for standing by and welcome to the Alaris S econd Quarter 2025 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question- and- answer session. To ask a question during the session, you'll need to press star one one on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star one one again. As a reminder, today's program is being recorded. Now I'd like to introduce your host for today's program, Amanda Frazer, Chief Financial Officer. Please go ahead. Thank you, Jonathan. Good morning, everyone, and thank you for joining us today to discuss our Q2 results. I'm joined on the call today by Steve King, our President and CEO. Before we begin, I'd like to remind everyone that all financial figures discussed are in Canadian dollars unless otherwise indicated. Please note that some comments made during this call may include forward-looking statements. These statements are based on current assumptions and involve risks and uncertainties, so actual results may differ materially. For more detailed information on the factors, assumptions, and risks involved, please refer to our press release issued last night and the management discussion and analysis under the headings Forward-Looking Statements and Risk Factors, available on CDAR at cdarplus.com and on our website. We will also be referencing certain non-IFRS financial measures, which may be presented differently than similar measures by other companies. Additional information and reconciliations related to these measures can be found in the press release and MDA. With those preliminaries covered, let's turn to the highlights. Our second quarter reflected solid operational performance across most of our partner portfolio, continued growth in our run-rate revenue, and ongoing capital deployment despite the noise from a stronger Canadian dollar. Let's start with the highlights. The net book value per unit was CAD 23.57 at quarter end, down CAD 0.77 from Q1. We saw CAD 0.59 per unit in earnings growth, offset by CAD 0.98 per unit in unrealized foreign exchange loss from the Canadian dollar's 4.5% appreciation against the U.S. dollar, along with our quarterly distribution of CAD 0.34 per unit. Revenue and operating income grew approximately 21% year- over- year to CAD 34.5 million, driven by strong performance from nine partners, resulting in a CAD 25.5 million net unrealized fair value gain that was offset by the impact of a $14.6 million write-down at FMP following the loss of certain key contracts due to changes in U.S. federal procurement policies, along with an expected deferral of distributions. Run-rate revenue reached CAD 183 million, up 12.5% from last year and up from CAD 178 million last quarter. Year to date, we've deployed about CAD 154 million into our portfolio, including a $21.5 million follow-on preferred equity investment in the Shipyard, bringing our total Shipyard investment to $ 108.5 million. We also issued CAD 92 million in convertible debentures, using the proceeds to strengthen the portfolio and fund growth. Through our NCIB program, we repurchased and canceled 133,600 units in Q2, bringing the year-to-date total to 352,500 units and adding approximately CAD 0.04 per unit to book value. Turning to our portfolio health, our portfolio showed solid operational strength this quarter. The majority of partners delivered year-over-year revenue and EBITDA growth, highlighting the quality of our investments and driving fair value increases across nine of our partners, supporting improved revenue and operating income. Our weighted average earnings coverage ratio remains healthy at approximately 1.5x, with 13 out of 20 of our partners maintaining no debt or less than 1x senior debt to EBITDA. Overall, the portfolio fundamentals remain robust, positioning us well for stable returns and future opportunities. On the financial side, earnings and comprehensive income for the quarter were a loss of CAD 17.9 million compared to a gain of CAD 31.7 million last year, almost entirely due to the CAD 44.8 million of unrealized foreign exchange loss from marking our U.S. dollar portfolio to the quarter-end exchange rate. Net distributable cash flow was CAD 17.9 million, down from CAD 26.3 million in Q2 2024, mainly due to the timing of cash tax payments and transaction costs. Looking ahead, we expect Q3 partner revenue of approximately CAD 56.9 million, up from Q2 due to expected incremental common distributions from select partners. Our run-rate payout ratio remains in the 60%- 65% range based on our current revenue, expenses, and capital structure. On that note, I'll turn it over to Steve for his comment. Great. Thanks, Amanda. Interesting, when going through our portfolio with our monitoring team over the last few weeks, I'm not sure there's been a period in our 20+ year history where our companies have had such explosive results. That may surprise some people. It's not like the economy is that buoyant in the U.S., but we have not just a few, but many companies that are up more than 20% year-over-year in their earnings. While our press are capped typically at 7% or 8% a year growth, the thing that's exciting for that is that it really magnifies the returns on the common equity, which we have on most of our investments now. A really tremendous quarter for our portfolio. I'll touch on a few kind of key companies that people will have questions about, starting with