News provided by AIMIA
Adjusted EBITDA at $55.5 million and Free Cash Flow at $37.5 million
Ongoing progress towards finalizing the Aeroplan transaction
MONTREAL, Nov. 14, 2018 /CNW Telbec/ – Data-driven marketing and loyalty analytics company Aimia Inc. (TSX: AIM) today reported its financial results for the quarter ended September 30, 2018.
Chief Executive Officer, Jeremy Rabe, commented: “Q3 marked another quarter of solid cash generation. Redemptions continued to trend in line with our expectations and spend on Aeroplan credit cards remained strong.
“Maintaining a strong cash and liquidity position, alongside business simplification and cost reduction, remain our key short term priorities. In our loyalty services businesses, the core competencies and solutions we can bring have led to us being recognized as an industry leader cited for its global reach and strategy capabilities. Our skills have been deployed building programs for blue chip client accounts serving hundreds of millions of loyalty members around the world. What we need – and are putting in place – is a more efficient service delivery model to improve profitability and generate better returns for our shareholders.”
Strategic highlights:
- Aimia continues to progress negotiations with the Consortium towards a year end closing of the Aeroplan transaction
- Customer focused realignment of loyalty services businesses underway and expected to drive improving financial results
- Investments delivered solid distributions and mark-to-market gains in the quarter
Q3 highlights – GAAP basis:
- Consolidated Total Revenue up by 6.3% to $372.7 million
- Net earnings at $21.7 million, up by $62.0 million
- Cash from operating activities at $45.6 million
Q3 highlights – Continuing operations, with variances on a like-for-like basis:(1)(2)
- Coalitions Gross Billings down 3.8% to $323.7 million; Consolidated Gross Billings down 4.2% to $362.8 million on a like-for-like basis
- Adjusted EBITDA at $55.5 million; Adjusted EBITDA margin (excluding restructuring expense) at 15.6%
- Net earnings at $21.7 million
- $37.5 million of Free Cash Flow generated in the quarter
This quarterly earnings release should be read in conjunction with the consolidated financial statements and the MD&A which can be accessed on SEDAR as well as at: https://www.aimia.com/investors/quarterly–reports/
Please refer to “Notes” for details on notations that appear in this Press Release.
Consolidated Financial Highlights(1)
| HIGHLIGHTS (1) | Three Months Ended September 30, | |||
| (in millions of Canadian dollars, except per share amounts) | 2018 | 2017 | YoY % Change | YoY % Constant Currency (C.C.) |
| Continuing operations | ||||
| Gross Billings | 362.8 | 380.4 | (4.6) | (4.9) |
| Total Revenue | 372.7 | 350.5 | 6.3 | 6.1 |
| Operating Income (loss) | 2.3 | (18.3) | ** | ** |
| Adjusted EBITDA | 55.5 | 51.3 | 8.2 | 7.8 |
| Net Earnings (loss) from Continuing operations(4) | 21.7 | (42.5) | ** | ** |
| ROIC(3) | 7.9% | 5.1% | 2.8 pp | ** |
| Consolidated (unless otherwise noted) | ||||
| Net Earnings (loss)(4) | 21.7 | (40.3) | ** | ** |
| Earnings (loss) per Common Share – Continuing operations(4) | 0.11 | (0.31) | ** | ** |
| Earnings per Common Share – Discontinued operations | 0.00 | 0.02 | ** | ** |
| Adjusted Net Earnings per Common Share – Continuing operations(4) | 0.33 | 0.04 | ** | ** |
| Adjusted Net Earnings per Common Share – Discontinued operations | – | 0.05 | ** | ** |
| Cash from Operating Activities | 45.6 | 63.1 | (27.7) | ** |
| Free Cash Flow before Dividends Paid | 37.5 | 51.9 | (27.7) | ** |
| Free Cash Flow before Dividends Paid per Common Share | 0.25 | 0.34 | (26.5) | ** |
| ** Information not meaningful |
Strategic Update
Agreement in principle to acquire the Aeroplan business
On August 21, 2018, Air Canada, The Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, Visa Canada Corporation (collectively, “the Consortium”) and Aimia Inc. announced that they had entered into an agreement in principle for the acquisition of Aimia’s Aeroplan loyalty business. The aggregate purchase price consists of $450 millionin cash and is on a cash-free, debt-free basis. Assuming completion of the transaction, the Aeroplan miles liability would remain with Aeroplan and no longer be owned by Aimia. The transaction remains subject to the satisfactory conclusion of definitive transaction documents, Aimia shareholder approval, and certain other conditions, including due diligence, receipt of customary regulatory approvals and completion by the Consortium of credit card loyalty program and network agreements for future participation in Air Canada’s new loyalty program.
