Exchange Income Corporation (EIF) Earnings Call Transcript

Good morning, everyone, and welcome to the conference call held by Exchange Income Corporation to go over the financial results for the 3 and 12 months that ended December 31, 2025. The corporation's results, which include the MD&A and the financial statements, came out on February 24, 2026, and right now you can access them through the company's website or SEDAR+. Before we hand the call to management, listeners should be aware that today's presentation as well as the answers to questions might include forward-looking statements as defined by the safe harbor provisions of Canadian provincial securities laws. Such forward-looking statements carry risks and uncertainties, and you should not place undue reliance on them. Certain material factors or assumptions get applied when forward-looking statements are made, and actual results could differ materially from what those statements express or imply. For more information on factors that might cause actual results to differ materially from expectations, and on the material factors or assumptions applied in making forward-looking statements, please consult the quarterly and annual MD&A, the risk factor section of the annual information form, and EIC's other filings with Canadian securities regulators. Except where Canadian securities law requires it, EIC does not undertake to update any forward-looking statements. These statements speak only as of the date made.

Just a reminder to those listening that this call is being recorded and streamed live over the web 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. Go ahead, Mr. Pyle.

Thanks, operator. Good morning, and I appreciate everyone being with us on today's call. Joining me are Richard Wowryk, our CFO, who will walk through our financial results, plus Jake Trainor and Travis Muhr, who will cover our outlook in more detail. We released our year-end results for 2025 yesterday. If I had to sum up our annual performance in two words, it would be incredibly strong. Our results set historical records for revenues, adjusted EBITDA, free cash flow, free cash flow less maintenance capital expenditures, net earnings, and adjusted net earnings — both in absolute terms and, more importantly, on a per share basis. We also finished the year with no convertible debt on our balance sheet. We made a strategic decision to simplify our financial structure, and we were able to redeem all outstanding convertible debentures during the year, with the vast majority of those convertible debentures converted into equity, which brought us to our lowest leverage levels in 15 years. Achieving per share records and a delevered balance sheet in the same year is a difficult task. We're proud of this accomplishment. On top of that, last week we announced an investment grade credit rating. That's an impressive achievement, as it represents confirmation by DBRS of the stability and the diversity of our business.

We can now issue long-term fixed-rate bonds as one layer of our capital structure, and that gives us a more permanent source of fixed-rate financing, generally at tighter interest rate spreads. Still, let me be completely clear: our conservative stance on leverage is unchanged. Instead, this is simply one more instrument that lets us use debt effectively as we keep growing EIC through acquisitions or growth capital expenditures. Looking back on 2025, we produced these record results in a year when global growth was muted because of mounting trade tensions and political uncertainty. Both Canada and the United States adjusted monetary policy to stimulate growth, since inflationary pressures had started to ease. Supply chains saw major disruptions from United States tariff actions, from international shipping delays tied to geopolitical events, and from several climate-related disruptions, among them significant wildfire activity in northern Manitoba and elsewhere. There were economic bright spots too, such as the surge in artificial intelligence investment, and companies with strong fundamentals and competitive moats demonstrated their worth. EIC stands as a shining example of how a diversified and resilient business can steer through uncertain periods and keep thriving. We delivered on our strategic initiatives, and our annual results are the proof in the pudding.

Each of our segments posted a 20% rise in adjusted EBITDA, and that is what powered our overall results. At Aerospace & Aviation, the gain came mainly from the highly strategic acquisition of Canadian North on July the 1st. Canadian North has kept meeting our profitability expectations — in fact, it has surpassed them — and culturally it has fit really well alongside our other air operators. Maintenance capital expenditures in the first six months came in elevated. That said, we had expected it, since we anticipated higher maintenance capital expenditures during the first 12 months of ownership, followed by a return to normal maintenance CapEx down the road. The Aerospace & Aviation segment also benefited from strong yields in our passenger business, even with a temporary dip in revenue and margins during the second quarter caused by the significant wildfire season. We additionally saw overall strength in our rotary business through fire suppression work, together with continued strong performance in our medevac businesses as the scope of our contracts keeps expanding. Robust demand and rising rental rates for leased aircraft and engines continue in our aircraft sales and leasing business. Part sales and whole aircraft sales remain very strong, and demand for regional aircraft is robust as well.