FMP. Obviously, we discussed this last quarter. They had some significant contracts canceled and diminished because of the DOGE process in the U.S. The nice thing is many of those contracts have actually come back, not in full form, but they've been added to since we spoke last quarter. The company is feeling much better. They definitely have hit a trough and are working their way back out of that. They didn't need to defer as much of our distributions as expected. They're in a strong cash position. Starting in January, we'll start with a new distribution program for FMP that mirrors their recovery, keeping in mind this is a company with no debt, no CapEx, and a world-class management team. We're very confident there. BCC Sono Bello had their most profitable quarter in their company's history for the quarter ending June 30th. GLP-1 patients, which anybody that reads the paper or watches TV knows is a booming industry. Those patients need not just lipo, but also skin tightening at the end of their GLP-1 journey. This has led to a record dollars per procedure performance for the June quarter. That's very much a long-term trend. Fleet, you'll see, came down this year. Fleet can be a lumpy business with kind of large batches of trucks, contracts coming in and out of backlog. That's not unexpected for a business like them. Their backlog indicates solid growth moving forward. No issues there. From an outlook standpoint, I would say it's a very buoyant deal flow market for us. We did walk away from a couple of deals in the quarter, which gave us some expenses from them without the deployment, which is always unfortunate, but part of the business. We also do have several deals in process. We weren't afraid to walk away and have significant deployment opportunities. Overall, a very good environment for us. There was noise from the currency this quarter. We expect that to reverse a little bit in the coming quarter as everybody could follow. Hopefully, people are smart enough to X that out when they look at our results. Jonathan, we're happy to open it up for questions. Certainly. As a reminder, ladies and gentlemen, if you have a question, please press star one one on your telephone. Our first question comes from the line of Gary Ho from Desjardins Capital Markets. Your question, please. Great. Thanks. Maybe for Steve, you just mentioned Sono Bello and the record quarter this quarter. It sounds like there were location adds and you talked about the increased dollar per procedure. I know last quarter you pushed out the monetization expectations of timeframe. With a stronger quarter now, does that change your views at all? We've been pretty tight on 2028. It's between us and the majority shareholder of BCC as well as Brookfield, our partner on that deal. It always comes down to any kind of an exit opportunity, trying to maximize your value. You never this far ahead say, okay, it's going to be on this date or anything like that. 2028 is still when we are kind of loosely targeting. Okay. Second question, it seems like some of your portfolio partners have a path for greater maybe tuck-in opportunities such as Shipyard. Is Shipyard. Is that the case? What are others that you see could require some follow-on capital deployment? Is that something that you can pursue more closely looking out? Cresa is a company that is acquisitive and is working on things. PEC, one of our newer partners, who is the electrical contractor out of Boston, they will be acquisitive as well. We actually have, I would say, probably six to eight of our current partners that are acquisitive and keep our guys hopping and give us great deployment options within our portfolio. In the back half of this year, can you talk about capital deployment opportunities, whether it's follow-on such as these and/or new partners that you're looking at? We expect a healthy dose of both. As I mentioned, you never count your chickens because we've got very tight investment standards and aren't afraid to walk away. We've done that many times in the last several years, including twice just in the last quarter. It's never closed until it's closed. We've got several new deals and several follow-on deals that we expect to close in the second half. Okay, great. Those are my questions. Thank you. Thanks, Gary. Thank you. Our next question comes from the line of David Pierce from Raymond James. Your question, please. Morning, guys. Morning, guys. Just going back to Sono Bello, the ECR declined slightly from last quarter. I know this was a record quarter for EBITDA. I know the ECR is based off LTM figures, so it's not 1:1, but if you could share any insights on the decline in ECR this quarter. Assuming EBITDA is trending the right way, is it fair to assume that that moves higher again over the coming quarters? We just hit the timeline slightly last quarter, not just for, you know, some softness that we saw in the market for Sono Bello in Q1, but also for pushing out their new breast augmentation program and rolling that out, which we saw taking a bit longer. We had pushed the timing out about a year at Q1. We're probably not going to shorten it in the near term. We'll continue to see how they roll out that new program. I don't know, Steve, if you want to add. Yeah, on the ECR, David, the ECR calculation includes CapEx. Sometimes you'll get a lumpy CapEx spend in a quarter that