Exchange Income Corp

TSX:EIF

Q3-2025 Earnings Call

[Operator]

Good morning, everyone. Welcome to Exchange Income Corporation's conference call to discuss the financial results for the 3 and 9 months ended September 30, 2025. The corporation's results, including the MD&A and financial statements, were issued on November 6, 2025 and are currently available via the company's website on SEDAR+.

Before turning the call over to management, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking statements within the meaning of the safe harbor provisions of Canadian provincial securities laws. Forward-looking statements involve risks and uncertainties and undue reliance should not be placed upon such statements. Certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements.

For additional information about factors that may cause actual results to differ from expectations 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. Except as required by Canadian securities law, EIC does not undertake to update any forward-looking statements such as statements speak only as of the date made.

Listeners are also reminded that today's call is being recorded and broadcast live via the Internet for the benefit of individual shareholders, analysts and other interested parties.

I would now like to turn the call over to CEO of Exchange Income Corporation, Mike Pyle. Please go ahead, sir.

[Michael Pyle, executive]

Thank you, operator. Good morning, and thank you for joining us on today's call. With me today is Richard Wowryk, our CFO, who will speak to our quarterly financial results, along with Jake Trainor and Travis Muhr, who will speak about our outlook for our two operating segments.

Yesterday, we released our third quarter results for 2025, which were very strong overall. We set all-time quarter high watermarks for all of our key financial metrics, including revenue, adjusted EBITDA, net earnings, adjusted net earnings, free cash flow and free cash flow less maintenance capital expenditures. We also set highs for our basic and fully diluted share metrics for virtually all of our KPIs, despite the fact that our share count has significantly increased during the past 12 months due to the redemption of 3 classes of our convertible debentures, coupled with the shares issued for our acquisitions. This demonstrates the performance of our underlying businesses.

Subsequent to quarter end, we called our last remaining convertible debenture, which was originally due in 2029. And by the first week of December, we will have no convertible debentures in our capital structure. In short, our balance sheet is simplified, delevered and very liquid with total leverage near all-time lows. Rich will talk to the record financial metrics later in the call, but I wanted to delve further into the more significant quarterly highlights along with some of the forward-looking remarks included in our 2026 guidance.

The third quarter was the first period which included the financial results from the highly strategic acquisition of Canadian North. The acquisition cemented our position as the foremost expert in Northern aviation, and the results during the quarter were consistent with our expectations. The profitability and the passenger cargo business of Canadian North are reasonably similar and will ultimately match that of Calm Air and our other air operators. As I previously communicated, Canadian North also has a large charter operation that flies on paved runways and utilizes 737 aircraft with a much lower margin profile than the Northern Air operations, which explains some of the outsized increases in revenues.

The majority of the aircraft serving up the business are leased. And therefore, as these contracts wrap up, we will be evaluating that specific business component to assess its returns and see whether they meet our requirements.

Taking a step back, the integration of the business is proceeding consistent with our plan that was developed during the due diligence process. The new long-term air services agreement provides future profitability and certainty as the contract is modified both up and down for aviation-specific inflation factors. Significant process has started in adjusting the cost structure of the underlying operations, including the renegotiation of buyer arrangements. Our other air operators and aircraft sales and leasing have been working with Canadian North to identify operating efficiencies along with the purchase of spare parts and engines to improve the liability of the fleet long into the future.

The inclusion of the 737 fleet provides Regional One an opportunity to attend 737 university, learning about the value of its parts and may provide it with another engine and parts business-like an opportunity in the future. Overall, I'm very happy with the progress made to date, and we expect by the latter course of 2026 the profitability and free cash flow returns of Canadian North will meet our requisite requirements.

The remainder of our Aerospace & Aviation segment had a very strong quarter. The second quarter did have some challenges associated with wildfire activity in Manitoba and Ontario. However, the load factors returned partway through the third quarter and the underlying business was performing very strong during the quarter and as we exited the quarter. We remain very positive about each of the business signs within the segment. And our aircraft sales and leasing continued to see step-based improvement in their aircraft and engine leasing portfolio, and we made some significant investments into the fleet that we'd signaled during the second quarter call.

The business line also had a number of opportunities to sell whole aircraft and engines during the third quarter. Those large sales are generally at higher dollar values but with lower margins than our traditional part business, and it provides further evidence of the demand for aircraft sales and leasing single-aisle turboprop jet niches. Our Aerospace business continues to see significant demand signals both domestically and internationally. We are at the intersection of a number of megatrends in Canada.

The focus on meeting NATO defense spending targets, coupled with Northern sovereignty means there are tremendous opportunities for EIC as a whole. Our infrastructure in the North is second to none. And as we already perform ISR services for the federal government along the East and West Coast, we believe there are opportunities to expand these services into the North. We know that the government is facing human capital and infrastructure shortages. With our relationships with indigenous communities, coupled with our Northern aviation expertise and infrastructure, we believe that we are uniquely suited to provide a solution to the government.

We are excited about this opportunity along with the opportunities immediately before us with other countries. Our Netherlands and U.K. operations have positioned us as a global expert in ISR, and countries are actively calling us to inquire about our services.

The megatrends are also providing us with tailwinds in our other business lines. Focus on critical minerals, resources and precious metals is anticipated to drive demand for fly-in, fly-out services in our air operators, coupled with the demand for our Environmental Access Solutions business line as companies will be required to build access roads to protect ecologically sensitive areas. Furthermore, the focus on artificial intelligence and data center is driving demands within the transportation sector.

Our North American electrical grid system requires significant maintenance, improvements and enhancements to handle electrification requirements of the future, whether it be from data center demands or from households or transportation. This is a tailwind for both the Canadian wooden and U.S. composite operations in our Environmental Access Solutions business line.

We continue to see significant demand in composite matting. We have effectively sold out all of our production into 2026 because of the demand of our best-in-class System7-XT mat. We're in the final stages of selecting a location and are actively negotiating with a lessor for the installation of a new state-of-the-art plant. We anticipate the plant will be up and running in about 18 to 24 months and will require an investment of approximately $60 million. The demand for composite matting is ever increasing due to its advantages over wood mats and transformation at distribution sector. coupled with increased transition from wooden mat users across the United States.

Lastly, data centers and AI are also driving demand in our Precision Manufacturing and Engineering businesses as we provide ancillary products, including cooling stainless steel tanks, hydraulic load cell testing capabilities, chip and wireline services.

We have been transparent that our Multi-Storey Window business continues to be the most challenged business line due to the impact of aluminum tariffs, deferrals and projects and our strategic decision to retain skilled workers and staff over the shorter term. We are still seeing elevated number of inquiries. However, developers remain uncertain in booking projects as they're awaiting government clarification on interest rates and anticipated reductions in development costs. Capital exists developing these projects. However, the capital remains on the sidelines until these uncertainties further abate.

The long-term economics demonstrate the need for affordable housing across North America, and we are seeing a shift from condo projects to apartments in Canada. We are still bullish on the longer-term trends and we are seeing positive developments in certain markets across the continent. These challenges in this business line are included in our current financial results and are also included in our 2026 guidance.

Looking back at the quarterly record results, these were generated while there continue to be significant uncertainty in various markets. However, EIC as a group of company is at the foremost of a number of emerging trends. When Adam and team buy companies, we focus on the sustainable niches and their management teams. Our secret sauce at EIC is maintaining the culture at these companies and unleashing the entrepreneurial spirit that made these companies successful prior to joining the EIC family. Because of that, I'm excited that our future opportunities as each management team is energized to execute on the many strategic opportunities that are before us.

I will let Rich focus on the financial results for the operating segments. However, before passing off the call, I wanted to update you on contract opportunities. During the fourth quarter of 2024, we submitted our proposal to the Australian government for their maritime surveillance contract. We previously anticipated here in the results by the end of the third quarter as their May election delayed the bid evaluation process for a period of time. We have recently been advised that the evaluation process is not yet complete.

As I previously commented, we believe we put together a very strong bid and we expect to have as good a chance as any other bidder. Due to the timing of getting the assets ready for the contract to start in 2028. We still anticipate the government will have to make a decision by early 2026. As I mentioned, this contract would be a home run of sorts. However, in my prepared remarks, there are a number of other opportunities that would approximate the size of Australia. I'm happy to report that our second aircraft for the U.K. Home Office has been fully modified and has started flying missions in the fourth quarter.

Flying with a strong tempo, we have received great feedback from the U.K. and other countries who have utilized the aircraft. We crossed another milestone of being a $4 billion equity market cap during the quarter. As we continue to grow and tell our story, investors will see the immense amount of opportunity before us. We are still the same company. We will be very disciplined in our acquisition and organic growth investments. I'm very proud of the progress made by our various teams, and I'm excited about the future of EIC.

