Earnings call transcript: Exchange Income Q4 2024 misses EPS forecast

Exchange Income Corporation (EIF) reported its fourth-quarter 2024 results, revealing a mixed performance with record revenue yet missing earnings expectations. The company posted earnings per share (EPS) of $0.80, falling short of the $0.8554 forecast. Revenue reached a record $688 million, slightly below the anticipated $711.94 million. Following the report, Exchange Income’s stock declined by 4.88%, closing at $52.65. According to InvestingPro data, the company has maintained dividend payments for 22 consecutive years and currently appears undervalued based on Fair Value analysis.

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Key Takeaways

• Exchange Income reported record Q4 2024 revenue and adjusted EBITDA.
• The company missed EPS forecasts, leading to a nearly 5% drop in stock price.
• Strong demand in infrastructure and aviation sectors was highlighted.
• The company plans to expand its ISR aircraft capabilities and pilot training programs.

Company Performance

Exchange Income Corporation achieved record financial performance in Q4 2024, with revenue, adjusted EBITDA, and free cash flow reaching new highs. Despite these records, the company’s EPS fell short of market expectations. The company continues to be a leader in Canadian multi-story window solutions and a significant player in North American aviation services. The strategic acquisition of Canadian North is expected to bolster its territorial service offerings.

Financial Highlights

• Revenue: $688 million (record high)
• Adjusted EBITDA: $167 million (record high)
• Free Cash Flow: $111 million (record high)
• Aggregate leverage ratio: Reduced from 3.36 to 3.22 post-convertible debenture conversion

Earnings vs. Forecast

Exchange Income’s EPS of $0.80 missed the forecast of $0.8554 by approximately 6.5%. This miss contrasts with the company’s historical trends of meeting or exceeding expectations, contributing to the negative market reaction.

Market Reaction

Following the earnings release, Exchange Income’s stock dropped by 4.88%, closing at $52.65. This decline reflects investor disappointment with the earnings miss, despite record revenue figures. The stock’s movement is significant, given its 52-week range of $43.08 to $59.32.

Outlook & Guidance

For 2025, Exchange Income projects adjusted EBITDA between $690 million and $730 million, indicating expected growth in its Aerospace and Aviation segment. According to InvestingPro forecasts, the company is expected to maintain profitability with a 12% revenue growth projection for FY2024. The company is optimistic about its multi-story window solutions and plans to expand its ISR aircraft fleet. Strategic acquisitions remain a focus area, supported by the company’s current ratio of 1.11, indicating sufficient liquidity to meet short-term obligations.

Executive Commentary

CEO Mike Pyle emphasized the company’s strategic approach: "We’re not paying for goodwill here. We’ll create the goodwill with the upgrades we’ll make." He also highlighted the strong demand for housing driven by immigration, stating, "The need for housing is still strong. Canada is bringing in 350,000 people this year."

Risks and Challenges

• Potential tariff risks affecting the Dallas facility.
• Geopolitical uncertainty could impact ISR services demand.
• Regulatory hurdles in acquisitions, notably the Canadian North deal.
• Fluctuations in the oil and gas sector impacting demand.
• Supply chain disruptions affecting multi-story window manufacturing.

Q&A

During the earnings call, analysts focused on the Canadian North acquisition, seeking clarity on the regulatory approval process and potential synergies in maintenance and parts operations. Insights into market opportunities in Northern Canada were also discussed, underscoring the strategic importance of this acquisition.

Full transcript - Exchange Income Corporation (EIF) Q4 2024:

Conference Call Operator: Good morning, everyone. Welcome to Exchange Income Corporation’s conference call to discuss the financial results for the three and twelve months ended 12/31/2024. The corporation’s results, including the MD and A and financial statements, were issued on 02/26/2025, and are currently available via the company’s website or SEDAR plus Before turning the call over to management, listeners are cautioned that today’s presentation and the responses to questions may contain forward looking statements within the meaning of the safe harbor provisions of Canadian provincial securities laws. Forward looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward looking statements, and actual results may differ materially from those expressed or implied in such statements.

For additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward looking statements, please consult the quarterly and annual MD and A, the risk factor section of the annual information form, and EIC’s other filings with Canadian securities regulators. Except as required by Canadian security law, EIC does not undertake to update any forward looking statements. Such statements speak only as of the date made. Listeners are also reminded that today’s call is being recorded and broadcast live via the Internet for the benefit of individual shareholders, analysts and other interested parties. I would now like to turn the call over to the CEO of Exchange Income Corporation, Mike Pyle.

Please go ahead, Mr. Pyle.

Mike Pyle, CEO, Exchange Income Corporation: Thank you, operator. Good morning, everyone, and thank you for joining us on today’s call. With me today are our normal participants to this call, including Richard Laurick, our CFO, who will speak to our financial statements financial results along with Jake Trainor and Travis Muir, who will expand on our outlook for the future. Also joining us are Carmel Peter and Adam Turwin, who have joined us to answer any questions about EIC’s recently announced agreement for the acquisition of Canadian North. Canadian North is a strategic acquisition for our Essential Air Services business line and is one of the most significant that we have announced to date.

The routes flown by Canadian North are highly complementary to our existing routes as there is essentially no overlap. We believe that we have a proven skill set at Northern Aviation and we look forward to welcoming Canadian North into our family after all regulatory approvals are received. I’m very proud of our results over the last twenty years, but I’ve been more excited about the future of AIC, especially with the strategic acquisitions we executed over the last two years and with Monday’s Canadian North announcement. Yesterday, we released our year end results for 2024. Our annual performance continued to be extremely strong, highlighted by our highest adjusted EBITDA, free cash flow and adjusted net earning metrics in our history.

Other key metrics including net earnings and free cash flow as maintenance CapEx, while slightly short of setting records were also very impressive. These results were generated during the year where I would describe as challenging from a macroeconomic standpoint. Canada and The U. S. Were wrestling with inflation and uncertainty over interest rates earlier in the year.

Then we had significant uncertainty around the world, particularly in The United States. And lastly, we had a new administration in The U. S. That is providing soundbites on a daily basis, which are moving stock markets and the foreign exchanges because of the risk of tariffs and other policies. With that backdrop, these results are really impressive.

Our results were driven by our Aerospace and Aviation segment and we continue to see positive signs in our Manufacturing segment based on record levels of inquiries. We started to see strong momentum of inquiries being converted into bookings in our multi story windows business line in the latter part of 2024. And we saw more orders at our other manufacturing companies post election. There are obviously some concerns and headwinds caused by the current political uncertainties. However, I believe the vast majority of our companies are not directly impacted by the potential tariffs.

The greater risk lies in igniting trade wars through countervailing tariffs and the secondary risks of significant changes in foreign exchange rates and the reduction in business and consumer confidence. Our teams are regularly meeting to discuss mitigation plans should the tariffs become enacted and we’ve taken proactive steps to mitigate the risk. We will try to be as brief as possible when talking about this year’s record results as I think everyone is going to be more focused on the Canadian North acquisition and other events before us. Prior to passing the call to Rich, I want to highlight some of the key performance metrics achieved during the quarter. We set records for revenue, adjusted EBITDA, cash flow, free cash flow and adjusted net earnings on both a fourth quarter and a full year perspective.

2024 was our second best year and second best fourth quarter from a debt earnings and free cash flow less maintenance CapEx viewpoint. These are amazing results. This demonstrates the acquisition the execution, I’m sorry, of our strategic deployments of capital, whether it be for organic growth or by the way of acquisition by Adam and his team. During 2024, we executed strategic acquisitions for our environmental access solutions business line with the addition of Duomo and Spartan. Both businesses exceeded our expectations since acquisition and they will be highly strategic for our VADIG business as we increase our growth in Eastern Canada and expand our operations throughout The United States.

The System 7XT, which was the new Spartan MAT developed in 2024, has been a success based on our independent and real world testing. We have seen great feedback on the mat and the MOD’s product line is continuing to expand in The U. S. Our teams from Canada and The U. S.

Are regularly meeting to see how we can continue to grow in The U. S. Market in 2025 in the matting business. Our Aerospace and Aviation segment continued to set record results. It was driven by investments made in prior years along with contractual wins.

The Medevac contracts in both Manitoba and BC are well underway and the customers are very happy with our performance. During 2024, all of the Manitoba aircraft were received and put into service. We anticipate receiving eight of the remaining 10 new King Air aircraft for the BC contract in 2025. We had hoped to receive some of these aircraft in 2024. However, they were delayed at the manufacturing due to a strike in 2024.

