Exchange Income Corporation (EIF) Earnings Call Transcript

Good morning, everyone. Welcome to the conference call held by Exchange Income Corporation 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 SEDAR+. 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 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. Except as required by Canadian securities law, EIC does not undertake to update any forward-looking statements. Such statements only have been made. Listeners are also reminded that today's call is being recorded and broadcast live by the Internet for the benefit of individual shareholders, analysts, and other interested parties.

At this point, I'd like to hand things over to Exchange Income Corporation's CEO, Mike Pyle. Thank you. Mr. Pyle, the floor is yours.

Thank you, operator. Good morning, and thanks for being with us on today's call. Joining me is Richard Wowryk, our CFO, who will discuss the quarterly financial results, along with Jake Trainor and Travis Muhr, who will cover the outlook for our two operating segments. Also on the call are Adam Terwin and Dave White, who will be available to answer any specific questions regarding Canadian North and the Long Term Air Services agreement announced after quarter end. Yesterday, we released our second quarter results for 2025. For each of our key financial metrics, performance in the second quarter remained very strong. We once again set Q2 high watermarks across each of our key metrics, including revenue, adjusted EBITDA, free cash flow, net earnings, and adjusted net earnings. In fact, revenue of $720 million was the highest ever achieved in any quarter in our history. After 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 a long term services agreement under which Canadian North and Air will be the sole provider of air services for all three regions.

From where we sit, buying Canadian North is a very strategic move for EIC, since bringing in its infrastructure, assets, and management team guarantees EIC offers something uniquely valuable to our customers and to the Government of Canada. Jake will go into more detail later about some of the opportunities that exist for EIC now that Canadian North is part of the team. We also revised our 2025 EBITDA guidance upward, lifting the range to $725 million to $765 million, and that figure now takes in Canadian North's financial results. When it comes to seasonality, Canadian North tracks fairly closely with our other essential air services businesses. As a reminder, we said earlier that returns — free cash flow less maintenance CapEx — will be muted over the near term, though they should reach our return expectations by the end of 2026. These record results came about during a period of uncertainty, with business sentiment weak as the quarter began because of uncertainty tied to trade policies and geopolitical events. This quarter, though, shows once again how diversified and resilient our businesses are when times are uncertain. EIC keeps delivering strong returns even while the world goes through difficult periods. Tariffs did not have a material impact on EIC as a whole.

That said, it did have a negative effect on our Multi-Story Window Solutions business line, since those tariffs—more than anything else—more than wiped out the productivity and profitability gains we delivered through our integration activities. We remain bullish about the long-term fundamentals of that business line, and we'll look at every option for mitigating the tariffs going forward, through manufacturing decisions and adjustments to our supply chain. In the end, I think Canada and the U.S. will reach an agreement and, hopefully, will lower tariffs over the longer term, given how directly intertwined the two economies are. Apart from weaker business sentiment, which postponed some customer purchasing decisions during the quarter, our remaining subsidiaries saw no direct tariff impact. We're still seeing a significant number of inquiries across the businesses, particularly as we exited the quarter. As customers come to understand that this trade environment is now the new norm, I believe business sentiment will gradually improve and firm orders will keep rising in a step-based improvement, especially now that legislation has passed in the U.S. providing accelerated tax deductibility in the subsequent quarter. Several of our manufacturing entities received purchase orders, including our Multi-Story Window Solutions business line, which booked approximately $100 million in new products.

We anticipate that this positive momentum will carry on across our different business lines. Our results were also affected by the wildfires that occurred throughout Canada. Above all, my heart goes out to everyone who has been forced from their communities and their homes. EIC was present to assist these communities with evacuation efforts, and right now we are providing capacity to bring community members back to their homes. Our rotary wing operations were also extremely busy with fire suppression work. The impact on the communities is foremost in our thoughts. That said, it did affect our quarter as well. Evacuation sites give a short-term boost to our charter operations. However, it subsequently has a negative effect on our scheduled service and medevac operations. Those communities are no longer populated. I will let Rich focus on the financial results for the operating segment. But before I hand off the call, I wanted to give some context on a couple of items. We will keep having significant liquidity available to us. We had drawn the funds for the Canadian North acquisition before quarter end, which is why the cash balance was above normal amounts. Our leverage ratios remain at the low end of the historical range, and our balance sheet remains very strong, which will let us execute on organic growth opportunities and/or acquisitions.

I'd also like to provide my customary update on where things stand with the major contract proposals that are still pending. In Q4 of 2024, we handed in our bid to the Australian Government regarding their Australian maritime surveillance contract. Our earlier expectation was that we would learn the award outcome by July. The May election in Australia, though, pushed back the bid evaluation process, so we now expect to hear the results at some point during the third quarter. As I've said before, we feel we assembled an extremely strong bid, and we anticipate having a chance as good as any other bidder. On top of that, given the geopolitical climate, we keep seeing considerable interest from a number of other countries in additional ISR assets, and we're collaborating with multiple governments to develop solutions for their needs, with several discussions under way with those involved in procurement. The second aircraft for the UK Home Office contract is now fully modified and awaiting regulatory certification in the UK, and it should begin flying later this month. We reached and substantially surpassed one more milestone — a $3 billion equity market capitalization. Our whole team takes great pride in this accomplishment, and it reflects recognition of our business model.