Finally, in our aerospace division, we felt the effect of another aircraft starting operations in the UK, and that produced robust Q4 improvements versus the prior-year comparison. We’re also still receiving many inquiries from a range of parties globally regarding our ISR expertise. Not long ago, Canada issued its Defence Industrial Strategy, and it lines up very well with what EIC and our aerospace business are doing. EIC has put forward a made-in-Canada answer for Arctic security and sovereignty, and that fits with this industrial strategy. Our made-in-Canada team covers several provinces and territories, with Indigenous partnerships already in place. We remain in active talks with a variety of leaders and decision-makers, and we’re hopeful our proposal will succeed. I’d also like to give an update on where the Australia ISR bid stands. We extended our bid a second time recently, to early April, since technically the bid would have lapsed this month. We still believe we submitted a very strong bid, and we’re waiting for the Australian government to complete its analysis and reach a conclusion. Our Manufacturing segment delivered strong fourth-quarter results from both a revenue and a profitability standpoint. Our Environmental Access Solutions business finished the year strongly, with mat rentals and sales driving the results in Canada.

Canada likewise holds solid expansion potential later in '26, since sizable linear projects are expected to require matting solutions. In our US composite matting operation, customer response to the System 7 XT mat remains positive. Throughout due diligence, the testing and capabilities impressed us greatly. Even so, actual field results have surpassed even those lofty expectations. Given considerable demand indicators and the broader composite matting operation capturing additional share from the conventional wood mat segment in the US, we announced a state-of-the-art facility in the Southeast US. I'm happy to report that construction will take place in Saltillo, Mississippi, and we expect the plant to be running in the mid to later portion of 2027, allowing us to deliver on our strategic goals for the North America-wide matting operation. Our Multi-Storey Window Solutions operation saw a somewhat stronger quoting season and secured some sizable projects across various jurisdictions in the US and Western Canada. Nevertheless, 2025 stayed a challenging year. As we expected and previously disclosed, the diminished profitability stemmed from competitive pressures and weaker bookings in earlier years. Still, the team advanced on cutting our overhead and merging the business's physical footprints, which will benefit us going forward.

We'll keep holding on to our skilled team as well. Once the business recovers, we'll be positioned to take advantage and serve the pent-up need that exists for affordable housing. Our Precision Manufacturing & Engineering business line posted a strong fourth quarter, since we keep seeing encouraging demand signals across many underlying businesses. Business sentiment keeps getting better. We see that our customers have come to accept a certain level of uncertainty as the new normal, and they've been issuing purchase orders, which produced greater sales activity in the back half of 2025 and drove strong results for the fourth quarter. Rich will go through the key metrics for both the 3 months and the full year ended December 31st, but before I hand the call over, I wanted to discuss the recent recognition of our business model in our share price. Over the course of the year, our market capitalization has risen substantially, and today it stands at well over $5.5 billion. Market cap and the underlying results are lagging indicators of the sustainable, resilient business model that we have built. We have a fantastic foundation of underlying subsidiaries, with cultures and people that helped achieve these results. Our business model and principles have stayed the same for more than 20 years.

We believe we’re positioned for a faster growth trajectory ahead, and our head office and management teams are incredibly enthusiastic. Jake and Travis will cover the segment outlook for 2026. But before I hand the call over, I wanted to discuss our 2026 guidance. Although the guidance range we issued at the end of Q3 remains unchanged, we’ve announced two contracts since that prior guidance came out — the Air Canada commercial agreement and the acquisition of Mach 2. Both benefit our shareholders, so we’ve updated our guidance by communicating that we have a bias toward the middle-to-upper portion of the $825 to $875 million guidance range. I’ll now turn the call over to Rich.

Thanks, Mike, and good morning to everyone. Turning to the fourth quarter, revenue came in at $930 million, adjusted EBITDA reached $216 million, free cash flow totaled $165 million, free cash flow less maintenance CapEx was $68 million, and adjusted net earnings and net earnings stood at $58 million and $52 million, respectively. Earnings per share and adjusted earnings per share were 94 cents and $1.06, respectively, marking rises of 62% and 33% versus the prior period. Free cash flow per share grew 30% to $3, while free cash flow less maintenance CapEx climbed 38% to $1.24. Those per-share gains were remarkable given that weighted average shares outstanding rose 14% in the fourth quarter compared with the prior period, reflecting conversion of convertible debentures during the year and shares issued from our acquisitions. Every key performance indicator set a fourth quarter high-water mark. Both segments drove these results, with period-over-period adjusted EBITDA increases of 27% and 38% for our A&A and Manufacturing segments, respectively. The Aerospace & Aviation results reflected strong profitability across each of the business lines, thanks to the acquisition of Canadian North, strong load factors at our various air operators, strong demand for leases and parts at our aircraft sales and leasing business line, and the commencement of operations for the second aircraft for the UK Home Office in aerospace, together with higher tempo flying under various contracts.