However, we’ve been able to use existing aircraft to service the contract and we will be able to redeploy those aircraft when we receive the new ones. We hope to utilize some of the aircraft in our recently announced Newfoundland and Labrador Medevac contract, which will start later in 2025. Additionally, we were recently awarded the interim rotary Medevac contract to assist Newfoundland and Labrador while a new contract is being finalized. During the quarter, we also submitted our proposal to the Australian government for their maritime surveillance contract. This is the Super Bowl of maritime surveillance contracts and we were one of three bidders on the contract.

We expect to hear back from the government midway during the year as the government weighs the various options submitted by the three parties. As I commented in the past, this was a unique RFP as it was solutions based contract, which provided frequency and locations to be monitored. However, it was agnostic as to the type of aircraft and the equipment and where they choose to operate from. We put together a very strong bid and we expect to have as good a chance as any other bidder. We have also received interest from several other countries for ISR assets and are working through budgets and needs assessments.

But as a whole, this geopolitical environment has resulted in a notable increase in demand. The future aircrew training contract continues to be in the negotiation phase with the prime contractor. The scope is continuing to increase and the work should start under the contract in the latter part of this year. Lastly, our second aircraft in The UK home office contract is in the process of being modified with the goal of for it to start flying with augmented technical capabilities midway through this year. Aircraft sales and leasing continues to ramp its leasing business.

The investments we have made in the past are yielding financial result fantastic financial results. The demand for parts and engines is especially high due to parts shortages and metal shortages such as titanium around the world. Our manufacturing sector segment has shown positive momentum in the latter half of the year as we move into 2025 and we are seeing further strength. We started to see increased bookings within our multi story window solutions business to the tune of approximately a couple hundred million dollars since Q2. That backlog will benefit production in 2026 and beyond.

Darwin Sparrow, our EIC COO has worked with management to streamline the manufacturing footprint in Toronto. We are well set up to mitigate potential tariff risks in The United States with our Dallas facility. The uncertainty is caused by the talk of tariffs and countervailing tariffs has definitely caused some concern with our customers throughout the manufacturing subsidiaries. We have however very little product manufactured in Canada for customers in The United States And we are continually revisiting our strategies as government announcements are made. Our environmental access solutions business line sees continued interest in several sectors, including transmissions and distributions, which we think have long term tailwinds.

We had record results in Eastern Canada during the year and we see a number of potential larger products needing matting solutions in 2025 and beyond. So we are bullish about the opportunities exist in that business, both north and south of the border. Lastly, our Precision Manufacturing and Engineering business has noted some strong results in the back half of 2020 back half of Q4, sorry, as we saw a significant uptick in orders in several industries, including release of capital by the telecommunications companies. The demand has continued into the early part of twenty twenty five. In that business line, we have been hearing a lot of noise about supply chains and the risks of tariffs, but once again our local teams remain nimble and ready to respond.

Stepping back and looking at EIC from a global perspective, our subsidiary’s performance have allowed us to pay a growing dependable dividend to our shareholders. In fact, the fourth quarter, we surpassed over $1,000,000,000 of cumulative dividends paid. This figure is a credit to our business model, our subsidiaries, but most importantly our management teams and our employees. Jake and Travis will focus on the outlook for our segments for 2025. However, before passing the call over, I want to speak about our 2025 guidance.

Due to the regulatory approval process, we have not updated our guidance to include Canadian North. Our pre existing guidance provided in the third quarter is continuing until we are able to announce the closing date of the Canadian North transaction. We believe that our adjusted EBITDA will be between $690,000,000 and $730,000,000 for fiscal twenty twenty five. Our strategy has proven itself over the past twenty years and I’m extremely excited about the next twenty. I’d now like to pass the call over to Rich.

Richard Laurick, CFO, Exchange Income Corporation: Thank you, Mike, and good morning, everyone. For the fourth quarter, revenue was $688,000,000 adjusted EBITDA was $167,000,000 and free cash flow was $111,000,000 all were fourth quarter high watermarks. Free cash flow’s maintenance CapEx at $43,000,000 was our second highest due to the timing of certain maintenance events during the year. Revenue in our Aerospace and Aviation segment increased by $30,000,000 or 8% to $415,000,000 Adjusted EBITDA increased by $32,000,000 or 29% to $140,000,000 The revenue and adjusted EBITDA increases were $500 related to the Essential Air Services and Aircraft Sales and Leasing business lines. Revenue and adjusted EBITDA within our Aerospace business line were lower due to planned wind down of certain training programs prior to the start of new programs and contracts.

Additionally, one of the aerospace contracts changed from a performance based logistics arrangement to time and materials arrangement, which results in more variability when comparing quarters. Looking at the Essential Air Services business line, the improvements were driven by four key factors. First, previous organic growth capital expenditures in the aviation business over the past number of years, including our rotary wing business. Second, our average load factors improved, which has a direct improvement on adjusted EBITDA. Third, the impact of routes flown on behalf of Air Canada (TSX:AC).

And finally, the impact of the BC and Manitoba Medevac contracts. These have been the same consistent drivers throughout the entire fiscal period. Our aircraft sales and leasing business line revenues increased for two reasons. The first reason was the continued ramp in leasing activity due to investments in the lease portfolio over the past number of years, coupled with the continued improvement in the utilization of our portfolio. We are seeing significant demand for aircraft and even more so on the engine side.

Lastly, Q4 saw an increase in large asset sales, which are generally more lumpy than our traditional parts business. The net result was a significant increase in revenue and adjusted EBITDA from the business line. Revenue in our Manufacturing segment increased by $1,000,000 to $272,000,000 adjusted EBITDA decreased by $6,000,000 to $40,000,000 Our essential sorry, our Environmental Access Solutions business line experienced reduced revenues of 7% and decreased EBITDA of 16%, primarily due to reduced mass sales and service activity from the demobilization of a large project, which occurred in the prior Q4. The acquisition of Duhamel and Spartan exceeded our expectations based on our acquisition thresholds and they partially offset those reductions. We are continuing to see demand for mat and bridge rentals and anticipate when larger projects are approved in 2025, we should have increased mass on ramping throughout the year.

Our multi story window solutions business line revenue decreased slightly by 1% when compared to the prior year. However, adjusted EBITDA decreased by 29% primarily due to three factors. First, there was a change in product mix. Second, the continued that there continued to be product delays coupled with our strategic decision to retain experienced staff, which will be required when the backlog and related production start. Last, there were additional costs as we streamlined the manufacturing facilities in the fourth quarter.

We also recorded a restructuring provision, which was excluded from adjusted EBITDA and is separately reflected in the financial statements. We continue to see strong bookings, which increase the backlog. However, as previously discussed, those bookings will impact 2026 and 2027. Our overall net earnings were $28,000,000 for the fourth quarter compared to $29,000,000 in the prior year. The higher adjusted EBITDA was offset by increased interest cost of $5,000,000 increased depreciation of $9,000,000 and restructuring provisions noticed previously.

Both interest and depreciation were elevated from the prior year due to capital growth capital investments and acquisitions made during the year. Adjusted net earnings were $39,000,000 compared to $34,000,000 in the fourth quarter of the prior year. Free cash flow was $111,000,000 compared to $102,000,000 in the prior year, both for fourth quarter records. Maintenance capital expenditures in the fourth quarter of twenty twenty four were higher by $15,000,000 due to the timing of maintenance events in our Aerospace and Aviation segment. Growth capital expenditures in Q4 were $43,000,000 and were primarily driven by acquisitions of engines and aircraft in our aircraft sales and leasing business line, increased the leasing portfolio coupled with aircraft acquisitions in our Essential Air Services business line for additional lift.

And expenditures incurred for the second aircraft for The UK home office. From a working capital perspective on the year, we had investment in working capital due to a couple of reasons. The most significant reason which drove the year to date and quarter to date investment is due to several inventory purchases made within our aircraft sales and leasing business line. This was due to favorable market conditions and those aircraft will be parted out and drive stronger results in the future. Second, the growth in the business including revenue and adjusted EBITDA required additional working capital investment.

Third, the corporation collected a $30,000,000 receivable at the end of twenty twenty three for which the corresponding payable was not due until 2024, which was a drag on working capital during the year. Finally, certain government receivables were behind in historical collection patterns, which are expected to be resolved in 2025. We actively manage our working capital and working with each subsidiary team to convert the increase in working capital into cash. The corporation’s aggregate leverage including both its senior credit facility and convertible debentures remained relatively consistent increasing from 3.26 at 12/31/2023 to 3.36 at 12/31/2024. Subsequent to the end of the year, the corporation called Series K convertible debentures, which saw $78,000,000 of this series convert to equity.

