Good morning, ladies and gentlemen, and welcome to the Aimia Inc. 2nd Quarter 2021 Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Friday, August 13, 2021.
I would now like to turn the conference over to Mr. Tom Tran, Head of
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 Middleman, Aimia's CEO Michael Lehmann, our President and Steve Leonard, our CFO. Bill 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.
Thanks, Tom, and good morning, everyone on the phone and webcast today. We'll begin with our strategic highlights for the Q2. We are very pleased with our 2nd quarter and first half results and continue to focus on enhancing the value of our existing holdings while deploying excess capital towards new investment opportunities. PLM continued to perform well as it demonstrated ongoing recovery in its operating performance. Aimia received a distribution of $5,300,000 in the 2nd quarter, Bringing the total distribution from PLM to $15,100,000 in the first half of this year.
Our amended shareholder agreement with Aeromexico continues honored by the airline and we expect the agreements to be formally assumed in due course through Aeromexico's bankruptcy process. Cognitive continues to focus on the commercialization of its PaaS offering and has been successful in securing contract renewals and extensions from major clients, while developing a strong pipeline of new clients to onboard their collaborative commerce platform. At Clear Media, we are pleased to participate in the planned privatization of the business, led by a blue chip consortium comprised of Clear Media's current CEO, JC DeCoe, Jack Ma's Ant Group and the China Wealth Growth Fund, And we're excited about Clear Media's prospects. Members of the consortium such as JC De Co, the world's largest out of home advertising company Our leaders in digitization technology and we expect Clear Media's management team to execute on its growth oriented plan to digitize its 59,000 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.
Since we made our investment, China's economy has continued to recover And we continue to see these positive economic trends benefiting outdoor advertising sales in China. At Big Life, We completed the sale of our 20 percent ownership in the loyalty program to AirAsia in exchange for approximately 85,900,000 shares of AirAsia and recorded a book value gain of $6,900,000 on the transaction. Including our $35,600,000 additional shares acquired through a private placement, Aimia now owns a total of 121,500,000 shares of AirAsia, representing an approximate 3.1% equity stake. AirAsia and its subsidiaries, including Big Pay, which recently announced a US100 $1,000,000 financing, Have been making good progress in raising new capital from various sources and we believe that AirAsia will emerge from the pandemic as a stronger airline Uniquely positioned to capitalize on the sizable pent up demand for low cost air travel across Southeast Asia. Moving to our latest investment, Aimia invested $44,000,000 as the lead investor of the most recent funding round for TradeX, 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 US250 $1,000,000 Following an additional US10 $1,000,000 from other strategic investors in a subsequent closing, our equity stake in TradeX is now 12.3%.
TradeX has been growing at a remarkable rate as it expands its market reach to other countries. Gross vehicle sales for the first half of this year have already exceeded 20 twenty's Full year sales and with recent sales volume activity demonstrating strong momentum, sales are expected to trend even higher in the second half of twenty twenty one. The company is generating positive EBITDA as it expands its reach globally and has a robust pipeline of acquisition targets. We realized a tax sheltered gain of $6,900,000 from the sale of our investment in JC De Co. At the end of the Q2 of 2021, our liquid public securities portfolio totaled 57,600,000 including unrealized gains up to the end of the quarter of $8,500,000 We also enhanced our management team with the addition of Eric Blondeau as the company's new Chief Legal Officer.
Eric has extensive experience in legal matters with particular specialization in M and A and securities law among other skill sets complementary to Aimia's strategy. Lastly, we established a new NCIB facility to repurchase up to 7,300,000 shares to facilitate opportunistic common share buybacks. Over the past two and a half years, we have repurchased more than 40% of our outstanding shares. And with that, let me turn the floor over to Mike to provide you with 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 5.9 percent over last year to 7,200,000 enrolled members in the 2nd quarter. Gross billings were $44,400,000 in the 2nd quarter, up significantly over last year and up 25% over last quarter As the travel industry continues to demonstrate signs of recovery. During the quarter, gross billings rebounded to roughly 65% Revenues were $48,600,000 in the 2nd quarter, up significantly over last year and up 69% over last quarter due to improving redemption volumes.
Adjusted EBITDA was $12,400,000 in the quarter, representing a margin of 27.9% due to higher unit cost as a result of the redemption mix towards the greater Air Awards. Further, free cash flow was a positive $24,700,000 an increase of $63,700,000 compared to the same period in the prior year. The improvement was mainly driven by the prepurchase of award tickets of $50,000,000 that occurred in the Q2 of 2020, of which $12,700,000 were used during the Q2 of this year. Overall, PLM and the travel industry continue to demonstrate signs of recovery despite the continued challenging travel environment. Moving on to Cognitive.
