Finning International Inc.

Thank you for standing by. This is the conference operator. Welcome to the Finning International Inc. second quarter 2024 investor call and webcast. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation will be an opportunity to ask questions. Analysts who wish to join the question queue may press star and then one on their telephone keypads. Should you need assistance during the conference call, you may send to an operator by pressing star and zero. At this time, I'd like to turn the floor 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 second quarter earnings call. Joining me today is Kevin Parks, our President and CEO. Following our remarks, we will open the line to questions. This call is being webcast on the Investor Relations section of Finning.com. We've also provided a set of slides on our website that we will reference. An audio file of this call and the accompanying slides will be archived. Before I turn it over to Kevin, I want to remind everyone that some of the statements provided during this call are forward-looking. Please refer to slides 9 and 10 for important disclosures about forward-looking information, as well as currency and specified 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 the 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.

Thanks, Greg, and good morning, everyone. I'd like to start by thanking our employees for their commitment to each other, to our customers, and for their contribution to our strong results. At Finning, we are committed to building a safe and inclusive environment where our teams are empowered to build customer loyalty. We are executing our plan with discipline and focus, simplifying our business and creating a positive impact for our people, customers and communities. Turning to our second quarter results on slide two. We are pleased with our Q2 results. We are growing our business sustainably and building greater resilience into our operating model delivering record EPS and free cash flow for Q2. This reflects the diligent execution of our strategic priorities. We continue to build population in our end markets with strong new and used deliveries in the quarter from our robust backlog, which will drive future product support growth. New equipment sales are up 12% year-to-date, led by Canada with 19% growth. Used equipment revenues are at 57% in the quarter compared to Q2 2023. This is the third consecutive quarter of more than 45% growth as we increase our participation in this important market. Large mining customers are deploying capital to support their long-term plans to sustain production growth. Mining equipment ordered intake was very strong, reflecting significant strategic wins we announced in May. Mining backlog increased 59% from the end of March, and we've already started to deliver equipment from the awarded deals in the quarter. Four ultra-class trucks and a number of support equipment units were delivered before they even hit backlog. I recently spent two weeks in South America with Greg, meeting customers who produce more than 82% of the country's copper, alongside a senior team from Caterpillar. We are encouraged with the constructive tone of the conversations and the acceleration of plans for increased production from brownfield mines. We expect quoting activity to increase in the second half of the year, and our plans to increase capacity and build new capabilities in the region are progressing well. We've added 18 technicians in South America this year, built capacity at our remand center, and fully commissioned our new automated warehouse, which many of you saw at the investor day last September. We are also seeing more constructive discussions in Argentina and positive news from our large mining customers since the government approved the new incentive program for large investments. Construction activity is generally softer than last year. However, we are starting to see customer sentiment improving. In Canada, we delivered two large construction packages in quarter two, and in the UK and Ireland, Sales are in line with prior year despite a material decline in the market opportunity, with market share increasing and our backlog up 15% in Canadian dollars since the end of March. In power systems, demand is strong in our key markets, notably oil and gas and backup power capacity. We're taking orders for large engines into 2026 and quoting business well beyond that point. Turning to product support, as expected, we are operating in a moderating growth environment. Activity and utilization levels are lower than prior year, particularly in construction and also in some mines. Power Systems product support continues to be very robust. This is resulting in lower construction product support, especially in Canada and the UK, where our business is tied to GDP growth and investments in large-scale infrastructure projects. We believe construction activity is bottoming out in these regions, and we expect to see incrementally better machine utilization hours heading into the fall. We're encouraged by our strong pipeline and growing number of construction rebuilds that we now offer to customers at attractive financing terms equivalent to that of new equipment purchases. Construction markets in Western Canada continue to be in a transitionary phase until we see the commissioning of major infrastructure projects. support, fundamentals and outlook remain strong. I will describe the current situation as dynamic and specific to individual mine plans and customers as they drive optimisation and production growth. This includes shifting rebuilding component schedules and in some cases deferring maintenance to maximise fleet availability. We are also preparing against extremely high growth in the same period last year and we expect this to normalise over time and to grow on an annualised basis. We are encouraged by the sequential growth in our product support revenue, which was up 8% from quarter one, 2024. Our quarter two product support CAGR over the last two years was a very solid 14%. We expect product support growth rates to improve in the second half of the year as we continue to add technicians, execute rebuilds, which were up more than 50% in construction in Canada, and increase physical and digital sales coverage. Greg will provide more details on our product product support performance in each region. Our teams are controlling what is in their control, operating thoughtfully and looking for further efficiencies as we continue to build greater resilience into our business model. We see strong evidence of cost control across the organisation. Our ST&A has a percentage of net revenue of 16.2% in quarter two, which is an all-time low, despite costs in Argentina required to execute our low-risk approach. Over the 12 months ended quarter to 2024, SG&A's percentage of net revenue was 16.9%. We are finalising plans to reduce our fixed cost base and further reduce SG&A's percentage of net revenue going forward. Improving working capital velocity remains at the top of our priorities. New equipment orders are moving through our backlog faster and we are working to execute exchange components and rebuild in a more capital efficient way. This supports our efforts to allow working capital, deliver substantial free cash flow, and $330 million was the highest free cash flow we've ever generated in Q2, and we expect to generate substantial free cash flow in the remainder of 2024. I'm pleased with our progress and encouraged we are finding opportunities to lower our fixed costs and improve our capital efficiency as we increase our earnings capacity and strive to achieve consistency in our ROIC performance. We are making progress in our sustainable growth strategy, importantly in used equipment and power systems, which are critical to our resilience. As mentioned, used equipment sales were up 57% year over year. We significantly increased our participation in used equipment markets and are driving strong volumes across retail and wholesale channels. Power systems markets remain very attractive, both in oil and gas and electric power generation. Our per-systems revenue was up 11% year-over-year, including double-digit growth in product support. Our rental business was down in line with softer construction activity and warmer weather conditions. We remain committed to sustainably and profitably growing our rental market share. Optimism in our outlook is gathering momentum, and we are confident we are on track and we are delivering a track record of execution. In Chile, in particular, The copper mining environment is becoming incrementally more positive. During my recent visit to South America, visiting Chile, Argentina, and Bolivia, I was impressed by the strength and engagement of our talent and our people there. We see optimism building in Western Canada energy sector, with new pipeline capacity coming online and the encouraging effort for LNG development. In the UK, the new government have a strong mandate, and we are optimistic this will lead to greater stability, economic growth, and infrastructure development. Our consolidated equipment backlog is substantial at 2.2 billion, indicative of healthy customer activity and order intake in our end markets. We deal with solid results in the first half of 2024, which is a great platform to build on in the second half of the year. With that, I'll hand it back to Greg.

