Q4 2023 Finning International Inc Earnings Call

Operator: Thank you for standing by. This is the conference operator. Welcome to the Finning International Inc. fourth quarter 2023 investor call and webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded.

Thank you for standing by this is the conference operator, welcome to the Finning International Inc. Fourth quarter 2023, Investor call and webcast. As a reminder, all participants are in listen only mode and the conference is being recorded.

Operator: 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 their telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then 0. I would now like to turn the conference over to Greg Palaschuk, Executive Vice President and Chief Financial Officer. Please go ahead.

After the presentation there'll be an opportunity to ask questions.

Analysts to 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 Palast, Chuck <unk> Executive Vice President and Chief Financial Officer. Please go ahead.

Greg Palaschuk: Thank you, operator. Good morning, everyone, and welcome to Finning's fourth-quarter earnings call. Joining me on today's call is Kevin Parkes, our president and CEO. Following our remarks today, we'll open the line to questions.

Thank you operator good morning.

Everyone and welcome to <unk> fourth quarter earnings call. Joining me on today's call is Kevin parks, our president and CEO.

Following our remarks today, we'll open the line to questions.

Greg Palaschuk: This call is being webcast on the Investor Relations section of Finning.com. We've also provided a set of slides that we'll be referencing during our prepared remarks. Slides are posted on the website. An audio file of the call and the accompanying presentation will be archived.

Call is being webcast on the Investor relations sections of Sydney Dotcom.

It also provided a set of slides that we'll be referencing during our prepared remarks.

Slides are posted on the website.

An audio followed the call and the accompanying presentation will be archived.

Greg Palaschuk: Before I turn it over to Kevin, I want to remind everyone that some of the statements provided during this call are forward looking. Please refer to Slides 9 and 10 for important disclosures about forward-looking information, as well as currency and specified financial measures, including non-GAAP financial measures. Please note 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 under risk factors and management and forward-looking information. Please treat this information with caution, as our actual results could differ materially from current expectations. Kevin, it's over to you.

Before I turn it over to Kevin I want to remind everyone. Some of the statements provided during this call are forward looking.

These refer to slides nine and 10 for important disclosures about forward looking information as well as currency specified financial measures, including non-GAAP financial measures.

Please note that the forward looking information is subject to risks uncertainties and other factors as discussed.

All information for them and their key business risks in our MD&A and our risk factors and management or information disclaimer.

Please street this information with caution as our actual results to differ materially from current expectations.

Kevin over to you.

Kevin Parkes: Thank you, Greg, and good morning, everyone. Today, I will speak about our 2023 performance and our fresh strategic priorities, which were presented during our investigation. Following my remarks, Greg will speak in more detail about our fourth quarter results. Please turn to slide two.

Thank you, Greg and good morning, everyone.

And I will speak about our 'twenty to 'twenty three performance, our refreshed strategic priorities.

Presented at our Investor day.

Following my remarks, Greg will speak in more detail our fourth quarter results.

Please turn to slide 10.

Kevin Parkes: I'm very proud of our team. They delivered very strong results and performance in 2023. We achieved excellent growth in product support in all regions and won a strategically important business that sets the foundation for sustainable growth in future years. We delivered record earnings per share and further strengthened our earnings capacity. [inaudible] I'm grateful to our employees for their commitment and contribution to a record year.

I'm very proud of our team delivered very strong results and performance in 'twenty right.

We achieved excellent growth in product support in all regions and one strategically important business. That's the foundation for sustainable growth in future years.

We delivered record earnings per share and further strengthened.

Gotcha.

We also made good progress in growing I used rental and Paris.

Yes.

I am grateful to our employees for their commitment and contribution to a record year.

Kevin Parkes: We are pleased with 17% growth year over year in product support revenue. We grew in all regions by capturing market share, thoughtfully building our capacity and capabilities, and executing with discipline in a challenging environment. We increased our technical workforce by 7% in 2023 to nearly five and a half thousand technicians globally to support a growing number of product support contracts and strong demand for rebuilds, which were up 14% year over year. We also made targeted investments in our facilities to better serve our customers. In Canada, we opened a new state-of-the-art triple R facility in Kamloops. We have also centralized five parts warehouses in Edmonton into one, where we still have opportunities for more efficiencies, automation, and velocity. In Chile, we are expanding our capabilities and optimizing our mining services footprint in Antofagasta, relocating the service operation to our La Negra facilities, which some of you visited during our September investor tour. We have strengthened our earnings capacity by reducing our SG&A as a percentage of net revenue to 17.2% in 2023, despite persistent inflationary pressure. Our adjusted earnings per share increased by 20% year-over-year to an all-time high of $3.91.

We are pleased to 17% growth year over year and product support revenue.

We grew in all regions by capturing market share thoughtfully building out capacity and capabilities and executing with discipline in a challenging environment.

We increased our technical workforce by 7% in 2023 to nearly five and a half thousand technicians globally.

Well, it's a growing number of part of school contracts strong demand for rebuilds, which were up 14% year over year.

We also made targeted investments in our facilities to better serve our customers.

In Canada, we opened a new state of the art Triple our facility in Kamloops.

We have also centralized five parts warehouses tending to one while we still have opportunity for more efficiencies automation and velocity.

In Chile, we are expanding our capabilities optimizing our mining stopes useful Indian Antofagasta relocating our service operation to bother <expletive> facilities at some of your visits during our September Investor Tour.

Yeah.