For the quarter, revenues were $13,100,000 down 1 point $3,000,000 over last quarter, mainly due to a reduction in revenue from the Air Miles Middle East business due to lower redemption activity and lower yield. Adjusted EBITDA from continuing operations was a loss of $12,000,000 due to lower revenues, partially offset by reduced costs and operating expenses. Cognitive continues to make great strides on the commercialization of its business as it Transitions towards a higher margin subscription based platform as a service offering, which incorporates Cognitive's collaborative commerce technology. The company continues to execute on its cost synergy plan in order to align with its new business following the sale of the ISS business to IRI, which represented approximately $20,000,000 in annual sales in 2020. While Cognitive's profitability has been delayed due to the recently closed sale of ISS And its continued focus on investing in the development of its collaborative commerce platform to deliver against its growth plans, We are not expecting a meaningful increase in revenues during the second half of this year compared to the first half.
Based on Cognitive's business Moving on to our Investment Management business. Revenue for the quarter from Investment Management fees was approximately 900,000 Partially benefiting from a revenue item of approximately $300,000 tied to a one time performance date. Excluding this item, earnings were roughly breakeven. Assets under management at MIM were $226,900,000 in the 2nd quarter, a decline of 5.9% quarter on quarter on a U. S.
Dollar basis, mainly due to net client asset outflows, offset partially by positive performance of its investment portfolios. As part of the company's continued process of investing excess capital to generate superior returns, Aimia invested $25,000,000 in Precog Capital Partners, A private fund managed by middle and mid investment management using its deep value oriented strategy. And finally, moving on to Clear Media. The planned privatization of Clear Media continues as expected. In July, the consortium who owns 88.2% Clear Media Limited made a voluntary conditional offer with Clear Media to acquire all remaining outstanding issued shares.
Following our review of the composite document, we've elected to accept shares and will maintain our 10.85% shareholding in the privatized Clear Media. The transaction is expected to close in the Q3. Clear Media continues to project materially higher revenues in 2021 compared to the prior year as indicated in its recent filing and plans to announce their latest results on August 27. And with that, let me turn it over to Steve to take you through the financial results. Steve?
Thanks, Michael, 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 Q2, total income was $9,700,000 which included a $6,900,000 gain on the Big Life transaction. Reported expenses were $5,900,000 driven by an increase of $2,900,000 related to share based compensation and other performance awards, which which included a reversal of a share based liability in the Q2 of 2020. Within the Holdings segment, Total income was $8,800,000 down from $9,100,000 in the same quarter last year.
Total expenses were $5,000,000 in the second quarter of 2021, up from $1,500,000 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 as previously mentioned. Excluding share based compensation and other performance awards, Corporate cash operating costs were $3,800,000 in the quarter, an improvement over the same period last year of 4,500,000 We remain on track to achieve our targeted annual Holdco cash operating expenses of around $14,000,000 for 2021. Moving on to cover the major cash movements for the quarter. We ended the 2nd quarter with total cash of 117,900,000 Excluding cash held at precog of $2,900,000 which is now consolidated in Aimia's results, down $16,900,000 from the $134,800,000 we reported last quarter.
The main movements in cash this quarter compared to last quarter were $5,300,000 distribution received from PLM proceeds of $17,400,000 from the sale of our investment in J. C. Teco, which resulted in a tax sheltered gain of $6,900,000 $27,500,000 invested in precog and other investment funds. We paid preferred dividends of $3,200,000 and related Part 6 tax of $1,300,000 We invested another $4,400,000 in Including our liquid portfolio of publicly listed equities, which had a market value of 57 point at $6,000,000 at the end of the second quarter. Aimia's pro form a cash plus liquid investments totaled 131,500,000 And with that, let me turn it over now to Phil to wrap up with a few concluding remarks.
Thanks, Steve. Aimia has been successfully transformed into a lean, opportunistic holding company with an exciting portfolio of investments. Before we turn to questions, I would like to say a few words about PLM. As we have said from the beginning of the Aeromexico bankruptcy Thank you, and good morning everyone. Thank you, everyone.
Thank you, everyone. Thank you, everyone. Thank you, As the bankruptcy process continues to evolve, we will not be commenting further on those proceedings during this call. However, we look forward to providing an update at the appropriate time.
