Exchange Income Corporation (EIF) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Exchange Income Corporation Annual and Special Meeting of Shareholders. My name is Gary Filmon. As a Director and Chairman of the Board of Directors, I will act as Chairman of this meeting. I'm speaking to you from the offices of Exchange Income Corporation in Winnipeg, Manitoba. With me here are Mike Pyle, our CEO; Carmele Peter, our President; Darryl Bergman, our CFO; and Dianne Spencer, our Corporate Secretary; as well as our moderator, David Patrick. I will lead us through the formal part of the agenda, and then we will have a presentation by our CEO, Mike Pyle, on the corporation and the effects of the COVID-19 pandemic, after which we will have an opportunity for questions from registered or beneficial shareholders. Although we are disappointed that we cannot see each of you today, our thoughts are with you, your families and the communities that you serve. We want to thank you for your patience as we navigate through this unprecedented situation and hope that you agree we did the right thing by moving to an electronic meeting in light of the circumstances. Instructions on how to ask questions and the voting procedure will appear on your screens. As with any new technology, unexpected glitches may occur, but our service providers for this platform at Lumi are very experienced at running this type of meeting and will help us out if an issue arises. The meeting will now come to order, and I will ask Dianne Spencer to act as secretary of the meeting and Nazim Nathoo of AST Trust Company Canada to act as scrutineer. The secretary has confirmed that the notice calling this meeting of shareholders was filed on SEDAR on May 13, 2020, and the record date for the determination of shareholders entitled to receive notice of and to attend and vote at the meeting was May 21, 2020. The scrutineer has confirmed that there are present by proxy a sufficient number of persons holding a sufficient number of shares entitled to vote at the meeting to constitute a quorum. Voting delegates and any other person attending a meeting of members may address the meeting when there is a call to discuss a motion before the meeting. [Operator Instructions] Notice having been mailed as required and a quorum being present, I declare that this meeting is duly constituted for the transaction of business, and the polls are now open for all resolutions. This annual and special meeting of shareholders was called to consider 5 matters with voting required for 4 of them. We will conduct the votes on the matters before us by a poll. On a poll, every shareholder entitled to vote on the matter has 1 vote in respect of each share entitled to be voted on the matter and held by that shareholder. The poll will be open for all resolutions at the same time. This will allow you to choose to vote on each resolution immediately or wait until the conclusion of discussion on each resolution prior to casting your vote. If you've already voted in advance of the meeting and do not wish to change your vote, you do not need to vote again during the meeting. Finally, we would like to remind you that our answers to your questions and our presentation may contain forward-looking information. By its nature, this information contains forecasts, assumptions and expectations about future outcomes which are subject to the risks and uncertainties discussed more fully in our public disclosure filings. We will now go through each of the items on the agenda in turn. The first item of business is to receive and consider Exchange Income Corporation's consolidated financial statements for the period ended December 31, 2019, together with the auditor's report on these statements. The financial statements and auditor's report on them were included with the material sent out giving notice of this meeting and available on SEDAR and the corporation's website. Unless there are any questions of management or the auditors, we will take the financial statements and auditor's report as received and considered. The second item of business is to appoint the auditors of Exchange Income Corporation for the ensuing year and to authorize the directors to fix the remuneration of the auditors. Would a voting delegate please make the motion?

Mr. Chairman, I move to resolve that PricewaterhouseCoopers LLP be appointed auditors of Exchange Income Corporation hold office until the next annual meeting or until their successors are duly appointed and the directors be authorized to fix the auditor's remuneration.

Thank you, [ Mr. Warwick ]. Would a voting delegate please second the motion?

Mr. Chairman, I second the motion.

Thank you, [ Mr. Truen ]. Is there any discussion on this motion?

Mr. Chairman, there is no discussion at this time.

As there is no discussion, I will now call for a vote on the motion before the meeting. Would all voting delegates please enter your votes in Lumi? [Voting]

The third item of business is the election of the directors of Exchange Income Corporation for the ensuing year. As we did not receive any other nominations in compliance with our advanced notice bylaw, I declare the nominations closed and will now entertain a motion to consider an ordinary resolution to elect 10 directors to hold office until the next general meeting of shareholders or their earlier removal or resignation. Brad Bennett, Gary Buckley, Polly Craik, Gary Filmon, Duncan Jessiman, Michael Pyle, Grace Schalkwyk, Melissa Sonberg, Donald Streuber and Edward Warkentin have been nominated for election as directors of EIC. Would a voting delegate please make the motion?

