Finning International Inc.

Thank you for standing by. This is the conference operator. Welcome to the Finning International Inc. First Quarter 2021 Investor 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 Chief Financial Officer. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Finning's first call, first quarter earnings call. Joining me today is Scott Thompson, President and CEO. Following our remarks today, we'll open the line to questions. This call is being webcast on Finning.com. We've also provided a set of slides which we will reference during the prepared remarks. The slides are posted on the events and presentation page of the investor relations section of our website. You can also view the slides on our webcast page. An audio file of this call and accompanying presentation will be archived on our website. Before I turn this call over to Scott, I want to remind everyone that some of the statements provided during this call are forward-looking. Please refer to slides 10 and 11 for important disclosures about forward-looking information, as well as currency and non-GAAP financial measures. Please note that forward-looking information is subject to risks, uncertainties, and other factors as discussed in our annual information form under key business risks and in our MD&A under risk factors and management and forward-looking information disclaimer. Please treat this information with caution as fitting to actual results could differ materially from current expectations. Scott, over to you.

Thank you, Greg, and good morning, everyone. On today's call, I will focus on the first quarter highlights and our expectations for the remainder of the year. Greg will then provide more details on our regional performance and outlook, as well as our free cash flow and balance sheet. Please turn to slide two. We are encouraged by the broad-based recovery in our markets and the growth momentum heading into the second quarter, despite continued challenges related to COVID-19. Importantly, we have improved our operating efficiency, strengthened our balance sheet, and are executing well to capture growth and deliver results during this recovery. We are capitalizing on growing demand for equipment across all markets and regions. Our equipment backlog increased by 57% from December 31, 2020 to $1.2 billion at the end of March, the highest backlog since Q4 2018. Quoting activity remains robust. Our order intake was up by 33% from Q4 2020, the highest intake of the last three years, reflecting a significant increase in all regions. In the UK and Ireland, our backlog reached record levels at the end of March, driven by strong order intake in construction and a significant backlog of power system projects for data center customers. We have secured additional equipment orders for HS2 with 83 million pounds currently in our backlog. We expect to start delivering equipment to this project in the second quarter. In South America, we recently announced contract wins with Chilean state-owned copper mining company, Cadelco, the world's largest copper miner by production. We will supply 22 Caterpillar Ultra Class trucks to the Radomir Tomic copper mine and support the fleet under a five-year maintenance and repair contract. This order is not currently in our backlog, given it was confirmed post-quarter end. We expect to start delivering the equipment in the second half of 2021. In addition, we have secured a five-year extension of our existing product support contract with Codelco's Ministro Halle's copper mine, which operates 39 Caterpillar ultra-class trucks, six Caterpillar shovels, and a large fleet of Caterpillar support equipment. Encouragingly, we will also work closely with Codelco to pilot Caterpillar's autonomous technology at the Ministro Halle's operation. We are now working with both Codelco and TEC to implement autonomous solutions to their operations in Chile. As we continue to navigate through the pandemic-related challenges, I am very pleased with how our global teams are executing on the growth and profitability drivers we outlined during our Q4 investor call. South America delivered a strong first quarter, reflecting improved execution to capture growth opportunities and increased operating efficiencies. Our large mining customers in Chile faced a challenging operating environment in Q1 as they worked to mitigate the impact of the second wave of COVID-19. Copper production in the first quarter was down 2% year over year and down 7% from Q4 2020. After a slow start to the year in product support, customer activity started to improve midway through the first quarter and continues to ramp up. Our return on capital of 14.4% in South America was the highest since Q3 2018, driven by improved working capital performance. The first quarter results highlight the great potential for our South American business once we get through the pandemic and product support gets back on a growth trajectory. In Canada, construction markets continue to improve. We have been leveraging extensive connected assets in our territory and Caterpillar's proprietary algorithms called prioritized service events to generate product support leads, specifically focusing