Q2 2024 Exchange Income Corp Earnings Call

Speaker Change: Good morning, everyone. Welcome to Exchange Income Corporation's conference call to discuss the financial results for the three and six months ended June 30, 2024.

Operator: The Corporation's conference call to discuss the financial results for the three and six months ended June 30, 2024. The Corporation's results, including the MD&A and financial statements, were issued on August 8, 2024, and are currently available via the company's website or CDER platform.

Speaker Change: The corporation's results, including the MD&A and financial statements, were issued on August 8, 2024, and are currently available via the company's website or CDER class.

Operator: 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 a general law should not be based 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.

Operator: Tradition or 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 MDNA through this factors section of the annual information form and EIC's other failings with Canadian securities regulators. Except as required by Canadian securities law, EIC does not undertake to update any forward-looking statements. Such statements speak only as of the date made.

Speaker Change: 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.

Speaker Change: Forward-looking statements involve risks and uncertainties, and engineering law should not base 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.

Speaker Change: For additional information about factors that may cause actual results to differ materially from expectations,

Speaker Change: and about material factors or assumptions applied in making forward-looking statements, please consult the quarterly and annual MD&A, the risk factors section of the annual information form, and EIC's other filings with Canadian securities regulators.

Speaker Change: Except, as required by Canadian Securities Law, EIC does not undertake to update any forward-looking statements. Such statements speak only as of the date made.

Mike Pyle: Listeners are also reminded that today's call is being recorded and broadcast live by the internet for the benefit of individual shareholders, analysts, and other interested parties. I would now like to turn the call over to the CEO of Exchange Income Corporation, Mike Pyle. Please go ahead, Mr. Pyle.

Michael Pyle: Thank you, operator. Good morning, everyone.

Mike Pyle: Thank you, operator. Good morning, everyone. And thank you for joining us on today's call. Yesterday, we released our second quarter results for 2024. Our results show the diversified nature of our business.

Michael Pyle: And thank you for joining us on today's call. Yesterday, we released our second quarter results for 2024. Our results show the diversified nature of our business. The strong results were driven by our aerospace and aviation segment. While we started to see some very positive signs from a customer order perspective in the latter portion of the quarter and subsequent to quarter end in our manufacturing segment, these events, coupled with our resilient business model, allows me to confirm that we believe our 2024 EBITDA will be at the mid to upper end of our previously provided range of 600 to 635 million.

Mike Pyle: The strong results were driven by our aerospace and aviation segment.

Speaker Change: Well, we started to see some very positive signs from a customer order perspective in the latter portion of the quarter and subsequent to quarter end in our manufacturing segment.

Speaker Change: These events coupled with our resilient business model allows me to confirm that we believe our 2024 EBITDA will be at the mid to upper end of our previously provided range of $600 to $635 million.

Michael Pyle: With me today is Richard Wowryk, our CFO, who will speak to our financial results and two new voices. Jake Trainor and Travis Muhr, both who are part of the head office executive team, and they will expand on our outlook for the third quarter and beyond.

Speaker Change: With me today is Richard Wowryk, our CFO , who will speak to our financial results, and two new voices, Jake Trainor and Travis Muir, both who are part of head office executive team, and they will expand on our outlook for the third quarter and beyond.

Michael Pyle: Prior to passing the call over to Rich, who will delve into the numbers more deeply, I wanted to highlight some of the key performance metrics achieved during the quarter. We set records for revenue, adjusted EBITDA, and free cash flow. We have executed on the strategic acquisition of Duhamel and Jim, which will accelerate the environmental access solution strategic growth in Quebec and Eastern Canada. One of the more important highlights was what happened after the quarter ended.

Richard Wowryk: Prior to passing the call over to Rich, who will delve into the numbers more deeply, I wanted to highlight some of the key performance metrics achieved during the quarter.

Richard Wowryk: We set records for revenue, adjusted EBITDA, and free cash flow. We executed on the strategic acquisition of Duhamel in June , which will accelerate the environmental access solution strategic growth in Quebec and Eastern Canada.

Rich: One of the more important highlights was what happened after the quarter end.

Michael Pyle: In our multi-story window solutions business, we booked in excess of $100 million of future projects across several geographies in Canada and the U.S. amongst a diverse set of customers, whether they be condo, apartment, or commercial projects. These positive signs from our multi-story window solutions business line provide positive momentum as we head into the second half of the year, and hopefully, that will extend into our other business lines. This strong order capture continued this week with the addition of another $20 million contract in our window business subsequent to the publishing of our results.

Rich: In our multi-story window solutions business, we've booked in excess of $100 million of future projects across several geographies in Canada and the U.S. amongst a diverse set of customers, whether they be condo, apartment, or commercial projects.

Rich: These positive signs by our multi-story window solutions business line provide positive momentum as we head into the second half of the year and hopefully that extends into our other business lines.

Rich: This strong order capture continued this week with the addition of another $20 million contract in our window business subsequent to the publishing of our results.

Michael Pyle: Our second quarter results. Revenue increased by $33 million to $661 million. Adjusted EBITDA increased by $10 million to $157 million. Net earnings were $33 million for the quarter compared to $37 million, and net earnings per share were 69% compared to $0.85 in the prior period. Free cash flow grew by $3 million to $101 million. Precationalist Maintenance Capital Expenditures were $52 compared to $59 in the prior period. Adjusted Net Earnings were $38 compared to $43 million in the prior period, and Adjusted Net Earnings per Share were $80 million compared to $1 in the prior period.

Rich: Our second quarter results. Revenue increased by $33 million to $661 million. Adjusted EBITDA increased by $10 million to $157 million.

Rich: Net earnings were $33 million for the quarter compared to $37 million and net earnings per share were 69% compared to $0.85 in the prior period.

Rich: Free cash flow grew by $3 million to $101 million.

Rich: Precautionalist maintenance capital expenditures was 52 compared to 59 in the prior period. Adjusted net earnings were 38 compared to 43 million in the prior period and adjusted net earnings per share were 80 million compared to a dollar in the prior period.

Michael Pyle: The payout on a free cash flow less maintenance expenditure basis remains very strong from a historical perspective at 61%, even with three dividend increases in the last two years. We are pleased with these results, and they show the resiliency and diversification of our business model. The main contributor to the results was the continued investment in the businesses that we are starting to see the fruits of those investments. 2023 was a year characterized by several announcements of acquisitions and contractual wins, whether it was the BC and Manitoba Medevac win, our UK HOMA office contract, or Air Canada commercial. Speaking first of the Air Canada contract, the fifth and sixth aircraft started flying in the second quarter. We continue to operate under the B.C.

Rich: The payout on a free cash flow less maintenance expenditure basis remained very strong from a historical perspective at 61% even with three dividend increases in the last two years.

Rich: We are pleased with these results and they show the resiliency and diversification of our business model. The main contributor of the results was the continued investment to the businesses that we are starting to see the fruits of those investments.

Speaker Change: 2023 was a year characterized by several announcements of acquisitions and contractual wins, whether it was the B.C. and Manitoba Medevac wins, our U.K. Home Office contract, or our Air Canada commercial agreement.

Speaker Change: Speaking first of the Air Canada contract, the fifth and sixth aircraft started flying in the second quarter.

Michael Pyle: contract with our existing aircraft along with one new King Air which has been received and modified and is flying under the contract. We anticipate the second new aircraft being modified and flying by the end of the year. We continue to look after a larger portion of this contract with older aircraft while we wait for the manufacturer to deliver the new aircraft. Our jets under our Manitoba MEDEVAC contract have arrived in Winnipeg and will be operating under the contract in September, as previously announced.

Speaker Change: We continue to execute under the B.C. contract with our existing aircraft along with one new King Air which has been received and modified and is flying under the contract. We anticipate the second new aircraft being modified and flying by the end of the year.

Speaker Change: We continue to look after a larger portion of this contract with older aircraft while we wait for the manufacturer to deliver the new aircraft.

Speaker Change: Our jets under our Manitoba Man-Evac contract have arrived in Winnipeg and will be operating under the contract in September as previously announced.

Michael Pyle: We have not formally announced any new significant contract wins but are hopeful about the resolution on several fronts. I wanted to give you an update on the contracts that I spoke about on our Q1 call. The first contract relates to the Future Air Crew Training Contract for the Government of Canada. Skyline was named as the preferred bidder last year, and we are part of the Skyline bid. The contract has been formally awarded to the prime, and we are in negotiations now to finalize our subcontract with the prime.

Speaker Change: We have not formally announced any new significant contract wins, but are hopeful on the resolution on several fronts. I wanted to give you an update on the contracts that I spoke about on our Q1 call.

Speaker Change: The first contract relates to the future air crew training contract for the Government of Canada. Skyline was named as the preferred bidder last year and we are part of the Skyline bid team.

Speaker Change: The contract is formally awarded to the prime and we are in negotiations now to finalize our subcontract with the prime

Michael Pyle: We submitted our proposal to the UK Home Office for the continuation and expansion of services that we are currently providing. The existing contract will continue through November of 2024. However, we were recently informed that the RFP is expected to be reissued based on internal issues within the RFP itself.

Speaker Change: We submitted our proposal to the UK Home Office for the continuation and expansion of services that we are currently providing. The existing contract will continue through November of 2024. We were recently informed...

Speaker Change: that the RFP is expected to be reissued based on internal issues within the RFP itself.

Richard Wowryk: Given the high utilization of the aircraft currently, we anticipate being able to support the U.K. office with no gaps in coverage. The third opportunity that I previously commented on was the Newfoundland and Labrador Fixed-Wing Medevac contract. We believe that we are one of two proponents to bid on the contract and hope to hear the result of our bid during this quarter. We are optimistic about the outcome but are still waiting for the result of the formal bid process.

Speaker Change: The third opportunity that I previously commented on was the Newfoundland and Labrador Fixed-Wing Medevac contract.

Speaker Change: We believe that we are one of two proponents to bid on the contract and hope to hear the results of our bid during this quarter. We are optimistic at the outcome but are still waiting for the results of the formal bid process.

Richard Wowryk: Lastly, we are continuing to seek significant interest around the world for our aerospace services. We see large opportunities in Australia, in Europe, and expanded opportunities in Canada. We are very bullish about the future opportunities, and these contracts are right in line with our EAC core capabilities and the business model as they generate consistent cash flows throughout the term of the year. Jacob Travis will focus on our outlook for our segments for the third quarter and the remainder of 2024. But I will now hand off the call to Richard, who will detail the second quarter results.

Speaker Change: Lastly, we are continuing to seek significant interest around the world for our aerospace services.

Speaker Change: We see large opportunities in Australia, in Europe , and expanded opportunities in Canada.

Speaker Change: We are very bullish about the future opportunities and these contracts are right in line with our EAC core capabilities and the business model as they generate consistent cash flows throughout the term of the agreement.

Richard Wowryk: Jacob Travis will focus on our outlook for our segments for the third quarter and the remainder of 2024. But I will now hand off the call to Richard, who will detail the second quarter results. Thank you, Mike. And good morning, everyone.

Richard Wowryk: Thank you, Mike, and good morning, everyone. Revenue, adjusted EBITDA, and free cash flow were all second quarter high watermarks. I will delve into the segmented results and the remainder of the financial statement. Revenue in our aerospace and aviation segment increased by $54 million, or 15%, to $427 million. Adjusted EBITDA increased by $27 million, or 25%, to $134 million. The results in margin expansion were across all business lines

Richard Wowryk: Revenue, adjusted EBITDA, and free cash flow were all second quarter high watermarks. I will delve into the segmented results and the remainder of the financial statements.

Richard Wowryk: Revenue in our aerospace and aviation segment increased by $54 million or 15% to $427 million. Adjusted EBITDA increased by $27 million or 25% to $134 million. The results in margin expansion were across all business lines.

Richard Wowryk: Looking at the essential air service business line, the improvements were driven by four key factors. First, previous organic growth capital expenditures in the aviation businesses over the past number of years. Second, our average load factors improved, which is a direct improvement on adjusted EBITDA. Third, the impact of the routes flown on behalf of Air Canada. And finally, the impact of the BC and Manitoba Medevac contract.

Richard Wowryk: Looking at the essential air service business line, the improvements were driven by four key factors. First, previous organic growth capital expenditures in the aviation businesses over the past number of years.

Richard Wowryk: Second, our average load factors improved, which is a direct improvement on adjusted EBITDA. Third, the impact of the routes flown on behalf of Air Canada, and finally, the impact of the BC and Manitoba Medevac contracts.

Richard Wowryk: These improvements were offset by softness in our rotary ring business, however, this is anticipated to reverse in the third quarter due to wildfire activity in Canada. Our aerospace business line revenues were relatively flat compared to the prior period. However, adjusted EBITDA expanded in an accelerated fashion, due to two reasons.

Richard Wowryk: These improvements were offset by softness in our rotary ring business, however it is anticipated to reverse in the third quarter due to wildfire activity in Canada.

Richard Wowryk: Our aerospace business line revenues were relatively flat compared to the prior period, however adjusted EBITDA expanded in an accelerated fashion.

Richard Wowryk: First, revenues and adjusted EBITDA increased due to the expansion of the ISR business, including the impact of the UK Home Office contract. However, this increase in revenue was offset by a decline in revenues within our training business. However, the product mix shifted, which resulted in profitability expansion within the training business, even with the revenue decline. This margin expansion in our training business is anticipated to be temporary and is expected to normalize in the third quarter and beyond.

Richard Wowryk: This is due to two reasons. First, the revenues and adjusted EBITDA increased due to the expansion of the ISR business, including the impact of the UK HELM office contract.

Richard Wowryk: This increase in revenue was offset by a decline in revenues within our training business. However, the product mix shifted, which resulted in profitability expansion within the training business.

Richard Wowryk: Even with the revenue decline, this margin expansion in our training business is anticipated to be temporary and is expected to normalize in the third quarter and beyond.

Richard Wowryk: Last, our aircraft sales and leasing business continues to grow as the leasing component of that business continues to improve. We are still anticipating that the leasing side will continue its step improvement until it reaches and ultimately passes pre-pandemic run rates by the end of the year.

Richard Wowryk: Last, our aircraft sales and leasing business continue to grow as the leasing component of that business continue to improve. We are still anticipating that the leasing side will continue its step improvement.