Thank you, Kevin. And please turn to slide three. Our Q2 net revenue of $2.6 billion was up 3% from Q2 2023, led by strong growth in used equipment and higher new equipment sales. EBIT was down 5%, mainly due to lower margins in used and rental equipment, which we're working hard to offset through strong cost and capital resilience. Our EPS was up 2% year-over-year to $1.2, a record for a second quarter, reflecting our cost and capital resilience, as well as the benefit of lower share count. We're also pleased to generate a record $330 million of free cash flow for Q2, compared to $30 million in Q2 of 2023. This is an important milestone, and we look forward to building on this momentum. On slide four, we show the change in our net revenue by line of business compared to Q2 23, and the composition of our equipment backlog by market sector. These equipment sales were up 57%. higher in all regions and sectors, reflecting execution of our growth strategy. New equipment sales were up 3%, driven by higher sales in Canada. Product support revenue was up 0.4% compared to a very strong Q2 2023, with growth in South America offset by lower levels in Canada and the UK and Ireland. Rental revenue decreased by 10% due to lower utilization and rates compared to last year. Our equipment backlog was $2.2 billion at the end of June, up 11% from the end of March. In South America, our equipment backlog is at an all-time high and reflects solid wins as well as industry momentum. Equipment order intake was very strong in the quarter, reflecting significant strategic wins in each region, including contracts with multiple copper mines in Chile, oil sands in Canada, and data centers in the UK and Ireland. As highlighted previously, we do expect improved cash-to-cash philosophy as equipment moves more efficiently through our backlog. Turning to our EBIT performance on slide five. Gross profit as a percentage of net revenue is down 90 basis points, mostly due to lower margins in used and rental equipment. Lower margins in used and rental are consistent with current market dynamics of moderating growth environment, improved equipment availability, and price normalization. As G&A, the percent of net revenue is 16.2%, an all-time low and unchanged from Q2-23, driven by strong cost control. Moving to our Canadian results and outlook, which are summarized on slide 6. Use equipment sales were up 61% year-over-year. We are driving strong volume across retail and wholesale channels and are seeing higher conversions of rental equipment with purchase option to sales. New equipment sales were up 7% from Q2 23, driven by strong activity in the construction and oil and gas sectors. Product support revenue was down 3% from Q2 23, which was an exceptionally strong quarter in both mining and construction in Canada. Currently, large oil sands customers are in the process of optimizing their mine plans and scopes of contractor work, which led to deferral of maintenance and rebuild activity in the second quarter. Construction customers are in a transitory phase after completing large projects. Compared to Q1 2024, Canada's product support was up 7% with increase across all sectors. Over a two-year period, our product support figure in Canada was 10%. EBIT was down 4% year-over-year, and EBIT as a percentage of net revenue was down 70 basis points to 9.2%, primarily due to a higher proportion of new and used equipment sales in the revenue mix and lower margins in used equipment and rental. We expect to see increased activity in the energy sector in Western Canada and steady production growth with the Trans Mountain Pipeline now in operation and the commissioning and ramp-up of LNG Canada beginning. Our large oil sands customers are achieving production growth. Going forward, we expect them to deploy increased capital to renew, maintain, and rebuild aging fleets. We anticipate strong pent-up demand for product support, including component remanufacturing rebuilds heading into this year's Winter Works programs. Turning to South America on slide seven. In functional currency, new equipment sales were flat. Higher new equipment sales in mining and power systems in Chile were offset by lower construction activity in Argentina. Product support revenue was up 4% year over year, led by increasing activity in power systems and construction. Excluding the impact of weaker Chilean peso on service revenue, product support revenue would have been 7% higher compared to Q2 of 23. EBIT was down 12% year-over-year, mainly due to a lower gross profit compared to Q2 of 23, which benefited from higher margin product support contracts in mining, as well as lower new equipment sales