Finning International Inc.

Thank you for standing by. This is the conference operator. Welcome to the Finning International third 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 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 Amanda Hodgson, Vice President, Investor Relations and Treasury. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Finning's third quarter earnings call. Joining me today is Scott Thompson, President and CEO in Greg Powell's trust, EVP and CFO. Following our remarks today, we will open the line to questions. This call is being webcast on Binning.com. We have also provided a set of slides that we will reference during our prepared remarks. The slides are posted on the Events and Presentations 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 the accompanying presentations will be archived on our website. Before I turn it over to Scott, I want to remind everyone that some of the statements provided during this call are forward-looking. Those 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 forum 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 sitting to actual results could differ materially from current expectations. Scott, over to you.

Thank you, Amanda, and good morning, everyone. On today's call, I will speak about our improved earnings capacity and the exciting opportunities we see in our business as the transition to clean energy gains momentum. I will also talk about the steps we are taking to proactively manage supply chain constraints and inflationary pressures going forward. Greg will then provide an update on our financial performance in the third quarter and our strong execution towards the mid-cycle targets we communicated at our investor day. Please turn to slide two. We are very pleased with Q3 results. Our global team delivered a record third quarter EPS of 61 cents, which is the highest quarterly earnings in Finning's history on an adjusted basis. This performance is a direct result of our strong execution to deliver on our strategic plan and improve our earnings capacity. We have rebuilt our business to produce significantly better results across all metrics and expand our return on invested capital going forward. Our consolidated return on invested capital is approaching 15%. We continue to drive our construction product support growth strategy by leveraging our digital platform Cubic and offering a broader scope of customer value agreements and rebuild options to customers. We have seen growth in construction product support in all of our regions. While our total product support revenue was up 11% compared to Q3 2020, our construction product support revenue increased by 17% over the same period. In the UK, we are excited to provide HS2 customers with digital solutions on our Qubit construction platform. This platform gives customers access to data to enable smarter decision-making with a view to achieving productivity gains, cost savings, and better safety performance at construction sites. We are benefiting from our reduced cost base and continuous efforts to make our operations as efficient as possible. Our SG&A has a percentage of net revenue of 17.8% in the third quarter. All of our regions are demonstrating strong operating leverage as we are progressing towards our SG&A target. Our organization is becoming increasingly more digitized, relying on data from connected machines and market analytics. We are constantly driving improved inventory forecasting, more agile processes, and better pricing decisions. This allows us to proactively manage our inventory and generate solid gross profit margins in a highly competitive and constrained supply environment, such as the one we are facing today. We were able to increase our inventory by $150 million from December 2020. While we expect some delays in delivering equipment to customers, we are confident that our proactive measures have contributed to a healthy inventory position and will enable us to meet our revenue targets. When we compare our performance to the adjusted Q3 2019 results, which was pre-pandemic, our EBIT is up 13% and our EPS is up 24%. Our consolidated EBIT as a percentage of net revenue this quarter was 8.6%, the highest profitability in the last 15 years on an adjusted basis. Our teams should be proud of this achievement, especially since our revenues have not yet recovered to 2019 levels. It is their dedication and exceptional execution in serving our customers that have delivered such strong results for our shareholders in a very complex and dynamic environment. Our outlook remains positive. The market fundamentals are strong, our backlog continues to increase, and the supply chain headwinds could result in a more prolonged equipment cycle. We expect a tight supply environment to lengthen lead times for new equipment and parts in all regions. As a result, we are seeing increased demand for used equipment, rentals, and rebuilds. We continue to proactively manage these constraints by taking mitigation steps in collaboration with Caterpillar and our customers, such as optimizing preparation time on equipment, sourcing used equipment, and offering rebuild and rental options. While the broad-based strength in commodity prices has created a positive backdrop for our business, particularly in our resource markets, we