Richard Wowryk: Until it reaches and ultimately passes pre-pandemic run rates by the end of the year, the growth within this business line, and specifically the leasing business, resulted in an improvement in the profitability as leasing margins are much higher than other revenue streams.

Richard Wowryk: The growth within this business line and, specifically, the leasing business resulted in an improvement in profitability as leasing margins are much higher than other revenues. However, revenue in our manufacturing segment decreased by $21 million, or 8%, to $234 million. Adjusted EBITDA decreased by $14 million, or 29%, to $35 million. As expected, revenue and adjusted EBITDA within the Environmental Access Solutions business line decreased by 28% and 35%, respectively. As previously communicated in our year-end and first-quarter calls, the first half of the year of the comparative period had a number of seasonal anomalies. The first quarter and second quarter of 2023 experienced an unusual number of rental masks deployed on long linear projects. This was outside the norm,

Speaker Change: Revenue in our manufacturing segment decreased by $21 million, or 8%, to $234 million. Adjusted EBITDA decreased by $14 million, or 29%,

Speaker Change: As expected, revenue and adjusted EBITDA within the Environmental Access Solutions business line decreased by 28% and 35% respectively.

Speaker Change: As previously communicated in our year-end and first-quarter calls, the first half of the year of the comparative period had a number of seasonal anomalies. The first quarter and second quarter of 2023 experienced an unusual number of rental masks deployed on long linear projects. This was outside the norm.

Richard Wowryk: Milder weather in 2023 also required greater mat utilization for projects; however, this winter experienced very low snowfall and drought conditions, which generally lessened demand. Further, as the prior year comparative contained an unusual number of mats on rent, the impact on adjusted EBITDA was outsized relative to revenue. Our multi-story window solution business revenues were consistent with the prior period, and adjusted EBITDA decreased by 35% due to changes in product mix as the business line completed more third-party installations than in the prior period, which generated lower margins.

Speaker Change: Milder weather in 2023 also required greater mat utilization for projects, however, this winter experienced very low snowfall and drought conditions, which generally lessens demand.

Speaker Change: Further, as the prior year comparative contained an unusual number of mats on rent, the impact on adjusted EBITDA was outsized relative to revenue.

Speaker Change: Our multi-story Windows Solution business revenues were consistent with the prior period and adjusted EBITDA decreased by 35%. Changes in product mix as the business line completed more third-party installations than in the prior period, which generates lower margins. This, coupled with operational inefficiencies as certain projects pushed

Richard Wowryk: This, coupled with operational inefficiencies as certain projects pushed out of the second quarter into later in the year, reduced adjusted EBITDA. As we previously communicated, we also continued on the strategic decision to retain experienced staff to meet future increased demand as we are starting to see projects being awarded in the latter part of the quarter and post-quarter end.

Speaker Change: Out of the second quarter into later in the year, reduce adjusted EBITDA.

Speaker Change: As we previously communicated, we also continued on the strategic decision to retain experienced staff to meet future increased demand as we are starting to see projects being awarded in a later part of the quarter and post-quarter end.

Richard Wowryk: Lastly, revenue in our precision manufacturing and engineering business line decreased by 8% compared to the prior period, adjusted for a decrease by 17%. The decreases were primarily due to customers delaying projects into subsequent quarters coupled with changes in product metrics. Other items of note during the quarter were that interest costs were higher by approximately $4 million due to increased benchmark borrowing rates compared to the prior period, coupled with increased debt outstanding due to various growth capital expenditures.

Speaker Change: Lastly, Revenue in our Precision Manufacturing and Engineering business line decreased by 8% compared to the prior period, adjusted even to decrease by 17%.

Speaker Change: The decreases were primarily due to customers delaying projects into subsequent quarters coupled with changes in product mix.

Speaker Change: Other items of note during the quarter were that interest costs were higher by approximately $4 million due to increased benchmark borrowing rates compared to the prior period, coupled with the increased debt outstanding due to various growth capital expenditures.

Richard Wowryk: Our free cashless maintenance capital expenditures payout ratio was 61% compared to our year-end and comparative ratio of 57%, while dividends increased by 12% when compared to the prior period. Depreciation on capital expenditures was also up due to growth capital expenditures and acquisition activity in 2023. Our effective tax rate was consistent with the prior period, and our year-to-date effective tax rate is moderating within our expected range of 27 to 29 percent on an annualized basis.

Speaker Change: Our free cashless maintenance capital expenditures payout ratio was 61% compared to our year-end and comparative ratio of 57% while dividends increased by 12% when compared to the prior period.

Speaker Change: Depreciation on capital expenditures was also up due to growth capital expenditures and acquisition activity in 2023.

Speaker Change: Our effective tax rate was consistent with the prior period and our year-to-date effective tax rate is moderating within our expected range of 27-29% on an annualized basis.

Richard Wowryk: Free cash flow increased by 3% while free cash flow less maintenance capital expenditures decreased by 11%. Maintenance capital expenditures increased by approximately 9 million primarily due to the timing of certain overall events and the second quarter of 2023 being unseasonably low. From a working capital perspective, our working capital declined compared to the prior year end. This was due to the reclassification of convertible debentures of $79 million being classified as current as the maturity is June 2025.

Speaker Change: Free cash flow increased by 3% while free cash flow less maintenance capital expenditures decreased by 11%. Maintenance capital expenditures increased by approximately 9 million primarily due to the timing of certain overall events and the second quarter of 2023 being unseasonably low.

Speaker Change: From a working capital perspective, our working capital declined compared to the prior year end. This was due to the reclassification of convertible debentures of $79 million, being classified as current as the contractual maturity is June 2025. From a cash flow perspective, the non-cash investment in working capital was $68 million.

Richard Wowryk: From a cash flow perspective, the non-cash investment in working capital was $68 million. The investment was to support the growth initiative and increase revenues discussed above, coupled with the impact of slower collections and certain government receivables. We are actively managing our working capital and anticipate a majority of these investments will be converted to cash prior to the year end. Our total leverage ratio, or our senior leverage ratio, increased to 2.88 from 2.47 at year-end.

Speaker Change: The investment was to support the growth initiative and increase revenues discussed above, coupled with the impact of slower collections and certain government receivables. We're actively managing our working capital and anticipate a majority of these investments will be converted to cash prior to the year-end.

Speaker Change: Our total leverage ratio, or our senior leverage ratio, increased to 2.88 from 2.47 at year end. The increase is primarily due to investments in growth capital expenditures, as we previously noted.

Richard Wowryk: The increase is primarily due to investments in growth capital expenditures, as we previously noted. However, our organic growth results in a lag between the time investments are made and when returns become evident through our financial results. We anticipate this ratio would decline as our growth capital investments impact the bottom line along with an improvement in our manufacturing segment, adjusted even relative to our comparative results. During the second quarter, EIC made growth capital expenditures of $45 million.

Speaker Change: Our organic growth results in a lag between the time investments are made and when returns become evident through our financial results.

Speaker Change: We anticipate this ratio would decline as our growth capital investments impact the bottom line along with an improvement in our manufacturing segment adjusted even relative to our comparative results.

Speaker Change: During the second quarter, EIC made growth capital expenditures of $45 million. These growth capital expenditures primarily relate to the aerospace and aviation segment and were primarily driven by investment in additional aircraft and infrastructure.

Richard Wowryk: These growth capital expenditures primarily relate to the aerospace and aviation segment and were primarily driven by investment in additional aircraft and infrastructure, including the King Air Simulator. Our Environmental Access Solutions business also invested $5 million in growth capital expenditures as it invested in its mass fleet to meet forecasted demand in the future. Maintenance capital expenditures for the quarter were $48 million, compared to $39 million in the prior period. In our year-end conference call, we indicated that we anticipate maintenance capital expenditures to increase in line with our adjusted EBITDA. However, there are some maintenance events that fell outside of the quarter and will be funded in later periods. Maintenance capital expenditures for the manufacturing segment were slightly higher than the comparative period by $1 million.

Speaker Change: including the King Air Simulator. Our Environmental Access Solutions business also invested $5 million in growth capital expenditures as it invested in its mass fleet to meet forecasted demand in the future.

Speaker Change: Main capital expenditures for the quarter were $48 million compared to $39 million in the prior period.

Speaker Change: In our year-end conference call, we indicated that we anticipate maintenance capital expenditures to increase in line with our adjusted EBITDA. However, there are some maintenance events that fell outside of the quarter and will be funded in later periods. Maintenance capital expenditures for the manufacturing segment were slightly higher than the comparative period by $1 million.

Jake Trainor: With that being said, I will now turn the call over to Jake and Travis.

Speaker Change: With that being said, I will now turn the call over to Jake and Travis. Thank you, Rich. Travis and I will split up the Outlook section. I'll provide focus on the aerospace and aviation segment, and Travis will provide some context on the manufacturing segment.

Jake Trainor: Thank you, Rich. Travis and I will split up the Outlook section. I'll provide focus on the aerospace and aviation segment, and Travis will provide some context on the manufacturing segment. Overall, we're expecting another strong quarter from our aerospace and aviation business as the trends highlighted in Mike and Rich's sections are expected to continue into the third and fourth quarters. Our essential air service businesses will see growth driven by a multitude of factors when compared to prior periods. These include the deployment of the 5th and 6th Q400 aircraft to provide services under our agreement with Air Canada.

Jake: Overall, we're expecting another strong quarter from our aerospace and aviation business, as the trends highlighted in Mike and Rich's section are expected to continue into the third and fourth quarters.

Travis: Our essential air service businesses will see growth driven by a multitude of factors when compared to prior period.

Speaker Change: These include the deployment of the 5th and 6th Q400 aircraft to provide services under our agreement with Air Canada. We also expect to continue to see strong load factors and growth when compared to our 2023 due to our investments in aircraft throughout our operations.

Jake Trainor: We also expect to continue to see strong load factors and growth when compared to 2023 due to our investments in aircraft throughout our operation. Lastly, we expect continued growth in our MEDEVAC business, with both the 10-year BC and Manitoba MEDEVAC contracts continuing to contribute to financial results in the quarter. As a reminder, the BC MEDEVAC contract returns are expected to be muted until we redeploy the existing aircraft being used to service the contract later in the year. Offsetting some of these gains is the impact of continued labor shortages and supply chain challenges. Although we're not seeing a worsening of these dynamics, the challenges still remain.

Speaker Change: Lastly, we expect continued growth in our MEDEVAC business, with both the 10-year BC and Manitoba MEDEVAC contracts continuing to contribute to financial results in the quarter. As a reminder, the BC MEDEVAC contract returns are expected to be muted until we redeploy the existing aircraft being used to service the contract in the interim.

Speaker Change: Offsetting some of these gains is the impact of continued labor shortages and supply chain challenges. Although we're not seeing a worsening of these dynamics, the challenges still remain. The aerospace business line is also expected to have growth in Q3, primarily driven by the increased tempo of flying for our surveillance aircraft.

Jake Trainor: The aerospace business line is also expected to have growth in Q3, primarily driven by the increased pace of flying for our surveillance aircraft. However, the revenue increases are expected to be offset by declines in our training business revenue, with the EBITDA margins normalizing to historical periods, as Richard commented. Our aircraft sales and leasing business is also expected to experience growth. This anticipated growth is driven primarily by increases in leasing revenue. Although we are still slightly off pre-pandemic run rates, we expect Q3 to continue to build upon the positive momentum we highlighted in the first and second quarters.

Speaker Change: The revenue increases are expected to be offset by declines in our training business revenue with the EBITDA margins normalizing to historical periods as Rich had commented on.

Speaker Change: Our aircraft sales and leasing business are also expected to experience growth. This anticipated growth is driven primarily by increases in leasing revenue.

Speaker Change: Although we are still slightly off pre-pandemic run rates, we expect Q3 to continue to build upon the positive momentum we highlighted in the first and second quarters.

Jake Trainor: With respect to maintenance capital expenditures for Q3, we anticipate levels being higher than last Q3 as certain maintenance events moved from the second quarter into the third quarter. Overall, we expect maintenance capital expenditures to increase roughly consistent with increases in adjusted EBITDA in our aerospace and aviation segment, which is the biggest driver of our consolidated maintenance capex. Higher flight hours to support increased volumes, together with inflation, labor shortage, supply chain issues, and a growing fleet size, are some of the factors that contribute to the expected relative percentage increase.

Speaker Change: With respect to maintenance capital expenditures for Q3, we anticipate higher levels, or excuse me, we anticipate levels being higher than last Q3 as certain maintenance events moved from the second quarter into the third quarter.

Speaker Change: Overall, we expect maintenance capital expenditures to increase roughly consistent with increases in adjusted EBITDA in our aerospace and aviation segment, which is the biggest driver of our consolidated maintenance capex.

Speaker Change: Higher flight hours to support increased volumes together with inflation, labor shortage, supply chain issues, and a growing fleet size are some of the factors that contribute to the expected relative percentage increase.

Jake Trainor: Growth investments in Q3 are primarily for the aerospace and aviation segment and include the upgrade of the surveillance aircraft for the second aircraft on the renewed Curacao contract. The first is already completed and in service. The continued construction of the Garifilm and Indigenous Terminal, delivery of a new aircraft for the BC Medevac contract, and continued construction of the King Air simulator. Also, Regional 1 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.

Speaker Change: Growth investments in Q3 are primarily for the aerospace and aviation segment and include the upgrade of the surveillance aircraft for the second aircraft on the renewed Curaçao contract. The first is already completed and in service. The continued construction of the Gary Filman Indigenous Terminal.

Speaker Change: Delivery of a new aircraft for the BC Medevac contract and continued construction for the King Air Simulator.

Speaker Change: Also, 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.

Speaker Change: I'll now pass it off to Travis to provide some commentary on the manufacturing segment. Thanks, Jake. We're anticipating an increase in our revenues in our manufacturing segment during the third quarter.

Travis Muhr: We're anticipating an increase in our revenues in our manufacturing segment during the third quarter. All of the businesses within the manufacturing segment are experiencing a strong level of customer inquiry. However, due to macroeconomic uncertainty, the closing ratio of inquiries has been below historical trends.

Travis: All of the businesses within the manufacturing segment are experiencing a strong level of customer inquiry. However, due to macroeconomic uncertainty, the closing ratio of inquiries has been below historical trends.

