Exchange Income Corporation (EIF) Earnings Call Transcript

Good morning, everyone, and welcome to Exchange Income Corporation's conference call, where we'll be discussing the financial results for the 3 and 9 months ended September 30, 2025. The corporation's results, including the MD&A and financial statements, were issued on November 6, 2025, and are currently available via the company's website on 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 provisions of Canadian provincial securities laws. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed upon 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&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 as statements speak only as of the date made.

I'd also like to remind everyone listening that this call is being recorded and streamed live over the Internet so that individual shareholders, analysts, and other interested parties can take part. At this point, I'll hand things over to Mike Pyle, the CEO of Exchange Income Corporation. Sir, the floor is yours.

Thank you, operator. Good morning, and thanks for being with us on today's call. Joining me today 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 2 operating segments. Yesterday, we released our third quarter results for 2025, and overall they were very strong. We achieved all-time quarter records across 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 reached highs for our basic and fully diluted share metrics for virtually all of our KPIs, even though our share count has risen significantly over the past 12 months because of the redemption of 3 classes of our convertible debentures, together with the shares issued for our acquisitions. This shows the performance of our underlying businesses. After 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 cover the record financial metrics afterward on this call, but I wanted to go deeper on the more notable quarterly highlights, as well as a few of the forward-looking comments that appear in our 2026 guidance. The third quarter marked the first period to include the financial results from our highly strategic acquisition of Canadian North. That deal solidified our standing as the leading expert in Northern Aviation, and the quarter's results came in line with what we expected. Canadian North's passenger cargo business and its profitability are fairly comparable and will eventually align with Calm Air and our other air operators. As I said before, Canadian North also runs a sizable charter operation that flies on paved runways and uses 737 aircraft, and that operation carries a much lower margin profile than the Northern Air operations, which accounts for some of the outsized revenue increases. Most of the aircraft serving that business are leased. So as those contracts come to an end, we will be assessing that particular business component to gauge its returns and determine whether they satisfy our requirements. Stepping back, integration of the business is moving forward in line with the plan we developed during the due diligence process.

Under the new long-term air services agreement, we gain both future profitability and certainty, since the contract gets adjusted upward and downward to account for inflation factors specific to aviation. We've made meaningful headway in reshaping the cost base of the operations beneath it, and that includes renegotiating arrangements with suppliers. Our other air operators, together with aircraft sales and leasing, have been collaborating with Canadian North to pinpoint operating efficiencies, as well as buying spare parts and engines so the fleet's reliability improves well into the future. Adding the 737 fleet gives Regional One a chance to attend 737 University and learn what its parts are worth, which could open up another engine and parts business line for it down the road. All in all, I'm extremely pleased with what's been achieved so far, and we anticipate that by the later part of 2026, Canadian North's profitability and free cash flow returns will satisfy the requirements we've set. The rest of our Aerospace and Aviation segment posted a very strong quarter. True, the second quarter brought some difficulties tied to wildfire activity in Manitoba and Ontario. Even so, load factors came back partway through the third quarter, and the underlying business performed very strongly both during that quarter and as we came out of it.

Our outlook stays highly favorable for every business line in this segment. Additionally, aircraft sales and leasing kept experiencing incremental gains across its portfolio of leased aircraft and engines, and we invested meaningfully in the fleet, as we had indicated on the second quarter call. This business line also encountered several chances to sell entire aircraft and engines in the third quarter. Such sizable sales typically carry greater dollar values yet thinner margins compared with our customary parts operation, and it offers additional proof of demand in the single-aisle turboprop and jet niches served by aircraft sales and leasing. Significant demand signals keep coming to our Aerospace business from both domestic and international markets. In Canada, we sit at the crossroads of several megatrends. With attention directed at hitting NATO defense spending targets, together with Northern sovereignty, EIC as a whole has enormous opportunities. Our infrastructure in the North has no equal. And since we already deliver ISR services to the federal government along the East and West Coast, we see chances to extend those services into the North. We recognize that the government confronts shortages of human capital and infrastructure.

Thanks to the ties we've built with indigenous communities, plus our know-how and infrastructure in Northern aviation, we think we're uniquely positioned to deliver a solution for the government. This opportunity has us excited, as do the ones right in front of us with other countries. Our operations in the Netherlands and the U.K. have made us a global expert in ISR, and countries are reaching out to us on their own initiative to ask about our services. Megatrends are giving us tailwinds in our other business lines as well. The emphasis on critical minerals, resources and precious metals should drive demand for fly-in, fly-out services at our air operators, along with demand for our Environmental Access Solutions business line, since companies will need to build access roads to protect ecologically sensitive areas. On top of that, the push around artificial intelligence and data centers is fueling demand in the transportation sector. Our North American electrical grid system needs substantial maintenance, improvements and enhancements to meet the electrification requirements of the future, whether those come from data center demands, from households, or from transportation. That's a tailwind for both our Canadian wood operations and our U.S. composite operations within our Environmental Access Solutions business line. We keep seeing significant demand in composite matting.

Because demand for our best-in-class SYSTEM7-XT mat is so strong, we have effectively sold out all of our production into 2026. We are in the final stages of choosing a location and are actively negotiating with a lessor for the installation of a new state-of-the-art plant. We expect the plant will be up and running in about 18 to 24 months and will require an investment of approximately $60 million. Demand for composite matting is ever increasing due to its advantages over wood mats and 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 & Engineering as we provide ancillary products, including cooling stainless steel tanks, hydronic load cell testing capabilities, chip racking and wireline services. We have 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.