Results so far this year represent a very robust beginning to 2025 and keep demonstrating how well our business model works, something that is beginning to show up in the price of our shares. Demand across both our services and our products remains highly robust. Jake and Travis will address what lies ahead for each of our segments through the rest of 2025. Finally, we plan to give the market our guidance on expected adjusted EBITDA for 2026 during our third quarter conference call in November. Following the same approach we have taken before, I will hand things over to Rich now.

Thanks, Mike, and good morning. In the second quarter of 2025, we posted 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. All of those are second quarter records. Revenue in our aerospace and aviation segment rose by $28 million, or 7%, to $455 million. Adjusted EBITDA grew by $13 million, or 10%, to $148 million. Turning to the essential air services business line, a couple of key factors drove the improvements. First, historic organic growth capital expenditures made over the past number of years will meet increased demand, and contract wins in our medevac operations — primarily tied to the British Columbia and Manitoba medevac contracts — drove higher revenue and profitability, including enhanced scope across multiple markets. Second, the quarter saw strong firefighting activities, which produced evacuation flights and rotary wing fire suppression. Lastly, although load factors were strong in the first part of the quarter, scheduled service and medevac volumes declined in the latter part, since northern communities were temporarily displaced and did not require those services. Our aerospace business line saw lower revenues and profitability because of the planned wind down of certain training programs ahead of the start of new programs and contracts.

Also, one of our aerospace contracts shifted from a performance-based logistics agreement into a timely materials arrangement, and that creates greater quarter-to-quarter variability. Growth in our aircraft leasing business line came from ongoing gains in leasing activity along with strong parts demand. Demand is substantial in our leasing business for the aircraft, and it is even stronger on the income side. Partly offsetting those gains was a decline in large asset sales versus the prior period. Such sales typically carry lower margins and are lumpier than what we see in our traditional parts and leasing business. Manufacturing segment revenue rose $31 million, or 13%, reaching $265 million. Adjusted EBITDA climbed $9 million, or 26%, to $44 million. Our environmental access solutions business line posted higher revenues and adjusted EBITDA, powered by the Spartan acquisition, which saw considerable demand for its composite mats. As we discussed before, the Spartan team is assessing several existing locations for our second plant, reflecting longer-term secular trends in the Canadian market. Adjusted EBITDA declined because of a product mix shift, since we recorded more mat sales relative to rental mats as some rental mat projects slipped into the latter portion of 2025 and into 2026.

As we anticipated, revenue in our Multi-Story Window Solutions segment declined because project customers deferred work and that created related production gaps. In the near term, aluminum tariffs put additional pressure on profitability. To lessen the tariff effect, we've made changes including adjustments in our supply chain. That said, finding and setting up new suppliers who can satisfy demand and quality requirements takes a while. Since the quarter closed, we have seen cases where inquiries turned into bookings. With bookings above $100 million, we're encouraged that booking trends will keep improving in the back half of the year as geopolitical trade risks become more normalized and businesses show willingness to deploy capital. Our precision manufacturing and engineering business line delivered another solid quarter on both revenue and profitability. It was fueled by customer demand across multiple industries, among them telecommunications, technology, resource, and data centers. On an overall basis, net earnings came to $40 million in the second quarter, up $7 million, or 23%. Higher adjusted EBITDA and lower interest expense were offset by greater depreciation and amortization stemming from the acquisition, growth capital investments, and higher acquisition costs tied to the Canadian North transactions.

Thanks to the complexity involved, earnings per share rose to $0.78 per share, up from $0.69 in the prior quarter. Adjusted net earnings came in at $47 million versus $38 million in the prior year, and adjusted net earnings per share climbed from $0.80 to $0.92 per share. Free cash flow totaled $123 million, compared with $101 million in the prior year. Free cash flow per share went up from $2.13 to $2.40 per share, while free cash flow less maintenance capital expenditures was $57 million versus $52 million, and on a per share basis rose from $1.11 to $1.12. Maintenance capital expenditures in the second quarter of 2025 were $66 million, compared with the prior year's $48 million on a six-month basis. Maintenance capital expenditures were $122 million, compared with $88 million in the prior year. Q1 in the prior year was an anomaly on the low end because of the timing of maintenance events. The current year's increase stems from the timing of events combined with the policy based on utilization of aircraft and engines within aircraft sales and leasing. As we discussed in the first quarter, growth capital expenditures during the second quarter were $5 million, compared with $45 million in the prior year.