and margins in Argentina and Q2 24. Our Q2 24 SG&E included $13 million of costs related to transaction we completed in Argentina to allow access to U.S. dollars and pay suppliers and reduce our peso cash balance. These costs were partially offset by the favorable impact of weaker Chilean and our Argentina peso relative to the US dollar compared to Q2 of last year. Importantly, while managing our treasury risks in Argentina, we remained profitable in Q2. Q2 24 EBIT as a percentage of revenue was 10.4%, down 170 basis points year over year. Adjusted ROC was 26.5 on par with Q2 of 23. As Kevin mentioned, our recent trip to Chile reinforced our encouraging outlook for Chilean mining. Underpinned by growing demand for copper and strong copper prices, we're seeing capital be deployed into large-scale brownfield expansions with a lot of coating activity and tender activity underway for mining equipment and product support. We are in conversations as all major producers are encouraged by our strong competitive position. As many of you will have seen firsthand at our investor day last year, activity by contractors supporting the mining operations in Chile is healthy. We also expect infrastructure construction activity in Chile to start improving going forward. Power systems activity remains strong in the industrial and data center markets. In Argentina, we're seeing pockets of strong activity in the oil and gas sector today. However, restrictions on public investment in infrastructure significantly reduce construction activity. Construction industry is down 50% from the first half of 23. We continue to monitor the government's new rules and policies. While we see renewed optimism in Argentina as new government programs are helping drive large-scale investment by global miners, a low-risk approach remains our key priority for 2024. Please turn to slide eight for our results in the UK and Ireland. In the UK and Ireland, in functional currency, new equipment sales were down 5% compared to Q2 of 23, due to the timing of power system project deliveries. Used equipment sales were up 31% year over year, led by increased volume in the construction sector. Product support revenue is down 3%, reflecting lower machine utilization hours and customer activity levels. Even as a percentage, net revenue was 4.6%, down 90 basis points year over year due to reduced volumes and inflationary pressures. This is a solid profitability for the UK given the current market activity. We expect demand for new construction equipment in the UK and Ireland to remain soft, in line with low GDP growth projected in 2024. We continue to expect a growing contribution from used equipment and power systems and resilient product support as we execute our strategy. We expect substantial free cash flow generation in the second half of 2024 as we continue delivering our backlog with improved cash-to-cash cycles and execute our capital unlock and velocity initiatives, which include increasing new equipment preparation velocity to move new orders through our backlog faster, rigorous inventory planning and ordering, including leveraging improved lead times, automating warehouse operations in Canada and South America, simplifying and improving efficiencies for our component exchange program, particularly in Canada, and optimizing low-growth activities, including our UK pension asset. In addition, we're moderating our net capital and rental fleet expenditures for 2024 to reflect market conditions. We now expect the range to be $220 million to $270 million, lower than the previous range of $290 to $340 million. We're actively building our talent and capabilities in rental. We're committed to growing a profitable rental business, increasing our rental customer base. Our balance sheet remains healthy with net debt to adjust to the EBITDA at 1.8 times at the end of June. In addition, we're in the process of finalizing our plans to lower our cost base and further reduce our SG&A as a percentage of net revenue going forward. This will include further simplification and focus by our central corporate and administrative functions. as well as simplification and efficiency actions in our Canadian component remanufacturing business. Overall, we remain laser focused on executing our strategy to drive product support, build resilience, and deliver sustainable growth. We anticipate the execution of our strategy will continue to have an increasing impact through this year with improving product support rate, growth rates, greater working capital velocity, and substantial free cash flow generation in the second half of 2024. Operator, I'll now turn the call over to you for questions.

