Mr. Mike Pyle reports

EXCHANGE INCOME CORPORATION POSTS RECORD SECOND QUARTER RESULTS AND SETS FOUNDATION FOR FUTURE GROWTH

Exchange Income Corp. has released its financial results for the three and six months ending June 30, 2023. All amounts are in Canadian currency.

Q2 financial highlights

• Generated record quarterly revenue of $627-million, an increase of $98-million or 19 per cent;
• Earned adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $147-million, representing growth of $32-million over the prior period or 28 per cent and setting a new second quarter benchmark for the corporation;
• Free cash flow second quarter record of $98-million compared with the prior period of $89-million;
• Second quarter record net earnings of $37-million, an increase of $7-million or 23 per cent, in spite of an increase in interest expense of $13-million. Net earnings per share of 85 cents was also a second quarter high as it increased 12 per cent from 76 cents;
• Second quarter adjusted net earnings of $43-million or $1.00 per share both of which are second quarter highs;
• Trailing-12-month free cash flow less maintenance capital expenditures payout ratio of 57 per cent stayed consistent with the prior period;
• Announced the awarding of two competitive process fixed wing medevac contracts for the provinces of British Columbia and Manitoba along with an aerospace contract with the United Kingdom Home Office;
• Finalized the agreement with Air Canada to provide regional air services in Eastern Canada and began to utilize existing aircraft to start flying under the contract effective July 1, 2023;
• Completed the previously announced acquisitions of Hansen Industries and BVGlazing on April 1, 2023, and May 1, 2023, respectively;
• Completed a $173-million bought deal offering of common shares which was increased from the initial announcement of $100-million based on the strong demand for its shares.

CEO commentary

"The increase in the size of our bought deal offering demonstrates the success of our diversified business model and our stakeholders trust in our collective businesses. Many investors think that our growth comes only from acquisitions, however when peeling back the onion one sees that we invest significant capital in our existing businesses through organic growth opportunities. This was demonstrated in the current quarter with the announcement that EIC and its subsidiaries were successful in competitive bid processes for the fixed wing medevac contracts in both British Columbia and Manitoba. The large contracts will require aggregate capital of approximately $275-million," said Mike Pyle, chief executive officer of EIC. "We continue to see strengthening in certain businesses within our aerospace and aviation and manufacturing segments which bodes well for our future. Our environmental access solutions and aircraft sales and leasing business lines experienced industry headwinds during the quarter, however we are extremely proud of our record quarterly results which demonstrates the resiliency and strength of our diversified model. The overall record corporate performance was achieved whilst the broader economy was experiencing difficulties and uncertainty from continued and persistent inflation, tightening monetary policy and corresponding increases in benchmark interest rates. Our businesses remain poised to grow organically, and Adam and his team have also been busy on the acquisition front as such economic uncertainty can lead to opportunity for ourselves due to our strong balance sheet. We continued to strengthen our available capital through the successful execution of the upsize and extension in our credit facility and were excited to see the institutional interest in our bought deal offering that was increased in size and completed during the quarter."

"The acquisitions of Hansen and BVGlazing, completed on April 1, 2023, and May 1, 2023, respectively, were highly strategic to our pre-existing businesses and met management expectations during the quarter. 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 at the end of the second quarter was approximately $1-billion. Both acquisitions were immediately accretive to our business model and both provide future synergies and growth opportunities to our pre-existing businesses," stated Adam Terwin, EIC's chief corporate development officer. "Our pipeline of opportunities continues to be as strong as it has ever been, however we remain disciplined in ensuring that we acquire companies with strong management teams and with sustainable, strategic business niches. We continue to work on projects in both the aerospace and aviation and manufacturing segments. The EIC story resonates with prospective vendors based on recent feedback received from both owners and their professional advisors. Such vendors see the value that EIC can unlock by continuing to support their management's success and entrepreneurial spirit while providing capital for organic growth as evidenced by our announcements this past quarter."

Review of q2 financial results

Consolidated revenue for the quarter was $627-million, which was an increase of $98-million or 19 per cent over the prior period. Revenue in the aerospace and aviation and manufacturing segments grew over the prior year, by $20-million and $78-million, respectively. Adjusted EBITDA for the quarter was $147-million, which was an increase of $32-million or 28 per cent compared with the second quarter of last year. The prior year also included $11-million of pandemic-related government support with no similar amounts received in the current period. The increase in the results were driven by continued improvement and growth in the operations in the aerospace and aviation and manufacturing segments, the acquisitions of BVGlazing and Hansen, and the acquisition of Northern Mat & Bridge, which was acquired on May 10, 2022, and therefore not included for the period from April 1, 2022, to May 10, 2022, in the prior period.