Mr. Chairman, I move to resolve that Brad Bennett, Gary Buckley, Polly Craik, Gary Filmon, Duncan Jessiman, Michael Pyle, Grace Schalkwyk, Melissa Sonberg, Donald Streuber and Edward Warkentin be elected as directors.

Thank you, [ Mr. Warwick ]. Would a voting delegate please second the motion?

Mr. Chairman, I second the motion.

Thank you, [ Mr. Truen ]. Is there any discussion on this motion?

Mr. Chairman, there is no discussion at this time.

As there is no discussion, I now call for a vote on the motion before the meeting. Would all voting delegates please enter your votes in Lumi? [Voting]

Shareholders will note that after a distinguished service of almost 9 years on the Board, Serena Kraayeveld decided not to stand for reelection. Serena served as Chair of our Governance and Nominating Committee, made an enormous contribution to modernizing and upgrading our governance systems and processes. As a Retired Chartered Professional Accountant and a fellow of the Institute of Chartered Accountants, she made significant contributions as well to our Audit Committee and Board deliberations. On behalf of the Board, I extend profound thanks for the contributions that you've made, Serena, and I wish you well in all your future endeavors. The fourth item of business is to approve the third amended and restated shareholder plans -- shareholder rights plan of the corporation. A summary of the key features of the plan was included in the corporation's management information circular dated May 6, 2020, and the full plan is on the corporation's website, along with the other meeting materials. Would a voting delegate please make the motion?

Mr. Chairman, be it resolved as an ordinary resolution of the shareholders of Exchange Income Corporation that the shareholder rights plan of the corporation be continued and the third amended and restated shareholder rights plan agreement to be made as of June 25, 2020, between the corporation and AST Trust Company as rights agent, which amends and restates the second amended and restated shareholder rights plan agreement dated May 10, 2017, be and is hereby authorized and approved. And any one director or officer of the corporation be and is hereby authorized for and on behalf of the corporation to execute, deliver and file such documents and do all such other things as such person considers necessary or advisable to give effect to the foregoing resolution.

Thank you, [ Mr. Warwick ]. Would a voting delegate please second the motion?

Mr. Chairman, I second the motion.

Thank you, [ Mr. Truen ]. Is there any discussion on this motion?

Mr. Chairman, there is no discussion at this time.

As there is no discussion, I now call for a vote on the motion before the meeting. Would all voting delegates please enter your votes in Lumi? [Voting]

The fifth item of business is to approve, on an advisory basis, the corporation's approach to executive compensation. As described in the corporation's management information circular dated May 6, 2020, the corporation's compensation policies and procedures are based on the principle of pay for performance. The Board believes they align the interest of the corporation's executive team with the long-term interest of the shareholders. Would a voting delegate please make the motion?

Mr. Chairman, be it resolved, on an advisory basis and not to diminish the role and responsibilities of the Board, that the shareholders accept the approach to executive compensation disclosed in this management information circular delivered in advance of the 2020 Annual and Special Meeting of Shareholders of the corporation.

Thank you, [ Mr. Warwick ]. Would a voting delegate please second the motion?

Mr. Chairman, I second the motion.

Thank you, [ Mr. Truen ]. Is there any discussion on the motion?

Mr. Chairman, there is no discussion at this time.

As there is no discussion, I now call for a vote on the motion before the meeting. Would all voting delegates please enter your votes in Lumi? [Voting]

We will now take a short pause to answer any questions that have been submitted and to permit any registered shareholder or a proxy holder who has not already done so to record their votes on the motions before the meeting. Having received no questions, I will close the polls in 30 seconds. The polls are now closed. I have now received the preliminary scrutineer's report. With respect to the election of directors, I am advised by the scrutineer that each of the proposed nominees has been duly elected. With respect to the resolutions to appoint the auditors, approve the third amended and restated shareholder rights plan of the corporation and approve, on an advisory basis, the corporation's approach to executive compensation, I'm advised by the scrutineer that these resolutions have all been duly carried. The detailed results of this meeting will be announced in a press release and also included in a voting report to be filed on SEDAR as soon as practical after this meeting. Thank you very much for joining us today. We wish you and all you who serve our provinces and our nation a return to good health and normalcy in the coming weeks and months. We will endeavor to do the same at Exchange Income Corporation. Together we are stronger. Thank you. And now it's my pleasure to introduce to you our CEO, Mike Pyle.