Due to the strength of our underlying results and per share metrics, we have made the decision to increase our dividend from $2.64 per annum to $2.76 per annum. This increase in dividend is consistent with our stated commitment to our shareholders to provide stable and growing dividend and is ultimately driven by the increases in profitability and free cash flow, along with our outlook for the future.

The dividend increase of 5% continues to represent a lower proportion of our earnings as our earnings and adjusted net earnings grew by approximately 25% on a year-to-date basis and grew by 17% on a year-to-date basis on a per share basis. As such, less than 1/3 of the capital generated by this profitability was directed to increased dividends, thereby reducing our payout ratio. Lastly, the dividend protects the purchasing power of our shareholders due to inflationary effects held by all.

The demand for our services and products is robust. Jake and Travis will focus on the outlook for our segments for the balance of 2025. However, before passing the call over, I want to speak about our 2026 guidance. We anticipate that our adjusted EBITDA will be between $825 million and $875 million for fiscal '26. This estimate is based on the portfolio of companies that exist today and do not include any new acquisitions, significant contracts or significant growth capital expenditures other than what exists today. We have a track record of executing on our strategic initiatives in the past and we are confident in the future. I also wanted to reconfirm our guidance for 2025 with an adjusted EBITDA range of $7.25 to $7.65 with a bias to the midpoint of the lane.

I will now pass the call over to Rick.

[Richard Wowryk, executive]

Thank you, Mike, and good morning, everyone. For the third quarter of 2025, revenue of $960 million, adjusted EBITDA of $231 million, free cash flow of $171 million, free cash flow less maintenance CapEx of $88 million, net earnings of $69 million and adjusted net earnings of $76 million were all quarterly high watermarks for EIC's quarter. Almost all of the third quarter per share metrics were also quarterly high watermarks, which is even more impressive when you take into account the additional shares that were issued over the past 12 months for the convertible debenture conversions and acquisitions.

Revenue in our Aerospace & Aviation segment increased by $247 million or 57% to $680 million. Adjusted EBITDA increased by $46 million or 30% to $202 million. Revenue growth outpaced adjusted EBITDA growth due to changes in product mix at our Aircraft Sales & Leasing business where they monetize certain large aircraft and engine sales during the quarter along with the inclusion of Canadian North's charter revenue, for which adjusted EBITDA margins are lower than our Northern Air operators passenger and cargo businesses.

Looking at the Essential Air Services business line, the improvements were driven by a couple of key factors: the acquisition of Canadian North, increased demand, contract scope and price increases in our medevac contracts and improved load factors after the wildfires subsided and operations normalized. Our Aerospace business line revenues were consistent with the prior period and profitability was slightly lower due to changes in product mix.

Our Aircraft Sales & Leasing business line increase in revenue and profitability was driven by continued improvement in leasing activity and robust parts demand. We also saw significant increases in large asset sales compared to the prior period. As a reminder, those assets are generally lower margin and lumpier than our traditional parts business.

Revenue in our Manufacturing segment increased by $3 million or 1% to $279 million. Adjusted EBITDA decreased by $6 million or 12% to $45 million. Our Environmental Access Solutions business line had increased revenues and adjusted EBITDA driven by the acquisition of Spartan, which continues to have a significant demand for its composite mats. As previously discussed, the Spartan team is in the final stages of designing a new plant as the longer-term secular demands have demonstrated our need to increase capacity.

In the Canadian market, we saw a decrease in adjusted EBITDA due to customer deferrals and projects into the fourth quarter and into 2026. As expected, our Multi-Storey Window Solutions business revenue and profitability decreased due to customer deferrals and related production gaps. Profitability was further negatively impacted by aluminum tariffs. We are continuing to see significant activity. During the quarter, we booked a number of projects. However, the geography and pace of bookings continues to be sporadic as there's developer uncertainty to anticipated changes in government regulations and further clarity on interest rate environment, including mortgage rates.

Our Precision Manufacturing and Engineering business line had another solid quarter from a revenue and profitability perspective. It was driven by customer demand across several industries, including telecommunications, technology, resource and data centers.

Overall, net earnings were $69 million for the third quarter, which was an increase of $13 million or 23%. The higher EBITDA partially offset by increased depreciation and amortization through the Canadian North acquisition, which was expected due to the significant asset backing and growth in capital investments made over the past number of periods. Earnings per share increased to $1.32 per share compared to $1.18 in the prior period.

Adjusted net earnings were $76 million compared to $61 million in the prior year with an increase in adjusted net earnings per share from $1.29 to $1.46 per share. Free cash flow was $171 million compared to $136 million in the prior year. Free cash flow per share increased from $2.86 to $3.30 per share. Free cash flow less maintenance capital expenditures was $88 million compared to $81 million in the comparative period. Main capital expenditures during the third quarter of 2025 were $83 million compared to the prior year of $55 million.

On a 9-month basis, main capital expenditures were $205 million compared to $142 million in the prior year. Q1 the prior year was an anomaly on the low end due to the timing of maintenance events. The increase in the current year is due to three parts: first, the elevated maintenance capital expenditures at Canadian North as we expected and previously disclosed; secondly, the timing of events occurring; and lastly, the changes in the policy based on utilization of aircraft and engines in Aircraft Sales & Leasing as a discussed in the first quarter, which saw us switch to a more conservative policy as fleet utilization increased.

Growth capital expenditures during the third quarter were $128 million compared to the prior year at $93 million. The third quarter growth CapEx primarily related to Carson Air, the construction of an Ottawa hangar for Canadian North and the execution of growth capital purchases at Aircraft Sales & Leasing. We noted during the second quarter, a significant amount of deposits were made, and we executed on certain of those transactions during the quarter, which more than offset negative growth CapEx from the second quarter.

From a working capital perspective, we had a recovery of approximately $3 million and investment of $37 million for the 3 and 9 months ended respectively. Subsequent to quarter end, we collected two large receivables totaling approximately $25 million. We are actively managing our working capital and working with each subsidiary team to convert working capital into cash. Our corporation aggregate leverage, assuming that the convertibles of interest called subsequent to quarter end materially convert, would be 2.89x. Our aggregate leverage ratio remains historic lows and well within our target.

We continue to have significant liquidity available to us. Our balance sheet is very strong and including cash on hand and the accordion feature within the credit facility, we have approximately $1.2 billion of capital available to be deployed. This allows us to execute on growth opportunities and acquisitions that are accretive and meet our disciplined financial metrics. Our view of leverage and our disciplined approach to acquisitions and organic growth investments have been constant over the years and they will continue to serve us well into the future.

Within our third quarter results, the preliminary purchase equation for Canadian North has been included. As discussed previously, the acquisition is significantly asset-backed. Preliminary goodwill that is recorded is entirely attributed to deferred taxes. Hard assets account for more than 100% of the purchase price. This level of asset backing drove depreciation up materially in the quarter.

I will now turn the call over to Jake who will provide an update for the 2025 remaining outlook for Aerospace & Aviation.

[Jake Trainor, executive]

Perfect. Thank you, Rich. Travis and I once again split up the outlook section. I'll focus on Aerospace & Aviation segment and Travis will provide context on our Manufacturing activities.

Overall, we're expecting a strong last quarter of growth from a revenue and adjusted EBITDA perspective from our Aerospace & Aviation segment for several key reasons. The most significant driver is the acquisition of Canadian North. The Canadian North operations met our internal expectations for the third quarter, and we anticipate continued performance during the fourth. Our integration activities have been progressing in accordance with our plans and timelines. We should start to see further improvement in operating margins as we move into 2026.

There will be further investment in maintenance capital expenditures on the fleet, including spare parts, engines and overhauls during the next few quarters. Secondly, we anticipate further strengthening of results due to growth capital investments made for the contractual wins announced over the past few years, including contributions from the U.K. Home Office second aircraft, which has started operations early in the fourth quarter. The operating returns associated with the fixed wing Newfoundland & Labrador medevac contract operations will start becoming evident in mid-2026.

Our Essential Air Services business line will see growth driven by a multitude of factors when compared to the prior Q4. The first and most significant will be the addition of Canadian North. We also anticipate strong load factors and growth across our network. And lastly, we expect continued growth in our medevac business because of strong yields, coupled with increased scope and price compared to last year. We have received 7 of the 12 new King Air 360s to date with another aircraft expected in the fourth quarter, and we'll use the previous BC aircraft to redeploy through our other operations, including the Newfoundland & Labrador fixed-wing medevac operations, which will further enhance our returns.

Offsetting some of these gains is the impact of continued labor shortages and supply chain challenges. We're not seeing a worsening of these dynamics. However, the challenges still remain specifically on aircraft parts and consumables.