Profitability in the manufacturing segment came from solid rental and mat sales in our Canadian Environmental Access Solutions operations, plus sustained strong demand for composite matting solutions in the US operations. Finally, Precision Manufacturing & Engineering posted a robust fourth quarter, powered by underlying strength in telecommunications, data center, and hydronic heating solutions sales. Work has begun on a second state-of-the-art manufacturing facility for our US composite matting business. Growth capital expenditures of roughly $4 million were made in 2025, and we expect production to begin in mid to late 2027. The estimated cost of the new facility is up to $60 million US dollars, and the expected returns are well above our required return threshold. We are seeing substantial demand for our System 7 XT mat, and we also note that composite mats taking market share from traditional wooden mats in the US is generating excitement within our management team. Maintenance capital expenditures in the fourth quarter of 2025 were $97 million and came in higher than the comparative period because of the acquisition of Canadian North and the timing of maintenance events in the Aerospace & Aviation segment. Growth capital expenditures during Q4 were $134 million and were mainly driven by acquisitions of engines and aircraft in our aircraft sales and leasing business line to grow their leasing portfolio, together with King Air aircraft deliveries for the BC Medevac contract in our Essential Air Services business line.

Looking at cash flow and working capital, we finished the year strongly: our net investment in working capital went down, and that gave a boost to cash flow from operations, thanks to what our subsidiary management did. Last year we pointed out that some government receivables had lagged behind historical collection patterns in an unusual way, and those got resolved during 2025. On top of that, because output came down in our Multi-Storey Window Solutions business line, we were able to give back a meaningful amount of working capital over the year. Working capital is something we manage actively, and we collaborated with every subsidiary team to turn working capital from 2024 into cash, and the results across 2025 make us very happy. Aggregate leverage at the corporation sits at historic lows. Simplifying our capital structure was a goal of ours, and we accomplished it in 2025, which in hindsight was an incredible feat. Over 90% of the convertible debentures got converted into equity of the corporation. Looking at 2026 and beyond, preferred shares are the only dilutive instruments left on our balance sheet, and that will make our diluted EPS simpler. Following year-end, we announced that EIC has earned an investment grade credit rating — a BBB (low) rating with a stable outlook from DBRS.

When it comes to the credit rating, that gives us the ability to tap bond markets down the road and potentially use bonds as a fixed-rate, long-term financing tool. Given where rates stand today, doing so would lower interest costs as well. We closed fiscal 2025 with an overall leverage ratio of 2.73, the lowest level in roughly 15 years. That figure also excludes the pro forma effect of growth capital expenditures whose full-year return has not yet been fully reflected in our financial statements — the UK Home Office second aircraft is one such example. As we said before, a time lag exists between making those investments and when adjusted EBITDA rises. With more than $300 million of capital deployed by year-end, we expect meaningful returns in the years ahead, and those have been built into our 2026 guidance. Our M&A pipeline is still very strong. Adam and his team completed a strategic investment in the first quarter of 2026 with Mach 2. Diversifying our cash flows and creating another avenue for growth has always been something we wanted. We had evaluated a number of narrow-body and commercial businesses. However, none satisfied our stringent investment criteria when it came to their management teams, their niche focus, or financial metrics.

Luckily, we came across Mach 2, and it satisfied every one of those requirements. Regional One has established the data infrastructure and architecture needed to scale across additional aircraft types, and now, with the Canadian North 737 data plus the narrow-body and wide-body data from Mach 2, along with the experienced people at Mach 2, we can capture meaningful opportunities in that area. Mach 2 sits very close to our Regional One operation, and our Regional One leadership knew the management team there well. The 737 and narrow-body operation is the largest aircraft aftermarket parts and leasing business anywhere in the world, so we have a distinctive chance to apply our strengths and generate meaningful returns for that business line well into the future. Regarding other acquisition prospects, our pipeline contains opportunities across both segments, and they resemble our current businesses. We have an excellent base of businesses, and whenever we can identify ancillary opportunities that widen our competitive moats, we remain interested in those accretive possibilities. As a reminder about seasonality in our business, the first quarter is our slowest quarter seasonally, driven by winter roads and weather-related effects on our air operators, combined with softer demand in our Environmental Access Solutions business line, since the ground is frozen and does not need the same degree of matting protection.

