Alaris Equity Partners Income Trust

Good day, and thank you for standing by. Welcome to the second quarter 2020 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 a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Amanda Fraser, Chief Financial Officer. Please go ahead.

Thank you, Livia. Good morning and thank you for joining us today to discuss our second quarter 2026 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 Risks and Uncertainties, available on CDAR at cdarplus.ca 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 MD&A. Overall, Q2 was another strong quarter for Alaris. Reflecting the ongoing benefit of the capital we deployed over the past 18 months, we delivered partner revenue ahead of guidance, record net book value, strong growth in revenue, and Distributable Cash Flow, expanded the portfolio to a record 25 partners, and continued deploying capital into attractive new investment opportunities. There are four main takeaways this quarter. The first, portfolio income continued to grow. Total partner revenue of $50.6 million came in 5.6% ahead of guidance, including $49.9 million of partner distributions and $700,000 of third-party fees. Total revenue and operating income increased 25% compared to the second quarter of last year, while partner distribution revenue increased nearly 20%. On a year-to-date basis, total revenue and operating income are up 13%, with partner distribution revenue up 15% over the first half of last year. Preferred distributions increased 24%, reflecting contributions from investments completed throughout 2025, our investment in cubic during the quarter, and annual contractual distribution recess. preferred distributions are up 17% year to date, and the annualized yield on our preferred capital rose to 12.8% from 12.2% a year ago. Common distributions were below the prior year, largely a timing matter, as the second quarter is typically our lightest quarter for common distributions. Subsequent to quarter end, we received 14.8 million US of common distributions, which included a 13.8 million US distribution from fleet. Second, distributable cash flow continued to accelerate. Net distributable cash flow increased 42% compared to Q2 of last year, driven by higher preferred partner distributions, together with lower taxes paid by the acquisition entities. For the six months, net distributable cash flow was up 21%, even after absorbing the higher interest costs from our 2025 convertible to venture financing. Our payout ratio for the sixth first six months of the year was 58% compared to the 65% in the prior year period. Even after the recent distribution increase, our pro forma payout ratio remains approximately 59%, comfortably below our long-term target range of 65% to 70%. That continues to provide meaningful flexibility to fund future investments while supporting distribution growth. Third, the underlying value of the portfolio continued to increase. Net book value per unit increased another 52 cents during the quarter to a record 25.83 per unit. That brings the year-to-date increase to $1.04 per unit. For the quarter, the 52 cents was driven by 92 cents per unit of earnings and comprehensive income, including roughly 46 cents of unrealized foreign exchange gains, net of our 38 cents quarterly distribution. During the quarter, we recorded net unrealized fair value gains of 10.8 million, Fleet continued to perform well, contributing a $8.1 million US increase in fair value during the quarter, bringing the year-to-date increase to more than $18 million US. Cubic also contributed a fair value increase following its strong operating performance and backlog conversion during the first half of the year. These gains were partially offset by a modest fair value decrease at McCoy, reflecting a quieter storm season in the first half of the year. lesser movements across six other partners, rounded out the quarter. Year to date, we also realized a $4.9 million gains through partial redemptions, including 3E, which we covered last quarter, and redeployed that capital into the new investments. Earnings and comprehensive income also increased year over year, largely on that foreign exchange swing, a non-cash item that, as we've discussed previously, moves reported earnings without affecting the underlying operating performance of the business. And finally, we continue to execute on our growth strategy. During the quarter, we completed our $75 million investment in Cubic, and subsequent to the quarter end, we completed our $35 million U.S. investment in Tesco, together with other activity that brings total capital deployed in 2026 to $126 million, expanding the portfolio to a record 25 partners. The portfolio continues to perform well. Our weighted average earnings coverage ratio remains approximately 1.5 times, and 84% of our contractual preferred distributions come from partners with coverage ratios above 1.2 times. In addition, 16 of our 25 partners maintain senior debt at or below 1x EBITDA, highlighting the conservative financial profile of the portfolio. Looking ahead, we expect third quarter partner revenue of approximately $69 million, reflecting the seasonal concentration of common distributions in the third quarter. Our estimate run rate revenue for the next 12 months has increased to approximately $208 million, reflecting recent investments in contractual distribution resets. That marks a third consecutive increase from $200 million at the end of last year to $203 million at the end of the first quarter, and puts us approximately 14% above the $183 million estimate a year ago. We ended the quarter with $127 million of undrawn capacity on our credit facility, and our forward run rate pay ratio sits at 60 to 65%, both consistent with continued investment and distribution growth. And with that, I'll turn it over to Steve.

Great, thanks Amanda. Our second quarter showed gains in almost every meaningful category as record levels of investments that we've made over the last 12 months have started to contribute to our results. Amanda's already detailed the numbers, so I'll focus more on the deployment, both past and future. Our investment in Cubic during the quarter is really a perfect example of what makes Alaris so unique in the marketplace. A wonderful company that's been succeeding for 40 years had a large capital need to take out one of the founders who retired from the business years ago. In this case, it was the founder's younger brother along with the professional management team that were the buyers. With Alaris' preferred equity along with a small amount of common, the buyers were actually able to increase the percentage of the business that they own going forward and enjoy more of the upside, all while preserving the culture that they've built over the last 40 years. Because the buyout was negotiated between the two brothers, we were able to get in at a very attractive multiple. Between that valuation and the growth that the company has already displayed since closing, we're already sitting on a nice unrealized gain on our common equity portion of the investment. We are also proud to have added our 25th partner just after the quarter ended. $35 million US investment into Tesco, who's in the electrical metering industry throughout the US. Obviously, the entire electrical industry is a rapidly growing and popular place to invest with the massive growth in demand for electricity with electric vehicles and AI. So we're very pleased to add such a sought-after asset. I should say that almost all of these assets that we're adding are in extremely competitive situations. Tesco had actually dozens of bidders trying to get that deal. Looking forward, our deployment pipeline continues to gain momentum. Our team is busy working on several new partnerships as well as multiple follow-on acquisitions for our current partners. We expect the last five months of this year to be quite active in terms of both deployment and also potentially some exit opportunities that would crystallize some very good gains within our portfolio. I would be remiss if I didn't mention the continued success of our partner in Florida, Fleet Advantage. The management team there has done an incredible job of diversifying their customer base, winning incremental contracts. A common dividend paid out in July of $13.8 million U.S., bringing our total common dividends paid by fleet to over $50 million on an investment of $8 million is obviously a phenomenal story. While that kind of result is unusual, the combination of partnering with entrepreneurs who don't want to sell their business along with the capped nature of our preferred equity magnifying the returns on the common puts us in a very good position to experience these kinds of wins. With a common equity portfolio now of over $800 million providing significant upside, a base of over $200 million a year of low volatility revenue that stood the test of time over 22 years, a payout ratio that's below our 65% target, and access to both debt and equity markets, we're in a really excellent position to capitalize on our opportunities going forward. So, Olivia, I'll open it up to questions if there are any.