will affect the ECR, which includes some growth CapEx too. That would likely be the reason there. Thank you. When I think about the balance sheet, when you look at leverage internally, are you viewing this on a consolidated basis, including the convert, or just on a senior- debt basis, given that's what the covenant factors in? Maybe following on from that, could you talk about your current balance sheet capacity for new investments over the next 12 months based off your current outlook and assuming no redemptions in the portfolio? Is that the question on what the leverage ratio that we report for each of the partners includes? Sorry, Amanda. It's your own balance sheet. Like just following the convert deal in May, I'm just trying to get a sense around how much capacity you have for new investments and just how you actually think about leverage internally. Yeah, we have $200 million of room on the current credit facility at the U.S. that's available to us. In addition, we could go back to the convert market to the extent that deployment exceeded that value. We also always have the possibility of redemptions as we look 12 months out; that can also be an additional source of capital. Between all of those avenues, I think that we're well positioned to meet the requirements of the pipeline that we see ahead of us. Yeah, I'm pretty happy right here, David. Having $200 million of capacity is a good place for us. It's a comfortable place. I don't want to have our debt too low, to be quite honest, because we will get redemptions. We haven't seen that many over the last five years. If you look at our kind of timeline as a company, we started common equity investments along with our preps about six years ago. Using a kind of a typical six-year hold, which we've had over our 21-year history, we're going to start to see some of those companies come to the market over the next 12- 36 months. I don't want to have our debt too low. I want to make sure that we've got an efficient use of capital and cost of capital. That's something that we monitor all the time. It's a bit of a 12-ring circus where you've got a lot of deployment opportunities and 20 companies in our portfolio that at any given time could be making plans to sell. That's kind of the juggling act that we try and have with our balance sheet. Right now, I think it's in a kind of a perfect place. Maybe if I could squeeze one more in, obviously, it's early days with FMP in terms of, you know, they've had to manage through the DOGE impact. At least my initial thoughts are the business is probably performing better than expected given what happened. It was interesting, you've pointed to distributions coming back in January, obviously, that you've been talking with them in the background. Is it too early to give any estimate around the potential size of that, or will that sort of be dependent on how the business performs in the interim? We currently have CAD 1.2 million reflected in our outlook for the next 12 months. That's sort of a baseline low estimate. We think that they've troughed during this quarter. September is fiscal year end for the U.S. federal government. We're hoping to get some more information as we get through that period as far as contracts and spending outlook for the coming year. We think that from the information we have right now, that CAD 1.2 million is a fairly conservative estimate. There are some opportunities that might get higher. We thought that was the safest place to put a stick in the sand at this time. Thank you. That's helpful. I will pass the line. Thanks, David. Thank you. As a reminder, ladies and gentlemen, if you have a question at this time, please press star one one on your telephone. Our next question comes from the line of Nathan Po from National Bank Financial. Your question, please. Good morning, guys. Morning. A lot of my questions have already been answered. I guess we'll start off with some housekeeping. Just checking in on the CAD 25 million on NCIB spending this year. How are we feeling about that given Q2 seemed just a bit, a touch muted versus Q1? Yeah, we're targeting really a 75% payout ratio, including the NCIB, and we hit that for the quarter. With some of the timing of the tax payments and some higher transaction costs, the level that we spent during the quarter brought us right to that 75% mark. With FMP just delaying some distributions, that also fed into that number. Our target for the year is that 75% mark as opposed to the CAD 25 million. Gotcha. That's helpful. I noticed the commentary on the seasonality of common dividends. Can we get some color on how you see that seasonality going forward, especially as your Q3 revenue guide was strongly lifted by such dividends? Fleet does pay a healthy dividend that, you know, last year I think that was about CAD 14 million. They pay their dividend following their June year-end. They have a fiscal June year-end and then post-audit, they generally declare their year-end distribution. The timing of that really does sway the overall, you know, our CAD 20 million estimate of annual common distributions is, you know, very heavily weighted to that one payment, which generally happens in Q3. The other peak, I mean, much lower peak, I'll throw out, I don't know, CAD 4 million, comes in Q1. As a lot of our other companies are, you know, going through their fiscal year-ends, doing