Finning International Inc.

Thank you for standing by. This is the conference operator. Welcome to the Penning International Inc. Second Quarter 2026 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 the telephone keypad. Should you need assistance during the conference call, you may reach an operator by pressing star then 0. I would now like to turn the conference over to David Primrose, 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 on today's call is Kevin Parkes, 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 have also provided a set of slides on our website that we will reference and 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... Gap 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. In addition, unless otherwise noted, This presentation reflects the results of continuing operations only. Kevin, over to you.

Thank you, Dave, and good morning, everyone. Thank you for joining us, and thank you to our teams, our customers, and Caterpillar for your hard work, trust, and partnership. Strong strategic execution delivered record quarterly EPS of $1.22, up 21% year over year. Revenues exceeded $3 billion for the first time, and product support grew year on year for the ninth consecutive quarter, growing 11%. And even with record new equipment deliveries, which were up 34%, backlog remained strong at $3.8 billion, driven by strategically significant mining orders in Chile and gas compression orders in Canada. Quoting activity and fleet enhancement discussions are increasing in Chile and Argentina. Oil sands production, pipeline activity and infrastructure building Canada are gaining momentum, and market share gains across all regions give us confidence in future backlog growth. Most importantly, the machine and engine population continues to grow across our territories. That installed base is the engine for future product support growth and the clearest line of sight to long-term value creation. As in prior quarters, my prepared remarks will focus on the long-term earning potential we are building. Dave will then cover off quarterly results in more detail. Please turn to slide two. Our performance across our three strategic pillars of our strategy is fundamentally increasing our EPS potential. Product support revenue reached 6.2 billion on a last 12 months basis. In the quarter, product support was up 11% year over year, led by 19% growth in Canada. Canadian product support is growing across every sector, supported by larger mining population, rebuild activity, and increased contracted labor penetration. Indeed, customer value agreements with labor grew by 70% in the quarter, enabled by a deliberate strategic investment in capacity, including a 20% increase in technicians year over year. Our rental businesses are also gaining momentum in each region, with revenue up 19% led by Canada. Strategic fleet investments are allowing us to capture improving end market demand while growing with new customers and growing our population. At the same time, our cost and capital discipline continue to anchor our resilient operating model. We are investing in building capacity and capability to create long-term growth while maintaining strong operational leverage. SG&A as a percentage of revenue was 14.5% on a last 12-month basis, down by 120 basis points from 12 months of Q2 2025. Invested capital turns increased to 2.35 times, and these are not just efficiency metrics. They are proof points that our operating model is more resilient, more scalable, and more capable of compounding earnings. Before I hand back to Dave, I want to talk about a long-term opportunity. for Power for Data Centers in Western Canada, and specifically Alberta. We are working with operators, power producers, and government on primary bridging and backup solutions. This is a generational power opportunity for Canada, Alberta, and Finning, and it fits directly with our core strategy of building an installed base in our operating territories and supporting it over its lifecycle by converting that population into long-term product support growth. I also want to say that this is not new territory for us. Our UK and Ireland dealership has been supporting the build, maintenance and operation of data centres for more than a decade, developing a trusted capability and deep application experience. That capability is showing up in the numbers. Empower and Energy new equipment sales in our UK and Ireland business are up 38% year to date, supported by a healthy product backlog. Turning to Canada, While we are encouraged about the generational opportunity for data center builds in Western Canada, our incumbent power and energy business is also building momentum ahead of any data center contribution. Sales are up 63% year to date and our backlog is up more than 100% compared to Q2 2025. This is primarily driven by gas compression as the oil and gas outlook improves following significant business development announcements in the quarter. It is clear power is becoming a larger strategic platform for Finning and it strengthens the same installed base and product support fire wheel that underpins our long-term earning potential and growth. To close, quarter two demonstrates the power of the strategy. We are growing the installed base, we are converting that growth into product support, and we are maintaining discipline, cost, and capital execution. And we are building a more resilient operating model, and the combination is the foundations of our earnings growth potential and the reason why we remain highly optimistic about Finning's long-term future. With that, I'll hand the call back to Dave.