The Aerospace business lines revenue and EBITDA are expected to increase in the fourth quarter relative to the prior year driven by the second aircraft deployed onto the U.K. Home Office contract and continued strong tempo of flying for other owned ISR assets. Our Aircraft Sales and Leasing business is also expected to experience growth as we start to lease out assets acquired during the quarter. When we deploy capital in this manner, it does take a period of time to ready the aircraft and enter into lease contracts with customers. Furthermore, we continue to see very strong demand for parts sales and whole aircraft and engine sales. The environment for Aircraft Sales & Leasing remains.

Taking a step back, I want to focus on the strategic benefits of Canadian North transaction for the longer term for EIC as a whole. We believe that the Canadian North infrastructure and aviation assets, coupled with our existing operations provide us with a unique offering to meet the development needs of the North. As the Canadian government renews its focus on development and security at North, EIC's comprehensive portfolio, including advanced aerospace capabilities, sovereign Arctic aviation, medevac solutions, defense enabling infrastructure and in-country defense manufacturing as well as our extensive network of partnerships with indigenous communities uniquely position the company to lead and support these critical initiatives. We're having discussions with the government and our customers about how EIC can support them.

We expect maintenance capital expenditures to increase for a number of reasons. Firstly, due to the addition of Canadian North, we noted that the first year returns are expected to be muted due to higher-than-normal maintenance CapEx expenditures required. When we negotiated the purchase price, we took into account the projected maintenance capital expenditures and it ultimately was factored into our purchase price.

Secondly, maintenance capital expenditures are expected to increase in line with increases in adjusted EBITDA for our Aerospace & Aviation segment. Additionally, increases in maintenance capital expenditures related to our Aircraft Sales & Leasing business due to continued strengthening of utilization in our lease portfolio and the impact of the more conservative change to the calculation of maintenance capital expenditures adopted in 2025.

Lastly, this quarter's maintenance CapEx expenditures in Essential Air Services were below our internal expectations due to the timing of certain maintenance events.

Growth investments in the remainder of 2025 include capital expenditures for one new King Air aircraft, which we use in the BC medevac contract. The remaining aircraft for this contract have been pushed into 2026 due to the manufacturer delays. Regional One has placed deposits on certain aircraft assets and anticipate executing on aircraft and engine transactions during the fourth quarter.

I'll now pass it off to Travis to provide some commentary on the Manufacturing segment.

[Travis Muhr, executive]

Thanks, Jake. We're anticipating continued growth in our revenues and profitability for the Manufacturing segment for the fourth quarter compared to the prior year. This growth is expected for two reasons. Firstly, we're seeing our customers normalizing the fact that uncertainty will continue to persist in the economy. However, investments and purchases will be required to maintain industrial capacity and, therefore, we anticipate the recognition of sales that were pushed from earlier in the year. The second is the continued strong results from Spartan in our Environmental Access Solutions business line as Spartan was acquired in early November 2024 and they continue to see significant demand for their products.

All of the businesses within the Manufacturing segment continue to experience strong levels of customer inquiries. The impact of the tariffs has resulted in reduced business confidence, which has deferred customer investment purchase decisions throughout 2025. To be clear, we have not been directly impacted by the tariffs, except for the aluminum tariffs impacting our Multi-Storey Window Solutions business line during the second and third quarters. The vast majority of our products that we produce are compliant and therefore, the broader risk of tariffs relates to the declining business confidence and supply chain changes, which do take some time to effect.

Our Environmental Access Solutions business line is expected to generate returns higher than the comparative periods for the fourth quarter. Spartan continues to experience very strong demand for its composite mat solutions, and we are anticipating that they will continue to sell into their manufacturing capacity based on feedback received from their customers on their System7-XT and FODS mats. Due to the strong demand for its composite mats, we are finalizing a location and final pricing to build the second state-of-the-art plant, as discussed by Mike. We see long-term positive trends in the composite mat industry as the geographic and sector usage continues to expand and take market share away from the traditional wood map industry in the United States.

We've seen some deferrals and project start dates in Canada, and we anticipate those projects commencing in the fourth quarter and into 2026. We've talked a lot about our bullish view on the transmission and distribution sector as electric grids have to be expanded and hardened for the new electricity demands, whether it be from data centers, vehicles or homes. With the Build Canada mantra of the federal government and fast tracking of nation-building projects, we also see several tailwinds for the traditional oil and gas and pipeline business within that business line.

As expected, our Multi-Storey Window Solutions business line revenues and adjusted EBITDA will be lower than the comparative periods. The period-over-period declines are expected due to the heightened interest rates in 2023 and into 2024 that resulted in reduced project manufacturing for 2025. Secondly, for the project scheduled for 2025, we anticipated margin pressures due to the type of projects booked coupled with production gaps. We've integrated the manufacturing capacity in Canada by combining manufacturing facilities and have made the strategic decision to retain skilled staff during this downturn. We also highlighted that the business line was negatively impacted by tariffs during the quarter.

As discussed in our reporting, we cannot alter the supply chains in the short term. In the longer term, we'll be able to mitigate the tariffs and optimize production. Quoting in Canada and the U.S. continues to be very active across several geographies. As discussed at last quarter's call, we were successful in booking well over $100 million of new projects across various geographies and project types within the business line. We remain very bullish on this business line as the longer-term fundamentals, which drive demand being an acute shortage of affordable housing, remains very strong across several geographic regions in Canada and the U.S. This shortage has been highlighted by several government officials on both sides of the border.

The Precision Manufacturing and Engineering business line is expected to improve from a revenue and profitability perspective for the fourth quarter compared to the prior year. We're seeing strength across various sectors, including telecommunications, technology, resource and data centers industries along with sector tailwinds in the defense industry. We're anticipating growth capital expenditures to be incurred. So the growth capital expenditures in the Environmental Access Solutions business line will depend on the market dynamics. However, we do anticipate investments due to the demand expectations in 2026 due to the revised project start dates and anticipated opportunities.

I'll now pass the call back to Mike.

[Michael Pyle, executive]

We're very encouraged about the state of our business. EIC lies at the intersection of a number of positive and sustainable tailwinds in the Canadian and global economy, which will drive our results long into the future. Our 2026 guidance represents the collective investments we have made in our business. However, to be clear, it does not include any amounts related to future acquisitions, new contracts or significant growth capital expenditures for new contracts. EIC will continue to be a company characterized by resiliency and stability as the core of who we are we buy great companies and help unlock entrepreneurial power within those businesses.

Thank you for your time this morning. And we would now like to open the call to questions. Operator?

[Operator]

[Operator Instructions] And your first question will be from Steve Hansen at Raymond James.

[Steven Hansen, analyst]

Frankly, it feels like there's a couple of ways for you to benefit from Canada's new focus on North, be it military or otherwise. How do we think about, though, the government overlay with all this and the timing? What I'm trying to understand is ultimately is like where do you think we'll start to see the benefits first and over sort of what time frame?

[Michael Pyle, executive]

That's a tough question to start the morning, Steve. We do the maritime surveillance for Canada on the East and West Coast. Canada has historically not felt the need to surveil the North. That's clearly changed. All 3 political parties in Canada have talked about the need for military bases and the need to look after the North. With our acquisition of Canadian North, we now have the infrastructure across Canada's arctic to enable us to move very quickly to stand up maritime surveillance operations.

We've met with the government. I would say that the discussions have been very positive. I would suggest that there's support across the government, whether it be in the PMO, the Defense Minister, the Procurement Minister or I think, more significantly, in the Canadian military. They acknowledge that they're stretched with all the other things they're doing, the future strike fighters, the Canadian -- the search and rescue planes. They can't take on new project. And so the advantage we bring on this is we will bring them a service. All they've got to do is tell us how much and when.

And so while it's difficult for me to make a prediction for a government, I think this is something that's actionable within weeks or months, not years. And so for us to be able to announce something next year, I think, is a reasonable time line. Again, this is dependent on the government. So we're not sure we're active working with them but we're excited about the opportunity. And quite frankly, one of the things we love about it is we've built all the information technology conduits to deliver the data to the government and to the departments of the government.

So our ability to stand this up would be much easier than, for example, when we went into the Netherlands or when we went into Britain where we had to build that infrastructure or if we will win in Australia. It's really just a bolt-on in Canada. So the next year, I think, is a reasonable target to hear something on that.

But the other thing I'd point out is it's much more than that. It's not just the IFRS. We're going to build -- we don't have anywhere to land the F-35s up North. We need to build runways. We need to build military bases. Well, as the people and professionals that are going to go into those communities, they're going to be coming in, whether it be on Calm Air, if they're building in Rankin or in Canadian North if they're building in Yellowknife or building in [indiscernible]. And so we're going to see part of the benefit of this through our scheduled airlines.

You're also going to see it as more and more development of particularly critical minerals that exist in Nunavut. The charter operations to bring employees in and out of those are also going to be done through our bases and our dominant position in the North. I would like to say that when we started discussions with Canadian North over a year ago, closer to 2 years ago, we saw this coming with the movement towards a much greater investment in defense. But we did -- we saw it just based on the pure business, the pure stuff that we're used to doing for the last 50 years up there. The addition of this turns what was a good deal into a great deal for us.