Future strategic direction
The company continues to focus on delivering flexibility, value and an improved member experience to its 5 million engaged Aeroplan members.
Delivering improved returns and cash generation from the company’s other assets also remains a focus for management.
The Board of Directors has formally commenced a process to review and evaluate the future strategic direction of Aimia assuming and following completion of the proposed Aeroplan transaction. As part of that process, the Board of Directors has asked Management to present it with alternative visions and plans regarding the Corporation’s mid- and long-term strategic future and direction, including as a leading player in loyalty management. The Board of Directors has, in its review process, decided to form a committee to be comprised of independent directors for the purpose of receiving and considering any such Management recommendation(s). The Board of Directors is currently actively engaged in these matters, and the Corporation will publicly disclose the results of its review process setting out the vision and direction of the Corporation once it has formally made decisions or determinations with respect to the foregoing.
Operational Performance
Consolidated Gross Billings at $362.8 million
Consolidated Gross Billings were down $17.6 million to $362.8 million in the quarter. Excluding the impact of disposals of non-core assets, Consolidated Gross Billings were down 4.2%.
- Coalitions Gross Billings were down 3.8% to $323.7 million. Despite a strong conversion campaign from a financial card partner and higher credit cardholder spend per card, a lower number of active credit cards and less promotional activity along with the absence of a non-air conversion campaign, a lost retail partner and reduced bonusing from an existing partner, drove an overall decline of 4.3% for Loyalty Units Gross Billings. Loyalty Services Gross Billings were up by 5.8%, due to higher ancillary services.
- Insights and Loyalty Solutions Gross Billings were down 7.3% to $39.5 million. Gross Billings from Loyalty Units were down 15.9% due to revised pricing terms in the Air Miles Middle East program. Loyalty Services billings were 4.4% below last year due to client losses and a lower volume of set up fees compared to last year. Recurring billings from loyalty platforms and related services increased in the quarter.
Adjusted EBITDA at $55.5 million; continuing to make progress on operating expenses
- Adjusted EBITDA was $55.5 million or 15.3% of Gross Billings, compared to $51.3 million in the prior year. Lower operating expenses and the timing of severance expenses globally, along with higher distributions from equity-accounted investments, were partly offset by reduced business contributions. Excluding restructuring and the impact of business disposals, adjusted EBITDA was $56.5 million, compared to $60.5 million in the prior year.
- Operating expenses were down $15.4 million to $101.8 million, with $9.4 million of the decrease attributable to the Coalitions business reflecting timing of severance expenses and lower headcount. The remaining variance was mostly attributable to a $5.3 million decrease in the Insights and Loyalty Solutions business due to lower headcount and reduced IT and operations spend, offset by higher share-based compensation, as well as a $0.9 million reduction related to business disposal.
- Total headcount at September 30, 2018, was down by around 20% to 1,610, from 2,025 at September 30, 2017, partly as a result of business disposals.
Free Cash Flow generation at $37.5 million to contribute to further debt paydown
- Cash from operating activities in continuing operations was $45.6 million, an increase of $7.1 million mainly reflecting favourable changes in net operating assets, operating expense reductions, higher distributions from investments and lower net interest and taxes paid, offset in part by lower billings and higher redemption expense.
- Higher availability was a driver of increased Aeroplan redemptions, along with a higher redemption cost per mile which reflected unfavourable foreign exchange impacts and product mix.
- Free Cash Flow was $37.5 million, compared to $51.9 million in the prior year. The variance is mainly explained by a decrease of $23.1 million related to discontinued operations. Total capital expenditures from continuing operations were $8.1 million, a decrease of $1.6 million mainly attributable to lower spend in the Coalitions division. Free Cash Flow per Common Share from continuing operations was $0.25.
