Douglas Emmett, Inc.

Good morning, everyone. Welcome to Exchange Income Corporation's conference call to discuss the financial results for the three and six months ended June 30, 2024. The corporation's results, including the MD&A and financial statements, were issued on August 8, 2024 and are currently available by the company's website or Cedar Plus. Before turning the call over to management, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking statements within the meaning of the safe harbor provisions of Canadian provincial securities laws. Forward-looking statements involve risks and uncertainties, and injury law should not be based on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. For additional information about factors that may cause actual results to differ materially from expectations, and about material factors or assumptions applied in making forward-looking statements, please consult the quarterly and annual MD&A, the risk factors section of the annual information form, and EIC's other filings with Canadian securities regulators. Except, as required by Canadian securities law, EIC does not undertake to update any forward-looking statements. Such statements speak only as of the date made. Listeners are also reminded that today's call is being recorded online and broadcast live by the internet for the benefit of individual shareholders, analysts, and other interested parties. I would now like to turn the call over to the CEO of Exchange Income Corporation, Mike Pyle. Please go ahead, Mr. Pyle.

Thank you, operator. Good morning, everyone, and thank you for joining us on today's call. Yesterday, we released our second quarter results for 2024. Our results show the diversified nature of our business. the strong results were driven by our aerospace and aviation segment. While we started to see some very positive signs from a customer order perspective in the latter portion of the quarter and subsequent to quarter end in our manufacturing segment. These events coupled with our resilient business model allows me to confirm that we believe our 2024 EBITDA will be at the mid to upper end of our previously provided range of $600 to $635 million. With me today is Richard Wawrick, our CFO, who will speak to our financial results, and two new voices, Jake Traynor and Travis Muir, both who are part of head office executive team, and they will expand on our outlook for the third quarter and beyond. Prior to passing the call over to Rich, who will delve into the numbers more deeply, I I wanted to highlight some of the key performance metrics achieved during the quarter. We set records for revenue, adjusted EBITDA, and free cash flow. We executed on the strategic acquisition of Duhamel in June, which will accelerate the environmental access solutions strategic growth back in Eastern Canada. One of the more important highlights was what happened after the quarter end. In our multi-storey window solutions business, We booked in excess of $100 million of future projects across several geographies in Canada and the U.S. amongst a diverse set of customers, whether they be condo, apartment, or commercial projects. These positive signs by our multi-story window solutions business line provide positive momentum as we head into the second half of the year, and hopefully that extends into our other business lines. This strong order capture continued this week with the addition of another $20 million contract in our window business subsequent to the publishing of our results. Our second quarter results. Revenue increased by $33 million to $661 million. Adjusted EBITDA increased by $10 million to $157 million. Debt earnings were $33 million for the quarter compared to $37 million. and net earnings per share were 69% compared to $0.85 in the prior period. Free cash flow grew by $3 million to $101 million. Free cash flow less maintenance capital expenditures was $52 compared to $59 in the prior period. Adjusted net earnings were $38 compared to $43 million in the prior period, and adjusted net earnings per share were $80 million compared to $1 in the prior period. The payout on a free cash flow, less maintenance expenditure basis remained very strong from a historical perspective at 61%, even with three dividend increases in the last two years. We are pleased with these results, and they show the resiliency and diversification of our business model. The main contributor to the results was the continued investment to the businesses that we are starting to see the fruits of those investments. 2023 was a year characterized by several announcements of acquisitions and contractual wins, whether it was the BC and Manitoba Medevac wins, our UK home office contract, or our Air Canada commercial agreement. Speaking first of the Air Canada contract, the fifth and sixth aircraft started flying in the second quarter. We continue to execute under the BC contract with our existing contracts Aircraft along with one new King Air, which has been received and modifying, is flying under the contract. We anticipate the second new aircraft being modified and flying by the end of the year. We continue to look after a larger portion of this contract with older aircraft while we wait for the manufacturer to deliver the new aircraft. Our jets under our Manitoba event of that contract have arrived in Winnipeg. and will be operating under the contract in September, as previously announced. We have not formally announced any new significant contract wins, but are hopeful on the resolution on several fronts. I wanted to give you an update on the contracts that I spoke about on our Q1 call. The first contract relates to the future air crew training contract for the Government of Canada. Skyline was named as the preferred bidder last year, and we are part of the Skyline bid team. The contract is formally awarded to the prime and we are in negotiations now to finalize our subcontract with the prime. We submitted our proposal to the UK Home Office for the continuation and expansion of services that we are currently providing. The existing contract will continue through November of 2024. We were recently informed that the RFP is expected to be reissued based on internal issues within the RFP itself. Given the high utilization of the aircraft currently, we anticipate being able to support the UK office with no gaps in coverage. The third opportunity that I previously commented on was the Newfoundland and Labrador fixed-wing medevac contract. We believe that we are one of two proponents to bid on the contract and hope to hear the results of our bid during this quarter. We are optimistic at the outcome, but are still waiting for the results of the formal bid process. Lastly, we are continuing to see significant interest around the world for our aerospace services. We see large opportunities in Australia, in Europe, and expanded opportunities in Canada. We are very bullish about the future opportunities, and these contracts are right in line with our EAC core capabilities. and the business model as they generate consistent cash flows throughout the term of the agreements. Jake and Travis will focus on our outlook for our segments for the third quarter and the remainder of 2024, but I will now hand off the call to Richard, who will detail the second quarter results.