[Jake Trainor, executive]

Steve, it's Jake. One other comment I think just outside of the defense and security initiatives by the Canadian government. You hear a lot of discussion in the budget about infrastructure and nation building. Again, we have very positive exposure whether that's pipelines, whether that's port infrastructure. A lot of the building that's related to, let's call it, the nonspecific defense matters, we have positive exposure to. So again, we're feeling very good about a number of the initiatives and working with the Canadian government and obviously the provincial governments as well.

[Steven Hansen, analyst]

Appreciate the color. And hopefully, we can get going on building some stuff. Just one follow-up for me is just around the Regional One. It's been active there's constraints in the system still and you've made some additional investments there. Is that a business that will continue to have opportunities through next year? It sounds like the broad thematics there are quite strong. But I just want to get a sense for how your thoughts are in the '26 on that business specifically.

[Michael Pyle, executive]

Yes. Regional One has become such a player in the market it's in. Their growth in terms of whether it's part sales, which are very predictable and reliable quarter-to-quarter, whether it's leases which are also very reliable quarter-to-quarter, or whether it's the stuff that's a little bit more lumpy like we had this quarter. Maybe I'll just touch on something here that our revenue in Regional One in this quarter was up about 70% year-over-year because of sales of full aircraft. And those bounce around but the margins on those kinds of sales are lower. And so when you look at our overall margin profile for the whole company, margins aren't down in aviation. It's just product mix.

We're selling -- in this quarter, we happen to sell more full aircraft, which have good profit in them, but they're lower margins than if I sell the planes in pieces. And so when you look at Regional One, don't extrapolate that kind of revenue growth. But the core EBITDA growth, which takes into account earnings in all 3 segments, is going to continue to grow. Our market position is going to grow. And while I wouldn't promise you this for 2026, it will start there.

The ability to trade the 737 marketplace is coming. We just bought 20 years of data from Canadian North about the value of every part on those planes and we're now selling parts to ourselves. Canadian North is taking Regional one to 737 University, very similar to what we did when we moved into the Embraer portfolio about 10 years ago. You're going to see the opportunity for a massive amount of growth in the future in Regional One as we internalize the knowledge required to be a trader in the parts of the 737. And we'll use the business model that's proven so successful in Regional One over the last 10 years.

I'd point out for the people who don't know it, we bought Regional One in 2013, and it was doing about $16 million in EBITDA. We'll be close to 10x that this year in Canadian dollars, and we'll continue to see that grow in the future.

[Operator]

Next question will be from Cameron Doerksen at National Bank.

[Cameron Doerksen, analyst]

I guess I want to have, I guess, a little more detail on the 2026 guide. I mean, obviously, you've got very good visibility. So I would say, high confidence, not to put words in your mouth, high confidence in the low end of that range. I guess, what gets you to the higher end of the guidance range? Like what has to happen with the various businesses to get you to that 875 level?

[Michael Pyle, executive]

It's really the high end would be driven probably by acceleration in the Canadian environmental matting space. We see a whole bunch of very positive trends there. There's a super cycle beginning, formatting with the things that need to be done for T&D work, and -- so the T&D, transmission and distribution of electrical power. So there's earnings power there. There's also massive earnings power sitting in the window business. The window business, it's essentially breaking even.

It's not making a material contribution. That business will make $50 million plus just in a normal market, not in a strong market. And there's easily another $20 million or so available in the Canadian matting business. So just those two things would take you above the top end of the range. And continued improvement and wins in contracts because, quite frankly, we fully anticipate winning things that aren't in the guidance we give. We tried to be consistent and not guessing what we're going to win before we get it.

And so to get beyond that, more contract wins, whether it be an ISR or in medevac or even more charter work in our Aviation business could push us up and beyond that.

[Richard Wowryk, executive]

And the other thing that Jake talked about in his prepared remarks is just the timing it takes between acquisition and deployment of certain leased assets, the Regional Ones. So as that -- if you deploy those assets sooner than you expected, that would help. And as we've seen over the last 18 months, step-based improvements in our lease occupancy rates at Regional One. If you had continued improvement in that above what we're expecting, that would also drive you closer to the top end of the range.

[Operator]

Next question will be from James McGarragle at RBC.

[James McGarragle, analyst]

So just on the '26 outlook, you mentioned it doesn't include M&A, any contract wins or any incremental growth CapEx, but you alluded to a lot of those things in the press release and in your prepared remarks. So just following up there specifically on M&A and some of Adam's comments in the press release. Can you just talk about what the pipeline looks like now? And anything that we could expect early in '26 that could potentially represent some upside to the guidance you gave?

[Michael Pyle, executive]

Yes. I mean, I'm really a little disappointed in Adam. We closed Canadian North and he hasn't done anything since. So we'll get them off his a** and working again. I'm, of course, being fictitious. We've got a couple of interesting things ticking in aviation, things that are tangential to what we do. I think if we're successful, they would be kind of like the market's reaction to Canadian North or that makes a lot of sense, we should have saw that coming. Nothing though, James, like we're going to close in the next 30 days. We're busy working on a couple of things. We're excited about it, but nothing imminent.

[Richard Wowryk, executive]

I think the other thing that's super exciting for us, James, is when you look at where our balance sheet is compared to where we were 12 months ago, we have significant capacity. Adam and his team do a really great job of finding really great deals for us, and we've positioned ourselves to be able to act on that quickly without needing to access the equity markets. Pro forma, our leverage is the lowest it's been in well over a decade, and we're very excited about the transformation of our balance sheet over the last 12 months and where that positions us to execute on the opportunities we see in front of us and the ones we hope we continue to uncover.

[Michael Pyle, executive]

And I think just one more thing as it relates to the balance sheet, James. I appreciate this is a very long-winded answer. But with the reduction in leverage and the continued growth of the business, I think that puts us in a strong position to tap the bond market in the future should we want further funding beyond our banks syndicate. The interest rates in the bond market are lower than what we pay. And I believe that we would be viewed as investment grade. So that's something we'll work on in the next year about getting that in place.

But I would point out also that the strength of our performance has brought in international banks looking to join our syndicate, whether they be from the United States or even Asia. So our ability to grow the syndicate in line with our business is also there. So we're not dependent on the public debt markets to grow either. So it's a super exciting spot for us with our balance sheet because we have so many options to fund growth when the right contracts come like in Australia win, like ISR for the Canadian government, those kinds of things. We're in a position where we can pull the trigger so fast.

[James McGarragle, analyst]

And just to follow up. You mentioned ISR. Obviously, the Australia, you talked about some opportunities in Canada and in the U.K. But can you just talk about the opportunity more generally? Because in the past, you've kind of flagged some other opportunities in Europe. So kind of where you see that going in the next couple of months and in the next couple of years and how you're positioned to maybe potentially have some wins outside of that Australia, outside of some of the Canadian opportunities that you've spoken about.

[Jake Trainor, executive]

Yes. James, it's Jake, and I can take that question. Again, two parts. First, there's opportunities with existing contracts. In every ISR contract that we have, we're in discussions in either expanding scope or scale of those contracts in terms of duration. Secondly, we're in discussions and well down the path with a couple of European governments, one, I'd like to say that we're close. And again, as Mike said, when this comes out, hopefully announced, it will sit there in the markets, well, yes, this makes sense. Absolutely.

So we're excited about that. We're talking to folks in Southeast Asia as well. Unfortunately, the instability in the world drives demand for greater situational awareness and thus ISR activities globally. So we're well positioned for that, whether it's directly positioned with aircraft or with sales of our software system on to unmanned aircraft vessels, land vehicles. So again, we're excited about the opportunities broad-based across that sector.

[Operator]

Next question will be from Matthew Lee at Canaccord Genuity.

[Matthew Lee, analyst]

Maybe back on Manufacturing. Just it feels like margins have been a little bit lower this year than we're used to seeing, especially given the success in the high-margin mat business. And I'm not holding to anything, but when you think about the medium term, where do you think the EBITDA margins of that business should be? And what has to happen to get there?

[Michael Pyle, executive]

I think over the medium term, you'll see material increase in the margins. It's really going to come from a couple of places. When the leasing of -- or the rental of mats in the Canadian market expands towards the end of next year, that's a very high-margin business. And so you'll see that drive margins. And then the other thing, quite frankly, is the window business. Right now, it has three big challenges. One, the work we booked in a couple of years ago, it's soft. It's at lower margins. Two, we're not efficiently running the plant at full capacity. And three, we're carrying people that we don't need based on today's level. So as that returns to normal, you will see us add tens of millions of dollars in margin EBITDA, and that basically flows through straight to the bottom line because there's no new capital required.