Money is available to build out those projects. That said, until these uncertainties ease further, that money stays on the sidelines. The need for affordable housing throughout North America is clear from the long-term economics, and in Canada we're observing a move away from condo projects toward apartments. Our bullish view on the longer-term trends hasn't changed, and in certain markets across the continent we're seeing positive developments. The difficulties in this business line are reflected in our current financial results, and they're reflected in our 2026 guidance as well. Turning to the quarterly record results, those came about even as significant uncertainty persisted in a range of markets. Even so, EIC as a group of companies sits at the leading edge of a number of emerging trends. Whenever Adam and team acquire companies, our focus is on sustainable niches and their management teams. What sets EIC apart — our secret sauce — is preserving the culture at these companies and setting free the entrepreneurial spirit that had made them successful before they joined the EIC family. For that reason, I'm excited about the opportunities ahead of us, since every management team is energized to execute on the many strategic opportunities in front of us. I'll hand it to Rich to focus on the financial results for the operating segments.

But before I hand the call off, I wanted to bring you up to speed on contract opportunities. In the fourth quarter of 2024, we sent our proposal to the Australian government regarding their maritime surveillance contract. Earlier, we had expected to learn the outcome of that work by the close of the third quarter, since their May election pushed back the bid evaluation process for some time. We were recently told that the evaluation is still not finished. As I said before, we think we assembled a very strong bid, and we believe our chances are as good as any other bidder's. Given the timing needed to get the assets ready for the contract to begin in 2028, we still expect the government will need to reach a decision by early 2026. As I mentioned — as I mentioned, this contract would be a home run of sorts. That said, in my prepared remarks, there are a number of other opportunities that would come close to the size of Australia. I'm glad to report that our second aircraft for the U.K. Home Office has been fully modified and began flying missions in the fourth quarter. Operating at a strong tempo, we have gotten great feedback from the U.K.

And in other nations, too, there are those who have put that aircraft to use. During the quarter we passed yet another milestone: reaching a $4 billion equity market cap — $4 million, sorry, I misspoke. As we keep expanding and share our story, investors are going to recognize the huge opportunity that lies ahead of us. The company remains exactly what it was. When it comes to acquisitions and investments in organic growth, we will stay highly disciplined. The progress our various teams have achieved makes me very proud, and I am excited about what lies ahead for EIC. Given how strong our underlying results and per-share metrics have been, we have decided to raise our dividend to $2.76 per annum from $2.64 per annum. This dividend increase aligns with the commitment we have stated to shareholders to deliver a stable and growing dividend, and it is ultimately driven by the rises in profitability and free cash flow, together with our outlook for the future. The 5% dividend increase still represents a smaller share of our earnings, since our earnings and adjusted net earnings rose by roughly 25% on a year-to-date basis and climbed 17% on a year-to-date basis — on a per share basis. So less than 1/3 of the capital this profitability generated went toward raising dividends, which brings our payout ratio down.

To wrap up, the dividend safeguards shareholder buying power against the inflationary pressures everyone faces. Demand for our products and services remains strong. Jake and Travis will cover the segment outlook for the rest of 2025. But before I hand things over, I want to discuss our 2026 guidance. For fiscal '26, we expect adjusted EBITDA in the range of $825 million to $875 million. That projection reflects the portfolio of companies as it stands today and excludes any new acquisitions, major contracts, or significant growth capital expenditures beyond what currently exists. We've demonstrated a track record of delivering on our strategic initiatives historically, and we feel confident about the future. I'd also like to reaffirm our 2025 guidance: an adjusted EBITDA range of $725 million to $765 million, with a bias toward the midpoint. I'll now turn the call over to Rich.

Thanks, Mike, and good morning to all of you. In the third quarter of 2025, revenue came in at $960 million, adjusted EBITDA was $231 million, free cash flow reached $171 million, free cash flow less maintenance CapEx totaled $88 million, net earnings were $69 million, and adjusted net earnings stood at $76 million — each of those figures set a quarterly record for EIC's busiest quarter. Nearly every per-share metric in the third quarter likewise hit quarterly high watermarks, and that's all the more striking once you factor in the extra shares issued during the past 12 months tied to convertible debenture conversions and acquisitions. Our Aerospace & Aviation segment saw revenue climb by $247 million, or 57%, reaching $680 million. Adjusted EBITDA rose by $46 million, or 30%, to $202 million. The revenue gain exceeded the adjusted EBITDA gain because of product mix shifts at our Aircraft Sales & Leasing business, where certain large aircraft and engine sales were monetized during the quarter, plus the addition of Canadian North's charter revenue, whose adjusted EBITDA margins sit below those of our Northern Air operators, passenger and cargo businesses. Turning to the Essential Air Services business line, a couple of key factors drove those improvements.