Ladies and gentlemen, we'll now begin the question and answer session. Analysts who wish to join the question queue may press star and one on their telephone keypads. You will hear a tone acknowledging your request. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys. To withdraw your questions, you may press star and two. We'll pause a moment for callers to join the queue. And our first question today comes from Yuri Link from Canaccord. Please go ahead with your question.

Good morning, Kevin. Good morning, Greg. Morning, Kevin. Morning, guys. Maybe this one's for Kevin. Just trying to square your comments on construction. That end market did drive new equipment sales in Canada, and you noted rebuild activity I think was up 50%. but yet you did trim your capex for rentals. I'm assuming that's tied into construction. So what exactly are you seeing in that market, and is it mostly limited to Canada?

Yeah, sure. It's not limited to Canada, so I'll work in reverse. It's not limited to Canada. Obviously, the construction market in the UK has been soft for a little while now. As I mentioned in my remarks, the industry is down, so we're super happy that actually our equipment delivers for construction in the UK are flat, despite the market being materially down, as noted in Cap's call yesterday for the Europe region. So we're happy. So I would describe the construction market as kind of bottoming out. There's some green shoots. Obviously, selling the construction season in Canada has driven the some of the results in Q2. But we're also encouraging the backlog build in the UK, quarter over quarter, future people starting to make decisions for the new construction season in the back half of 2024 and into 2025. So we would describe it as levelling off and bottoming out for sure. It could do with some more encouragement from major projects the stability in the in the um uk government and some deployment of capital in western canada um and we've seen an encouraging outlook for mining enablement in construction so construction is uh in sorry in chile so construction is is starting to show some green shoots as it relates to and so we're positive about that and we're still rebuilding machines as we said previously you know we're super happy that that rebuild um growth is still there in Canada despite a normalised supply chain, which we've spoken about previously about changing the proposition and our approach to rebuilds and how we felt that would be stickier even in a normalised supply chain. We're also pretty happy with that. As it relates to rental, I would disconnect that a little from the general construction sentiment for sure. Construction Software construction doesn't help with your kind of optimism around investing in rental. But ours is linked as well to building capabilities. We are committed to rental. We're building new capabilities. In fact, we had a new vice president of rental join us yesterday from Western Canada. And so we really want to allow that person to come in understand what we're working with and put the plan together to build out a really robust and sustainable rental plan moving forward. So it's as much about that in Canada. So hopefully that helps you to, you know, square the circle in terms of the kind of positive green shoot sentiment, but the CapEx decision.