Thank you, Kevin. I'll now turn to slide three. Our Q2 revenue of $3.1 billion was up 20% compared to Q2 2025, primarily driven by strong new equipment deliveries across all regions and continued product support growth, particularly in Canada. Exceeding $3 billion in quarterly revenue for the first time in our history helped to drive record EPS and reflects continued execution momentum. We are pleased with our growth across our diversified end markets. New equipment deliveries accelerated in all regions, increasing our installed population and creating a base for future product support opportunities. Product support revenue also continued to grow. supported by robust mining activity and an improving construction sector. EBIT was $249 million, up 16% compared to Q2 25 adjusted EBIT. An EPS of $1.22 was up 21% compared to Q2 25 adjusted EPS of $1.01. Long-term incentive plan expense was $21 million this quarter, or approximately 13 cents per share of EPS impact driven by continued strong share price appreciation. This compares to LTIP expense of $25 million or approximately 13 cents per share of EPS impact in Q2 25. Our balance sheet and capital efficiency remained strong. Free cash flow was a positive $15 million with increased collections from higher revenues largely offsetting investments in working capital to support growth. Net debt to adjusted EBITDA was 1.6 times at the end of June, invested capital turns were 2.35 times, and adjusted return on invested capital from continuing operations was 19%, all within our target ranges. On slide four, we show changes in our revenue by line of business compared to Q2 25 and the composition of our equipment backlog by market sector. New equipment sales were up 34%, driven by increased mining deliveries in Canada and South America, as well as construction deliveries in all regions. Used equipment sales were up 18%, primarily driven by increased activity in the Canadian construction business. Rental revenue was up 19%, reflecting improving construction and power and energy activity across all regions. Product support revenue was up 11%, primarily driven by strong activity in Canada, where product support was up 19%, led by mining. Despite the record level of new equipment sales in the quarter, Equipment backlog remained at record levels of $3.8 billion at June 30, 26, in line with March 31, 26, and up 26% from June last year, and up 22% from December 2025. Order intake continued to outpace deliveries in the quarter. Power and energy benefited from oil and gas activity in Canada, while mining was supported by strong activity in South America. Backlog remains well diversified by market sector, with approximately half in mining, about one third in power and energy, and the remainder in construction. Backlog's strength continues to provide confidence in future product support opportunities. Turning to our EBIT performance on slide five. Gross profit margin was 21.3%, down 240 basis points compared to Q2 25, reflecting lower product support margins on strong volume growth and a higher proportion of new equipment revenue in the sales mix. SG&A margin was 13.3%, down 220 basis points from Q2 25. This demonstrates continued cost discipline through the growth cycle and also reflects the higher mix of new equipment sales. EBIT margin was 8% down 30 basis points from Q2 25 adjusted EBIT margin, reflecting lower product support margins and higher new equipment revenue mix. Importantly, EBIT dollars increased 16% year over year. Q2 EBIT margin was 9.7% in South America 8.3% in Canada and 6.2% in the UK and Ireland. Looking ahead, we will continue to seek opportunities to reduce costs, improve efficiency, enhance operating leverage, and strengthen resilience to drive higher earnings capacity. Moving to our South America results and outlook, which are summarized on slide six. In functional currency, new equipment sales were up 35% from Q2 25 due to higher construction and mining deliveries in Chile. Product support revenue was up 3% driven by higher mining activity in Chile and also increased revenue in all sectors in Argentina. EBIT margin of 9.7% was down 40 basis points from Q2 25 adjusted EBIT margin primarily driven by the higher proportion of equipment revenue in the mix and also lower product support margin partially offset by lower SG&A margin. Adjusted return on invested capital of 23.5% was down 240 basis points impacted by working capital investments supporting growth and the resulting increase in average invested capital. In Chile, Our longer-term outlook remains positive, underpinned by growing global demand for copper, strong copper prices, capital deployment into large-scale brownfield expansions under supportive government priorities, and customer confidence to invest in greenfield projects. We are continuing to see a broad-based level of quoting, tender and award activity for mining equipment, product support, and technology solutions. Some of these awards hit our order backlog in Q2, while others are expected to be finalized in Q3 and beyond. In the near term, we continue to expect some moderation and product support activity levels and a more stabilized labor environment through 2028. In the Chilean construction sector, we continue to see a healthy demand from large contractors supporting mining operations and we expect infrastructure construction activity to remain steady. In power and energy, activity remains strong in the industrial and the data center markets. In Argentina, the outlook is increasingly positive and quoting activity remains high. We are diligently monitoring what is a dynamic operating environment to ensure we are best positioned to capture opportunities, particularly in oil and gas and mining as they arise. Turning to Canada on slide seven. New equipment sales were up 33% from Q2 25 with strong sales across all market sectors led by mining and continued market share gains in construction. Used equipment sales were up 25% reflecting increased activity in the construction sector in line with overall market activity. Rental revenue was up 22% driven by improving construction and power and energy activity. Product support revenue was up 19%, reflecting strong demand across all sectors and particularly in mining. EBIT margin of 8.3% was down 110 basis points, driven by lower product support margin and increased equipment sales mix, partially offset by improved SG&A margin. Return on invested capital from continuing operations was 18%, up 170 basis points, driven by higher profitability and improved capital efficiency over the last 12 months. Our outlook for Western Canada remains positive. Mining activity continues to strengthen, with customers actively looking to increase production and fleet capacity through both performance and investments. In power and energy, oil and gas activity remains strong and backlog is increasing. Data center sentiment continues to grow supported by recent announcements, although the timing remains uncertain pending project approvals. Construction sector activity continues to improve with customer demand increasing ahead of anticipated major project confirmations. We expect this to have a positive impact on new, used and rental revenue while remaining cautious with respect to the exact timing and magnitude of future projects. Our focus remains on building resilience by managing costs and invested capital levels while driving productivity improvements through the growth cycle. to 25 driven by delivery of delayed sales from Q1 as mentioned last quarter. Product support revenue was down 2% due to of 6.2% was up 100 basis points driven by robust SG&A control on higher revenues. Adjusted return on invested capital of 21.6% was up 320 basis points year over year, reflecting the higher profitability achieved during the quarter and optimization of the pension assets. In terms of outlook, market sentiment and construction is improving, but we continue to expect demand to remain soft in line with low projected GDP growth. We continue to expect a growing contribution from power and energy as we execute our strategy. Quoting activity remains strong, driven by healthy demand for both primary and backup power generation solutions. I'll now turn it back to Kevin for some closing remarks.

