Exchange Income Corporation

Good morning, everyone. Welcome to Exchange Income Corporation's second quarter conference call to discuss the financial results for the three and six months ended June 30, 2026. The corporate's results, including the MD&A and financial statements, were issued on August 11, 2026 and are currently available via the company's website or CDER+. Before turning the call over to management, listeners are cautioned that today's presentation and the responses to the question 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 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. Accept 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 now 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 in today's call. With me today are Richard Wowryk who will highlight our financial results along with Jake Trainor and Travis Muhr who will expand on our outlook. Yesterday we released our second quarter results for fiscal 2026. Our performance was incredibly strong and again demonstrated the resilience of our business model. We set second quarter records in all our key metrics including revenue, adjusted EBITDA, net earnings, Adjusted Net Earnings, Free Cash Flow, and Free Cash Flow Less Maintenance, CapEx. Those results, coupled with our outlook for the remainder of the year, have necessitated us to significantly update our guidance. We now expect adjusted EBITDA to be between $890 and $920 million for the 2026 fiscal year. Our accelerating performance has also resulted in records in our net earnings per share of $1.01 or 29% higher than the prior period and adjusted net earnings of $1.13 or 23% higher than the prior period. Along with very strong metrics in our payout ratios, our free cash flowless maintenance CapEx payout ratio of 55% was near an all-time low, while our adjusted net earnings payout ratio was an all-time low of 65%. The strong results, coupled with our confidence in our outlook, which Jake and Travis will talk about shortly, has allowed our board of directors and management to increase our dividend from $276 to $288 on an annualized basis. We have consistently communicated with our shareholders that we only intend to increase the dividend when we could reduce the proportion of our cash flow and profitability being directed toward the dividend. We've been able to make strong progress in this initiative, and we expect, even with the increase announced, that the payout ratios will continue to fall. During the quarter, we announced several highly strategic contracts. Our aerospace business line has finalized the scope of the services under the future AirQ training program. While the definitive agreements will be papered and signed, We anticipate that the modifications of the aircraft will begin in 2027, with the bulk of the modification and missionization services occurring in the first five years. The duration of the contract will be focused on training and in-service support. This was an important milestone for both PAL and the Skyline teams. During the quarter, we also announced the contract with Air Greenland and the Government of Denmark for the modification, configuration, and integration of two ISR aircraft owned by Air Greenland. The aerospace business continues to be very busy fielding inquiries and responding to requests around the globe. Our essential air services and aircraft sales and leasing business lines continue to see strong demand trends. In our essential air services, we saw broad-brace strength in our scheduled cargo, charter, and medevac services. With the air Canada contract expanded and extended, starting in the third and fourth quarter, we expect to see continued strength in that business line. Our aircraft sales and leasing business line is continuing to robust demand for its leasing business, along with its parts, aircraft, and engine businesses. We have put significant growth capital investments in that business and it is yielding the returns anticipated when we made the investment. Lastly, the integration of Mach 2 has gone very well and management teams are working very closely. Mach 2 has also been integral to working with Canadian North to secure square parts and components to ensure Canadian North can meet the significant demand they are seeing for their northern routes. As I mentioned during our first quarter conference call, we saw accelerating momentum within three of our business lines in our manufacturing segment as we exited the first quarter. That momentum continued through the quarter and was highlighted by strong results in both our environmental access solutions and precision manufacturing and engineering business lines. We are continuing to see significant demand for our composite mats and our output from our existing plant has exceeded our own high expectations and were in fact records during the quarter. We are continuing to see market share transition to composite mats in the southern U.S., hence the excitement for our new planted cell tillow, which is on time and on budget. and we hope we'll be able to see the plant operation later in 2027. In our Canadian operations, we are seeing significant demand for our wood mat solutions with the number of rentals continuing to significantly increase quarter over quarter. With large linear projects commencing in the latter part of 2026, we're expecting to see strong results by that business line. We continue to see encouraging booking trends at our multi-story windows. The second quarter bookings for our order book were the strongest quarter over the past several years. In the first quarter, I spoke about a positive book-to-burn ratio and that continued. However, I would say we are early innings of the game as two positive quarters does not mean a longer-term trend as we still see market softness in southern Ontario. Overall, this was a very solid quarter. Coupled with our outlook has led us to a significant increase in our 2026 guidance, a dividend increase, while anticipating further reductions in our payout ratios and maintaining our strong balance sheet. Jake and Travis will focus on the outlook for our segments for the third quarter and the remainder of 2026. I will now pass the call over to Rich, who will take... Talked about some of the key highlights from the MD&A and the financial statements.