Pro form a this conversion and redemption of the remaining debentures aggregate leverage is 3.22. On a pro form a basis, our aggregate leverage ratio is the lowest it’s been since 2019. All these ratios are calculated using the terms of the corporation’s credit facility, which includes pro form a adjustments for the full year impact of acquisitions, but not the full year impact of growth capital expenditures. The growth capital expenditures that did not fully contribute in 2024 will have the effect of pulling down the leverage ratio where a full year contribution is considered. The corporation called it Series J convertible debentures during the fourth quarter and as already mentioned it’s Series K convertible debentures subsequent to year end.

Convertible debentures were an effective form of financing in the past. However, we anticipate to transition to more conventional forms of financing to fund future growth. We continue to maintain a conservative balance sheet and because of those past decisions, it allows us to execute on the strategic transactions like Spartan and Canadian North. Because of the financing transactions discussed above, no new equity capital will be required to fund the Canadian North transaction. Our M and A pipeline remains very strong.

We are confident that our balance sheet is in a position that allows us to execute on future transactions. I will now turn the call over to Jake, who will provide an update for the 2025 outlook for the Aerospace and Aviation segment.

Jake Trainor, Exchange Income Corporation: Thank you, Rich. Travis and I will split up the outlook session. I will focus on the Aviation and Aerospace segment. Travis will provide some context for the Manufacturing segment. Overall, we’re expecting another strong year of growth from our Aerospace and Aviation segment as the trends highlighted in Mike and Rich’s section are expected to continue into fiscal twenty twenty five.

The growth investments made in the past in addition to the contractual wins, whether it be the Newfoundland and Labrador medevac contract, the second aircraft for The UK home office or the future aircrew training will all start to contribute to the profitability during the year. I’ll specifically focus on the growth factors by business line. Our Essential Air Service business will see growth driven by a multitude of factors when compared to the prior period. These include the full year deployment of Q400 aircraft to provide services under our agreement with Air Canada. We also expect to see strong load factors and growth across our network when compared to 2024.

Lastly, we expect continued growth in our medevac business with both the long term BC and Manitoba medevac contracts continuing to contribute to financial results for the full fiscal year along with enhanced pricing under the government of Nunavut’s contract. As a reminder, the BC medevac contracts returns are expected to be muted until we redeploy the existing aircraft currently being used to service that contract. The redeployment opportunities hopefully will include the Newfoundland and Labrador medevac contract or charter and ISR opportunities throughout our network. Offsetting some of these gains is the impact of continued labor shortages and the supply chain challenges. Although we’re not seeing a worsening of these dynamics, the challenges still remain specifically on aircraft parts and consumables, which are generally denominated in U.

S. Dollars. Although Canadian North isn’t included in our guidance, I wanted to take a few moments to talk about the strategic impact of the acquisition that will be on the Essential Air Servicing business once the line is complete our business line once completed. Adam and Carmel will be able to expand on the discussion in the Q and A following the prepared remarks and we were elated to announce the signing of the binding purchase agreement on Monday. There are a number of strategic benefits to the transaction for EIC.

The Canadian North routes are highly complementary to our existing routes as there’s virtually no overlap with our legacy airlines. The addition of Canadian North will allow us to expand our geographies served to be all inclusive within Nunavut by adding two regions that we currently do not serve and will also allow for expansion into the Northwest Territories based on Canadian North’s existing routes. It also provides the EIC companies with jet service and therefore provides opportunities to future and current customers of our various airlines. Lastly, the infrastructure acquired including various hangars, simulators, bases and other physical infrastructure aids us in providing services for our customers and communities we serve coupled with the potential opportunities for future expansion of our aerospace business line. The aerospace business line is also expected to see growth due to strong flying temple for our surveillance aircraft, along with the second aircraft going into service on The UK home office contract, but not until later in the year.

However, the revenue increases are expected to be moderated by revenue declines associated with the transition of one of our aerospace contracts moving from a performance based logistics contract to a time and materials contract that means revenues and profitability will be muted and more lumpy than in the past. Furthermore, we anticipate some declines in our training business as we transition between the planned wind down of pre existing contracts and the ramp up of new contracts. Our aircraft sales and leasing business is also expected to experience growth as Mike and Richard had talked about the investment in both working capital for future part sales and investment in aircraft and engines within the leasing portfolio. We continue to expect linear growth in the leasing revenues into 2025 as we place those aircraft and engines on lease. With the increase in inventory, we also anticipate greater part sales throughout the year.

On a long term basis, we expect maintenance CapEx or capital expenditure to increase roughly consistent with the increases in adjusted EBITDA in our Aerospace and Aviation segment, which is the biggest driver of our consolidated maintenance CapEx. Growth investments in 2025 include capital expenditures for eight to 10 new King Air aircraft, which will be used in the BCEHS contract. Certain of those aircraft were originally expected to be delivered in 2024. However, due to the strike at the manufacturer, they’re expected to be received in 2025. We also anticipate capital expenditures related to the final modifications on the second aircraft for the UK Home Office, including the augmented technology suite requested.

We’ll be completing the full motion King Air Simulator in the first half of the year. And lastly, Regional One is always working on opportunistic aircraft and engine acquisitions, which may result in growth investments being made in the aircraft sales and leasing business. I’ll now pass it off to Travis to provide some commentary on the manufacturing segment.

Travis Muir, Exchange Income Corporation: Thanks, Jake. We’re anticipating a strong improvement in our revenues and profitability for our manufacturing segment when compared to fiscal twenty twenty four. The growth is expected for two reasons. Firstly, we see the continuation of the strong momentum for many of our manufacturing segment subsidiaries coupled with the annualized impact of Duhamel and Spartan in our environmental access solutions business line. All of the businesses within the manufacturing segment were experiencing a strong level of customer inquiries in 2024 and into early twenty twenty five.

Like we saw in the multi story windows business, those inquiries start to be converted into firm fixed orders. We saw those conversions to bookings in the multi story window solution business line subsequent to Q2, while we saw the same theme in our precision manufacturing and engineering business line in the latter part of Q4 after the election results were announced. There has been some concern over the risk of tariffs in the shorter term from a customer booking perspective, but we remain optimistic as we’re not directly impacted by tariffs with the exception of our hydronic heating business, which is a relatively immaterial component of our business. And we’ve taken several activities to mitigate the risk. Our multi story window solutions business line has continued to see strong bookings.

However, as previously discussed, those bookings will be manufactured and installed in eighteen to twenty four months consistent with historical trends. For 2025, our multi story window solution business line revenue and adjusted EBITDA is expected to be lower than fiscal twenty twenty four due to three reasons. Firstly, due to the heightened interest rates in 2023 and into 2024, it resulted in reduced project activity for 2025. Secondly, for the project scheduled for 2025, we anticipate margin pressures due to the type of projects booked. And lastly, they’ll continue to be operational integration costs as we continue to streamline the manufacturing footprints.

We have taken the conscious decision to retain experienced staff as we see the projects being one requiring experienced staff as we move into fiscal twenty twenty six. Quoting in Canada and The U. S. Continues to be extremely active. We remain very bullish on this business line as the longer term fundamentals, which drive which are driving demand remain incredibly strong.

The environmental access solutions business line is expected to generate returns significantly higher than fiscal twenty twenty four. The strategic additions to Duhamel and Spartan on a standalone basis will result in annualized increases. However, the real benefit is realizing on the strategies for further revenue and profitability growth in Eastern Canada, especially in the transmission and distribution sector. Spartan allows us to expand into the much larger U. S.

Market and based on testing of our new System seven XL mats, we anticipate a strong level of uptake as we market the mats to our customers. Also the FODS product line is seeing strong demand in the early part of 2025. On a map sales perspective, in 2023, we saw the demobilization of some large projects and we had the opportunity to sell a significant number of maps in Q4 twenty twenty three, which was abnormal and resulted in the period over period declines that Richard talked about. That being said, there are a number of larger multi period projects which are expected to be mobilized in 2025 and are expected to provide strong demand for the Matt and Bruijn rental business. In fact, we’re anticipating Matt’s on rent in Q1 to be larger than the comparative period in 2024.

With the change in the U. S. Administration, we’re also seeing significant increased demand in several sectors. So we talked about our bullish view on the transmission and distribution sector as electric grids have to be expanded and hardened for the new electricity demands. But more recently, we’ve also seen renewed interest in pipeline and oil and gas sectors, which are legacy strengths for the wooden map product line.

The precision manufacturing and engineering business line is expected to improve from a revenue profitability perspective over the prior year. As previously discussed, we saw an improvement in the bookings after the U. S. Election, which is consistent with our experience after previous U. S.

