Finning International Inc.

Thank you for standing by. This is the conference operator. Welcome to the Finning International Incorporated first quarter 2025 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, then 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 quarter earnings call. Joining me today is our President and CEO, Kevin Parks. Following the 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 the accompanying slides will also 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 11 and 12 for important disclosures about forward-looking information, as well as currency and specified financial measures, including non-GAAP financial measures. Please note the forward-looking information is subject to risks, uncertainties, and other factors as discussed in our annual information form. under key business risks, and 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.

Thanks, Greg, and good morning, everyone. In the first quarter, we continued our positive momentum from 2024, and I'm proud of our employees' positive impact and the strong execution. I'd like to start with a review of the first quarter before providing a brief recap of our last 12 months' performance. I will then turn the call over to Greg, who will provide more detail on our results. Please turn to slide two. We started 2025 with another strong quarter of results, growing net revenue by 7% from Q1 2024 to $2.5 billion. The diversity of our business, both in terms of geographic and end market exposure, provides resilience and stability for our earnings which is particularly important given the uncertainty businesses are facing right now. As a reminder, approximately half of our revenues are to revive from outside of Canada. We are really pleased with the continued growth in our backlog, especially considering we delivered another strong quarter of new equipment sales growth at 7%. Backlog grew from year end 2024 by $240 million. Order intake was broad-based and solid in all regions. The orders received in Canada are especially encouraging, providing us with a good level of confidence in our outlook for new equipment for the rest of the year and for product support opportunities for years to come. Order intake in the construction segment was up relative to order intake in Q1 of 2024. The big driver of our backlog increase, however, was related to the mining segment, where we received orders from several customers, including over 20 ultra-class haul trucks, multiple shell walls, and a range of support equipment. The steady growth in our business, coupled with our improved earnings capacity, due to our focus on resiliency, provides a strong foundation for continuing our dividend growth this year, with an increase of 10%, the 24th consecutive annual increase for Finning. Moving to product support. Quarter one product support revenue grew in all regions, reflecting reinvigorated sales efforts in a more constructive environment. In Canada, mining activity improved, and as I spoke about on our last call, we are totally committed to supporting our customers to lower production costs through strong partnerships, planning, and execution. Revenue grew 10% year over year, and was up 9% from Q4 2024, helped by more normal winter conditions. In South America, product support revenues were up 6% in functional currency and continued strong mining activity, where we continued to deliver new trucks, build capacity and capabilities. Indeed, we added over 100 technicians in the region just in this quarter. In the UK and Ireland, product support revenues were up 4% in functional currency, on improved power segment activity levels as a result of many years of population growth. We will continue to maximise product support revenues across all regions. Building on the momentum of 2024, we continue to execute on our full cycle resilience strategy, which, combined with product support growth, strengthens and stabilises our earnings capacity. SG&A's potential net revenue decreased from Q1 2024 by 50 basis points to 16.4%, and we will continue to look for opportunities to build more flexibility into our cost base and invest in sales and service capabilities to drive future growth. We also continued our strong focus on free cash flow, generating $135 million. Execution of our sustainable growth initiatives is progressing strongly, Our power systems backlog is up over 50% from this time last year to over $900 million, with strong data center activity in the UK and South America. In Canada, our power systems backlog is at 18-month highs with strong oil intake from both electric power and oil and gas end markets. It is important to consider our power systems backlog in the context of our overall backlog, driven by our focus on this secular trend. This population has supported power systems product support revenue growth, which was up year over year in Canada and the UK, more than 15%. Revenue in our used equipment segment decreased this quarter, largely due to lumpy mining business. Margins, however, stabilised and in some cases improved to levels above our expectations. Total revenue decreased slightly versus Q1 2024, However, we are encouraged by the improvement in our cat rental store revenue, which was up 15% in Canada, as the leadership and fleet changes we made last year have improved the efficiency and performance of this business in a challenging market. We remain committed to growing this important line of our business. Please turn to slide three. I'd like to spend a few minutes recapping the last 12 months and reiterate some of the progress we've made in executing our strategy. Overall, net revenue has grown 5%, while our equipment backlog is up almost $900 million from this time last year. Importantly, our backlog is diversified and is larger in each of mining, construction, and power. Similarly, product support revenue is up 5% in the last 12 months, relative to the same period the prior year. This includes adding over 400 technicians to meet growing needs of our customers and a larger installed base of equipment. This growth means our earning capacity has improved and has been supported through the continued improvement in SG&A as a percentage of net revenue, which sits at 16.2% over the last 12 months. Our free cash flow has been a significant $1.2 billion, which is particularly pleasing given the growth. Our sustainable growth initiatives have also progressed well, with used equipment revenue of 8%, power systems revenue of 10%, and we will continue to progress these opportunities and allocate resources to these growth initiatives. Before I turn the call back over to Greg, I'd like to briefly discuss some colour, having spent some time in each of our regions recently, and I'm very pleased to see the commitment of our employees to our strategy. In South America, I was able to spend some time with our employees at our expanded Antofagasta facilities, where we have added more than 20 work bays and incremental warehousing capacity and technology to meet the growing product support needs of our customers. I was also able to meet with several customers, many of whom plan for additional equipment investments in the future to meet their growth objectives. The outlook for investment in copper mining from our South American customers remains very positive. In the UK and Ireland, our employees continue to demonstrate their strong commitment to resiliency particularly in the face of more subdued macroeconomic environment. There is some encouragement in certain areas of the market, and our sales focus is driving rebuild activity, new equipment order intake, and backlog growth, the latter of which is up 8% sequentially and 80% versus the same quarter last year. We do still, however, remain overall cautious on the UK and Ireland market, and our execution is thoughtful. With this in mind, our teams continue to look at ways in the UK to generate further efficiencies and optimize the skills of our frontline technicians, including through the use of digital tools to optimize workforce planning and scheduling and work by utilization. We see solid progress on these tools, enabling improved productivity and better visibility to rebuild activity levels. Turning to Canada, I'm pleased to see our employees embracing resiliency initiatives while at the same time growing our business in the face of a more challenging market conditions. We believe demonstrating attention and responsiveness to our customer needs will allow further wins and growth in market share and expand our customer base. Today, the impact of inactive tariffs have had limited impact on our business. We have not seen a major shift in our end market activity levels or our product support or new equipment spending from our customers relative to expectations. There remains opportunity to improve the resilience of our Canadian business, and I'm excited to see what Tim and the team are working on. Overall, we are encouraged with a strong start to the year and remain confident and committed to the execution of our strategy. We are excited about the future as we sharpen our focus and allocate resources to growth opportunities in areas such as product support, addressable market, power generation, and rental. We also plan to invest in future adoption of technology like autonomy and our digital capabilities to enable growth and improve customer outcomes. As you will have seen in our announcement last week, we have reached an agreement to sell 4E fuel for $450 million, and we think this sale is a great outcome for Finning and 4E fuel. For Finning, This sale advances many of our strategic objectives we set out in our 2023 Investor Day and will allow us to simplify our business and focus on growing our core dealerships. From a financial perspective, the transaction will allow us to optimise our invested capital position and lower our SG&A costs, and we expect the transaction and allocation of net proceeds to be accretive to earnings per share. We do extend our gratitude to 4REFUEL President Larry Rado, and all of the 4E Fuel employees and team for their partnership, dedication, and strong performance, and we wish them future success. With that, I'll hand the call back to Greg.