Q2 2023 Finning International Inc Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the Finney International Inc, second quarter, 2023, investor call and webcast.
As a reminder, all participants are in listen only mode and the conference is being recorded.
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I would now like to turn the conference over to Greg Palace check Executive Vice President and Chief Financial Officer.
Please go ahead.
Okay.
Thank you operator, good morning, everyone and welcome to <unk> second quarter earnings call. Joining me today is Kevin parks, our president and CEO .
Following our remarks today, we'll open the line to questions. This call is being webcast on fitting dot com. We have also provided a set of slides that we'll reference during our prepared remarks.
The slides are posted on the Investor Relations section of the website, an audio file of this call and accompanying presentation will be archived on our website as well.
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 10, and 11 for important disclosures about forward looking information as well as currency 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 in our MD&A and our 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.
Kevin over to you. Thanks, Greg Good morning, everyone.
Please turn to slide two.
We are very pleased with how our teams continue to execute and deliver strong performance.
In quarter, two we achieved significant revenue growth in all lines of business led by a 30% increase in product support revenue and strong deliveries from our record equipment backlog.
Currently we continue to drive strong operating leverage.
Earnings unexplained ironic.
We are pleased to see our quarterly earnings per share reached $1 and our adjusted return on invested capital of 20% for the first time.
This is a result of the hard work by our employees and the finally put in place two years ago.
To drive product support lower costs, and reinvest compounded out really.
We are carefully managing our costs and given our strong product support growth, which is SG&A intensive.
Thanks from me environment, we grew 17%.
Over the last 12 months is a very good outcome and we believe we have opportunities to continue to find ways to make our cost base ballpark school.
We are simplifying our strategic priorities product support which is the most resilient part of our business and a key driver of earnings remains top of our list.
Other aspects of our business in a sustainable way.
Two areas, where we see attractive opportunities on the growing demand for electric power generation and all of our regions and an increase in our pocket participation in the rental and used equipment market to capture our largest shattered the retail market and the subsequent aftermarket opportunities.
The other key elements of our strategy to build a building greater resiliency into our operating model.
Velocity into our invested capital performance to ensure we deliver a reliable performance in all market conditions.
We're also challenging ourselves to build stronger engagement and Gretchen patents about April , particularly at the front line of this is about the customer experience and the strategy is executed.
We look forward to providing more details on our strategic priorities set out coming Investor day.
Now please turn to slide three.
Market activity in our regions remains robust and I ask the outlook is positive.
Our order intake is healthy and our equivalent backlog for delivery in 2020 pool continues to grow at a nice.
One 9 billion.
We're also seeing broad based strength in product support the significant levels of demand for service work, including growth in machine rebuilds.
We remain diligent in our execution controlling what we can and continue to optimize our labor productivity.
Productivity.
Building capabilities and capacity to capture strong demand I'll ask about the mall.
All right.
Our assumption ratio, which is a measure we use to measure the profitability of our product support business in the context of our total cost of Jeff has shown a significant and sustained positive trends.
Yes.
<unk> 2019 absorption is up 18 percentage points, reflecting improvements we've made in our cost structure and efficiencies in our operations.
Given our continued growth, particularly in sectors with longer lead times for equipment and parts. We are very pleased with free cash flow generation in the quarter.
<unk> committed to optimizing working capital through the balance Yeah, Boston children, we can support our customers.
We are optimistic about continued momentum and focus on driving strong performance going forward.
We are building our equipment backlog for 'twenty transform and expanding installed base of equivalents.
We have recently received significant orders from our mining customers, which will be added.
Great.
We continue to execute on our product support strategy.
Service work in progress balance is up 20% compared to June 2022.
Also pleased with the business performance of our rental unused departments.
And target them as key growth areas for the future.
Our operations continued to hire technicians and expanded product capabilities and capacity.
We added 145 technicians in the first half of the year growing our technical work by 18% since 2021.
Currently employ it back 5300 technicians globally.
They're also making targeted investments in our facilities to better serve our customers.
Canada, we have just moved into a new triple all facility in Kamloops is more bodies and more warehouse space.
We expect to be able to hire as many as 100 technicians to work in the new facility.
We also plan to expand our capabilities.
The Chile.
The next couple of years to support the strong outlook for increased copper production.