Travis Muhr: We're starting to see that trend reverse itself through our business lines. As Mike mentioned, in the past 45 days, we saw over 100 million bookings in our multi-story Windows Solutions business line. Those bookings were across several geographies and customer segments.

Travis: We're starting to see that trend reverse itself through our business lines. As Mike had mentioned, in the past 45 days, we saw over 100 million bookings in our multi-story Windows Solutions business line. Those bookings were across several geographies and customer segments.

Travis Muhr: We're also seeing a recent uptick in orders in our other business lines. This positive development provides excitement for our teams as we believe when the dam breaks and customers get more confident in the economy, those orders that were delayed will be converted into bookings in the near term. That being said, the multi-storey Windows Solutions business line is expected to be consistent with the prior year. Quoting in Canada and the U.S. continues to be extremely active.

Speaker Change: We're also seeing a recent uptick in our orders in our other business lines.

Speaker Change: This positive development provides excitement for our teams as we believe when the dam breaks and the customers get more confident in the economy, those orders that were delayed will be converted into bookings in the near term.

Speaker Change: That being said, the multi-story Windows Solutions business line is expected to be consistent with the prior year.

Speaker Change: Quoting in Canada and the U.S. continues to be extremely active. We remain bullish on this business line as the longer term fundamentals being immigration and a lack of affordable housing remain incredibly strong throughout various regions across Canada and the U.S.

Travis Muhr: We remain bullish on this business line as the longer-term fundamentals, being immigration and a lack of affordable housing, remain incredibly strong throughout various regions across Canada and the U.S. Further, we're agnostic to whether a product is a condo development, an apartment, for the government, or a commercial business. We've demonstrated our expertise in each of those customer segments. We're seeing further efficiencies from our integration efforts led by Darwin Sparrow, but we do anticipate some costs from integration which may offset some of those profitability gains in the shorter term.

Speaker Change: Further, we're agnostic to whether a project is a condo development, an apartment, or a

Speaker Change: for the government or commercial business.

Darwin Sparrow: We've demonstrated our expertise in each of those customer segments. We're seeing further efficiencies from our integration efforts led by Darwin Sparrow, but we do anticipate some costs from integration which may offset some of those profitability gains in the shorter term.

Travis Muhr: As we talked about last year in our first quarter call, the environmental access solutions business line comparative results start to normalize in the third quarter of 2023. Therefore, we anticipate results materially consistent with the prior year for the third quarter, assuming no adverse impacts from wildfires or other weather events and excluding the acquisition of DUML. The acquisition of Duomel is going to be a growth catalyst for further expansion of the business into Quebec and Eastern Canada.

Darwin Sparrow: As we talked about last year in our first quarter call, the Environmental Access Solutions business line comparative results started to normalize in the third quarter of 2023, and therefore we anticipate results materially consistent.

Darwin Sparrow: with the prior year for the third quarter, assuming no adverse impacts from wildfires or other weather events and excluding the acquisition of Duomel. The acquisition of Duomel is going to be a growth catalyst for further expansion of the business into Quebec and Eastern Canada.

Travis Muhr: Precision Metal and Engineering business lines are expected to improve over the prior period due to the acquisition of dry air in October 2023, for which there is no comparable in the third quarter. Similar to our multi-story window solutions business line, we're experiencing a significant number of inquiries, and we anticipate the two interest rate reductions in Canada and increased optimism of an interest rate cut in the U.S. will lead to further bookings in the third quarter.

Darwin Sparrow: The precision metal and engineering business line is expected to improve over the prior period due to the acquisition of dry air in October 2023, for which there is no comparative in the third quarter.

Darwin Sparrow: Similar to our multi-story window solutions business line, we're experiencing a significant number of inquiries, and we anticipate the two interest rate reductions in Canada and increased optimism of an interest rate cut in the U.S. will lead to further bookings in the third quarter.

Travis Muhr: The anticipated maintenance capital expenditures are expected to be slightly higher for the manufacturing statement than the prior year due to the timing of the replacement cycle. We're also anticipating growth capital expenditures to be incurred in each of the business lines. We anticipate that growth capital expenditures will be slightly higher in our multi-storey Windows Solutions business as we continue to integrate the businesses and acquire new machinery. We also anticipate some growth capital expenditures in our environmental access solutions business line as they continue to adjust the rental fleet for demand in eastern and western Canada, although the amounts are expected to be lower than the Q3 comparative from 2023 of $13 million. I'll now pass the call back to Mike, who will talk about our acquisition pipeline and wrap up our prepared remarks.

Darwin Sparrow: The anticipated maintenance capital expenditures are expected to be slightly higher for the manufacturing statement than the prior year due to the timing of the replacement cycle.

Darwin Sparrow: We're also anticipating growth capital expenditures to be incurred in each of the business lines. We anticipate that growth capital expenditures will be slightly higher in our multi-storey window solutions business as we continue to integrate the businesses and acquire new machinery.

Darwin Sparrow: We also anticipate some growth capital expenditures in our Environmental Access Solutions business line as they continue to adjust their rental fleet for demand in eastern and western Canada, although the amounts are expected to be lower than the Q3 comparative from 2023 of $13 million.

Darwin Sparrow: I'll now pass the call back to Mike who will talk about our acquisition pipeline and wrap up our prepared remarks.

Michael Pyle: Thanks, Travis. On the acquisition front, Adam and his team are working on a number of acquisitions. We are continuing to see more high-quality opportunities, and that has continued throughout the quarter. We are seeing these opportunities in both manufacturing and aviation aerospace segments. But consistent with our 20-year history, we only execute on transactions that are accretive and meet our acquisition criteria. Overall, we remain confident that we are on track to meet the mid to upper end of our 2024 adjusted EBITDA guidance.

Mike Pyle: Thanks, Travis. On the acquisition front, Adam and his team are working on a number of pursuits.

Mike Pyle: We are continuing to see more high-quality opportunities, and that has continued throughout the quarter. We are seeing these opportunities in both manufacturing and aviation aerospace segments.

Mike Pyle: But consistent with our 20-year history, we only execute on transactions that are accretive and meet our acquisition criteria.

Mike Pyle: Overall, we remain confident that we are on track to meet the mid to upper end of our 2024 adjusted EBITDA guidance. This confidence is

Michael Pyle: There's confidence, underpinned by the essential nature of our businesses, recent strength in inquiries being converted into bookings in our manufacturing segment, and the fact that a significant portion of our revenues are backed by long-term contractual arrangements, the growing need for aerospace solutions, the continued recovery of our aircraft leasing business, and the investments we have made in prior periods for our future. Thank you for your time this morning, and we'd now like to turn the call over to questions. Operator? Thank you.

Mike Pyle: underpinned by the essential nature of our businesses.

Mike Pyle: Recent strength in inquiries being converted into bookings in our manufacturing segment.

Mike Pyle: and the fact that a significant portion of our revenues are backed by long-term contractual arrangements, the growing need for aerospace solutions, the continued recovery of our aircraft leasing business, and investments we have made in prior periods for our future growth.

Speaker Change: Thank you for your time this morning, and we'd now like to turn the call over for questions. Operator?

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the 1 on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press star followed by 2. And if you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Steve Hansen from Raymond James. Please go ahead.

Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star 581 on your telephone keypad.

Speaker Change: You will hear a three-tone prompt acknowledging a request. Questions will be taken in the order received. Should you wish to cancel your request, please press star followed by the two. And if you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question.

Speaker Change: Your first question comes from the line of Steve Hansen from Raymond James. Please go ahead.

Michael Pyle: Good morning, Steve.

Michael Pyle: Yeah, good morning, guys. Thanks for the time. I appreciate it. Look, Mike, the order flow that you described is pretty encouraging. I think you said 100 million in the past 45 days, another 20 million this week. How should we think about the timing of that ramp-up of the order flow as it should hit the P&L over time? What kind of backlog are you sitting on now? And how will that ultimately sort of start to flow? And as a related point, do you think it's just interest rates that's driving this? Or what do you think is ultimately triggering this opening up of order flow?

Speaker Change: Good morning, Steve.

Steve Hansen: Yeah, good morning, guys. Thanks for the time. Appreciate it. Look, Mike, the order flow that you described is pretty encouraging. I think you said 100 million past 45 days, another 20 million this week. How do we think about the timing of that ramp up of the order flow as it should hit the P&L over time? What kind of backlog are you sitting on now?

Speaker Change: And how will that ultimately sort of start to flow? And just as a related point, do you think it's just interest rates that's driving this? Or what do you think is ultimately triggering this opening up of water flow? Thanks.

Michael Pyle: Yeah, we've talked about the order book, like our bids outstanding for the last few quarters being remarkably high; we've in fact added people to be able to manage those bidding opportunities. The developers, particularly in Canada, are driving the change from a condo environment to an apartment environment, largely driven by the fact that it's hard to get mortgages at the interest rates combined with the requirements to qualify. And so it slowed pre-sales, which has slowed the initiation of projects.

Speaker Change: Yeah, we've talked about the order book, like our bids outstanding for the last few quarters being remarkably high. We've added people to be able to manage those bidding opportunities.

Speaker Change: The developers...

Speaker Change: with a particularly in Canada with the change from a condo environment to a apartment environment largely driven by the fact that it's hard to get mortgages at the interest rates with combined with the

Michael Pyle: But at the same time as that, the need for that housing has greatly accelerated, and Canadian developers are getting their heads around, well, maybe I need to build apartments, not condos. With the decline in interest rates, I think you're seeing a new confidence among those developers. The guys who are closest to going are starting to step off the curb.

Speaker Change: Requirements to qualify. And so it's slowed pre-sales, which is slowed.

Speaker Change: the initiation of projects but at the same time is that the need for that housing has greatly accelerated and Canadian developers are getting their heads around well maybe I need to build apartments not condos

Michael Pyle: And what I'm most excited about is that the new orders we got were not Toronto-centric. While we did well in Toronto, that's our biggest market, we added things in Western Canada, Calgary, Vancouver, Seattle, and in the States, Dallas, Washington, and so I really want to caution people: we're excited, but don't extrapolate.

Speaker Change: With the decline in interest rates, I think you're seeing a new confidence amongst those developers. The guys who are closest to going are starting to step off the curb. And what I'm most excited about is that

Speaker Change: The new orders we got were not Toronto-centric. While we did well in Toronto, that's our biggest market, we added things in Western Canada, Calgary,

Speaker Change: Vancouver, Seattle, and in the States and Dallas and Washington and so

Speaker Change: I really want to caution people, we're excited, but don't extrapolate. This is early in the process and maybe this may be the first little surge and it could fall back. But with the...

Michael Pyle: This is early in the process, and maybe this may be the first little surge, and it could fall back. But with the interest rate news coming out of the US, where they're looking to follow Canada and these rates, that will give Canada more courage to cut further faster. And in terms of big demand, we expect to see continued growth, perhaps not at the rate we've seen in the last six weeks, but continued growth into the future. In terms of our order book, it declined slightly during the quarter, as we built more than we replaced. But now, that's gone the other way.

Speaker Change: Interest rate news coming about the U.S. where they're looking to follow Canada at these rates and that will give Canada more courage to cut further faster and the big demand. We expect to see continued growth.

Michael Pyle: We're now booking orders faster. You'll recall that, typically, this business has a kind of 18 month order to delivery cycle. One of the very interesting things we've seen early in the cycle here is that some of that is shortened up.

Speaker Change: perhaps not at the rate we've seen in the last six weeks, but continued growth into the future. In terms of our order book, it had declined slightly during the quarter as we built more than we we

Speaker Change: replaced

Speaker Change: But now, it's gone the other way. We're now booking orders faster.

Speaker Change: You'll recall that typically this business is kind of an 18-month order-to-delivery cycle.

Michael Pyle: And we actually have stuff that will be delivered by mid next year. So you'll see the beginnings of this little surge in 2025, but where you'll really see it is in 2020.

Speaker Change: One of the very interesting things we've seen early in the cycle here is some of that has shortened up and we actually have stuff that will be delivered by next mid next year. So you'll see the beginnings of this

Speaker Change: Little surge in 2025, but where you'll really see it is in 2026.

Michael Pyle: Okay, that's great. That's really good context.

Speaker Change: Okay that's great, that's really good context. Just switching over to the matting business.

Michael Pyle: Just switching over to the matting business, you know, there's another period of year-over-year declines. I know the comps are still tough, but how should we think about the trajectory from here? You've got the new acquisition under your belt that gives you a foothold out east. It sounds like you might be building some incremental mat inventory based upon the CapEx commentary. Just trying to get a sense for where we're at in sort of the cycle or the biorhythm here and what we should expect for the balance of the year and into next.

Speaker Change: There's another period of year-over-year declines. I know the comps are still tough, but how should we think about the trajectory from here?

Speaker Change: You've got the new acquisition under your belt that gives you the foothold out east. It sounds like you might be building some incremental MAD inventory based upon the CapEx commentary. Just trying to get a sense for where we're at.

Speaker Change: and sort of the cycle or the biorhythm here and what we should expect to the balance of these here and in the next.

Michael Pyle: I think the best predicator of what we actually think is what we're doing with building mats. We have this, that's sort of coming back off of the Trans Mountain Pipeline, and there'll still be some coming back from that for us and for other people. So that increases supply.

Speaker Change: There's maps that have come back off of the Trans Mountain Pipeline and there'll still be something coming back from that for us and for other people.

Michael Pyle: But there are other major projects getting going, ATCO, gas, and there's a lot of T&D work, which is really where the future is in the medium term in Eastern Canada. It's why we bought Duomal. And so to seed that operation, we're continuing to build that. I think Q2 would kind of be the end of the last cycle, and Q3 is the beginning of the next cycle. I just need to really remind everybody that when we bought Northern Mat, we told everyone that this was a super cycle.

Speaker Change: So that increases supply, but there's other major projects getting going, ATCO, gas, and there's a lot of T&D work, which really where the future is in the medium term in eastern Canada. It's why we bought Duomal. And so to seed that operation, we're continuing to build that.

Speaker Change: I think Q2 would kind of be the end of the last cycle and Q3 is the beginning of the next cycle.

Speaker Change: I just need to really remind everybody when we bought Northern Mat we told everyone that this is a super cycle we got

Michael Pyle: We got, We did abnormally well for a three or four quarter period. And right now, we're heading into the next up cycle, pretty confident in the business, or we wouldn't be building more mats. But it's not dramatic yet.

