Finning International Inc.

Thank you for standing by. This is the conference operator. Welcome to the Finning International Inc. Third 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, there will be an opportunity to ask questions. Analysts who wish to join the question queue may press star, then 1 on the telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Greg Palachuk, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Finning's third quarter earnings call. Joining me today is Kevin Parks, our President and CEO. Following our remarks, we'll 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 accompanying slides will be archived. Before I turn it over to Kevin, I want to remind everyone that some of the statements provided today 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 the 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. I would first like to thank our employees. We continue to build resilience into our operating model in a more dynamic environment, and the progress we have made to advance our strategy would not be possible without the dedication of all of our teams and their commitment to creating a positive impact for our stakeholders. We are working diligently to simplify our business, build safe and inclusive environments, and empower our people to better serve our customers. Turning to our third quarter results on slide two. Our third quarter results were varied by region and reflect the advantage of our diversified business. Our South American business results continue to be strong. Our UK and Ireland operations remain resilient and our Canadian business performance was impacted by the continued dynamic operating conditions. I was in South America last week and I continue to be encouraged by the very positive customer sentiment in the region driven by mining. We continue to mine blows for growth in the region, and I had the opportunity firsthand to see the progress on our investments to increase our capacity and build stronger capabilities in the Antofagasta region. I also had the opportunity to meet and thank our employees who are supporting our customer growth, many of whom are new and part of our aggressive recruitment and training plans. Activity in the Chilean copper sector remains solid, with strong activity levels from mining customers and contractors. We're seeing customers continue to extend the life of their equipment, as well as other fleets entering major maintenance cycles. This all helps drive product support growth. We're also actively quoting on multiple new equipment tender packages, and we are pleased with the recent $250 million equipment order from a global mining customer in October. At Mine Expo in September, Caterpillar, our partner, unveiled their latest technologies and solutions for the mining industry. We believe these technologies such as dynamic energy transfer or DET build on the success of our electric drive haul trucks and autonomous solutions position us well for future opportunities. In the UK and Ireland, our operations remain resilient in a lower growth environment. We are pleased with the team's execution in a difficult market, having expanded our margin to a solid 6.3% on an adjusted EBIT as a percentage of net revenue basis driven by SG&A reductions. we have seen some green shoots in activity in the construction sector with a pickup of new order activity for next year and power systems activity remains healthy we do remain cautious in the region until we see a more constructive economic outlook we have generated cash consistently throughout the year and the teams continue to focus on building population capabilities and capacity to drive product support executing with discipline and resilience our canadian business continues to be impacted by challenging market conditions We remain committed to executing our product support strategy, and we are growing market share through new and used equipment, which builds population and future product support opportunities. We incurred severance costs this quarter as we continue plans to decentralize and optimize our overhead of our company. We will continue to simplify our operational structure, consolidate functions, and capture efficiencies where possible. We're all focused on driving execution of our strategy, And the leadership transition we announced in September is a positive and well-planned succession. Overall, we are pleased to see revenue growth throughout our business with new use and product support revenues all up in Q3 versus Q3 2023. New equipment revenues in South America were up in all sectors, 14% overall. In Canada, new equipment revenues were up 4% overall with strong deliveries in mining offset by slower construction and power systems revenues. New equipment revenues in the construction segment in the UK and Ireland were up, offset by lower power systems revenues in the quarter. Despite this lower power systems revenue in the UK and Ireland, backlog increased meaningfully due to data center demand. Most pleasing and encouraging for the future is our approximately $90 million building, our backlog relative to Q2 2024, a healthy indicator for our business looking forward. Turning to product support, Our consolidated product support revenue is up 2% year over year. We are seeing strong product support growth in South America from both mining and the oil and gas sectors, and we continue to significantly add technicians in the region to support the growing fleet of mining equipment, with approximately 200 net new technicians added since Q2 of this year. Product support in Canada and the UK are not yet consistently where we would like them to be. In Canada, we have stabilized at a level only slightly below last year, despite the absence of major infrastructure projects and the dynamic mining environment we face. In the UK and Ireland, we are seeing sequential growth each quarter this year, and we see both regions showing signs of improvement as we head into the winter months. Our full cycle resilience continues to improve. We are pleased with another quarter of strong free cash flow as we started the second half of the year. We generated $346 million of free cash flow in the quarter and $746 million of free cash flow over the last 12 months, well in excess of our net income. There is more opportunity for us to drive resilience through the increased velocity in our operations and focus on cost competitiveness. Moving to sustainable growth. Our consolidated use equipment revenues are up 24% year over year. This continues to highlight our success in developing our capabilities and increasing our participation in this market. Our user equipment business in the UK was up nearly 50%. Our South American user equipment business was up nearly 70% relative to Q3 2023, further demonstrating our execution success in this strategic area. In pallet systems, we continue to see strong demand for our products and services. with our power systems backlog of 44% since last quarter from additional wins in the UK and Ireland data centre market as we locked down business well into 2026 and 2027. We continue to see strong demand for power solutions in all regions and expect growth to continue in this sector. We continue to believe the rental sector presents an attractive long-term sustainable growth opportunity for Finning. We've taken a disciplined approach this year given the current market backdrop in construction and taken opportunities to build capability which will drive growth in future years. We're committed to the disciplined execution but building momentum for a strong finish to the year and remain focused on executing our strategy, maximising product support, continuously improving our cost and capital position to drive full cycle resilience and by growing prudently in use, rental and power. all with the objective of improving our road to a sustainably high level moving forward. With that, I'll hand it back to Greg.