We have strengthened our earnings capacity by reducing our SG&A as a percentage of net revenue to 17, 2% in 2023, despite persistent inflationary pressures.

Our adjusted earnings per share increased by 20% year over year to an all time high of $3.91.

Kevin Parkes: And our 2023 adjusted return on invested capital improved to 20%, led by South America. I would also like to acknowledge our team's resilience and dedication to our customers as we managed through some business challenges in the fourth quarter. This is particularly in Argentina, where the change in government led to significant disruption to our business, our employees, and their families.

And our 23 adjusted return on invested capital improved to 20%.

That's very good.

I would also like to acknowledge our team's resilience and dedication to our customers as we manage through some business challenges in the fourth quarter.

This is particularly in Argentina.

When the changing government led to significant disruption to our business our employees and their families.

Kevin Parkes: Construction product support activity in Canada and the UK and Ireland was more challenging than we expected in the fourth quarter. However, we expect this to recover through 2024 as the operating environment improves. Whilst we achieved strong profitable growth over the last two years, free cash flow generation was challenging, as we reinvested in growing our business and managed supply chain challenges to support our customers. To my comments earlier around strategically important wins, in 2023, we will deliver 60 ultra-class trucks in Canada and Chile, and 50 large mining trucks on contract. We are pleased to end the year with positive free cash flow and a strong balance sheet. The majority of our inventory is high quality and has been committed to Rackus.

Okay assumption possible activity in Canada, and the UK and Ireland was more challenging than we expected in the fourth quarter. We expect this to recover through.

The operating environment improves.

Okay.

Whilst we achieved strong profitable growth over the last two years free cash flow generation, most challenging as we reinvested in growing our business.

Any supply chain challenges to support our customers.

So my comments earlier around strategically important wins in 'twenty two 'twenty three we delivered 60 ultra class trucks in Canada, and Chile, and 50 large mining trucks to contractors.

We are pleased to end the year with positive free cash flow and a strong balance sheet. The majority of our inventory is high quality and committed to our customers.

Okay.

Kevin Parkes: As growth rates moderate, improving our resilience and unlocking invested capital will be critical. In 2024, we will be working to increase our invested capital velocity, prioritize our cost and capital resources, and improve our free cash flow generation. We are building a culture of resilience through our global organization.

As qualified smart right, improving our resilience and unlocking invested capital will be critical.

'twenty 'twenty four we will we will we will be working to increase our invested capital velocity.

It's always our cost and capital leases resources and improve our free cash flow generation.

We are building a culture of resilience to a global organization.

Kevin Parkes: This includes an acute focus on inventory management with increased discipline, forecasting, and stocking. A review of low-margin activities and investments, which we started implementing in Q4. Greater priority and flexibility of our resources to ensure our cost structure becomes more variable over time. Importantly, improving customer service levels is a priority as we execute these plans.

This includes an acute focus on inventory management increased discipline forecasting that's all in our review of La ROIC activities and investments, which you started to implement in Q4.

Poverty and flexibility of our resources to ensure our cost structure it becomes more valuable over time.

Importantly, improving customer service levels as a priority as we execute these plans.

Kevin Parkes: As I stated earlier, we've started to make progress growing our used rental business and policy, as we continue to build capabilities in these strategically important areas. We achieved record used equipment sales in the fourth quarter, and our power systems revenue was up 31% in 2023 compared to 2022, with all regions achieving double-digit growth. We are pleased with our rental performance.

As I stated earlier.

Starts to make progress probably not used by Sunpower systems businesses as we can.

You need to build capabilities in these strategically important areas.

We achieved record used equipment sales in the fourth quarter and our power systems revenue was up 31% compared to 2020.

To Norway.

All regions, achieving double digit growth.

We are pleased with our rental performance Ah pardon me focuses on Canada.

Kevin Parkes: Our primary focus is on Canada, where 2023 rental revenues were up 7% from 2022. As we look ahead, we continue to build a safe and secure company, which makes it easier for our teams to better serve our customers and empower our employees to drive customer loyalty. Our recent Employee Experience Survey showed that our Sustainable Employee Engagement Score has improved since we last conducted this survey in 2021, with encouraging trends across all regions and job roles.

<unk> 20th century rental revenues were up 7% from 'twenty to 'twenty two.

As we look ahead, we continue to build a safe and secure company, which makes it easier for our teams to better serve us serve our customers and empower our employees to drive customer loyalty.

Our recent employee experience survey showed that our sustainable employee engagement score has improved since we last conducted this survey in 2020, you want but encouraging trends across all regions and job roles.

Greg Palaschuk: Our focus in 2024 is on executing our strategic plan, cementing the new earnings power of the business by growing product support, building full cycle resilience by unlocking invested capital, and delivering sustainable growth in rental use and purchase. We expect the post-pandemic growth to moderate but remain positive, driven by a constructive commodity process, improving supply chain, and market share opportunities. We are entering 2024 with a healthy equipment backlog, and our workshops are busy. As we build on our 2023 results, we are confident in progress towards our Investor Day target. I will now hand it back to Greg to provide a greater level of detail on our fourth quarter results. Great. Thank you, Kevin.

Our focus in 'twenty 'twenty four is on executing our strategic plan.

Cement in the new earnings power of the business by growing product support building whole cycle resilience by unlocking invested capsule and delivering sustainable growth in rental used in power systems.

We expect the post pandemic growth to moderate but remain positive driven by constructive commodity prices improving supply chain market share opportunities.