Elections. We’re seeing significant demand in the Canadian telecommunications sector and are also seeing strength in our hydronic heating business due to the cold and snowy conditions experienced across large swaths of North America this winter. The business line has very diversified customer base and we’re seeing strength across various sectors, including the defense industry, technology industries and the previously discussed telecommunications industry. The anticipated maintenance capital expenditures are expected to be slightly higher than the prior year due to the timing of replacements and more specifically to the anticipated growth of the environmental access solutions business line and the precision manufacturing and engineering business line. We’re also anticipating growth capital expenditures to be incurred in each of the business lines, but they should be relatively consistent with prior year.

The growth capital expenditures specifically in the Environmental Access Solutions business line will depend on market dynamics as they continually reassess their fleet based on the expected future market conditions. I’ll now pass the call back to Mike.

Mike Pyle, CEO, Exchange Income Corporation: Thanks guys. Carmel and Adam were ecstatic to announce EICs entering into an agreement to acquire Canadian North as both of them have been putting significant hours for a significant for an extended period of time to get this transaction across the line. Canadian North is a strategic fit for EIC and both Carmel and Adam are here to discuss the transaction and respond to questions. Because of our conservative leverage coupled with the conversion of the Series J and K to ventures, we will not require to raise any additional equity capital to execute on this transaction. Overall, I’m very encouraged by the state of our business and to the start of 2025.

I’m proud of our past twenty years and I’m very excited for the next twenty based on the portfolio of companies that we have built. Excuse me. Thank you for your time this morning and we’d now like to open the call to questions. Operator?

Conference Call Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question comes from the line of Mattioli from Canaccord. Please go ahead.

Mattioli, Analyst, Canaccord: Hi, morning guys. Thanks for taking my question. Hey Mike. Maybe just starting on one with Canadian North acquisition. You’ve known the Canadian North guys for probably over a decade now.

Why was this the right time to do the deal?

Carmel Peter, Exchange Income Corporation: It’s a good question, Matt. I think they got to a point where they recognized that selling was the right thing for them to do. They own another airline called Air Inuit and I think they’re going to focus in on that and we were able to put a deal together that worked for them as well as for us. So it was more timing than anything else.

Mattioli, Analyst, Canaccord: Got it. And then maybe talk about your confidence in the regulatory approval process for the deal.

Carmel Peter, Exchange Income Corporation: Sure. So maybe I’ll just take a step back and talk about what approvals in fact we do need to get. Given the size of the transaction, the fact that it is a transportation undertaking, we need kind of two approvals from regulatory folks. The first is competition, for approval, so obviously it’s well known to EIC and that’s probably more straightforward. The second is Transport Canada approval, which is different than competition obviously focuses in on is there a lessening of competition?

Transport Canada is more of a public interest perspective, so different type. And, you know, I say Transport Canada, but ultimately it’s a cabinet decision. So those are the two approval processes timeline. Competition Bureau is much more prescriptive and has timelines. Transport has certain aspects of the process which do have timelines, but others don’t, So it becomes very difficult to try and predict how long that might take.

You know the one thing that I would say if I compare this transactions to the other ones which is had to go through a similar approval process, and I think there’s been four. I think we’re at the more simplified end of our transaction. There’s no overlap with respect to what us in Canadian North does. So not a competition issue from a public interest perspective. Obviously, we have a great track record in how we deal with the North, our commitment to the communities, what we can bring, that stability of level of service, ability to manage costs in the aviation industry.

So lots of good things I think we can explain to the regulators, but timing becomes a little difficult to predict. It’s measured in several months. We’re hopeful it’ll be at our shorter end as I said. It’s unfortunately probably no less complicated by virtue of a likely federal election in the middle of all this. So not able to give you any precision on that, but we’ll work towards obviously making it short as possible.

Mike Pyle, CEO, Exchange Income Corporation: I think the one thing that fits into what Carmel talked about of our reputation in the North was the press release the government in Nunavut put out when we completed the transaction. Well, they clearly say they’re going to look and examine and make sure that it fits for their people. The tone of the press release was very positive and talked about the strength of our relationship and actually talked about this acquisition as an opportunity to enhance things in the North and that’s certainly the way we look at it. We’ve got some great programs that whether it’s the tick mason flying program, our program with the bombers, our simulators and things like that that we want to expand into the Canadian North business. So I think there’s a lot of reason to be excited that this program not only doesn’t impair competition, it actually enhances service to the North.

If case can’t tell, we kind of like this deal.

Mattioli, Analyst, Canaccord: Yes, no kidding. I guess your orange shirt blue bomber day is going to be a little more busy.

Mike Pyle, CEO, Exchange Income Corporation: The bombers might need to add a few seats to that stadium.

Mattioli, Analyst, Canaccord: I’m sure you could do it.

Mike Pyle, CEO, Exchange Income Corporation: Thank you. Thank you, Matt.

Conference Call Operator: Thank you. And your next question comes from the line of Steve Hansen from Raymond (NSE:RYMD) James. Please go ahead.

Mike Pyle, CEO, Exchange Income Corporation: Hey, Steve.

Travis Muir, Exchange Income Corporation: Good morning, guys. Thanks for the time. Mike, can you maybe Carmel, can you speak to the opportunities beyond the obvious deal itself? It sounds like you’re obviously getting some dominance up in the North here, but you referenced some additional growth opportunities that could come of this because of the infrastructure improvements that you’re going to be gathering or the assets you’ll be gathering. So just maybe walk us through the broader picture in the North after this deal is the first question.

Thanks.

Carmel Peter, Exchange Income Corporation: Sure. So I’ll start. This is kind of the next big step for us. When we look at where we are today, what we do and what we do well, it was a logical step for us to obviously move into the territories in the foreign earth that we weren’t serving that were adjacent to us, and made sense to allow us to provide that kind of continuity of service throughout the foreign North. The kind of if I’m looking beyond, because I think that’s what you’re looking for.

If you look at the North, I would say that’s probably the most significant growth opportunity in Canada, not only from its accelerated growth from a population perspective comparatively to the South, but Arctic sovereignty, the resource sector, which is growing. So all things that by being able to provide the level of service and the continuity of service in the Far North and the infrastructure that we will then have in the Far North positions us well to be able to capture that growth. And then it also allows us from an EIC perspective to get an additional tool in our toolbox being the jet capacity with the seven thirty seven access. And I think that will allow us to provide some greater charter accessibility to our customers and hopefully some new customers. And then as you look at the footprint that will be established as a result of the acquisition, it brings us closer to other regions that we can look at whether Northern Alberta, Yukon, etcetera.

So that’s the excitement almost post closing as we’ve got excitement there, we’ve got excitement for what it brings just in and of itself.

Mike Pyle, CEO, Exchange Income Corporation: And I think the one other piece that that’s tangential to what Carmel mentioned is a lot of people don’t understand the development that’s in the North right now and is coming in the North. Natural resources and mining are strong and growing. There’s opportunities in gold and other we keep hearing about the word critical minerals. These are things that are going to be explored and done up there, which again, the only way you get there is by boat in the summer or by plane in the winter. And so that has the opportunity for growth.

And quite frankly, the geopolitical uncertainty is going to increase the need for Canada’s investment in our military infrastructure in the North. 1 of the political leaders talked about building a base in a capital in the last couple of weeks. Well, any of those projects increase the flow of goods into the North. The more things that go into the North, the busier we’re going to be. So there’s a great business there servicing the people of the North.

There’s developing the resources of the North and the defense of the North. And then quite frankly, that lets us expand South into markets that are adjacent to where we are. And you see we’ve done that in quite frankly in the Manitoba Central Region where Comair was a main player in Nunavut for decades and we’ve built that into a dominance in Central Manitoba and Northwestern (NASDAQ:NWE) Ontario. And I think you’ll see over time us attempt the same strategy off of the Duke Canadian North operations. And we love the fact that there’s no overlap, like we’re not buying and competing with ourselves.

We’re not this isn’t a business about cutting the number of times we go to a community or reducing service. It’s quite the opposite. We want to enhance service because it’s a all new market stuff.

Travis Muir, Exchange Income Corporation: No, that’s great color. Just as a quick follow-up, you referenced in the release returns in the first year anyways, they’ll be slightly below your turn targets. How confident are you in getting to that typical return target? And are you being able to start to map that out just based on the diligence thus far? Thanks.

Mike Pyle, CEO, Exchange Income Corporation: Yes. I mean, we’re under a remarkably tight NDA about disclosing financial numbers and stuff until this is closed and I completely understand Canadian North’s position on that. Until the deal is done, that’s their purview and we will give you more details when we close if we can. But a lot of the things we know we need to do to get the numbers that are possible in this deal are things we’ve done before. We’re not going out and having to reinvent the wheel here.

