MONTREAL, Nov. 13, 2015 /CNW Telbec/ – Data-driven marketing and loyalty analytics company Aimia Inc. (TSX: AIM) today reported its financial results for the quarter ended September 30, 2015. All financial information is in Canadian dollars unless otherwise noted. This earnings release contains Non-GAAP financial measures which are further explained in the “Notes” section at the end of this release.
Highlights(1):
A number of factors contributed to third quarter results which were lower than the company expected. Slower economic growth in Canada contributed to lower Gross Billings from Aeroplan, due to more constrained financial cardholder spend than expected. Aeroplan financial card acquisitions were also suppressed as a result of partners spending less on marketing new cards during the negotiations related to interchange rates earlier in the year. Nectar partner Sainsbury’s issued fewer points than expected in the light of continued food price deflation and through its transition to a more bonus-driven strategy. The fourth quarter of 2015 is expected to be a stronger quarter for Nectar bonus points issuance.
Principally as a result of these factors, Aimia is updating its guidance for Gross Billings and Free Cash Flow for 2015. Through 2015, Aimia has been taking action to manage costs and to deliver against its margin guidance. In August, it identified $20 million of annualized savings for full year 2016, which will contribute to a double-digit improvement in Adjusted EBITDA over 2015. Since then, a second $20 million of annualized savings has been identified, which will drive further operating leverage from the end of 2016.
Further to these actions and to accelerate the reallocation of capital to higher margin parts of the business, Aimia has also engaged advisors to consider and evaluate potential disposals of non-core assets.
“We knew that 2015 would be challenging, due to, most significantly, the effects of interchange rate negotiations and the slowing economy,” said Rupert Duchesne, Group Chief Executive. “As the impact of some of those issues became clearer, we took decisive action and have identified $40 million of annualized cost savings to be delivered over the next two years, to counter the economic uncertainty we are experiencing. The implementation of the first $20 million of cost savings will contribute to a double-digit improvement in Adjusted EBITDA in 2016.
“Despite a slower economy, we expect this quarter to be an inflection point on the way to topline growth in 2016. Aeroplan should show renewed momentum as new card acquisition campaigns drive growth in new co-branded credit cardholders at TD and CIBC, and Nectar will continue to evolve into a next-generation coalition program that’s more flexible for partners, digital at its core and responsive to individual member tastes and preferences. Modest topline growth, strong margin improvement and solid cash flow conversion in 2016 are expected to drive an increase in Free Cash Flow and Free Cash Flow per Share.
“The value embedded in our investments and the financial flexibility provided by a strong balance sheet, together with our improved operating leverage, will be important assets in light of debt maturities and contract renewals as we enter 2017 and will position us well in light of any further economic uncertainty in 2016.”
As announced in a separate news release issued today, Aimia has hired Tor Lønnum as Chief Financial Officer, effective May 2, 2016. Lønnum will replace David Adams, who in May announced his intention to retire after eight years with Aimia. Adams will ensure a smooth transition with Lønnum, who will start just before the company reports its 2016 first quarter results and holds its 2015 annual general meeting in May.
Consolidated Financial Highlights(1)
Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014:
Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014:
2015 Guidance
For the year ending December 31, 2015, Aimia is updating its guidance from that previously issued on February 27, 2015 (and updated on August 14, 2015) to reflect its current expectations for Gross Billings from Aeroplan financial cards and Nectar in the fourth quarter of 2015. This change, alongside expectations for higher capital expenditures due to new product development and currency, is also expected to moderate Free Cash Flow before Dividends Paid. As a result, Aimia’s previous guidance with respect to Free Cash Flow before Dividends Paid is also being updated. Guidance for Adjusted EBITDA margin remains unchanged.
Aimia currently expects to report the following:
Current 2016 Expectations(1)
Aimia is also providing a preliminary view of expectations around certain financial metrics for the financial year ending December 31, 2016.
For 2016, Aimia expects modest growth in Gross Billings and double-digit Adjusted EBITDA improvement to result in 2016 Free Cash Flow before Dividends Paid above 2015 levels and a higher Free Cash Flow before Dividends Paid per Common Share. Adjusted EBITDA margin improvement is expected to be underpinned by the $20 million of annualized cost savings resulting from the organizational changes announced on August 14, 2015, which will be partly offset by implementation costs related to the HP outsourcing agreement in the region of $10 million.