Canadian North being brought in, higher demand, broader scope and better pricing on our medevac contracts, plus improved load factors once the wildfires died down and operations returned to normal — all of that contributed. Revenue in our Aerospace business line matched the prior period, while profitability came in a bit lower because of shifts in product mix. At Aircraft Sales & Leasing, the gains in both revenue and profitability came from steadily stronger leasing activity and healthy parts demand. We also recorded sizable jumps in large asset sales versus the prior period. Keep in mind that those assets typically carry thinner margins and are lumpier than our traditional parts business. Manufacturing segment revenue rose by $3 million, or 1%, reaching $279 million. Adjusted EBITDA fell by $6 million, or 12%, to $45 million. Our Environmental Access Solutions business line posted higher revenues and adjusted EBITDA, thanks to the Spartan acquisition, which keeps seeing strong demand for its composite mat. As we've mentioned before, the Spartan team is nearing completion of design work on a new plant, since longer-term secular demand has shown we need more capacity. In the Canadian market, adjusted EBITDA declined because customers pushed projects into the fourth quarter and into 2026.

As we anticipated, revenue and profitability in our Multi-Storey Window Solutions business declined because of customer deferrals and the production gaps tied to them. Aluminum tariffs dealt profitability a further blow. We keep seeing a substantial level of activity. We booked several projects during the quarter. That said, where and how quickly bookings come in remains uneven, since developers are uncertain given expected shifts in government regulations and the need for more clarity on the interest rate environment, mortgage rates included. Our Precision Manufacturing & Engineering business line delivered another solid quarter on both revenue and profitability. Customer demand across a number of industries drove it, among them telecommunications, technology, resource and data centers. All in all, net earnings came to $69 million for the third quarter, up $13 million, or 23%. Increased depreciation and amortization from the Canadian North acquisition partly offset the higher EBITDA, which was expected given the significant asset backing and the growth in capital investments made over the past number of periods. Earnings per share rose to $1.32 per share, versus $1.18 in the prior period. Adjusted net earnings stood at $76 million, compared with $61 million in the prior year, while adjusted net earnings per share climbed from $1.29 to $1.46 per share.

Free cash flow came in at $171 million, versus $136 million a year earlier. On a per-share basis, free cash flow rose to $3.30 from $2.86. After subtracting maintenance capital expenditures, free cash flow totaled $88 million, compared with $81 million in the same period last year. Maintenance capital expenditures for the third quarter of 2025 reached $83 million, up from $55 million in the prior year. Looking at the 9-month period, maintenance capital expenditures were $205 million versus $142 million last year. The first quarter of the prior year was an anomaly on the low end, reflecting the timing of maintenance events. Three factors explain the current-year increase. First, the elevated maintenance capital expenditures at Canadian North, as we expected and previously disclosed. Second, the timing of events occurring. And lastly, the changes in policy based on utilization of aircraft and engines and aircraft sales and leasing as discussed in the first quarter, which saw us switch to a more conservative policy as fleet utilization increased. Growth capital expenditures during the third quarter were $128 million, compared to $93 million in the prior year. The third quarter growth CapEx primarily related to Carson Air, the construction of an Ottawa hangar for Canadian North and the execution of growth capital purchases at Aircraft Sales & Leasing.

During the second quarter, we saw a substantial level of deposits come in, and we completed some of those transactions within the quarter, which more than compensated for the negative CapEx growth from Q2. Looking at working capital, we recovered roughly $3 million, and investment came to $37 million for the 3 and 9 months ended, respectively. After the quarter closed, we gathered 2 sizable receivables amounting to about $25 million. We're actively overseeing our working capital and collaborating with every subsidiary team to turn working capital into cash. Assuming the convertible debentures called after quarter end convert materially, our corporation's aggregate leverage would stand at 2.89x. Our aggregate leverage ratio is still at historic lows and comfortably inside our target. Significant liquidity remains at our disposal. Our balance sheet is extremely strong, and with cash on hand plus the accordion feature in the credit facility, we have roughly $1.2 billion of capital ready to deploy. That lets us pursue growth opportunities and acquisitions that are accretive and satisfy our disciplined financial metrics. Our stance on leverage and our disciplined method for acquisitions and organic growth investments have stayed consistent through the years, and they will keep benefiting us well into the future.

In the results we reported for the third quarter, the preliminary purchase equation for Canadian North is reflected. As we discussed earlier, this acquisition is backed by a substantial amount of assets. All of the preliminary goodwill recorded is attributed to deferred taxes. Hard assets represent over 100% of the purchase price. That degree of asset backing caused depreciation to rise considerably in the quarter. At this point I'll hand the call to Jake, who will give an update on the remaining 2025 outlook for Aerospace & Aviation.

Perfect. Thanks, Rich. Travis and I will once again split up the outlook section. I'll focus on Aerospace & Aviation segment, and Travis will provide context on our Manufacturing activities. Overall, we're expecting a strong last quarter of growth from a revenue and adjusted EBITDA perspective from our Aerospace & Aviation segment for several key reasons. The most significant driver is the acquisition of Canadian North. The Canadian North operations met our internal expectations for the third quarter, and we anticipate continued performance during the fourth. Our integration activities have been progressing in accordance with our plans and time lines. We should start to see further improvement in operating margins as we move into 2026. There will be further investment in maintenance capital expenditures on the fleet, including spare parts, engines and overhauls during the next few quarters. Secondly, we anticipate further strengthening of results due to growth capital investments made for the contractual wins announced over the past few years, including contributions from the U.K. Home Office second aircraft, which has started operations early in the fourth quarter. The operating returns associated with the fixed-wing Newfoundland & Labrador medevac contract operations will start becoming evident in mid-2026. Our Essential Air Services business line will see growth driven by a multitude of factors when compared to the prior Q4.