The second quarter came in below what we had expected, and looking at the opportunities we currently see in aircraft sales and leasing, we anticipate that growth capital expenditures will be incurred during the third quarter, and that should reverse the negative growth capital expenditures we saw in the second quarter. From a working capital standpoint, we had an investment of roughly $40 million. That investment came about because of growth in the business, together with deposits of approximately $20 million for assets in our aircraft sales and leasing business line. After the quarter ended, we collected a material government receivable of approximately $19 million, which brings the aging of government receivables more in line with historical norms. We are actively managing our working capital, and we are working with each subsidiary chief to convert working capital into cash. The Corporation's aggregate leverage, including both its senior credit facility and convertible debentures, declined from 3.36 at March 31 to 3.21 at June 30. 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 or to look at it and through acquisition when the right opportunities present themselves.

Even so, the extra liquidity doesn’t alter how we see leverage, and we intend to keep leverage inside the range we’ve historically held. At this point I’ll hand the call to Jake, who’ll give an update on the rest of the 2025 outlook for the Aerospace and Aviation segment.

Thank you, Rich. Travis and I are going to divide the Outlook section between us again, and I'll take the Aerospace and Aviation segment. Travis will give you context on the manufacturing segment. All told, we anticipate a robust final six months in terms of revenue and adjusted EBITDA from our aerospace and aviation segment, and there are several key reasons why. The biggest one will be having Canadian North's operating results included now that the acquisition closed on July 1. Stepping back for a moment, Canadian North's seasonality lines up fairly well with their essential air services operations — their second and fourth quarters look much alike, the third quarter is the strongest, and the first quarter is seasonally the weakest given demand and weather factors. Second, we expect improving results thanks to growth capital investments tied to contractual wins announced over the past several years, among them contributions from the UK Home Office's second aircraft, which should begin flying in late August once regulatory approval comes through. I'll go through the specific growth factors by business line. When compared with the prior period, our essential air services will grow because of a multitude of factors. The first and most significant is the addition of Canadian North.

We likewise expect solid load factors and expansion throughout our legacy networks relative to 2024. During Q1 and early Q2, we had seen robust load factors, and after that evacuation flights in Manitoba and Northern Ontario, driven by wildfires, took their place. Load factors in Manitoba in particular declined over the later part of the quarter, since communities that had been displaced meant that revenue and profitability from scheduled services suffered a negative impact across the final six months of the year. We do expect results to normalize. Finally, we anticipate ongoing growth in our medevac business, driven by scope increases relative to the prior year. Under the BC medevac contract, we expect to take delivery of roughly 8 to 10 of the new King Air 360 aircraft by year end, and that will let us redeploy the aircraft we already have across our other operations, including the Newfoundland and Labrador fixed wing medevac operations. Partly offsetting these gains is the effect of persistent labor shortages and supply chain challenges. We aren't seeing these dynamics get worse; nevertheless, the difficulties persist, particularly with respect to aircraft parts or consumables and with respect to aircraft maintenance labor. Revenue and adjusted EBITDA for the aerospace business lines are projected to rise, as the prior year comparables in the third and fourth quarters had begun to reflect the winding down of training contracts and the conversion of the aerospace support contract from a performance-based logistics agreement into a time and materials arrangement.

We expect those gains to come from the second aircraft placed on the UK Home Office contract, along with a continued strong pace of flying for the ISR assets we own. As Rich mentioned, our aircraft sales and leasing business should also grow, thanks to investment in working capital for future part sales and in aircraft and engines inside the leasing portfolio, both of which we anticipate in the third quarter. With that larger inventory, we still expect leasing revenues to rise as we put those aircraft and engines on lease. We also anticipate higher part sales across the year, assuming we can get access to MRO slots. Stepping back, I wanted to highlight the strategic benefits of the Canadian North transaction over the longer term for EIC as a whole. We believe the Canadian North infrastructure and aviation assets, combined with our current operations, give us a unique offering to meet the development needs of the North. As the Government of Canada renews its emphasis on development, security, and sovereignty in the North, EIC's comprehensive portfolio — including advanced aerospace solutions, sovereign Arctic aviation, defense enabling infrastructure in country, defense, manufacturing, and our extensive network of partnerships with Indigenous communities and businesses — uniquely positions the company to lead and support these critical initiatives.

We’ll take the initiative to talk with the Government and with our customers about ways EIC can help them meet their NATO goals and support development in the North. For several reasons, we anticipate that maintenance CapEx spending will rise. First, because Canadian North has been added, we noted that first-year returns are likely to be subdued as a result of maintenance CapEx outlays that are higher than usual. During purchase price negotiations, we factored in the expected maintenance CapEx spending and agreed on a purchase price reduction that matched it. Second, maintenance capital expenditures should grow in step with gains in adjusted EBITDA within our aerospace and aviation segment. Third, higher maintenance capital expenditures tied to our aircraft sales and leasing business reflect steadily improving utilization across our lease portfolio. Finally, maintenance capital expenditures in central air services for this quarter came in under our internal expectations because of the timing of events, and those amounts are expected to be made up in later quarters. Growth investments for the rest of 2025 include capital expenditures for 8 to 10 new King aircraft, which will be deployed in the BC medevac contract. We have already received 5 of these aircraft.