Thank you, Dave. Before I close, I wanted to talk about the leadership transition in South America and recognize my colleague Juan Pablo Amar, who will be retiring later this year. For more than 30 years, Juan Pablo has made an enormous contribution to our business. His loyalty, flexibility and commitment to our company, customers and employees has been inspiring. Under his leadership, our South American business has more than doubled by many metrics. And importantly, he has positioned our business for the next phase of growth. He has led critical investments in our team, facilities and capabilities to ensure our business is ready to support our customers as they embark on their growth plans. I feel lucky to have had his support for the past four years and wish him well in his retirement. He will continue to support me and the new team led by Sebastian Reich to ensure we have an effective and energized transition. To close, we are pleased with the continued execution of our strategy and the results we are generating. We are committed to growing our product support business by growing population and building new capacity and capabilities. And we are excited about the more transformative opportunities we have in Argentina, power generation and rental. With that, we'll open for questions.

Thank you. We will now begin the question and answer session. Analysts who wish to join the question queue may press star then one on the telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. The first question comes from Sherilyn Radbourne with TD Cohen. Please go ahead.

Thanks very much and good morning. I do want to quickly wish Juan Pablo our very best on his retirement. Thank you. Kevin the prospects for energy egress in Western Canada have shifted in a fairly short period of time so I was hoping you could spend a bit more time addressing that opportunity set for spinning and also sort of the timing and scale of a corresponding production response.