The biggest item, and the most important one, is going to be bringing Canadian North into the fold. On top of that, we're expecting solid load factors and expansion throughout our network. And finally, we look for our medevac operation to keep growing, thanks to healthy yields along with greater scope and pricing versus a year ago. So far we've taken delivery of 7 of the 12 new King Air 360s, and one more plane should arrive in the fourth quarter. The earlier BC aircraft will be shifted into our other operations, among them the Newfoundland & Labrador fixed-wing medevac work, and that should lift our returns further. Working against some of that upside are ongoing labor shortages and difficulties in the supply chain. These dynamics aren't getting any worse in our view. Even so, the pressure persists, particularly when it comes to aircraft parts and consumables. For the Aerospace business lines, revenue and EBITDA should be higher in the fourth quarter than a year earlier, powered by the second aircraft placed on the U.K. home office contract and by sustained heavy tempo flying across our other owned ISR assets. Growth is likewise anticipated in our aircraft sales and leasing business, since we've begun leasing out assets picked up during the quarter. Whenever we put capital to work this way, getting the aircraft ready and signing lease agreements with customers does require some time.

Also, we keep witnessing quite robust appetite for parts sales as well as sales of complete aircraft and engines. The market for selling and leasing aircraft is still solid. Stepping back for a moment, I'd like to highlight the strategic advantages of the Canadian North deal over the longer haul for EIC overall. Our view is that Canadian North's infrastructure and aviation assets, combined with what we already operate, give us a distinctive proposition to serve the development requirements of the North. With the Canadian government sharpening its attention on development and security across the North, EIC's broad portfolio — spanning advanced aerospace capabilities, sovereign Arctic aviation, medevac solutions, defense-enabling infrastructure and in-country defense manufacturing, plus our wide web of partnerships with indigenous communities — puts the company in a singular position to lead and back these vital initiatives. We are in talks with the government and with our customers regarding ways EIC can assist them. We anticipate that maintenance capital expenditures will rise for several reasons. First, because of adding Canadian North, we observed that returns in year one are likely to be subdued given the higher-than-usual maintenance CapEx spending that is needed. During negotiation of the purchase price, we factored in the forecast maintenance capital expenditures, and in the end this was incorporated into the price we paid.

Second, we expect maintenance capital expenditures to rise consistent with growth in adjusted EBITDA within our Aerospace & Aviation segment. In addition, maintenance capital expenditures will go up for our Aircraft Sales & Leasing business, driven by continuing improvement in utilization across our lease portfolio and by the effect of the more conservative change to how maintenance capital expenditures are calculated that we adopted in 2025. Finally, maintenance CapEx spending in Essential Air Services this quarter came in under our internal expectations, which was due to the timing of certain maintenance events. Growth investments for the rest of 2025 include capital expenditures for 1 new King Air aircraft, which we used in the BC medevac contract. Manufacturer delays have pushed the remaining aircraft for this contract into 2026. Regional One has placed deposits on certain aircraft assets and expects to execute aircraft and engine transactions during the fourth quarter. I'll now hand it over to Travis for some commentary on the Manufacturing segment.

Thanks, Jake. For the Manufacturing segment in the fourth quarter, we expect revenue and profitability to keep growing versus the same period a year ago. There are 2 reasons we see this happening. First, our customers are growing accustomed to the reality that economic uncertainty isn't going away. Even so, keeping industrial capacity in place will require investments and purchases, so we expect to recognize sales that had been delayed from earlier in the year. Second, Spartan keeps delivering strong results within our Environmental Access Solutions business line — Spartan was acquired in early November 2024, and demand for its products remains significant. Customer inquiry levels stay strong across all the businesses in the Manufacturing segment. Tariffs have cut into business confidence, which pushed customer decisions on investment purchases later throughout 2025. To be clear, tariffs have not hit us directly, with the exception of the aluminum tariffs that affected our Multi-Storey Windows business line in the second and third quarters. Nearly all of the products we make are CUSMA compliant, so the bigger tariff risk comes from weaker business confidence and supply chain shifts, and those take a while to play out.

For the fourth quarter, we expect our Environmental Access Solutions business line to deliver returns that are higher than what we saw in the comparable periods. Demand for Spartan's composite mat solutions remains very strong, and based on what their customers have told them about the SYSTEM7-XT and FODS mats, we expect they will keep selling out of their manufacturing capacity. Given that robust demand for its composite mats, we are wrapping up the selection of a site and the final pricing for a second state-of-the-art plant, which Mike discussed. We see positive long-term trends in the composite mat industry, as usage keeps expanding geographically and across sectors and takes market share away from the traditional wood mat industry in the United States. In Canada, we have seen some project start dates deferred, and we expect those projects to get underway in the fourth quarter and into 2026. We have spoken a great deal about our bullish view on the transmission and distribution sector, since electric grids must be expanded and hardened to meet new electricity demands, whether those come from data centers, vehicles or homes. With the federal government's Build Canada mantra and its fast tracking of nation-building projects, we also see several tailwinds for the traditional oil and gas and pipeline business within that business line.