And so that drives the top line, drives increases in the margin line and it drives the EBITDA line. Those two things will be the main drivers, I think. When things were tough, to keep our people working, we took lower margin work in the window business knowing what was going on in the industry, wanting to keep our production. And people have left the industry. So as this turns back up, there's going to be less players and we're the best equipped one to deal with it. So -- and one of the things I really want to make sure people understand is EIC was built on the concept that not everything is going to be perfect at the same time. And so we're hitting targets. We're increasing dividends. I mean, we had 17% increase in earnings per share this quarter even with all the new shares from the conversion of the strengthening of our balance sheet with windows basically not in a position to help.

That's not going to be the same all the time. I can tell you at the beginning of COVID when the airline struggled, the window business carried us. And so you're going to see -- and you put on the window business, some more growth in the matting business drive the margins as we go forward. And whether that's -- that's likely not early next year, but it's coming out of next year into '27. And those lower margins in '26 are fully factored in to the guidance we've given.

[Richard Wowryk, executive]

Yes. And maybe just to add on the Access Solutions business. So that one is really, as we talked about, is like the deferral of projects that pushed out from Q3 into the fourth quarter and into early 2026. So we do anticipate sort of the expansion of margin as those mats go on rent. And then the long-term tailwinds about sort of the nation building and all that's going to require access matting. So very excited about the future.

[Matthew Lee, analyst]

Okay. That's helpful. And then maybe just a quick one, maybe for Rich. A philosophical question on maintenance and growth CapEx. When you think about refreshing the fleet for Canadian North, to me, it seems like it's to capture incremental revenue. So how do you think about that so that the new fleet of maintenance and growth CapEx?

[Michael Pyle, executive]

Maybe I'll jump in, Rich is just calculating something. When you look at Canadian North -- he's pulling up our actual numbers. The Canadian North investment, we knew that under the previous ownership, they made the decision to defer cash investments. And so they were renting engines instead of overhauling engines. They were doing -- so their planes were fully safe and fully maintained but they weren't doing them on a contractive basis because of capital restrictions. And so we've got engines overhaul. We've got landing gear overhaul. And that stuff is, by our definition, purely a maintenance CapEx. Now it's actually absolutely, in an absolutely transparent world, it's maintenance CapEx that we would have done over the last 2 years, not now. We're going to catch up.

And that's why I said we're going to take a little bit of a period to get to our 15% because we're going to make those investments. When we bought the company, we knew those investments were required. And so there's not a surprise here, but it's part of the process. But you're also hitting on a key other factor. There's opportunities within Canadian North to switch to a more of a combi fleet, get rid of some pure freighter aircraft and replace those with combination passenger/freight aircraft. That will take some investment. And to the extent we do that, we would view that as a growth CapEx because it's going to generate new revenue because of that investment.

It's not big dollars and we're not -- because bear in mind, you're going to trade off pure freighter capacity to buy the combi capacity. So there will be the investment in some aircraft, but that would flow through our growth line in the future. That's not part of the maintenance CapEx that was really factored into the purchase price when we bought the company.

[Richard Wowryk, executive]

I think the one other thing I would just point out when we're talking about capital, that's really pointed to your growth and maintenance split that Mike has already talked about, but just certain investment decisions that they've made over a period of time because of their capital-constrained nature, specifically finance leasing certain assets, we'll buy those out and did that during the third quarter. And just deploying our balance sheet, having a lower cost of capital than they had provided us with the opportunity to be a little more efficient.

But to Mike's point, the growth versus maintenance split, when we look at that, we've looked at it consistently with how we've looked at our ongoing businesses and notwithstanding that we had to take it on the chin a little bit for 6 to 9 months here. We thought that was an appropriate way to disclose it so that folks didn't think there was additional growth coming out of something that was really getting their fleets into a spot to drive that consistent cash flow.

[Operator]

The next question will be from Krista Friesen at CIBC.

[Krista Friesen, analyst]

I just wanted to touch on, I mean, obviously, there's a lot in the budget as it relates to the North and to defense. But do you have any comments around the accelerated depreciation in the budget and if that's something that you guys are excited about?

[Michael Pyle, executive]

Yes. I mean, the accelerated depreciation of the budget will let us maybe take on a couple of projects that might not have hit the threshold the way we wanted them to. So I'm not in a position to give you specifics yet. We've only had a couple of days with this and we've locked our rockstar tax department led by [ Marley ] into a room and they're working on a couple of these things. But it's very exciting for us that the government wants money to go back in to the Canadian economy and they want to be specifically Canadian.

And I just want to harken back to that ISR opportunity here because when you look at our ability to surveil, we would take a Canadian-made aircraft, the 2400. We put Canadian-made equipment on that aircraft. We'd adapted in Canadian facilities. We'd fly it with Canadian pilots out of Canadian facilities with investment from Inuit partners because this is taking place in the North. So I'm not sure we can have a better fit with what the government is trying to do than our ISR opportunity. And quite frankly, there is no one else in the country who could do this.

[Richard Wowryk, executive]

And I think one thing, Krista, just to point out, when we think about returns on an investment that we look at, we're always looking at a 15% unlevered pretax return. So while this won't change the way the returns that we're generating because we're going to continue to look at them the same way we always have since our inception, it will make the economics better for us to get the tax deduction faster.

[Krista Friesen, analyst]

Right. Okay. That makes sense. And then maybe just another one on the budget. I noticed there were comments there around Northern medical access. Is that something -- like will you guys play a role in that? Or are there conversations that you've had there?

[Michael Pyle, executive]

The discussions thus far are preliminary. But to be honest with you, I wouldn't suggest that we play a role, I would suggest we play the role. We have been the sole provider of medevac services to the Government of Nunavut for decades. And we're in the midst of negotiations now on a new long-term contract with enhanced services, intense care for the Northern people. And so yes, we will be smack out in the middle of that.

[Krista Friesen, analyst]

I appreciate the color. Congrats on the quarter. .

[Michael Pyle, executive]

Thank you.

[Operator]

Next question will be from Tim James at TD Cowen.

[Tim James, analyst]

My first question around, again, Canadian North. And Mike, you talked earlier on about kind of the charter business and the contribution from that here in the third quarter. It sounds like it was fairly meaningful. How do you factor -- and it sounds like you're kind of going through a bit of a review on the plan for that business and how strategically it fits over the long term. How do you think about or factor that decision into your guidance for next year? Or not to say that it's maybe material, but when we think about the guidance range, it probably has enough of an impact on that. Could you just discuss what's factored into that when you think about 2026?

[Michael Pyle, executive]

Yes. I mean, it's a really good question, Tim. The charter business in Canadian North is different than our charter business anywhere else. This is long-run 737 pavement-to-pavement that WestJet could do it, Air Canada could do it, Nolinor could do it. There's lots of people that could do it. And as a result, it's much more commodity-like. The margins are very small. And the contracts are old. And because the contracts are old, everyone knows what aviation inflation has been, the returns on the old contracts are very thin.

But at the same time, like the first LNG project is coming to a close. And so that means revenue from that will decline. That's factored into next year. But the margin impact is de minimis. Now we are in discussions with the people in terms of the second phase of LNG. And we could do that at a price that is acceptable, we will continue to do it. But the aircraft release, and if we can't do it at a return that matches what EIC wants to do, we don't need to do this business. We effectively didn't pay for it. And the reason I say that is we paid asset value and most of the aircraft that are utilized in this business are these aircraft.

So if we didn't win it at the right price, we would just move out of it. We'd have no losses and no write downs. There's nothing. But it's a big opportunity if our team is successful in negotiating new contracts to generate new EBITDA that isn't reflected. So it's got an upside, not really a downside. Did I answer your question?

[Tim James, analyst]

That's helpful. That is helpful, yes. My next question, just want to confirm two things quickly here, actually. The 2026 guidance came up earlier. You're not assuming any M&A in there or any sort of incremental growth CapEx. But does that guide take into account EBITDA from currently planned growth CapEx? I'm assuming that's the case, but not any unplanned additional growth CapEx that you may kind of announce or plan in the future. Is that the way to think about it?

[Michael Pyle, executive]

Yes. It includes the stuff that we're underway with this year. So we're just finished off our flight simulator for our King Airs in Winnipeg. That's going to generate revenue next year. So that's in there but it's paid for. It includes the Newfoundland contract of the medevac contract. It includes the additional aircraft that we've added to our leasing portfolio in Regional One, ones that are completed and the ones that will close during the fourth quarter. So there's nothing in there for growth beyond the start of the year. Whatever we add to that will be additive to the guidance.

One of the things we like to do, and this is very cultural within EIC, and I appreciate we might be a bit of an outlier on this in the public markets, is I don't want my team's feeling any pressure that we need to X dollars to get to our budget. We don't have to invest anything to get to our budget other than our maintenance CapEx and finishing the projects we've already started. So when we get, for example, the Spartan plant up and going, that's going to cost us $60 million or-so, but that's 100% additive to the guidance when it gets up and running. It's not a 2026 example.