Growing mining equivalent population.
We are excited about the long term growth opportunities in South America, and look forward to demonstrating our strong capabilities in the region. When we host our Investor Day I'm sure Antofagasta in September .
I will now hand, it back to Greg Alright, a greater level of detail on our second quarter results.
Great. Thank you, Kevin and I will talk about our second quarter performance in more detail, including our regional results.
And I'm turning to slide four.
We're pleased with another strong quarter net revenue of $2 6 billion was up 28% from Q2 2022, the strong revenue growth in Canada and South America.
Continued disciplined execution of our product support growth strategy. Once again was a key enabler of strong operating leverage and return on invested capital.
Our teams in South America, and Canada delivered adjusted rock above, 26% and 20% respectively.
Yeah.
EPS was up 24% from Q2 2022 at one dollar per share strong revenue growth and operating margins were partially offset by higher <unk>.
And higher financing costs year over year.
We generated 31 million of free cash flow in the second quarter compared to a use of $1 42 in Q2 of last year, our net debt to adjusted EBITDA was one point.
We were pleased with the strong interest in our $350 million bond offering in May we secured an attractive rate of 445% on a five year basis and the deal was five times oversubscribed with broad distribution.
On slide five you can see changes in our net revenue by line of business and the composition of our backlog by market sector.
Revenues were higher in all lines of business from Q2, 2022 product support was up 30% strong across all regions.
Execution of our rebuild strategy has been a key driver the total number of rebuilds up 25% compared to Q2 of last year.
29% increase in new equipment sales was led by mining deliveries in Canada and power system sales in all regions.
Equipment backlog of $2 4 billion remains very healthy we are pleased with our strong mining deliveries in the quarter and expand our population.
Quoting activity and order intake remained strong and we have already secured additional large mining orders in July .
60% of our backlog is expected to be delivered in the second half of 'twenty three the remaining schedule for 2024.
Mining and power systems continue to grow in proportion, representing roughly 40% and 25% of the backlog as of June 30, respectively.
Turning to slide six which shows our EBIT performance.
Gross profit was up 24% on strong product support and new equipment volumes as a percentage of net revenue gross profit was down 70 basis points, primarily due to a high proportion of mining deliveries and the revenue mix.
EBIT was up 28% as a percentage of net revenue consolidated EBIT margin was nine 4%, which was comparable to Q2 of last year.
Moving to our Canadian results and outlook, which are summarized on slide seven.
Net revenue increased 36% from Q2, 2022, driven by strong new equipment and product support volumes across all market sectors, new equipment sales were up 84% led by mining deliveries to oil sand customers.
Product support revenue increased 24% led by mining including rebuild activity.
We're seeing a notable growth in power systems business in Canada with power systems revenue up 70% Q2, 2022 and backlog up nearly four times.
Operating leverage was strong with SG&A as a percentage of net revenue down significantly from Q2 2020 to EBIT as a percentage of net revenue was nine 9% comparable to Q2 of 2020 again due to the higher proportion of mining in the new equipment.
Canada's adjusted ROIC exceeded 20% up 280 basis points from Q2, 2022, driven primarily by profitability improvements.
Our outlook for Western Canada is positive supported by healthy order activity record equipment backlog.
Demand for product support across all sectors.
Remanufacturing and increased rebuild activity.
And it is equipment backlog was up 4% from March reflecting strong order intake, including the addition of the remaining artless cold water.
Now turning to South America on slide eight.
In functional currency net revenue increased 28% from Q2, 2022, driven primarily by mining product support.
Product support in South America was up 34%.
New equipment sales were up 18%, mostly due to higher sales to large contractors supporting mining operations.
EBIT was up 53% as a percentage of net revenue was 12, 1% up 200 basis points two of last year.
But of all the strong growth in product support and improved operating leverage.
South America generated ROIC of 26, 4%, a 410 basis points from Q2, 2022, and the highest level achieved to date.
Yeah look for Chilean mining remains strong supported by growing demand for copper and improve with it.
Alrighty.
We're encouraged by the recent government approval of large scale brownfield expansions and increasing customer confidence to invest in new projects and expansions mining.
Mining quote activity is robust and we expect that significant orders to our backlog in the third quarter of this year.
