you go there, you put your car in there and you say or let's say I am interested in buying or lets say I want to sell my Toyota Tercel to Canada, they are going to say to you, you push a button here and we will sell it for you to Canada for $17,000 and it will be done within 20 days or you could sell it to Nigeria for $34,000 and it's going to take 90 days and you have to put a higher deposit up but it's up to you and you will get these options that you never knew existed before.
And all the complexities and the logistics of going to these other countries is being handled by TRADE X, including currency hedging. So these opportunities are vast.
And when you just look at China alone, there is the gigantic amount of vehicles in China that can be exported that are going to be hopefully flowing through TRADE X. So these are things that didn't exist before.
They are creating markets and people don't know how to do it, don't want to know how to do it, including the leaders in the industry. Some biggest used car sellers that you can imagine in this world are using TRADE X to sell their vehicles.
It's really exciting.
Brian Morrison
Yes. I take that.
Okay. I appreciate the update on all the progress, guys.
Michael Lehmann
Thank you. Thanks Brian.
Phil Mittleman
Absolutely. Good to talk to Brian.
Operator
[Operator Instructions]. Your next question would be coming from Hamzah Mazari from Jefferies.
Please go ahead.
Ryan Gunning
Hi. Good morning guys.
it's actually Ryan Gunning on for Hamzah.
Phil Mittleman
Good morning Ryan.
Ryan Gunning
Good morning. My first question, I know you guys are pretty restricted in what you can say about PLM.
But is there any color you can provide on potential timing of that potential transaction?
Phil Mittleman
Hi Ryan. So you know we can't comment on that specifically.
I would just say that currently and these dates move around all the time. Obviously, currently they are scheduled to have a confirmation hearing in December to hopefully emerge from bankruptcy.
So that's the only timeline I can give you. I can't comment specifically on a potential transaction that we might have at PLM.
But that's kind of a directional target for the bankruptcy to end.
Ryan Gunning
Got it. Thank you.
That's helpful. And then on TRADE X, it sounds like a pretty exciting opportunity.
So is there a potential to maybe take that stake up from the 12.3%.
Phil Mittleman
We are very excited about the investment and like all our investments we are always evaluating opportunities like that. And if we elect to do so, we will let you know.
Ryan Gunning
Great. Thank you.
And my last question just on Clear Media. I know it's approaching pre-pandemic revenue.
But has the outlook on the business changed at all in light of recent slowing of China's economy? And is there any kind of update on the digitalization process being made there?
Phil Mittleman
We just completed the privatization of this business. And so we are still figuring out the information flow that we can disclose to the public and what we can and can't say from them.
So that will be ironed out in the near future and we will know more about what we can say and we can't say. I would say that you know we remain very excited about the prospects.
We paid a very low valuation for the shares. We think that the upside is tremendous.
We love the partners there. We think that the fears of government intervention, like you have seen in some of the other companies, we hope and are optimistic that they will not affect Clear Media, just based on the type of business that Clear Media is and the partner group involved.
So we will give you more information as soon as we have them. And we want obviously keep our shareholders as updated as possible.
So we are working to get those mechanics in place and we will let you know more information as soon as we can.
Ryan Gunning
Got it. Very helpful.
Thanks Phil. That's it for me.
Phil Mittleman
Thank you Ryan.
Michael Lehmann
Thanks Ryan.
Operator
There are no further questions at this time. So I would like to turn the conference back over to Mr.
Tom Tran. Please go ahead.
Tom Tran
Thank you everyone for joining today's call and webcast. If you have any questions, please reach out to Investor Relations.
Operator
That would conclude your conference for today. We would like to thank you for participating and we now suggest that you disconnect your lines.