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- answer session. At any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, November 11th, 2021. I would now like to turn the conference over to Tom Tran, Head of Investor Relations. Please go ahead.
Thank you, Miranda, and welcome everyone to this morning's call. Today's presentation is available on SEDAR in 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 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. With that, let me hand it over to Phil.
Thanks, Tom, and good morning everyone on the phone and webcast today. We'll 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 CAD 6.3 million in the third quarter, bringing the total distributions from PLM to CAD 21.4 million on a year-to-date basis. As we announced in October, in conjunction with the recent disclosures made in the bankruptcy proceedings of Aeroméxico relating to PLM, Aimia confirms that it is in discussions with Aeroméxico 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 the 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 reopening their borders as the region moves away from its zero- COVID strategy. Additionally, it has announced its transformation from an airline into a digital travel and lifestyle services holding company. Aimia owns 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's share price has performed well and was up 18% in the third quarter and continued 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 BigPay, one of the fastest-growing fintech companies in Southeast Asia. BigPay 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 continues to raise new capital from various sources, and we believe that AirAsia will emerge from the pandemic as a stronger airline 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 CAD 44 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, among others. After having generated $74 million in gross vehicle sales in the first half of this year, TRADE X generated gross vehicle sales of $87 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 through 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 its 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 CAD 6.4 million to a special purpose vehicle created to pursue a leveraged buyout of a target.
As of September 30th, 2021, the fair value of this special purpose vehicle increased to CAD 8.1 million. Following the early success of this investment, in November, the company made a new investment of CAD 12.4 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 CAD 9.7 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 right-sized 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 whole company level. With that, let me turn the floor over to Mike to provide you some further updates on our holdings. Mike?
Thanks, Phil, and good morning to everyone. We'll begin our discussion with PLM, where I'll 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 CAD 45.4 million in the third quarter, up 68% over last year. Adjusted EBITDA was CAD 14 million in the quarter, up 37% over last year and up 13% over last quarter. Further, free cash flow was a positive CAD 23.6 million, an increase of CAD 17.4 million compared to the same period in the prior year. The improvement was mainly driven by higher gross billings. Moving on to Kognitiv. For the quarter, revenues from continuing operations were CAD 14 million, an improvement of CAD 1 million over last quarter. Adjusted EBITDA from continuing operations was a loss of CAD 8.5 million, an improvement of CAD 3.5 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 services offering. Kognitiv also continues to attract top talent to further advance its collaborative commerce product offering. The company is executing its cost synergy plan in order to further align with its new business following the sale of the ISS business to IRI, which represented approximately CAD 20 million in annual sales in 2020. Kognitiv's profitability has been delayed due to the sale of ISS and its 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 on to our investment management business.
Revenue for the quarter from investment management fees were approximately CAD 700,000, and earnings were a positive CAD 100,000. Assets under management were CAD 199.8 million in the third quarter, a decline of 1% year-on-year. 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 30th, 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're very excited about Clear Media's prospects. With that, let me turn it over to Steve to take you through some financial results. Steve?
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 CAD 7 million, mostly due to the fair value change of CAD 6.3 million in AirAsia. Reported expenses were CAD 3.1 million, down CAD 5.7 million from the CAD 8.8 million in the same quarter of 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 CAD 2.7 million year-over-year.
Within the holding segment, total income was CAD 6.5 million, up from CAD -1.5 million in the same quarter last year. Total expenses were CAD 2.7 million in the third quarter of 2021, down from CAD 8.3 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 CAD 3.5 million in the quarter, down from CAD 5.5 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 CAD 3.7 million in the quarter, compared to CAD 3 million in the same period last year as a result of expense phasing.
Year-to-date through September, corporate cash operating costs were CAD 11.2 million, and we remain on track to achieve our target annualized whole cash operating expenses of around CAD 14 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 CAD 70.1 million. Including liquid investments, total cash ended at CAD 136 million. The main movements in cash this quarter compared to last quarter were a CAD 6.3 million distribution received from PLM, a $44 million investment in TRADE X. We paid preferred dividends of CAD 3.1 million and related Part VI tax of CAD 1.3 million. We made a 2.5 million investment in an externally managed investment fund, and corporate cash operating costs were CAD 3.7 million.
