Finning International Inc.

Thank you for standing by. This is the conference operator. Welcome to the Finning International Inc. first quarter 2024 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 then 0. I would now like to turn the conference over to Greg Palastrup, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, Operator. Good morning, everyone, and welcome to Finning's first quarter earnings call. Joining me today is Kevin Parks, our President and CEO. Following our remarks today, we'll open the line to questions. The call is being webcast on the Investor Relations section of Finning.com. We've also provided a set of slides that we'll be referencing during our prepared remarks. The slides are posted on our website. An audio file of this call and accompanying presentation will be archived. Before turning it over to Kevin, I want to remind everyone that some of the statements made during this call are forward-looking. Please refer to slide 9 and 10 for important disclosures about forward-looking information, as well as currency and specific financial measures, including 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 our actual results could differ materially from current expectations. Kevin, over to you.

Thank you Greg and good morning everyone. Today I would like to start by thanking our employees for their commitment to serving our customers winning strategically important deals, diligently building execution momentum of our strategic plan, and delivering a solid quarter. Our people are our greatest competitive advantage, and we are committed to building safe and supportive workplaces. We are working hard to simplify our business and empower our teams to build customer loyalty. Turn into our first quarter results on slide two. My team and I are particularly pleased with our strong new and used equipment performance, that builds population of equipment and engines in our end markets and drives future product support business. We're also encouraged by the substantial backlog and the 700 million of additional backlog since the quarter end. Following a period of record growth and a very strong first quarter in 2023, our product support is slightly down year over year. We consider this a transitionary phase due to some challenging market conditions and specific customer plans. If we look at our product support CAGR over the last two years, we've seen solid growth at 12% CAGR. Greg will provide more details on our product performance in each region. The great progress we are making to grow used equipment and power system sales in all regions drives resilience and helps offset the impact of lower product support in the quarter. Used equipment revenue is at 48% year over year, reflecting our significantly increased participation in a very active used equipment market. We recently launched Fused Equipment Sales Platform, specializing in selling as-is, where-is used equipment globally and targeting mostly non-cap, high-error machines. Our power systems revenue was up 37% year-over-year. We added large orders from data center customers in the UK and Ireland and Chile to our quarter one 2024 backlog and secured significant new power systems orders post quarter one. We're also demonstrating strong cost control with SG&A as a percentage of net revenue down 130 basis points from Q1 2023, which is a critical component of building full cycle resilience while increasing our earnings capacity. Looking ahead, our positive outlook for 2024 is underpinned by robust end markets and strong commodity prices, large customer orders awarded in April, which bolster our backlog, and the continued disciplined execution of our strategic priorities. We are extremely pleased with the important strategic wins in each region in April, including multiple copper mines in Chile, the oil sands in Canada, and data centres in the UK and Ireland. These awards represent over 700 million of new equipment orders for delivery starting in the second half of this year, laying out a solid foundation for future product support opportunities. As previously discussed, with the electrification trends driving strong copper demand, Chile is mobilizing for growth. We are very pleased with the large orders in April, including with Cadelco, whose order was valued at $380 million, where the fleet will be supported under a 10-year maintenance contract, and this is an important strategic win for Finning and Caterpillar. The new agreement covers four Cadelco mines and marks the first time Caterpillar trucks will be deployed at two of those mines. Building equipment population and increasing our proportion of contracted revenue are key to our strategy, and this wing is an excellent example. We're optimistic about the second half of 2024, and we're confident in the direction of our business. We expect product support growth rates to improve in the second half of the year as we continue to book and execute rebuilds, grow contracts, and hire technicians. We remain laser focused on improving our working capital velocity, and unlocking invested capital to drive substantial free cash flow generation going forward, with a number of key initiatives underway in all of our regions. These initiatives include increasing new equipment preparation velocity. We expect the new orders that we've taken to move through our backlog much faster than previously. Increasing inventory performance, on-time informed performance for our customers. Working closely with our customers on planning component exchanges and rebuilds. and optimising lower ROIC activities. We are constantly reviewing the pace of investment in our rental fleet to ensure we are achieving the growth goals and return on investment. Our focus is squarely on executing our strategic plan, which we laid out at our 2023 Investor Day. We are growing our business in a moderating growth environment, demonstrating improved earnings power through driving product support, building full cycle resiliency by unlocking invested capital and delivering sustainable growth in used and power systems. We anticipate the execution of our strategy will have an increasing impact through the year, with improving product support growth rates and substantial free cash flow. We are mobilizing all resources to build momentum, efficiently deliver our newly awarded equipment packages, and execute rebuilds in a capital efficient way. We are pleased to increase our dividend by 10% and also renewed our share repurchase program. The dividend increase is well supported by our improved earnings capacity and demonstrates our strong commitment to returning capital to shareholders. Before I turn it over to Greg, I want to mention that we publish our 2023 sustainability report soon. We are proud of the work we're doing to improve safety, reduce our emissions and support our customers in achieving their decarbonisation goals. We're building a strong and inclusive company, which has a positive impact on the communities in which we operate. I encourage you to take a look at this report when it's available on our website. With that, I'll hand it back to Greg.