Thank you, Mike, and good morning, everyone. I'll provide some highlights from our quarterly key performance indicators and focus on our balance sheet, investments and capital expenditures, and pipeline of acquisition opportunities. As Mike mentioned, we set second quarter records at all of our key performance indicators, including net earnings and adjusted net earnings per share amounts. Those per share records are even more impressive when you consider that shares outstanding were approximately 10% higher over the prior year due to the conversion of convertible to ventures in the prior year as we completed our goal of simplifying our balance sheet. From a balance sheet and cash flow perspective, we had further investment in working capital during the quarter highlighted by some significant investments in prepaid and inventory at our aircraft sales and leasing business line. In addition to purchases of whole aircraft for resale and growth in parts inventory to support future growth in parts sales, deposits were made for future asset acquisitions that will occur over the back half of the year. Consistent with the seasonality of EIC, we expect that the third quarter will require a further investment in working capital as the third quarter is our seasonally strongest quarter. and then we anticipated normalization of working capital in the fourth quarter, which is generally an average quarter for the fiscal year. Aggregate leverage remains near historic lows with total leverage at 2.82 times. With over $2 billion of available liquidity, we are well positioned to pursue acquisitions and invest in our existing businesses while maintaining our established disciplined capital allocation. The investments we have made over the past number of years have started realizing the returns envisioned when those investments were made. There is always a lag in growth capital expenditures between the outlay of capital and the ramp up in operations and the generation of the free cash flow and we are seeing the impact of those investments in our current year results per share metrics and payout ratios. In the current year, growth capital expenditures were $120 million on a year-to-date basis. The manufacturing segment growth capital expenditures are primarily related to the Spartan state-of-the-art facility in Saltillo, Mississippi, which will be an important growth engine and provide significant operating leverage to that business line to meet market demand. The growth capital expenditures within the aerospace and aviation segment were primarily focused on the aircraft sales and leasing business which accounted for about 15% of the investments with the vast majority of the growth capital expenditures focused on our essential air services with investments in our BCHS contract finalization of our full motion King Air simulator which is now fully certified and operational Investments in aircraft for the Air Canada expanded and extended commercial arrangement, investments in the Canadian Air's state-of-the-art cargo facility, which is now operational in Ottawa, and various growth investments in our air operators for additional capacity to meet scheduled service and charter growth. These investments will drive cash flow in future periods. Maintenance capital expenditures were below our internal expectations in the first and second quarters. In the second quarter, investment and maintenance capital expenditures were $76 million for aerospace and aviation and $10 million for manufacturing. The increase over the prior year comparatives were due to the acquisition of Canadian Air North and increases in the utilization of the aircraft sales and leasing fleet. Jake will provide further guidance for Q3 and Q4. The collective significant increases in growth and maintenance capital expenditures will result in increases in depreciation over the back half of 2026 when compared with the first six months as the net book value has increased over the period. Our M&A pipeline remains strong. Adam and his team continue to work on a number of opportunities across both segments. Generally, the more advanced opportunities are those that are tangential to our existing businesses and are in high growth areas. We have a great foundation of businesses and to the extent that we can find ancillary opportunities to support our competitive boats, we are always interested in those accretive opportunities. I will now turn the call over to Jake who will provide an update for the third quarter and remainder of 2026 for the aerospace and aviation segment.