Subsequent to the end of the quarter, including net proceeds of CAD 18.7 million from the sale of our investment in Newmark and a CAD 12.4 million investment in a new special purpose vehicle, Aimia's pro forma cash plus liquid investments totaled CAD 124.2 million. With that, let me turn it now over to Phil to wrap up with a few concluding remarks.
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 Aeroméxico 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.
Operator, that concludes today's prepared remarks. Please go ahead and prompt the questions.
Thank you, ladies and gentlemen. We will now begin the question-and-answer session. Should you have a question, please press star followed by the number one on your touch- tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by the number two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment for your first question. Your first question will be coming from Brian Morrison from TD Securities. Please go ahead.
Either Phil or Mike, I appreciate you're not gonna talk about an update on PLM, but maybe you can just talk about an update on the tax consequences. Before, you had said that it could be potentially done on a tax-efficient basis. Can you maybe just update us on what that would entail?
Sure, Brian. Hey, Brian. I'm gonna actually hand that to Steve, our tax expert. Go ahead, Steve.
Hi, Brian. Yeah, we hold the investment through U.K. Holdco structure. You know, when we originally designed the structure, we did so, you know, with a future view down the road of exiting potentially tax efficiently. You know, we haven't disclosed the details, but we can assure you that upon a transaction, we would do so in a very tax- efficient manner.
Okay. I guess the exciting thing 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. With that in mind, can you maybe just talk to us about, you know, what kind of growth you have, what kind of visibility you have into the rapid growth, you know, the path to monetization here? I assume it might be an IPO, but maybe just the, you know, the current situation and acquisition outlook and path to monetization, if you could.
Sure. Yeah. TRADE X is a very exciting investment, probably in my career, one of the most exciting I've come across. In terms of the growth opportunities, when we first learned about TRADE X, it was, you know, it's a relatively new company. We saw that they were doing business with this group of blue- chip partners. It was almost unbelievable that these companies would work with such an early-stage company. We called those companies and we said, you know, "Why are you doing business with this effectively a startup when you guys are the leaders in the industry?" The response was, "These guys do it better and more efficiently than anyone we know.
They're getting us better prices, better product, and we love them. That's really how we started that relationship. In terms of the growth opportunities, they're limitless. We have TRADE X is trading in what you've seen in the used car business, and I think the heightened interest in the used car business came from obviously, the shortage in new cars. That's forced people to search for used cars in other areas, in other geographies, and that's what TRADE X does. They're not just. They're expanding into other trade corridors. For example, in the last month alone, TRADE X traded cars from China to Europe, from Chicago to Nigeria, from China to Mexico, from Canada to Nigeria, and from Japan to Kenya.
I mean, it's incredible what and the economics of these transactions are incredible. To be profitable almost from inception, growing at the rate they're growing, with the partners that they have, it's an incredibly exciting opportunity. There's, you know, we have to, you know. It is a good problem. We're managing the growth. You know, that's really our focus, isn't it? You know, you can almost grow too fast. We're managing that growth. We have attracted a great group, a great management team, great partners, and so far it's incredibly exciting. In terms of potential monetization, you've seen, you know, you can obviously see there are. You know, there's no pure play comp really for them.
I think the closest one out there is probably Auto1. If you looked at the multiples these things get, obviously, they're tremendous. You know, we had an opportunity to get into this at a very low valuation, and we're very happy with it. I think that in terms of monetization, I think it's, you know, we're evaluating opportunities as they come. You know, we will let you know when we decide what our next move is.
Okay. I guess just to follow up on that, does the current auto shortage situation maybe pull forward a monetization event?
You know, this is a volume. You know, TRADE X makes more money when they have more volume. Prices help because you're getting a percentage of the price as a fee, but volume is more important. I think that the auto shortage, you know, in some people's perception, is like, "Wow, that's why these businesses are doing so well." In reality, I think it's just kind of raised the awareness of the opportunity set out there. Obviously, the used car market is. There's a lot of, obviously, heightened interest in it. It's like I would say, like the first time you used eBay, you didn't know you could, you know, buy something at an auction online, and then you've used it ever since.