We also continue to see strong band for a large contractor supporting mining operations in Chile, well infrastructure construction activity in Chile is expected to remain stable.
In Argentina with the election process, beginning in August and likely concluding in November there was an increased risk of near term volatility, particularly in the construction market we can.
<unk> actively manage import regulations high inflation and challenging critical regulatory and currency environment.
Please turn to slide nine for our results in the UK and Ireland.
The functional currency net revenue decreased 11% from Q2 of 2022 due to lower new equipment sales and construction.
In Q2 of last year H S. Two deliveries drove record equipment sales and EBIT in the UK and Ireland.
Support revenue was up 14% driven by strong customer activity and equipment utilization across all sectors musicals in sales more than doubled compared to Q2 of 2012.
EBIT as a percentage of net revenue was a solid five 5%, reflecting our focus on growing product support business.
Construction markets in the UK and Ireland, Ireland remained stable demand for equipment has been resilient construction order intake was up 60% Q1 of 2023, and we expect continued healthy product support activity.
Just two deliveries complete we continue to expect lower new equipment sales in UK compared to the record levels of 2020.
Power systems, we have a solid backlog of projects for delivery in 2023, and 2024, we expect demand in power system markets, including data centers to remain strong.
In summary, we're pleased with Q2 results and the momentum in our business customer activity levels are high our equipment inventory is healthy the substantial majority committed with committed customer orders with improved political clarity in Chile.
We're mobilizing for growth.
Under has a broad based strength in the U K business is resilient.
Export activity continues to be very robust, we remain focused on disciplined execution of our product support growth strategy in a thoughtful way.
And supply constraints moderate we're working to reduce our safety stock and normalize our inventory levels, while supporting strong business levels.
Before I turn it over to Q&A questions I'd like to remind everyone that we are excited to be hosting our investor day on September 26 gas to Chile.
The video webcast of our Investor Day will also be available on our website.
The Investor Tour of mining operations will include a component rebuild center integrated knowledge center when they go to a workshop, where we're currently delivering one 719th truck per week and our parts distribution center.
In addition, we will be visiting Telcos Minister Holly's mine recently announced the submission of a permit to request an expansion and extension we will start the afternoon of September 26.
And conclude on September 27, we have very strong list of attendees, but do you have the ability to add a few more investors. If you are interested in joining in person. We encourage you to register as soon as possible.
Operator, I'll now turn the call back to you for questions.
Thank you we will.
We'll now begin the question answer session.
Alice who wish to join the question queue May Press Star then one on your 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 too.
Draw. Your question. Please press Star then two.
Well pause for a moment as callers join the queue.
So the first question comes from Cherilyn Radbourne with TD Cowen.
Please go ahead.
Thank you and good morning.
My sense based on your MD&A on your comments, it really that Canada in the air.
Oh, Yeah, no strength and that South America is kind of coming up behind that are some of the political issues start to be alleviated. Maybe you can just elaborate a little bit more kind of on a quota in pipeline and what you're seeing from customers in terms of.
Brownfield and then greenfield developments in that territory.
Yes, Thank you Charlie yes so.
The way, we kind of describe any internally right now is that penetration is very strong and robust across all segments.
And across all geographies as well.
So you'd be you'd be correct.
Describe it that way the way, we describe South America, right and that is mobilizing and as you rightly mentioned out of the back of the political uncertainty in the mining royalty discussions on what we're seeing now is greater commitment to the region.
And more certainty in terms of brownfield mining.
And some more discussions around greenfields it would be decided at the Greenfield mines.
From your T V too, which will be fully operational by the end of the year, which is a significant add to production most of the activity and the conversations we're having right now around brand brownfield expansion productivity improvements within existing mines and I always point to the fact that.
Recent wins we've had.
You know with the biggest copper mine in South America.
Is that is a significant.
In South America.
So yes, the hence why we were excited to be taking.
Biogen investors.
The analysts to our Investor day.
In September Greg was that just a couple of weeks ago, why was that six weeks ago.
You can't help but see the mobilization.
When you spend a couple of days in the region and so the other thing I would point you in Charlotte and these are brownfield.
He is good fulfilling that means machines are working hard at.
It means our machines are right.
In many cases.
Well, Greg just still declining so.
We're seeing some of the benefits in that in terms of R. R.
