Alaris Equity Partners Income Trust

Good day and thank you for standing by. Welcome to the Alaris Q4 2025 earnings release conference. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Amanda Fraser, Chief Financial Officer. Please go ahead.

Thank you, Didi. Good morning and thank you all for joining us today to discuss our 2025 financial results. I'm joined on the call by Steve King, 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 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 MD&A. I'll begin with a review of our fourth quarter and full year 2025 results. Overall, 2025 was a strong year from an operating perspective. We generated growth in total revenue and operating income, increased net book value per unit over the course of the year, and completed record capital deployment and maintained a payout ratio below our target range. While reported earnings were affected by unrealized foreign exchange losses, the underlying operating performance of the business remained solid. Starting with net book value, net book value per unit decreased 38 cents in the quarter to 24.79 reflecting 54 cents per unit of earnings from operations offset by 44 cents per unit of unrealized foreign exchange losses and 37 cents per unit of distributions declared. For the full year net book value per unit increased 64 cents driven by $3.33 per unit of earnings from operations, partially offset by $1.13 per unit of unrealized FX losses and $1.39 per unit in distributions. NCIB repurchases added approximately $0.06 per unit to book value. On the income side, total revenue and operating income increased by 15.9% in Q4 and 14% for the full year, driven primarily by stronger fair value performance across the portfolio, including a $73.2 million net realized and unrealized gain on partner investments in 2025 compared to $47.3 million in 2024. Total partner distribution revenue decreased 2.6% in Q4 and 2.5% for the full year. Within that, preferred partner distribution revenue was flat in Q4 but increased 4.2% for the year, reflecting contributions from new and follow-on investments in Berg, PEC, McCoy, Shipyard, Cressa, Renew, and Optimus. Those gains were partially offset by deferred distributions from GWM and lower yield on OHANA following the 2024 transaction and deferred distributions from FMP during the year. Common distribution revenue declined 36.3% in Q4 and 33% for the year, largely due to the timing and variability of common distributions. It's worth noting that 2024 included elevated common distributions from Fleet and a one-time common distribution from Ohana that did not reoccur in 2025. Excluding those two items, common distributions from the rest of the portfolio increased by approximately 10% year-over-year. The annualized distribution yield on preferred capital invested was 12.4% for both the quarter and the full year. Turning to fair value during the fourth quarter and full year, the acquisition entities recorded net unrealized fair value gains of $8.6 million and $72.1 million, respectively, on partner investments. In Q4, the most notable increases came from Fleet and SCR, along with smaller positive adjustments across several other partners, partially offset by decreases in FMP and PEC. For the full year, the principal valuation increases were recorded in shipyard, edgewater, and fleet, partially offset by declines in GWM and FMP. The total value return on invested capital, which combines realized cash distributions and unrealized fair value changes relative to invested capital, was 3.1% in Q4 and 16.2% for the year. operating costs and other expenses within the acquisition entities decreased 17.9% in Q4 and 2.7% for the year, primarily due to lower income taxes partially offset by higher transaction costs associated with the new investments and increased finance costs related to funding those transactions. At the trust level, general and administrative expenses decreased 17.3% in Q4 and 10.6% for the full year, primarily reflecting lower management bonus accruals driven by lower realized gains during the year. Finance costs increased in both the quarter and the year, reflecting the issuance of a $92 million convertible debenture in June and $115 million convertible debenture in December, as well as the amortization of related financing costs. Earnings from operations increased 34.8% in Q4 and 17.3% for the full year. reflecting higher revenue and operating income and lower G&A expenses. However, earnings and comprehensive income for Q4 2025 was a loss of $200,000 compared to income of $77.9 million in Q4 2024. The change was primarily due to an unrealized foreign exchange loss of $20 million in Q4 2025 compared to an unrealized foreign exchange gain of $61.6 million in Q4 2024. Excluding unrealized foreign exchange in both periods, earnings and comprehensive income for Q4 2025 was $19.7 million, up 20.9% from $16.3 million in Q4 2024. For the full year, earnings and comprehensive income decreased by 61% to $90.8 million compared to $234.4 million in 2024. This decrease primarily reflects a 51.2 million unrealized foreign exchange loss in 2025 compared to an 80.8 million unrealized foreign exchange gain in 2024, as well as the absence of the non-recurring 30.3 million gain related to our accounting transition, which was recorded in January of 2024. Excluding all the unrealized foreign exchange in both years and excluding the 2024 accounting transition gain, 2025 earnings and comprehensive income were $142 million, an increase of 15.2% from $123 million in 2024. Moving to distributable cash flow, ALERIS' net distributable cash flow per unit decreased by 24.3% in Q4 and 16% for the full year compared to 2024. The decrease primarily reflects the timing and variability of common partner distribution, the timing of cash tax payments, and higher transaction related activity during the period. Even with that decline, the payout ratio was 64.2% in Q4 and 56.6% for the full year, both remaining below our target range of 65 to 70%. During 2025, we also repurchased and canceled 465,000 units under the NCIB at an average price of $18.87 per unit. For a total consideration of $8.8 million, including those repurchases, the payout ratio on cash disbursement was 62% for the year. From a balance sheet perspective, we continue to strengthen and align our capital structure in 2025. During the year, we amended our senior credit facility, extending the maturity to September 2029 and converting the facility from $500 million Canadian to $450 million U.S. better aligning our borrowing capacity with our U.S. dollar investment base. At year end, $312.8 million was drawn on the facility, leaving approximately $138 million available for U.S., available for new transactions. As noted earlier, we also completed two convertible debenture issuances, $92 million in June 2025 bearing interest at 6.5%, $150 million in December bearing interest at 6.25%, These financings supported investment activity and repayment of senior indebtedness at the acquisition entity level. From a portfolio perspective, the underlying picture remains constructive. Across the portfolio, the weighted average ECR remains approximately 1.5 times, which we view as healthy overall. We continue to have strong diversification by industry and partner-specific drivers. That said, there were a few areas of pressure during the year. FMP was affected by suspended contracts tied to changes in U.S. federal procurement policies. GWM experienced lower earnings and deferred distributions while it works through a senior covenant issue. We also continue to be active on the capital deployment front. In Q4 alone, we invested $115 million in Optimus, $30 million U.S. in Renew, and $20.5 million U.S. in a follow-on investment in Cressa. Looking ahead, we expect Q1 2026 total partner revenue of approximately $46.9 million. Based on current contractual terms and assumptions, our run rate revenue for the next 12 months is approximately $200 million. We currently estimate run rate G&A at approximately $20.5 million, and based on current assumptions, we expect the run rate payout ratio for 2026 to be in the 60% to 65% range. We believe that positions us well to continue funding growth, supporting distributions, and maintaining balance sheet flexibility. And on that note, I will turn it over to Steve for his comments.

