Mr. Mike Pyle reports

EXCHANGE INCOME CORPORATION POSTS BEST FIRST QUARTER RESULTS IN THE CORPORATION'S HISTORY, INCREASES 2023 GUIDANCE

Exchange Income Corp. has released its financial results for the three months ending March 31, 2023. All amounts are in Canadian currency.

Q1 financial highlights

• Generated record first quarter revenue of $527-million, an increase of $126-million or 32 per cent;
• Earned adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $97-million, representing growth of $30-million over the prior period or 45 per cent and setting another first quarter benchmark for the corporation;
• Free cash flow first quarter record of $60-million compared with the prior period of $47-million;
• Net earnings of $7-million, an increase of $3-million or 83 per cent. Net earnings per share increased 60 per cent to 16 cents from 10 cents;
• Adjusted net earnings of $12-million, or 27 cents per share, an improvement of 47 per cent and 35 per cent, respectively.
• Trailing-12-month free cash flow less maintenance capital expenditures payout ratio improved to 58 per cent from 59 per cent;
• Completed two accretive acquisitions subsequent to quarter-end along with an extension and upsize to the corporation's credit facility.

CEO commentary

"The first quarter is our seasonally slowest quarter in both segments. EIC has made tremendous steps to achieve our annual objectives during the first quarter and we were extremely happy to announce the acquisition of BVGlazing Systems Ltd. and Hansen Industries Ltd. We also demonstrated our commitment to further invest in our existing family of companies through organic growth opportunities. This is demonstrated by our announcement of an 18-month contract for our Force Multiplier aircraft with an allied European government which follows on our recent aerospace successes with other European governments and our international reputation, as well as the purchase of a King Air full motion simulator to increase our pilot training efficiency, facilitate future growth particularly in our medevac business, and reduce GHG emissions," said Mike Pyle, chief executive officer of Exchange Income. "We saw continued strengthening in both of our aerospace and aviation and manufacturing segments which bodes well for our future. We are collectively very proud of our progress made in the first quarter relative to our expectations for the business. This performance was achieved whilst the broader economy was experiencing headwinds from inflation, tightening monetary policy and reduced growth expectations for the North American economies. Our results continue to show our diversification and the critical services that our businesses provide. Our existing businesses remain poised to grow organically and Adam and his team have also been busy on the acquisition front.

"The acquisitions of BVGlazing and Hansen, completed subsequent to quarter-end, were highly strategic to our pre-existing businesses. Specifically, BVGlazing will add complementary product offerings of curtain wall and railing capabilities along with a strong backlog of projects. The combined backlog of our window businesses is approximately $1-billion. Both acquisitions will be immediately accretive based on their historical performance before the consideration of potential synergies," stated Adam Terwin, Exchange Income's chief corporate development officer. "Our pipeline of opportunities continues to be very strong however we remain disciplined in ensuring that we acquire companies with strong management teams and with sustainable, strategic business lines. We continue to work on projects in both the aerospace and aviation and manufacturing segments. The EIC story continues to resonate with prospective vendors and we are seeing that our disciplined acquisition strategy is very competitive in an environment of increased interest rates."

Review of Q1 financial results

Consolidated revenue for the quarter was $527-million, which was an increase of $127-million or 32 per cent over the prior period. Revenue in the aerospace and aviation and manufacturing segments grew over the prior year, by $45-million and $82-million, respectively. Adjusted EBITDA for the quarter was $97-million, which was an increase of $30-million or 45 per cent compared with the first quarter of last year. The relative increase was even more impressive as the prior period included $11-million of pandemic-related government support with no similar amounts received in the current period. The increase in the results was driven by continued improvement and growth in the operations in the aerospace and aviation and manufacturing segments and also by the acquisition of Northern Mat & Bridge, which was acquired on May 10, 2022, and therefore not included in the prior period.

Revenue generated by the aerospace and aviation segment increased by $45-million to $326-million and adjusted EBITDA increased by $11-million to $74-million over the prior period, which in the prior period also included $11-million of pandemic-related government support. The most material increases related to passenger traffic, as the prior period was impacted by the emergence of the Omicron variant. Revenues and profitability were also positively impacted by the Netherlands Coast Guard contract that was previously awarded and began late in 2022. The increases in the segment revenues, noted herein, were partially offset by reduced large aircraft sales within the company's aircraft sales and leasing business. The first quarter of 2022 was the highest first quarter for those types of sales experienced by the corporation. Such large aircraft sales are generally higher dollar values and lower margins, resulting in a disproportionate impact to revenue as compared with adjusted EBITDA.