The third quarter is the busiest one for our businesses, while the second and fourth tend to land near the average, giving an in-between outcome. Taken together, EIC treated 2025 as a foundational year. We streamlined the way our capital is structured and carried out every one of our strategic initiatives. Canadian North came on board through a highly strategic acquisition, and following year-end we announced Mach 2 along with our investment grade credit rating. Our balance sheet, we are confident, is positioned so we can pursue transactions down the road, and the groundwork has been set for growth that accelerates in the future. At this point I'll hand the call to Jake, who will give an update on the 2026 outlook for Aerospace & Aviation.

Thanks, Rich. All in all, we anticipate fiscal '26 to be another year of robust expansion for our Aerospace & Aviation segment, since the patterns Mike and Rich pointed to should carry forward. Growth investments we made previously, along with the contract awards — the second aircraft for the UK Home Office, the Newfoundland and Labrador medevac contract beginning midway through 2026, and the enlarged Air Canada commercial agreement plus the additional routes we've been running — will each feed into higher revenues and profitabilities. I'll drill into the growth drivers specifically, business line by business line. Within our Essential Air Service business line, growth versus the prior period will come from a multitude of factors. The biggest effect stems from having Canadian North included for a full fiscal year. Further increases include the expansion and extension of the Air Canada commercial agreement, with aircraft beginning to fly midway through the year. We also expect load factors across our network to hold steady relative to 2025. Finally, we anticipate ongoing expansion in our medevac business, including the launch of the Newfoundland and Labrador medevac contract, expected to begin operations in mid-2026.

Balancing part of those gains is the effect of ongoing labor shortages and supply chain difficulties. While these dynamics aren't getting worse, the difficulties persist—particularly regarding aircraft parts, consumables, and overall costs, all of which face considerable inflationary pressure. Growth is anticipated in the Aerospace business line thanks to strong flying tempos for our surveillance aircraft, with a second aircraft entering service for the UK Home Office, which will create year-on-year effects since that aircraft began operations only in the fourth quarter of 2025. Our aircraft sales and leasing business should also grow, as the investments made in aircraft and engines get leased to customers. A lag always exists between investment and cash flow generation. Because of that, aircraft must be readied and lease contracts executed. Regional One stays an opportunistic buyer, ready to complete transactions that are accretive to the portfolio. Demand for Regional One and Mach 2 continues to be robust, as shown by rising lease rates and shortages of critical parts throughout the industry, and we expect that trend to carry on in 2026. Over the long term, we expect maintenance capital expenditures to rise consistently alongside increases in adjusted EBITDA within our Aerospace & Aviation segment, which is the largest driver of our consolidated maintenance CapEx.

We expect an increase over 2025, driven by Canadian North being included for the full year, along with more flying stemming from the aircraft investment we've made in recent years. On top of that, we keep putting money into deferred maintenance at Canadian North, and we expect that spending to carry on during the early portion of the year. Growth capital expenditures in 2025 include the three remaining new King Air aircraft for the BCEHS contract. Regional One is continually pursuing opportunistic aircraft and engine acquisitions, and those efforts could lead to growth investments in the aircraft and sales business lines. Before handing things over to Travis, there's another theme I've discussed at external events and conferences: EIC's exposure to defense and security, plus the dynamics at play in that industry. The Canadian Defence Industrial Strategy, released recently, is a clear and welcome call to action. When government concentrates on an outcome it needs — capability, readiness, availability, or serviceability — industry does what it does best: invest, integrate partners, manage risk, and deliver. We've proven that model around the world, and Canada is now rightly setting out to apply it here at home.