We are entering 2024 with a healthy equipment backlog in our workshops is it.

We build on our 2023 results, we are confident and progress towards our Investor day targets.

I'll hand, it back to Greg to provide a greater level of detail on our fourth quarter results.

Great. Thank you, Kevin I will talk about our fourth quarter performance now in more details and I'm turning to slide three.

Greg Palaschuk: I'll talk about our fourth quarter performance now in more detail. And I'm turning to slide three. Our net revenue in Q4'23 was $2.4 billion, up marginally from 2020, and Adjusted EBIT and EPS were up 9% and 7%, respectively. Our adjusted EPS was $0.96 in Q4, bringing the 2023 adjusted EPS whole year total to $3.91. Our fourth quarter results were adjusted for three significant items. First,

Our net revenue in Q4, 23 was $2 4 billion up marginally from 2023.

Adjusted EBIT, and EPS were up 9% and 7% respectively. Our.

Adjusted EPS was <unk> 96 cents in Q4, bringing the 2023 adjusted EPS full year total to 391.

Our fourth quarter results were adjusted for three significant items.

First Argentina.

Greg Palaschuk: While changes being made by the newly elected government have the potential to be positive in the long term, the extreme currency controls in place during the fourth quarter election process, combined with the large subsequent devaluation of the peso, resulted in challenging operating conditions, a large foreign exchange loss for Finning and many of our customers, and with no material access to U.S. dollars starting in late August, our peso exposure increased significantly. And during this period, economic hedges were not available.

Well challenge with giant chain.

Is being made by the newly elected government have the potential to be positive in the long term the extreme currency controls in place during the fourth quarter election process combined with a large subsequent devaluation of the peso resulted in challenging operating conditions, a large foreign exchange loss for bidding in many of our customers.

But no material access to U S dollar starting in late August our peso exposure increased significantly.

During this period economic hedges were not available.

Greg Palaschuk: In December, the government devalued the official rate from 367 to 800 pesos per U.S. dollar, which led to a foreign exchange loss in Q4 of $56 million or $0.37 per share. Starting in January 2024, currency access has been re-established for new imports, and economic hedging alternatives are once again available. In early February, we began a series of transactions to reduce our peso balance to zero.

In December the government devalued the official rate from 367 800 pesos per U S dollar.

Which led to a foreign exchange loss in Q4 of $56 million 37 per share.

Starting in January 2024 currency access has been reestablished new imports economic hedging alternatives are once again available.

February we began a series of transactions to reduce our our peso balance to zero.

Greg Palaschuk: The cost of this program is being covered with significant support from our key suppliers. Therefore, our exposure and risk of losses are much lower today compared to the fourth quarter of 2020. We're actively monitoring the new rules and policies of the new government. We'll continue to evolve our operating model, taking a low-risk approach to Argentina in 2024. The other two adjustments in the quarter related to actions taken to optimize real estate and exit low ROIC activities.

This program is being covered with support from our key suppliers.

Our exposure and risk of losses are much lower today compared to the fourth quarter of 2023.

We're actively monitoring the new rules and policies of the new government will continue to evolve our operating model to kind of low risk approach in Argentina in 2020.

Sure.

The other two adjustments in the quarter related to actions taken to optimize real estate and exit low ROIC activity start.

Greg Palaschuk: As part of our Antipagasta Master Plan, we reviewed it on investor day, we sold our Antipagasta construction branch in Chile for gross proceeds of $16 million and reported a gain of $13 million. [inaudible] Overall, adjusted EPS of $0.96 per share in the quarter demonstrated solid underlying operating margins and earnings capacity, but we managed through several challenges in the quarter. On slide four, you can see changes in our net revenue by line of business compared to Q4 2022, and the composition of our equipment backlog by market sector. New equipment sales were up 22% in Canada, up in all sectors, which was offset by lower new equipment sales in South America and the UK and Ireland, resulting in an overall decline of 4%. Lower new equipment sales were more than offset by increases in other lines of business, particularly used equipment, which increased by 44 million or 48% year over year to a record level within the quarter. Product support growth was 1%, which was at the lower end of what we're anticipating. I'll review the product support drivers by region on subsequent slides.

As part of our Antofagasta Masterplan, we reviewed at Investor Day, we sold or Antofagasta construction branch in Chile for gross proceeds of 60 million and recorded a gain of $13 million.

We also recorded a $12 million write off related to decommissioning of low ROIC by operating cost I T systems.

Overall, adjusted EPS of <unk> 96 cents per share in the quarter demonstrated solid underlying operating margins and earnings capacity well, we managed through several challenges in the quarter.

On slide four you can see changes in our net revenue by line of business compared to Q4 2022, the composition of our equipment backlog by market sector.

New equipment sales were up 22% and Canada up in all sectors, which was offset by lower new equipment sales in South America, and the UK and Ireland, resulting in an overall decline of 4%.

Florida of equipment sales were more than offset by increases in other lines of business, particularly in used equipment, which increased by $44 million or 48% year over year to a record level within the quarter.

Product support growth was 1%, which was at the lower end of what we're anticipating I'll review the product support drivers by region on subsequent slides.