Okay, that's helpful. Just on the... your plans to reduce SG&A a little bit more. Were these plans that were already contemplated in your investor day targets or are they incremental cuts? Related to that, are those costs in Argentina recurring or how do we think about those?

Certainly as we look back at our investor day, I mean our number one focus coming at investor day as of September 23 was just on the working capital opportunity. We're pleased to see some of that progress in Q2 with the cash coming through in the quarter that typically doesn't have that. But we'll continue to focus on that through the rest of the year and into next year. We think we're in the positive cash flow generation side and there's still a big opportunity to have there. But SG&E, of course, is a big value driver in the business. At that time, with the amount of inflation and some of the procurement conversations, it felt like that was going to be a second step after the working capital phase was complete. And so we are finishing the design of that. We begin executing parts of it. And we just think there's a really good opportunity, particularly for 2025, for the whole team to focus on the next frontier in terms of sales to SG&A. And so that will focus on continued optimization of our corporate area, as well as the support functions. And then there's a big opportunity in our Canadian business for our component exchange business that's kind of been run separately over the years. And I think given all the good progress we've made as a company on collaboration, that it's time for that to be fully integrated. And there's a lot of efficiencies from both a working capital and a cost perspective associated with that. And then on the Argentina side, as you know, in the first quarter, we partnered with our suppliers to access U.S. dollars through the transactions that you do in Argentina. We decided to do that again in the second quarter just to make sure that we can keep the risk as low as possible. That was not supported by our suppliers to the same degree. And it's something we wanted to do to keep the risk low. We don't think that'll be a recurring cost in Q3 and Q4. We're going to re-enter the official market there and get our exposure back to zero through that channel. And so we don't think that will reoccur, but it's something we wanted to do to just make sure we kept that balance as low as possible while supporting the product support side of the equation in the country.

To be clear, it's not, you know, sorry. It's not a reaction to, it was always in the plan. We prioritized invested capital and pre-cash flow performance, which you've seen coming through. And I think we've slightly slopped product support sales than we had in the investor day. We're just re-energizing that and moving some of those cost actions forward.

Okay. Can you quantify the Argentina costs that were in SG&A? The additional cost? 13 million. 13 million. Okay. I'll turn it over. Thanks, guys. Great. Thank you.

Our next question comes from Sherilyn Radborn from TD Callen. Please go ahead with your question.

Good morning. Thanks for taking my question. This is Pat Sullivan on the line on behalf of Sherilyn. My first question is related to gross profit margins. So could you tell me what extent was mixed versus lower margins on equipment and rentals That was called out a factor in the year-over-year decline.

Yeah, sure. It was roughly equal. Part would be mixed. Obviously, we've got higher new and used volumes or growth rates relative to rental and product support, so there is a mixed shift there. But also within rental and used, as we've been pretty consistent with over the last couple of years, we couldn't expect the same used and rental margins from 2022 and 2023 every year. And so those have come in and normalized to an extent. And, you know, we're working hard to offset that through SG&A control and further SG&A actions.

And there's also a mix within the mix as well, Patrick, you know, with the mining deliveries in new equipment as well. So you need to consider that.

Okay, great. Thank you. And then I guess, is it possible to quantify how much maintenance activity was deferred in the oil sands in Q2 or H1? That's something that's called out in the earnings release.

It's hard to quantify actual numbers for individual mine sites. I can tell you that with the six mines in the oil sands, three grew product support at the kind of levels we were expecting, three didn't. And so the specifics around the individual mine plans and how the mines are operating, that's in the control of the miners. We need to be ready and make sure we're able to support them as they require the services. But it's hard to quantify that as an absolute number in the product support.