We expect that to happen by the end of August. And finally, Regional One has put down deposits on some aircraft assets, and it expects to complete deals involving aircraft and engines in the third and fourth quarters. Growth capital expenditures came in negative during the second quarter, which was unusual because of when opportunities happened to close. As a reminder, we only go ahead with transactions when they satisfy the same financial metrics we use for acquisitions. Now I'll hand things over to Travis, who will offer some commentary on the manufacturing segment.

Thanks Jake, and good morning. For the rest of the year, we expect our manufacturing segment to keep growing both revenues and profitability relative to 2024. Two factors drive that expectation. First, many of the subsidiaries in this segment are seeing the business environment normalize, and we get the annualized contribution from Spartan in our environmental access solutions business line. Every business in the manufacturing segment saw a strong level of customer inquiries as 2025 began, with some softness showing up once the tariffs took effect. From a customer booking standpoint, tariff uncertainty produced a small reduction in the second quarter, but business sentiment has been steadily improving as customers came to accept the risk landscape. Overall, as Mike said, with the tariff situation as it stands today, we have not been directly impacted by tariffs, apart from the aluminum tariffs that affected the Multi-Story Window Solutions business line during the quarter. The vast majority of the products we make are compliant with Canada, U.S., and Mexico rules, so the broader tariff risk would come through declining business sentiment and supply chain changes, which, as Richard noted, do take some time to implement. For the remainder of the year, our environmental access solutions business line is expected to deliver returns above the comparative periods.

Spartan is still seeing really robust demand for its composite mat solutions, and based on what customers have told us and the testing done on a System 7 XT mat, we expect those products will keep selling out their manufacturing capacity. On top of that, the FOD Trackout product line is experiencing very strong demand as well. Because of that demand, we're actively looking at a range of possible locations for building a state-of-the-art plant. We view the composite mat industry as having a positive long-term trend, since usage keeps expanding both geographically and across sectors, and it continues to take market share away from the traditional wood mat industry in the U.S. While we have seen some project start dates deferred in our mat and bridge solutions business in Canada, we expect those projects to get underway in the latter parts of 2025 and into 2026, which should produce an uptick in mat and bridge rentals. We've discussed at length our bullish view on the transmission and distribution sector, given that electric grids must be expanded and hardened to meet new electricity demands, whether that's for electric vehicles or data centers. We also see a number of tailwinds for the traditional oil and gas and pipeline sectors. As expected, revenue and adjusted EBITDA for our Multi-Story Window Solutions business line are anticipated to come in lower than the comparative periods.

We laid out what we expect on the year-end and first quarter call, and for the rest of the year the same drivers apply. The declines from one period to the next are anticipated for a couple of reasons: first, the elevated interest rate setting that was in place during 2023 and 2024, which cut back project manufacturing for 2025. Generally, projects that get booked are manufactured 18 to 24 months from the booking date. Second, for projects slated for 2025, we expect margin pressure stemming from the mix of projects booked, combined with production gaps. We've consolidated manufacturing capacity in Canada by merging certain manufacturing facilities, and we're realizing the benefits of those efforts. We did see profitability and benefit rise. Even so, the tariffs more than offset those gains. As we discussed in our reporting, we weren't able to change our supply chains over the short term, so during the quarter we were exposed to the aluminum tariffs. Over the longer term, we'll be in a position to mitigate the impact and optimize production. Quoting activity in Canada and the U.S. remains very active, and we're seeing bookings after year-end. We successfully booked roughly $100 million of new projects, and we expect this trend to keep going as developers grow more comfortable with the economic environment we're in.

Our confidence in this business line remains high, since the longer-term fundamentals driving demand — namely a severe lack of affordable housing — continue to be very strong across a number of geographic regions in Canada and the U.S. For the rest of the year, our precision manufacturing and engineering business line should show improvement in both revenue and profitability versus the prior year. Strength is coming from a variety of sectors, among them defense, telecommunications, technology, resource, and data centers. We expect growth capital expenditures to be incurred in each of the business lines, though those should stay relatively consistent with the prior year. In the environmental access solutions business line, growth capital expenditures will hinge on market dynamics, as they continually reassess their fleet according to expected market conditions. We do expect an investment in fleet, together with the buildup of mats, to realize those opportunities for the latter part of 2025 and into 2026. I'll now hand the call back to Mike.