Greg Palaschuk: Our equipment backlog of $2 billion was down from September due to strong deliveries and, of course, outpacing order intake. Overall, our equipment backlog remains solid. In Canada, the UK, and Ireland, order intake in the fourth quarter was significantly higher compared to sequentially from Q3 of 2023; the pace of coding activity remains strong, particularly in mining in Canada and Chile, as well as data centers in all regions. Power systems requests for proposals have been particularly strong. We're actively quoting a number of proposals into 2025 and, Turning to slide five, which shows our adjusted EBIT performance. Gross profit as a percentage of net revenue is comparable to Q4 of 2022. SG&A as a percent of net revenue was 17%, down 60 basis points from Q4 of 2022, due to lower LTIP expense and continued productivity initiatives. Adjusted EBIT was up 9% year-over-year.

Our equipment backlog of 2 billion was down from September due to strong deliveries of course outpacing order intake overall equipment backlog remains solid Canada, the UK and Ireland order intake in the fourth quarter was significantly higher compared to sequentially from Q3 2023.

Our pace of quoting activity remained strong, particularly in mining in Canada, and Chile, as well as data centers in all regions.

Power systems request for proposals had been particularly strong and we're actively quoting a number of proposals into 2025 and 2026.

Turning to slide five which shows our adjusted EBIT performance.

Gross profit as a percentage of net revenue was comparable to Q4 of 2022.

SG&A as a percent of net revenue was 17% down 60 basis points from Q4 of 2022 due to lower <unk> expense and continued productivity initiatives.

Adjusted EBIT was up 9% year over year, I guess, but as a percentage of net revenue grew 60 basis points to nine 6%.

Greg Palaschuk: Adjusted EBIT as a percentage of net revenue improved 60 basis points to 9.6%. In the bottom right-hand corner, you can see the full 2023 adjusted EBIT as a percentage of net revenue by region, which was 10.4% for Canada, 12.1% for South America, and 4.9% for the UK and Ireland. All significant improvements compared to the average over the last 10 years and a key driver of our improved trading capacity and ROIC. Moving to our Canadian results and outlets, which are summarized on slide 6. New equipment sales were up 22% from Q4 2022 with broad-based strength across all market sectors. These equipment sales increased 34% year over year driven by strong sales across retail and wholesale channels.

The bottom right corner, you can see the full 2023 adjusted EBIT as a percentage of net revenue by region.

It was 10, 4% for Canada, 12, 1% for South America, and four 9% for the UK and Ireland all.

All significant improvements in yeah compare to the average over the last 10 years and a key driver of our improved earnings capacity and ROIC.

Moving to our Canadian results and outlook, which is summarized on slide six.

New equipment sales were up 22% from Q4 2022 with broad based strength across all market sectors.

<unk> sales increased 34% year over year, driven by strong sales across retail and wholesale channels.

Greg Palaschuk: Product support revenue is down slightly from Q4 2022 as unseasonably warm weather delayed the start of the winter program. Production Equipment Utilization and Construction in the Mining Sector. The completion of several major projects also slowed some construction activities in the near term.

Product support revenue was down slightly from Q4 2022, as unseasonably warm weather delayed the start of winter programs producing.

Producing equipment utilization and construction and the mining sectors.

The completion of several major projects also slowed some construction activities in the near term. Additionally, Q4 2022 product support included revenues related to the autonomy conversion of 797 fleet and the oil sands, which did not repeat in Q4 of 2023.

Greg Palaschuk: Additionally, Q4 2022 product support included revenues related to the autonomy conversion of a 797 fleet in the oil sands, which did not repeat in Q4 2022. Adjusted EBIT was down 5% from Q4 2022 due to a higher proportion of new and used equipment sales and revenue mix. SG&A has a percentage of net revenue is comparable to $4.25 billion. This February marks the 5th year since our acquisition of Bor

Adjusted EBIT was down 5% from Q4 2022 due to a higher proportion of new and used equipment sales revenue mix SG&A as a percentage of net revenue was comparable to Q4 timeframe.

This February marks the fifth year since our acquisition of <unk> or you feel its been a strong contributor to growth in Canada, achieving 80% growth in EBITDA since acquisition.

Greg Palaschuk: Boreefuel has been a strong contributor to growth in Canada, achieving 80% growth in EBITDA since acquisition. In addition, the business has generated strong, positive free cash flow every year. Foray Fuel is run by a very passionate and highly engaged management team and group of employees.

In addition, the business has generated strong positive free cash flow every year.

Or if you will is run by a very passionate highly engaged management team.

Greg Palaschuk: We're very proud of their strong execution and overall performance. Our outlook for Western Canada is positive. While the completion of major pipelines has slowed some construction activities in the near term, we expect to see increased activity in the energy sector and production growth going forward. Our mining and energy customers are expecting to increase spending levels to renew and maintain their facilities. In the oil sands, we anticipate strong demand for product support, including component remanufacturing and rebuild. In the construction of power systems, we expect ongoing commitment from governments for infrastructure development, as well as growing demand for sustainable power systems. Turning to South America, I'm on slide seven, and Functional Currency.

We're very proud of their strong execution and overall performance.

Our outlook for Western Canada is positive while the completion of major pipelines has slowed some construction activities in the near term, we expect to see increased activity in the energy sector production growth going forward.

Our mining and energy customers are expecting to increase spending levels to renew and maintain their fleets and the oil sands, we anticipate strong demand for product support quitting component Remanufacturing and rebuilds.

In construction and power systems, we expect ongoing commitment from governments on infrastructure development as well as growing demand for sustainable power solutions.

Turning to South America I'm on slide seven.

In functional currency, new equipment sales were down 24% from Q4 of 2022 through the.