Incremental annualized cost savings of $20 million have also been identified, with actions already underway to ensure these are in place by the end of 2016.
This preliminary view of these 2016 metrics excludes any costs to be incurred to deliver the cost savings referred to above. As per usual practice, more specific information with respect to guidance for the 2016 financial year will be provided in February 2016.
Segment Highlights for the Third Quarter of 2015(5)
Canada – Operational efficiencies being delivered ahead of anticipated top line increases
EMEA – Transitioning to a new accumulation structure in the Nectar Program
US & APAC – Lower costs driving higher Adjusted EBITDA in the quarter
Corporate
New Divisional Structure and Evaluation of Non-Core Assets
The implementation of the new divisional structure announced previously is well underway and is expected to deliver $20 million in annualized operating expense savings in 2016. Total severance expense related to the organizational changes announced on August 14, 2015 amounted to $3.0 million in the quarter and year-to-date and estimated at between $10 to $15 million in the aggregate for the year ending December 31, 2015. Approximately half of these costs will have a cash impact this year, with the remaining to be funded in 2016. As a result of cost reduction initiatives underway, over 200 employees are expected to exit the business by year-end 2015.
As it has progressed through the implementation of its HP Outsourcing contract and the new divisional structure announced in August 2015, Aimia has identified a second $20 million of annualized cost savings to be delivered by the end of 2016, which will counter any further deterioration in the economic environment.
Further to these actions and to accelerate the reallocation of capital to higher margin parts of the business, Aimia has also engaged advisors to consider and evaluate potential disposals of non-core assets.
Capital Expenditures
Capital expenditures were $20.0 million in the quarter and $64.2 million year to date as a result of information technology investments, including investments in new product development.
Dividends Paid
Total dividends paid in the quarter were $34.4 million, of which $30.2 million were paid to common shareholders and the remainder to preferred shareholders.On a year to date basis, total dividends paid amounted to $105.1 million, of which $91.5 million were paid to common shareholders and the remainder to preferred shareholders
Share Repurchase
Aimia repurchased $28.0 and $187.0 million in common shares in the three and nine months ended September 30, 2015, respectively. Subsequent to September 30, 2015 Aimia repurchased $8.5 million in common shares, taking the total capital of shares repurchased since November 2014 to almost $225 million. This is further evidence of Aimia’s ongoing track record of returning surplus cash to shareholders, including almost $560 million in buybacks since 2008. At September 30, 2015, the period end common shares outstanding were 158.3 million, compared to 174.0 million common shares in the prior year.
CDP Climate Disclosure Leadership Index
Aimia has been awarded a position on the CDP Climate Disclosure Leadership Index (CDLI), with a disclosure score of 99B for the quality of climate change related information that it has disclosed to investors and the global market place. Organizations graded within the top 10 percent are placed on the CDLI.
Quarterly Conference Call and Audio Webcast Information
Aimia will host a conference call to discuss its third quarter 2015 financial results at 9:00 a.m. EST on Friday, November 13, 2015. The call can be accessed by dialing 1-888-231-8191 or 647-427-7450 for the Toronto area. The call will be simultaneously audio webcast at: http://event.on24.com/r.htm?e=1059590&s=1&k=7964A29C6623E8AA6FF6E049FAE7FC93
A slide presentation intended for simultaneous viewing with the conference call will be available the morning of November 13, 2015 at: http://aimia.com/en/investors/presentations.html and an archived audio webcast will be available at: http://aimia.com/content/aimiawebsite/global/en/investors/events.html for ninety days following the original broadcast.
The consolidated financial statements and the MD&A will be accessible on the investor relations website at: http://aimia.com/en/investors/quarterly-reports.html
Notes
About Aimia
Aimia Inc. (TSX:AIM) is a data-driven marketing and loyalty analytics company. We provide our clients with the customer insights they need to make smarter business decisions and build relevant, rewarding and long-term one-to-one relationships, evolving the value exchange to the mutual benefit of both our clients and consumers.