As we anticipated, both revenues and adjusted EBITDA for our Multi-Storey Window Solutions business line are going to come in below the levels of the comparison periods. Those year-over-year decreases are expected because of the elevated interest rates seen in 2023 and continuing into 2024, which led to a slowdown in project manufacturing for 2025. Second, on the projects slated for 2025, we expected margin pressure stemming from the mix of projects booked, along with gaps in production. In Canada, we consolidated our manufacturing footprint by merging production facilities, and we made the strategic choice to keep our skilled workforce in place through this downturn. We also noted that tariffs weighed on this business line during the quarter. As we've discussed in our reporting, there's no way for us to change supply chains over the near term. Over a longer horizon, we will be in a position to offset the tariffs and streamline production. Quoting activity in Canada and the U.S. remains very brisk across a number of geographies. As we mentioned on last quarter's call, we succeeded in booking considerably more than $100 million in new projects spanning multiple geographies and project types within this business line. We continue to be highly optimistic about this business line, since the longer-term fundamentals that fuel demand — namely an acute shortage of affordable housing — remain very robust across a number of geographic regions in Canada and the U.S.

Officials from governments on each side of the border have pointed to this shortage. For the Precision Manufacturing & Engineering business line, we expect both revenue and profitability to be better in the fourth quarter than a year earlier. Strength is showing up across a range of sectors — telecommunications, technology, resource and data centers industries — plus sector tailwinds in the defense industry. We expect growth capital expenditures to be made. So how much growth capex happens in the Environmental Access Solutions business line will hinge on market dynamics. Even so, given demand expectations in 2026, along with the revised project start dates and anticipated opportunities, we do expect investments. I'll hand the call back to Mike now.

We feel really good about where our business stands. EIC sits right at the crossroads of several durable, positive tailwinds across both the Canadian and global economies, and those forces are going to shape our results well into the future. The guidance we've given for 2026 reflects all the investments we've collectively made in the business. But let me be clear: that figure does not factor in any amounts tied to acquisitions we may make down the road, new contracts, or meaningful growth capital expenditures aimed at new contracts. Resiliency and stability will remain the defining traits of EIC — they're at the heart of who we are. Our approach is to acquire excellent companies and then help unleash the entrepreneurial energy inside them. Thanks for joining us this morning; at this point we'd like to take questions from the line. Operator?

Steve Hansen from Raymond James has the opening question.

Team, honestly, it seems there are a few routes for you to gain from Canada's renewed emphasis on the North, whether that's military or something else. Still, how should we think about the government's involvement in all of this, along with the timing? What I'm really trying to get at is this: where do you expect those benefits to show up first, and across roughly what kind of time frame?

That is a hard one to kick off the morning with, Steve. On both the East and West Coast, we handle maritime surveillance for Canada. Historically, Canada hasn’t seen the need to monitor the North. That has obviously shifted. All 3 political parties in Canada have discussed the requirement for military bases and for looking after the north. Through our purchase of Canadian North, we now possess infrastructure throughout Canada’s Arctic that lets us move very rapidly to set up maritime surveillance operations. We have met with the government. I would characterize those discussions as very positive. I would say there is backing across the government, whether that is in the PMO, the Defense Minister, the Procurement Minister or, I think most significantly, in the Canadian military. They recognize that they are stretched with all the other things they are doing, the future strike fighters, the Canadian — the search and rescue planes. They cannot take on a new project. So the advantage we offer here is that we will bring them a service. All they have to do is tell us how much and where. And so while it is difficult for me to make a prediction for a government, I think this is something that can be acted on within weeks or months, not years.

So being able to make some kind of announcement next year, I think that's a sensible timeline. Once again, it hinges on the government. We're not certain, we're actively engaged with them, but the opportunity has us excited. And honestly, one aspect we really like is that we've already constructed every one of the information technology pathways needed to get the data to the government and to its departments. That means standing this up would be far simpler than, say, our entry into the Netherlands or our entry into Britain, where we had to construct that infrastructure, or if we end up winning in Australia — in Canada it's really just a bolt-on. So next year, I think, is a sensible target for hearing something on that. But the other point I'd make is that it's considerably more than that. It isn't only the IFRS. We're going to build — up North we don't have any place to land the F-35s. Runways have to be built. Military bases have to be built. Well, the people and professionals who are going to move into those communities, they'll be arriving, whether on Calm Air if they're building in Rankin or on Canadian North if they're building in Yellowknife or building in Calvert.

We will therefore capture some of that upside via our scheduled airline services. You will also see it as development expands, especially for the critical minerals found in Nunavut. Bringing employees in and out for those operations will likewise run through our bases and through the leading position we hold in the North. Let me note that when discussions with Canadian North began more than a year back — closer to 2 years back — we anticipated this shift toward significantly heavier defense investment. Yet we did — we saw it simply on the basis of ordinary business, the straightforward work we have performed up there for the last 50 years. Adding this transforms what was a good deal into a great one for us.

Steve, this is Jake. Another point I want to raise, separate from the defense and security programs the Canadian government has underway: there's a great deal of talk in the budget about infrastructure and nation building. And once more, our exposure there is quite favorable—be it pipelines, be it port infrastructure, much of the construction tied to what we might term the nonspecific defense matters, we hold positive exposure to all of that. So once again, we feel quite good about several of these initiatives and about collaborating with the Canadian government and, clearly, with the provincial governments too.

Thanks for the detail. And I hope we can start constructing some things soon. I have just one follow-up question, and it concerns Regional One. That business has been busy. The system still has constraints, and you have put more investment into it. Will that business keep presenting opportunities through next year? The wider themes there sound pretty strong, but I would like to understand how you are thinking about that specific business as we head into '26.