Balance sheet
- Cash and investments in bonds at September 30, 2018, was $552.6 million. Total debt levels (including drawn letters of credit) of $328.4 million at September 30, 2018, are expected to decrease to approximately $309.6 million during the fourth quarter, with $18.8 million of the cash generated in the third quarter expected to be used to reduce the drawn amount on the company’s credit facility during the fourth quarter.
Solid performance from investments
- The company’s investment in loyalty program Club Premier continued to generate a meaningful distribution at $4.5 million (2017: $4.2 million), reflecting a solid underlying business and a growing member base. In the third quarter, Gross Billings from Loyalty Units were up 5% to US$61.3 million, while Adjusted EBITDA was up 2% to US$21.6 million. Total members were up 0.6 million to 5.9 million at September 30, 2018.
- The company’s stake in Cardlytics, a publicly-listed purchase intelligence company, was valued at $96.2 million at September 30, 2018, reflecting a $12.7 million gain in the quarter.
Return on Invested Capital
For the 12 months ended September 30, 2018, ROIC was 7.9%, compared to 5.1% for the 12 months ended September 30, 2017. An increase in adjusted operating income after taxes and a decrease in average Invested Capital, due in part to the reduction in the average net debt, both contributed to the increase in ROIC.
2018 Guidance
The company’s previously provided guidance for the year ending December 31, 2018, remains unchanged, with the exception of Coalitions Adjusted EBITDA margin guidance which is being increased from the “above 18%” guidance originally issued on February 14, 2018. Aimia’s restated 2018 guidance is as follows:
- Coalitions Gross Billings: around $1.3 billion
- Coalitions Adjusted EBITDA margin: above 19%
- Coalitions Free Cash Flow (on a pre-tax basis): between $155 million and $175 million
- Consolidated Free Cash Flow before Dividends Paid (on a pre-tax basis): between $120 million and $145 million
The above guidance is based on current expectations around redemption expense at Aeroplan and is on an IFRS 15 basis. It further assumes that Aimia includes the Aeroplan program until December 31, 2018.
The guidance excludes the impact of taxes and restructuring, and costs that may be incurred as a result of the agreement in principle announced on August 21, 2018. Further to the utilization of prior tax loss carry forwards, the company expects to pay cash taxes in 2018. Cash taxes could be around $20 million based on current expectations around profitability, mainly against profit generated in the Coalitions business. Restructuring expenses (which are now expected to total between $15 million and $20 million) and payments (which are now expected to total between $20 million and $25 million) are also excluded from the guidance.
See “Forward-Looking Statements” below regarding assumptions underlying the above guidance and risks related thereto.
Dividends
Based on restrictions currently in place under the Canada Business Corporations Act and the company’s credit facility agreement, as amended, the company believes that it will not be in a position to declare or pay dividends in 2018. However, it will continue to assess its ability to declare and pay dividends on its outstanding preferred shares on a quarterly basis.
Quarterly Conference Call and Audio Webcast Information
Aimia will host a conference call to discuss its third quarter 2018 financial results at 8:30 a.m. EST today (Wednesday, November 14, 2018). The call will be webcast at: https://event.on24.com/wcc/r/1652774/E61A064CBA4500BD30D54A4B33984C6E
Analysts intending to ask questions can dial into the call at 1-888-231-8191 (647-427-7450 for the Toronto area).
A slide presentation intended for simultaneous viewing with the conference call is available at: https://www.aimia.com/investors/presentations/ and an archived audio webcast will be available at: https://www.aimia.com/investors/events/ for 90 days following the original broadcast.
This quarterly earnings release was reviewed by Aimia’s Audit Committee and was approved by the company’s Board of Directors, on the Audit Committee’s recommendation, prior to its release. Notes
- Non-GAAP financial measures (Adjusted EBITDA, ROIC, Adjusted Net Earnings per common share, Free Cash Flow before Dividends Paid and Free Cash Flow before Dividends Paid per Common Share) and constant currency are explained in the section entitled “Non-GAAP Financial Measures”.
- Continuing operations refers to consolidated results (i.e. excluding discontinued operations). Like-for-like variances are calculated on the basis of 2017 consolidated results excluding “Other Businesses”, as set out in the table below.