Greg Palaschuk: No equipment sales were down 24% for Q4 of 2022 due to challenging market conditions in Argentina and lower sales to mining contractors. However, product support revenue is up 5% year over year, led by mining. Adjusted EBIT was up 6% from Q4'22. Adjusted EBIT as a percentage of net revenue was up 120 basis points to 12.6%, primarily due to a shift in revenue mix to product support. Adjusted ROIC of 27.6% was up 310 basis points for Q4 2022, reflecting both improved profitability and invested capital.

Market conditions in Argentina, and lower sales to mining contractors.

Product support revenue was up 5% year over year led by mining.

Adjusted EBIT was up 6% from Q4 'twenty to adjusted EBIT as a percentage of net revenue was up 100, and 120 basis points to 12, 6%, primarily due to a shift in revenue mix to product support.

Adjusted ROIC of 27, 6% was up 310 basis points from Q4 of 2022, reflecting both improved profitability and invest in capital projects.

Our outlook for Chile mining is strong supported by growing demand for copper recent government approvals of large scale brownfield expansions, increasing customer confidence to invest in new projects.

Greg Palaschuk: Our outlook for Chile mining is strong, supported by growing demand for copper, recent government approvals of large-scale brownfield expansions, and increasing customer confidence to invest in new projects. We continue to see strong demand from large contractors supporting mining operations in Chile, while infrastructure construction activity is expected to remain stable. Additionally, power system activity is growing in the industrial and data center market. Lastly, as discussed earlier, we're taking a low risk approach in Argentina in 2024. Please turn to slide 8 for our results in the UK and Ireland. In functional currency, net revenue decreased 10% from Q4 2022, reflecting a slower construction market in the fourth quarter. New equipment sales were down 16% due to the timing of power system project deliveries and lower construction sales.

We continue to see strong demand from large contractors supporting mining operations, Chile, while infrastructure construction activity is expected to remain stable.

Additionally, power system activity is growing industrial and data center markets.

Lastly, as discussed earlier, we're taking a low risk approach in Argentina and 24.

Please turn to slide eight for our results in the UK and Ireland.

In functional currency net revenue decreased 10% from Q4, 2022, reflecting a slower construction market fourth quarter.

New equipment sales were down 16% due to the timing of power system project deliveries and lower construction sales.

Before 2022 sales benefited from higher power system project deliveries in HST and deliveries.

Product support revenue was down 6% from Q4 2020 to slower activity in the construction sector.

GDP growth below 1% in the second half of 2023, we're seeing customer restrained lower activity levels. We expect to continue in the first half.

Greg Palaschuk: Q4 2022 sales benefited from higher power system project deliveries and HS2 delivery. However, product support revenue is down 6% from Q4 2022, due to slower activity in the construction sector. With GDP growth below 1% in the second half of 2023, we're seeing customer restraint and lower activity levels, which we expect to continue in the first half of 2024. Used equipment revenue was up strongly in the quarter, 48%, reflecting our efforts to capture a larger share of the used market in the UK. Adjusted EBIT as a percentage of net revenue is 2.7%, due to the proportion of fixed costs in SG&A and lower volumes. High inflation contributed to lower operating leverage.

Sure.

Used equipment wherever he was strong up in the quarter, 48%, reflecting our efforts to capture a larger share of the used market. Okay.

Adjusted EBIT as a percentage of net revenue was two 7%.

The fixed costs in SG&A and lower volumes persistently high inflation contributed lower operating leverage.

We expect demand for new construction equipment in the UK and Ireland to remain soft. However, we are expecting growing contribution from used equipment and power systems.

Our strategy.

In power systems, we see strong demand for both primary and backup power generation and datacenter and utility applications significant increase in quoting activity orders 'twenty fives and 'twenty 'twenty six.

Product support is expected to be resilient, we expect modest growth in 2024 and continued market share gains rebuilt TVA penetration.

From a free cash flow perspective, we generated $280 million of free cash flow in the fourth quarter, resulting in net debt to adjusted EBITDA of one seven times to end the year.

Greg Palaschuk: We expect demand for new construction equipment in the UK and Ireland to remain soft. However, we are expecting growing contributions from used equipment and power. Thanks for tuning in. We'll see you next time.

Our free cash flow to follow a normal seasonal pattern in 2024 importantly, we're working to increase our invested capital velocity, the gold's unlock $450 million of capital by 2025.

Greg Palaschuk: In power systems, we see strong demand for both primary and backup power generation in data center and utility applications, and a significant increase in coding activity for orders 25 and 25. Product support is expected to be resilient. We expect modest growth in 2024 on continued market share gains, rebuilds, and CBA penetration. From a free cash flow perspective, we generated $280 million of free cash flow in the fourth quarter, resulting in net debt to adjust EBITDA 1.7 times to end the year.

We're pleased with 20% adjusted ROIC achieved in 2023, we'll keep building our momentum in 2024, and a moderating but steady growth environment.

Our focus is squarely on executing our strategic priorities progressing towards the targets, we outlined at Investor Day. This will drive improved earnings consistency and support our overarching objective to deliver a strong return on invested capital through all market conditions.

Operator, I'll now turn the call back to you for questions.

Thank you.

We will now begin the question and answer session analysts to wish to join the question queue May Press Star then one on their telephone keypad, you'll 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.

Greg Palaschuk: We expect our free cash flow to follow a normal seasonal pattern in 2024. Importantly, we're working to increase our invested capital velocity. The goal is to unlock $450 million of capital by 2025. We're pleased with the 20% adjusted ROEC achieved in 2023.