Yes. Regional One has really turned into a major force in the markets where it operates. Its growth comes from several places — parts sales, which tend to be quite predictable and dependable from quarter to quarter, leases, which are likewise dependable each quarter, or the items that are somewhat more uneven, like what we saw this quarter. Let me address one point here: our revenue at Regional One rose roughly 70% year-over-year this quarter, driven by sales of full aircraft. Those do fluctuate. Yet the margins on that type of sale are lower. So when you look at the overall margin profile across the whole company, margins in aviation are not down. It's simply product mix. In this quarter we happened to sell more full aircraft, which carry good profit, but they come with lower margins than selling the plane in pieces. So when you look at Regional One, don't extrapolate that kind of revenue growth, but core EBITDA growth, which accounts for earnings across all 3 segments, is going to keep growing. Our market position is going to grow. And while I wouldn't promise you this for 2026, it will start there.

Trading capability in the 737 market is on its way. We've just acquired 20 years' worth of data from Canadian North concerning what each component on those aircraft is worth, and at this point we're selling parts to ourselves. Canadian North is sending Regional One through 737 University, much like what we did roughly 10 years back when we entered the Embraer portfolio. You will see a chance for enormous future expansion at Regional One as we bring in-house the expertise needed to operate as a trader in 737 parts, and we'll apply the business model that has demonstrated such success at Regional One across the past 10 years. For those unfamiliar, I'd note that we acquired Regional One in 2013, when it was generating roughly $16 million in EBITDA. This year we'll be near 10x that figure — in Canadian dollars — and we expect continued growth ahead.

Moving on, our next question comes from Cameron Doerksen with National Bank.

I suppose I'm looking for a bit more detail on the 2026 guidance. Obviously, you have really strong visibility. So I'd say—not trying to put words in your mouth—high confidence in that range's low end. What I'm wondering is: what gets you to the guidance range's higher end? Like, what needs to happen across the various businesses for you to reach that $875 million level?

The upper end would likely come from faster growth in the Canadian environmental matting space. We're seeing a lot of very encouraging trends there. A super cycle is starting in matting, driven by the work that has to be done for T&D — that's transmission and distribution of electrical power. So there's earnings power in that. There's also enormous earnings power sitting in the window business. The window business is basically breaking even right now. It isn't contributing materially. In a normal market — not even a strong one — that business will make $50 million plus. And there's easily another $20-or-so million available in the Canadian matting business. So those 2 things alone would take you past the top end of the range, along with continued improvement and contract wins, because frankly, we fully expect to win things that aren't in the guidance we've given. We try to stay consistent about not guessing what we'll win before we've won it. And to go beyond that, more contract wins — whether in ISR or in Medevac, or even additional charter work in our aviation business — could push us up and past that.

Jake also mentioned in his prepared remarks the lag between when we acquire certain leased assets at Regional One and when they get deployed. So if those assets go into service ahead of schedule, that would be a help. And as we've observed across the past 18 months, with the step-based gains in lease occupancy rates at Regional One, any continued improvement beyond what we're projecting would push you nearer to the upper end of the range.

Our next question comes from James McGarragle at RBC.

Turning to the 2026 outlook, you said it incorporates no M&A, no contract wins, and no incremental growth CapEx. Yet you referenced many of those items in the press release and in your prepared remarks. So, to follow up specifically on M&A and on some of Adam's comments in the press release: could you describe how the pipeline looks at present, and anything we might expect early in 2026 that could potentially offer some upside to the guidance you provided?

Yeah, honestly I'm a bit let down by Adam. We finished up with Canadian North, and since then he's done nothing at all. So we're going to get him off his backside and back to work. And obviously, I'm joking there. There are a couple of interesting opportunities in aviation we've got going, things that are adjacent to our core business. If they work out, I think the market's response would be similar to how it reacted to Canadian North, though that really does make a lot of sense. We probably should have seen it coming. But nothing, James, that we'd be closing within the next 30 days. We're keeping busy on a couple of fronts. We're excited about it, but nothing is imminent.

I think another thing that's really exciting for us, James, is that when you consider where our balance sheet stands versus where it stood 12 months ago, we've got substantial capacity. Adam and his team do an excellent job of sourcing really strong deals for us, and we've put ourselves in a position to move on those quickly without having to tap the equity markets. On a pro forma basis, our leverage is the lowest it's been in well over a decade, and we're quite excited about how our balance sheet has transformed over the last 12 months and where that leaves us to execute on the opportunities we see ahead of us and the ones we hope we keep finding.

And I think one more point regarding the balance sheet, James — I know this answer has run quite long. But given how leverage has come down and the business keeps expanding, I believe we're well placed to access the bond market down the road if we need funding past what our bank syndicate provides. Bond market interest rates sit below what we currently pay. And I think we'd be seen as investment grade. So that's something we'll be working on over the next year to get in place. I'd also note that the strength of our performance has attracted international banks interested in joining our syndicate, whether from the United States or even Asia. So we also have the ability to expand the syndicate as our business grows. That means growth isn't reliant on the public debt markets either. So it's just — with our balance sheet, this is a super exciting position for us, because we have so many options for funding growth when the right contracts arrive, such as an Australia win, such as ISR for the Canadian government, those sorts of things — we're in a position to pull the trigger so fast.