- ROIC for the twelve-month period ended September 30, 2017 includes the unfavourable impact of the onerous contract provision of $14.9 million, net of an income tax recovery of $5.4 million, calculated on the basis of the Canadian statutory tax rate in effect during the period.
- Net Loss, Loss from continuing operations per Common Share and Adjusted Net Earnings from continuing operations per Common Share for the three months ended September 30, 2017 include the loss of $19.9 million on the disposal of the Canadian Air Miles trademarks and a related net income tax expense of $1.2 million.
Appendix
The table below for the three months ending September 30, 2018, sets out financial metrics and reconciliations along with year-on-year variances on the basis of the Consolidated results excluding the 2017 results of “Other Businesses” as defined in the company’s MD&A:
| Three Months Ended September 30, | |||||||||
| Coalitions | ILS | Consolidated | |||||||
| 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2017 (excl. Other Businesses) (1) | YoY % | YoY % (excl. Other Businesses)(1) | |
| Gross Billings | 323.7 | 336.5 | 39.5 | 42.6 | 362.8 | 380.4 | 378.7 | -4.6% | -4.2% |
| Total revenue | 338.9 | 313.7 | 34.2 | 35.5 | 372.7 | 350.5 | 348.8 | 6.3% | 6.9% |
| Cost of rewards and direct costs | 214.0 | 198.7 | 4.3 | 3.1 | 218.1 | 201.8 | 201.8 | 8.1% | 8.1% |
| Total operating expenses | 66.3 | 75.7 | 35.7 | 41.0 | 101.8 | 117.2 | 116.3 | -13.1% | -12.5% |
| Total operating expenses before restructuring | 65.8 | 67.5 | 35.2 | 39.2 | 100.8 | 107.1 | 106.3 | -5.9% | -5.2% |
| Adjusted EBITDA | 62.7 | 59.2 | (7.2) | (8.7) | 55.5 | 51.3 | 50.5 | 8.2% | 9.9% |
| Adjusted EBITDA margin % | 19.4% | 17.6% | -18.2% | -20.4% | 15.3% | 13.5% | 13.3% | 1.8 pp | 2.0 pp |
| Adjusted EBITDA before restructuring | 63.2 | 67.4 | (6.7) | (6.9) | 56.5 | 61.4 | 60.5 | -8.0% | -6.6% |
| Adjusted EBITDA margin % (before restructuring) | 19.5% | 20.0% | -17.0% | -16.2% | 15.6% | 16.1% | 16.0% | -0.5 pp | -0.4 pp |
| Included in Adjusted EBITDA: | |||||||||
| Change in Future Redemption Costs | 14.8 | (7.1) | (0.7) | 0.4 | 14.1 | (6.7) | (6.7) | ** | ** |
| Cost of rewards recorded against deferred revenue | – | – | (6.9) | (7.6) | (6.9) | (7.6) | (7.6) | ** | ** |
| Distributions from equity-accounted investments | 4.5 | 4.2 | 0.9 | – | 5.4 | 4.2 | 4.2 | 28.6% | 28.6% |
| Free Cash Flow before Dividends Paid (continuing operations) | 37.5 | 28.8 | 28.1 | 30.2% | 33.5% | ||||
| Free Cash Flow before Dividends Paid (continuing operations) (before restructuring and taxes) | 40.9 | 36.4 | 34.9 | 12.4% | 17.2% | ||||
| Restructuring expenses – divisional structure | 0.5 | 8.2 | 0.5 | 1.8 | 1.0 | 10.1 | 10.0 | ** | ** |
| Restructuring payments – divisional structure | 4.1 | 6.7 | 6.7 | ** | ** | ||||
| Taxes paid (received) | (0.7) | 0.9 | 0.1 | ** | ** | ||||
| ** Information not meaningful | |||||||||
| (1) Consolidated results less Other Businesses. Other Businesses include the results of the U.S. Channel and Employee Loyalty (“CEL”) business, the New Zealand business and the royalty revenue related to the Canadian Air Miles trademarks, until their respective disposals. |
| HIGHLIGHTS (1) | Nine Months Ended September 30, | |||
| (in millions of Canadian dollars, except per share amounts) | 2018 | 2017 | YoY % Change | YoY % Constant Currency (C.C.) |
| Continuing operations | ||||
| Gross Billings | 1,087.7 | 1,171.0 | (7.1) | (7.1) |
| Total Revenue | 1,154.1 | 1,114.2 | 3.6 | 3.6 |
| Operating Loss(3)(4) | (1.5) | (54.4) | 97.2 | 98.3 |
| Adjusted EBITDA(4) | 163.1 | 123.7 | 31.9 | 32.1 |
| Net Earnings (Loss) from Continuing operations(3)(4)(6)(8)(9) | 46.6 | (68.7) | ** | ** |