Speaker Change: We did abnormally well for a three or four quarter period.

Speaker Change: Egg

Speaker Change: Right now, we're heading into the next up cycle, pretty confident in the business or we wouldn't be building more mats, but it's not dramatic yet. There isn't a shortage of mats in the business the way there was in the last cycle.

Michael Pyle: There isn't a shortage of mats in the business the way there was in the last cycle. So slow and steady growth, and particularly in Eastern Canada, and within Eastern Canada, we're very bullish on Quebec. The acquisition of Duomal, we're already building the big heavy crane mats there, and they give us a Quebec-facing sales arm to deal with the Quebec government, which is good for us. And so I would say we're pretty optimistic about that. It builds slowly. And finally, we've rolled off of the really high comparative.

Speaker Change: Slow and steady growth.

Speaker Change: and particularly Eastern Canada and within Eastern Canada we're very bullish on Quebec.

Speaker Change: The acquisition of Duhamel, we're already building the big heavy crane mats there.

Speaker Change: And they give us a Quebec-facing...

Speaker Change: sales arm to deal with the Quebec government, which is good for us. And so I would say we're pretty pretty optimistic about that. It builds slowly and we're finally we've rolled off of the really high comparatives.

Michael Pyle: That's great. Thank you.

Speaker Change: That's great, I'll keep an eye on the queue, thanks. Thanks.

Operator: Thank you. And your next question comes from the line of James McGarragle from RBC Capital Markets. Please go ahead.

Speaker Change: Thank you. And your next question comes from the line of James McGarragle from RBC Capital Markets. Please go ahead.

Michael Pyle: Hey, good morning, and thanks for having me on. Good morning, James.

James Mcgarrigle: Hey good morning and thanks for having me on. Good morning James.

Michael Pyle: Yeah, just on the Duma acquisition again, I know you flagged being able to serve the Quebec market and, more generally, Eastern Canada. But you know, a lot of that infrastructure money is getting spent in the US. Are you able to serve the US at all within your current footprint? And, you know, that's a market that you might be interested in looking at, you know, kind of in the medium term. Bye.

James McGarragle: Yeah, just on the Dumas acquisition again, I know you flagged being able to serve the Quebec market and more generally Eastern Canada

Speaker Change: But you know, a lot of that infrastructure money is getting spent in the U.S. Are you able to serve the U.S. at all within your current footprint? And is that a market that you might be interested in looking at, you know, kind of in the medium term? Absolutely. We, we believe the fundamental investment season.

Michael Pyle: Absolutely. We believe the fundamental investment thesis in Northern Malibu when we bought it was T&D. We did a lot of work on what's coming. Around the world, economies are trying to electrify and reduce their reliance on petrochemical fuels. And so we believe there's a big part of that in Northern Malibu. And that's not just a Canadian story.

Speaker Change: In Northern Malibu, we bought it with T&D.

Speaker Change: We did a lot of work on what's coming around the world.

Speaker Change: The Reliance on petrochemical fuels. And so we, we believe there's a big part of that coming. And that's not just a Canadian story. Adam and his team are very busy on looking for opportunities in the US, we need to find the right partner.

Michael Pyle: Adam and his team are very busy looking for opportunities in the US. We need to find the right partner. We believe we've got the industry leader in Northern Malibu with our management team there, and we want someone of a similar capability in the US.

Speaker Change: We believe we've got the industry leader at Northern MAP with our management team there, and we want someone of a similar capability in the US.

Michael Pyle: We may go organically, James, if we don't find something to buy that we think is worth the price we're paying for it. The market is so big. There's a great opportunity there, but my first choice would be to give ourselves a beachhead by getting an industry leader, even if it's a smaller company in a given area. And in the medium term, you're definitely going to see Northern Matt in the U.S. one way or another.

Speaker Change: We may go organically, James, if we don't find something to buy that we think is worth the price we're paying for it. The market is so big.

Michael Pyle: And in terms of what Duomel is bringing to the table, a big part of the mat business, this is going to sound silly, is storage. When the mats go from project to project, you need places to put the mats, you need places to clean the mats, and then redeploy them. Duomel gives us that; Duomel gives us surge production capacity. They're building the big heavy crane mats there. We are currently doing a lot of math on whether we should be building them in Creston and in St. George's Bend, shipping them to Quebec, or building them there.

Speaker Change: And in terms of what DooML is bringing to the table, a big part of the math business, this is going to sound silly, is storage.

Speaker Change: When the mats go from project to project, you need places to put the mats, you need places to clean the mats, and then redeploy them. DoML gives us that. DoML gives us surge production capacity.

Speaker Change: They're building the big heavy crane mats there. We are currently doing a lot of math on whether we should be building them in Preston and in St. George.

Speaker Change: St. George's Bench shipping them to Quebec or building them there. Lumber supply, it's not an obvious answer. Ultimately, I believe we will build stuff there, but we aren't doing it yet.

Michael Pyle: Lumber supply, it's not an obvious answer. Ultimately, I believe we will build stuff there, but we aren't doing it yet. And with the opportunity to do that, they're very strong operators. DML, the management team, is exceptional. That's going to give us a great interface with Hydro-Quebec and the Quebec government.

Speaker Change: And with the opportunity to do that, they're very strong operators. Duhamel, the management team is exceptional. That's going to give us a great interface with Hydro-Quebec and the Quebec government.

Michael Pyle: Thanks for the caller. And then just on the window segment, you know, it seems like things are starting to potentially turn around there from the order side. But, you know, can you just talk a little bit about where you are from a capacity perspective on the window side? I know you've flagged some additional costs, but, you know, on the integration between Quest and BV, you know, is that kind of expected, or is that, you know, something that was unexpected?

Speaker Change: Thanks for the caller. And then just on to the Windows segment.

Speaker Change: You know, it seems like things are starting to potentially turn around there from the order side.

Speaker Change: But, you know, can you just talk a little bit about where you are from a capacity perspective on the window side?

Speaker Change: I know you've flagged some additional costs on the integration between Quest and BV. Was that kind of expected or is that something that was unexpected? Just trying to get your comfort level from an operational perspective to be able to execute on what seems like it's going to be a...

Michael Pyle: Just trying to get your comfort level, you know, from an operational perspective to be able to execute on what seems like it's going to be a pretty near-term ramp-up in production. And I can turn the line over after that. Thanks. Sure. The window. I've talked for a while about that

Speaker Change: Pretty near-term ramp-up in production and I can turn the line over after that. Thanks. Sure The window I've talked for a while that yeah

Michael Pyle: Sure, the window business. I've talked for a while that if I were to fast forward six quarters, and we're having this call now, I think we'll be talking a lot about the window business. And the reason simply is that we're at the beginning of a brilliant cycle for that construction business. We don't have enough housing, and the continued urbanization trend. I know we all thought after COVID that we were going to go live on the outskirts and not cities. It's just that's just not what happened. Particularly in Canada, the vast majority of immigrants end up in two or three cities, both of which have shortages of land and single-family housing that's too expensive.

Speaker Change: If I were to fast forward to six quarters, and we're having this call, I think we'll be talking a lot about the window business. And the reason simply is we're at the beginning of a brilliant cycle for that construction business. We don't have enough housing.

Speaker Change: The continued urbanization trend, I know we all thought after COVID that we were going to go live on the outskirts and

Speaker Change: and cities, that's just not what's happened, particularly in Canada, the vast majority of immigrants end up in two or three cities, all of which have shortages of land and single family housing that's too expensive.

Michael Pyle: So the demand profile is exceptional. We're starting to see it come. During the slow period, there was a temptation, and one or two of our competitors decided to be ultra-aggressive on pricing. We always treat our customers fairly.

Michael Pyle: And we were competitive, but we didn't want to do things that we'd regret later. I like where that puts us now as the market begins to open up. And while I'm super excited about it, you just have to remember it's 12 to 18 months; if we take an order today, it's very rare that you would produce it in the same year. It does happen occasionally. It's usually when a competitor drops the ball, and you have to step in and help out.

Speaker Change: So the demand profile is exceptional.

Speaker Change: We're starting to see it come.

Speaker Change: During the slow period, there was a temptation and one or two of our competitors decided to be ultra-aggressive on pricing.

Speaker Change: We always treat our customers fairly. And we were competitive, but we didn't want to take things that we'd regret later. I like where that puts us now as the market begins to open up. And while I'm super excited about it,

Speaker Change: We just have to remember that it's 12 to 18 months. If we take an order today, it's very rare that you would produce it in the same year. It does happen occasionally. It's usually when a competitor drops the ball.

Michael Pyle: But we're very bullish on that, and we're in the process of amalgamating our business in Ontario. We have too many buildings, way too much real estate footprint. Darwin and the team at Quest and the team at BV are doing a great job of bringing those two companies together.

Speaker Change: And you got to step in and help out. But we're very bullish on that. And we're in the process of amalgamating our business in Ontario. We have too many buildings.

Speaker Change: Way too much real estate footprint Darwin and the team

Darwin Sparrow: At Quest and the team at BV are doing a great job of bringing those two companies together. We're going to be abandoning one facility later this year.

Michael Pyle: We're going to be abandoning one facility later this year, which will greatly reduce our overhead costs. In terms of production capacity, we've got lots. We could be... We could be double the size we are now with a very modest investment in certain pieces of equipment. So capacity is not an issue.

Darwin Sparrow: which will greatly reduce our overhead costs.

Darwin Sparrow: In terms of production capacity...

Darwin Sparrow: We've got lots. We could be...

Darwin Sparrow: We could be double the size we are now for...

Darwin Sparrow: A very modest investment in certain pieces of equipment.

Darwin Sparrow: So, capacity is not an issue and...

Michael Pyle: And we talked a little bit. I think Richie mentioned in his comments that we kept people that if we were a pure window business, and that's all we did, we might have had to reduce our staff. But during this, we made a choice to keep those people on the learning curve in putting together custom windows, because remember, every job is a new job. We don't build anything into inventory.

Darwin Sparrow: We talked a little bit, I think Richie mentioned in his comments that we kept people, that if we were a pure window business and it's all we did, we might have had to reduce our staff.

Darwin Sparrow: During this we made a choice to keep those people the learning curve in putting together custom windows because remember Every job is a new job. We don't build anything into inventory

Michael Pyle: So you need people that have the skills and have seen things before, and we've kept that. So it's almost like a capital investment in people. And so we're ready to go.

Speaker Change: So you need people that have the skills and have seen things before and we've kept that so it's almost like a capital investment in people

Michael Pyle: We've still got some more work to do to get the best efficiencies and the best combination of those two teams in terms of production of our windows. But the Dallas plant, as an example, is now running two full shifts, and we're starting to really see how efficient purpose-built window building can be. And I'm excited about it. I wish I could fast forward three or four quarters so that some of the new stuff would be in the plant already.

Speaker Change: And so we're, we're ready to go. We've still got some more work to do to get the best efficiencies and the best combination of those two teams.

Speaker Change: in terms of production of our windows. But the Dallas plant, as an example, is now running two full shifts. And we're starting to really see how efficient purpose built

Speaker Change: window building can be. And I'm excited about it. I wish I could fast forward three or four quarters to some of the new stuff would be in the plant already. But having said that,

Michael Pyle: But having said that, I was really excited when we put the $100 million number into our releases, and then we got another one afterwards. There's always a risk that it's an anomaly when you get a surge like that. Landing another one makes me that much more confident that we're seeing the beginning of a longer-term trend. But I'm not suggesting that $100 million every six weeks is the new cadence. I'd like it if it was, but I think that that's a bit of a surge, but we're definitely seeing a change in the developers.

Speaker Change: I was really...

Speaker Change: excited when we put the $100 million number into our releases and then

Speaker Change: We got another one afterwards. There's always a risk that it's an anomaly when you get a surge like that. Landing another one makes me that much more confident that we're seeing a the beginning of a longer term trend. I'm not suggesting that $100 million every six weeks is the new cadence.

Speaker Change: I'd like it if it was, but I think that's a bit of a surge, but we're definitely seeing a change in the developers. And one of the things that makes me most confident about it is

Michael Pyle: One of the things that makes me most confident about it is... It's not just discussions about price; it's how fast can you build these, and can you guarantee me I'm getting factory space? And that tells you the mindset of some of our customers that, hey, okay, if a whole bunch of us go there at once, are we going to be able to get steel? Are we going to be able to get concrete? And so I remain very bullish about the medium term prospects for our window business.

Speaker Change: It's not just discussions about price, it's how fast can you build these and can you guarantee me I'm getting factory space.

Speaker Change: And that tells you the mindset of some of our customers that, hey, okay, if a whole bunch of us go at once, are we going to be able to get steel? Are we going to be able to get concrete? And so I remain very bullish about the medium term on our window business.

Operator: Thank you, and your next question comes from the line of Matthew Lee from Canaccord Genuity. Please go ahead.

Speaker Change: Operator.

Speaker Change: Thank you, and your next question comes from the line of Matthew Lee from Canaccord Genuity. Please go ahead.

Michael Pyle: Morning, Matt. Hey. Hey, morning.

Matt Jalee: Morning, Matt. Hey, morning. Thanks for taking my question. Maybe a follow on to Steve's question. Like, I know there's a lot of moving parts in manufacturing, but can you just maybe walk through

Michael Pyle: Thanks for taking my question. Maybe a follow-on to Steve's question. Like, I know there's a lot of moving parts in manufacturing, but can you just maybe walk through how we should think about the build of Q3 and Q4 EBITDA from the $35 million this quarter? It sounds like you'll get flat year over year EBITDA from environmental, a bit of return on quest from revenue that was pushed back, and then we'll probably see a couple million a quarter from dry air. If I add it all together, does that mean we should be thinking about, you know, positive year over year EBITDA growth in the back half for manufacturing?

Speaker Change: How we should think about the build of Q3 and Q4 EBITDA.

Speaker Change: from the $35 million this quarter. It sounds like you'll get flat year-over-year EBITDA from environmental, a bit of return in quest from revenue that was pushed back, and then we'll probably see a couple million a quarter from dry air. If I stack it all together, does that mean we should be thinking about positive year-over-year EBITDA growth in the back half for manufacturing?

Michael Pyle: My guys are just pulling up numbers. They don't let me have the specifics, so I'll let them actually speak to the facts.