Good morning. In normal times, we would be focusing our AGM on discussions of 2019 and discussing the successes and failures, but we are not in normal times, and 2019 seems like a decade ago. For just a few moments, let's focus on last year. We completed 2 acquisitions, opened our new Quest facility in Dallas, increased our dividend, generated record EPS and reduced our payout ratio to all-time lows. We completed 2 capital raises and improved our syndicated bank facility to provide additional liquidity, financial strength and stability. Not a bad year. Our stock closed the year over $40, which when combined with the dividends paid resulted in our 1-year, 5-year, 10-year, 15-year, and since inception, average annual shareholder return being over 20%. Very, very few stocks on the TSX can match that track record. Several times, however, I have stated in the past -- in past CEO messages or on conference calls that good times are not what test the business model. Rather how a company reacts and performs in times of challenge show the efficacy of that model. EIC has faced challenges in the past with the hyper growth of our American WesTower operation in 2013 and 2014 and the nonsense of the short-and-distort attack in 2017. EIC fought its way through these -- both of these challenges and emerged stronger and more profitable. Without a doubt, the current COVID pandemic is clearly the greatest challenge we have ever faced. But I'm pleased to tell you that we are again hanging in there and winning the battle 1 day at a time. When COVID hit, we first focused on the safety of our employees and our customers, ensuring that we took all possible measures to keep people safe. We focused on our social responsibilities, whether that meant continuing to serve northern communities, but from an economic point of view, we should have ceased bunch of our flying or answered government calls to produce equipment that was in very short supply. In spite of never having produced this type of product, we designed and manufactured reusable face shields and IV poles for several provinces. I will not go into details about these processes and decisions as they were discussed in great detail on our Q1 conference call last month. I would like to spend a couple of minutes, however, explaining how we have done so far. The EIC model has always been based on owning a diverse group of companies with proven management teams, which enable us to generate reliable returns to our shareholders. Never has this been more valuable than over the last 3 or 4 months. When COVID was at its peak in Canada, our airlines experienced dramatic declines in passenger volume of up to 90% on many routes. Production capacity at our manufacturers was impacted as we reduced staff in order to social distance and make our facilities as safe as possible. Our flight college was closed for over a month as government regulations to reduce the spread of the virus did not deem it to be essential. Some of our operations, however, were less affected, such as our maritime surveillance, medevac and manufacturing, where we were able to meet customer needs in a very difficult environment. It is precisely this diversity and strength of subsidiary management that has allowed EIC to mitigate the crisis. Our management team and employee group have been nothing short of exceptional in this period, putting safety and our customers first while managing costs and preparing for the reopening of the economy. They have had to make very difficult decisions, laying off employees and in many cases, taking voluntary pay cuts. I simply could not be more proud of our team. I know many of them are suffering with the impact of the pandemic, and we will endeavor to bring you back -- bring back our entire team to work as soon as it is economically possible to do so. The financial outcome thus far has been manageable. Unlike other companies in the airline sector who struggle with a daily cash burn and liquidity challenges, we have been able, thus far and expect to continue, to remain approximately cash neutral, including the paying of our dividend. Investments we choose to make in growth opportunities, whether capital or acquisitions, are not included in this calculation. Our airline operations are largely an essential service to the First Nation communities in Canada's Northern isolated communities. We, in most cases, are the main connection between these communities and the outside world and as a result, we simply cannot cease service even if it means losing money to maintain the service. We have a social responsibility, and I'm proud to say we have met. However, the essential nature of that service is also very much a positive for EIC, as traffic levels will bounce back much more quickly, the general aviation with travel restrictions are eased by the provincial, territorial or First Nation governments. We expect volumes to approach normal values in weeks or months unlike traditional airlines who are expecting this process to take years. We have seen volumes begin to increase in areas where the level of COVID remains low. The travel restrictions are still in place in most markets. We will have a much clearer view of how fast and how far volumes will increase by the time we report our Q2 in early August. I am pleased to let you know, however, that we are well on our way to our plan to pay our dividend while maintaining a cash-neutral position. I need to be very clear that we are still in the early innings of the COVID pandemic, and I am sure it will provide many challenges before medical technology comes up with treatment or vaccine to extinguish it. As such, the future of challenges cannot be predicted at this time. We are pleased with our results so far and believe we have the balance sheet necessary to respond to whatever we want to face in the future. Before I close, I want to reiterate my thanks to the Board and the entire team at all of the component companies of EIC. Your self-sacrifice, care for our customers has enabled EIC to fight through these challenges. Thank you from the bottom of my heart. Finally, thank you to the frontline workers across Canada, the United States and the rest of the world. Without your self-sacrifice, the world would be in turmoil. It is a very overused word, but you truly are heroes. I will be glad to answer any of your questions. Seeing there are no questions that have come in, this brings our meeting to a close. Thank you for joining us, and we look forward to speaking to you again in early August when we announce our second quarter results. Thank you. Have a great day and stay safe.