Our business performance in our numbers.
Great and then my second question.
It relates to deliveries.
During the quarter, which we're very happy from a mining perspective.
In Canada, and so I'm curious how many of those deliveries were incremental to the installed base and how that compares to what you see in the current backlog.
Yeah.
Yeah, I'd say that we're pleased with the deliveries.
They would all be described as incremental.
If you look at the amount of tons being moved in the oil sands, Yeah that continues to go up and so those would all be.
<unk> labs.
Yes.
The backlog at the level. It is we're always pleased when it's above 2 billion. We continue to refresh at about $2 billion and Theres lots of additional mining orders, both trucks and ancillary equipment for Canada and South America.
That's my two thank you for the time.
Thanks Carolyn.
The next question comes from Jeremy Link with Canaccord Genuity.
Please go ahead.
Hey, good morning, guys.
Good morning product support are extremely impressive growth in the quarter.
You are coming up on some some pretty difficult comps I'm just wondering how your your forward.
Indicators for product support look in terms of service with Ben.
Backlog of of rebuilds versus say about six months ago.
Yes, thanks, Gary So as I mentioned in my in my remarks that we are adding capacity.
It talks about edition of the <unk> facility and some incremental capacity that we're building and John just the gas there.
Technicians are up hygiene standards since 2021.
We've added around 150 technicians this year and continue to add in a thoughtful way.
You mentioned their service work in progress, which is up 20%.
So that's another good indicator of continued momentum.
Strength in the product support business and rebuilds are up double digit as well year over year from 25% and so we continue to see stickiness in terms of.
The pivot to rebuilds, particularly in the smaller moving down the range into the C&I tacos.
The construction sorry type of equipment.
If we think about <unk>.
She is in base.
And the technician.
And then the subsequent building in productivity, which relates to <unk>.
Ladies to service work in progress.
We're optimistic about the product support business in the second half of the year.
Okay, that's great.
Last one for me just you know historically.
Your clients would <unk>.
Generally make a decision between rebuilding a piece.
Older piece of equipment or buying a new piece of equipment in.
It just from the numbers it looks like you're getting both right. Now you are getting a lot of rebuilds and youre getting a lot of new equipment. So so what's the market dynamic behind what you're seeing today.
Well I think as Pat said on that call here that there is still some constrained.
Since find supply chain and then we are at that we're working through and we're using our resources, which until on rebuilds unused equipment are our tools, we use to manage through and support our customers.
Sure.
That was kind of supply constrained environments.
Custom has moved towards rebuild because it was the best option there.
But I'd also like to highlight that during that process. The last public support strategy execution. We also repositioned to rebuild as I mentioned yellow rebuilding much smaller equipment than we ever did in the past.
We actually have a rebuild factory now for days excuse.
Which the eight would be one of the products that still has quite a long lead time, which is a staple of DS ADESA extractor.
And so I think we've kind of re imagined rebuilds I think customers who've had a taste of rebuilds.
The like the solution.
But net net our customers are looking to build capacity and so they're needing to use both leavers, including rental and used as well to be able to meet the demand in the end markets in the current supply situation.
That's fair Thanks, guys I'll turn it over.
Yeah.
Thanks Jerry.
Yeah.
The next question comes from Jacob bout with CIBC. Please go ahead.
Good morning.
Good morning Jacob.
I'm curious on the feedback youre getting from clients on how to deal with pricing.
Are you seeing any any pushback at this point.
Got it so I mean, we have to be competitive and I think our order intake and backlog build suggests.
In the new equipment space and equally yes, we're seeing growth in rental and used and.
On product support so.
I always point to activity levels.
A good indicator of competitive proposition in the marketplace.
And we're very focused on using all the data we have.
To analyze what's acceptable in the marketplace.
But equally articulating very clearly where cost of Colo.
They need to be absorbed into the into the go to market. So I would suggest that now.
But he likes to see price increases in the current in the environment that we just work through which is normalizing and listen right now has been an extraordinary environment, but I would say the general market industry.
Caterpillar dealers and customers.
<unk> absorbed it very.
Very well into into their operations.
So as supply chain availability normalize.
<unk>.
It sounds like there'll be lost rebuilds, and we're going to see more pressure on pricing.
How should we think about that and when do you think things are going to normalize as far as.