on customer value agreements, or CVAs. CVAs make it easier for our customers to manage their preventive maintenance activities. In Western Canada, the number of construction machines under CVAs has increased by almost 50% since 2019. So far this year, more than 90% of all of our construction equipment sales included CVAs. We are also targeting rebuild opportunities in construction markets. In the first quarter alone, we rebuilt 34 construction machines compared to 21 total certified rebuilds during all of 2020. We are on track to nearly triple the number of construction rebuilds this year compared to 2019. We are encouraged by the early success of our strategy to accelerate product support revenue and market share in the construction segment, and we are well positioned to further build on this momentum. We will have much more to say on this topic and our growth expectations at our investor day next month. We also continue to work with our mining customers in Canada to improve fleet performance and lower costs by extending component life through our integrated knowledge center. Forer Fuel delivered strong performance in the first quarter with a 21% increase in EBITDA on 3% higher revenue compared to Q1 2020. We are accelerating revenue synergies between Finning and Forer Fuel. As part of 4RFUEL's growing relationship with ACON, we will be supplying fuel over the next three years for highway upgrades through the Kicking Horse Canyon in British Columbia. The UK had a great start to the year, marked by additional HS2 wins, record equipment backlog, and healthy growth in product support revenue. Execution in the UK has been exceptional, and we have strong momentum coming out of Q1. The UK has been leading our other regions in vaccinations, which is reflected in a stronger pace of recovery compared to Canada and South America. Encouragingly, product support growth in the UK was 7%, which is directly correlated to return of more normal operating conditions. The cost savings from our global initiatives are tracking to exceed $100 million per year, and we expect to further improve our earnings capacity in the coming quarters. Despite the slower than anticipated vaccine rollout in Canada and continued challenges related to COVID-19, we expect our 2021 earnings to exceed 2019. Our Q1 2021 adjusted EPS of $0.35 was up 16% from Q1 2019 on 15% lower revenue. We have also lowered our finance costs and significantly strengthened our balance sheet with $900 million in free cash flow over the last 12 months. As we increased our inventory orders beginning last fall to deliver on growing demand, we expect our EBITDA to free cash flow conversion to be modestly below 50% this year. Our data-driven approach to inventory ordering allows us to be more proactive, which benefited us greatly leading up to COVID last year, and now gives us good visibility into the recovery. Our focus on sustainability is increasingly appreciated by all of our stakeholders. We are minimizing our environmental footprint and delivering on our commitment to reduce GHG emissions by 20% between 2017 and 2027. We have made significant progress towards this goal with Q1 2021 emission reductions in all of our operations down 11% from Q1 2020 on a consolidated basis. We are supporting our customers in reaching their emission reduction targets by providing alternative fuel engines to reduce CO2 emissions. For example, we recently delivered 12 new Caterpillar Tier 4 Dynamic Gas Blending or DGB engines to Trican Well Services. As part of its plan for an ESG-focused fleet upgrade, Trican announced that it will upgrade one fleet to Tier IV DGB engines. This fleet will realize diesel natural gas substitution rates of up to 85%, resulting in significant cost savings and CO2 emission reductions. The CAT dynamic gas blending engine is an appealing alternative for frac operators, and drilling contractors looking to reduce diesel consumption, providing a great alternative in the transition toward clean energy. Our outlook for the remainder of the year remains unchanged. We are optimistic about market recovery gaining momentum in the second half of 2021 as the vaccine rollout ramps up in each of our regions. However, we expect 2021 revenue to remain below 2019 levels. In the near term, we expect COVID-19 mitigation measures to continue impacting our business. In Chile, we are monitoring the mining industry's response to a second wave, and in Canada, there is continued risk of restrictions, particularly in Alberta. I am confident that we have positioned the business for strong performance going forward as we continue to execute on our profitability drivers. Specifically, we expect to benefit from operating leverage in a recovering market, which will improve our profitability and return on invested capital. We are driving product support growth in all regions by leveraging our digital capabilities to win customer business. We are progressing toward our mid-cycle target of 17% SG&A as a percentage of net revenue. And we will be deploying the significant free cash flow we have generated in a balanced fashion to grow our business and return capital to shareholders. And on that note, I'll pass it over to Greg.