Operator, that concludes today's prepared remarks. Please go ahead and prompt for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear 3 tone prompts acknowledging your request and your questions will be followed in the order they are received. Please lift your hands up before pressing any keys. One moment for your first question.
Your first question comes from Brian Morrison with TD Securities. Please go ahead.
Good morning, guys. Good morning, Mike. Good morning, Phil. Good morning, Mike. Good morning.
I was going to ask a detailed question on PLM, but maybe I'll back off a bit. I do want to ask one though in terms of last quarter we talked about the emotion being held in the bankruptcy court in May. I guess just to soften it up a bit, maybe I'll just ask, can you update us maybe on the next procedural hearings we should be looking for in terms of timing, what they might entail?
Yes, Brian, I understand. We mentioned the shareholder agreement and the participation agreement will continue to be honored by the airline. We expect the agreements to formally be assumed through the process. All we can really say is we received over $15,000,000 in dividends year to date and we're very happy with Ongoing recovery PLM. But as we said earlier, unfortunately, we aren't going to be commenting any further at this time.
Okay. I'll switch gears to Cognitive spend. There's some new disclosure obviously. I have a couple of questions on that. Maybe just update us on what's changed You pushed out your forecast to achieve positive EBITDA to 2023 and then you disclosed this new round of financing this Maybe any color on the amount you're looking for presumably private and how this might compare to your prior valuation of 525,000,000
Sure. First of all, we sold ISS, Cogniv sold ISS, which moved the profitability goalpost. That company did about $20,000,000 in annual revenues and was profitable. Ex ISS, Cognitive continues to be focused on investing in its collaborative commerce platform. We're seeing renewals of existing contracts.
We're seeing new client signings and We're seeing the pipeline strengthen. So we're very happy with what we're seeing developed at Cognitive. In terms of the funding question, Cognitive is engaged with It's bankers to provide the funding it needs, and I can't comment any further than that or provide any other details at this time.
All right. Maybe just one question on this $25,000,000 precog investment. Just help me understand why this is being done under the middleman umbrella and how does that long term value oriented strategy differ from that of Aimia?
Sure. Precog is a understand we own middleman investment management. So Precog is a fund managed by them. So effectively, We own Precog. It's a way for us to deploy excess capital into a fund we manage.
Precog takes advantage of opportunities in the value space. By investing in that fund, it also enhances the marketability of the fund, so we can attract additional capital to yield additional For Aimia. In terms of the strategy, it's a concentrated fund and invest in companies with similar characteristics to what we seek at Aimia. But probably most importantly, The smaller early foothold in some of these holdings can lead to larger investment opportunities, which is exactly what happened with Clear Media and Village Roadshow for Aimia. So it's a really good use of excess capital into fund we manage.
Okay. And then, Mike, you mentioned the August 27 results aren't clear. Previous conversations you've made disclosure on the EBITDA potential. I think you said it could maybe double the 5 year average. Any change to that outlook with the digital transformation or still The goalpost we're looking at.
Yes. Thanks for that question. So we continue to be extremely excited about Clear Media and the prospects to not only grow its market share as both China economy rebounds And they kind of refocus on digitization. So we acquired these shares At about 5 times normalized EBITDA and feel that the EBITDA and the cash flow margin can continue to Stan, the digitization platform is certainly a way to do that where we can see multiples earned from a similar panel Through digitization as well as increased profitability. The one of our partners in this Portfolio holding J.
C. DeCo are showing that and have shown that for 20 years through their public holding. So we continue to be extremely excited about the prospects. I don't think anything has materially changed with regard to the digitization Sequentially, and this is going to be a focus, a multi year focus. And it's not going to be in every city That they have panels in.
There are some cities and some locations of bus shelters That just don't need the increased spend and they won't Customers won't pay for it. So not all the 59,000 panels are going to get digitized, we can imagine. So We continue to be really excited. No change, no material change. We should see I don't think this quarter they're going to speak to a material change And the plan, it's probably going to take 6 to 12 months even just to get it going and planning to get going.
And who knows, there could be a backlog And some issue just getting new panels, right? With COVID, it seems like every part or electronic product It's backlogged a little bit. So but again, this is a multi year plan, we think, over 3 to 5 years generally with all of our investments and that's what we're
Last question for me for Phil here. Fairly decent investment in TradeX, maybe walk us through the opportunity there. I'm just wondering if it's being positive or negatively impacted by the current ship shortage and maybe the end game to monetization of this opportunity?
