Exchange Income Corporation

Good morning, everyone. Welcome to Exchange Income Corporation's conference call to discuss the financial results for the three and nine months ended September 30th, 2025. The corporation's results, including the MD&E and financial statements, were issued on November 6th, 2025. and are currently available via the company's website on CDAR+. 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 provisions of Canadian provincial securities laws. Forward-looking statements involve risks and uncertainties, and undue 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 from expectations and about material factors or assumptions applied in making forward-looking statements, please consult the quarterly and annual MD&E 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 as 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 now like to turn the call over to CEO of Exchange Income Corporation, Mike Pyle. Please go ahead, sir.

Thank you, operator. Good morning, and thank you for joining us in today's call. With me today is Richard Rourick, our CFO, who will speak to our quarterly financial results along with Jake Traynor and Travis Muir, who will speak about our outlook for our two operating segments. Yesterday, we released our third quarter results for 2025, which were very strong overall. We set all-time quarter high watermarks for all of our key financial metrics, including revenue, adjusted EBITDA, net earnings, adjusted net earnings, free cash flow, and free cash flow, less maintenance capital expenditures. We also set highs for our basic and fully diluted share metrics for virtually all of our KPIs, despite the fact that our share count has significantly increased during the past 12 months due to the redemption of three classes of our convertible debentures, coupled with the shares issued for our acquisitions. This demonstrates the performance of our underlying businesses. Substance quarter end, we called our last remaining convertible debenture, which was originally due in 2029. and by the first week of December, we will have no convertible debentures in our capital structure. In short, our balance sheet is simplified, delevered, and very liquid, with total leverage near all-time lows. Rich will talk to the record financial metrics later in the call, but I wanted to delve further into the more significant quarterly highlights, along with some of the forward-looking remarks included in our 2026 guidance. The third quarter was the first period which included the financial results from the highly strategic acquisition of Canadian North. The acquisition cemented our position as the foremost expert in northern aviation and the results during the quarter were consistent with our expectations. The profitability and the passenger cargo business of Canadian North are reasonably similar and will ultimately match that of Comair and our other air operators. As I previously communicated, Canadian North also has a large charter operation that flies on paved runways and utilizes 737 aircraft with a much lower margin profile than the Northern Air operations, which explains some of the outsized increases in revenues. The majority of the aircraft serving up the business are leased. And therefore, as these contracts wrap up, we will be evaluating that specific business component to assess its returns and see whether they meet our requirements. Taking a step back, the integration of the business is proceeding consistent with our plan that was developed during the due diligence process. The new long-term air services agreement provides future profitability and certainty as the contract is modified both up and down for aviation specific inflation factors. Significant process has started in adjusting the cost structure of the underlying operations, including the renegotiation of supplier arrangements. Our other operators in aircraft sales and leasing have been working with Canadian North to identify operating efficiencies along with the purchase of spare parts and engines to improve the liability of the fleet long into the future. The inclusion of the 737 fleet provides Regional 1 an opportunity to attend 737 University, learning about the value of its parts, and may provide it with another engine and parts business line opportunity in the future. Overall, I'm very happy with the progress made to date, and we expect by the latter portion of 2026, the profitability and free cash flow returns of Canadian North will meet our requisite requirements. The remainder of our aerospace and aviation segment had a very strong quarter. The second quarter did have some challenges associated with wildfire activity in Manitoba and Ontario. However, the load factors returned partway through the third quarter, and the underlying business was performing very strong during the quarter and as we exited the quarter. We remain very positive about each of the business signs within the segment. And our aircraft sales and leasing continued to see step-based improvement in their aircraft and engine leasing portfolio. And we made some significant investments into the fleet that we'd signaled during the second quarter call. The business line also had a number of opportunities to sell whole aircraft and engines during the third quarter. Those large sales are generally at higher dollar values, but with lower margins than our traditional part business. and it provides further evidence of the demand for aircraft sales and leasing single aisle turboprop jet niches. Our aerospace business continues to see significant demand signals both domestically and internationally. We're at the intersection of a number of mega trends in Canada. The focus on meeting NATO defense spending targets coupled with Northern sovereignty means there are tremendous opportunities for EIC as a whole. Our infrastructure in the north is second to none. And as we already perform ISR services for the federal government along the east and west coasts, we believe there are opportunities to expand these services into the north. We know that the government is facing human capital and infrastructure shortages. With our relationships with indigenous communities, coupled with our northern aviation expertise and infrastructure, we believe that we are uniquely suited to provide a solution to the government. We are excited about this opportunity along with the opportunities immediately before us with other countries. Our Netherlands and UK operations have positioned us as a global expert in ISR and countries are actively calling us to inquire about our services. The megatrends are also providing