Speaker Change: My guys are just pulling up numbers. They don't let me have the specifics, so I'll let them actually speak to facts. But we are seeing, outside of the ones you mentioned, Matt, there are...

Michael Pyle: But we are seeing, outside of the ones you mentioned, Matt, we really struggled in West Tower for a bit with the telephone companies just not spending any money. That damn broke in the last couple of weeks, with the awards of new tower construction really taking off. So we expect to see strength in that business in the back half. Our LV control business in Winnipeg in the ag space has also seen an increase.

Speaker Change: We really struggled in West Tower for a bit with the telephone companies just not spending any money. That damn broke in the last couple of weeks with the awards of...

Speaker Change: New Tower Construction

Speaker Change: have really taken off, so we expect to see strength in that business in the back half. Our LV control business in Winnipeg, in the ag space, has also seen

Michael Pyle: That one probably we'll realize more at the beginning of next year than in Q3 and Q4. So, in aggregate, I think it's reasonably positive across the board. I'm not sure that we really want to put out a segment forecast, but I think you'll see it strengthening clearly because the two things that hurt us here, the window business with the weaker margins in Q2 and Matt business up against the tough comp both go away. And as I say, we're starting to invest in growth capex and mats, which I think we wouldn't do if we didn't have something to do with the matter I'm not comfortable putting out a number.

Speaker Change: an increase. That one probably we realize more at the beginning of next year than in Q3 and Q4. So in aggregate, I think it's reasonably positive across the board. I'm not sure that we really want to put out a segment forecast, but I think you'll see it strengthening.

Speaker Change: Clearly, because the two things that hurt us here, the window business with the weaker margins in Q2 and the...

Speaker Change: Matt business up against a tough call both go away and as I say we're starting to invest in growth capex in Matt Which I think we wouldn't do if we didn't have something to do with the matter

Speaker Change: I'm not comfortable putting out a number. It's not something we typically do, but you'll see strengthening.

Michael Pyle: It's not something we typically do, but you'll see strengthening in the manufacturing segment. And the other thing I'd like to point out while we're here on this topic is that we've seen this twice before in 2016. And in 2020, in the six months before the US election, uncertainty slowed down the awarding of contracts. And then when the election actually came to a close, a big burst of company confidence, and it really was independent of who won. In 2016, the Republicans pulled off a surprise win and took the presidency, and then in 2018, the Democrats took it back.

Speaker Change: in the manufacturing segment. And the other thing I'd like to point out while we're here on this topic is we've seen this twice before, in 2016 and in 2020, the six months before the US election.

Speaker Change: Uncertainty slowed down the awarding of things, and then when the election actually came to a close,

Speaker Change: Big burst in company confidence, and it really was independent of who won.

Speaker Change: In 2016, the Republicans pulled off a surprise win and took the presidency, and then in 2022 the Democrats took it back. I really don't think this is a matter of the market saying one has to win or the other has to win. I think it's more just about getting the noise of an election out of the way. We're getting close to that, so by the time we talk again, we'll know who the president is.

Michael Pyle: I really don't think this is a matter of the market saying one has to win or the other has to win. I think it's more just about getting the noise of an election out of the way. So we're getting close to that. So by the time we talk again, we'll know who the president is, and that's probably good for us.

Michael Pyle: Right, right, that's fair. And then maybe just on the regional side, you know, great to see leasing coming back, sales above our expectations. Maybe just talk about driving the uptick in demand for regional aircraft and the sustainability of the leasing kind of business as you see it right now.

Speaker Change: And that's probably good for us.

Speaker Change: Right, right, that's fair. And then maybe just on the regional one side, you know, great to see leasing coming back, sales above our expectations. Maybe just talk about driving the uptick in demand for regional aircraft and the sustainability of the leasing kind of business as you see it right now.

Michael Pyle: The change is that when we came out of COVID, the shortage of pilots and the uncertainty in the business meant that some of the smaller aircraft weren't being used, not just ours, ones owned by the airlines, and so a lot of our stuff sat on the ground. The first improvement came when the aircraft engine leasing business started to improve, because as those planes went back into service, they had overall engines that were deferred, and they were putting rental engines on, so that continues.

Speaker Change: Yeah, the uh...

Speaker Change: The changes is that for when we came out of COVID.

Speaker Change: The shortage of pilots and the uncertainty in the business meant that some of the smaller aircraft weren't being used, not just ours, ones owned by the airlines, and so a lot of our stuff sat on the ground.

Speaker Change: The first improvement came when the aircraft engine leasing business started to improve because as the planes went back into service, they had overall engines that were deferred.

Speaker Change: And they were putting rental engines on, so that continues. And now, Europe in particular, although Africa is also very strong, the demand for the regional jet is strengthening, particularly on the CRJ-900 side.

Michael Pyle: And now, Europe, in particular, although Africa is also very strong, the demand for the regional jet is strengthening, particularly on the CRJ-900 side. We've made a lot of money in the past on the 200s and the 700s. But the number of those available is infinitesimal. We can't get any.

Michael Pyle: The ones that were out there have been soaked up by the big airlines in the U.S., who are converting them into 50-seat jets and turning them into three classes. A CRJ-700 has about 70 seats. They're taking out rows of seats and putting in a business class, a premium economy, and a regular economy to maximize the revenue on those while staying within the flight attendant contract, so they have fewer staff on the plane.

Speaker Change: We've made a lot of money in the past of the 200s and the 700s. The number of those available is infinitesimal. We can't get any. The ones that were out there have been soaked up by the big airlines in the U.S. who are converting them into

Speaker Change: Fifty Shades

Speaker Change: and turning it into three classes. So a CRJ has about 700, has about 70 seats. They're taking out rows of seats and putting in a business class.

Speaker Change: a premium economy and a regular economy to maximize the revenue on those while staying within the flight attendant contract so they have less staff on the plane.

Michael Pyle: Now that there are fewer of those available, they've moved to turning the 900s into what they're called 650s, which is again, exactly the same process. And so we've been active in buying up 900s wherever we can find them. We like those; we are probably the leader of remarketing CRJs in the world, together with probably slightly larger gauge ERJs, and we're earlier in the cycle with those. So when we buy ERJs, they tend to come with leases or are going on longer-term leases.

Speaker Change: Now that there's less of those available, they've moved to turning the 900s into what they're called 650s, which is again, exactly the same process. And so we've been active on buying up 900s wherever we can find them.

Speaker Change: We like those. We are probably the leader of remarketing CRJs in the world.

Speaker Change: together with probably slightly larger gauge ERJs. And we're earlier in the cycle with those, so when we buy ERJs, they tend to come with leases or are going on longer term leases.

Michael Pyle: So that was a really long answer to get to the point that we see continued strength in this business. We're really looking for more opportunities to deploy money in this area, and the actual EBITDA of the quarter would have been the best quarter we've ever had in Regional One. And we continue to see that now. That's good, but it's not as good as it sounds because we've invested in Regional One.

Speaker Change: So, that was a really long answer to get to the point that we see continued strength in this business. We're really looking for more opportunities to deploy money.

Speaker Change: in this area, and...

Speaker Change: the actual EBITDA in the quarter.

Speaker Change: would have been the best quarter we've ever had in Regional 1.

Speaker Change: And we continue to see that now. That's good, but it's not as good as it sounds, because we've invested in Regional 1. So we got dry powder that we still got to deploy some of this stuff. So we expect continued growth. And by the end of the year, I think it's a number that I'll be really happy with.

Michael Pyle: So we get dry powder that we still have to deploy some of this stuff. So we expect continued growth. And by the end of the year, I think it's a number that I'll be really happy with. Not that I wasn't really happy with this one. Death.

Speaker Change: Not that I wasn't really happy with this one.

Michael Pyle: Well, all right; I'll pass the line.

Speaker Change: Well, alright, I'll pass the line.

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

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

Michael Pyle: Yeah, thanks. Good morning.

Cameron Dirksen: Good morning, Cap.

Speaker Change: Yeah, thanks. Yeah, good morning.

Michael Pyle: Question on, I guess, where we are on the ramp up of the two Medevac contracts that you won in DC and Manitoba. I mean, I guess, maybe if you could sort of describe, you know, how long the process is as far as getting up to full ramping up. And also, if you could just maybe discuss what CapEx is left on those two programs from here.

Cameron Doerksen: Question on, I guess, where we are on the ramp-up of the two Medevac contracts that you won, B.C. and Manitoba.

Cameron Doerksen: Maybe if you could sort of describe, you know, how long the process we are as far as getting up to full or ramping up and also we could just maybe discuss what CapEx is left on those two programs from here.

Michael Pyle: Okay, the Manitoba one's easier. We're finished with that one.

Speaker Change: Okay, Manitoba one's easier. We're finished with that one. I don't know if there might be some...

Michael Pyle: I don't know if there might be some odd expenses that slip into Q3, but we have all the planes now. We start flying them. We'll have the full impact, Dave White sitting across the table from me, and I'm staring at him as I say this.

Dave White: on expenses that straggle into Q3 but we have all the planes now. We start flying them, we'll have the full impact, Dave White sitting across the table from me and I'm staring at him as I say this, we'll have the full impact of the Manitoba contract starting in September.

Michael Pyle: We'll have the full impact of the Manitoba contract starting in September. In B.C., you'll recall that the government required brand new aircraft and the aircraft supplier has had some challenges, and so planes are late getting to us. So there's still a significant piece of that 200 million yet to be spent. But on the revenue side, we have helped the government out; we found some other older aircraft that we've deployed. And we're now doing a significant piece, almost all of that contract with other aircraft.

Dave White: In B.C., you'll recall that the government required brand new aircraft and the

Dave White: Bye-bye

Dave White: Our aircraft supplier has had some challenges, and so planes are late getting to us, so there's still a significant piece of that $200 million yet to be spent. But on the revenue side, we have helped the government out. We've found some other older aircraft that we've deployed, and we're now doing a significant piece, almost all of that contract, with other aircraft. And so a lot of...we're starting to...

Michael Pyle: And so a lot of we're starting to, as you will see in Q3, get most of the contract in. But I bring you back to a comment we've been making for a while: we owned part of that business before we won the contract. And so I've got a great fleet of aircraft that we're going to redeploy. And when I talk about redeploy, it's other contracts. So this week, we'll submit our bid for the Northwest Territories medevac contract.

Dave White: and you will see in Q3 get most of the contract in, but I bring you back to a comment we've been making for a while. We owned part of that business before we won the contract, and so I've got a great fleet of aircraft.

Dave White: that we're going to redeploy.

Dave White: and...

Dave White: When I talk about redeploy, it's other contracts. So we just, this week, we'll submit our bid for the Northwest Territories Medevac contract. If we win that...

Michael Pyle: If we win that, BC is going to lose some of those planes; they'll go there. If we are successful at Newfoundland, negotiating there, some of the planes are likely to end up there. So the full impact on our financial statements is two things. It's flying all the BC work, which we're starting to get close to doing now. But then it's taking the assets we used to have in BC and doing something else with them. So you'll see a gradual, continued growth in that business.

Dave White: B.C.'s going to lose some of those planes. They'll go there. If we are successful at Newfoundland, negotiating there, some of the planes are likely to end up there. So the full impact in our financial statements is two things. It's flying all the B.C. work.

Dave White: which we're starting to get close to doing now, but then it's taking the assets we used to have in BC and doing something else with them. So you'll see a gradual, continued growth in that business.

Michael Pyle: Okay, so that's great, Collin, so it's fair to say that, too. Yeah, no, that that's really helpful. So fair to say that if you are successful in Newfoundland, Northwest Territories, because you already have the planes, you know, the CapEx commitment would be fairly, fairly minimal.

Speaker Change: Okay, so that's a great call, so it's fair to say that, too.

Speaker Change: Yeah, no, that's really helpful. So it's fair to say that if you are successful in Newfoundland, Northwest Territories, because you already have the planes, you know, the CapEx commitment would be fairly minimal.

Michael Pyle: It depends. I wouldn't suggest that any of those would just be those planes. They may have certain ones that have a large door requirement, or they may want a jet or a Pilatus as part of it. So it's never as simple as just one, but a bulk of those planes could go into those contracts.

Speaker Change: It depends. I wouldn't suggest that any of those would just be those planes. They may have certain ones that have a large door requirement, or they may want a jet or a Pilatus as part of it. So it's never as simple as just one, but a bulk of those planes can go into those contracts.

Michael Pyle: Okay, that's very helpful. Just secondly, for me, I just wanted to ask about, I guess, a question on the balance sheet. The converts that are due in June next year went current in the quarter. Obviously, it probably depends somewhat on what the share price is over the next 12 months, but any thoughts on what your plan is for those?

Speaker Change: Okay, that's very helpful. Maybe just secondly for me, I just wanted to ask about, I guess, a question on the balance sheet. The converts that are due in June next year went current in the quarter. Obviously, maybe somewhat depends on what the share price is over the next 12 months, but any thoughts on what your plan is for those?

Michael Pyle: This is going to be the least satisfying answer of the day. We're looking at all the options on that. With what we've got in the book, some of the things that are coming, I think the most likely alternative is that the stock gets into the mid-50s, and they convert, and they go away. That's the most likely.

Speaker Change: of

Speaker Change: This is going to be the least satisfying answer of the day. We're looking at all the options on that. Like with what we've got in the book, some of the things that are coming, I think the most likely alternative is that the stock gets into the mid 50s and they convert and they go away. That's the most likely.

Michael Pyle: If that were not to happen for someone, general market conditions or whatever, I think you would see us probably pay them off out of our line, although we could do a replacement issue as well. Not particularly big on that alternative, but depending on the opportunities, I may not want to use capital out of my debt, my secured debt side, if we've got enough stuff cooking, I might just replace them. But the first plan is to just see them convert.

Speaker Change: If that were not to happen for someone, general market conditions or whatever, I think you would see us probably pay them off out of our line, although we could do a replacement issue as well.

Speaker Change: not particularly big on that alternative. But depending on the opportunities, I may not want to use capital out of my debt, my secured debt side, if we got enough stuff cooking, that I might just replace them.

Speaker Change: But the first plan is to is to just see them convert. We'll be patient with that because it's not a huge amount of money. If we got to write a check out of our line, it's not a big deal.