Availability.
Yes.
You know I think there are some areas that I would describe as normalized right now, particularly in the smaller equipment and excavators and the larger engines and larger modern equipment that you can still have longer and extended lead times than we typically would be used to.
As the.
See how the company.
Describe it as the.
The supply chain improvement as a negative either from less rebuild or a pricing perspective, I see supply chain improving as a huge positive for the organization.
Because we still working in a relatively confined environment and so supply chain, improving we will allow us to do more business.
And to continue on the growth trajectory that we're on.
Right now I'm not naive enough to think that there won't be some normalization.
The competitive environment as well the supply chains.
Normalized and you were very focused on making sure that our supply chain.
Normalizes as quickly as everybody else who's in our current business levels and market share, which suggests that we're well placed there.
So you know ultimately.
Would not see this as a as a negative as I mentioned previously rebuilds, we've re imagined and reposition rebuilds and refining them.
While more sticky.
And then just an alternative to an to.
To a constrained piece of new equipment.
So.
Net net we see supply chain improvement is a positive for our organization.
Okay.
With velocity.
And working capital I think improves in that environment as well big focus area.
Thank you.
Thanks Jacob.
And the next question comes from Michael <unk> with Scotiabank.
Please go ahead.
Hey, good morning, guys.
First off really good quarter.
The question I had was on.
Product support productivity, Kevin I think you talked about in the last 18 months, having increased the technician staffed by nearly 20% you've also built.
Several new facilities.
Are you seeing any productivity or cost absorption headwind as a result, I'm just trying to get a sense for whether that's a margin opportunity.
As I mentioned in my remarks.
Alright.
We measure our waiver measure called absorption, which measures are.
Got it all space through the lens of our parts supply activity and that continues to to increase productivity levels are high we're adding technicians optimizing how we do the work.
Okay.
Overemphasize the why do we do the work.
And move machines around to whether we move the works that people needed to make sure. They are optimized and the bays are optimized and.
The libraries optimized and also the work is being done.
With the highest capability and also for <unk>.
I'll field response.
Staff and technicians.
To respond to.
<unk> and failed.
L scenario is much faster.
So no I don't think.
Well I think were seeing continued expansion.
And then grant increases and our absorption ratio.
And as we become more efficient and we've got more to do that for sure.
I think youre on the right lines in terms of.
That being a better opportunity for us.
Can't really nice and then maybe just turning to the to the SG&A. So very good performance overall.
Testing is going to at least to me a pretty tricky number to nail down quarter on quarter from a modeling standpoint.
You know, obviously as you spend for growth.
And then there's been the restructuring and the variability in Altair.
Maybe Greg what are some of the trends, we should consider going forward and I wonder if the Q2 SG&A number is that.
Fair number to consider is the high watermark for 'twenty three.
Yeah, certainly you know the share price performance as well as rollout, which is also linked to help that obviously that was.
Quite a large number in the quarter so.
Wouldn't expect that every single quarter and so that would have put it on the IR side also some of the union activities in agreements that would also be in there. So.
We're pleased to be at 16, 2% for a quarter or 17, 3% for an LTM. It will continue to drive.
17% and see where we can take it backs.
As we continue to go through but productivity and SG&A management continues to be a big value driver and an important so.
Certainly high within the quarter for the reasons I mentioned.
Continued focus area.
Alright. Thanks.
Thanks, Michael.
Okay.
The next question comes from Sherry <unk> with Bank of America. Please go ahead.
Hi, good morning.
Just wanted to ask a bit seasonality in operating margin.
Historically, you typically see your margin ramp from from Q1 to Q3 on a sequential basis and then tail off into Q4, given this year has the impact of a very high new deliveries well service product support revenues are also growing are you able to give us a sense of what the rest of the <unk>.
Second half will look like.
Yeah Jeremy.
Edging our way back towards a little more normal seasonality, which would be Q1 is winter in Canada.
Some slower times in South America in the summer season, so that tends to be a little slower Q2 spring selling season and ramp up.
It tends to be more activity and then Q3 is kind of peak rental activity.
And you know really strong quarter, and then Q4 seasonally trends down from an activity level, but sometimes you have some interesting year act yearend activities with customers with remaining Capex and whatnot. So it can move a little bit.