We’re going in we’re going to be adding Canadian North as an example to our engine overhaul program, which we’ve negotiated with the overhaul people, which give us better service, better pricing and better timing. We can add our fuel purchasing capability, bringing Regional One into the parts capability, streaming line overhead that’s not in the North, that’s down south and in fact actually building our base in the North to let Northern people manage our Northern business. And so there is a very detailed game plan that’s ready to go. And we’re in a position to share that from a confidentiality point of view, we will. But I think the one thing I’m comfortable telling you is that we I think we’ve proven we know what we’re doing in this area and this isn’t new.

The big advantage is I mentioned this a couple of times is we’re not we don’t have overlap. We’re taking a business that flies beside ours, but services the same kind of customers, brings the same freight in, deals with the same people. This is not new. And so we’ll follow where Canadian North is and then bring EIC’s inherent advantages of size to the table and that will enable us to get to the returns we expect. I mean, one of the cool things about this deal that typically is not the case, In fact, it’s almost never the case in aviation.

Our purchase price is essentially fully backed by the assets. We’re not paying for goodwill here. We’ll create the goodwill with the upgrades we’ll make, but we bought the assets for the and the infrastructure we need to cover a great piece of the geography of Canada.

Adam Turwin, Exchange Income Corporation: I think the one thing I’d add to that Steve, if you look at our aviation businesses is that whether it’s with Calm, Premier, Kuwait, we love long term contracts. Obviously, that provides our base businesses a lot of stability. And if you look at the EIC has talked about this in past disclosure, if you look at aviation inflation, especially in the North, it’s been at unprecedented levels, right? And sometimes it just takes a bit of a process to work through that. And I think that’s a statement about all aviation, especially what we’ve seen EAC has been able to do to this point in time.

Travis Muir, Exchange Income Corporation: Appreciate the call guys. Thanks.

Conference Call Operator: Thank you. Your next question comes from the line of James McGarrigle from RBC Capital Markets. Please go ahead.

Steve Hansen, Analyst, Raymond James: Hey, thanks, guys. Good morning. Yes, I just wanted to ask on the outlook for the environmental matting business. You mentioned some line of sight to a back half pickup. And then, then, Stella Jones reported results today.

They noticed they’re seeing a little bit of weakness in their utility pulp business. I know your infrastructure markets are not totally related. But can you kind of comment a little bit more specifically on where you’re seeing strength in 2025? Yes.

Mike Pyle, CEO, Exchange Income Corporation: The long linear projects are not generally stuff that would be using wood poles. The stuff that we’re doing tends to be the big metal larger lines than what we’re talking about with what Stella does. We’ve seen whether it be the government of Hydro Quebec, the main help me here Travis in the Northern U. S. Who spoke about their infrastructure investments.

Travis Muir, Exchange Income Corporation: Yes, that’s the entire U. S. Grid like there’s sort of the forecasting sort of the contupling need of investments over the next ten years over the historical investment. And so, yes, we see some strong, strong headwinds in the transmission distribution sector within that. And even just looking at some of the lines when our environmental access solutions team was in front of us just the other day.

Tons of opportunities throughout Alberta in terms of like, AltaLink and looking at some of the maps for AltaLink in terms of projects that are under construction and projects that are in the application phase and ready to go. And so we just see a plethora of opportunities across Canada, whether it be Western Canada and Eastern Canada. And coupled with the medium term and longer term, the renewed interest in pipelines, That’s nothing that’s going to happen over a short period of time, but there are those strong viewpoints now as to energy independence and perhaps looking at expanding some of the pipelines.

Mike Pyle, CEO, Exchange Income Corporation: And then when you draw that back into the shorter term, a more micro way to look at this is we’ve started to see the mats on rent decline, our mats that are outstanding in the first quarter, which is typically a slow period, but are already ahead of last year. And bear in mind, last year, we were coming out of those major big pipelines into BC, which completed, we sold off mats and now we’re building into other projects. So we’ve got line of sight into this. We’ve also seen the demand in The U. S.

For Spartan’s products and we’ve added new customers for our product. The acceptance of our new product in The U. S. Has been good. Adam, you may be able to help me a little bit here with the testing they’ve done with the new mats.

But it’s gone well. Like I said, we had our board meetings a couple of days ago and they talked about new customers that haven’t bought from them before because of the new mats are buying from us. Yes. The one thing I

Adam Turwin, Exchange Income Corporation: can add to Mike’s comments is that with the new mat, the new System seven XT, they’ve been able to place it in some geographies and some applications where traditionally their historical System seven mat has not been able to be used or perform at the level necessary. And so we’ve seen it be used in the Northern U. S, but also in different oil and gas applications such as fracking. So it’s been very successful and they’ve had no issues with the quality of the product or any breakage related to those where it’s been used in those very difficult, tough industries.

Mike Pyle, CEO, Exchange Income Corporation: We’re really excited about getting our analysts out to see the plant at Spartan next week and show what it is because it’s when we talked about matting like it’s homogeneous, it’s a little different than our Northern matting with the bigger heavier wood mats. It’s a different way of doing things. What the product accomplishes is the same, which is environmental protection while you’re building something, but we look forward to showing that off next week.

Steve Hansen, Analyst, Raymond James: Yes, I’m looking forward to getting down there too. And then just turning to cost inflation, admittedly your Aerospace or your Aviation segment is kind of managed and protected margins in this high cost inflation environment versus what we’ve seen from some Canadian peers. But you did bring up some potential cost inflation. I believe you said maintenance CapEx should be up in line with the increase in EBITDA. So can you give us a maintenance CapEx number for 2025?

And then just provide some color on your ability to pass on some of this cost inflation via pricing. Can you do that immediately with your contract? Does that reset every year? Or is that something that we need to wait for our contracts to roll over?

Mike Pyle, CEO, Exchange Income Corporation: That’s contract in area specific, James. Some of them allow for changes for different items. Most of the longer term contracts would be tied to CPI. We saw where we reset a contract like our Northern Medevac contract as an example. It had been materially underpriced for a couple of years because of aviation inflation and particularly wage cost inflation, we were able to reset that.

Our Northern passenger contract comes up next year, I think in the end of twenty twenty six, Carmel. So we’ll see that there. But those contracts, particularly with the Far North government, they understand where your costs are. We bring to them when there’s a challenge and they work with us. In more Southern markets like where Powell operates in the Maritimes or Perimeter or Waseya operates in the South, we would just simply pass on through price increases.

We are very thoughtful because of our market share. We want to never be seen as taking advantage of that. So we’ll take the time to explain to our customers. But it’s something we’ve talked about quite frankly for twenty years is that the nature of our business is an essential service. And if the cost of the maintenance goes up 10%, there isn’t an alternative means of delivering the service.

It’s not like you can get on the train or take a bus or take a truck. The only way to get there is by air. We ultimately pass that on to the customer. It doesn’t mean that in a quarter here or a quarter there, there’s some lag in passing it on. We have one contract with the government of Manitoba, for example, where we pass where we transport judges, which is coming to a close later this year.

It’s materially underwater on the margins. We’ll reset that if we win the contract and we’ll do it appropriate pricing, but our margins are resilient and you’ve seen that in our results. And quite frankly, the other piece to be honest with you is our R1 advantage. We’ve got people going into the markets, buying up aircraft, tearing them apart. So our access to parts is second to none, not only in terms of price, but also availability.

Sometimes there’s hard to get parts. Regional One knows where to find them and how to find them. And quite frankly, that was why we bought the company way back when it’s grown so much that people don’t think of it that way anymore. I think we’re close to CAD 150,000,000 in EBITDA in that business now and still growing. But selfishly inside the company, they’re a great provider of supplies.

Steve Hansen, Analyst, Raymond James: Perfect. And I guess just to sum all that up, I guess you still expect to drive margin improvement there as we see you redeploy some of these assets from the British Columbia deal?

Mike Pyle, CEO, Exchange Income Corporation: Unequivocally. I mean, BC made a choice to go to all new aircraft. That is atypical in the Canadian medevac marketplace because a several year old aircraft’s reliability factor is almost identical to a new one, but the BC government contract was a long term contract and they took a long term perspective on this. So the planes we’re replacing there are nowhere near the end of their medevac life. And so we will definitely redeploy those.

Newfoundland is the poster child, but it’s not the only one. And so we’ll deploy some of them there. I think there’s a reasonable likelihood that some of them are going to turn into ISR aircraft where we’re using some smaller gauge ISR stuff. Jake maybe jump in here, but the King Airs have been a big part of our Canadian ISR work in the past.