are dealing with an industry-wide escalation of inflationary pressures from price and wage increases. We are monitoring these trends closely and are taking steps to address the potential impacts on our business. Many productivity initiatives are underway in our regions to further reduce fixed costs and make our operations more efficient. We are also taking proactive steps to mitigate technical labor shortages, including leveraging our improved network capacity and newly implemented continuous shifts, conducting targeted recruitment campaigns, and expanding our apprenticeship programs. For example, we have recently announced the investment in a new RRR facility located on the traditional territory of the Tecumseh Swabham Indigenous Band in Kamloops, British Columbia. Construction is now underway. The larger footprint of the new facility will allow for business expansion and the creation of approximately 100 new jobs. Importantly, the new building has been designed to be more energy efficient and will include improved heating and cooling, as well as efficient lighting, motion sensors, wash water recycling, light harvesting, and on-site renewable energy. This facility will reflect many of the operational efficiencies planned for our RRR network, including continuous shifts, specialist tooling, autonomous technology, and consolidation of all regional rebuild work. We look forward to sharing these benefits with our customers when we open the doors in late 2022. Before I turn it over to Greg, I will speak about the latest developments and exciting opportunities we see in the clean energy space, both in supporting our customers and reducing our own carbon footprint. Natural gas, hydrogen, and electrification are becoming an increasingly important aspect of our business as our customers are progressing towards their long-term goals of achieving net zero greenhouse gas emissions. I believe our business has great potential for growth as we support our customers in their transition to cleaner energy sources. Caterpillar has accelerated the development of power solutions utilizing natural gas blending and hydrogen. We recently hosted a technology demonstration day in Calgary to showcase Caterpillar's Tier 4 and hydrogen blending capability to customers in the oil and gas and electric power generation industries. We have cost-effective and reliable products today that will help our customers optimize their operations and support their emission reduction targets. A great example is a well-serviced fracturing trailer that utilizes a Tier 4 dynamic gas blending engine along with a transmission and hydraulic pump. CAT's dynamic gas blending engine is the only Tier 4 DGB engine on the market that allows for substitution of up to 85% of diesel fuel with natural gas. In addition, as was demonstrated on that day, these engines can substitute up to 20% of fuel with hydrogen. We are increasingly seeing our fracking customers switch to DGB technology. In fact, we have more than a dozen of these engines in our current backlog in Canada. We have a large footprint and capabilities in Western Canada to capture opportunities in natural gas, which is widely considered to be an effective and economic transition fuel to clean energy. Blending increasing proportions of hydrogen into natural gas is viewed as a near-term path to lowering emissions with existing technology. We believe that compressed natural gas Renewable natural gas and hydrogen have significant potential with our customers interested in exploring the use of low-carbon fuels. With this in mind, we made a strategic decision to expand our four fuel capabilities by acquiring a majority ownership interest in ComTech, an early-stage developer of alternative energy infrastructure and provider of proprietary mobile fueling solutions for CNG, RNG, and hydrogen. The electrification trend is also gaining momentum and accelerating demand for copper and lithium globally. Copper mining is contributing about 25% to our revenue today, mostly in Chile. We are cautiously optimistic about copper mining growth in Chile as we await the outcome of the general elections and clarity on the proposed mining royalties. We are also seeing meaningful growth in mining for copper and other metals in Western Canada. Caterpillar's advancements in electric equipment for underground mining in partnership with BHP to develop battery-powered large mining trucks are exciting news to us and our customers. Earlier this year, we announced our own target to reduce our absolute GHG emissions by 20% by 2027 from 2017 levels. Our initiatives focus primarily on minimizing the environmental footprint of our facilities and fleets, including the use of natural gas and hydrogen. In 2022, we will start using natural gas to power a portion of four fuel and thinning service vehicles. We have also recently secured sustainability-linked terms for our $1.3 billion credit facility, which aligns our cost of borrowing to our progress in reducing emissions and further demonstrates our commitment to the environment. Looking ahead, we expect strong market conditions to continue and the mid-cycle environment to transition to upcycle in 2022. We remain focused on growing and compounding our earnings and driving value for all of our stakeholders. I will now hand it over to Greg.