Sure. This is we're very, very excited about this investment. The international auto trading market is highly fragmented. It's got a lot of issues, Buyers and sellers, it's tough for them to recognize where the inventory is. It's hard to figure out the per unit valuation metrics.
There's logistical costs. The processes are often unknown to the parties involved. You'd be surprised that only 1% of dealers know how to trade cars internationally. There's currency risks, there's need to head to currencies, there's inspection issues and Tradex solves all these issues through its technology platform. It gives buyers and sellers the ability to Transact fluidly and efficiently and their blue chip roster of clients love the services that they provide.
So we think it's a great business. It's unique. We see A lot of runway for organic growth and there's a lot of potential growth through acquisitions and by applying that same tech platform to other verticals. So we're super very excited about it. In terms of the valuation, the company is growing extraordinarily fast.
It's expanding globally and it's already achieved EBITDA profitability, so we're very happy on that front as well. In terms of Your question on the exit strategy, I mean like any investment, this is early obviously, but there can be an IPO, there could be a sale. This could become a big dividend generator for us. It's a very attractive SPAC target. I mean, you it runs the gamut of possibilities in terms of what the exit strategy would be.
In terms of the chip shortage question, the prices of these cars doesn't really matter to Tradex. It's really about unit volume. So even if the market softens, we're gaining material market share. And we're hearing we're seeing again a very, very high end client base Choose them over competitors and that process is accelerating.
Appreciate the color. Thank you guys.
Brian, if I could just add on just a if I could just add on a quick moment. So with regard to the chip shortage, Because there's a lot of speculation in the market that used cars because of the chip shortage, there's a huge price increase, Which we've seen there's also increasing demand, right, which are all factually accurate. But you have to remember That we are really a small continue to be a small player even just in North America. So even if the used car pricing reverts to the mean, we're gaining Significant share. And we're also just only entering additional trade lanes globally.
So we should be able to not only dramatically expand Throughout North America and participate in that arbitrage between kind of the Luti and the USD. But also, as currencies fluctuate globally, there is an arbitrage between North America, Canada and U. S. And Europe and Asia and other continents as well. So we should be able to Grow exponentially even as used car prices moderate as we expect candidly.
Thank you.
Thanks, Brian.
Thank you. Your next question comes from Drew McReynolds with RBC. Please go ahead.
Yes, thanks. Thanks very much. Good morning, everyone. Brian addressed 4 of my four questions, but I'll follow-up with a few things. So just first on Cognitive, Great to see a little bit of a target out there on the 2023 adjusted EBITDA.
And I think I understand all the puts and takes there. Maybe Phil just Or Mike comment on, I guess, the scalability of this platform. It would appear one of those kind of Inflection points and profitability that scales kind of quickly, but maybe just comment on how that, I guess inflection point in adjusted EBITDA kind of plays out in and around 2023. 2nd on, TradeX, I mean a similar question, These kinds of platforms would appear to have a similar characteristic on scalability. So just curious on the TradeX, To see a positive EBITDA, but presumably goes upwards and onwards from here.
And then lastly, on the buyback, Seems you're not finding difficult challenging to redeploy capital out there, but just updated thoughts on the buyback would be great. Thank you.
Sure. I'll start and Mike can chime in as needed. Sure. I think with Cognitive, These are both Cognitive and TradeX. Both share that, as you say, they kind of share that quality where it can scale very quickly without a lot of CapEx.
There's particularly with Cognitive, what you have is a platform operating in the cloud where people are transacting. And whether you're transacting $100,000,000 or $100,000,000,000 it's not like you suddenly have to go higher 50,000 people. So this scale, they're very high margins and very scalable. And so what you're seeing with Cognitive and it's masked by the losses and I know people look at the Oh, God. But if you look at a tech company that are at this stage of where they are, there's 8 years of heavy investment And acquisitions along the way to get to a point where they're creating a new it's a new business.
I mean this is Collaborative Commerce is a new business and I don't know if anyone's been following, But it has been doing what I guess we would call heating up and people are talking about it. There's A comp or 2 out there now trading at very high valuations. So collaborative commerce is something that you have to go It's not like you go out and you say, hey, I want to sell you this piece of software installed on your computer. You have to convince people To trust you with their product offerings and transact with them and to take somebody Take somebody's hotel room and pair it with somebody's car and pair it with somebody's any other offering that enhances the saleability of that offering. And so there's a big trust issue.