Manufacturing segment revenue increased 69 per cent to $201-million for the quarter and adjusted EBITDA increased by $21-million to $32-million. The acquisitions of Northern Mat in May, 2022, was a significant contributor to the increase as there were no comparative amounts in the prior year. However, Northern Mat's performance is impacted by seasonality, with the third quarter being the strongest and the first quarter being the softest. Northern Mat continues to meet internal expectations and the first quarter was no exception, however pricing has moderated from 2022 which was an exceptional year due to a combination of supply and demand factors. The remaining operations within the manufacturing segment continued to improve relative to the prior year, resulting in increases in both revenue and adjusted EBITDA over the prior period. The demand at each of the company's manufacturing subsidiaries continues to be very strong and the corporation is optimistic about the subsequent quarters from both a revenue and adjusted EBITDA perspective. The addition of BVGlazing and Hansen will be accretive to the corporation as a whole, before including potential synergies. Furthermore, these acquisitions will further increase the relative size of the manufacturing segment compared with the aerospace and aviation segment.

Exchange Income recorded adjusted net earnings of $12-million, or 27 cents per share, compared with $8-million, or 20 cents per share, in the first quarter of last year.

Carmele Peter, president of Exchange Income, said: "Our businesses and our strategy continue to remain resilient whilst there is uncertainty in the broader economy. Our airlines provide an essential service to Canada's Northern and remote communities. Our aerospace businesses continue to win long-term government contracts which demonstrate their technological capabilities and broader reputation in the international marketplace. Our manufacturing segment continues to grow in both revenue and profitability. The results achieved this quarter demonstrate the strength of our collective businesses and the acumen of our management teams at each of our subsidiaries.

"While we are excited at what we have achieved to date, we are not complacent. We continue to focus on longer-term trends at each of our businesses. We are actively attracting, training and retaining employees throughout our subsidiaries to fuel their growth strategies. Specifically, we are focused on attracting and training new pilots. The corporation and its subsidiaries are critical to connecting people, goods and services to Canada's Northern communities. That is why we created the Atik Mason Indigenous Pilot Pathway and Life in Flight Program, and we hope to continue to see success in our pilot development, training and retention. We are also focused on the broader sustainability of the corporation. I am very proud of our accomplishments to date, which should be celebrated, however we continue to focus on our employees and the communities and customers we serve."

Richard Wowryk, Exchange Income's chief financial officer, also noted: "We reduced our exposure to variable interest rates and with the inverted yield curve, we fixed approximately $540-million at rates below what we are paying on our variable rate debt. Accordingly, we have fixed interest rates on approximately two-thirds of our outstanding debt, including our convertible debentures. Furthermore, we have increased our credit facility to approximately $2-billion and extended its maturity to May, 2027, subsequent to the end of the quarter. Our exceptional performance and proven history of accretive deployment of capital allowed us to complete the upsize and extension with terms and conditions consistent with our previous facility, including leaving pricing the same despite increased funding costs over the last year for financial institutions. The extension and upsizing of our credit facility provides us with significant capacity to further invest in our existing businesses through growth capital expenditures and allows us to have significant financial capacity for accretive acquisitions. We continue to have a strong, liquid balance sheet, having no maturing debt until 2025 and our hedging program provides greater certainty for our cost of capital. As we progress into our strongest quarters, being the second and third quarters, we are excited about the future prospects of the corporation."

Outlook

Mr. Pyle concluded by saying: "Our investments in the manufacturing segment over the past 12 to 18 months have increased our diversification and helped to provide even greater financial stability and sustainability. Our performance in the first quarter exceeded our internal expectations, and with the expected contributions from our two recent acquisitions, the force multiplier contract and organic growth opportunities, we are revising our guidance from the previous range of $510[-million] to $540-million to $540-million to $570-million. We will be executing the integration of the recent acquisitions over the upcoming quarters and look forward to providing updates on their performance in the future. The consistent execution of our strategy, including making investment decisions for the long-term, continues to show in our results."

Exchange Income's complete interim financial statements and management's discussion and analysis for the three months ending March 31, 2023, can be found on the company's website or on SEDAR.

Conference call notice

Management will hold a conference call to discuss its 2023 first quarter financial results on Wednesday, May 10, 2023, at 8:30 a.m. ET. All interested parties can join the conference call by dialling 1-888-396-8049 or 1-416-764-8646 (international). Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until May 17, 2023, at midnight. To access the archived conference call, please dial 1-877-674-7070 or 1-416-764-8692 (international) and enter the encore code 591649 followed by the pound key.

A live audio webcast of the conference call will be available at the company website. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. An archived replay of the webcast will be available for 90 days.

About Exchange Income Corp.

Exchange Income is a diversified acquisition-oriented company, focused in two sectors: aerospace and aviation services and equipment, and manufacturing. The corporation uses a disciplined acquisition strategy to identify already-profitable, well-established companies that have strong management teams, generate steady cash flow, operate in niche markets and have opportunities for organic growth.

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