Alaris Equity Partners Income Trust

for standing by and welcome to the Alera second quarter 2025 earnings release conference call at this time all participants are in listen-only mode after the speaker's presentation there will be a question and answer session to ask the question during the session you'll need to press star 1 1 on your telephone if your question has been answered and you'd like to remove yourself from the queue simply press star 1 1 again As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Amanda Frazier, Chief Financial Officer. Please go ahead.

Thank you, Jonathan. Good morning, everyone, and thank you for joining us today to discuss our Q2 results. I'm joined on the call today by Steve King, our President and CEO. Before we begin, I'd like to remind everyone that all financial figures discussed are in Canadian dollars unless otherwise indicated. Please note that some comments made during this call may include forward-looking statements. These statements are based on current assumptions and involve risks and uncertainties, so actual results may differ materially. For more detailed information on the factors, assumptions, and risks involved, please refer to our press release issued last night and the management discussion and analysis under the headings Forward-Looking Statements and Risk Factors, available on CDAR at cdarplus.com and on our website. We will also be referencing certain non-IFRS financial measures, which may be presented differently than similar measures by other companies. Additional information and reconciliations related to these measures can be found in the press release and MDA. With those preliminaries covered, let's turn to the highlights. Our second quarter reflected solid operational performance across most of our partner portfolio, continued growth in our run-right revenue and ongoing capital deployment, despite the noise from a stronger Canadian dollar. Let's start with the highlights. The net book value per unit was 23.57 at quarter end, down 77 cents from Q1. We saw 59 cents per unit in earnings growth, offset by 98 cents per unit in unrealized foreign exchange loss from the Canadian dollar's 4.5% appreciation against the U.S. dollar, along with our quarterly distribution of 34 cents per unit. Revenue and operating income grew approximately 21% year-over-year to $34.5 million, driven by strong performance from nine partners, resulting in a $25.5 million net unrealized fair value gain that was offset by the impact of a $14.6 million U.S. write-down at FMP, following the loss of certain key contracts due to changes in U.S. federal procurement policies. along with an expected deferral of distributions. Run rate revenue reached $183 million, up 12.5% from last year, and up from $178 million last quarter. Year to date, we've deployed about $154 million into our portfolio, including a $21.5 million U.S. follow-on preferred equity investment in the shipyard, bringing our total shipyard investment to $108.5 million U.S. We also issued $92 million in convertible debentures, using the proceeds to strengthen the portfolio and fund growth. Through our NCIB program, we repurchased and canceled 133,600 units in Q2, bringing the year-to-date total to 352,500 units and adding approximately $0.04 per unit to book value. Turning to our portfolio health, Our portfolio showed solid operational strength this quarter. The majority of partners delivered year-over-year revenue and EBITDA growth, highlighting the quality of our investments and driving fair value increases across nine of our partners, supporting improved revenue and operating income. Our weighted average earnings coverage ratio remains healthy at approximately one and a half times, with 13 out of 20 of our partners maintaining no debt or less than one time senior debt to EBITDA. Overall, the portfolio fundamentals remain robust, positioning us well for stable returns and future opportunities. On the financial side, earnings and comprehensive income for the quarter were a loss of $17.9 million compared to a gain of $31.7 million last year, almost entirely due to the $44.8 million of unrealized foreign exchange loss from marking our U.S. dollar portfolio to the quarter-end exchange rate. Net distributable cash flow was $17.9 million, down from $26.3 million in Q2 2024, mainly due to the timing of cash tax payments and transaction costs. Looking ahead, we expect Q3 partner revenue of approximately $56.9 million, up from Q2 due to expected incremental common distributions from select partners. Our run rate payout ratio remains in the 60 to 65% range based on our current revenue, expenses, and capital structure. And on that note, I'll turn it over to Steve for his comments.

Great. Thanks, Amanda. Interesting. When going through our portfolio with our monitoring team over the last few weeks, I'm not sure there's been a period in our 20-plus year history where our companies have had such explosive results. And that may surprise some people. It's not like the economy is that buoyant in the U.S. But we have not just a few but many companies that are up more than 20% year over year in their earnings. So while our prefs are capped typically at 7 or 8% a year growth, the thing that's exciting for that is that it really magnifies the returns on the common equity which we have on most of our investments now. So a really tremendous quarter for our portfolio. I'll touch on a few kind of key companies that people will have questions about, starting with FMP. Obviously, we discussed this last quarter. They had some significant contracts cancelled and diminished because of the doge process in the U.S., The nice thing is many of those contracts have actually come back not in full form but they have been added to since we spoke last quarter. So the company is feeling much better. They definitely have hit a trough and are working their way back out of that. They did not need to defer as much of our distributions as expected. They are in a strong cash position. And starting in January, we'll start with a new distribution program for FMP that mirrors their recovery, keeping in mind it's a company with no debt, no capex, and a world-class management team. So we're very confident there. BCC, Sunabello, had their most profitable quarter in their company's history for the quarter ending June 30th. GLP-1 patients which anybody that reads the paper or watches TV knows is a booming industry. Those patients need not just lipo but also skin tightening at the end of their GLP-1 journey and this has led to a record dollars per procedure performance for the June quarter and that is very much a long term trend. you'll see came down this year. Fleet can be a lumpy business with kind of large batches of trucks, contracts coming in and out of backlog. So that's not unexpected for a business like them. But their backlog indicates solid growth moving forward. So again, no issues there. From an outlook standpoint, I would say it's a very buoyant deal flow market for us. We did walk away from a couple of deals in the quarter which gave us some expenses from them without the deployment which is always unfortunate but part of the business. But we also do have several deals in process so we weren't afraid to walk away and have significant deployment opportunities. Overall, a very good environment for us. You know, noise from the currency this quarter. We expect that to reverse a little bit in the coming quarter as everybody can follow. So, hopefully, people are smart enough to X that out when they look at our results. So, Jonathan, we're happy to open it up for questions.