Michael Pyle: We'll be patient with that because it's not a huge amount of money. If we have to write a check out of our line, it's not a big deal. With the decline in interest rates and the fact that we got hit pretty hard last fall when interest rates went higher for longer, I'm pretty bullish with that and our strong guidance and some of these contracts that Jake promised me he'd win.

Speaker Change: And with the decline in interest rates and the fact that we got hit pretty hard last fall when interest rates went higher for longer,

Jake: I'm pretty bullish with that and our strong guidance in some of these contracts that Jake promised me he was going to win. I'm pretty confident that we can just make these go away the way we usually have, which is converting.

Michael Pyle: I'm pretty confident that we can just make these go away the way we usually have, which is by converting. Thank you. Okay.

Michael Pyle: Okay, perfect. No, that's great. Great answer. That's all for me. Thanks very much.

Speaker Change: Okay, perfect. No, that's great. Great answer. That's all for me. Thanks very much.

Operator: Thank you. And your next question comes from the line of Krista Friesen from CIBC. Please go ahead.

Speaker Change: Thank you. And your next question comes from the line of Krista Friesen from CABC. Please go ahead. Hey, Krista.

Michael Pyle: Hi, good morning. Thanks for taking my question. I was just wondering about the Air Canada contract. I believe last quarter, you mentioned that they had started discussing exchanges, possibly flying cross-border routes for them. Has that started yet? And are there any additional opportunities with Air Canada given, given the great relationship you're building with them?

Krista Friesen: Hi, good morning. Thanks for taking my question. I was just wondering, on the Air Canada contract, I believe last quarter you mentioned that they had started discussing exchange, possibly flying cross-border routes for them.

Speaker Change: Has that started yet? And are there any additional opportunities with Air Canada given...

Speaker Change: Given the great relationship you're building with them.

Jake Trainor: I'm going to give that one to Jake. Sure. Thanks for the question, Krista.

Jake Trainor: First of all, I'd like to say that our relationship with Air Canada continues to strengthen, and we're very happy with that partnership as we build. We're planning to start flying cross-border to two destinations starting October 1st, Boston and Newark. So that's always been in our operational plan, and we continue to ramp up resources to undertake that.

Jake: I'm going to give that one to Jake. Sure. Thanks for the question, Krista. And first of all, I'd say that our relationship with Air Canada continues to strengthen and we're very happy with that partnership as we build. We're planning to start flying cross-border to two destinations starting October 1st, Boston and Newark. So that's always been in our operational plan and we continue to ramp up resources to undertake that.

Jake Trainor: We got a scheduled date for that? October 1st, October 1st.

Speaker Change: We got a schedule date for that? October 1st, October 1st.

Krista Friesen: Go ahead, Krista.

Jake Trainor: I was just going to ask if there were, I mean, I know you're adding that to additional aircraft, but is there any more room on that contract or just with Air Canada to maybe do additional flying for them? I mean, under the terms of the existing arrangement, we kind of hit the limit there. But, you know, I would characterize it by saying, again, we're interested in growth. We have, first and foremost, undertaken a lot of activity here.

Krista Friesen: I was just going to ask if there were, I mean I know you're adding it to additional aircraft but is there any more room on that contract or just with Air Canada to maybe do additional flying for them?

Speaker Change: Under the terms of the existing arrangement, we've kind of hit the limit there, but I characterize it by saying, again, we're interested in the growth. We first and foremost have undertaken a lot of activity here. We need to make sure we continue to deliver effectively on our commitments.

Jake Trainor: We need to make sure we continue to deliver effectively on our commitment. So, you know, again, I think there's interest and there will be growth, but for now, we're making sure that we effectively execute, and there is.

Speaker Change: So, you know, again, I think there's interest and there will be growth, but for now, we're making sure that we effectively execute on it.

Jake Trainor: There are preliminary discussions with Air Canada, but there's nothing imminent.

Speaker Change: There's preliminary discussions with Air Canada, but there's nothing imminent.

Michael Pyle: Okay, great. And then just on the window business. Can you speak to what the competitive environment is like right now and how the pricing is on some of the some of the projects that you're bidding on?

Speaker Change: Okay, great. And then just on the window business.

Speaker Change: Can you speak to what the competitive environment is like right now, and how the pricing is on some of the projects that you're bidding on? The competitive environment is strong.

Michael Pyle: The competitive environment is strong. It's kind of an oligopoly in that there aren't a ton of players, but all the players have capacity. And there are differences between the companies. Some do only window wall, and some do predominantly curtain wall.

Speaker Change: It's kind of an oligopoly in that there aren't a ton of players, but all the players have capacity.

Speaker Change: and...

Speaker Change: the difference

Speaker Change: There's differences between the companies. Some do only window wall. Some do predominantly curtain wall.

Michael Pyle: We now do everything, and we're probably the leaders at that. We're clearly the leader in Canada and a significant player in the US, so pricing has been tight. And I would suggest it will remain competitive for a bit. But as orders book, I think developers are going to want to pay for certainty, and they're going to deal with people who can provide it. A Complete Solution to Their Projects and, most importantly, deliver them on time. When you're in an apartment environment, they've got 100% of the capital in, unlike when you're doing a condo when you've got the owner's capital if it's delayed.

Speaker Change: We now do everything. And we're probably the leader at that. We're clearly the leader in Canada, and a significant player in the US. So pricing has been tight. And

Speaker Change: I would suggest it will remain competitive for a bit, but as orders book, I think developers are going to want to pay for certainty and they're going to deal with people who can provide.

Speaker Change: A complete solution to their problem, their...

Speaker Change: Their project and most importantly deliver them on time

Speaker Change: When you're in an apartment environment, they've got 100% of the capital in, unlike when you're doing a condo when you've got owner's capital if it's delayed. And so timing in an apartment world is even more important. It's important in everything, but it's even more important. So

Michael Pyle: And so timing in the apartment world is even more important. It's important in everything, but it's even more important. So, I think as the market strengthens, prices will strengthen, but the stuff in the past has been the last six, nine months have been very competitive.

Speaker Change: I think as the market strengthens, pricing will strengthen, but the stuff in the past has been, the last six, nine months has been very competitive.

Michael Pyle: Okay, great. Thanks. I appreciate the input.

Operator: Thank you, and your next question comes from the line of... Yes, and your next question comes from Konark Gupta from Scotiabank. Please go ahead.

Speaker Change: Thank you, and your next question comes from the line of...

Speaker Change: Yes, and your next question comes from the line of Konark Gupta from Scotiabank. Please go ahead.

Michael Pyle: Hey, good morning, Konark.

Michael Pyle: Good morning, Mike and team. Thanks for taking my question.

Speaker Change: Hey, good morning, Konark.

Connor Kupta: Good morning, Mike and team. Thanks for taking my question. I wanted to ask you about the wildfires a bit here. You know, you guys obviously saw some benefits, I guess, last year in Q2. There was some early fire activity this year.

Michael Pyle: I wanted to ask you about the wildfires a bit here. You know, you guys obviously saw some benefits last year in Q2. There was some early fire activity this year. I think we had a huge sort of fire breaking out in Jasper, the survey area, right, in Q3. I think you alluded to that. So, you know, you have rotary wings. Flying could see some benefits here in Q3. Is there, like, how should we think about sort of the net impact on your fundamentals from wildfires? You know, like northern that might see some decline because of fires usually, or should there be no offset?

Speaker Change #100: I think we had a huge sort of fire breaking out in Jasper, Saudi Arabia, right, in Q3. I think you alluded to that in terms of, you know, you had rotary wings, you know, flying could see some benefits here in Q3. Is there, like, how should we think about sort of the net

Speaker Change #101: Net Net Impact on your fundamentals from wildfires in like northern that might see some decline because of fires usually or should there be no offset?

Michael Pyle: I'll take something on Northern Mat, and then I'll let Jake grab it on the flying part. There's no doubt that the ultra-dry conditions don't help us any in northern Alberta, whether it's burning or not. When it's burning, they can't do anything. But even when it's not burning, it's so dry, they often don't use matting.

Speaker Change #102: I'll take something on Northern Mat and then I'll let Jake grab on the flying part.

Speaker Change #103: There's no doubt that the ultra-dry conditions don't help us any in northern Alberta, whether it's burning or not. When it's burning, they can't do anything, but even when it's not burning...

Jake: It's so dry they often don't use matting.

Michael Pyle: So that's not good for our business. But it's no worse than it was last year. It's probably less bad than it was last year in terms of the matting business, but I think it's something we need to come to grips with. There are certain parts of northern Alberta, northern Saskatchewan, and even, to an extent, northern Manitoba where that's going to be an ongoing issue. But the geographic diversity and the growth in the east, which just simply don't have that problem, will help buttress that for us.

Speaker Change #104: So that's not, that's not good for our business.

Speaker Change #104: It's no worse than it was last year. It's probably less bad.

Speaker Change #104: I think it's something we need to come to grips with. There are certain parts of northern Alberta, northern Saskatchewan, and even to an extent northern Manitoba where that's going to be an ongoing issue.

Speaker Change #105: but the geographic diversity and the growth in the east, you just simply don't have that problem.

Speaker Change #105: We'll help buttress that for us maybe add if you sure yeah flying and then on the flying Konark you're going to see enhanced helicopter activities in the dust in the various wildfires and we have some of our heavy helicopters

Jake Trainor: And then on the flying Konark, you're going to see enhanced helicopter activities in the various wildfires. And we have some of our heavy helicopters engaged right now in Alberta. So you'll see an uptick through Q3.

Speaker Change #105: engaged right now in Alberta.

Jake Trainor: Okay, that's great, thanks. And on the BC Medivac contract, I think it seems like you guys are using some temporary aircraft there as OEM deliveries are delayed. Is there any impact from these temporary aircraft on capex or profitability in Q2 or Q3?

Speaker Change #105: You'll see an uptick through Q3.

Speaker Change #105: with that.

Speaker Change #106: Okay, that's great. Thanks. And on the BC MEDEVAC contract, I think it seems like you guys are using some temporary aircraft there as OEM deliveries are delayed. Is there any implication from these temporary aircraft on CAPEX or profitability in Q2 or Q3?

Michael Pyle: The short answer is no. The B.C. The government made the choice to have new aircraft, and when we bid, we bought slots. Like, we went out and put deposits down, so we were kind of pot committed; we better win. Or we had planes for something else. But the problem is just the demand for King Airs and some of the supply challenges our manufacturers are having have delayed those. The government is fully aware that's beyond our control and it's not causing us any problems on the contract. And in fact, I would say we've probably won some kudos with the government with how we've been able to belt the suspenders, improve the service, and make sure we're looking after everybody.

Speaker Change #107: Short answer is no.

Speaker Change #107: The BC government made the choice to have new aircraft. And when we bid, we bought slots, like we went out and put deposits down. So we were kind of pot committed, we better win. Or we had planes for something else. But the problem is, is this the demand for King Airs and some of the supply challenges our manufacturers having has delayed those, the government is fully aware that's beyond our control. And it's not causing us any problems on the contract. And in fact, I would say we've probably won some kudos with the government with how we've been able to belt and suspenders the service up.

Speaker Change #108: make sure we're looking after everybody. What it really does, Konark, the single biggest impact is it pushes out the CapEx on the new planes.

Michael Pyle: What it really does, Konark, the single biggest impact is it pushes out the CAPEX on the new planes. The problem that creates for me is knowing exactly when I'm going to have those other planes back to redeploy them. Like I can't pull them from BC until I don't need them in BC. But I've got other opportunities coming.

Speaker Change #108: The problem that creates for me is knowing exactly when I'm going to have those other planes back to redeploy them Like I can't pull them from BC

Speaker Change #108: until I don't need them in BC, but I've got other opportunities coming. So I've got we're probably the second or third biggest King Air operator in the world and will soon be the biggest King Air operator in the world. We so we have some ability to shuffle between operations to help a bit. But I would really like to get

Michael Pyle: So I've got We're probably the second or third biggest King Air operator in the world and will soon be the biggest King Air operator in the world. We so we have some ability to shuffle between operations to help a bit. But I would really like to get hardwired exact dates for when we're going to have them available because we've got opportunities to put them out. And that's where you really see the jump in our profitability because I own them already and they're depreciated or maybe not fully depreciated, but largely depreciated on our books. So the returns both from a cash flow and profitability are stronger. So we're pushing Textron to get the aircraft, but we have our understanding of the challenges they face.

Speaker Change #108: Hardwired exact dates for when we're going to have them available because we've got opportunities to put them out And that's where you really see the the the jump in our profitability because I own them already

Speaker Change #109: And they're depreciated, or maybe not fully depreciated, but largely depreciated, on our books. So the returns, both from the cash flow and debt.

Speaker Change #109: Profitability

Speaker Change #109: are stronger. So we're pushing Textron to get the aircraft but our understanding of the challenges they face.

Michael Pyle: Right. It makes sense. Thanks. Last one for me.

Speaker Change #110: Great, makes sense, thanks. Last one for me, the working tab was a bit of a drain.

Michael Pyle: Working capital was a bit of a drain in Q2. I think you kind of called it beyond normal this time. Seems like you guys are investing in some, you know, regional jets at Region 1, et cetera. In terms of the magnitude of how much could potentially reverse from working capital to cash in Q4, can you give us some sense and like what's going to be the bigger driver there? Is it like those regional jet sales or parts? It's a really, it's a really good question.

Speaker Change #111: In Q2, I think you kind of called out as beyond normal this time. It seems like you guys are investing in some, you know, regional jets at Region 1, etc. You know, in terms of magnitude of, you know, how much could potentially reverse...

Speaker Change #112: Working Capital to Cash in Q4. Can you give us some sense on what's going to be the bigger driver there? Is it like those retail sales or part sales? It's a really good question. Inventory's part of it. Quite frankly, a bigger part of it is when you deal with governments.

Michael Pyle: Inventory's part of it, but quite frankly, a bigger part of it is when you deal with the government, their payment record. They always pay. They don't always pay when you expect them, or they tell you they're going to pay. And so we've got a material receivables bill that for aviation that I think largely will reverse itself by the end of the year. I can't. I've never done it. They've told us their birthday. Rich, do you want to jump in? I think just for

Speaker Change #112: their payment record, they always pay. They don't always pay when you expect them or they tell you they're going to pay. And so we've got a material receivables billed in aviation.