Yeah so I mean undoubtedly it's been a good summer for positive sentiment and collaborative announcements between the federal and provincial government in Alberta. And so that's really encouraging. And I think that built on an already improving sentiment and outlook from the major producers in Alberta. You know, I think that there's a long way to go. There's a lot more discussions to happen and some critical hurdles or agreements to overcome. and some infrastructure to build out as well before we see, you know, any kind of real meaningful growth in production in the region. But I expect, you know, I mean, it's a tailwind and I expect miners, the oil sands producers and energy producers to be organizing themselves around that positive outlook for more production in Western Canada. and, you know, we're seeing some of that just in general confidence and sentiment today. I'd point to our gas compression business being a good example of that, but also, you know, we delivered a truck a week in Canada in the quarter, and we expect that to continue from our very healthy backlog. And so, you know, we've seen some of that immediately, I guess, Charlene, in our backlog and how we deliver that. Like Dave mentioned about strong gas compression sales in the quarter. And so it's more an incremental and positive improvement right now rather than a step change in production and impact on our company.

And related to that, let me think about the labor that will be needed to support nation building infrastructure. Do you think the government needs to be doing more on that front in addition to expediting the approval process?

100% and I've had some of those conversations with the major projects office. You know, there's a lot of positive momentum, but it's companies like Finning that supply the equipment and the labor and the talent to really make the projects happen. We have been recruiting, as we've said, a technician a day. That's still going very well. Our technician base, not including OEM, is up 20% in Canada year to date. and so you know we are encouraged by our ability to attract talent in the marketplace and we're kind of pre-empting the projects but any confidence that the government can provide or the market can provide in terms of what they think that demand will actually look like will help us to organize ourselves even more effectively. You know I think the most important thing to say about that Sherrilyn is that We're doing it anyway because of our opportunity and our ambition to dramatically increase the percentage of labor that we have at working on and around our machines anyway. So we have a market share opportunity ahead of us anyway, which we're getting after. And that gives us momentum in the recruitment, the training that's required that we can leverage up and down as the demand materializes.

I would add there, we're certainly supportive to any government initiatives there. But in the meantime, like Kevin said, we've had very good success in Western Canada. We have a very strong brand in the employment market. And we've doubled down even further this year with the various trade schools all across Western Canada. The teams had very good success to date.

Thank you for the time.

Thanks, Arlene.

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

All right. Thanks. Good morning, guys. For data center related projects in Western Canada, Would Finning consider internalizing the packaging of that power system? I know Finning has done some of that work in the past, but I'm not sure if the capacity is available to do that work at the scale required for the opportunities in front of you. And just wondering if that approach would differ between prime and backup power.

Yeah, so the answer to your question is absolutely yes. We are totally committed to packaging and the data center for requirement in our territory. We have a fantastic facility that requires minimal investment to move that forward. You've been following us for a long time, Devon, and you probably remember our investment in Colicut and the facilities we have in the Red Deer region. And so we feel well positioned that we can and many others. We think it's critical to participate in all aspects of the data center opportunity, including controlling the quality and the velocity of packaging, particularly as it relates to cold weather in Alberta, and being associated and working with that package as it goes through build and deliver and commissioning and ultimately to participate and to partner with the product support opportunity, which is really the big opportunity for us as we look forward. From a packaging perspective, there's no real difference, material difference between Prime and Backwood from a packaging perspective, but obviously, There's a demonstrable difference as it relates to lifecycle product support in a prime application. I think that was the second part of your question, but forgive me if I got it wrong.