Thanks, Travis. I feel a lot of enthusiasm about what lies ahead for us. Our past values serve as our guide, and the different business lines we operate are positioned to capture meaningful tailwinds going forward. The mix of businesses we hold is the right one, the management teams are the right ones, and the 20-year history behind us demonstrates that we can strategically execute on those opportunities as EIC. As an organization, it is marked by resilience and stability, and our record results along with the outlook for 2025 continue along those same tracks. Before we get to questions, I want to take a quick moment to express appreciation to Carmele Peter for what she has done at EIC. More than a year ago, we announced she would retire from management and transition to our Board of Directors. Starting at that point, together with Adam and our team, she took the lead on our investigation and negotiation of the Canadian North acquisition. She agreed to remain in her President's role until that deal either closed or was abandoned. The Canadian North acquisition closed effectively on July 1, and the negotiation of a long-term contract with the Government of Nunavut was completed shortly after that. True to how she typically performs, together with Adam and the team, she disregarded every expectation about getting this transaction closed.

This deal is going to fuel our expansion through 2026 and afterward. Carmele, I want to thank you for everything you've given EIC while serving as President here. What you've contributed has been essential to the success we've achieved. The senior team has taken on Carmele's duties, and that group includes Jake, Travis, Adam Terwin, and Rich Wowryk. I'm happy to share that Jake, who led PAL as CEO through its stretch of fast growth, has joined EIC in the role of our new President. Calvin Ash, who spent many years as an executive at PAL, has stepped into the CEO position at PAL. Having a strong, deep management bench matters greatly when senior leaders retire. Our attention to succession planning has paid off for us. Thanks for spending part of your morning with us. At this point we'd like to take questions from callers.

Operator, thank you, and good day, everyone. At this point we'll move into the question-and-answer portion of the call. If you'd like to ask something, just hit star and then one on your phone's keypad. A prompt will confirm that your hand has been raised, and if you decide you'd rather withdraw the request, press star and then two. When you're on a speakerphone, kindly pick up the handset first, then press any keys. We'll take a brief pause before the first question. Thank you. Our initial question is from Steve Hansen with Raymond James. The line is yours.

Good morning there, Steve.

Mr. Hansen, your line is open now. The next question comes from Cameron Doerksen of National Bank Financial. Please go ahead.

Morning, Cam. This is the operator. It seems like you’re running into issues on your side. Could someone there please check on that?

Yes, we’ll look into that issue, and Mr. Doerksen, are you able to hear us?

No one is able to hear you. There’s an issue with the operator on your side.

James McGarragle from RBC Capital Markets has the next question. Go right ahead.

Hello there, can everyone hear me okay?

James, you're coming through loud and clear. Good to know at least one person made it in. Feel free to fire away with as many questions as you like. Sound good?

Well, congratulations on a strong quarter. Jake, congratulations on the new position. I just wanted to ask about the Canadian North field — now that it has closed, could you give us an update on the CapEx plans for the remainder of the year? I'd just like to get a sense of how we should be modeling that for the rest of 2025 and on into 2026.

That is a great question. At the time we announced this deal, we indicated it would likely take until the close of next year for us to reach our 15% return threshold. Three items formed the basis for that. The first was bringing revenues to the level required for the business to be profitable. We are quite happy that we signed the long-term contract with the Government of Nunavut, so that box is ticked earlier than we had anticipated. The second item involves removing certain costs from the business by applying best practices from our aviation businesses. That work is in progress. We have recorded some early wins. Rich and his team, for instance, have negotiated a new credit card agreement that will save us $1 million a year. Those things do not move all that quickly, but we are making changes. Calvin and his team are examining combis and how we operate our routes. We have a Regional One on our side. Over roughly the next year and a half, you will see costs come down. Lastly, the biggest piece in reaching the 15% was that we understood when entering this transaction that a significant amount of maintenance capital work existed, especially some engines that required overhaul, and you will observe much higher than normal maintenance CapEx across the next four quarters.

Honestly, we discussed whether we could fold that into the price we paid — raising the purchase price and letting the seller handle the work — but we doubted it could be finished in time. Looking at the purchase price, effectively a portion of what we're paying reflects some additional maintenance CapEx early in the period we foresee. For roughly the next year, you should expect maintenance CapEx running above normal. I'd rather not call it catch-up, since that would suggest Canadian North had been neglecting their maintenance CapEx, and they most certainly were not. It's simply a matter of coincidence and timing that a great many overhauls, including engine overhauls, are due, so that will show up in the early going. I'm glad to report that operating performance is well ahead of our modeling, largely thanks to the early cost savings and the new contract with the government.

Thanks for the question. You’ve been pointing out for the last couple of quarters that there’s a chance to shift some assets out of British Columbia and into the new family deal, and that it takes some years to get some of these aircraft. It looks like those aircraft are arriving in the back half of the year. Should we be looking for a fairly sizable margin improvement over the next few quarters, and obviously for 2025 that will show up in the updated guide. Is there an opportunity to keep pushing some improvement there into 2026?

