Exchange Income Corporation

Listeners are cautioned that today's presentation and the responses to questions may contain forward-looking statements within the meaning of safe harbor provisions of Canadian provincial securities laws. Forward-looking statements involve risks and uncertainties, and a jury alliance should not be placed 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 and broadcast live via the internet for the benefit of individual shareholders, analysts, and other interested parties. I would 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, and thank you for joining us on today's call. With me today is Richard Waurick, our CFO, who will speak to our quarterly financial results, along with Jake Traynor and Travis Muir, who will expand on our outlook for our two operating segments. Yesterday, we released our first quarter results for 2025. Our performance in the first quarter was incredibly strong. We once again set first quarter high watermarks for all of our key metrics, including revenue, adjusted EBITDA, free cash flow, free cash flow, less maintenance, CapEx, and adjusted net earnings. We are pleased to reconfirm our fiscal 25 adjusted EBITDA guidance of $690 to $730 million, which excludes the financial results of Canadian North. EIC is a beacon of resilience and stability. When other companies have either downgraded their guidance or eliminated their guidance entirely due to the economic uncertainty, we remain confident in our business model and the ability to generate results consistent with our previous guidance. During the quarter, we announced the binding purchase agreement for Canadian North, which we discussed during our year-end call. The regulatory process is very complex, and we remain confident that we will close the transaction. However, due to the complexity and uncertainty in our inability to forecast when we will receive regulatory approvals, We have not included these results in Canadian North in our guidance. Also, because of the non-disclosure agreement, which prohibits us releasing any of Canadian North's financial information, we cannot provide any additional financial information on the transaction during today's call. The first quarter results has given us a great start to the year, and I remain confident in our resilient and stable business model. This confidence stems from the essential nature of goods and services that our subsidiaries provide, along with our past operating performance in times of uncertainty, whether it be the pandemic or the financial crisis in 2008-2009. These record results were generated during a time I would describe as challenging. During the quarter, we had uncertainty due to rapidly changing trade policy with Canada's largest and most important trading partner in the United States. We also had uncertainty of the Canadian election coupled with continued geopolitical conflicts around the world. While cooler heads have seemingly prevailed, at least for now, there is still some risk of new tariffs and we are continuing to monitor changes in policy at head office and in our subsidiaries. To date, I can confidently say that we are not directly exposed to tariffs that are currently in force. Our manufacturing subsidiaries are generally CUSMA compliant for goods shipped and sold south of the border. The greater risk is the unintended consequences of significant changes in foreign exchange rates or changes in business confidence. The foreign exchange volatility has seemed to level out more recently, However, towards the end of the quarter, we did start to see an eroding of some business sentiment. This caused a slight reduction in the number of conversions from inquiries to orders, primarily in the manufacturing statement. This is due to the fact our customers wanted greater certainty when making purchasing or capital decisions. With cooler heads prevailing, we believe that those deferred purchase decisions will be executed in the shorter term as the risk continues to abate. we are seeing a significant number of inquiries throughout our businesses during the quarter. The uncertainty has just resulted in a temporary decline in the latter part of the quarter in the quantum of inquiries and the conversion of them into fixed orders. But I believe this is a very short-term issue. I will let Rich focus on the financial results for the operating segments. However, prior to passing the call off, I wanted to chat about three items. Firstly, subsequent to quarter end, we announced an amendment to our credit facility. The availability of the facility was increased to $3 billion from $2.2 billion, and the maturity was extended to April 30th, 2029. This amendment was done with no changes, no significant changes in terms or in pricing. This is a credit to Richard's team to get this facility across the line in a time of market turbulence. But I want to make it clear, The enhanced facility does not change our conservative attitude on debt and leverage. Our aggregate debt levels have been remarkably consistent for the last 20 years, and we don't plan to change that. The purpose of the upsize was to allow greater liquidity to execute on future acquisitions or contract wins and continued investment in growth capital expenditures. We have always made sure we have liquidity available to execute on opportunistic transactions, and this amended facility will allow us that in spades, as we have well over a billion dollars in available liquidity. Secondly, you may notice that we slightly modified our MD&A based on feedback from some of our most significant shareholders and prospective investors. We are focusing on the numbers at the operating segment level, and directional changes at the business line level to augment the gap. This should help simplify our somewhat complicated group of companies. Finally, I want to give my regular update on the status of significant contract proposals that remain outstanding. During the fourth quarter of 2024, we submitted our proposal to Australia, the Australian government, for their maritime surveillance contract. Like Canada, the Australian government just held their election on May 3rd, with the incumbent party, the Labour Party, being elected. We expect to hear back from the government midway during the year as the government weighs the various options submitted by the three bidders. As I previously commented, we believe we put together a very strong bid and we expect to have as good a chance as any other bidder. Additionally, with the geopolitical climate, we continue to see significant interest from other countries for additional ISR assets. and we are working through government budgets and needs assessments. Our second aircraft for the UK Home Office contract is in the final steps of being modified with a goal for it to start flying midway through this year. Overall, we are very proud of our collective results for the quarter. We're also very confident in the direction the company is headed and the opportunities for acquisition and organic growth. Jake and Travis will focus on the outlook for our segments for 2025. I'll now pass the call over to Rich.