So when you get to where they've gotten and where we see them getting now, it's incredibly exciting. So I think that I think it feeds on itself and you'll see once you see major clients signing up and we believe that is coming, I think that you're going to see a knock on effect of people trusting and being more confident. And so it should be one of those things where you see Not only it's scaling, but it's just feeding on itself as it grows and people get excited and more confident. And frankly, people don't know what they do. People are learning.
I mean, they're going To people, blue chip companies, Fortune 500 companies are saying, here's what we can offer you. And the typical response is, how can you do that? That sounds amazing, but how does that work? And convincing a Fortune 500 company how it works is not an instant process. It takes, let's say, a year of Endless meetings and back and forth and demonstrations and then they have to trust that you can actually convert their points to the proper currency and transact and So there's so many things that go on.
So we are seeing a very different picture than just the losses Represent and we're very excited and it is very scalable. With regard to TradeX, we're seeing It's the same type of thing except TradeX just is exploding and at the same time it's one of those unique things where it's already EBITDA profitable, which is very rare at the company at this stage of growth. But that really answers your question about scalability and profitability because if you're seeing it at this stage, it's only going to get Better as growth continues. So the management team at TradeX It is very dynamic, very smart guys. We see a lot of growth potential there Organically and as I said through acquisitions and through expansion into other verticals and they have this Technology they call the brain, which is a patent pending technology that they have developed, Which creates enough data.
There's a whole separate business model here where they're going to be aggregating data that is going to be very valuable To the market as well because they're actually going to be transacting in these vehicles. They are going to be inspecting them. They have partnerships with all the key logistics players. So this is a very exciting investment, very scalable, Low CapEx and they both both of those companies share similar qualities in that respect. Before I go on to the buyback, Mike, do you want to add anything?
Yes, sure. Yes, yes, just a few things. First on Cogniv, The development of the peer to peer platform that they're working on It's really focused and the way I think about it is in 2 different ways. First of all, they continue to build out the tech Platform, so it becomes it's becoming better and better for the branding customers for each side of the peers, right? And second, the peer to peer platform, this is going to enable businesses to reach a new reality.
The ability to personalize, to engage and to optimize services for their customers is nirvana for each large brand, If you think about it, right, I mean, a large hotel brand and a large credit card brand or something like that, Where rather than going through the middleman and everybody earning 40% margin, all of a sudden you can go peer to peer And you can share these terrific customers without degrading each brand, any of the brands. So It's a terrific opportunity. And candidly, this is a disruptive technology that's going to take time to get Fully adopted, as Phil mentioned. But the concept of the peer to peer collaborative network throughout the market is being extremely well received in the market. So and with any software or pass program, the margins are software margins.
So once this thing is built, We'll be able to load people and brands on it and the margins are extremely high. And just to comment on TradeX, the brain technology, this platform that builds that Essentially enables buyers and sellers to recognize where the inventory is and the ability to transact based Real unit values and a history of unit values, that's so material Because if you go out there and you talk to an end market customer and they'll say, listen, I need 100 cars now Because I've got clients that want to purchase them and I don't know where to get them right now. And I actually don't even know What the transactional price is because it's opaque, it's kind of in the shadows. So what we're going to have is we're going to have The data collection, this feed that shows what the historical pricing is for certain cars, for certain ages, for certain Types of cars for certain quality of cars and that's data is king, right? So we feel That the platform and the data are going to be kind of transitional, right, that we're going to be able to sell other things In addition to cars, in a different vertical as Phil described it.
And to your point, The margins are extraordinarily high because once we load the information on the platform, Then the customers are doing a lot of the work for us. They're going in, they're searching, they're buying. We've got to execute in the middle. We get paid on the buy side, the sell side as well as the logistics aspect, but it's very, very profitable. So back to you, Phil.
So, and then return in regards to the buyback, we love buying back our stock. You've seen us buy back over 40% of our shares Over the last two and a half years, I would just say that we're opportunistic, but there's a lot of variables that go into our decisions, Our cash needs at the time, our projected cash needs, things we're considering, whether or not we're in a blackout, etcetera, etcetera. So we will always continue To make opportunistic purchases when we can and want to.
That's great commentary both, Mike, thanks for that. And it sounds as if both Cognite and Tradex are market efficiency solutions. Last time I checked, Gravity will be on their side.
Yes. Thank you, Drew.
Appreciate it.
Thank you.
Thank you. There are no further questions at this time. Mr. Tran, you may proceed.
Thank you everyone for joining today's Call and webcast. If you have any questions, please reach out to Investor Relations. Have a great day.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.