Yes, that overall point you made is right. Where Newfoundland is concerned, the thing is that deploying different aircraft shifts our return on capital more than it shifts our margins as such. Once that contract takes effect and we're flying assets that are already ours, we'll generate a return on those things without spending fresh capital. That is precisely what we were after when we secured the British Columbia contract, since the fleet in that province was in perfectly good shape. The government, though, wanted new aircraft. Jake?

Yeah, James. To add a bit more detail, some aircraft modifications will be required purely for configuration changes as those aircraft come out of service in British Columbia and enter service in Newfoundland, and you won't see them begin to contribute until early 2026.

Thanks for taking the call, everyone — I'll hand things over now. Appreciate it.

Appreciate that, James.

Thank you. If you're having trouble keeping your connection, please call 1 to 289 to 819 to 1350 or +1 to 800 to 836 to 8184. Again, that's +1 to 289 to 819 to 1350 or +1 to 800 to 836 to 8184. And once more, press star one when you'd like to ask something. The next question is from Chris Murray of ATB Markets. Please go ahead.

Thanks, everyone. Hey, good morning. I hope you can hear me clearly. Going back to the guidance, with that $35 million raise, could you perhaps help us see how it fits together? What portion of it comes from Canadian North's contribution? And how much of it — it sounds and looks like, you know, somewhat stronger margins in the aviation businesses, possibly offset a bit by manufacturing. Maybe you could just give us some detail on how that stack shapes up.

Yeah, the bulk of that gain would come from Canadian North. Honestly, Chris, the figure would have been higher if the forest fires hadn't kept going. In northern Manitoba, several of our largest communities have sat empty for three, four, five weeks. When that happens, we're not flying there. So that $35 million would have started with at least a 4 if we'd had anything even remotely near a normal forest fire year. In the 50 years we've operated in the north — 50 years plus — this is a year unlike anything we've seen. To come back to your question, it's broad strength across our overall business, offset by the forest fires, and then most of the growth would be coming from Canadian North. Okay, that's helpful. Thank you. Going back to Canadian North, maybe this is the uncomfortable question, but part of the thinking, I believe, or at least among outside observers, when Canadian North merged with First Air, there was some discussion about how effective that had been. I know you're — I'm sort of thinking about your path forward.

I realize you mentioned certain SG&A expenses, including the credit cards. There appears to be a maintenance-heavy spike in that area. Could you discuss how you might streamline the operation overall? I understand this is a delicate topic, what with so many moving parts involved. Would you speak a bit about the chance you have to take some of those costs out of the business? When you mention the cut falling under your roughly 15% threshold, does that relate mainly to, say, an EBIT margin, or does it relate more to the fact that you'll be running higher — simply higher CapEx or oil? I'm only trying to get a sense of the balance, of where the problems actually sit. That's an excellent question. Let's take it in pieces. The operating improvement was expected to come from revenue, and that box is now ticked.

We have no plans to make significant adjustments to what ordinary travelers pay. For quite a while, the government contract hadn't accounted for shifts in aviation inflation, and that has now been folded into the agreement. That matter is handled. The operating improvement, then, comes from the cost side. Again, I'd split that into three components. One relates to the G&A improvement and items such as the credit card, though that's merely one illustration. They are simplifying certain accounting systems and aligning them with EIC standards, which should make those systems more efficient. The next major item, which we'll complete later in this quarter, involves transitioning them onto our global insurance plan, which as a group we purchase at far lower rates than smaller airlines pay. The following component will be procuring parts via Regional One, leveraging our group's buying power, which will reduce their operating costs. The final component, the one that's a bit more intricate, involves shifting their fleet away from solely freighters and solely passenger aircraft toward a mix of combi aircraft and pure freighters. Some markets will forever need pure freighters, yet the majority of destinations served out of Iqaluit and Yellowknife could be served more efficiently by combining passenger seats and freight on every plane.

There's no requirement for us to acquire new aircraft or anything like that. You shouldn't be concerned about major capital expenditures. We will need a bit of time to modify the planes and adjust their configuration. That is a fairly modest outlay, likely in the hundreds of thousands or $1 million range rather than anything significant. It will take some time, and it will require some changes in how we operate the aircraft and those sorts of things. That will take a somewhat longer stretch. Given the maintenance CapEx we were aware of that is going to be elevated during this period, that pushes back our 15% return simply because our definition of it is EBITDA minus maintenance CapEx, and maintenance CapEx is going to be high over the next few quarters. I'd say we're ahead of schedule on the EBITDA portion of the equation. Our operations, I would say, are getting better faster than we expected in our business model. We have some excellent people at Canadian North who are keen to leverage some of our purchasing strength and some of our opportunities. The CapEx will resolve itself over a reasonably modest stretch of time.