OK, no problem. I understand. That's still very helpful. I'll turn it over now.

Thanks, Patrick.

Our next question comes from Jacob Bell from CIBC. Please go ahead with your question.

Good morning. I had a question on backlog. You know, it's difficult to, you know, it can be quite lumpy. So up quarter on quarter, but down year on year. But if we look at the 700 million plus that you announced in April, it's down from those levels as well. You know, how are you thinking about that and what's in the hopper right now?

Yeah, sure. Thanks. So, I mean, we're still pleased with the rise in backlog. You know, if you look at it as a percentage of the total backlog that Kat and I had yesterday, it's still pretty encouraging. For sure, we had a – you know, you can see it through our new equipment line. You know, we had a sell-through in Canada, which is – normal for the spring selling season. That would have took then backlog and then we're selling through some of the lumpier power systems projects as well. Our backlog still stands at well over half a year sales. There's a good mix across different industries. Mining ads are very encouraging. We did mention that some of those mining, when we were in South America in June, there was already machines being built on site ready for delivery in the same quarter. And so things are moving through the backlog a little bit quicker. And so I think it's important that we calibrate the backlog figure now with the reality of the new supply environment and our guide to move things through the backlog quicker. And so that backlog level is still incredibly encouraging. As I said, it's more than half a year's sales booked already. And in some cases, as I also mentioned, that backlog is extending out with power systems projects well beyond the end of next year. And so we feel it's a really solid foundation from which to build. But we need to normalize against the kind of backlog levels that we saw when the supply was constrained.

The second part of your question, both South America and the oil sands, there's lots of conversations going on that in the second half of the year and particularly towards the end of the year, lots of brownfields in South America and fleet refresh in Canada.

Okay, that's helpful. And then just on the improving product support growth rates in the second half of the year, assuming but part of that is just you know your larger installed base um you know what else is driving that and are you more confident about you know second half growth uh uh you know than where you were say three months ago yeah so definitely more confident than we were three months ago um on the trajectory um and you know of course we're

We're lapping some more favourable comparisons, so we're still very happy with the two-year CAGR. This lapping Q1 and Q2 last year was always going to be difficult, but we're pleased with the progress, and it's actually particularly quarter over quarter. That's very encouraging. The team is the time number one priority. We talk about this and pretty much invested capital and free cash flow on that invested capital velocity. we talk about product support um constantly it's the number one priority it's our biggest priority as you mentioned you know we're i think we've added 70 ultra class trucks in the last four quarters into our two regions um new sales are healthy so on the population side we we're we're encouraged in that regard um what else and we're building capacity so i mentioned we've added 80 technicians in in um In South America, it's well over 100 if you take the other two regions. We're building capacity at our OEM operation in Edmonton here and better distribution capabilities, meaning we can service our customers faster, get parts to them quicker, which hopefully will have a greater growth talent too. Continue to build capabilities around rebuilds. I mentioned that in my remarks as well. CBAs and condition monitoring are also helping us to stay closer to our customers. and build the right kind of value propositions for them to capture more market share. We're doubling down on coverage, both physical and digital coverage. I think in Canada, we added 12 salespeople in Q2 to add to our coverage for product support growth. I think it was five in the field and seven inside sales. And we're developing specialist sales as well to go after things like undercarriage in general and ground engaging tools. So we're not done yet. We're still committed with building plans and we're executing them with velocity. So we hope that was the slightly easier comparisons will get us to a place where it's closer to our investigate targets.

Top four. Thank you.

Thank you.

Our next question comes from Devin Dodge from BMO Capital Markets. Please go ahead with your question.

All right. Thank you. Good morning, guys. In South America, maybe just picking up on an earlier question, but as you mentioned that quoting, tendering, and award activity in the mining sector was elevated. Are you able to frame how that pipeline looks now in terms of size or the maturity of opportunities? And And if the momentum of order intake that we've seen the last, you know, say six to 12 months can be sustained?