Thank you, Mike, and good morning. For the first quarter of 2025, revenue of $668 million, adjusted EBITDA of $130 million, and free cash flow of $81 million, and free cash flow maintenance gap acts of $26 million were all first quarter high water marks. Revenue in our ANA segment increased by $14 million or 4% to $382 million. Adjusted EBITDA increased by $8 million or 8% to $102 million. The revenue and adjusted EBITDA increases were primarily related to the essential air services and aircraft sales and leasing business lines, which continued to post strong results period over period. Revenues in adjusted EBITDA within our aerospace business line were lower due to the planned wind down of certain training programs prior to the start of new programs and contracts. Additionally, one of our aerospace contracts changed from a performance-based logistics agreement to a timing materials arrangement, which results in more variability when comparing quarters. Looking at the essential air services business line, the improvements were driven by three key factors. First, previous organic growth capital expenditures over the past number of years to both satisfy increased demand and contract wins in our medevac operations, primarily related to the BC and Manitoba medevac contracts. Secondly, our average load factors improved, which has a direct improvement on adjusted EBITDA. And third, the impact of the routes flown on behalf of Air Canada, for which the comparatives did not have the full complement of routes. Our aircraft sales and leasing business line increases were driven by continued improvement in leasing activity and robust park demand. We are seeing significant demand in our leasing business for the aircraft and even more so on the engine side. Partially offsetting those increases was a reduction in large asset sales, which are more lumpy than our traditional parts business. Revenue in our manufacturing segment increased by 53 million or 23% to 286 million. Adjusted EBITDA increased by 14 million or 50% to 41 million. Our environmental access solutions business line and increased revenues and adjusted EBITDA primarily driven by the acquisition of Spartan, which had significant demand for its composite mats. The demand was so strong that we have indefinitely delayed a planned shutdown to upgrade certain equipment, as we need to keep the plant producing composite mats to meet the current demand. Our team is currently investigating options to build a second plant based on the longer-term secular trends. Furthermore, we also saw an increase in the number of mats on rent which is encouraging for future quarters. As we signal to the market and budget, our multi-story window solutions business line revenue decreased along with adjusted EBITDA. The decreases are due to project delays and gaps in production. We have taken this opportunity to rationalize our manufacturing footprint such that when demand returns, we will be able to produce the number of windows with reduced overhead, which should drive longer-term margins. We have also made the strategic decision to retain experienced staff, which will be required when the backlog and related production start. We continue to see strong inquiries. However, due to the tariff risk, they have not converted to bookings at a pace consistent with the last half of 2024. Our precision manufacturing and engineering business line had a strong border from a revenue and profitability perspective. It was driven by customer demand across several industries, including telecommunications, technology, resource, and data centers. Overall, net earnings were $7 million for the first quarter compared to $5 million in the prior year. The higher adjusted EBITDA was offset by depreciation amortization through the acquisition and growth capital investments and increases in interest costs due to the investment activity. Adjusted net earnings were $14 million compared to $10 million in the prior year. Pre-cash flow is $81 million compared to $62 million in the prior year. Free cashless maintenance capital expenditures was $26 million compared to $23 million in the comparative period, all over the first quarter records. Maintenance capital expenditures in the first quarter of 2025 were higher by $17 million, however, were below our internal expectations due to the timing of events. The simple average of maintenance capital expenditures over the four quarters in fiscal 2024 was $52 million, and therefore Q1 of 2025 is comparable to the average of last year. However, Q1 in the prior year was an anomaly due to the timing of maintenance events. in 2024. Growth capital expenditures during Q1 were $56 million and were primarily driven by acquisitions of engines and aircraft in our aircraft sales and leasing business line to increase their leasing portfolio, coupled with modification expenditures incurred for the second aircraft for the UK Home Office and installation efforts for the full motion King Air simulator in Winnipeg. From a working capital perspective, we had a nominal recovery of working capital during the quarter. We anticipate that working capital will continue to decline throughout the year as we have made several pre-payments and inventory purchases in our aircraft sales and leasing business plan. Those purchases are expected to be monetized to the robust parts demand that we are experiencing. There have been some delays in parting out aircraft and engines into their most valuable components due to the availability at MROs. We are actively managing our working capital and are working with each city or AP to convert the working capital into cash. The corporation's aggregate leverage, including both its senior credit facility and convertible debentures, remain relatively consistent, decreasing from 3.36 at December 31, 2024 to 3.22 at March 31, 2025. During the quarter, we called our Series K convertible debentures, which saw $78 million of the Series convert to equity, Our aggregate leverage ratio is the lowest it's been since 2019. During the quarter, we announced that we amended and extended our syndicated credit facility. We welcomed an additional financial institution into the syndicate, and I'm happy to report that the terms and pricing stayed consistent with our prior facility. The new facility increases our availability to $3 billion and extends the maturity to April of 2029. Currently, we have over $1 billion in available liquidity to deploy For new acquisitions, our new growth capital expenditures. Consistent with Mike's comments, I want to reiterate that the increased revolver availability does not change our conservative view on debt or leverage. This facility just provides us with greater liquidity as and when needed. In the past, we have found opportunities for investment, whether it be in acquisitions or organic growth during periods of economic unrest. Having this capacity in 2025 will allow us to continue to be opportunistic and identify accretive opportunities to grow our company. I want to take this opportunity to thank our syndicate of lenders for their continued support. Our M&A pipeline remains very strong. We are confident that our balance sheet is in a position that allows us to execute on future transactions. I will now turn the call over to Jake, who will provide an update for 2025 outlook for aerospace and aviation.