| ROIC(5) | 7.9% | 5.1% | 2.8 pp | ** |
| Consolidated (unless otherwise noted) | ||||
| Net Earnings (loss)(3)(4)(6)(7)(8)(9) | 54.2 | (55.8) | ** | ** |
| Earnings (loss) per Common Share – Continuing operations(3)(4)(6)(8)(9) | 0.22 | (0.53) | ** | ** |
| Earnings per Common Share – Discontinued operations(7) | 0.05 | 0.08 | (37.5) | ** |
| Adjusted Net Earnings per Common Share – Continuing operations(4)(6)(8)(9) | 0.90 | 0.26 | ** | ** |
| Adjusted Net Earnings per Common Share – Discontinued operations(7) | 0.05 | 0.21 | (76.2) | ** |
| Cash from Operating Activities(10) | 116.8 | 118.3 | (1.3) | ** |
| Free Cash Flow before Dividends Paid(10) | 97.9 | 82.2 | 19.1 | ** |
| Free Cash Flow before Dividends Paid per Common Share(10) | 0.64 | 0.51 | 25.5 | ** |
| **Information not meaningful |
Notes
- Non-GAAP financial measures (Adjusted EBITDA, ROIC, Adjusted Net Earnings per common share, Free Cash Flow before Dividends Paid and Free Cash Flow before Dividends Paid per Common Share) and constant currency are explained in the section entitled “Non-GAAP Financial Measures”.
- Continuing operations refers to consolidated results (i.e. excluding discontinued operations).
- Operating Loss, Net Earnings and Earnings from continuing operations per Common Share for the nine months ended September 30, 2018 include an impairment charge of $8.0 million related to the International ISS business.
- Operating Loss, Adjusted EBITDA, Net Loss, Loss from continuing operations per Common Share and Adjusted Net Earnings from continuing operations per Common Share for the nine months ended September 30, 2017 include the unfavourable impact of the onerous contract provision of $20.3 million related to an IT outsourcing arrangement in the US.
- ROIC for the twelve-month period ended September 30, 2017 includes the unfavourable impact of the onerous contract provision of $14.9 million, net of an income tax recovery of $5.4 million, calculated on the basis of the Canadian statutory tax rate in effect during the period.
- Net Earnings, Earnings from continuing operations per Common Share and Adjusted Net Earnings from continuing operations per Common Share for the nine months ended September 30, 2018 include the unfavourable impact of the reversal of the contingent consideration receivable related to the sale of the Canadian Air Miles trademarks of $5.3 million as well as an income tax recovery of $1.3 million.
- Net Earnings, Earnings from discontinued operations per Common Share and Adjusted Net Earnings from discontinued operations per Common Share for the nine months ended September 30, 2018 include the impact of the gain of $5.4 million on the disposal of the Nectar Program and related assets.
- Net Loss, Loss from continuing operations per Common Share and Adjusted Net Earnings from continuing operations per Common Share for the nine months ended September 30, 2017 include the gain on the disposal of the U.S. CEL Business of $5.4 million and the fair value gain on the convertible notes of Cardlytics of $7.7 million.
- Net Loss, Loss from continuing operations per Common Share and Adjusted Net Earnings from continuing operations per Common Share for the nine months ended September 30, 2017 include the loss of $19.9 million on the disposal of the Canadian Air Miles trademarks and a related net income tax expense of $1.2 million.
- Cash from Operating Activities, Free Cash Flow before Dividends Paid and Free Cash Flow before Dividends Paid per Common Share for the nine months ended September 30, 2018 include a rent prepayment of $11.8 million related to a London office space. The prepayment covers the period from February 2018 to December 2019.