Exchange Income Corporation

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, 2025. The corporation's results, including the MD&A and financial statements, were issued on August 11, 2025 and are currently available via the company's website or CEDAR Pass. 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 provision of Canadian... provincial securities laws. Forward-looking statements involve risks and uncertainties, and a true reliance 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 may only have to be made. Listeners are also reminded that the This call is being recorded 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 Powell. Thank you. Please go ahead, Mr. Pillai.

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 about our quarterly financial results, along with Jake Traynor and Travis Muir, who will speak about our outlook for our two operating segments. Adam Turwin and Dave White are also on the call and will be able to respond to any specific questions on Canadian North and the long-term air services agreement that was announced subsequent to quarter end. Yesterday, we released our second quarter results for 2025. Our performance in the second quarter continued to be very strong for each of our key financial metrics. Once again, we set Q2 high watermarks for each of our key metrics, including revenue, adjusted EBITDA, free cash flow, net earnings, and adjusted net earnings. In fact, our revenues of $720 million were the highest achieved in any quarter in our history. Subsequent to quarter end, we announced the closing of the Canadian North transaction. Equally important was the signing of the agreement with the government of Nunavut for long-term services, whereby Canadian North and Comair will be the sole provider of air services for all three regions in Nunavut. The Canadian North acquisition is highly strategic for EIC as adding its infrastructure and assets and management team ensure that EIC has a unique value proposition for our customers and the government of Canada. Jake will talk further about some of the opportunities that exist for EIC with Canadian North as part of the family. We also updated our 2025 EBITDA guidance and increased the range to $725 million to $765 million, which now includes the financial results of Canadian North. The seasonality of Canadian North is relatively consistent with our other essential air businesses. As a reminder, we previously noted that the returns being pre-cash flow, thus maintenance capex, will be muted in the short term, but are expected to meet our return expectations by the end of 2026. These record results were generated during a time of uncertainty, with business sentiment being weak at the start of the quarter due to the uncertainty related to trade policies and geopolitical events. This quarter, however, is another example of how diversified and resilient our businesses are in times of uncertainty. EIC continues to generate strong returns, even when the world is experiencing difficult times. The impact of tariffs was not material to EIC overall. However, it did negatively impact our multi-story window solution business line. As the tariffs more than offset the productivity and profitability gains we achieved from our integration activities. We continue to be bullish on the long-term fundamentals within that business line, and we will be reviewing all options to mitigate the tariffs as we move forward through manufacturing decisions and changes in our supply chain. Ultimately, I believe that Canada and the U.S. will come to an agreement and hopefully will have reduced tariffs in the longer term as the two economies are so directly intertwined. Our remaining subsidiaries did not experience any direct impact from the Terex other than reduced business sentiment, which deferred some purchasing decisions from our customers during the quarter. We are still seeing significant number of inquiries throughout the businesses, especially as we exited the quarter. As customers realize that this trade environment is now the new norm, I believe that business sentiment will gradually improve and the number of firm orders will continue with a step-based improvement, especially now that legislation has passed in the U.S., which provides accelerated tax deductibility. Subsequent quarter and several of our manufacturing entities received purchase orders. including our multi-storey window solutions business line, which booked approximately $100 million in new projects. We expect that this positive momentum will continue throughout our various business lines. Our results were also impacted by the forest fires experienced across Canada. Most importantly, my heart goes out to these who have been displaced from their communities and from their homes. EIC was there to support these communities in evacuation efforts, and we are currently providing capacity to repatriate the community members back home. Our rotary wing operations were also very busy in fire suppression work. We had an impact on the communities first and foremost on our thoughts. However, it did impact our corridor as well. The evacuation sites provide a short-term improvement to our charter operations, However, it subsequently has a negative impact on our scheduled service and medevac operations in those communities which are no longer populated. I will let Rich focus on the financial results for the operating segment. However, prior to passing off the call, I wanted to provide some context on a couple of items. We will continue to have significant liquidity availability. We had drawn the funds for the Canadian North acquisition prior to quartering, which is why the cash balance was in excess of normal amounts. Our leverage ratios continue to be at the low end of their historical range, and our balance sheet continues to be very strong, which will allow us to execute on organic growth opportunities and or acquisitions. I also wanted 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 the Australian government for their maritime surveillance contract. We previously anticipated hearing the results of the award by July. However, the May election in Australia delayed the bid evaluation process, and therefore we anticipated hearing on the results sometime in the third quarter. 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, within the geopolitical climate, we continue to see significant interest from several other countries for additional ISR assets, and we are working with several governments in developing solutions to their needs and have several discussions with those involved in the procurement process. Our second aircraft for the UK Home Office contract has been fully modified and is waiting regulatory certification in the UK and is expected to start flying later this month. We crossed and significantly exceeded another milestone, being the $3 billion equity market capitalization. Our collective team is very proud of this achievement, and it's a recognition of our business model. The year-to-date results are a very strong start to the year and continue to show the strength of our business model, which is starting to be reflected in our share price. The demand for our services and products is very robust. Jake and Travis will focus on the outlook for our segments for the remainder of 2025. Lastly, we will provide the market with our expected adjusted needed to guidance for 2026 at our third quarter conference call in November, consistent with our past practice. I will now pass the call over to Rich.