Jake Trainor, Exchange Income Corporation: Yes, the King Airs have been a important anchor to the contract with the Canadian government. And as we alluded to, there’s a lot of interest out in globally with geopolitical instability on ISR services. So that’s a key those King Airs will be key input into potential opportunities down the road.

Steve Hansen, Analyst, Raymond James: Yes, I appreciate it. And I’ll turn the line over. Thank you. Thanks.

Conference Call Operator: Thank you. And your next question comes from the line of Cameron Doerksen from National Bank Financial. Please go ahead.

Mike Pyle, CEO, Exchange Income Corporation: Hey, good morning, Cam.

Cameron Doerksen, Analyst, National Bank Financial: Good morning, everyone. I have a question, I guess, to follow-up on the Canadian North acquisition. I’m just trying to get, I guess, a handle on what leverage for exchange income is going to look like post close. I mean, we know what the purchase price is for Canadian North, but I’m just wondering if you can talk in sort of broader terms terms about what leverage is going to look like kind of post close. I know there’s some leased aircraft at Canadian North, but is there any, I guess, on balance sheet debt there as well?

So anything you can talk about there would be helpful.

Adam Turwin, Exchange Income Corporation: I think just one thing to clarify the purchase price like in all our transactions is that’s the purchase price debt free cash free, right? So if there’s any debt that will be a reduction in purchase price and that’s consistent with all EIC transactions when we announce the purchase price.

Mike Pyle, CEO, Exchange Income Corporation: So we’re we will look at the leases in that business to decide whether we want to internalize the ownership of the aircraft. Historically, that’s been our business model. They fly some larger gauge aircraft, which we’re going to take our time and analyze whether we want to lease those or own those. And if we do decide to buy the leases or buy different aircraft to replace the one glove lease, that would generate a new income stream and it would be accretive based on the transaction or we won’t do it. One of the things, we did get some feedback from the markets when we announced the transaction, there was concern that this deal was somehow going to either bump our leverage materially or create the requirement for equity.

And I would suggest that neither of those are true. Between the debenture call in December and the one in January, we’ve generated $150,000,000 in equity. That essentially pays for this transaction with no increase in our leverage. And then when you take into account that there will be a significant amount of EBITDA coming out of this enterprise. It actually or as we implement the changes, we’ll actually de lever as opposed to add leverage to the company.

Again, I have to be careful because I’m limited as to what we can talk about in terms of financial items, but this does not create any balance sheet issues whatsoever.

Steve Hansen, Analyst, Raymond James: Okay. No, that was my thought as well.

Cameron Doerksen, Analyst, National Bank Financial: I just wanted to clarify that. So that’s very helpful. And I guess sort of related and you kind of mentioned it just with relation to the Canadian North bringing on jet operations seven thirty seven flying. I guess maybe the question is, is this an area that maybe the Regional One business starts to get into, parting out 737s, leasing them? Obviously, that’s a more of a potentially competitive market, but maybe it would make sense if you’re an operator.

Just wondering your thoughts around that.

Mike Pyle, CEO, Exchange Income Corporation: First of all, I’d like to know if you have a bug in our board meetings. Yes, I mean, we’ve talked a lot about Regional One Secret Sauce’ knowledge of the aircraft. Now that we’ve got a bunch internal that we have a need for internal parts, we’re going to we’ll see them dipping their feet into opportunities and developing the knowledge of that aircraft. They’re certainly going to assist us in supplying ourselves. And as that knowledge is built, I think it’s a reasonable assumption.

Then over a period of time, it will give us another product line to succeed in. You’ve seen Regional One started in turboprops, moved to narrow body jets and originally the classics like the CRJ200, the CRJ700, the CRJ700, the CRJ900, we’re now transacting in the CRJ 1000s in Europe and ERJs in the more narrow buying stuff. And so we keep growing in these things, but we grow slowly until we know what we’re doing. The secret sauce is being able to buy these things right and we have a track record of being able to do that. And so does the seven thirty seven provide an opportunity?

Carmel Peter, Exchange Income Corporation: Yes. And R1 has touched some seven thirty seven engines in the past. So they’re starting to get familiar with it and that’s obviously a particular area that we would be looking for them to get involved in addition to parts. Just given the availability of engines generally in the marketplace is difficult. And again, it’s that R1 advantage that we can bring to our airline operators.

Steve Hansen, Analyst, Raymond James: That’s very helpful. Makes a

Cameron Doerksen, Analyst, National Bank Financial: lot of sense. I’ll pass the line. Thanks very much.

Conference Call Operator: Thank you. Your next question comes from the line of Amir Azad from Bantoum. Please go ahead.

Mike Pyle, CEO, Exchange Income Corporation0: Good morning. Thanks for taking my questions. If I can double click on that question on Canadian North and R1 and potential avenues of synergies, given that Canadian North primarily outsources maintenance, I just wonder if you guys can comment on your ability in terms of infrastructure and capacity to internalize some of that maintenance. And do you guys have like a broad timeline to do that?

Mike Pyle, CEO, Exchange Income Corporation: Well, Dave, Canadian North does do a significant piece of their stuff internally, particularly of the turboprops.

Carmel Peter, Exchange Income Corporation: And then 737s, what the outsourced is the engine overhauls?

Mike Pyle, CEO, Exchange Income Corporation: And so we would that’s something we will put with our stuff very quickly. But you are right in terms of the opportunity with the overalls for us to take a look at our overall capacity, and where we do what things. You’ve heard us complain a lot that because Powell is so busy with our ISR business that we don’t have the internal capability of tearing down the planes that R1 gets that we had hoped to have. It’s a good problem, it’s because we’re too busy. But as we add the capabilities at Canadian North, I think you’ll see a streamline how we do turboprops, where we do the jets and then adding in whether it’s more ISR work, whether it’s more seven thirty seven work or more tearing down of aircraft.

I think it will be integral to that strategy. They’re good at what they do, but it’s supposed to be 100% of one, it’s going to be a part of the whole.

Mike Pyle, CEO, Exchange Income Corporation0: Understood. And maybe another one on the approval process. I’m just thinking back in 2019 when Canadian North and First Air merged, it came with a set of conditions from the regulators such as fair and service level commitments and so on. You guys anticipate like similar conditions then like any early responses from Transport Canada? I mean with a looming election, do you foresee this to play out like post election, I guess?

Carmel Peter, Exchange Income Corporation: So, we’re just in the process of starting to engage in discussions with transport. I’ll seem to can’t predict what the election might do or when it will occur. So, you know, stay tuned for that. But as far as the conditions, the merger between as I call it Old Canadian North and First Air is different, right? You had two competitors that were merging to become one.

Here what we’re doing is we’re acquiring an existing air operation that we have no overlap with. So I think the circumstances are much different. I think that the benefits of the transaction are significant to the North. And so those are key factors that I think would cause there to be much less undertakings than what you saw in the First Air Canadian North merger.

Mike Pyle, CEO, Exchange Income Corporation: I think when that merger was done, there was considerable concern amongst the populace up north that this would result in higher fares. And I think that’s And

Carmel Peter, Exchange Income Corporation: reduced level of service.

Mike Pyle, CEO, Exchange Income Corporation: And reduced level of service, which is where those additions came from. Us buying Canadian North on space makes no difference to that, but it’s actually the opposite is true. When you look at inflation, our ability to buy parts is better than other people’s ability to buy parts. So the amalgam is likely to have less price volatility than it would on a standalone basis. And we’re really excited about bringing the Chick Mason pilot program into the North.

We started it in Rankin Inlet this year, but now with people on the East and West, we’re certainly going to have to increase the number of pilot candidates we’re bringing in. And it’s something we’re ecstatic about. We’ve got about a dozen First Nations pilots that we’ve never had before. It’s come out of the two or three years we’ve been doing this program and we’ll expand that into Canadian North areas. And you’ll see that the requirement that was in the other deal doesn’t really fit here.

We’re not going to speak for the government. They’re going to do the work they’re going to do. And clearly the government at Nunavut is going to do what it has to do. But we know what we’re bringing to the table here and it’s not something where I’m overly concerned that they’re going to say, hey, you have to do X and Y. We’re probably going to do X and Y anyway.

Mike Pyle, CEO, Exchange Income Corporation0: No, I understand. That’s pretty straightforward. Then if you’ll allow me just one more and I’ll change gears. On multi story window, like you guys are speaking about a pickup in the next eighteen to twenty four months and you’ve seen like the backlog pickup. I just wonder if you could give us like a bit of color on how the composition of that backlog compared to prior cycles?