Yeah typical would be key.
Q2, strong Q3 kind of peak rental and a little higher margin.
So that would be typical seasonality, which we're hedging more towards that said, we do have a lot of new equipment that we're delivering as you saw in Q2 being.
Being up 84% in Canada is a big number.
Trying to get that equipment out in customers' hands as quickly as we can and those are great units to add into the population does start accumulating hours.
Thank you.
Thank you. The question comes from Devin Dodge with BMO capital markets.
Please go ahead.
Alright, thanks, good morning so.
Demand for power systems continues to be really strong preventing we've heard this from others as well.
Also heard that lead times for some of those so that equipment is really stretched out just wondering if you could talk about the sustainability.
Of those demand drivers for power systems in it there is optimism that cat can add capacity to keep up with that demand.
Yeah sure Devin Thanks for the question. So yeah, you're correct I mean, we're really happy with that.
The demand in our power systems business and that's across the board I mean, UK was a it was always a big part of the business and the like.
They were first out of the blocks here, but the business levels that we're seeing in the other two regions are really encouraging right now.
Hello systems of cancer about 25% of our backlog right now, which has never been that high in the past and it continues to build some of that build is because of the extended lead times for sure.
But the order intake and the activity levels.
Very strong and I was talking to the leader of our Canadian power systems business just last week.
And with the outlook.
Look for our Canadian power systems is going to be a record all time, yeah. So.
And we see that sustain and then we'll talk about that in greater detail at our Investor day.
Just to give you a few soundbites I mean, we look at our power systems business in three broad segments of all sub segments.
First is the growth for the growth in data and data centers.
The demand for the processing of data and we.
A very good proposition and a track record of market share in terms of supporting the eco Pan.
<unk> for Datacenters.
So that's that continues to grow and the demand for data what he's only going one way.
The second area that we focus on these power resilience and as the world shifts to more renewables.
It also requires more resilience.
As the renewables are not as reliable as traditional forms of power generation and we stay in a really good space there and we have some relatively long term contracts.
<unk> Aero resilience and support and the great. Yeah. A good example of that would be in the Yukon.
And then the final area is prime pattern, so as transition costs keep going up as any.
Costs keep increasing more and more.
Larger facilities are looking at how do they become more power independent and tight control of their power requirements and that's what we call prime.
And so lots of opportunities to.
To provide larger facilities as a full comprehensive power generation solution and not only that they also have the ability to then use power management software to sell back into the grid.
And offset some of their investments. So those are the three broad segments. We see all three segments have a hub runway, it's kind of hard to to identify the total addressable market because it's so new.
The outlook is extremely positive.
Okay. Okay. That's all really good rundown. Thanks for that maybe it's just a question for Greg We think pinning be really active and its buyback program in Q2 and that seemed like it continued into July .
So just wondering if you know what the stock moving higher eyeglass. He wants to do you expect capital allocation to become a bit more balanced.
Between stock repurchase says that some of your other priorities on a go forward basis.
Yes, it's something where you know capital allocation will touch a bit more on the framework at Investor day, but.
Spoiler alert its very similar so we want to grow the dividend on a steady basis.
Organically in the business, which we've done a lot of and obviously you know that started to turn to free cash we were pretty optimistic on that outlook.
Going forward given the accumulation of profits we've had over the last couple of years and so we've got capital to allocate and deploy and we continue to see share buybacks as a very good way to do that.
So seven times EBITDA and all times earnings.
Tractive in.
At the end of the day, when we look externally, we can't find businesses as attractive as ours with the dynamics that we've talked about today between Canada, Chile, and the U K, that's not attractive. So we continue to see this attractive and we continue to be consistent on that and we kind of think of that as 1% per quarter minimum and then look at the amount of cash we generate and make choices.
Okay.
Okay makes sense.
I'll turn it over thank you.
Thanks, Kevin.
The next question comes from Steve Hansen with Raymond James. Please go ahead.
Yeah. Good morning, guys. Thanks for the time and labor cost inflation has been a headline issue across the entire continent of late.
Some pretty hefty demand as being dressed board skus, perhaps give us an update as to where you stand from a labor standpoint.
And any recent negotiations or increases that you might've phased or that you are planning on.
Yes Sheila.
For sure.