Thank you, Mike, and good morning, everyone. Revenue, adjusted EBITDA, and free cash flow were all second quarter high watermarks. I will delve into the segmented results and the remainder of the financial statements. Revenue in our aerospace and aviation segment increased by $54 million or 15% to $427 million. Adjusted EBITDA increased by $27 million or 25% to $134 million. The results and margin expansion were across all business lines. Looking at the essential air service business line, the improvements were driven by four key factors. previous organic growth capital expenditures in the aviation businesses over the past number of years. Second, our average load factors improved, which is a direct improvement on adjusted EBITDA. Third, the impact of the routes flown on behalf of Air Canada. And finally, the impact of the BC and Manitoba medevac contracts. These improvements were offset by softness in our rotary wing businesses. However, it is anticipated to reverse in the third quarter due to wildfire activity in Canada. Our aerospace business line revenues were relatively flat compared to the prior period. However, adjusted EBITDA expanded in an accelerated fashion. This is due to two reasons. First, the revenues and adjusted EBITDA increased due to the expansion of the ISR business, including the impact of the UK helm office contract. This increase in revenue was offset by a decline in revenues within our training business. However, the product mix shifted, which resulted in profitability expansion within the training business, even with the revenue decline. This margin expansion in our training business is anticipated to be temporary and is expected to normalize in the third quarter and beyond. Last, our aircraft sales and leasing business continued to grow as the leasing component of that business continued to improve. We are still anticipating that the leasing side will continue its step improvement until it reaches and ultimately passes pre-pandemic run rates by the end of the year. The growth within this business line and specifically the leasing business resulted in an improvement in the profitability as leasing margins are much higher than other revenue streams. Revenue in our manufacturing segment decreased by $21 million or 8% to $234 million. Adjusted EBITDA decreased by 14 million or 29% to 35 million. As expected, revenue and adjusted EBITDA within the environmental access solutions business line decreased by 28% and 35% respectively. As previously communicated in our year-end and first quarter calls, the first half of the year of the comparative period had a number of seasonal anomalies. The first quarter and second quarter of 2023 experienced an unusual number of rental masks deployed on long linear projects. This was outside the norm. Milder weather in 2023 also required greater mat utilization for projects. However, this winter experienced very low snowfall and drought conditions, which generally lessens demand. Further, as the prior year comparative contained an unusual number of mats on rent, the impact on adjusted EBITDA was outsized relative to revenues. Our multi-story window solution business revenues were consistent with the prior period, and adjusted EBITDA decreased by 35%. Changes in product mix as the business line completed more third-party installations than in the prior period, which generates lower margins. This, coupled with operational inefficiencies as certain projects pushed out of the second quarter into later in the year, reduced adjusted EBITDA. As we've previously communicated, we also continued on the strategic decision to retain experienced staff to meet future increased demand as we are starting to see projects being awarded in a later part of the quarter and post-quarter end. Lastly, revenue in our precision manufacturing and engineering business line decreased by 8% compared to the prior period, adjusted even to decrease by 17%. The decreases were primarily due to customers delaying projects into subsequent quarters coupled with changes in product mix. Other items of note during the quarter were that interest costs were higher by approximately $4 million due to increased benchmark borrowing rates compared to the prior period coupled with the increased debt outstanding due to various growth capital expenditures. Our free cashless maintenance capital expenditures payout ratio was 61% compared to to our year-end and comparative ratio of 57%, while dividends increased by 12% when compared to the prior period. Depreciation on capital expenditures was also up due to growth capital expenditures and acquisition activity in 2023. Our effective tax rate was consistent with the prior period, and our year-to-date effective tax rate is moderating within our expected range of 27 to 29% on an annualized basis. Free cash flow increased by 3%, While free cash flow, less maintenance capital expenditures decreased by 11%. Maintenance capital expenditures increased by approximately 9 million primarily due to the timing of certain overall events and the second quarter of 2023 being unseasonably low. From a working capital perspective, our working capital declined compared to the prior year end. This was due to the reclassification of convertible to ventures of 79 million being classified as current as the contractual maturity is June 2025. From a cash flow perspective, the non-cash investment in working capital was $68 million. The investment was to support the growth initiative and increase revenues discussed above, coupled with the impact of slower collections and certain government receivables. We're actively managing our working capital and anticipate a majority of these investments will be converted to cash prior to the year end. Our total leverage ratio, or our senior leverage ratio, increased to 2.88 from 2.47 at year end. The increase is primarily due to investments in growth capital expenditures. As we previously noted, our organic growth results in a lag between the time investments are made and when returns become evident through our financial results. We anticipate this ratio would decline as our growth capital investments impact the bottom line, along with an improvement in our manufacturing segment adjusted even relative to our comparative results. During the second quarter, EIC made growth capital expenditures of $45 million, These growth capital expenditures primarily relate to the aerospace and aviation segment and were primarily driven by investment in additional aircraft and infrastructure, including the King Air Simulator. Our environmental access solutions business also invested $5 million in growth capital expenditures as it invested in its mass fleet to meet forecasted demand in the future. Main capital expenditures for the quarter were $48 million compared to $39 million in the prior period. In our year-end conference call, we indicated that we anticipate maintenance capital expenditures to increase in line with our adjusted EBITDA. However, there are some maintenance events that fell outside of the quarter and will be funded in later periods. Maintenance capital expenditures for the manufacturing segment were slightly higher than the comparative period by $1 million. With that being said, I will now turn the call over to Jake and Travis.