That's kind of what's happening here is people are discovering, "Wow, I can sell cars to Nigeria? I didn't know that. I can get a better price going to Kenya? I can do that." You know, I think the shortage, you know, 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 gonna help these businesses get more supply and more transactions. I wouldn't see direct correlation between the shortage and an event. I just think it's, you know, it's heightened the interest in this sector.
All right. I appreciate all the.
Brian, just a couple
Go ahead.
Just a couple of comments on used car pricing. What's interesting is you know as we expect prices to normalize, right? Everybody knows that used car pricing is up, and it's partially driving inflation due to the supply bottleneck. What's likely gonna occur is there's gonna be a debottlenecking of the new car supply chain. Greater access to new cars increases the global supply of used cars, because if you wanna buy a new car, you're going to sell your current car, right? It's very circular. The greater access to new cars is increasing the global supply of used cars, and TRADE X benefits primarily from unit volume, right?
The net-net, this is gonna 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 gonna need a mechanism to clear that supply. That's what TRADE X does. You know, they're the matchmaker by matching buyers and sellers and generating a commission in the middle. The logistics aspect is part of their moat, 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?
Most car companies decide not to try to bridge that gap, and TRADE X is solving that for them. That's the huge positive here.
Yeah. I think, Brian, you know, they said that less than 1% or 1.5% of the dealers in the U.S. knew how to transact cross-border just to Canada, let alone to Nigeria or any of these other places. When you go to. You know, TRADE X has this proprietary AI-powered brain technology that backs up their platform. When you go there, you know, you put your car in there, and you say. Or let's say I'm interested in buying or let's say I wanna sell my Toyota Tercel to Canada. They're gonna say to you, "You know, we can push a button here, and we'll sell it to you to Canada for $17,000, and it'll be done within, you know, 20 days.
You could sell it to Nigeria for $34,000, and it's gonna take 90 days, and you have to put a higher deposit up, but it's up to you. You'll get these options that you never knew existed before. All the complexities and the logistics of going to these other countries is being handled by TRADE X, including currency hedging. These opportunities are vast. When you just look at China alone, you know, there is a gigantic amount of vehicles in China that can be exported that are going to be hopefully flowing through TRADE X. These are things that didn't exist before. They're creating markets, and people don't know how to do it, don't wanna 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.
Yeah. No, I take that. Okay, I appreciate the update on all the progression, guys. Thank you.
Thanks, Brian.
Absolutely. Good to talk to you, Brian.
Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the number one. Your next question would be coming from Hamzah Mazari from Jefferies. Please go ahead.
Hey, good morning, guys. It's actually Ryan Gunning on for Hamzah. Just my first question-
Good morning, Ryan.
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 the potential transaction?
Hey, Ryan. 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're scheduled to have a confirmation hearing in December to hopefully emerge from bankruptcy. That's the only kinda timeline I can give you. I can't comment specifically on a potential transaction that we might have with PLM, but that's kind of the directional target for the bankruptcy to end.
Got it. Thank you. That's helpful. On TRADE X, it sounds like a pretty exciting opportunity. Is there potential to maybe take that stake up from the 12.3%?
You know, we're very excited about the investment. Like all our investments, we're always evaluating opportunities like that. If we elect to do so, we'll let you know.
Great. Thank you. 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?
You know, we just completed the privatization of this business, and we're still figuring out the information flow that we can disclose to the public and what we cannot and can't say from them. That'll be ironed out in the near future, and we'll 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 the upside is tremendous. We love the partners there.
We think that, you know, the fears of, you know, government intervention, like you've 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. We'll give you more information as soon as we have it, and we wanna obviously keep our shareholders as updated as possible. We're working to get those mechanics in place, and we'll let you know more information as soon as we can.
Got it. Very helpful. Thanks, Phil. That's it for me.
Thank you, Ryan.
Thanks, Ryan.
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.
Thank you, everyone, for joining today's call and webcast. If you have any questions, please reach out to Investor Relations.
That would conclude your conference for today. We'd like to thank you for participating, and we now suggest that you disconnect your lines.