Under that strategy, 10 sovereign capabilities were flagged as priorities, and a good number of them line up with what EIC does best. Among them are aerospace, digital systems, in-service support, specialized manufacturing, and training and simulation, plus others. What the Defence Industrial Strategy sets out matches what we've been hearing in our conversations with government officials across the past year. Clearly, EIC has defense and security connections through our aerospace work, including in-service support and our ISR operations. That said, we hold several further opportunities that may be less apparent. Our specialized manufacturing businesses already supply parts used in defense and space-related applications. A further key capability EIC can offer is our distinctive infrastructure in the north. We are the foremost experts in northern aviation and in operating within harsh Arctic climates. As personnel and goods move north to back expanded defense activities, that should serve as a favorable tailwind for our air operators. Lastly, EIC and its training capabilities, which include MFC Training and CTI, are able to help close training and development gaps. CARTNAV, PAL's mission system, possesses fully developed command-and-control digital system capabilities that are world-class and used by a number of countries globally for security purposes.

I'll hand things over now to Travis, who will cover some of the remarks regarding the Manufacturing segment as well as a few of the additional opportunities in defense and security inside manufacturing.

Thanks, Jake. Our Manufacturing segment is also uniquely positioned to deliver solutions for governments. As development proceeds in the north, transmission and distribution will need to be expanded, and there will be opportunities for long linear projects as resources are developed, which creates additional tailwinds for our Environmental Access Solutions business line. Several subsidiaries within our Precision Manufacturing & Engineering business line have positive exposure to defense and security. Our WesTower business has more than 35 years of experience installing towers and infrastructure in remote, demanding areas. There are numerous opportunities to install radar towers and other infrastructure across the north, and our scale, manufacturing capability, and industrial technology benefits experience give us unique capabilities. Ben Machine already supplies precision CNC machining and welding of high-precision, short-run critical components to defense and space companies throughout North America and around the world. Our hydronic heating company, Dryair, offers solutions for hydronic heating and hot water applications, which should also be critical in the north for concrete curing and heating alternatives. Looking at 2026 from a manufacturing standpoint, we expect materially consistent results overall compared with 2025 because of changes within our business lines, for two reasons.

To start, we're seeing the business environment keep getting stronger for a lot of our Precision Manufacturing & Engineering subsidiaries, and the outlook is also positive for our Environmental Access Solutions business line. Across every business in our Manufacturing segment, customer inquiries were at a strong level in 2025, and that strength turned into sales when we look at the fourth quarter results for both Precision Manufacturing & Engineering and Environmental Access Solutions. Our Multi-Storey Windows business line is seeing a strong level of inquiries as well. Performance came in as expected in the fourth quarter, with declines period over period stemming from the type of projects, production gaps, and tariffs. Worth noting, the recent Supreme Court case on tariffs has no impact on that business line, since the main source of tariffs was the Section 232 tariffs on aluminum and steel, and those are still in place today. For 2026, that business line will keep being affected by project gaps and reduced margins, reflecting the demand environment in prior years' bookings driven by high interest rates and developer uncertainty. We are beginning to see some improvement across various regions in the US and Western Canada. Even so, developers are staying on the sideline because of excess supply of small condo units, particularly in Toronto, along with developer cost uncertainties.

For our Environmental Access Solutions segment, we anticipate stronger returns than in fiscal 2025. Composite matting demand is still solid, and the facility keeps running at full capacity, in line with 2025. We expect our Canadian operations to be a key growth engine for this business, since we are beginning to see robust fourth-quarter results on both rentals and mat sales. In addition, we foresee long linear projects kicking off during the second half of 2026 in a number of industries, such as transmission and distribution, pipeline, and oil and gas. The business's longer-term outlook is still highly favorable, given that substantial transmission and distribution investments will be made throughout North America driven by rising electricity needs from households, vehicles, and, even more significantly, AI and data centers. The Government of Canada Major Projects Office is concentrating on strategic nation-building investments, which create meaningful tailwinds over the longer term. That should keep this business line strong through 2027 and beyond. For Precision Manufacturing & Engineering, revenue is expected to rise, yet because of shifts in project mix, profitability should be materially in line with 2025. The fourth quarter proved very strong for this business, thanks to product mix and deliveries of hydronic heating units that had been deferred from earlier in the year, and we keep seeing a healthy quoting environment across the various companies.

This segment serves a wide range of markets, spanning defense as well as technology sectors that include data centers and telecom. We expect maintenance CapEx to come in a bit above last year's level, reflecting the timing of replacement work. Growth CapEx is also expected across every one of the business lines, though it should stay fairly in line with 2025 — except for Environmental Access Solutions, where growth capital will go toward the new state-of-the-art composite plant that Rich discussed, along with investments in the Canadian rental fleet given market dynamics and projects we anticipate. With that, I'll hand the call back to Mike.