Thank you, Mike, and good morning. For the second quarter of 2025, revenue of $720 million, adjusted EBITDA of $177 million, free cash flow of $123 million, net earnings of $40 million, and adjusted net earnings of $47 million were all second quarter records. Revenue in aerospace and aviation segment increased by $28 million or 7% to $455 million. Adjusted EBITDA increased by $13 million or 10% to $148 million. Looking at the essential air services business line, the improvements were driven by a couple key factors. First, historic 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, drove increases in revenue and profitability, including enhanced scope in multiple markets. The quarter experienced strong firefighting activities which resulted in evacuation flights and rotary wing fire suppression. Lastly, while load factors were strong in the first part of the quarter, scheduled service and medevac volumes experienced decline in a lot of part as a result of northern communities being displaced temporarily and not requiring those services. Our aerospace business line revenues and profitability were lower due to the planned wind down of certain training programs prior to the start of new programs and contracts. Additionally, one of the aerospace contracts changed from a performance-based logistics agreement to a time and materials arrangement, which results in more variability when comparing quarters. Our aircraft sales and leasing business line increases were driven by continued improvement in leasing activity and robust parts demand. We are seeing significant demand in our leasing business for the aircraft and even more so on the engine side. Partially upsetting those increases was a reduction in large asset sales to the prior period, those sales are generally lower margin transactions and more likely than our traditional parts and leasing business. Revenue in our manufacturing segment increased by $31 million or 13% to $265 million. Adjusted EBITDA increased by $9 million or 26% to $44 million. Our environmental access solutions business line had increased revenues and adjusted EBITDA driven by the acquisition of Spartan, which had significant demand for its comps and maps. As previously discussed, Spartan Team is evaluating several existing locations to house our second plant based on the longer-term secular trends. In the Canadian market, we saw a decrease in adjusted EBITDA due to a change in product mix as we saw greater mat sales compared to rental mats as certain rental mat projects were deferred into the latter portion of 2025 and into 2026. As expected, our multi-story window solutions business Revenue decreased due to customer deferrals and related production gaps. Profitability was further negatively impacted in the short term by aluminum tariffs. We have taken steps to mitigate the impact of tariffs, including changes in supply chain. However, those take some time to identify and set up new suppliers to meet demand and quality requirements. Subsequent to the end of the quarter, we did see instances of being see instances of inquiries being converted into booking with over $100 million in bookings. We are encouraged that booking trends will continue to improve in the back half of the year due to the geopolitical trade risks becoming more normalized and businesses willing to deploy capital. Our precision manufacturing and engineering business line had another solid quarter 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 $40 million for the second quarter, which was an increase of $7 million or 23%. The higher adjusted EBITDA and reduced interest expense was offset by increased depreciation and amortization through the acquisition and growth capital investments and increased acquisition costs related to the Canadian ERP transactions because of its complexity. Earnings per share increased to $0.78 per share compared to $0.69 in the prior quarter. Adjusted net earnings were $47 million compared to $38 million in the prior year, with an increase in adjusted net earnings per share from $0.80 to $0.92 per share. Free cash flow was $123 million compared to $101 million in the prior year. Free cash flow per share increased from $2.13 to $2.40 per share, while free cash flow that's made into capital expenditures was $57 million compared to $52 million. and on a per share basis increased from $1.11 to $1.12. Maintenance capital expenditures in the second quarter of 2025 were $66 million compared to the prior year of $48 million. On a six-month basis, maintenance capital expenditures were $122 million compared to $88 million in the prior year. Q1 in the prior year was an anomaly on the low end due to the timing of maintenance events. The increase in the current year is due to the timing of events coupled with the policy based on utilization for of aircraft and engines within aircraft sales and leasing as discussed in the first quarter. Growth capital expenditures during the second quarter were $5 million compared to $45 million in the prior year. The second quarter was lower than anticipated as we expect based on current opportunities within aircraft sales and leasing that growth capital expenditures will be incurred in the third quarter, which will reverse the negative second quarter growth capital expenditures. From our working capital perspective, we had an investment of approximately $40 million. The investment was driven by growth in the business, coupled with deposits of approximately $20 million for assets within our aircraft sales and leasing business line. Subsequent to the end of the quarter, we collected a material government receivable of approximately $19 million to bring the aging of government receivables more in line with historical norms. We are actively managing our working capital and are working with each subsidiary team to convert working capital to cash. Corporations aggregate leverage including both its senior credit facility and convertible ventures decreased from 3.36 at December 31st to 3.21 at June 30th. Our aggregate leverage ratio remains near historical norms and well within our target. Our M&A pipeline remains strong along with our liquidity to execute on acquisitions and organic growth initiatives. Maintaining a strong balance sheet has been a hallmark of EIC and allows us to be opportunistic whether adequately and through acquisition, and the right opportunity to present themselves. That being said, the antiquity has not changed our view on leverage, and we plan to maintain our leverage within our historical range. I will now turn the call over to Jake, who will provide an update for the 2025 remaining outlook for the aerospace and aviation segment.