Finning International Inc.

Thank you for standing by. This is the conference operator. Welcome to the Finning International first quarter 2020 conference call and webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Analysts who wish to join the question queue may press star and send one on their telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Greg Palaszczuk, Executive Vice President and CFO. Please go ahead.

Thank you, operator, and thank you everyone for joining us on today's call. I'm Greg Palaszczuk, EVP and CFO, and I'm joined today by Scott Thompson, President and CEO. Following our remarks today, we'll open up the line to questions. The call is being webcast on Finning.com, and an audio file of the call will be archived for three months on our website. I also encourage everyone to follow Finning on Twitter, LinkedIn, and Facebook, where we have a regular flow of interesting content on products, promotions, customers, and community involvement. Before I turn it over to Scott, I want to remind everyone that some of the statements provided during this call are forward-looking. This forward-looking information is subject to risks, uncertainties, and other factors as discussed in our annual information form under key business risks and forward-looking information in our MD&A under risk factors and management and forward-looking disclaimer. This quarter's MD&A includes important additional detail regarding the potential impacts of COVID-19 and the associated risks. Please treat this information with caution as Finning's actual results could differ materially from current expectations. Scott, over to you.

Thank you, Greg, and good morning, everyone. On today's call, I'm going to comment on our performance in the first quarter, provide an update on how we are navigating the current environment, and discuss our outlook going forward. First, I'd like to thank all Finning employees around the world who are demonstrating great resiliency and adaptability in serving our customers and taking care of one another. I'm very proud of our teams and of what they've achieved in the first quarter. Despite challenging market conditions to start the year and then complications from the COVID outbreak, we delivered strong performance. We kept close to our customers as the crisis developed, and we were able to maintain our operations with only minimal disruptions. The feedback I've received from our customers has been both positive and appreciative of our support and operational performance. Despite the difficulty of the situation, Q1 was one of our best quarters in terms of improved safety and customer feedback. Our total incident frequency rate decreased by 36% and our customer loyalty scores increased by six points in Q1 2020 compared to Q1 2019, both remarkable improvements achieved by our employees. During the quarter, we achieved what we set out to do at the start of the year, despite an increasingly challenging market backdrop. Despite lower revenue, our EBITDA and EPS grew by five and 9% respectively year over year. Our execution in South America is improving as evidenced by strong product support, lower SG&A and profitability recovering. We are benefiting from a reduced cost base in Canada and we delivered higher profitability on lower revenue year over year. Our UK operations were impacted by COVID related disruptions more significantly than other regions in Q1, which exacerbated already low business confidence and activity levels at the start of the year. While we are expecting a challenging Q2, we are encouraged as we look beyond Q2 with a strong position to capture HS2 opportunities and a solid backlog of power projects when project delivery resumes in the second half of 2020. And finally, we're improving our cash profile and reducing financing costs. The organization-wide focus on working capital discipline and inventory reduction led to a strong foundation for free cash flow generation during 2020. We are benefiting from the diversification of our business across geographies and market segments. While our UK operations have been the hardest hit, our customers' copper mining operations in Chile have been less impacted to date. Overall, the resilience of our business model and improved execution amidst low commodity prices, low GDP growth, and COVID disruptions at the end of March delivered earnings of 33 cents per share in the quarter. It is worth highlighting what we're doing to protect the company and all of our stakeholders in a period of unprecedented uncertainty as we continue to adapt to COVID-related headwinds in each of our regions. Our global teams responded very quickly and effectively as the crisis unfolded. We have robust continuity plans in place with our top priority being the health and safety of our employees, customers, and the communities where we operate. We have taken a risk-based approach to assess each of our facilities, and the executive team has been meeting daily to review and reevaluate our actions. Our measures include distancing, team separation, and extensive work from home, as well as elimination of all non-critical travel. We are seeing the benefits of our investments in IT infrastructure, which are now enabling efficient work from home. Employees who can work from home are doing so. In order to align our costs with expected changes in business activity in each region, we started by reducing board and executive compensation, and then worked with salaried and hourly employees, as well as our union partners, to implement pay reductions, reduced work schedules, furlough, and workforce reductions in some areas. For example, in the UK, about 50% of our employees are currently furloughed, and we are leveraging the UK government assistance programs. We also took proactive measures to control working capital investments. As a result, we were able to deliver significantly improved cash flow in Q1 while concurrently strengthening our liquidity position. With the full support of Caterpillar, our global supply chain continues to function well with minimal disruptions to date and global continuity plans in place. Our investments in digital and omni-channel technologies are paying off as adoption is accelerating. We now have 47% of our non-service parts ordered online in Canada, up from 25% in 2017. We set a new record in digital parts dropbox volume in April as the number of new customers more than tripled compared to the prior year. Globally, over 80% of the CAT assets in our territories are connected. This enables us to remotely monitor more equipment and become more sophisticated in ordering inventory. I am pleased to see an increasing level of technology adoption from customers, which is helping our business maintain effective operations as well as increasing the rate of return on investments we've made in recent years. I will now turn to our perspective going forward. The ultimate impact of COVID is difficult to predict as it will depend heavily on the duration of social distancing and quarantine requirements. The timing and pace of macroeconomic and commodity market recovery are also unclear at this time. We expect the impacts of these factors on our second quarter results will be material. Our consolidated net revenue in April was down approximately 15% from average monthly net revenue earned in the first quarter of 2020. In each of our regions, our customers have been reducing capital spending and implementing cost containment measures and business continuity protocols with a range of impacts on activity levels. Since the middle of March, some of our customers have scaled back or in some cases suspended operations to comply with requirements and recommendations of governments and healthcare authorities. We are having ongoing dialogue with our oil sands and mining customers to understand the risk of potential disruptions to our operations. To give you a few examples, in the oil sands, our producer and contractor customers have indicated they may park about 20 to 30% of their truck fleets for a portion of the second quarter. Fortunately, our largest oil sands customers are more dependent on WTI than Western Canadian select prices, so they are less impacted by the current oil price differential than other producers in the region. Near-term declines in activity are expected to be greater in the construction sector where machine utilization hours and product support run rates are down since mid-March, but seem to have recently stabilized. Run rates have been more resilient in the regions of British Columbia, Saskatchewan and Chile, but lower in Alberta, the UK, Ireland, Bolivia and Argentina. Importantly, our mining customers in Chile continue to operate and the vast majority of our equipment continues to be utilized. We will continue to control what we can, match our capital investments and cost base to activity levels and accelerate cost reductions where necessary. And on this note, I'll pass it over to Greg.