Thanks, Travis. 2025 and the strategic initiatives we've put in place have laid the groundwork for EIC going forward. It was a remarkable year for our business, with records set across every one of our key metrics. I have tremendous confidence in what lies ahead for our company. EIC sits at the crossroads of several critical themes and trends. We've stayed faithful to our principles, and the things that drove our success over the past 20 years plus will keep accelerating that success going forward. Thanks for spending time with us this morning, and at this point we'd like to take questions from the call. Operator?

Thank you. Ladies and gentlemen, we are now ready to start the question-and-answer portion of today's call. If you would like to pose a question, kindly press the star key and then the one key on your touch-tone telephone. If you need to withdraw your request, simply press the star key followed by the two key. In the event you are on a speakerphone, please pick up the handset prior to pressing any keys. To repeat, that is star one if you would like to ask a question. Our first question comes from Steve Hansen of Raymond James. Your line is now open.

Morning to you, Steve.

Morning, everyone, and thanks for making room for me. My first question concerns the matting business. From what I’m hearing, it appears to have turned a corner compared with where it sat before. Given what you’ve said about restoring the fleet in Canada along with the growth CapEx, would it be reasonable to describe visibility as getting better as we move through the rest of the year and into ’27? I’m simply trying to confirm that we didn’t see a one-off or single-quarter bump in that business — or really, I’d just like to understand whether visibility has improved looking ahead. Thank you.

Steve, that's a fair question. Two factors together explain the matting business and what we've said about it. Early in 2025 we ran into some unusual project delays — integrity digs in particular, plus certain pipeline work that we handle routinely each year but that didn't get finished earlier in the year. By Q4 we were back to a normal pace in that area. That drove part of the improvement this quarter and should carry us into the start of next year. Our rental mat count today is higher than it stood a year ago at this time. What's ahead is really the key story, though. In Eastern Canada we're bidding on quite a few T&D projects, and we'll capture our share of them. There are also numerous pipeline projects now at the bidding stage where awards are going to general contractors. Revenue from those probably won't show up in the first half of next year, but you'll begin seeing it in the back half of '26, and I believe by '27 we're returning to a supercycle for this business, very much like what happened when we first bought it back in 2021 or 2022.

Thanks, that's useful. A quick second question from me about the Mach 2. Could you give us a sense of how big the market opportunity is that you're moving into here, given that there's clearly a much larger group of aircraft out there? Then, secondly, how do you plan to go after that market in terms of pace — testing the waters first or pushing in more aggressively? How do you see the growth profile taking shape there? Thanks.

Steve, that's an excellent question. Mach 2 forms one component of our strategy. It isn't the entire plan we have for expanding into narrow-bodies and wide-bodies. To give you some background, what makes Regional One so special—and the reason they perform phenomenally well in the regional jet turboprop market—is their understanding of who the customers are, which products those customers need, and what those assets are worth. Whenever we purchase aircraft, we build margin in before leasing them out, before we make any changes to them. We have always had our eye on the 737 market specifically, since it is enormous compared with the regional jet market. It's key to recognize that the bulk of the 737 market is an OEM market. If you're discussing a 737 MAX or similar aircraft, those come from the manufacturer. Finance companies lease them. When we lease aircraft, what we're doing is consuming green time. We are not a finance lessor. Most of the newer versions of those aircraft truly don't fit what we do. Our opportunities are found in letting those aircraft age, where parts value could surpass the value of the plane broken into pieces. The expertise held by the team at Mach 2, the abilities of the people working there, together with the knowledge we gain from Canadian North's experience in the 737 business, will allow us to dip our toe in there.

I'd say it's fair to say we'll walk before we run on this. There's a useful parallel: if you look back 8 or 9 years at Regional One, we basically weren't involved in the ERJ market — the Embraer market. We got a couple of opportunities. We put a toe in the water gradually, and today we do nearly as much work on ERJs as on CRJs. I think you'll see a similar path with the 737s, where we'll put money into bigger parts inventories, more depth, build up our knowledge, and then ease our way in. You shouldn't expect this to be like flipping a light switch. It's a slow, steady build, in my view. The expertise we gained from Mach 2 will speed that up compared with what we could have achieved alone.

Thanks for that. Back into the queue you go.

Thanks. We'll take the next question from James McGarragle at RBC Capital Markets. Your line is open now.

Good morning there, James.