Adam has no targets for acquisitions. He has returns he needs to generate when he finds one. But that way, when we talk to the markets, it's not about something we haven't done yet. And it's part of the reason I believe we've been quite reliable in hitting the numbers we've told the market about. It's because we base our promises based on what we know we have, not what we aspirationally think we will. Having said all that, we aspirationally expect we're going to do some things that aren't in this number.

[Richard Wowryk, executive]

I think the other thing, just we talked about it earlier in the call, but just for avoidance of doubt here. From a growth CapEx perspective, for next year, we still also have the 4 aircraft that will be delivered for the Carson Air contract. And those aircraft that they're displacing will be rolled into the Newfoundland contract.

[Tim James, analyst]

Okay. I assume the EBITDA coming from that is in the guide for '26?

[Michael Pyle, executive]

That is correct. That's in the guide because it's a project we already announced.

[Tim James, analyst]

Okay. Very quickly, Mike, you cited earlier kind of a $50 million approximate sort of normal business for systems and $20 million for matting. This was in reference to a question earlier. Is that in reference to EBITDA? Is that those two dollar figures you were talking about in very round numbers, I realized, it was an EBITDA reference?

[Michael Pyle, executive]

Yes. I mean, yes, but it's also effectively an EBIT number because we're already paying the dollar already. And there's really -- the only net cost would be your working capital costs because you're going to have receivables. But other than that, that ramp up -- and quite frankly, the number in the window business will ultimately be more than that with the synergies that have been created by Darwin and the teams at Quest and BV by streamlining production. You'll see that when those plants start running anywhere near capacity.

[Richard Wowryk, executive]

And just to clarify, those numbers are additive to where we are now, not the run rate for that business.

[Tim James, analyst]

Okay. Sorry, I'm going to try and sneak one more in. Mike, you're highlighting kind of the opportunity that you see coming in trading in the 737 market for Regional One, Should we think about that market -- and obviously, that's a huge sort of potential market. How do you think about the margin profile of trading in that platform versus the regional platforms that you focused on to date? I mean, is it any different? Or does it not really matter in that type of business?

[Michael Pyle, executive]

That's a great question. And the short answer is we're not there yet. We're going to sell to ourselves first, figure out what we can do. We're going to build up what we could buy, 737 that. This is not something we'll jump on. It's not like cliff diving, we're going to jump in and go all the way we want. It's more like stepping in the kiddie pool. We'll get our ankles wet first and we'll grow, and it's exactly how we did it with the Embraers.

The model we have at Regional One is going to work with the 737s. But the key thing that's made Regional One so good with Hank and the team is they make sure they know what the exit is before we get in. We always know we can make a profit by parting these things out. We're not there yet on the 737. But we now have a whole bunch of data we didn't have before. And quite frankly, the size of that market so big. The parts stuff will be more efficiently priced, which probably means slightly lower margins, but the ability to gain market share in a massive segment like that, is so exciting.

And I mean, quite frankly, Hank Gibson, the guy who runs Regional, once spent 15 years in the Boeing world. He had -- this isn't his first rodeo. So this is something I think you'll hear us talking about for the next 20 quarters as we slowly grow this business.

[Operator]

Next question will be from Jeff Fenwick of Cormark Securities.

[Jeff Fenwick, analyst]

I wanted to focus back on the ISR conversation. And maybe first, just, Mike, you offered up some commentary that it's relatively easier to put that effort to work with the Canadian government in a relatively short term. So I guess just help us understand that. Is it a case where this isn't about putting out another RFP, but maybe there's an opportunity just to amend the existing sort of contracting that you have with the government is kind of the key to moving it along?

[Michael Pyle, executive]

Again, I got to be really careful that I don't tell the government what they're doing, but we have proposed something through them without an RFP. And there are certain ways the government could do new projects without RFPs if they hit certain thresholds, largely driven by how Canadian they are and whether there would be multiple people capable of doing it or not. And we think we hit most of the -- well, not most, all of the criteria to do this without an RFP. But to be clear, the federal government hasn't told us that's what they're doing. We're in [indiscernible]. I mean, you're closer to that than I am.

[Travis Muhr, executive]

Yes. Keep in mind in the budget, it was just announced with the formation of the new defense investment agency, and that's the clear mandate of that organization, how to put capital to work faster than in previous practice. So you've got to appreciate that was only really formed 30 days ago. And obviously, we've been in contact with the bureaucracy and the government ministers responsible for that. So we're encouraged by the initial steps the government has made. They're making the right signals. But again, we're somewhat at the mercy of them as a pacing function.

[Jeff Fenwick, analyst]

Okay. That's helpful commentary. And then, Jake, I wanted to circle back just on the one comment you made reference to potentially providing some solutions in the ISR into the unmanned vehicles. So when I kind of survey the industry, there's clearly a big focus on the opportunity in drones as being a cost-effective solution for a lot of different countries around the world. So on the one hand, I guess you could view that as a competitor to the sort of solutions you've been putting out today. But I know that the CarteNav is a pretty flexible platform. So maybe there's an opportunity there as well. Like how do you kind of balance those two things in the context of that drone market?

[Travis Muhr, executive]

Sure. So great question, Jeff. And I think drones are a solution -- is part of the solution. It's a tool in the box. And if I look back 10 years ago, there was a lot of commentary about the manned aircraft are going to be substituted by unmanned. And that's really not the case. What we're seeing today employed in a lot of regions is what's called a system of systems, that really is a woven network of satellite information of manned aircraft and of unmanned aircraft. And it's really taking the data of all the platforms, merging that data and taking the data and creating insights.

And that really is what CarteNav, our software product, is great at. We're using that in the U.K. Home Office, for example, where it's a layered approach to generating the insights needed for decision-makers. And so while we see each type of platform is good at certain things, they're not good at others. And that combination of things, particularly in a marine environment where you've got long space and time constraints or in Canada's North, the same thing. So it's going to be a combination of all. We're excited, again, by the employment of CarteNav on certain unmanned systems, but we don't feel necessarily any of the manned platforms are a threat. It's all part of the similar solution.

[Michael Pyle, executive]

I think that a way to look at this is when you look at freight delivery. Within the cities, you've got couriers who are running around in Priuses handing envelopes. You've got the Amazon vans with the big high roof handling packages. And then you've got semi-trailers and planes moving it from city to city. One doesn't replace the other. They're all parts of the system. Drones and fixed-wing aircraft each have their area where they're better. When you're flying into a dangerous place, if you could do it without a person that's an advantage.

[Travis Muhr, executive]

And I was just going to say the comment thread through it all is the information generated and the information handling system, and that's what CarteNav's creating at. And that's where we're seeing significant adoption across all segments.

[Operator]

Next question will be from Konark Gupta at Scotiabank.

[Konark Gupta, analyst]

I wanted to first clarify a few things on the 2026 guide. So good to see another ton, by that $100 million EBITDA growth back to back. Seems it's mostly driven by the Aviation segment. Is that a fair characterization? I mean, Manufacturing might grow a little bit but not too much as compared to Aviation.

[Michael Pyle, executive]

That's absolutely fair, Konark.

[Konark Gupta, analyst]

Okay. And seasonality wise, do you think -- I mean, this year has been very similar to last year. '26, do you see any significant changes in seasonality?

[Michael Pyle, executive]

The interesting thing is Canadian North is exactly the same cycles as Calm Air, Perimeter, PAL all the other one of our airlines. So Q1 is always going to be the weakest. Q3 is always going to be the best. The only thing that has changed that a little bit is Spartan, it doesn't really have a slow first quarter. If anything, they have a slower Q3, Q4 because it's so hot in the South, it actually slows some of the work. But with the exception of the Spartan, the seasonality of our business really hasn't changed.

[Konark Gupta, analyst]

Okay. And the windows business, I know and I appreciate the challenges I think you guys have been facing for the last little while here. I hate to be devil's advocate on this one. But when -- what will take you to make a tough call on this one?

[Michael Pyle, executive]

What would -- I think tough calls, I didn't believe it. EIC is doing really well with windows not contributing, but they're not hurting us any. We're not losing money. It's not like we're feeding it. And if I wanted to shrink it down to make it even more cost-efficient, we can lay people off, we could do stuff. But the simple fact is if you look at the competitive landscape in that business, the number of companies that have left the business is dramatic. And we're not going to not build high-rise apartments for people in big cities.

In Canada, this is the result of a hangover of building 500 square foot condos that people were buying and renting out. The market didn't build what the users needed. They built what was easy to finance. And we have a hangover, and that hangover is not over yet. That hangover is not nearly as bad in the U.S. And that's why we see more life right now in the U.S. than we do in Canada. But ultimately, that's coming, Konark. And if I got to wait 12, 24 months to get there, the $50 million in EBITDA that I know one can make in that business is a big prize for no net investment.