I mean, it's hard to say, you know, kind of the, whether that can be sustained. It's very lumpy, right, Devon? You know, it's the timing and the decisions and the capital approval are very lumpy. I would say that, you know, incrementally, you know, we've just won two, you know, very big pieces of businesses in South America with the BHP award and the delco award um there's nothing of that size that we're working on right now but there are multiple opportunities which would um add up to a similar a similar level of order intake if not a little bit a little bit more when you when you add more that's our saying we win them all we've been very aggressive i would say that you know in visiting six customers in santiago over over three days and two mine sites There's a definite acceleration of what can be achieved given the current constraints of machine supply, labour supply and approvals for brownfields. I think we've moved from inquiry to very definite quoting activity. We expect to submit a number of quotes before the end of the summer here for substantial pieces of business. you know, what's this space, but the general sentiment is, you know, go faster and what's possible in terms of machine supply and execution, so.

And Evan, I'd just highlight that if you go to each of some of the producers, you know, investor presentations, all will have some form of update on ground field sanctions or intentions. If you look at Anglo or Capstone or, you know, you know, Freeport, you know, they've all given up recent updates. So have a look and they're all maturing their brownfield plans, whether they're sanctioning them or having that on the horizon.

Okay. Good color. Thank you. And then maybe sticking in South America, just margins in the quarter. It seemed like one of the main drivers I thought that was called out of the MD&A was for that moderating margin was some high margin mining product support contracts that benefited last year. Can you just provide some more specifics behind that and if we should be expecting this to be a headwind in the coming quarters?

I think that was pretty unique to the quarter. This time last year there was quite a few larger rebuild programs that were coming to a conclusion to refresh particularly one mine, but also just a couple of contracts that came to the end of their life and there's a bit of a washout in that process. That was a year ago. That didn't replicate this year. And so that's a factor. But we feel fine with the overall margins and product support and the growth profile going forward.

Okay. Makes sense. I'll turn it over. Thank you. Thanks, Evan.

Our next question comes from Steve Hansen from Raymond James. Please go ahead with your question.

Oh, yeah. Good morning, guys. Thanks for the time. As a follow-up to one of the earlier questions, Kevin, you described all the strategies that you're deploying to help grow the product support business, which is hoping you provide some additional comments regarding the customer activity that you're seeing on the ground, and if that's actually accelerating here into the back half, and ultimately whether you think you can exit the year at the 7% target that you've outlined for the category.

Yeah, sure. Without doubt, activity levels are improving. We look at machine utilization levels. They're kind of back to normal levels in Western Canada and improving in the UK. Like I said, the big challenge is the dynamics around individual mine sites and plans. But net-net, we expect product support activity to be stronger in the second half of the year and to have a more... I mean, we're planning for a more... normal winter season there in terms of how we support our miners through that schedule and help them to produce more. We're very committed to our targets, Steve, and like I said, I listed off things we're doing. We work tirelessly every day to get better product support, to win more business, and to execute it more effectively. We're not wavering from that. We can remain committed to those targets and we're confident that we can demonstrate exit rates closer to the investor day targets than we are today.

Okay, that's helpful. Thank you. And maybe just to follow up on South America and just thinking about the duration of this new equipment cycle, you've described a record backlog there. It sounds like quoting activities accelerating to the second half. How should we think about new equipment deliveries into next year? I mean, you've got some tough comps to face. Do we actually see growth in new equipment deliveries next year, or how do you think about that plan?

Yeah, it's too early to talk about 2025. We're encouraged with the backlog. Obviously, some of that build is coming through the year, and some of it stretches into next year. Like you highlighted, there is good clothing activity that would benefit in 2025. Part of the dynamics there, some of those are customers that are competitive customers, and so they're big opportunities. There's a bit different profile than the kind of CADELCOs and BHPs where we've been, the incumbent are growing our share. These are breakthroughs. So we'll have to see how those play out. Of course, we're working aggressively to win in that area. Yeah, there's good momentum across not just mining power systems in particular as well. And so we do think there's momentum into 2025, but too early to call levels at this point.