Aimia partners with groups of companies (coalitions) and individual companies to help generate, collect and analyze customer data and build actionable insights.
We do this through our own coalition loyalty programs such as Aeroplan in Canada and Nectar in the UK, and through provision of loyalty strategy, program development, implementation and management services underpinned by leading products and technology platforms such as the Aimia Loyalty Platform and Smart Button, and through our analytics and insights business, including Intelligent Shopper Solutions. In other markets, we own stakes in loyalty programs, such as Club Premier in Mexico, Air Miles Middle East and Think Big, a partnership with Air Asia and Tune Group. Our clients are diverse, and we have industry-leading expertise in the fast-moving consumer goods, retail, financial services, and travel and airline industries globally to deliver against their unique needs.
For a full list of our partnerships and investments, and more information about Aimia, visit www.aimia.com.
Non-GAAP Financial Measures
Aimia uses the following non-GAAP financial measures which it believes provides investors and analysts with additional information to better understand results as well as assess its potential. GAAP means generally accepted accounting principles in Canada and represents International Financial Reporting Standards (“IFRS”).
Adjusted EBITDA
Adjusted EBITDA is not a measurement based on GAAP, is not considered an alternative to operating income or net earnings in measuring performance, and is not comparable to similar measures used by other issuers. We do not believe that Adjusted EBITDA has an appropriate directly comparable GAAP measure. As an alternative, we do however provide a reconciliation to operating income in our MD&A. Adjusted EBITDA is used by management to evaluate performance, and to measure compliance with debt covenants. Management believes Adjusted EBITDA assists investors in comparing the Corporation’s performance on a consistent basis without regard to depreciation and amortization and goodwill impairment, which are non-cash in nature and can vary significantly depending on accounting methods and non-operating factors such as historical cost.
Adjusted EBITDA is operating income adjusted to exclude depreciation, amortization and impairment charges, as well as adjusted for certain factors particular to the business, such as changes in deferred revenue and Future Redemption Costs. Adjusted EBITDA also includes distributions and dividends received or receivable from equity-accounted investments. Adjusted EBITDA should not be used as an exclusive measure of cash flow because it does not account for the impact of working capital growth, capital expenditures, debt repayments and other sources and uses of cash, which are disclosed in the statements of cash flows.
Adjusted Net Earnings
Adjusted Net Earnings is not a measurement based on GAAP, is not considered an alternative to net earnings in measuring profitability, and is not comparable to similar measures used by other issuers.
Adjusted Net Earnings provides a measurement of profitability calculated on a basis consistent with Adjusted EBITDA. Net earnings attributable to equity holders of the Corporation are adjusted to exclude Amortization of Accumulation Partners’ contracts, customer relationships and technology, share of net earnings (loss) of equity accounted investments and impairment charges. Adjusted Net Earnings includes the Change in deferred revenue and Change in Future Redemption Costs, net of the income tax effect and non-controlling interest effect (where applicable) on these items at an entity level basis. Adjusted Net Earnings also includes distributions and dividends received or receivable from equity-accounted investments.
Adjusted Net Earnings per Common Share
Adjusted Net Earnings per Common Share is not a measurement based on GAAP, is not considered an alternative to Net Earnings per Common Share in measuring profitability per Common Share and is not comparable to similar measures used by other issuers.
Adjusted Net Earnings per Common Share provides a measurement of profitability per Common Share on a basis consistent with Adjusted Net Earnings. Calculated as Adjusted Net Earnings less dividends declared on preferred shares divided by the number of weighted average number of basic and diluted common shares.
Free Cash Flow, Free Cash Flow before Dividends Paid and Free Cash Flow before Dividends paid per Common Share
Free Cash Flow and Free Cash Flow before Dividends Paid are non-GAAP measures and are not comparable to similar measures used by other issuers. They are used in order to provide a consistent and comparable measurement of cash generated from operations and used as indicators of financial strength and performance. Free Cash Flow is defined as cash flows from operating activities, as reported in accordance with GAAP, less adjustments for: (a) total capital expenditures as reported in accordance with GAAP; and (b) dividends paid.