Go ahead Aaron for inside it.
Our lab and negotiation teams our operation teams within a spectacular job over the last period of time negotiating with that.
Our labor agreements in all three regions.
And I'm pleased to say that you know we successfully completed all union negotiations that are Oh.
<unk>.
Already to be renewed at this moment just dominating factor you've got ahead of some of the agreements in South America.
And then and just this week, we signed off on the UK and Ireland agreement so.
Stream the challenging environment.
With the spike of inflation as you mentioned Steve.
But I think the team has took a balanced approach and that's that's evidenced by the fact that we've managed to reach agreement with our with all of that with all of our unions.
Still manage to absorb those what I call, a fair and balanced book.
Labour agreement.
Slide labor agreements in.
Entire crude oil pricing performance and our financial.
<unk> financial performance.
Absolutely fantastic job by the team.
Okay very helpful. Thank you and just as a follow up you described some very strong progress earlier on the product support strategy.
Recent capacity expansions and indeed controlling the labor gap with technician hiring can you just give us a sense for how long of a runway do you think that gives you before you need to reinvest again or contemplate further expansions in that strategy.
I guess, just as you look at the broader installed base backlog et cetera, like how how long does it give you with the recent investments.
Yeah, and that's some of the work that we're doing right now I mean, it's a tactical of being public Steve about their intention to double by 2026, we got that means you've got.
Two and a half years less does that well my and that includes a double digit product support growth.
<unk> within that broader strategy. So you know right now and through our Investor day in September we hope to be able to articulate a plan.
New product support growth through that period.
Hence why we're adding the capacity in a thoughtful way you know we're also very mindful that we want to make sure that we retain our staffing will provide job security and uncertainty. So we're not chasing every every opportunity and every dollar we're having a very robust conversations with customers.
And trying to use this opportunity.
To really integrate and build stronger partnerships with our customers, particularly from a labor perspective.
With.
The answer to your question is that we see continued growth rate in <unk>.
We'll go next.
Two to three years and we'll fulfill the AD.
T Tomatoes those demands.
And maybe just add that the way, we're adding capacity is different than the past right. We open up a new kamloops with extra capacity, it's taking capacity from four other branches and scaling up very efficiently.
As we build the warehouse in Edmonton it's.
Four warehouses into one and with automation within the warehouse.
And so the way we were adding capacity I think is more efficient than ever as it's all kind of just add 20% everywhere.
But you know it was highlighted in Investor day, as well you know, we're adding capacity in the answer but you asked a really clear.
Clear growth there.
To walk through that.
And then just finally for me.
Think about it is we still have some potential ahead of us right now.
And you know some of that is market share is some of it is constrained opportunity we still have.
Opportunities to build the population and you're seeing that through the mining folks, but we have we have opportunities to build.
Population in rental and used are good examples of that.
And then the growth in parallel just articulated on the on the previous question that that provides another level of installed base that is critical to our continued product support.
That's great color guys. Thanks.
Thanks, Steve.
The next question comes from SAP or Hot time with RBC capital markets. Please.
Please go ahead.
Great. Thanks, and good morning to provide us some color on Chile, and some of the mining activity and talked about some orders I was wondering if you could maybe dig into the type of orders that you're referring to I know earlier you had mentioned.
Some of the activity in Chile was a bit slow as a political situations settled out but it sounds like there are some orders coming through if you can just talk about the nature of those orders are the larger global miners.
Starting to move on some of their plans just want to get understanding of the activity levels and where it's coming from.
Yes sure.
So as we think about Chile, we talked about a large framework opportunity. This time last year or slightly better September time last year and that continues to be executed and we look forward to demonstrating how we're executing that.
The gas day in September .
And you know we've got the continued execution to support both TV show, which is the biggest kind of greenfield opportunity that's going to come.
Come into production at the end of the year aside from that there's strong activity levels in mining contractors that cycle out of this kind of mobilization enablement.
For description, we used with July right now for.
Sure.
There's been a kind of a delayed or kind of pools, whilst the political certainty was managed through them.
The mining royalty was was negotiated and agreed.
But since then you know with two things are kind of happening nothing activity around Greenfield is increasing in terms of discussions.