Speaker Change #112: that I think largely will reverse itself by the end of the year. I've never... they've told us... Rich, do you want to jump in? Yeah, I think just for context, both in the prepared remarks and in the MD&A, we just put in there that we expect the majority of the 68 million, so more than half of it to reverse before the end of the year. Q3 being our busiest quarter, while we may get the benefit of some of those things rectifying themselves in the quarter,

Richard Wowryk: I think just for context, both in the prepared remarks and in the MD&A, we just put in there that we expect the majority of the $68 million, so more than half of it, to reverse before the end of the year. You know, Q3 being our busiest quarter, while we may get the benefit of some of those things rectifying themselves in the quarter, you may not see it when you look at the cash flow from working capital number because the offset will be there from a significantly busier quarter, and then you'll see the drawdown that you're expecting in Q4. So you know, we're actively managing and working through it, but yeah, a couple of large government receivables that are causing that number during the quarter.

Speaker Change #113: You may not see it when you look at the cash flow from working capital number because...

Rich: The offset will be there from a significantly busier quarter, and you'll see then the drawdown that you're expecting in Q4. So, you know, we're actively managing and working through it, but yeah, a couple large government receivables that are causing that number during the quarter.

Michael Pyle: Okay, and to clarify, is Region 1 not part of this reversal equation, or will it also contribute to the reversal in Q4?

Speaker Change #114: Okay, and to clarify, Region 1 is not part of this reversal equation, or Region 1 will also contribute in the reversal in Q4?

Michael Pyle: We have receivables there too. It's not just in one, it's across the board in aviation, but there's nothing out of the normal course of business as long as they go up and down, and regional one has got continued opportunities where you will see strong performance in that company for the balance of the year.

Speaker Change #115: We have receivables there too. It's not just in one, it's across the board in aviation, but there's nothing out of the normal course of business as long as they go up and down and Regional One has got

Speaker Change #116: continued opportunities where you will see strong performance in that company for the balance of the year.

Michael Pyle: Okay, perfect. Thanks. I'll turn it over to you. Thank you.

Speaker Change #117: Okay, perfect. Thanks. I'll turn it over. Thank you.

Operator: Thank you, and your next question comes from the line of Team James from TD Commonwealth. Please go ahead.

Speaker Change #118: Thank you. And your next question comes from the line of Tim James from TD Cowell. Please go ahead. Hey, good morning, Tim.

Michael Pyle: Good morning, Tim. Good morning. Good morning. Thanks for the time. My first question, just turning to HEML for a minute, and I realize it's not a large transaction, but can you give us a bit of a sense for what portion of revenue will be to third parties versus, you know, what portion, I assume, is generated by Northern MAT? Just trying to get a sense of the materiality, if at all, of the revenue contribution in terms of reported revenue from that transaction.

Tim James: Good morning. Good morning. Thanks for the time.

Tim James: My first question, just turning to Duhemel for a minute, and I realize it's not a large transaction, but can you give us a bit of a sense for what portion of revenue will be to third parties versus, you know, what portion I assume is generated by Northern MAD? Just trying to get a sense kind of of the...

Speaker Change #120: materiality if at all of the of the revenue contribution in terms of reported revenue from that that transaction

Michael Pyle: I think the easiest way to look at that, without spilling information that I haven't put out in the public sphere, is that... Duomel was a creative acquisition on its own, with returns in the 15 to 20% range on an IRR on a levered basis, as we always talk about. So when you model that in, you guys can do the math backwards and pick a number. And then where you'll see the difference from on a northern basis is more sales in the northern.

Speaker Change #120: I think the easiest way to look at that, without spilling information that I haven't put in the public sphere, is that

Speaker Change #121: Duomel was a creative acquisition on its own.

Speaker Change #122: with returns in the 15 to 20% range on an IRR on levered basis as we always talk about. So when you model that in, you guys can do the math backwards and pick a number. And then where you'll see the difference from on a northern basis is more sales in northern.

Michael Pyle: Our financial statements are really, it doesn't matter which company I flow them through. In fact, that's really more of Rich's area. But at the end of the day, if Quebec sales go up, it'll be managed through there. But in the business, the core business that they're in already, you can calculate reasonably accurately because it's not a big number based on the size of it with that sort of 15 to 20% return.

Speaker Change #122: On our financial statements, it really is a matter of which company I flow it through.

Speaker Change #123: In fact, that's really more of Rich's area, but at the end of the day, if Quebec sales go up...

Rich: It will be managed through there, but in the MAP business, the core business that they're in already, you can calculate reasonably accurately because it's not a big number based on the size of it with that sort of 15 to 20% return.

Michael Pyle: Okay, thank you. Just a quick clarification, when you use the term returns in the outlook section of the MD&A, can we assume that that is a reference to EBITDA, like dollars of EBITDA, when you talk about forward-looking returns?

Speaker Change #124: Okay, thank you.

Speaker Change #125: Just a quick clarification, when you use the term returns in the outlook section of the MD&A, should I, can we assume that that is a reference to EBITDA, like dollars of EBITDA, when you talk about sort of forward-looking returns?

Michael Pyle: It's probably more of a free cash flow return we're talking about than just a pure unit. I've got my guys flipping to see where the precise paragraph it's in, but generally speaking, when we talk about returns, because of the great difference in maintenance reinvestment requirements between aviation and manufacturing, we're generally talking about the number after the maintenance reinvestment requirement, Tim.

Speaker Change #126: It's probably more of a free cash flow return we're talking about than a, just a pure, I've got my guys flipping to see where the precise paragraph it's in. But generally speaking, when we talk about returns, because of the great difference in maintenance reinvestment requirements between aviation and manufacturing, we're generally talking about the number after the maintenance reinvestment requirement, Tim.

Michael Pyle: Okay, okay, that's helpful, that's helpful. And then my last question is just about the Windows Systems business.

Tim James: Okay, okay. That's helpful. That's helpful. And then my last question, just turning to the Windows Systems business.

Michael Pyle: Correct me if I'm wrong, but I think the second quarter revenue did not come through quite as expected. It was weaker than you anticipated when you reported the first quarter results. And again, I'm just sort of interpreting this based on the language in the Q1 discussion versus the numbers that came through. Could you just help us understand, because this, as you pointed out, is a fairly long lead business, 18 months normally, it sounds like it's getting shorter, but what sort of happens in this business in such a short timeframe that can make the outcome different than what you had anticipated?

Speaker Change #127: Correct me if I'm wrong but I think the second quarter the revenue did not come through quite as expected it was

Speaker Change #128: weaker than you anticipated when you reported the first quarter results. And again, I'm just sort of interpreting this based on the language in the Q1 discussion versus the numbers that came through. Could you just help us understand, because this, as you pointed out, is a fairly long lead business, 18 months normally, sounds like it's getting shorter. But what

Speaker Change #129: Transpires in this business in such a short time frame that can make the outcome different than what you had anticipated.

Travis Muhr: We had a project that backed up. They weren't ready for our windows, so we couldn't deliver them because job site specific issues slowed it down.

Speaker Change #130: We had a project that backed up. They weren't ready for our windows, so we couldn't deliver them because...

Michael Pyle: The revenues weren't, to be honest, as far off as the EBITDA was, and the EBITDA was off because when we were delayed on some of our own projects, we substituted third-party work, installing other people's things. That's part of the glazier business we do, particularly in the U.S. And so while that margin, that's positive margin dollars, they're not at the same percentage as they are for our So while our revenue was a little bit off of our internal expectations, it wasn't as much as the product mix affected our EBITDA margins.

Speaker Change #130: For job site specific issues slowed it down the revenues weren't to be honest as far off as the EBITDA was and the EBITDA was off because when we We were delayed on some of our own projects. We substituted third-party work installing other people's things That's part of the glaziers business. We do particularly in the US

Speaker Change #130: And so while that margin, that's positive margin dollars, they're not at the same percentage as they are as our own. So while our revenue is a little bit off of our internal expectations, it wasn't as much as the product mix affected our EBITDA margins.

Michael Pyle: Just a follow-up question on that. You mentioned it was the customer that wasn't ready to take deliveries.

Speaker Change #131: Just a follow-up question on that. You mentioned it was the customer that wasn't ready to take deliveries. Is that something, like how common is that? Is that really unusual or do you see that a handful of times over the course of a year?

Travis Muhr: Is that something like, like, how common is that? Is that really unusual? Or do you see that, you know, a handful of times over the course of a year?

Speaker Change #131: That is, Travis, do you want to grab that? Yeah, no, that's like normal, right? So, when you think about sort of a construction project, you know, it's dependent upon...

Michael Pyle: That is, Travis, do you want to grab that? Yeah, no, that's, that's just like normal, right? So when you think about sort of a construction project, you know, it's dependent upon, you know, the concrete being formed, you know, the curing of that, you know, getting the various trades in and out, and sort of the availability. So, you know, when we produce these, you know, we have our project plan.

Speaker Change #132: You know, the concrete, you know, being formed, you know, the curing of that, you know, getting the various trades in and out and sort of the availability. So

Speaker Change #132: You know they

Speaker Change #133: When we produce these, you know, we have our project plan.

Michael Pyle: But generally, there's always an adjustment. And so, you know, the team is very cognizant of looking at their project planning for various jobs and moving this job here, that job there. But it is relatively normal in the business. We try and stick with our production plans. But sometimes, you know, those become out of our control.

Speaker Change #133: But generally there's always adjustments and so the team is very cognizant.

Speaker Change #133: and looking at...

Speaker Change #134: their project planning for various jobs and moving this job here, that job there.

Speaker Change #134: But it is relatively normal in the business. You know, we try and stick with our production plans, but sometimes, you know, those become out of our control.

Michael Pyle: The and it's more evident in a period where it's not as busy, because you don't have anything to pull forward. A lot of times, when this stuff happens, Rich's project got delayed because the contract guy, the concrete guy, didn't get his work done in time. But Travis is on schedule, or maybe had been, so we pre-build Travis's job and do Rich's job later. When it's softer, it's harder to pull things forward.

Speaker Change #134: The, and it's more evident in a period where it's not as busy because you don't have something to pull forward. A lot of, normally when this stuff happens.

Speaker Change #135: Rich's project got delayed because the concrete guy didn't get his work done in time, but Travis's is on schedule or maybe ahead, so we pre-billed Travis's job and do Rich's job later.

Speaker Change #135: When it's softer, it's harder to pull things forward and it's not a business where you want to build in the inventory We don't do that. Generally sometimes we will if a specific customer asks for it but so in a softer period the delay of a Contract has a bigger impact

Michael Pyle: And it's not a business where you want to build up inventory. We don't do that generally; sometimes we will have a specific customer ask for it. But so, in a softer period, the delay of a contract has a bigger impact than it does when we're busy. I'd add that we did our Q2 meetings here in Toronto. Normally, we would do this in Winnipeg, and we took our board out to see a site. It was incredibly, uh...

Speaker Change #135: that it does when we're busy. I'd add we did our Q2 meetings here in Toronto. Normally we would do this in Winnipeg and we took our board out to see a site.

Speaker Change #135: It was incredibly...

Michael Pyle: It's very informative to see the difference between the window products. So the job we went to happened to be at one young 100-story mixed-use hotel condo project, but it's got every product we make in it, from stick window wall to balconies, curtain wall, and window wall. And one of the things I'm thinking about doing is perhaps asking our analysts if they'd like to come see the project. I think it would be a great insight.

Speaker Change #135: Informative to see the difference between the window products so the job we went to happened to be at one young a hundred story

Speaker Change #135: Mixed-use Hotel Condo project, but it's got every product we make in it from

Speaker Change #135: Stick window wall to balconies, curtain wall, and window wall.

Speaker Change #135: One of the things I'm thinking about doing is perhaps asking our analysts if they'd like to come see the project I think it would be a great insight. We've had you guys in the factory Our developer there has allowed us on occasion to bring people to see what's going on. And I think it it might help Understand exactly how these things go that project in like with a hundred floors We could build a floor or two a week. So even if you're paying on you're talking about something that's

Michael Pyle: We've had you guys in the factory. Our developer there has allowed us on occasion to bring people to see what's going on, and I think it might help understand exactly how these things go. That project with 100 floors, we could build a floor or two a week. So even if you're bang on, you're talking about something that's... multi-year in nature to build that many floors.

Speaker Change #135: multi-year in nature to build that many floors.

Michael Pyle: Okay, that makes a lot of sense. That's helpful. Thank you.

Speaker Change #136: Okay, that makes a lot of sense. That's helpful, thank you.

Operator: Thank you. And your next question comes from the line of Chris Murray from ATB Capital Markets. Please go ahead.

Speaker Change #136: Thank you. And your next question comes from the line of Chris Murray from ATB Capital Markets. Please go ahead.

Michael Pyle: Good morning, Chris. Thanks. Good morning, Chris. Thanks.

Michael Pyle: Um, my first question, you know, thinking about the aerospace business, and, you know, we're starting to see some riots in the US, or sorry, in the UK around immigration issues. You know, kind of looked at the numbers, kind of flat growth on the top line, but certainly to meet the dog expansion. I kind of expect that with the new UK government, some of the issues they're having, they're going to want maybe an operational temple upgrade into ISR work. So just kind of wondering, you know, a couple questions here.

Chris Murray: Good morning. Thanks. I guess my first question, you know, thinking about the aerospace business and we're starting to see some riots in the UK around immigration issues.

Speaker Change #138: You know, we kind of looked at the numbers, you know, kind of flat growth on the top line, but certainly to meet the dog expansion

Jake Trainor: You know, first of all, what's your ability to flex with ISR work at this particular point now? I think force multiplier has been kind of eaten up already by a lot of stuff, but I'm not sure, you know, how much more capacity is available to you. And then, as we start seeing these issues kind of multiply, I know there's some other contracts that are out there. I was wondering if you could give us maybe some updates on, you know, where some of the other major ISR contracts around the world might be standing.

Speaker Change #139: I kind of expect that with the new UK government and some of the issues they're having, they're going to want maybe an operational tempo upgrade into ISR work. So just kind of wondering, you know, a couple questions here. You know, first of all,

Speaker Change #140: You know, what's your ability to flex?

Speaker Change #140: with ISR work at this particular point now.

Speaker Change #141: I think Force Multiplier has been kind of eaten up already by a lot of stuff, but...