To follow up on that, you brought up ISR, and of course Australia, and you discussed certain opportunities in Canada as well as the U.K. But could you speak about the opportunity in broader terms? In the past, you've flagged some additional opportunities in Europe, so where do you see that heading over the next couple of months and the next couple of years, and how are you positioned to potentially secure some wins beyond that Australia deal and beyond some of the Canadian opportunities you've mentioned?

Yes, James, it's Jake, and I can address that. Again, there are two parts to it. First, opportunities exist within our current contracts. In each ISR contract we hold, we're having conversations about either broadening the scope or extending the scale of those agreements in terms of duration. Second, we're in talks and quite far along with a couple of European governments. One, I'd say we're close on. And again, as Mike mentioned, when this comes out — hopefully it gets announced — it will land in the markets and people will go, well, yes, this makes sense. Absolutely. So we're excited about that. We're also speaking with folks in Southeast Asia. Unfortunately, instability around the world drives demand for greater situational awareness and therefore ISR activities globally. So we're well positioned for that, whether it's directly positioned with aircraft or through sales of our software system onto unmanned aircraft vessels and land vehicles. So again, we're excited about the opportunities, which are broad-based across that sector.

Our following question comes from Matthew Lee, who is with Canaccord Genuity.

Turning back to Manufacturing for a moment — it seems like margins this year have come in somewhat below what we typically expect, particularly considering how well the high-margin mat business has done. I'm not asking you to commit to any figure, but looking at the medium term, where do you believe EBITDA margins for that business ought to land? And what needs to occur to reach that point?

I believe that over the medium term, you're going to see meaningful margin accretion. There are a couple of sources for that. As mat rental — or leasing of mats — in Canada picks up toward the end of next year, that business carries very high margins, so it will lift margins. And then the other item, frankly, is in the window business. At present, that business faces 3 significant challenges. First, the work we booked a couple of years back, during the soft period, carries lower margins; second, we aren't running the plant efficiently at full capacity; and third, we're carrying headcount we don't need given today's volume. So as that normalizes, you'll see us add tens of millions of dollars in margin EBITDA, and it flows essentially straight to the bottom line since no new capital is required. That drives the top line, drives the margin line higher, and drives the EBITDA line. Those 2 items, I think, will be the primary drivers. When conditions were difficult, we kept our people working by taking lower margin work in the window business, aware of what was happening in the industry, wanting to preserve our production — and people have exited the industry.

As things recover, there will be fewer players out there, and we're the one best positioned to handle that. And one point I really want people to grasp is that EIC was founded on the idea that not everything will be perfect simultaneously. So we're meeting targets. Dividends are going up. I mean, we saw 17% growth in earnings per share this quarter, even with all those new shares from the conversion of the balance sheet strengthening while windows was essentially unable to contribute. That won't stay the same at all times. I can tell you that when COVID hit and the airline was struggling, the window business kept us going. So you'll see the window business improve, plus some additional growth in matting, and that will push margins as we move ahead. And that's probably not early next year, but it's coming as next year rolls into '27. And those lower margins in '26 are completely baked into the guidance we've provided.

Yes. And perhaps I could just add something about the Access Solutions business. As we discussed, that segment is really a case of projects being deferred—pushed from Q3 into the fourth quarter and into early 2026. So we do expect margins to expand as those mats go on rent, and then there are the long-term tailwinds around nation building and all that it will require in terms of access matting. So we're very excited about the future.

All right, that's useful. Then perhaps a brief one for Rich. A philosophical question about maintenance versus growth CapEx. When you consider refreshing the fleet for Canadian North, it seems to me that the point is to capture incremental revenue. So how do you view that new fleet in terms of the split between maintenance and growth CapEx?

I might add something here. Rich, just run a quick calculation. If you look at Canadian North, they're actually bringing up our real figures. With the Canadian North investment, we understood that under prior ownership, choices were made to postpone cash investments. So instead of overhauling engines, they were leasing them. They were doing things. Their aircraft were completely safe and fully maintained, but due to capital constraints, they weren't doing it in a cost-effective way. So we have engines that need overhauling. We have landing gear that needs overhauling. And by our definition, that is purely maintenance CapEx. In a fully transparent world, that's maintenance CapEx we would have completed over the last 2 years, not now. We're going to catch up. That's why I mentioned we'll take a bit of a period to reach our 15%, because we're going to make those investments. When we acquired the company, we knew those investments were needed. So there's no surprise here, but it's part of the process. But you're also touching on another key factor. There are opportunities within Canadian North to move toward more of a combi fleet, eliminate some pure freighter aircraft, and replace those with combination passenger/freight aircraft.

That’s going to require a certain amount of investment. And insofar as we make that investment, we would treat it as growth CapEx, since it will produce new revenue as a result of that spending. It isn’t a large amount of money, and we’re not — because keep in mind, you’ll be trading off pure freighter capacity in order to acquire the combi capacity. So there will be investment in some aircraft, but in the future that would run through our growth line. That isn’t included in the maintenance CapEx that was really taken into account in the purchase price at the time we acquired the company.

I think there's one more thing worth mentioning when it comes to capital, and that really ties back to the growth and maintenance split Mike already discussed — but also to certain investment choices they made over a period of time because of how capital constrained they were, specifically finance leasing certain assets. We'll buy those out, and we did so during the third quarter. And simply by deploying our balance sheet and having a lower cost of capital than they had, that gives us the chance to be a little more efficient. But going back to Mike's point on the growth versus maintenance split, when we examine it, we've looked at it the same way we've looked at our ongoing businesses, and even so, that meant we had to take it on the chin a little bit for 6 to 9 months here. We felt that was the right way to disclose it so that folks didn't think there was additional growth coming out of something that was really just getting their fleets into a spot to drive that consistent cash flow.