There's a big discussion is moving from a kind of economic discussion into a kind of permitting and ESG discussion now and I'm quite very confident that we'll move through and you're seeing that through some of the <unk>.
Activity in the kind of big miners at all Mike.
Investments in Savannah, and commitments into the region.
The other thing is just in the meantime, the expansion and the productivity improvements within the brain at the brownfield sites.
Road activity looking for every opportunity to increase productivity.
The scope of mindset.
That they have today and we are helping them with that with new new trucks with rebuilt chokes leaves them with data and and.
And slight expertise through our eyes, Casey operation, which again will demonstrate in September .
I would describe it is like you said mobilizing and enabling but strong installed it actually the team Brian failed an encouraging sentiment.
In terms of Greenfield activity.
Okay, Great and then just one on the UBC facility that Greg mentioned earlier I guess, how should we think about the ramp up is there is it like you mentioned, taking some work away from some of the other facilities should we think about any sort of SG&A drag is that facility gets to full capacity just wanted to think about how we should model for that that addition, if it's material at all.
Yeah.
Yeah, I wouldn't think it would be material enough to model, but you know it's just a good example of the efficiency of bench B add capacity. So I mean, all of the costs. We would have been you know we've been building the branch for two years and we're just a cutover now so maybe there is some minor duplicate costs, but at the end of the day bye.
By the end of the year, it'll be fully up and running and fully transitioned over and more efficient matting, adding incremental work.
So it's just an example of how you use the hub and spoke model and provide great labor leverage points at places, where you have deep labor pools and can attract labor.
It's more of an example, then something to necessarily model, but.
Again, just a point around efficiency as we scale.
Great. Thanks, so much for the color.
Okay.
One for Tom any analyst to ask a question press star one on your telephone keypad.
Our next question comes from Mark Vincent Chao with National Bank financial.
Hello, Rob.
Hi, good morning, gentlemen.
Good morning Max.
I had a follow up question in terms of the product support.
If we look at kind of historically.
A much slower pace of growth in PFS over the years and nine west sort of seeing this inflection and obviously there is a lot of changes that have been done internally over the last couple of years, but I'm. Just wondering if there is any risk to.
Pulling forward some of the demand that will have a lot of disruptions in the last couple of years, just because again like when we move to the prior cycle.
New sales and kind of like up 16%.
And products supported by somebody and obviously I understand the whole installed based on and again I don't think anybody wants to sort of lack of imagination, where that can go but I'm. Just wondering if you can maybe provide some sort of high level comments in terms of.
How you see.
The product support dynamic in some of the reasons for that growth. Thanks.
Yeah, sure Max and so as I mentioned previously.
Along with Caterpillar we have.
Very clear strategies to you.
<unk> services.
28 billion by 2020 shakes and of course of course that that's done through the data is and whether it be part of that would it be part of catalyst business, though.
Cleaning needs to deliver on those.
Their fair share of that growth and I'm pleased to say that we've.
Do not.
A number of years now coming out of the back of the pandemic.
And we continue to do that and we're really really pleased with the public support levels that we saw in Q2.
And we're very focused on sustaining the growth trajectory in product support for sure.
That growth trajectory.
Will moderate over time.
As you know the market the available market.
Shrinks and obviously, we'll have the tail winds of some pricing.
Inflation as well.
But we're very focused on growing our product support business is not a word that we use products will take it not a word we use if any right now.
We're very committed to continued growth and we will articulate that in the in the Investor day.
So that's why we're adding capacity.
Why we've got this record backlog that we continue to I mean, there's just really happy that we are back.
It's been over $2 billion for for for more than a year now and we continue to have strong equipment deliveries as Greg mentioned, which of that is incremental.
Which is fantastic.
We continue to add to the backlog you know, it's a little lumpy because of the nature of the mining opportunity on the extended lead times in some of the products.
But it all plays to the fact that we're growing the installed base, we are winning market share.
Capabilities and capacity.
So we're not really looking back at the prayer prior cycles, because the business is so much different than it was in the past and the installed base is very different too.
Okay Super helpful. Thanks, so much.
Makes sense.
This concludes our question and answer session I would like to turn the conference back over to Greg Palace, Chuck for any closing remarks.
Great. Thank you operator that concludes our call for today. Thanks for your participation and have a safe day.
Yeah.
Yes.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Yeah.
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