No, that was great. Thanks for that. Second question, product support margins, they're compressed in both Canada and South America. Just wondering if you could provide a framework for how much of the margin pressure was related to mix versus maybe some cost inefficiencies to accommodate the growth

and maybe more transient. I'd put it down to three aspects actually, Devon, and you've hit on two. Certainly, mix within mix. We've seen about a 3% product support shift in Canada specifically to our larger customers. So when you normalize that 3% product support at a more normalized product support rate, you'd account for about half of the difference. you know there's also the second point that you raised is very valid and fair you know there are some as you grow a technician a day you know there are some training and productivity ramp ups that you need to work on and so you know there is a little bit of a drag there it's something that might take you 100 hours might take you 110 for example and then you know there's one other one which is you know an aggressive Thank you for joining us today. and the last one really which is more transient than the others is just the impact of tariffs on heavy steel products which impacts us due to the proportion of our business which is mining. So we're managing through that with our customers because we do see it as transient. The others we'll work through but we see that continuing for a while as we improve productivity. We're not going to stop aggressively going after market share. and you know we see we do see improvement in in product support in construction and power it's just not growing as fast as mining which is a which is a nice problem to have they're all growing but one's growing really substantially which is just having an impact on the margin in the near term and what I would add to that Devin is you know in Canada they had a remarkable 19% product support growth all three segments

mining, construction, and power were double digit, but mining led the way, so their growth was even higher. So again, that mix plays into that.

Yeah, for sure. Thanks for that. I'll turn it over.

Thanks, David.

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

Yeah, good morning, guys. Thanks for the time. Congrats on the product support growth. It's great to see. It's hard to think back in 24. It wasn't that long ago when that was a little more difficult. I just want to dig into a little bit more. I think you've referenced your desire to grow your labor share on the machines a couple of times now in recent calls. And I just wanted to get maybe a sense or some sort of framework to think about that. Do you have an ability to grow that share by 5%, by 20%? Do you have a sense for just sort of putting some bookends around what the growth opportunity could be over the next period of time?

Yeah, so I think, you know, it's different in the different regions, but specifically, you know, targeting Canada, you know, we would have a lower market share of labor on the supporting, you know, caterpillar equipment. You know, I would say that there's line of sight to, you know, double in that in Canada. And we're on the way, we're on the way to that. And that effort has been well received and as I mentioned to Sherilyn, we've totally re-engineered our apprenticeship program because we grew out of the last one of the partner we were using. So we've re-engineered that to, we were very focused on one college. We're now working with multiple colleges to help us expedite and expand our apprenticeship programs. So I would say it's a doubling and then we'll continue the effort and then we'll recalibrate at that point in time. In South America, we have a relatively high market share, given the contracts in mining and the proportion of our business in South America, which is mining. The opportunity there is just the increased population. You notice we've added to backlog in the quarter. We talked about a moderating growth in my environment for a few quarters here in South America, and I'm encouraged by the backlog out in Q1 with Alhambra and then the significant Win in Q2 here that put the backlog up 40% quarter over quarter here in South America. And a lot of the proportion of that population is under some kind of contract with Finian. And so there's an opportunity to maintain our market share in labor in South America, but just the volume of trucks that are under contract is going to increase in Chile and in Argentina. And then in the UK, the growth there, we have relatively high market share as major customers of outsourced product support over a decade. But where we're seeing the big growth opportunity in the UK is in our servicing contracts. We're seeing that in Canada too, but we were... The number of machines that are under service contract with Finning Labor is increasing dramatically in Canada and in the UK. And so that's where the drivers are coming from.

That's really great, Connor. Thanks. And just one quick follow-up in the smaller line of your business and rental, but it has demonstrated some solid growth here of late. And so I think back to the 23 Investor Day down south, I think you had started to prioritize some growth there. That was subsequently pulled back from an expectation standpoint, but it does feel like now your commitment to growing that business, I guess, in partnership with CAD has come back to the fore here. Maybe just give us a sense for where you're viewing that business today and where it stands and where you want to take it here in the next year or two. Thanks.