Morning, everyone — appreciate the chance to join you. Nice work on the solid fourth quarter. I’ve got a question for Jake, though, about the defense opportunity in Canada. Clearly there have been some fairly major announcements lately and some discussions you’re holding in Ottawa, and I’d like to hear how you view the opportunity set for Exchange over the coming couple of years.

Okay, thank you, James. There are a few points to bear in mind here: certain of the major procurements the government is pursuing are, in a sense, generational — think shipbuilding, submarine acquisition, and grappling with the fighter jet questions. Once more, a number of those enormous procurements are plainly outside the scope of what we do. What we do is defense and security in the north. When it comes to opportunity sets, clearly the ISR capability is one where, as we've announced, we've engaged with the Canadian government. Beyond that, more broadly, we're now seeing it simply in terms of the volumes of logistics support, the travel, the support tied to greater attention for people in the north or traveling up to the north. That's definitely one. Some of the resource development that, again, follows from heightened attention on defense and security around the critical minerals — we're seeing that. Then the final piece, which Travis mentioned briefly, was looking at certain of our other subsidiaries where there's a broad sense of infrastructure renewal, whether that's additional towers or maintenance of towers, and that isn't only defense and security — that's with our air navigation provider, such as our ATC system.

As I mentioned, there's simply a broad-level view or expectation that infrastructure investment will keep going, and we expect that to affect quite a few of our businesses throughout the portfolio. Once again, that's something we're genuinely enthusiastic about.

Thanks for the detail. Now, regarding the return targets you projected for Canadian North—at the time you bought it, you said those returns would come in slightly under what you'd want entering '26. Should we expect improvement there? We saw the update that you're getting some support on pricing thanks to that agreement signed last year. Could you update us on how operations are tracking versus the internal return goals you have? And then, a bit more broadly, what's the opportunity and what capacity does Canadian North have to capitalize on some of this longer-term Arctic sovereignty investment? With that, I'll hand the line over. Thank you.

Thanks, James. Looking at Canadian North, I'd say it's fair to describe our goals for that company as ambitious. We put a lot of confidence in its management team, and in what could be achieved by pairing them with EIC — and the results have been impressive. It has plainly gone beyond what we expected internally. To date in this process, we've implemented more changes and achieved more than we had forecast. From an earnings standpoint, when you consider what's required to reach our 15% return, we're further along than we had assumed. What will still carry us into next year is the deferred maintenance work, since we're making up ground on certain overhauls and similar items where rentals were used instead of overhauls. That work will carry on through this year. On capacity, there is space for growth versus the prior year, and that's what we anticipate. Should we reach the stage of constructing a military base, or a new mine comes along, or similar developments, the added investment for a couple more aircraft is modest compared with the returns, given that we own all of the fixed-base infrastructure. Canadian North is making solid progress on a new freight hub in Ottawa, and it is close to completion at this point.

Actually, that accounted for most of the growth CapEx we took on at that company during the last year. It's almost finished. I'd say the business now has the infrastructure in place to grow. As demand keeps rising, we'll bring on more aircraft to serve it. One area that's somewhat different from that, I'd point to, is the charter business. The initial phase of the liquid natural gas plant operation is done, and you saw it wrap up in Q4. The rest of the charter business carries on, though I've mentioned a number of times that it runs at margins far tighter than what we'd really want to be involved in. We're having productive talks with our customers. Should we succeed in renegotiating those contracts when they mature, we'll stay in it. If not, we won't. As a reminder, we paid nothing at all for that portion of the business. Those were the only leased aircraft in EIC, and we acquired the Canadian North business at asset value. If we needed to boost our capacity, we might be able to move some of those leased assets into the core business.

Mike, another thing I want to mention to give a little more detail is the other key element, which is human capital. We rank among the biggest employers in the north. Our ties with Inuit and Indigenous partners in that region are outstanding. Again, keeping in mind the limits on time and space, creating a workforce capable of operating in a severe environment is one of the moats Mike mentioned before. That poses a major difficulty for anyone. Again, it's something we can keep expanding, and it represents a substantial opportunity for us.

Much appreciated. Thanks.

Much appreciated. The following question comes from Cameron Doerksen at National Bank Financial. Your line is open now.