Are these like larger projects with better pricing or was pricing like still depressed or any factors I guess that could influence margins and I know it’s eighteen to twenty four months out, but I’d appreciate some color.

Mike Pyle, CEO, Exchange Income Corporation: Sure. There’s when you look at margins in the window business, there’s two things that two real macros that have hurt our margins about business. Because the contracts are lent twelve months at the absolute minimum, but eighteen months to twenty four months is normal, In the business, they didn’t have price escalators because for a decade, the prices of aluminum and glass were very stable. There wasn’t much, though if you’d hedge your purchase and that would be it. Well, during COVID, we saw the supply shocks came, projects got delayed and prices increased dramatically without the ability to reset those prices.

So some of those projects became very difficult. The stuff we’re writing now factors in the new world of what the pricing is. So that will take out that challenge we faced in the past. There was a period particularly early last year or late twenty twenty three when the number of projects being let declined and some of our competitors were hyper aggressive on pricing. We tried to avoid that.

So I wouldn’t say that the new contracts are at some new higher level. They’re competitive, but they reflect the cost structure of the business as it is now. But where the real exciting part of the margin profile is the combination work that Darwin’s doing in the businesses. We’ve got two great businesses in Quest and BV, but they have multiple plants doing the same thing in Toronto. And so one of the first steps is, is we have actually moved out of Quest’s main production facility and we moved we’re in the process of moving that into BV’s main production facility.

We’re looking at some of the satellite plants to see whether what we’ll do with those. And ultimately, we will run something in Canada that looks like it does in Dallas, which is a state of the art most efficient plant. And we get that it will reduce costs, but most importantly, it will increase throughput per employee. When you set up a window plant appropriately, you can do more frames per person and skilled workers are hard to get and they take a long time to build. So a big part of the margin increases that come in 2026 and beyond are going to be driven by the rightsizing and setting up our manufacturing on a more current basis and then being able to effectively copy what we’ve achieved in Dallas in Canada.

And that’s where you’ll see the margins go. In 2025, I wish I could tell you that it was better than it is. The sales are choppy because of what we took back eighteen months ago and we’re in the midst of rationalizing those plans, so we’ll get through it. But that’s reflected in our guidance. There’s no surprises here.

The stuff that’s going on with tariffs or slower declines in interest rates hasn’t changed our outlook any and that’s factored into the range we talked about earlier in the call.

Richard Laurick, CFO, Exchange Income Corporation: And just one other thing that I’d add. When you look at the business, as projects have pushed for Quest and BV product, our installation teams have done an exceptional job with their capabilities to install non Quest and BV product, pulling in jobs to keep our people employed and keep those installation people in house. But those projects are at much lower margins than the kind of supply and install jobs. So that’s impacted margins in 2024 and will into 2025 as well.

Mike Pyle, CEO, Exchange Income Corporation0: Great. Thanks for taking my questions.

Mike Pyle, CEO, Exchange Income Corporation: Thank you.

Conference Call Operator: Thank you. And your next question comes from the line of Christophe Freycin from CIBC (TSX:CM). Please go ahead.

Mike Pyle, CEO, Exchange Income Corporation1: Good morning, Gustaf. Thanks for taking my question. Good morning.

Steve Hansen, Analyst, Raymond James: I was

Mike Pyle, CEO, Exchange Income Corporation1: just wondering if you could help us think about the cadence of CapEx this year, just as you have all these aircraft coming through.

Mike Pyle, CEO, Exchange Income Corporation: Sure. When we look at the stuff for the BC Medevac contract, if I had told you what I thought they were last year, I would have turned out to be not very accurate. We’re really at the whim of the manufacturer and it’s been a tough time in aircraft manufacturing, but we think that that should be on a reasonably consistent basis starting at the end of Q1 in Q2 and then sort of evenly over the balance of the year should they hit their targets. On the other major projects, we should be largely finished our simulator by mid year. And so the money for that should be fully deployed.

We should be largely finished our ISR aircraft by mid year. I’m hoping that we’ll win a couple more, so we have to start on some other ones, but nothing to say yet on that front. So those two would be front end loaded. And then I think the biggest wild card is Regional One. They’re doing very well right now and the market is very demanding.

So you got to be selective when you’re buying because the prices are high and so you can’t chase deals because we’re at the peak of the market. It’s a good time to sell. It’s a harder time to buy. But when we can find the opportunities, we’re going to jump on them. So that’s the part for me, Krista, that I really can’t give you a timeline on is the Regional One piece of it.

On the maintenance CapEx, I see a little bit more of a normal cadence in this year, which would be a little bit more front end loaded. We try and do as much as we can to the extent possible when the winter roads are in and when business is slower in the first part of the year. Last year was an anomaly and we didn’t get very much done and we had to do it later in the year. The goal is to try and get a little more done early in the year. And again, the aggregate cost of the maintenance CapEx should grow basically in line give or take with the growth of the EBITDA in that business.

Mike Pyle, CEO, Exchange Income Corporation1: Okay, great. Thank you. And then maybe just one more on SpartanMat.

Conference Call Operator: Can you just give us

Mike Pyle, CEO, Exchange Income Corporation1: an update on the operations there? And specifically, I believe you previously talked about doing a bit of a refresh at the facility. Have you started that? And what the plans are there?

Mike Pyle, CEO, Exchange Income Corporation: I’ll add that to Adam. He’s kind of our Spartan guru.

Adam Turwin, Exchange Income Corporation: Sure. And I’m sure that the guys next week will be happy to give you a fulsome answer on that. I’d say right now as we discussed that the new XT Mad is just coming off the line and is performing very well. There’s strong demand for that. So it’s definitely a balance of looking and saying that we can take plant down, increase throughput, but we have a lot of customers that we want to service.

So I’d say that that decision right now is being weighed and there’s been no definitive timeline put down if that’s going to be what month in 2025 or if we’re able to push that off into 2026. So, decisions still to be made and there’s a lot of variables there, which are driving that final decision.

Mike Pyle, CEO, Exchange Income Corporation: I guess I would say that the bias has probably been to defer it if we possibly can, simply because the demand for product, we really don’t want to shut down and force our customers to buy something else. So although the offset of that is at some point we run out with the current facility, so it’s a trade off. But right now we are we aren’t shutting down in the near term.

Mike Pyle, CEO, Exchange Income Corporation1: Okay. Thank you very much. I appreciate it. I’ll jump back in the queue.

Conference Call Operator: Thank you. And your next question comes from the line of Tim James from TD. Please go ahead.

Mike Pyle, CEO, Exchange Income Corporation2: Hey, Tim. Good morning. Good morning. Thanks for the call, everyone. Quick one, just a housekeeping question.

Just want to confirm I heard this correctly. The multi story window systems 29 decline in EBITDA that does not include this restructuring provision that was recorded. Is that correct?

Richard Laurick, CFO, Exchange Income Corporation: Yes, that’s correct. Yes, the restructuring provision is taken out of that number.

Mike Pyle, CEO, Exchange Income Corporation2: Okay, thanks.

Mike Pyle, CEO, Exchange Income Corporation: There’s actually clearly the one time stuff that shouldn’t recur.

Travis Muir, Exchange Income Corporation: Okay.

Mike Pyle, CEO, Exchange Income Corporation2: Then turning to the outlook for that business and just the cadence and bookings you mentioned it picked up in the latter part of 2024, which bodes well for 2026 and beyond. Any color you can provide on sort of how that improvement is tracked? We’re almost two months into 2025. Is there any change in that sort of improved bookings? I’m just trying to understand the risk to kind of a more positive outlook for 2026.

When do you get really comfortable? Or maybe you are now that you’ll see that revenue growth in ’twenty six and that improvement in profitability? Or do you still need to see a little bit more or more prolonged momentum in the booking strength?

Mike Pyle, CEO, Exchange Income Corporation: It’s a really good question, Tim. We’re confident that we’re going to see an improvement in 2026. The magnitude of the improvement talks about few bookings we’re going to make from now forward in the back half of twenty twenty six because the bookings we’ve taken tend to be closer to the front. And so what we’ve seen in the tariff stuff is there’s been no slowdown at all in bidding requests. The last three or four weeks have been a little bit slower in terms of converting and I think it’s really just people waiting to see what aluminum prices are because with the tariffs, the single biggest non labor part of a window is aluminum and where you’re going to get the aluminum from and how you’re going to build them.