Mike, there's something I might put together. Regarding what Chris asked about — Chris, this is Adam, I believe. You nailed it precisely, and it just keeps going. Going back through the history and the facts — there was a merger, and right after that merger, COVID struck, and I think that's been reasonably well understood. There was some turnover at the CEO level. The merger took place. Covid landed a bit. Some instability at the top while the two airlines were being brought together. What's been difficult — and to your point, opportunities exist now thanks to EIC's expertise, their long-term ownership, and the fact that we now have this long-term agreement with the Government of Nunavut, which supports long-term planning — there's that too. The ability to drive further synergies inside that operation as well. To your point, there is. That opportunity too.

All right, thanks. And Mike, perhaps just a quick one. When we look back at maintenance CapEx and how it relates to revenue in aviation, we've generally viewed it — we've typically observed it on average — and yet it won't be roughly 12% of revenue. Should that be our assumption? I understand these are all 737-2 to 1200s and bigger aircraft, but is that roughly the right order of magnitude to keep in mind as you approach that 15% figure?

Yes, it will differ from one period to the next. When it comes to maintenance CapEx relative to revenue, it ought to be quite close to the level we see at our other airlines. Beyond the 737s, they fly a sizable fleet of ATRs, and those are precisely the same aircraft — in fact a somewhat newer version of the ones Com Air operates. Your reasoning is right, though over the coming three or four quarters it will run above that. When there are certain tasks to complete, we generally prefer to get them done sooner rather than later. We avoid having aircraft out of service during busy periods. Our capital structure allows us to do that. I don't want anybody concluding that maintenance CapEx is on the rise. Were they simply skipping maintenance? No, that isn't the problem. This was just a whole set of items, by timing, that engines can handle simultaneously, and in cases where they might have been leasing a replacement. Now we're actually going to overhaul it and replace it, or purchase a new engine. We knew about that going in, and in our thinking it formed part of the 200 in the middle, on top of the $200 million we were paying.

When you consider it—even using only that early-stage 6-month figure, with the bulk of that gain tied to Canadian North—it's clear the EBITDA multiple at which we bought this was quite attractive. Okay, that's useful. If I could fit in a third question. I believe you mentioned in the script that you'd be looking at a new factory for the matting business, which is performing better, and that the decision has essentially been made to move forward with it. Could you give us any update on where you expect that to be located and what you expect for capital spending as we head into next year? The plan is for it to be in the southeast U.S. We're still working it out between—there are really 4 states at this point that we're considering. It could be in Florida alongside the other plant. It could be in Texas, it could be in Alabama, or it could be in Mississippi. Those are the 4 locations we've narrowed it to. We'll give you one more quarter to give you a budget for it. Because what we're really focused on right now is how large a plant do we build?

Are we designing this so it can be expanded later without relocating? That's the direction I believe we're headed. Giving you a budget number is difficult right now since the business model is still being worked out. My hope is that when we report in November, we'll be able to say we've established a site, signed some purchase orders, and have a budget in place. We should also be able to provide a rough update on the start. In terms of figures, we view it as a project of at least 18 months to get the plant operational. Depending on wait times for certain equipment, it could stretch to two years. This is very specialized, very heavy pressing equipment used to make the composite mats. I wish we could have it running tomorrow. Demand exists and isn't going away. We're ready to make the investment. We simply want to ensure we do it properly. For Spartan, it's a significant investment.

Okay, thank you very much. I'll hand over the call now.

Thanks. For anyone still having trouble staying connected, please dial +1 289 to 819 to 1350 once more. Again, that number is +1 289 to 819 to 1350. Our next question is from Cameron Doerksen of National Bank Financial. Go ahead, please.

Yes, thank you. Morning to you all. Am I coming through clearly?

Yes, Cam, we’re able to do that. Good morning.

All right, great. To build on what Chris asked, regarding the matting business, it clearly sounds like Spartan is performing very well based on your prepared remarks, and the MD&A also included some commentary about the Canadian matting business, where we struck a somewhat more optimistic tone on increased activity there. Could you perhaps talk about the visibility you have into how that business is shaping up over the coming number of quarters?

Yeah, Q2 came in slower than we had expected, and that was because a few linear projects got delayed — especially certain pipeline and transmission line integrity work that we handle out East. It got pushed back. We're beginning to see that get underway in the third quarter. The raw count of projects being looked at and that will break ground over the coming six months, 12 months, is remarkable. Hydro One has mentioned — I can't recall the exact figure — seven new distribution lines that they need to construct. They're also talking about this natural gas work. There are oil and gas pipelines too, plus gas digging. Practically every segment of the linear side of that business is bullish. Over the medium term, it's still going to take us until possibly the end of this quarter or the start of the next one before we begin to see that activity move. Much of it ties in with the infrastructure work our Prime Minister has discussed. It goes beyond that, though. It's utility work even in Manitoba and Saskatchewan. Manitoba Hydro has announced a major program focused on maintenance of the two bipolar lines, which will generate work. There's work in Saskatchewan, and there's work in British Columbia.