Morning, Cam, and thank you very much. Good morning to all of you. I suppose my question concerns the balance sheet. Clearly, you now hold an investment grade credit rating, and that's excellent. I'm just wondering, at a high level, how you would prefer the balance sheet's structure to look over the longer term. Obviously, there's an opportunity here to complete an interest rate debt deal, but I suppose how would you like the business's split to look over the longer term between raising some debt in the public markets and the credit facility? Perhaps related to that, what level of interest rate savings do you believe you could achieve if you do access the capital markets for debt?

I'll handle the majority of that, and then Ritchie gets the tough assignment—the savings portion. It's crucial to grasp why the bond market has us enthusiastic. We're sitting on enormous liquidity. The facility we currently have stands at $3.5 billion, and roughly $1.25 billion remains as dry powder. Even considering Adam's ability to deploy capital, we're well positioned on that front. What bonds provide is a fixed-rate component on our balance sheet. Since the company's inception, convertibles have always been part of the mix, and they accounted for a substantial share of our fixed-rate exposure. Now, with bonds carrying a rate much lower than convertibles ever did—and frankly lower, subject to term of course, than what we pay on floating rate—I believe you'll observe bonds becoming a meaningful portion of our capital structure as time goes on. Historically, we relied on interest rate swaps to obtain fixed-rate exposure. Today, the bond market is considerably less expensive than the swap market. I expect you'll see us expand that. A personal phobia of mine involves refinancing risk arising from large chunks of paper coming due, so I prefer to spread those out across multiple years.

I think that as the bond component of our financing matures over time, you'll see us doing that with bonds of varying lengths, so that we aren't unduly affected by whatever is going on 5 years from now when a bond comes due. I guess the other thing that's really important, something our shareholders count on us for, is that we've kept a very consistent level of debt since our inception. Bonds don't change that. It lessens our reliance on what we used to have with convertible debentures, and it lessens our reliance on our operating facility, but it doesn't change the aggregate level of debt we're comfortable carrying.

I think, Cam, to address what you asked about savings, it really hinges on what you're using as your reference point. If the reference point is, clearly, the convertible debenture market, then those savings are quite substantial, particularly once you factor in the amortization of the costs associated with that transaction. That's 1.5%. If instead you're measuring against our credit facility on a variable basis, I'd argue that comparison is less apt, since that facility runs four years while in the bond market you're looking at something with a 5 or 7 year term. Even comparing a five-year fixed basis against a four-year floating basis, you'd still capture some savings on the fixed side. I think the place where the comparison with the credit facility carries more weight is, as Mike pointed out, we finished those redemptions, but beyond that we hold two interest rate swaps maturing in April 2026. We've begun to ramp up our review of extending them. When you set the interest rate swap market against the bond market, those savings, if you're considering something of term and 5 years in the bond market versus the swap market, you do save. The delta isn't as large as it is versus the convertibles, but it still represents meaningful savings in exchange for that certainty of term.

This is something we're genuinely enthusiastic about, and we will still capture some savings compared with the floating option, though the real advantage shows up when you compare it against the other capital alternatives we have for getting a portion of fixed-rate debt in place, where the savings are more substantial.

If you consider that across our history we've generally maintained roughly a turn of EBITDA in convertible debt—and those carried, in round figures, interest rates in the low sixes plus the expense of raising them—compared with a bond likely priced in the very low fours with minimal issuance expense, the gap comes to roughly 200 basis points against our historical capital structure, and on our cost of capital that represents a meaningful difference.

No, that's really useful context. Maybe just one quick follow-up for Richard. I suppose, regarding working capital, there was a large positive swing in Q4 — it looked like a significant shift in accounts receivable. I'm just wondering what caused that, and maybe any thoughts on what we should expect for working capital in 2026?

Absolutely. This aligns with the type of guidance we've communicated all through 2025, and also with what we shared regarding 2024. A number of government accounts lagged considerably behind our collection patterns in 2024, and we fixed those by collaborating with our partners across 2025. As is our habit, we worked on building processes to ensure we don't land back in that spot. That proved significantly successful over the period. We discussed the multi-storey window solutions. Some working capital drawdown exists there owing to business volumes. The other item we mentioned across 2024 and early 2025 is simply Regional One capitalizing on certain buying opportunities and locating the right venue to sell those assets. Given the scale of assets we had acquired across 2024, late 2024 and early 2025, the timing of those sales produced temporary bumps in working capital. That isn't something we apologize for. Regional One will stay opportunistic. If the plan is to resell the assets relatively quickly, they'll sit in inventory. We'll keep making those kinds of investments since they generate the returns Regional One does.