Speaker Change #141: I'm not sure, you know, how much more capacity is available to you. And then as we start seeing these issues kind of multiply, I know there's some other contracts that are out there. I was wondering if you could give us maybe some updates on, you know, where some of the other major ISR contracts around the world might be standing.

Jake Trainor: Sure, this is Jake. I'll take that call. So, you know, I'll answer your question in a couple parts here. In terms of capacity availability, you know, a couple quarters ago, we indicated that we had proactively started to build another ISR asset, which often has a long lead time in terms of getting them out, and it's partway through construction. So, again, with that new asset, plus some of the older assets that we have that have come off contracts, we do have an ability to flex upwards in terms of capacity. And that's notwithstanding having the capacity to take our existing assets under contract and just fly them more.

Speaker Change #141: Sure, this is Jake. I'll take that call. So, you know, I'll answer your question in a couple parts here.

Jake: In terms of capacity availability, you know, a couple quarters ago we indicated that we had proactively started to build another ISR asset, which...

Jake: You know, these often have a long lead time in terms of getting them out and it's part way through construction. So, again, with that new asset plus some of the older assets that we have that have come off contracts, we do have an ability to flex.

Jake: upwards in terms of the ability and that's notwithstanding having the capacity to take our existing assets under contract and just fly them more and we're seeing that as a general trend across all of our contracts in that the utilization on these contracts or these aircraft are going upwards.

Jake Trainor: And we're seeing that as a general trend across all of our contracts, in that the utilization on these contracts, or these aircraft, is going upwards. Specifically, to talk about a few of the opportunities out there with regard to the UK, kind of in the late breaking news that, you know, we indicated that the RFP that we submitted back in Q1 had been cancelled and then reissued as of yesterday, with a new procurement process. The anticipated contract award in the new process is going to be Q3 2025 with an into service date at the end of 2025. What we see in that is an increased operating tempo.

Jake: specifically to talk about a few of the opportunities out there with regards to the UK you know kind of in late breaking news that you know we indicated that the RFP that we submitted back in Q1 had been cancelled and then reissued as of yesterday.

Jake: You know, with a new procurement process.

Speaker Change #142: The anticipated contract award in the new process is going to be Q3 2025 with an into service date at the end of 2025. What we see in that is an increased op tempo. They're asking for between 4 and 5,000 hours annually. So again, that's a significant uptick from what we're doing now with one aircraft.

Jake Trainor: They're asking for between 4,000 and 5,000 hours annually, so again, that's a significant uptick from what, you know, we're doing now with one aircraft, and obviously, we feel we're in a very good position to compete for that. And the other thing I'd say is that we anticipate that the U.K. government is going to need some type of interim solution as well, and our asset there is very busy and will continue to be.

Speaker Change #142: And obviously we feel we're in a very good position to compete for that. And the other thing I'd say is...

Speaker Change #142: We anticipate that the UK government is going to need some type of interim solution as well, that our asset there is very busy and will continue to be busy.

Jake Trainor: The other point I'd like to note, the other RFP I'd like to note is the activities in Australia. And that RFP was released very recently. Again, following in a similar trend, it was actually larger in scale and scope than what we had anticipated, being a 12-year contract plus 3-year option. And, you know, again, our teams are still going through to analyze the requirements, but, you know, likely a 10 to 15 aircraft operation.

Speaker Change #142: The other point I'd like to note, other RFP I'd like to note is the, we talked about it in several quarters, is the activities in Australia. And that RFP was released very recently. Again, following in a similar trend, it was actually larger in scale and scope than what we had anticipated being a 12-year contract plus 3-year option.

Speaker Change #142: And, you know, again, our teams are still going through to analyze the requirements, but, you know, likely.

Speaker Change #142: a 10 to 15 aircraft operation. So again, very large.

Jake Trainor: So, again, very large. And those are just a couple of the ones that we're looking at. Again, with the state of the world and some instability in it, obviously, that means a lot of activity for our ISR business.

Speaker Change #142: And that's just a couple of the ones that we're looking at, again with some of the state of the world and some instability in it, obviously that means a lot of activity for our ISR businesses.

Michael Pyle: Jake doesn't like giving numbers on the cost of things. Just to give you a broad idea of the potential size of that Australia deal, it's the biggest ISR contract in the world that we're aware of. And you're talking about something that will be considered considerably north of half a billion dollars in investment. With ISR rates of return, it's clearly that that's the jewel of the crown.

Speaker Change #142: Jake doesn't like giving numbers on cost of things, but

Jake: just to give you a broad brush on the potential size of that Australia deal. It's that's the biggest ISR contract in the world that we're aware of. And

Jake: You're talking about something that will be considerably north of half a billion dollars in investment.

Jake: Thank you for joining us. Thank you. Thank you.

Jake: with ISR rates of return. It's clearly that is that that's the jewel of the crown and we will be

Jake Trainor: And we will be very actively pursuing that. Earlier this year, through our process of expressions of interest, we were part of a narrowed group who've been invited to bid on this. And so by the end of the year, we will have a bid out on that. And hopefully, sometime next year, we'll find out whether it starts flying about 2028. Yeah.

Jake: very actively pursuing that.

Jake: Earlier this year, through a process of expressions of interest, we were part of a narrowed group who've been invited to bid on this.

Jake: And so by the end of the year we will have a bid out on that and hopefully sometime next year we'll find out about it.

Speaker Change #143: Starts flying at what, 28? 28, yeah.

Speaker Change #144: So, if you're going to add that many ISR aircraft...

Michael Pyle: So if that's if you're gonna add that many ISR aircraft, that's a tight timeline. So we're excited about it. We're working hard on it. And at the same time, we're building aircraft now, just without exactly knowing where they're going, but just because of the demand for ISR service.

Speaker Change #144: That's a tight timeline. So we're excited about it. We're working hard on it. And at the same time, we're building aircraft now, just without exactly knowing where they're going, but just because of the demand for ISR services.

Michael Pyle: That kind of brings me to my next question. And, you know, we started, I think, Cam sort of started on this one.

Speaker Change #145: Okay, that kind of brings me to my next question. And, you know, we started, I think Cam sort of started on this one. But, you know, you've got a couple series of ventures that are probably, let's, let's assume will turn into, turn into equity over the next little while. But as you're getting larger, as the as the dollars themselves get bigger, you've always sort of operated, you know, call it senior debt.

Speaker Change #145: and a couple of terms.

Speaker Change #145: The venture is at a turn. But as you get larger, do you have to start thinking about how you construct the cap structure of the business? You know, is there a time to start thinking about getting a debt rating, maybe taking on

Speaker Change #145: Call it tradable debt or permanent debt it maybe even in different currencies given where you're going to be trading in the world So I guess I'm trying to think about how the balance sheets needs to for lack of a better term You know grow up from where you've been come from to probably where you're going

Michael Pyle: But, you know, you've got a couple series of debentures that are probably, let's assume, will turn into equity over the next little while. But as you're getting larger, as the dollars themselves get bigger, you've always sort of operated, you know, call it senior debt at a couple of terms, debentures at a turn. But as you get larger, do you have to start thinking about how you construct the cap structure of the business?

Michael Pyle: You know, is there a time to start thinking about getting a debt rating, maybe taking on, call it tradable debt or permanent debt, maybe even in different currencies, given where you're going to be trading in the world. So I guess I'm trying to think about how the balance sheet needs to, for lack of a better term, you know, grow up from where you've come from to probably where you're going.

Michael Pyle: Chris, that couldn't be a more topical question. You've clearly been reading the riches, goals, and targets for the year from our board. Convertible ventures have been very good to us. And as we've grown, they've provided us with a great source of low-cost capital. But as we get bigger, they're less and less appropriate for us. And I'll never say never that we won't ever use one

Speaker Change #146: Convertible debentures have been very good to us and as we've grown they've provided us a great source of low-cost capital but as we get bigger they're less and less appropriate for us and I'll never say never that we won't ever use one again.

Michael Pyle: But they're not going to be a big part of our capital stack going forward. And as a result, we're probably going to need some publicly traded debt. Right now, we're working on the decision to whether we do that through a rating or we do a private placement with a pension fund. And we're working through those details as we speak. It's a little complicated because the rating agencies, if they rate us as an airline, we're not going to get, potentially, the rating we want.

Speaker Change #146: But they're not going to be a big part of our capital stack going forward and as a result We're probably going to need some publicly traded debt

Speaker Change #146: Right now we're working on the decision to whether we do that through a rating or do we do a private placement with a with a pension fund. And we're working through those details as we speak. It's a little complicated because

Speaker Change #146: The rating agencies, if they rate us as an airline, we're not going to get potentially the rating we want.

Michael Pyle: If they rate us as more of an infrastructure or more of a government services play, which we are because most of our revenue is contracted from governments, we're going to get a great rating. So we're busy working on those. But your question is bang on. If we look out two years from now, the converts won't be the percentage of our balance sheet they are now, and they'll be replaced with a more long-term fixed-rate debt instrument.

Speaker Change #146: If they rate us as more of an infrastructure or more of a government services play, which we are, because most of our revenue is contracted from governments, we're going to get a great rating. So we're busy working on those, but your question is bang on. If we look out two years from now,

Speaker Change #146: The converts aren't going to be the percentage of our balance sheet they are now, and they'll be replaced with a more long-term, fixed-rate debt instrument.

Richard Wowryk: I think the instrument that we would choose will be heavily dependent on some of the large contracts we're looking at, particularly on the aerospace side, and the flexibility that we may be looking for with respect to those instruments. As you noted, thinking about different currencies, the investment currency, usually US dollars on the aircraft side, but the currency we're getting paid in might be Australian dollars or a different currency from a different jurisdiction around the world, and making sure that the instrument we choose has the flexibility from a swap perspective to make it make sense for us. All things that we're considering when we look at what the next move in our capital structure should be.

Speaker Change #146: and I think that...

Speaker Change #146: And just one additional piece, sir, I think the instrument that we would choose...

Speaker Change #146: We'll be heavily dependent on some of the large contracts we're looking at, particularly on the aerospace side, and the flexibility that we may be looking for with respect to those instruments. As you noted, thinking about different currencies, the investment currency, usually U.S. dollar on the aircraft side, but the currency we're getting paid in might be Australian dollars or a different currency from a different jurisdiction around the world, and making sure that the instrument we choose. Thank you.

Speaker Change #146: We have the flexibility from a swap perspective to make it make sense for us. So all things that we're considering when we look at what the next move in our capital structure is.

Michael Pyle: Okay, and maybe follow on to that, you know, when we think about a lot of this debt being large aircraft related, would you guys look at things like EETC or the stale leachback market?

Speaker Change #147: Okay, and just maybe follow on to that, you know, when we think about a lot of this debt's going to be large aircraft related, would you guys look at things like EETC, go to Stale Leachback Market?

Michael Pyle: I never say never. Right now, I'm not sure that it improves our cost of capital, largely because the aircraft are so manipulated and developed. When you take a 10 or 15 or $20 million aircraft and put $100 million of stuff on it, that's not the stuff that the leasing companies are good at. So if we find a partner that understands the value of what's on the aircraft, that may be a consideration.

Speaker Change #148: Never say never right now. I'm not sure that it improves our cost of capital largely because the the aircraft are so

Speaker Change #149: manipulated and developed when you take a 10 or 15 or 20 million dollar aircraft and put 100 million dollars of stuff on it.

Speaker Change #150: that's not the stuff that the leasing companies are good at. So if we find a partner that understands the value of what's on the aircraft, that may be a consideration. I think it's more likely that we will use a debt instrument because we understand that we want to own those.

Michael Pyle: I think it's more likely that we will use a dead instrument because we understand that we want to own those aircraft and, quite frankly, as technology ages, it doesn't age out; it just ages it to lower-level work for different areas. And so I think it's more likely that we would own our own assets, but if we found the right leasing partner, that could change.

Speaker Change #150: those aircraft. And quite frankly, as technology ages, it doesn't age out, it ages it to lower level work for different areas. And so

Speaker Change #150: I think it's more likely that we would own our own assets, but if we found the right leasing partner, that could change.

Michael Pyle: Especially on the aerospace side, where the technology that exists in those aircraft can have top secret components, and we're not going to want to have another party have control over the ultimate disposition of that at the end of the year or at the end of the term.

Speaker Change #150: Especially on the aerospace side, where the technology that exists within those aircraft can have top-secret components to them, and we're not going to want to have another party have control over the ultimate disposition of that at the end of the day.

Michael Pyle: No, fair enough. All right. Thanks, folks.

Speaker Change #150: The end of the term.

Speaker Change #150: Fair enough. All right. Thanks, folks. Thanks.

Michael Pyle: Thank you. And your last question comes from the line of Steve Hansen from Raymond James. Please go ahead. Hey Steve.

Speaker Change #151: Thank you. And your last question comes from the line of Steve Hansen from Raymond James. Please go ahead.

Operator: Okay, guys. Sorry, I'm all good for now. I think we've exhausted the questions here for today. I'll leave it there. Thanks.

Steve Hansen: Thanks, Steve.

Steve Hansen: Oh, hey guys. Sorry, I'm all good for now. I think we've exhausted the questions here for today. I'll leave it there.

Speaker Change #152: That's great. Thanks.

Michael Pyle: Thank you. That concludes our question and answer session. I want to hand the call back to Mr. Pyle for any closing remarks.

Speaker Change #152: Thank you. That concludes our question and answer session. I want to hand the call back to Mr. Pyle for any closing remarks.

Operator: I just want to say thank you to everyone for joining us today. There were lots of questions, lots of good stuff to talk about. I love when we're talking about our contracts and our opportunities going forward. It's what makes EIC; EIC is investing in opportunities, and I can't wait to talk to you again in November. Have a great summer.

Mr. Pyle: I just want to say thank you to everyone for joining us today. It was lots of questions, lots of good stuff to talk about. I love when we're talking about our contracts and our opportunities going forward. It's what's made EIC is investing in opportunities and can't wait to talk to you again in November . Have a great summer.

Thank you, and that concludes our conference today. Thank you for participating. You may all disconnect.

Speaker Change #154: Thank you and that concludes our conference today. Thank you for participating. You may all disconnect.

Operator: These scenarios It is also reminded that today's call is being recorded and broadcast live on 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.