Great. Thanks, Amanda, and thanks everybody for tuning in. Really, as much as 2025 was a record year for Alaris, I'm even more optimistic about what could potentially transpire in 26. We have positive momentum from deployment coming off a record year of $387 million. and new partnerships in 26, as well as follow-on opportunities with our now record number of 23 current platform partners promises to power even more growth into the future. Of our 23 partners, they're on pace to have very good years, we believe, as we strive to have our 22nd out of 23 years with positive partner contribution adjustments. This year, we benefit from 11 cents of new earnings that came from growth of our partners in 2025. While our largest holdings in BCC, Ohana, and the shipyard continue to be very stable, I'm pleased with the fact that a few of the companies that have experienced headwinds that Amanda was talking about are now showing very good signs of recovery. GWM is having an excellent first quarter, seems poised to regain the growth curve that they had exhibited in the past. FMP is also seeing positive signs that U.S. government spending in their sector is starting to return, despite the uncertainty that still exists in Washington. And SCR has also received quite a bit of new work as you'd expect in the red hot mining services sector and has grown revenue and earnings dramatically. 2026 should also be the year that Alera starts to harvest the common equity investments that we started making in 2019. While timing and even execution of divestitures can't be certain, we do expect that at least two of our partners will sell this year, triggering common equity gains that can then be redeployed into new transactions. In situations where common equity has grown faster than our preferred equity, which is almost most often the case, redeploying capital back into our normal deal structures of 80% prefs, 20% common, will result in increases of our structured revenues and earnings. This compounding effect, especially in our larger investments, can accelerate our long-term growth and allow us to make meaningful additions to our dividend stream to shareholders. Being at the bottom end of our targeted payout ratio right now leaves us in a great position to consider another dividend raise when incremental earnings from deployment comes in the future. We believe that this formulaic approach to capital allocation will drive a lower cost of capital for our company, as the market has shown in the past three months since our last dividend increase, and allow our company to grow quickly and profitably as new investments come to fruition. Finally, I'd like to reiterate what I mentioned in my President's message in the press release. Alaris's top quartile returns cannot happen without an extraordinary sacrifice from our 24 employees as well as our service providers. From deal sourcing, diligence, monitoring, legal, accounting attacks, these are people that not only do great work but they also ensure that culturally Alaris continues to be known as a group that entrepreneurs want to partner with. Thank you to each and every one of you as well as our unit holders for continuing to support our company. Didi will open it up to questions if there are any.