And so on both sides of the border, I think people are waiting for the developers are waiting for clarity on what’s going to happen, which we should see over the next thirty or sixty days. Ultimately for us, we’re well placed on that because we’ve got production facilities in both countries, suppliers in both countries. We will be as competitive as anyone in any of the markets. But I think you’ll see further strengthening of that as we go into the year once the dance that Canada and The U. S.

Are doing on tariffs goes away or at least if it doesn’t go away, it becomes more certain what it’s going to be. The need for housing, it’s kind of come off the front page because of the tariff discussion. Canton is still bringing in 350,000 people this year, which in long term averages is still a big number and we didn’t have enough housing before we brought those 350,000 people in. So there’s no doubt what’s coming and that’s why we made the decision. I think the barometer of our confidence is the fact that we’ve kept our skilled employees and said, we’ll wait.

But for me to give you the magnitude of that for 2026, you’re right, it’s a bit early other than to say it’s going to be better than 2025. And just to give the market an idea, like when we’re finished this reorg this year, we’re going to be able to do a multiple of the business we’re running through those factories today. Like the A, they aren’t as efficient as the new one is and B, the demand hasn’t been that strong. So we could do two or three times what we’re doing now in a future environment and that’s fully what we anticipate. I’m not suggesting that’s a 2026 number, but you’ll see a momentum into this as people start building at greater paces.

Travis Muir, Exchange Income Corporation: And maybe a little bit on the inquiries and sort of order book like you talked about sort of the first couple of months. So I think that it’s still been strong from an inquiries perspective, and there have been some conversions into orders. It’s and as we sort of always talked about, like we’re agnostic to the type of project, whether it be condo developments or apartments, we specialize in both. And so we probably are seeing a little bit more apartments being quoted and booked. But that’s the exact same space we play in and we’re experts at.

Mike Pyle, CEO, Exchange Income Corporation2: Okay. Thank you. My last question and Mike, you just mentioned a few minutes ago about force multiplier opportunities or maybe it was Jake on the international side. You mentioned you’ll finish this second one around mid year for The UK home office contract. What about a third, a fourth force multiplier aircraft opportunity?

How active is the interest in that? Like as you look out over the next couple of years, I mean, you guys have capabilities to in many areas of kind of the ISR market, whether it’s the force multiplier or operating logistical support, etcetera, etcetera. Is the force multiplier in that aircraft, is that a decent opportunity as you think about that market? Or should we think more about sort of more what you’re looking at in Australia like those types of opportunities?

Jake Trainor, Exchange Income Corporation: Yes, that’s a great question. And there’s global I think there’s general demand for ISR services across and really it’s about picking and choosing what fits for us at a given time knowing as Mike pointed out, we’ve got some capacity constraints going through some of our facilities. Australia obviously with the magnitude of aircrafts rolling through and there are a number of countries that are looking for rather than a force multiplier model to simply purchase ISR aircraft. So we’ll be a very opportunistic. We’ve had a lot of success and we’re not afraid to invest in force multiplier style contracts or assets, but we’re at a point right now where we can kind of pick and choose what’s going to make sense for us moving forward.

Mike Pyle, CEO, Exchange Income Corporation: I think the one other thing, in Distro, what Jake mentioned is that you may see us do a different gauge of force multiplier like what we built the first one that’s in England right now. That was a big Dash eight one for us to perhaps have different sizes available in our force multiplier fleet like a King Air thing. They’re typically faster to deploy. You can get to places quicker and get up and running quicker. So I think that’s a reasonable assumption that we’ll be adding that to the group.

Given the aggregate demand in the world, we’re not going to not be building something. So if we’re not building it for someone else, we’ll build it for ourselves.

Jake Trainor, Exchange Income Corporation: Yes, absolutely.

Adam Turwin, Exchange Income Corporation: Okay, that’s very helpful. Thank you.

Conference Call Operator: Thank you. And your next question comes from the line of Jeff Fenwick from Cormark Securities. Please go ahead.

Mike Pyle, CEO, Exchange Income Corporation: Hi, Jeff. Hi,

Mike Pyle, CEO, Exchange Income Corporation3: everyone. Mike, just wanted to ask first on aerospace. I think you touched on it briefly in your comments there, but a pretty big decline in the revenue there. You called out a, I guess, a runoff of a trading program and some timing about that coming back on and a couple of changes to some contract terms. What’s the expectation of sort of rebuilding or backfilling there with stuff that’s in the pipeline in terms of new training programs?

Like are you going to backfill that relatively quickly now?

Mike Pyle, CEO, Exchange Income Corporation: Yes, there’s opportunities in that. The trading business is when we’re talking about that, that’s largely we’re talking about CTI in The U. S. And just as a quick refresher for everybody, that’s a very high revenue, low capital business. So the EBITDA margins are much lower.

So the impact on revenue is bigger than the impact is on EBITDA, but there we’re constantly bidding on that. So that’s normal variations within the business. And so I anticipate backfilling that reasonably quickly. The other one that Jake mentioned is one of our ISR contracts where we maintain claims for a foreign government. They’ve changed what they’re dealing with them.

And so they we aren’t doing it on a contractual basis anymore. We’re still helping them. And so that will have a I would suggest a more meaningful impact on our EBITDA in that segment, but we’ve got the new planes coming on in Britain and some other stuff. So again, both of those contract changes were factored into our guidance. So there are no surprises here.

This is all stuff we anticipated and we built into there. And so the training stuff probably comes back quicker. It depends on which ones we win. The one where we were maintaining aircraft, that one will be lumpy. We’re still doing stuff for them, but on a more ad hoc basis, But that will largely be replaced as we added the second plane for Great Britain.

Jake Trainor, Exchange Income Corporation: Plus the future air crew training.

Mike Pyle, CEO, Exchange Income Corporation: And the air crew training later in the year. That’s correct. Yes.

Mike Pyle, CEO, Exchange Income Corporation3: Okay. Thanks for that. And I just want to touch on Air Canada. I mean, you called that out. It’s been a source of growth for you.

I know there was an incident there out in Halifax back in December. Maybe you speak to how that sort of event factors into the relationship with them and the process of sort of reviewing what happened and does it give them any pause in terms of continuing to work with them?

Mike Pyle, CEO, Exchange Income Corporation: Well, as an aircraft operator, any incident is something that’s very stressful, something we bend over backwards to avoid, but it’s like driving your car, there’s always the risk of something. I would suggest to you that this has done nothing in any negative way to hurt our relationship with Air Canada. The way our team handled it, they got people off the plane, got the people looked after, hit the hangars and off their way. I don’t think it has any negative impact with Air Canada. In fact, they were I would describe them as very complimentary of the way we dealt with it.

That plane is flown for the last time. So we’ll replace it. It’s fully insured, so that’s not an issue. And the challenge that happened with that aircraft was really something fundamental to that aircraft. We’re not the first operator that had a similar landing gear issue.

We’re doing things to see whether we can augment beyond the manufacturer standards to prevent it again. But Q400 is a big part of aircraft fleets around the world.

Jake Trainor, Exchange Income Corporation: Yes. And I’d just reiterate the manner in which kind of the joint Air Canada Powell team handled the incident really helped to solidify that relationship.

Mike Pyle, CEO, Exchange Income Corporation3: Great. I appreciate that color. That’s all I had. Thank you. Thanks.

Conference Call Operator: Thank you. Your next question comes from the line of Fravi Hayhan from Paradigm Capital. Please go ahead.

Mike Pyle, CEO, Exchange Income Corporation: Good morning.

Mike Pyle, CEO, Exchange Income Corporation2: Good morning. Thanks for taking my question. Just quickly on the Windows business, could you just remind us your revenue split between Canada and The U. S. As well as any market share metrics you could share there?

Mike Pyle, CEO, Exchange Income Corporation: The revenue split is highly variable period to period. When we had Quest by itself, it was approximately a fiftyfifty business. When we added BV, it’s more Canadian focused. So we would do more in Canada on an aggregate basis typically than we do in The United States, although it does vary period to period. In terms of market share in Canada, we are definitely the largest player.

I would suggest that we’re less than 50% of the market, but probably close to it. In The U. S, we’re a significant player, but we’re just a regional player. So we don’t have real statistics on that, but we probably aren’t 10% in the market.

Richard Laurick, CFO, Exchange Income Corporation: Okay, thanks. I’ll pass the line.

Conference Call Operator: Thank you. There are no further questions at this time. I would now hand the call back to Mr. Powell for any closing remarks.

Mike Pyle, CEO, Exchange Income Corporation: I’d like to thank everyone for participating in today’s call. I look forward to talking to you in May and going over our first quarter results. Have a great day. Thank you.

Conference Call Operator: And this concludes today’s call. Thank you for participating. You may all disconnect.

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