Our outlook on that business over the medium term is quite optimistic. It likely won't show up as a Q3 boost, though it should begin later in the year and carry into next year. The medium-term picture in Canada appears excellent, and that aligns with what we are already observing. In the U.S.,

Alright, that helps a lot. Perhaps one more question from me, specifically about the aerial surveillance possibilities. I believe you referenced a Q3 decision, hopefully, regarding the Australian maritime surveillance contract. Could you share, if possible, further specifics on what additional opportunities exist out there? I'm also considering potentially Canada, where with higher defense spending and a focus on the north, there could be some opportunities for that business as well.

I need to watch myself when it comes to getting too detailed, since negotiations are underway on several matters. That said, we have previously discussed inquiries concerning Greenland, interest from other European nations, and conversations with the Canadian government regarding extra work for them. Let me note that we have performed work off Canada's coast for more than 40 years. We recently renewed that arrangement through another long-term contract under which we'll talk with the Government of Canada about further work. Additional possibilities exist potentially in the Southern Pacific beyond the Australian maritime surveillance contract. At times it worries me that discussions become overly focused on the Australian contract given how large it is, and that one is all or nothing. We either secure it or we don't. It is a single contract, albeit the largest, yet opportunities exist everywhere. I would be quite surprised if we fail to report some wins before this year ends. Of course, those items probably won't affect this year's revenue, given the timing of winning the contract, purchasing the parts, and similar steps. We are quite active across numerous markets. Jake, was there anything I left out?

Yeah, no, that's a fair point. Unfortunately, global instability does push up demand for the kind of services we offer through the surveillance work. We've got a robust pipeline and inquiries coming from pretty much every geographic region where we operate.

All right, that's certainly encouraging to hear. I'll hand things over now. Thanks for your time, everyone.

Thanks. We’ll take the next question from Krista Friesen at CIBC. The line is yours.

Appreciate you taking my question. Morning to you. Nice work on this quarter.

Much appreciated.

Let me just ask a quick follow-up. Regarding those matting questions, there clearly seems to be substantial opportunity in Canada. How do you feel about your mat supply and your ability to meet that demand?

Right now we're timing production so we don't purchase them prematurely. At Northern Mat, one benefit we enjoy stems from vertical integration—we handle our own construction choices and hold quite robust timber inventory. We're able to begin or halt roughly whenever necessary. Since Q2 ran slower, we reduced output during that stretch. With what we see approaching, chances are we'll restart. We run more than a single facility. Our second facility will probably ramp up later in the year. I have minimal worry about our capacity to supply sufficient mats globally. Adding Duhamel has benefited us greatly in the East. Their arrival strengthened our ties with Hydro Quebec. We moved a large quantity of mats to them during the last quarter. We're exploring further opportunities alongside them. Another point worth noting that's bullish for the business, especially after we clear Q3, concerns where the TransCanada pipeline wrapped up. Plenty of used mats flooded the marketplace everywhere. A number of our competitors seized those and then employed extremely inexpensive mats as a way to discount themselves into the market.

That approach works well when you're dealing with really brief windows. The used mats that came off a pipeline project had quite limited lifespans, and those are now beginning to run out. Our portfolio's comparative health, compared with some of the others out there, should leave us well positioned when the ramp-up arrives, since we'll be able to supply customers with the mats they require.

One more point I'd make on the M&A side: we touched on a few of the investments they made during the quarter in new mat inventory, ahead of expected demand for mat sales. If leasing demand were to pick up sooner than we anticipate, we'd have the offshore capability to move those units into our lease or rental fleet, ensuring we meet customer needs on the rental side. That inventory build and the planning the team does to stay ahead of market demand set us up well for the back half of the year.

All right, thanks. Turning now to Canadian North — nice work getting that agreement reworked so fast. I guess my question is whether there are other big contracts of that kind you plan to revisit over the coming six months or so?

Not really. When it comes to Canadian North, I'm excited that Dave White and the Keewatin team are negotiating the RFP for the medevac business in Nunavut. I'm confident we'll keep being the only provider of medevac services up North. That contract is currently being negotiated. Perhaps when we come in November, we'll be able to share more about it. Inside Canadian North itself, most of the items have already been handled as far as contracts go.

Alright, let me start by saying thanks, everyone, for joining us today. I want to walk through a few updates before we get to your questions. First, on the operational side, we completed the rollout of Project Atlas across all 14 regions during the quarter, which puts us ahead of where we expected to be. Revenue for the period came in at $4.2 billion, up 11% from a year ago, and that was driven largely by strength in our CloudEdge segment. Gross margin landed at 63.5%, and we saw free cash flow of $780 million. On the cost side, we took out roughly $150 million in operating expenses, and we expect that number to reach $200 million by the end of fiscal 2025. Our headcount now sits at 22,400 employees, and we brought on Sarah Chen as our new Chief Financial Officer back in March. Looking ahead, we're guiding to full-year revenue of between $16.8 billion and $17.1 billion, with an operating margin in the low 20% range. I'll now hand things over to Sarah for the financial detail.