Our following question comes from Krista Friesen of CIBC.

I wanted to bring up something — I mean, clearly the budget contains quite a bit concerning the North and defense. But do you have anything to say about the accelerated depreciation included in the budget? And is that something your team is enthusiastic about?

Yes. I mean, the budget’s accelerated depreciation should allow us to possibly pursue a couple of projects that otherwise wouldn’t have met the threshold in the way we’d hoped. So I can’t provide specifics at this point. This has only been with us for a couple of days, and we’ve put our rockstar tax team, led by Marley, in a room, and they’re working through a couple of those items. But it’s very exciting for us that the government wants money to flow back into the Canadian economy, and they want it to be specifically Canadian. And I just want to go back to that ISR opportunity here, because when you consider our surveillance capability, we would take a Canadian-built aircraft, the Q400. We’d install Canadian-made equipment on that aircraft. We’d modify it at Canadian facilities. We’d operate it with Canadian pilots from Canadian facilities, with investment from Inuit partners, because this is happening in the North. So I’m not sure there’s a better match for what the government is trying to accomplish than our ISR opportunity. And frankly, nobody else in the country could do this.

And one thing I'd like to mention: whenever we evaluate an investment's return, we always target 15% unlevered pretax. So this won't alter the way — the returns we're producing, because we'll keep assessing them exactly as we have since our inception — but it will improve the economics for us by letting us capture the tax deduction sooner.

Right, okay, that's clear. Then perhaps one more thing about the budget. I saw some remarks regarding Northern Medical access. Is that the kind of thing where — will you all have a part in it? Or have there been discussions you've already had on that?

Up to this point, the talks have been preliminary. But honestly speaking, I wouldn’t advise that we take a role. I would advise that we take the role. For decades, we have been the only provider of medevac services to the government of Nunavut. And right now we are in the middle of negotiations on a new long-term contract with enhanced services and enhanced care for the Northern people. So yes, we will be smacked out in the middle of that.

Thanks for that detail, and congratulations on the quarter.

I appreciate that.

Moving on, our next question comes from Tim James at TD Cowen.

Starting with Canadian North again for my first question. Mike, you mentioned earlier the charter operations and what they added in Q3. It sounds like that contribution was fairly meaningful. It also sounds like you're in the middle of some review of the plan for that business and how it fits strategically over the long term. How are you thinking about that decision, or factoring it into guidance for next year? I'm not saying it's necessarily material, but when we look at the guidance range, it probably has enough of an impact on it. Could you talk about what's factored in there as you think about 2026?

Yeah, that's a great question, Tim. Charter operations up in Canadian North aren't like our charter work anywhere else. This involves long-run 737s flying pavement-to-pavement, and WestJet could handle it, Air Canada could handle it, Nolinor could handle it. Plenty of operators are capable of doing it. So because of that, it's far more of a commodity. Margins end up being extremely thin. On top of that, the contracts are dated. Since those contracts are dated, everybody is aware of what's happened with aviation inflation, so the returns on those older contracts are quite slim. At the same time, though, the first LNG project is wrapping up. That means the revenue tied to it is going to come down. We've already built that into next year. The effect on margin, however, is de minimis. Right now we're holding talks with the folks involved regarding phase two of LNG. If we're able to do it at a price that works, we'll keep at it. But with the aircraft release, if we can't achieve a return that lines up with what EIC is looking for, there's no obligation for us to stay in this business. Essentially, we didn't pay anything for it. The way I'd put it is that we paid asset value, and most of the aircraft deployed in this business are these aircraft.

So if the price wasn't right for us to win that work, we'd simply exit it. We wouldn't incur losses, and there'd be no write-downs. Nothing like that. Still, it's a substantial opportunity should our team succeed at negotiating fresh contracts that produce new EBITDA which isn't currently reflected. So there's upside potential, with essentially no downside. Did that address your question?

Appreciate that — yes, that helps. For my follow-up, I just want to quickly verify a couple of points. The 2026 guidance was mentioned before. No M&A is baked into it, and no incremental growth CapEx either. But does that outlook reflect EBITDA from the growth CapEx currently planned? I assume that's so, but not any extra unplanned growth CapEx you might announce or plan down the road. Is that how we should think about it?

Correct. It covers the initiatives already in progress during this year. We've just completed the flight simulator for our King Airs over in Winnipeg. Revenue from that will start coming in next year, so it's factored in, and it's already paid for. It also covers the Newfoundland medevac contract. And it covers the extra aircraft we've put into our leasing portfolio at Regional One — both the ones already finished and the ones scheduled to close in the fourth quarter. So nothing in the guidance accounts for growth past the beginning of the year. Anything further we add will layer on top of that guidance. One practice we favor — and it's deeply embedded in the culture at EIC, and I realize we may look like something of an outlier on this among public companies — is that I don't want my team to feel any pressure that we must spend x dollars in order to hit our budget. Reaching our budget requires no investment beyond our maintenance CapEx and completing the projects already underway. So, once we have, say, the Spartan plant up and running, that will run us roughly $60 million, but once it's operating, it's 100% additive to the guidance.