Yeah, I think so. It's really important to look at it by the same way. The mining business is extremely lumpy, as you know, Stephen. So to forecast quarter by quarter annual growth, we're just very focused on market share and delivering it to our customers as quickly as possible. So it can support them in growing their production targets and we can have an opportunity to grow our product support business. You know, power systems deliveries, I would expect those to continue to increase year over year. And, you know, the current sentiment in construction would suggest that next year's construction machine sales should be better than this year.

Helpful comment, thanks. Thanks, Steve.

Our next question comes from Maxim from National Bank Financial. Please go ahead with your question.

Hi, good morning. Good morning, Max. Most questions have been asked already, but just a couple of quick ones. I was wondering, Greg, if you don't mind providing a bit of color on rental capex, including dispositions, if you have a bit more of a specific range that we should be thinking about for 2024? Sure.

Yeah, we don't break it down to that level. I mean, we brought the range down. As you can see here to date, we've been pretty low on the net rental capex. We do have some load in the back half of the year to get ready for next year. So we do see that at a lower level overall in line with the capex change, but we're not breaking it down by category.

Okay. But I guess dispositions, we can just kind of, you know, straight line it.

Yeah, a lot of dispositions have happened to A lot of the dispositions are in the first half of the year.

It's important to remember the mix of our rental business max is slightly different, remember? So we would have a much higher proportion of heavy rents and power rents than many others. And so given the pipeline's finishing, there was a kind of higher level of dispositions in the first half of the year.

Right, right. Okay, thank you. And then the last question I had, just in terms of the power business and sort of the ability to leverage your kind of, you know, UK success in other geographies. I was wondering if there was, you know, any update on that strategy and its stickiness. Thank you.

Yeah, no, it's going from strength to strength. Max, I'm super encouraged. I had a meeting last week with our Canadian power systems team. Super encouraged by the outlook there and the progress of work that we expect to... You know, we've got some good projects we're working on in Western Canada, which we'll hopefully be adding to the backlog in the second half of the year here. UK, you know, we're in our board meeting this week. I mean, we have six approvals, Greg, to talk about this today. And so that business continues to be very robust. And then in Chile, you know, I'd say we're, to a certain degree, you know, very... happy and optimistic just at the pace of growth. It's from a small base in Chile, but the team in Chile, who are again being supported by our UK business. So I think our power system has been sort of 11% year over year in the quarter. That's a trend and we see that continuing. We think we've got enough broad-based activity across the three regions to continue that, despite it being lumpy projects in some cases. The one area of weakness, particularly in the UK, is around that industrial sector, which is supplying into that softer construction market. So that's one thing that's dragging us. And then, obviously, in the quarter, the UK revenue was down a little because of lumpiness in terms of our product support. And the cross-country collaboration is strong. The optimism is strong, and there will continue to be really inquiries about the power system as well.

Excellent. That's it for me. Thank you so much.

Thanks, Alex.

Once again, if you would like to ask a question, please press star and one. Our next question comes from Shirith Al-Sabahi from Bank of America. Please go ahead with your question.

Hi, good morning. Just wanted to ask, we've seen some significant move in currencies in recent months. are you seeing other OEMs or dealers becoming more aggressive with pricing, driven in part by those shifts?

No, I mean, currency is something, we have to be competitive in our local market, Sharif, that's our modus operandi. We have to give our teams the tools to be competitive. We do have an external data source in terms of market share for new equipment, and we are growing market share in all three regions, specifically on the large construction area. We're holding a strong position in mining and winning in market and winning in pair systems, as I've previously spoken to. I think this is more a function of we have to be competitive. We have to work with our partners to make sure we've got the right propositions for the marketplace. You know, for example, I was up in Prince George last week for a couple of days. You know, we have a definition called parts-focused market share. And, you know, I would say in that northern BC area, we're one in two machines we're selling right now as a category.

Thank you.

And, ladies and gentlemen, and showing no additional questions, I'd like to turn the floor back over to Greg Palaszczuk for any closing comments.

Great. Thanks, operator. That concludes our call. Thank you for your participation and hope you have a safe day. Thank you.

And ladies and gentlemen, that will conclude today's conference call. We do thank you for joining. You may now disconnect your lines.