Finning International Inc.

Thank you for standing by. This is the conference operator. Welcome to the Finning International second 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 then 1 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 by Scott Thompson, President and CEO. Following our remarks today, we will open up the line to questions. The call is being webcast on Finning.com and an audio file of this 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 our products, promotions, customers, and community involvement. Before I turn it over to Scott, I want to remind everyone that some of the statements provided in 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. Please treat this information with caution as sending 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 how we are navigating the current environment provide an update on market activity, and discuss our path forward. As anticipated, Q2 was the most difficult quarter we have faced in recent history as challenges related to oil and commodity price volatility were exacerbated by COVID-19 disruptions. I would like to start by saying thank you to our employees for their courage, adaptability, perseverance, and commitment to safety at work and in our communities. providing the service and support we are known for despite continued uncertainties. We can be proud of a total injury frequency rate that decreased by over 40% globally and customer loyalty scores that increased by 20% in Q2 2020 compared to Q2 2019. This performance shows that our teams are doing an excellent job supporting each other and our customers, most of which have been designated essential services. Despite the challenges we faced, we have made significant progress in critical areas we highlighted at the beginning of the year. We have improved execution in South America, lowered the cost base in Canada, positioned ourselves well to capture HS2 opportunities in the UK, and reduced our finance costs. The swift measures we have taken to tightly control costs and capital globally will remain in place for the rest of the year and into 2021. Where we've qualified, the use of government programs has helped us to preserve a significant number of jobs and has provided an effective bridge to enable us to retain critical technical capabilities and talent through this unique period of uncertainty. During the second quarter, we also accelerated our existing strategic plans to drive improved productivity and competitiveness. Greg will provide more details on this in a moment. While Q2 was very difficult and the pace of economic recovery in our regions remains uncertain, we are encouraged by improvements in activity levels since May in all regions, with notable increases in rental activity, machine utilization hours, and product support revenue run rates. Since the recovery in oil prices, oil sands producers have put trucks back to work and are expected to be operating at pre-COVID levels by the end of August. That said, mining contractors will take longer to return to pre-COVID activity levels. In construction, there has been a notable improvement in machine utilization hours and rental utilization in Western Canada. These trends supported improved part sales run rate in June, which bodes well for improved product support activity going forward. However, activity is still expected to remain below 2019 levels in the third quarter. The strength in the price of copper since Q1 is providing continued support and stability for copper mining in Chile. However, elevated cases of COVID-19 infections in South America presented a challenge for our customers and our operations in the region. Infection rates in Chile increased through the quarter and began to flatten at the end of June and decreased further in July. We have deployed necessary resources and efforts to maintain operations while keeping our employees safe. While our customers did temporarily park some trucks due to operator availability and were not running maintenance programs to full capacity due to workforce restrictions, the vast majority of our equipment in Chilean copper mining operations continued to be utilized. Assuming we continue to see improving infection rates and easing of restrictions, we are optimistic about the outlook for copper production and we expect to see improved product support activity as customers catch up on maintenance throughout the back half of the year. Importantly, I am pleased with how we are leveraging our ERP system to generate operating efficiencies and improve execution in South America. Without any meaningful government support, the South American team was able to reduce SG&A by 17% year-over-year, and despite a very challenging operating environment, our adjusted EBIT margin in Chile improved compared to the second quarter of 2019. The efficiencies we are now achieving with one common ERP system have allowed us to execute our cost reduction plans in the region. In the UK and Ireland, we had strong additions to the power systems backlog in Q2. We resumed execution of delayed power systems projects in July and expect to deliver a number of large power systems projects currently in our backlog during the second half of 2020. A significant increase in machine utilization hours probed improved part sales in the construction sector in June. We are pleased to see earth-moving work for HS2 move forward in the next 6 to 12 months. This multi-year megaproject is expected to require approximately 1,100 units of heavy equipment, representing a total direct sales opportunity of approximately 390 million pounds. With our technology solutions, we are very well positioned to capture new equipment and product support opportunities related to this project. Our UK backlog is up year over year, and this does not yet factor in potential HS2 deliveries. On a consolidated basis, our backlog has remained relatively stable at $700 million. Poor Refuel's performance was a bright spot in Q2. Forer Fuel achieved 5% growth in EBITDA on a 4% decline in revenue compared to Q2 2019 and contributed $13 million of positive free cash flow in the quarter, bringing its total free cash flow contribution to approximately $35 million since acquisition in February 2019. In July, the Finning and Forer Fuel team secured a fueling agreement with ACON for a portion of the Coastal GasLink LNG pipeline project in northern British Columbia. ForaFuel is well positioned to deliver meaningful revenue synergies in line with our initial expectations. I want to conclude my remarks by highlighting our continued vigilance on costs and tight management of invested capital. We have significantly reduced our SG&A and demonstrated strong free cash flow conversion in the first half of 2020, and we expect these trends to continue through the second half of the year. The second quarter environment was challenging, and I want to thank Finning employees for strong execution under trying circumstances. We have a resilient business model, and our financial position is strong. Assuming a continued positive market trajectory, we are well positioned to succeed in the upcoming recovery phase. And on this note, I will pass it over to Greg.