us with tailwinds in our other business lines. Focus on critical minerals, resources and precious metals is anticipated to drive demand for fly-in, fly-out services in our air operators. Coupled with the demand for our environmental access solutions business line, these companies will be required to build access roads to protect ecologically sensitive areas. Furthermore, the focus on artificial intelligence and data centers driving demands within the transportation sector. Our North American electrical grid system requires significant maintenance, improvements, and enhancements to handle electrification requirements of the future, whether it be from data center demands or from households or transportation. This is a tailwind for both our Canadian wooden and U.S. composite operations in our environmental access solutions business line. We continue to see significant demand in composite matting. We have effectively sold out all of our production into 2026 because of the demand of our best-in-class System 7 XT mat. We're in the final stages of selecting a location and are actively negotiating with a lessor for the installation of a new state-of-the-art plant. We anticipate the plant will be up and running in about 18 to 24 months and will require an investment of approximately $60 million. The demand for composite matting is ever increasing due to its advantages over wood mats in the transmission and distribution sector. coupled with increased transition from wooden mat users across the United States. Lastly, data centers and AI are also driving demand in our precision manufacturing and engineering businesses, as we provide ancillary products, including cooling stainless steel tanks, hydronic load cell testing capabilities, chip racking, and wireline services. We've been transparent that our multi-storey window business continues to be the most challenged business line due to the impact of aluminum tariffs, deferrals in projects, and our strategic decision to retain skilled workers and staff over the shorter term. We are still seeing elevated number of inquiries. However, developers remain uncertain in booking projects as they're awaiting government clarification on interest rates and anticipated reductions in development costs. Capital exists to develop these projects. However, the capital remains on the sidelines until these further abate. The long-term economics demonstrate the need for affordable housing across North America, and we are seeing a shift from condo projects to apartments in Canada. We are still bullish on the longer-term trends, and we are seeing positive developments in certain markets across the continent. These challenges in this business line are included in our current financial results and are also included in our 2026 guidance. Looking back at the quarterly record results, these were generated while there continued to be significant uncertainty in various markets. However, EIC as a group of company is at the foremost of a number of emerging trends. When Adam and team buy companies, we focus on the sustainable niches and their management team. Our secret sauce at EIC is maintaining the culture at these companies and unleashing the entrepreneurial spirit that made these companies successful prior to joining the EIC family. Because of that, I'm excited that our future opportunities as each management team is energized to execute on the many strategic opportunities that are before us. I will let Rich focus on the financial results for the operating segments. However, before passing off the call, I wanted to update you on contract opportunities. 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 war by the end of the third quarter as their mail action delayed the bid evaluation process for a period of time. We have recently been advised that the evaluation process is not yet complete. 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. Due to the timing of getting the assets ready for the contract to start in 2028, we still anticipate the government will have to make a decision by early 2026. As I mentioned, this contract would be a home run of sorts. However, in my prepared remarks, there are a number of other opportunities that would approximate the size of Australia. I'm happy to report that our second aircraft for the UK Home Office has been fully modified and has started flying missions in the fourth quarter. Flying with a strong tempo, we've received great feedback from the UK and other countries who have utilized the aircraft. We crossed another milestone of being a 4 billion equity market cap during the quarter. As we continue to grow and tell our story, investors will see the immense amount of opportunity before us. We are still the same company who will be very disciplined in our acquisition and organic growth investments. I'm very proud of the progress made by our various teams and I'm excited about the future of EIC. Due to the strength of our underlying results and per share metrics, we have made the decision to increase our dividend from $2.64 per annum to 276 per annum. This increase in dividend is consistent with our stated commitment to our shareholders to provide stable and growing dividend and is ultimately driven by the increases in profitability and free cash flow along with our outlook for the future. The dividend increase of 5% continues to represent a lower proportion of our earnings as our earnings and adjusted net earnings grew by approximately 25% on a year-to-date basis, and grew by 17% on a year-to-date basis, on a per-share basis. As such, less than a third of the capital generated by this profitability was directed to increase dividends, thereby reducing our payout ratio. Lastly, the dividend protects the purchasing power of our shareholders due to inflationary effects held by all. The demand for our services and products is robust. Jake and Travis will focus on the outlook for our segments for the balance of 2025. However, before passing the call over, I wanted to speak about our 2026 guidance. We anticipate that our adjusted EBITDA will be between 825 and 875 million for fiscal 26. This estimate is based on the portfolio of companies that exist today. and do not include any new acquisitions, significant contracts, or significant growth capital expenditures other than what exists today. We have a track record of executing on our strategic initiatives in the past, and we are confident in the future. I also wanted to reconfirm our guidance for 2025 with an adjusted EBITDA range of 725 to 765, with a bias to the midpoint of the range. I will now pass the call over to Rich.