I'm not going to trade out of it for the sake of not having to talk about it each quarter. Our business model is based on being able to carry things when it's a challenge. And I believe I've got the best management team there is in the window business. So I'm prepared to wait.

[Jake Trainor, executive]

And maybe a couple of other things, Konark. So like we are strong believers in the business, but we are seeing positive demand signals in certain geographies, whether it's sort of in U.S. or certain cities across Canada, Oftentimes, we're very focused on the Toronto market, but there is a lot of positivity in some of the other markets across Canada, where we're seeing lots of opportunities in projects. So we are starting to see that turn. It's just a bit of a function of how fast it's turned. And can we get developer costs down. Interest rates are coming down.

So we are seeing some of the big demand drivers existing. And as Mike talked about in the call, we are also seeing in Canada a big shift similar to other geographies moving to rentals as opposed to condos, which is a different form of financing. But we think that the capital exists there. People are just waiting on the sidelines to book the projects because we're seeing a huge number of inquiries continue.

[Richard Wowryk, executive]

And ultimately, this just comes back to EIC's strategy and how we've conducted our businesses over 20-plus years. In the early days of COVID, no one was asking us whether we were going to sell our Aviation businesses because they were challenged and windows was carrying the day. And ultimately, we're at the low point of the market. It will come back. And we're excited when that when it does, we'll generate returns that fall right to the bottom line. And ultimately, there may be another challenge. At that point in time, we'll deal with it the same way we always have, focusing on the long term and making decisions so that we're profitable over the long term, not maximizing short-term profitability at the expense of the long term.

[Michael Pyle, executive]

If you look at Calm Air in sort of 2011 and 2012 period, it was a lot worse than this is. We were feeding that business. And now it's amongst my best performing airlines. And so this really is part of the EIC model. Not everything is going to work at once. But quite frankly, it doesn't need to.

[Travis Muhr, executive]

And the last point I'd make is the fact that we have confidence in the management team. As Mike said, we feel we have the best windows management team out there. And as we look at things like infrastructure build, schools, hospitals, we're seeing them pivot towards that direction. So again, we hired good management teams. We acquire companies with good management teams and expect them to captain the ship through a little bit of rough water. And we're there to support them.

[Konark Gupta, analyst]

Okay. No, those are very insightful comments, and clearly you have seen that strategy work. So all the best for that. And if I can just ask one more quick before I turn over. In the budget, obviously, there's a lot of great things, I think, for you guys to talk about. But one thing I kind of noticed there as well, I think these guys are also looking to build some sort of all-season roads up north. And I know you have a bunch of airlines doing sort of work and seasonality. This is more pronounced, right, during the summertime. But what do you think about that being a small risk to your business up there in the North?

[Michael Pyle, executive]

There are certain places where they will probably build all season roads. It's exceptionally difficult. And it's not a project that's built in 1 year or 2 or 5. You're talking -- some of these are decade-long projects, where they're going to get built, how they're going to get built. Just as an example, and this is just an anecdotal example. There's been discussions of building a road to Churchill. Well, they're having trouble getting the rail line functional because the permafrost is melting and it's turned into a bog.

And so the railway keeps sinking into the ground. Building roads over that's exceptionally difficult. And so undoubtedly, if the government is committed to this, there will be some of that done. But we don't view that as being a material piece of our business. Some of the places we fly are so remote the cost per person of building a road is prohibitive.

[Travis Muhr, executive]

And not to mention a very difficult environment, you can imagine snow clearing thousands of kilometers of roads between communities that, as Mike pointed out, have very low population density. It's something that we just don't see that will necessarily be a factor.

[Operator]

Next question will be from Amr Ezzat at Ventum.

[Amr Ezzat, analyst]

Just to press on the guidance. I mean, you guys announced it shortly after the federal budget, and that included all the good stuff you mentioned, new defense spending, critical mineral spending and so on. Just to clarify, were any of these tailwinds embedded in your guidance? Or should we treat it as a clean base case with upside tied to procurement activity materializing?

[Michael Pyle, executive]

That's the easiest question of the day. Yes. It doesn't include any of those things and that's the base case, that as these things become operationalized, they'll be additive to this guidance.

[Amr Ezzat, analyst]

Love to hear that. And then if you'll allow, just one follow-up. On the Canadian North charter operation, I mean, I think we all know that the returns are thin like you guys mentioned, old contracts are rolling off. But can you walk us through the framework you're using to evaluate whether that business is worth keeping, especially how you weigh your return thresholds versus strategic access and customer stickiness.

[Michael Pyle, executive]

It's a bit of an art form as it relates to charters because we don't own the assets. They're leased. So we're not putting the capital out. But quite frankly, we look at it the same way. If we own that aircraft, are we getting our 15% return? And that's kind of the way we factor lease payments in that. At the end, is that enough to do the work. I mean, the good part is within Canadian North, it provides good jobs. It spreads our overhead over more flights. So there's lots of good things about it.

But the advantage is in the way we acquire Canadian North, we said, look, we've got to fix this up so that the returns match their assets. And we knew that LNG 1 was coming to an end. We knew that. And it's quite clear LNG 2 is getting done. And we have great relationships with those people, and so we're very optimistic that we'll be successful in being able to do this. But as I mentioned earlier, this business is the most commodity-like of anything we did. We could be replaced by Nolinor, we could be replaced by Porter. We could be replaced by anyone who could fly a jet spot to spot. There's facilities in there.

It's not the hard business the Canadian North does everywhere else when they look after Inuit people in remote communities where it's an essential service. This is much different. It's much more akin to what Air Canada does than to what we do. Now we have some advantages because of our First Nations ownership of the communities and those kinds of things that help us. But quite frankly, it will be disciplined. If it makes economic sense, we'll do it. If it doesn't, we won't. And because of the way we bought it, there's no downside.

And then I think you could see it, it's not really a charter question but it relates to the Canadian North thing. It's very seldom that we buy something that's 100% asset-backed, including an adjustment for deferred taxes. And so that's why you see higher depreciation in the statements perhaps than some of the analysts are because we don't often buy things that have that much asset backing. But in the long run, that makes it way better because we own everything we've got. We don't need to make investments. We just maintenance CapEx, which we've talked to you about. So this Canadian North business is such a great fit for EIC. And whether we do the charter work or not, we'll see. We'd like to. We're going to try to. But if we can't, we still got everything we paid for.

[Amr Ezzat, analyst]

Fantastic. No, I appreciate that color. Congrats again on the quarter and I'll pass it on.

[Michael Pyle, executive]

Thank you.

[Operator]

Next question will be from Chris Murray of ATB Capital Markets. .

[Chris Murray, analyst]

Just this is more of a, I guess, a semantic question or a thought process question around the balance sheet. So Mike, you mentioned that you're kind of working through getting to an investment-grade rating. Historically, I'm thinking about you guys have always been thought of as sort of a diversified financial company. What are the rating agencies telling you about what's going to be required for you to get that investment grade? Is it going to be kind of end markets you're supporting? Is it going to be leverage levels?

And really, how do you think about what that does? Because a lot of the time, what happens in the debt market drives what we're going to think about in the equity markets longer term. So just thinking about how to think about the company over the next 3 to 5 years as it evolves.

[Michael Pyle, executive]

I got to be very careful how I answer this question because we have had discussions with the rating agencies. I'd start by saying we're confident that we will fit into the investment-grade window. I think the thing that really helps us with the rating agency is the percentage of our business that's tied to government contracts or to dominant-market positions where it's an essential service. You see our investment-grade argument is made in 2020.

When other people in the aviation space or the manufacturing space got crushed, our EBITDA fell by 10% and then was back up immediately in the following year. I think it's the resilience and the reliability of our cash flow stream. And then, quite frankly, we have a 20-year track record of discipline on the amount of leverage we place on those types of contracts. And so that, combined with the -- I guess, the way I can describe it is we've grown up and outgrown our convertible debentures. They've been great to us. We didn't get the Series N because I didn't like them. They were great. They want to sell equity at a future price.

The ones we're calling now are only, I think, 3 years old, and the stock price was in the $40s at the time we did it, low $40s. We're selling equity at $60. So they'd be good to us. But as we've gotten bigger, we will be able to access the bond market that are materially lower than what we paid for convertibles and give us a much more "traditional balance sheet" for a material public company.

[Richard Wowryk, executive]

Yes, I think the other thing, Chris, when we talk about having the conversations and what we need to make us successful in that endeavor is really telling the EIC story we tell every day anyway. We're not a traditional airline. We don't fly point-to-point in Southern centers where there's material competition risks. And that story moves you away from an airline's rating methodology into a different rating methodology, where our leverage profile is considered conservative.