the same process around audit and declaring their year-end dividends and distributions from the common to shareholders, we also see a bit of a bump up with higher common in Q1. Q2 and Q4 are generally lower. I think this quarter we had CAD 2 million. Yeah. I don't know if that gives you some color. The other three quarters are a little harder, but Q3 is generally about 50% of that common estimate for the year. Gotcha. It's just in particular Q3 and Q1 more so than anything else. Yeah, Q2 and Q4. Depending on timing, it's hard to predict and driven by the different shareholders and how well the business is done and how comfortable they are with their cash balances and how, you know, when they decide to declare that. That's how it's played out the last couple of years generally. Okay. Thank you. That's very helpful. Moving on to the actual partners, commentary on Sono Bello seemed to inflect very positively over the last quarter. What's driving that other than the rollout of the GLP-1-related procedures? Is there anything else behind that? They continue to add new locations, probably at a slightly slower pace than they did a couple of years ago, just with a nod to the softer consumer spending market. Consumer sentiment in the U.S. has improved quite a bit over the last few months. That's a positive there. Really, it was dollars per procedure that was responsible for the beat of their budget and their record quarter. It's not just the GLP-1-related procedures. They've added some other products as well. They've got a wonderful management team that has been so proactive in adding new procedures, like skin tightening and breast augmentation. I won't go through all of them. It's a high-growth story and certainly a very, very well-managed company. I appreciate that color. Just one last one. Circling back on that consumer sentiment, with the recent passing of the One Big Beautiful Bill Act, we've noticed through other channels that business sentiment might be improving based on that. In your experience, have you noticed any changes in tone or outlook within your partners? Not really. The one company in our portfolio that we're watching closely is LMS out of Vancouver. They're the largest installer of rebar in Western Canada and also have operations in California. The steel tariffs that Canada has put in for Canada and the quotas for imported steel could be a longer-term issue there. They've bought most of their inventory that they need to for their current projects, but going forward, those tariffs and higher costs on steel will have to be passed on to their customers. That's in their contracts; that does get passed on. However, over the long term, do people stop building buildings in Western Canada because of the cost of steel? I know there are many lobby groups talking to the Canadian government about that. They're trying to protect the Ontario steel industry. In the meantime, there's really no steel producers in Western Canada for Western Canadian construction companies to get steel from. All of it gets imported, typically from Asian countries. They're really going to hurt the development industry in Western Canada. We'll see what happens there. That's something that we're keeping an eye on. Other than that, very little impact from the tariffs within our portfolio. I just add that the one positive to Alaris, as opposed to the partners from the Big Beautiful Bill, is it does move the interest deductibility back to EBITDA from EBIT. That will be beneficial for us with regards to our future taxes. Great color. Thank you very much. I'll turn it over. Thank you. Our next question comes from the line of Trevor Reynolds from Acumen Capital. Your question, please. Hey, guys. Just a couple of quick questions here. I was wondering if you could provide an update on Heritage and where that sits today. Heritage has had a nice rebound, actually. They've been cash flow positive since March. We've been putting a lot of work into Heritage, including one of our former partners that now works for Alaris full-time as a consultant, kind of a roving consultant to any of our companies that need help. He's been spending a lot of time with Heritage. We think we've got the management team sorted out there. Their bidding process on new work has improved considerably. That was the big problem a couple of years ago, bidding at what ended up being negative gross margins on new work. That's all sorted out. We've got a good backlog with really strong margins. We're cautiously optimistic there. I think we're on a nice path, no debt, and now profitable. Now it's just going to take time to get the company into a position where we either decide to put it on the market and sell it, or if we just want to hold it long term. Either way, we're in control of that company, and things have progressed quite nicely. Got it. Okay, great. And Sono Bello elected to pick their payments again this quarter. Just wondering if that's the expectation moving forward or maybe any info you can provide on that. Yeah, they've indicated that they will pay all cash in the next quarter. We'll see how things continue. They're an extremely conservative company. They have a very large cash position, but you know, they like to have that and use the PIK kind of accordingly. They do expect to pay all cash in Q3. Great. I think last one here, just on FMP. The contracts that