Revenue generated by the aerospace and aviation segment increased by $20-million or 6 per cent to $372-million and adjusted EBITDA increased by $22-million or 26 per cent to $108-million over the prior period, which also included $11-million of pandemic-related government support in the prior period. The most material increases related to passenger traffic due to previous growth capital investments and improved passenger load factors 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 along with the recently announced contract with the United Kingdom Home Office. 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 as the previous period was characterized by record aircraft and engine sales. Such large aircraft and engine 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 44 per cent to $255-million for the quarter and adjusted EBITDA increased by $10-million or 26 per cent to $49-million. The acquisitions of BVGlazing and Hansen during the second quarter of 2023 along with the acquisition of Northern Mat & Bridge in May, 2022, were significant contributors to the increase. The company's environmental access solutions business continues to exceed the financial metrics on which it was acquired and the second quarter was no exception. The prior-year comparative represented record results from the unique alignment of price, supply, demand and weather. Demand and pricing has moderated toward historical norms as compared with the unique market conditions experienced in the prior year. The vast majority of the manufacturing segment's remaining operations continued to improve, resulting in increases in both revenue and adjusted EBITDA over the prior period.

EIC recorded adjusted net earnings of $43-million, or $1.00 per share, compared with $39-million, or 98 cents per share, in the second quarter of last year.

Carmele Peter, president of EIC, said: "The Canadian and U.S. economies are experiencing uncertainty, however our businesses continue to be resilient. Whilst certain of our businesses are continuing to recover, our remaining portfolio of businesses are experiencing record or near-record results. Our essential air services, which provide essential service to Canada's Northern and remote communities and medevac services across Canada, continued their strong performance from the first quarter as previous growth investments and improved load factors are positively impacting profitability as highlighted in our results. Further, our recently signed regional air service agreement with Air Canada will expand our airline operations in the Maritimes later this year. The announcement of the contract with the United Kingdom Home Office by our aerospace business demonstrates our international credentials and expertise. Furthermore, the announcement of the fixed wing medevac contracts in British Columbia and Manitoba show our strength and experience in the medevac sector and is just one of the most recent examples of organic growth opportunities at our subsidiaries. The manufacturing segment continues to grow in both revenue and profitability as well. We are very proud of our management teams and their successes.

"We are not resting on our laurels. Each of our management teams are focused on longer-term trends and macroeconomic factors within each of our business lines. We are actively attracting, training and retaining employees throughout our subsidiaries to fuel those growth strategies. For example, we are starting to see successes and wins in our attraction and retention of pilots and aircraft mechanics. Our companies collectively employ over 7,000 team members and we are extremely proud of our collective accomplishments to date, however, we are even more excited about our prospects."

Richard Wowryk, EIC's chief financial officer, also noted: "Broadly speaking, Canadian and U.S. interest rates reached 20-plus-year highs in the most recent quarter. Fixing our interest rates on approximately 67 per cent of our debt has proven to be a very timely decision in retrospect. The execution of our bought deal of common shares during the quarter demonstrates the market's confidence in our business and our business model. The bought deal, in combination with the refinancing of our credit facility, provides the company with significant capital to deploy for organic growth and to fund future acquisitions. Our balance sheet and our modest leverage will allow the company to continue to grow into the future."

Outlook

Mr. Pyle concluded by saying: "Upon reflecting on our second quarter results, we can see the power of our diversification and our business model. Our acquisitions coupled with continued investment in growth opportunities in our existing businesses has set us on a path to reaffirming our previous guidance of adjusted EBITDA of $540-million to $570-million for fiscal 2023. Our management teams will be busy over the next number of quarters maximizing the efficiencies between the businesses we acquired and readying our essential air services business lines for the acquisition of medevac and passenger aircraft to fulfill our contractual wins. The consistent execution of our strategy, including making investment decisions for the long-term, continues to show in our results."

EIC's complete interim financial statements and management's discussion and analysis for the three and six months ending June 30, 2023, can be found at the company website or at SEDAR.

Conference call notice

Management will hold a conference call to discuss its 2023 second quarter financial results on Friday, Aug. 11, 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 Aug. 18, 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 510372 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, aviation 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.

We seek Safe Harbor.