We will pause for a moment as callers join the queue.

Our first question comes from Jacob bout of CIBC. Please go ahead.

Greg Palaschuk: We'll keep building our momentum in 2024 in a moderating but steady growth environment. Our focus is squarely on executing our strategic priorities, progressing towards the targets we outlined on Investor Day. This will drive improved earnings consistency and support our overarching objective to deliver a strong return on invested capital through all markets. Operator, I'll now turn the call back to you 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 their telephone keypad. You'll hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any key. To withdraw your question, please press star then.

Hi, Good morning. This is rahul on for Jacob.

Scenario, so hey.

So on the product support side sales were at the low end of your expectations.

So would you say that Q4 was just sort of a one off quarter.

And what are you seeing so far in Q1 and in regards to the delayed start to the winter programs that you mentioned in Canada does that essentially mean that the work there has been pushed out from Q4 to Q1.

Yeah sure so all of them.

For sure the wisdom.

Challenges in Q4, we don't want to make excuses, but there are reasons for that.

Operator: We will pause for a moment as callers join the call. Our first question comes from Jacob Bout of CIBC. Please go ahead. Hi, good morning. This is Rahul on behalf of Jacob.

And so you know in Edmonton, where I live we didn't have any snowing.

For the first time in 100 years.

Kevin Parkes: So, so, hey, so on the product support side, sales were at the low end of your expectations. So would you say that Q4 was just sort of a one-off quarter? And what are you seeing so far in Q1? And, in regards to the delayed start to the winter programs that you mentioned in Canada, does that essentially mean that the work there has been pushed out from Q4 to Q1? Yeah, sure. So I'll take that. So, for sure, there were some challenges in QPOL. We don't want to make excuses, but there are reasons for that. And so, you know, in Edmonton, where I live, we didn't have any snow in November for the first time in 100 years.

That does it delays a couple of things one is the.

The start of winter programs, because and some contracting application do you require the grind to freeze.

So soft that it should be able to move, particularly like moving overburden to start.

For new mining areas in neuroscience. The second thing is you know typically when we see a real cold snap them, particularly in the oil sands.

We see with <unk> or some effects.

Kevin Parkes: And what that does is it delays a couple of things. One is the start of winter programs, because in some contracting applications, you require the ground to freeze. [inaudible] the harsh winter on the aging equipment and both of those things didn't happen and we didn't really get cold until the middle of December and straight away when we got cold we saw both of those things started to come back into action and then you know so as you think about going into this year then we had a ridiculously cold snap in the second week of January which created some more operational challenges but more normal than what we think but it was just a real peak of activity which we needed to get through but of course we only have just a certain amount of capacity to be able to do that work but I would say that moving into January it's a lot more normal in terms of how we anticipate the activity. Up in the oil sands.

The harsh winter on the aging equipment and most of those things didn't happen and we didn't really get called until the middle of December.

Finally, when we got cold you saw.

So those things starting to come back into action.

Do you think about going into this year than we had at a ridiculous be cold snap in the second week of January which gratitude.

More operational challenges, but look more normal.

The more routine but it was just.

A real peak back to let's see week share, which we needed to get through but of course, we only have a cinematic.

No magic capacity to be able to do that work, but I would say not moving into January some lot more.

Normal in terms of how we anticipate the activity in the oil sands.

Kevin Parkes: The other thing Greg mentioned was there was some, we anticipated some kind of construction activity disruption in the fourth quarter because we knew this, you know, the pipelines and some major projects like the Calgary Ring Road and Site C were going to come to an end. And, you know, the transition of that from new infrastructure projects and then moving from building pipelines to filling them. That's where we are right now, but we expect things to return to normal and to continue on the path we've been on in Canada in line with our investor day target. Right, okay, now that's helpful. So, looking ahead, would you say you're still confident in hitting those investor day targets of above 7% per year or so? I think it was 6%.

The other thing as Greg mentioned that it was something we anticipated some kind of a construction activity disruption in the fourth quarter, because we knew this pipelines and some major projects like the Calgary Ring Road, and so I'd say, we're going to come to an end and a just transition of that from into new infrastructure projects.

And and then moving from building pipelines to fill in them.

And that's where we're at right now but.

We expect things to two returned to normal and to continue on that possibly being on even in Canada in line with our Investor day targets.

Right. Okay. No. That's helpful. So so looking ahead would you say you're still confident in hitting those investor day targets of above.

Above 7% per year or so.

Yeah, I think it was 6%, but but ultimately yes. We all we you know we never said to them. We don't it's not a linear process needs to certainly not linear quarter by quarter.

Kevin Parkes: But, but ultimately, yes, we are we, you know, we never said and we don't believe this is a linear process. And it's certainly not linear quarter by quarter. But we do expect those targets to be in play. You know, we don't believe this is a peak.

But we do expect our those tons being bi.

We don't believe this is a peak.

Kevin Parkes: We have room to grow. We have market share opportunities. Our earnings capacities have structurally improved, as I talked about at our investor day. You know, we've added 1000 technicians over two years. I've delivered over 100 ultra-class trucks to Chile and Canada, and so there are some structural changes there, structural achievements, which will keep us on the path that we talked about in September. Great. Very helpful. Thank you. We'll leave it there. It's a pleasure, thank you. Our next question comes from Yuri Lynk of Canaccord Genuity. Please go ahead.

We have room to grow and we have market share opportunities.

Our earnings capacities structurally improved as I talked about at our Investor day.