aren't coming back, are those through the government, or are those they're finding new contracts outside of those government ones that they had previously? These are government contracts. Just as a kind of anecdotal example, some of the contracts were taken down. Instead of seven consultants in the department, they took it down to one. A couple of months later, they said, geez, there's still work that actually needs to be done here, and they added back two or three people. You've seen contracts that either fully went away or almost fully went away bring people back in. That seems to be continuing where, obviously, the current regime needed some big press clippings at the start. There's work that actually does need to be done, and I think a lot of companies that had things canceled on them are seeing that. Great. Actually, just squeeze in one more. I guess just on the redemption front, given the strength that some of these companies are having, like I know you guys had kind of bumped up the targets on some of the redemptions previously. Do you have any sense, like, is anything moving more near-term based on the strength? I wouldn't say near-term. I think it would be tough, you know, being in August now. I think it'd be tough to see things close before year-end. I do think in the first half of 2026, we'll probably see one or two redemptions there. Those would be ones that I would very much welcome because they'll show some really significant common equity gains in addition to great returns on our press and allow us to, you know, pay down debt, redeploy capital very profitably since so much of the income will come from the common equity side of it, which we're not really being, you know, valued for in the market today. Those are things that I think are going to be great catalysts for our stock. Great. Thanks for taking my questions. Yep. Thank you. Our next question comes from the line of Jeff Fenwick from Cormark Securities. Your question, please. Hi. Good morning, everyone. Steve, maybe one more partner update here on Ohana. Could you give us a bit of an update there? It looks like they had a step up in their ECR and top line, and EBITDA numbers seem to be trending higher. I know they had some initiatives underway there that look like they were going to boost the performance this year. What's the update there? Yeah, things are continuing to go extremely well at Ohana. Couldn't be a more stable system. It's why so many private equity firms have tried to or do own Planet Fitness Systems in their portfolio. The price increase has worked extremely well. That is kind of filtering through as new people join, and we're seeing a nice uptick in year-over-year EBITDA. They are looking at an acquisition right now as well. They've got excess capacity on their debt facility. We probably won't need to put any more money in, but certainly would increase our expected returns as a large common equity holder when they do exit. Yeah, things are going extremely well at Ohana. Great. That's great to hear. Maybe one question for Amanda. I noticed you changed the approach to how you calculate your free cash flow or your distributable cash flow this quarter. Maybe just a bit of color about why you made the change. Does it net out the same bottom line result, or are you maybe going to be a little higher or lower versus the prior presentation? The main step was just how we present the working capital versus cash and to better align with how that distributable cash flow flows into the payout ratio. Previously, the payout ratio was on a cash basis. The distributable cash flow had a bit of working capital. Just to better align that and be able to present it and have one rule directly into another is why we aligned the presentation. It does shift things a little bit. For instance, in the old presentation, the cash flow impact of, say, our bonus payment to staff, which gets paid out in March, was hitting in Q1 of 2025. Under this new presentation, without contemplating the working capital and cash taxes, those will be sort of in the periods paid, if that makes sense. Okay. On the numbers you provided there, it does look like the payout ratio was relatively high in the second quarter. I think you called it maybe it was higher cash taxes, and I know you had some added transaction-related fees in there. Anything else that was at play? Can we expect those cash taxes then to dip down in subsequent quarters? Yeah, I think we had about CAD 7 million of cash taxes in the portfolio entities. Some of that was a catch-up for 2024. We filed our Canadian return, so there was a bit of it from a cash basis, some extra payments that went out from that standpoint. I do think we'll dip down to a more normal level. Also, in Q1, we had a refund that came back. That also on a cash basis for Q1 created a little noise in the distributable cash flow as well. Okay, great. That's all I had. Thank you. Thank you. This does conclude the question- and- answer session of today's program. I'd like to hand the program back to Steve King for any further remarks. Great. Thanks, Jonathan. Thanks, everybody, for tuning in and such great questions. Looking forward to next quarter already, obviously with a better FX outcome than what we had this quarter, hopefully continued portfolio strength and deployment. Thanks again. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.