Yeah, good question, Steve. I mean, just to be clear, we've never pulled back from it under my leadership. I'm committed to rental. I think it's a great business. It's a different business and it needs to be effectively run. The pullback, which you're alluding to, which is fair, was more market conditions in 23 and 24 that didn't support aggressive growth. Back again to Cheryl's question around what are the impacts you're seeing on the more positive sentiment, particularly in Western Canada? It's across the board, right? It's in gas compression, it's in new trucks in the oil sands, it's in rental projects for enablement and things like that. So actually, you know, the vast majority of our rental businesses in construction in Canada today, that's where the big proportion of our business is. And that business actually was up 60% in the quarter, 50% year to date. and so that's heavy rents and rental services. So that we're really encouraged by that and we've got a big opportunity, like similar to your question around service, then let's double it and then we'll have a calibration and see what the next steps is, but doubling would be the ambition from the outset. And I would say that in Canada and UK specifically, We're super encouraged by the opportunity in power rentals. It complements our business well. It supports the need for reliable power generation. It supports the opportunity to bridge to more permanent power generation for mines, for communities, for data centers. And so we're seeing really healthy growth in terms of our power rental business. that business is up 25% year-to-date in the UK, 20-ish percent in Canada year-to-date so not seeing the kind of the really really great products and growth levels that we're seeing in construction right now but moving along really really nicely so and you know the rental figure that Dave mentioned as well previously that that includes some pretty and many more. I would suggest that in Q2. The EPS contribution, I'm not going to share it, but the EPS contribution from rental to the Canadian business was very helpful.

Once again, if any analysts have a question, please press star, then one on your telephone keypad. The next question comes from Chris Jefferson with CIBC. Please go ahead.

Hi, thanks for taking my question. I was just wondering on the power side in Alberta when it comes to data centers, we've seen a little bit of movement with the AESO coming up with updated guidelines back in June and there's a comment in there about bridging capabilities and I'm just wondering How you're thinking about the prime power opportunity with some of the changes and announcements coming out of the AESO in the past month or two?

Yeah, so I mean, I would describe the situation as evolving right now, as you mentioned. And, you know, it's kind of quick, quick, slow, quick, quick, you know, and We're trying to stay across all of that opportunity and make sure that we're ready to support the opportunities for prime bridging or backup power. Clearly, prime power has a higher value creation for filling, so we're super focused in that area and working with customers behind the meter. I think that the The first opportunity probably is going to be back up as there is some capacity in the grids. But then I think as it moves forward, the opportunity will probably shift to bridging power whilst permanent capacity is constructed and built. And then as it relates to the permanent power, that's the... That's the kind of crown jewels, that's where we're really focused on participating in that prime power generation. But as you know, there are multiple ways you can produce that power. There's already been some announcements that support the build of new gas fired power generation. But we think the opportunity in and around that to bridge and to participate in the resiliency of that behind the fence power generation is super exciting. And, you know, right now it doesn't feature in our financials and our 100% growth that we're seeing in our power generation business today is in prime power, is in gas and it's in gas compression.

Okay, thank you for the colour there. and then maybe just to follow on, as we think of the backup opportunity and we see some of these data center projects be announced like Project Greenlight, would that be a one for one backup to prime power solution or would you not necessarily need that level of replication? Thank you.

Yeah. We tried to give some examples of how it might play out in terms of the one-for-one to help shape and model it. It's a very dynamic, as I mentioned previously, it's evolving and dynamic. There certainly isn't a one-for-one relationship between prime and backup if you're providing prime power generation because when you're building prime generation, you're building in a level of redundancy. It's not like the grid goes off and you have to back it up. If you've got 10 engines, 10 gas engines, the likelihood that all 10 go down at once is very low. So you've always got some redundancy in the system. So no, it's not one for one. There will be backup generation opportunities. And there'll be some bridging opportunities why that prime power is being constructed and built.

But know that you've got

Diesel backing up grids. When you've got behind the meter, bring your own power. There's an element of redundancy built into those projects, which reduces, it doesn't reduce it to zero, but it reduces the need for the proportion of backup generation you need. There's also the fact that different types of data centers that have different latency and and productivity requirements, right? So there's different data center use cases that are less critical and so require less backup generation.

Thank you. I appreciate the comments on that.

This concludes the question and answer session. I would like to turn the conference back over to Mr. Primrose for any closing remarks. please go ahead.

Thank you operator and thanks everyone for joining. Kevin and I are in Santiago, Chile today and we appreciate you joining us and we look forward to joining you in November when Kevin and I will be in Dublin with the UK and Ireland team for that call. So thank you again and have a safe day.

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.