We've added a thousand technicians over two years.

Delivered over 100 ultra class trucks.

Into Chile.

Canada.

And so you know there are some structural changes that I just.

Structural chitterlings, which will continue selling the boxes.

Talks about it.

Great very helpful. Thank you I'll leave it there.

It's a pleasure thank you.

Our next question comes from Yuri Lynk of Canaccord Genuity. Please go ahead.

Yuri Lynk: Good morning, guys. [inaudible] Just on your plan to unlock 450 million of capital. What cadence should we expect?

Good morning, guys.

Pam.

On your plan to unlock a $450 million of capital.

What cadence should we expect a.

Greg Palaschuk: Yeah, certainly, you know, it's a focus throughout both years, and it's a combination. As I highlighted in my comments, I do think we'll have normal seasonality this year, which means some stocking for the spring selling season. Beyond the spring selling season, we think that's when we really make that hard pivot. As Kevin highlighted, we're really focused on that working capital through the year, and it builds through the year and straight into 2025. [inaudible] Thank you very much.

To achieve that goal by 2025.

Yeah certainly.

It's a focus throughout both years and its a combination.

As I highlighted in my comments I do think it will have normal seasonality this year, which means some stocking for the spring selling season on the spring selling season, we think that's been really make that hard pivot.

As Kevin highlighted really.

Really what we're focused on that working capital through the year that builds through the year and straight into 2020 five.

Some of the moderating growth rates that we see in some of the startup profit on the business, we expect to make.

Kevin Parkes: Second question, just on used equipment: very impressive growth in the quarter. Was that related to one or two large package sales, or is that indicative of the new run rate under your current strategy? I wouldn't say it's indicative of the run rate, Yuri; I would say it's indicative of our ambition and what can be achieved. It was across the board in all three regions, and it certainly wasn't a function of one or two sales or activities. You know, used equipment is about participating differently, it's about asking different questions, and, you know, used equipment, people think about used equipment with sales being, you know, the most important.

Progress Q2.

Yeah.

Okay.

Second question just on used equipment very impressive growth in the quarter was that related to one or two large package sales or is that indicative of of the new run rate under your your current strategy.

I wouldn't I wouldn't say, it's indicative of the right Gary I would say some days to acquire ambition of what can be achieved.

Across the board in all three regions.

And you said it wasn't a function of wanting to sales our activities used equipment is about participating differently, that's about asking different questions and they use equipment people think about used equipment sales being.

Kevin Parkes: Actually, sourcing is incredibly critical, and, you know, we're building capabilities there. We brought in capabilities from expertise into the company, and they're educating and training, traveling with and participating with our sales people and customers, and making sure that customers understand that we have an appetite to participate in the used equipment business. The UK is a very unique island in terms of used equipment generation.

The most important actually sourcing.

Incredibly critical and.

Building capabilities that we built capabilities informix and expertise into the company.

And they're educating and training.

I believe ways and participating Tonight, with our salespeople and Christmas and.

Making sure that Christmas at this time, we have enough supply to participate in the used equipment business.

U K is a very unique island in waves.

Products used equipment generation.

Kevin Parkes: Sales were up 48% in the quarter, and it shows you what's possible if you participate more deeply and engage earlier with customers. I would say that, for sure, we had a real sales push and drive towards the end of the year. But we're optimistic. It's part one of our three sustainable growth opportunities that we're focused on, and we're optimistic that we can continue to participate more and grow our user equipment business sustainably over time. That's it for me, guys. Thanks, Yuri. Our next question comes from Michael Doumet of Scotiabank. Please go ahead.

Sales were up 48% in the quarter and it shows you what is possible. If you participate more deeply and engage with Christmas. So I would say that SKU, we had a real sales push and drive towards the end of the year.

But so we're optimistic it's bought one of apps reach sustainable growth.

Opportunities that we're focused on and we're aware Oh, we're optimistic that we can continue to participate more and grow I used equipment business sustainably over time.

Okay. That's it for me guys. Thanks.

Thanks, Gary.

Our next question comes from Michael <unk> of Scotiabank. Please go ahead.

Michael Doumet: Hey, good morning, guys. Greg, you called out the loss in Argentina related to the devaluation of the currency. So that's in the financials. Just wondering how large the decline was in the operating profit in that business? year on year that's not really kind of adjusted for and thinking what that looks like, you know, for 2024 versus the gone. Yeah, well, within within Q4, I mean, obviously, when you make the adjustment, there's some amount of effects that, you know, has a cost every quarter. So there's about three and a half million of loss that still be within the report or the adjusted results. You know, from this year's perspective, I mean, we're obviously taking a very low risk approach. As we highlighted, we're just in the process of finalizing or reducing our peso balance to zero with the support of our suppliers.

Hey, good morning, guys Greg.

Greg you called out the the loss in Argentina related to the devaluation of the peso. That's in the financials. Just wondering how large the decline was in the operating profit in that business year on year, that's not really kind of adjusted for and thinking what that looks like for 2024 versus the comps.

<unk>.

Yeah, well within within Q4, I mean, obviously when you make the adjustment there was some amount of FX that you know.

Has it cost every quarter, so theres about three and a half million dollars.

I've lost them still be within the report are the adjusted results.

You know from this year perspective, I mean, we're obviously, taking a very low risk approach as we highlighted we're just in the process of.

Finally, we are reducing our peso balance to zero with support of our suppliers. So our go forward exposure is much different position and then of course, we're gonna take a cautious approach.