Thank you, Mike, and good morning, everyone. For the third quarter of 2025, revenue of $960 million, adjusted EBITDA of $231 million, free cash flow of $171 million, free cash flow, less maintenance capex of $88 million, Net earnings of $69 million and adjusted net earnings of $76 million were all quarterly high watermarks in the EIC business quarter. Almost all of the third quarter per share metrics were also quarterly high watermarks, which is even more impressive when you take into account the additional shares that were issued over the past 12 months for the convertible to venture conversions and acquisitions. Revenue in our aerospace and aviation segment increased by $247 million, or 57%, $680 million. Adjusted EBITDA increased by $46 million or 30% to $202 million. Revenue growth outpaced adjusted EBITDA growth due to changes in product mix at our aircraft sales and leasing business where they monetized certain large aircraft and engine sales during the quarter along with the inclusion of Canadian North's charter revenue for which adjusted EBITDA margins are lower than our northern air operators, passenger and cargo businesses. Looking at the essential air services business line, the improvements were driven by a couple of key factors. The acquisition of Canadian North, increased demand, contract scope, and price increases in our medevac contracts, and improved load factors after the wildfire subsided and operations normalized. Our aerospace business line revenues were consistent with the prior period, and profitability was slightly lower due to changes in product mix. Our aircraft sales and leasing business line increase in revenue and profitability was driven by continued improvement in leasing activity and robust parts demand. We also saw significant increases in large asset sales compared to the prior period. As a reminder, those assets are generally lower margin and lumpier than our traditional parts business. Revenue in our manufacturing segment increased by $3 million or 1% to $279 million. adjusted EBITDA decreased by 6 million or 12% to 45 million. Our environmental access solutions business line had increased revenues and adjusted EBITDA driven by the acquisition of Spartan, which continues to have a significant demand for its composite maps. As previously discussed, the Spartan team is in the final stages of designing a new plant as the longer term secular demands have demonstrated our need to increase capacity. In the Canadian market, we saw a decrease in adjusted EBITDA due to customer deferrals of projects into the fourth quarter and into 2026. As expected, our multi-story window solutions business revenue and profitability decreased due to customer deferrals and related production gaps. Profitability was further negatively impacted by aluminum tariffs. We are continuing to see significant creativity During the quarter, we booked a number of projects. However, the geography and pace of bookings continues to be sporadic as there is developer uncertainty due to anticipated changes in government regulations and further clarity on interest rate environment, including mortgage rates. 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 $69 million for the third quarter, which was an increase of $13 million or 23%. The higher EBITDA was partially offset by increased depreciation and amortization through the Canadian North acquisition, which was expected due to the significant asset backing and growth in capital investments made over the past number of periods. Earnings per share increased to $1.32 per share compared to $1.18 in the prior period. Adjusted net earnings were $76 million compared to $61 million in the prior year, with an increase in adjusted net earnings per share from $1.29 to $1.46 per share. Free cash flow was $171 million compared to $136 million in the prior year. Free cash flow per share increased from $286 to $300.30 per share. Free cash flow to maintenance capital expenditures was $88 million compared to $81 million in the comparative period. Maintenance capital expenditures during the third quarter of 2025 were $83 million compared to the prior year of $55 million. On a nine-month basis, maintenance capital expenditures were $205 million compared to $142 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 three parts. First, the elevated maintenance capital expenditures at Canadian North as we expected and previously disclosed. Secondly, the timing of events occurring. And lastly, the changes in policy based on utilization of aircraft and engines at aircraft sales and leasing as discussed in the first quarter, which saw a switch to a more conservative policy as fleet utilization increased. Growth capital expenditures during the third quarter were $128 million compared to the prior year at $93 million. The third quarter growth gap acts primarily related to Carson Air, the construction of an Ottawa hangar for Canadian North, and the execution of growth capital purchases at aircraft sales and leasing. We noted during the second quarter a significant amount of deposits were made, and we executed uncertain of those transactions during the quarter, which more than offset negative growth capex from the second quarter. From a working capital perspective, we had a recovery of approximately $3 million and an investment of $37 million for the three and nine months ended, respectively. Subsequent to quarter end, we collected two large receivables totaling approximately $25 million. We are actively managing our working capital and working with each subsidiary team to convert working capital into cash. Our corporation's aggregate leverage, assuming that the convertible is called subsequent to quarter end materially convert, would be 2.89 times. Our aggregate leverage ratio remains historic lows and well within our target. We continue to have significant liquidity available to us. Our balance sheet is very strong, and including cash on hand, And the accordion feature, within the credit facility, we have approximately $1.2 billion of capital available to be deployed. This allows us to execute on growth opportunities and acquisitions that are creative and meet our disciplined financial metrics. Our view of leverage and our disciplined approach to acquisitions and organic growth investments have been constant over the years, and they will continue to serve us well into the future. Within our third quarter results, the preliminary purchase equation for Canadian North has been included. As discussed previously, the acquisition is significantly asset-backed. Preliminary goodwill that is recorded is entirely attributed to deferred taxes. Hard assets account for more than 100% of the purchase price. This level of asset backing drove depreciation up materially in the quarter. I will now turn the call over to Jake, who will provide an update for the 2025 remaining outlook for aerospace and aviation. Perfect. Thank you, Rich.