And it's really -- to Mike's point, we have a 20-plus year track record of maintaining leverage in a band that is viewed as conservative or modest. And I think it's that track record and reinforcing that track record with the rating agency that we prefund things in the equity market if we need to do something. And we don't go slash and raise leverage to 4.5x and promise to pay it down over a period of time with cash flow. And I think it's really that track record that really drives equity story that will be just compelling in the debt markets as well.

[Chris Murray, analyst]

Okay. To that point, and I guess, the next piece of this question is just even looking at the equity stack. I know you've always had the NCIB kind of as more of a defensive tool, looking at some of the history. But is there a point where you start just starting to buy back stock, expectations that if you do get that re-rating, maybe the stock you're buying back today is going to be less expensive than it would be in the future? Especially you've managed to put out a fair amount of dilution with all the converts. But with that being said, just any thoughts around that? And if you can also maybe talk about the DRIP as well and where that sits, that would be great.

[Michael Pyle, executive]

That's a good question. And it's one, which is going to be weird for me, I have a relatively short answer. We look at buying back stock as the alternative to deploying the money on future projects. As long as I've got things I can do with the money, whether it be Australia, the Government of Canada, an acquisition for Adam, the plant for Spartan, that's the first place our money goes. If I don't have enough of those and I've got some left, we will use it to buy back, stock but only when I don't have the ability to use that as the base for my growth.

We are looking at the DRIP. It creates uncertainty every quarter because people short the dividend and play games with it to get to the 2% discount. Is that right, Rich? 3% discount. So we are looking at whether maybe we've outgrown that, maybe we don't need it anymore. No decision has been made at this point and not only me, until we get to our year-end Board meetings. But there's definitely at the very least a thought that maybe we've outgrown the premium that we pay on the DRIP.

[Operator]

Next question will be from Gary Ho at Desjardins Bank Capital Markets.

[Gary Ho, analyst]

Just one question for me. So you talked about the build-out of a second facility for your composite mat business, $50 investment. Just any color in terms of the increase in composite mat production with the second facility? And what are your thoughts on offering these through a rental leasing model? And maybe talk about geographies that this new facility could open up/

[Michael Pyle, executive]

I'll start with the last one first. We're going to be in that Southeast corner of the U.S., somewhere between the resin factories in Louisiana and Texas and Florida, where we are now. So I think you'll see us in Mississippi, Louisiana, those kinds of places. We're very close. I really had hoped to announce on this call where it was going. We haven't finalized a lease so I don't want to limit my negotiating capability by saying exactly where it is. But it will be somewhere because, well, those mats are used across the U.S. Our customer base is more East Coast driven. And so we want to stay close to the resource we need to make it, which is the resin and close to our customers because mats are heavy. And shipping them, I'd rather not.

In terms of the lease portfolio concept, that's part of the reason we're building this, as we'd like to eventually build out our rental mat business like we have in Canada. It's impossible to do right now because we're selling every mat we can make. And I'm not going to not sell something as we're the smallest guys in this business. In the U.S., there's really 3 manufacturers, and we'd be the smallest but we're also the fastest growing. We want market acceptance so we'll continue to put the product out.

And when we build this factory, it's quantum bigger. It's capacity will be, depending how many ships you assume, 2, 3x the size, perhaps even more than that. than our existing factory, although we certainly won't go from nothing to full blast in that factory. We'll phase it in over time. But we definitely would like to take some of the stress off our Florida plant. The people we have there are doing a phenomenal job of running the plant 24 hours a day, 7 days a week. That's not something that you do. And so the sooner we could get some additional capacity into the system, the better.

[Operator]

Next question will be from Razi Hasan at Paradigm Capital.

[Razi Hasan, analyst]

Just two quick ones. On Canadian North, can you disclose what percentage of the revenue comes from the charter business?

[Michael Pyle, executive]

It varies period to period, but just let me -- I've got to see out here. It would be a 1/4?

[Razi Hasan, analyst]

Okay. Great. And lastly, if we think about the Aerospace business representing about, whatever, 11% of 2024 revenue. Given your comments on defense spending and all of the potential that can come with that, are you able to maybe frame how large a piece of the pie the business plan can become? Do you think it can double from where it is in terms of the revenue contribution? Or just any color on how big this can get.

[Michael Pyle, executive]

Okay. This is a complicated question, Razi, because what we give you in guidance is based on what we know, not based on what we could do. If we are successful in a couple of the negotiations we're in, the revenue from this business could double easily. It could be more than that. Australia in and of itself would do that. The Government of Canada would be a huge piece, the discussions that we're in Greenland or in other European countries. And bear in mind, none of that's in the sort of $850 million number at the midpoint of the guidance we've given you. That's all additive if as and when we win.

[Travis Muhr, executive]

And the one point I'd make is just keep in mind, depending on the nature of the contract and the types of assets that are required to service those, there might be a delay while we modify the aircraft. So again, as Rich spoke to the delay between deploying capital and seeing returns, Australia is a good example where we're deploying capital for a couple of years and the contract doesn't start generating revenue into '28. So you've got a bit of a delay and a lag until you see some of the material gains through that. And as Mike said, we've not put that in our '26 guide.

[Jake Trainor, executive]

And just because you referenced the revenue disclosure that's in the MD&A, the one piece that I'll just point out is that that's a percentage of revenue at a point in time. Even if the revenue within the Aerospace side doubled, we don't find to stop growing our other businesses. So it's not like that's going to go from 11 to 22. You're going to see growth within the other businesses. In absolute dollars, it could kind of double as Mike said. But you would still see growth within our other businesses. So that percentage wouldn't grow at the same rate.

[Operator]

Next question will be from Michael Goldie at BMO Capital Markets.

[Michael Goldie, analyst]

On the Northern Canada opportunity, both from an Aerospace and Essential Air perspective, how much of this would be new aircraft versus increased utilization of existing equipment? And then for the new piece, like what would the time line be to get assets up and running?

[Michael Pyle, executive]

Let's break that into the two types of business. So the ISR business would be all new aircraft. We don't have -- we just deployed the last one we built in England. So those ones would be all new aircraft. The timeline could be, depending on how many, could be as short as 12 months, could be as long as 24 or 30 months, depending on how many. We can build a lot of them but our system is basically built on 1 or 2 at a time, not 4 at a time.

So it depends on how big a contract would be. But I think on all but Australia world, it's 12 to 18 months to get them up and running, although your first aircraft may be flying before the other ones go in. It's probably a phased approach. It's not like we'll wait until we have all 4 until we fly anything. You'll start flying as soon as the first one is ready.

On the regular part of our traditional airline, we have capacity in that business to add volume without investing something. And then as it comes, it'd be kind of step, like we've got X number of ATRs. We add one more, we add two more. And so there's not a big investment coming in that. There's no investment coming in the near term. And then if we decide to make an investment to move towards the combi stuff that I talked about earlier in the call, that would be a new investment, but that would come with efficiencies immediately.

[Travis Muhr, executive]

Yes. And the other thing I'd say is the benefit of scale as we have multiple airlines operating similar aircraft is we have that ability to start to smooth some of those step changes. And we've got examples where we've got two of our airlines involved in servicing a specific customer where, as it ramps up, we're employing smaller aircraft from one operator for the bulk of the contract, larger aircraft to another. And then as the shoulder hits on the downside, it reverts back to the original. That gives us a real advantage to other competitors as opposed to having to go buy a bespoke asset to engage, and it might not be optimized for the volume through the contract.

[Michael Goldie, analyst]

Okay. And then obviously, as you've added assets, D&A up 18% quarter-over-quarter. Can you remind us how we should think about that as we go into 2026, what assets will be coming online and how that could trend?

[Michael Pyle, executive]

Yes. I mean, most of the stuff that's on is in. Now what's different is, as Rich mentioned, we got 4 more of the aircraft for the BC medevac contract. I think round numbers, those are about $10 million a piece, closer to $15 million after they're fully modified for medevac and stuff. So there's probably $60 million worth of assets there. And then the variable is quite simply how many assets Regional One buys to put into their lease portfolio. We describe them every quarter and how much we bought.

But it's highly variable. Earlier this year, we actually had negative growth investment for a quarter where we sold more assets that we purchased. And so that can bounce around. So you got to kind of look at the trailing 12 in terms of the investment to work on the D&A number of that. And I think where it was hard to do on this was we don't often do asset deals. Like the Canadian North was essentially we bought $200 million worth of stuff. And so it was all depreciable, and I think that was a higher number than people thought when they did it.

[Operator]

No any further questions, Mike.

[Michael Pyle, executive]

Okay. Well, it sounds like we're done. We really appreciate everyone taking the time and listening to us today. We're ecstatic about what's coming. We've given good guidance for 2026, and I can't wait to increase it. So have a great day and enjoy it.

[Operator]

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Have a good weekend.