Free Cash Flow before Dividends Paid is defined as cash flows from operating activities as reported in accordance with GAAP, less capital expenditures as reported in accordance with GAAP.
Free Cash Flow before Dividends Paid per Common Share is a measurement of cash flow generated from operations on a per share basis. It is calculated as follows: Free Cash Flow before Dividends Paid minus dividends paid on preferred shares and non-controlling interests over the weighted average number of common shares outstanding.
Reconciliation to GAAP
For a reconciliation of the above Non-GAAP financial measures to GAAP, please refer to the Management Discussion & Analysis for the three and nine months ended September 30, 2015.
Constant Currency
Because exchange rates are an important factor in understanding period to period comparisons, management believes that the presentation of various financial metrics on a constant currency basis or after giving effect to foreign exchange translation, in addition to the reported metrics, helps improve the ability to understand operating results and evaluate performance in comparison to prior periods. Constant currency information compares results between periods as if exchange rates had remained constant over the periods. Constant currency is derived by calculating current-year results using prior-year foreign currency exchange rates. Results calculated on a constant currency basis should be considered in addition to, not as a substitute for, results reported in accordance with GAAP and may not be comparable to similarly titled measures used by other companies.
Forward-Looking Statements
Forward-looking statements are included in this news release. These forward-looking statements are typically identified by the use of terms such as “outlook”, “guidance”, “target”, “forecast”, “assumption” and other similar expressions or future or conditional terms such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “will”, “would”, and “should”. Such statements may involve but are not limited to comments with respect to strategies, expectations, planned operations or future actions.
The above guidance (including Gross Billings, Adjusted EBITDA and Adjusted EBITDA margin, Free Cash Flow before Dividends Paid, Free Cash Flow before Dividends Paid per Common Share and capital expenditures) constitutes forward-looking statements. Aimia made a number of economic and market assumptions in preparing its above guidance as well as assumptions regarding currencies and the performance of the economies in which the Corporation operates and market competition and tax laws applicable to the Corporation’s operations. The Corporation cautions that the assumptions used to prepare the above guidance, although reasonable at the time they were made, may prove to be incorrect or inaccurate. In addition, the above guidance does not reflect the potential impact of any non-recurring or other special items or of any new material commercial agreements, dispositions, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after November 13, 2015. The financial impact of these transactions and non-recurring and other special items can be complex and depends on the facts particular to each of them. We therefore cannot describe the expected impact in a meaningful way or in the same way we presently know about the risks affecting our business. Accordingly, our actual results could differ materially from our expectations as set forth in this news release.
Forward-looking statements, by their nature, are based on assumptions and are subject to important risks and uncertainties. Any forecasts, predictions or forward-looking statements cannot be relied upon due to, among other things, changing external events and general uncertainties of the business and its corporate structure. Results indicated in forward-looking statements may differ materially from actual results for a number of reasons, including without limitation, dependency on Significant Accumulation Partners and clients, failure to safeguard databases, cyber security and consumer privacy, changes to the Aeroplan program, reliance on Redemption Partners, conflicts of interest, greater than expected redemptions for rewards, regulatory matters, retail market/economic conditions, industry competition, Air Canada liquidity issues or air travel industry disruptions, airline industry changes and increased airline costs, supply and capacity costs, unfunded future redemption costs, changes to coalition loyalty programs, seasonal nature of the business, other factors and prior performance, foreign operations, legal proceedings, reliance on key personnel, labour relations, pension liability, technological disruptions, inability to use third-party software and outsourcing, failure to protect intellectual property rights, interest rate and currency fluctuations (including currency risk on our foreign operations which are denominated in a currency other than the Canadian dollar, mainly the pound sterling, and subject to fluctuations as a result of foreign exchange rate variations), leverage and restrictive covenants in current and future indebtedness, uncertainty of dividend payments, managing growth, credit ratings, audit by tax authorities, as well as the other factors identified throughout Aimia’s public disclosure records on file with the Canadian securities regulatory authorities.
The forward-looking statements contained herein represent Aimia’s expectations as of November 13, 2015 and are subject to change after such date. However, Aimia disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.