Greg Palaschuk: So our go forward exposure is a much different position. And then, of course, we're gonna take a cautious approach. The government's making a lot of bold moves. I mean, to see that they are working access before we pick the business back up.

The government is making a lot of bold moves I mean to see that they are working the access is consistent before we like the business back up so we've got kind of a low medium and high case of activity planned for this year, but all are below last year.

Greg Palaschuk: So we've got kind of a low, medium, and high level of activity planned for this year, but all are below last year. So it'll definitely be, you know, slower for the first half of the year. How things are working, and how we can work with customers on imports, what method we use. So we'll take a low, low risk cautious approach, and we'll see how much activity we can do in a low risk way. And we'll make sure we have all the checks to make sure the new currency access is maintained and the programs the government's putting in place are effective. Perfect.

And so it'll be definitely be.

Lower for the first half of the year, we'll have to see how things are working and how we can work with customers on imports what method we use.

So we'll take a low low risk cautious approach and we'll see how much activity. We can do in a low risk way and we'll make sure. We have all the checks to make sure the new currency access is maintained.

The programs government, putting in place are continue to work and be effective.

Michael Doumet: And then also just turning to the UK, I guess. Profitability there looked quite sensitive to the lower sales. You know, if I compare it to last year, product support was still up, but the profit was down.

Perfect and then also just turning to the UK I guess.

Profitability, there looked quite sensitive to the lower sales.

You know if I compared to last year product support we're still you know.

The profit was down just just wondering if that business needs to undergo any adjustments as it relates to you know how much fixed versus variable.

Kevin Parkes: Just wondering if that business needs to, you know, undergo any adjustments as it relates to, you know, how much fixed versus variable the cost structure is. I swear, the UK is super sensitive to any movements in revenue and way more sensitive to movements in new equipment revenue than the other two regions because of the mix and the contribution. For sure, we are coming off record highs in 2022.

The cost structure is.

I swear I mean, just the UK super sensitive to any movements in revenue and why more sensitive to movements in new equipment revenue and the other two regions because of the mix and the contribution.

And for sure we are coming off record highs in 'twenty two.

Kevin Parkes: I'm really encouraged and pleased, Michael, that, you know, product support mix in the UK has never been higher, and absorption continues to improve, which is, you know, which is good for the long-term resilience of the business. And we see ordering taking some green shoots there, particularly in Q4. And so, you know, I think the market was down, you know, 3% in the first half year and 16% in the second half year.

I'm Super inquiries you can please Michael that product support makes in the UK has never been higher and absorption continues to to improve improve.

Which is you know which is good for the long term resilience of the business and we say ordering tank some green shoots there, particularly in Q4 and so I'm thinking.

The market was down 3% in the first half the year and 16% in the second half year.

Kevin Parkes: We see that, you know, improving as we go through 2024-25, certainly, you know, more so in the second half year. And as the macro improves, you know, going into 2025, which is our assumption, we see that new equipment sales coming back. So ultimately, product support is also more SG&A intensive. We added Hydroquip, if you remember, just over a year ago, which changed the SG&A kind of. Framework in the UK. They're super focused there on building their resilience and looking for opportunities, you know, in terms of how they run the opportunity. But I don't foresee any kind of structural or, you know, fundamental changes to the cost structure there. We're going to continue the strategy, focus on product support growth, which is good for the long term and long-term resilience, and make sure we participate healthily in new equipment sales. As Greg mentioned, and I mentioned a couple of times, we really believe that used equipment can contribute more to Power Systems sales.

We see that improving as we go through 2024 25 certainly.

More so in the Bakken in the second half of year end.

As the macro improves.

<unk> 25, which is <unk>.

Our assumption.

We see that equipment.

Equipment sales coming back.

So ultimately product support is also more SG&A intensive.

I mean, how do you try to equate if you remember a year ago.

Which changed the SG&A kind of.

I am working in the U K, they're super focused in their building their resilience and looking for opportunities.

In terms of how they run that when the opportunity, but I don't see any kind of structural.

Oh, no fundamental changes to the cost structure that we're gonna.

Continues our strategy focus on product support growth, which is good for the long term and the long term resilience and and make sure we participate in a healthily in new equipment sales as Greg mentioned and I mentioned, a couple of times, we really believe that used equipment.

Can hum.

And contribute more and the palace systems sales, Oh sales backlog and quoting activity is stretching out now well into 2026, which again falls and those are really strong foundation for the UK business and so for sure.

Half of the year.

But we don't see any strategy you still imply we don't see any need for any kind of real structural changes.

Optimistic about both new equipment sales to the Caribbean slot slightly as we go through the year have a systems backlog continuing to build a huge critical making a big contribution.

Oh for I'm going to try to sneak one in but you know it does seem like the comps for the first half for Argentina, and the U K are going to be a little bit more challenge in understanding that those are.

On the smaller part of the overall business, but wondering if there is overall just a first half second half story for the earnings profile for bidding in 2024.

And if there is you know a.

Yeah, a little bit more normalization in the first half versus the second half.

Yeah, I think that would probably I mean.

I think mining in both regions.

And so you know we're confident we can keep those comps in the call to the Investor day range construction I'm always.

It's a little difficult and we would definitely say that kind of first half second half.

Got it.

Trajectory and so I think that that's that's how you should think about it.

Chili's construction, incorporating Quaker as they embark on premise quicker than the two regions and like I said Super encourage was wondering taking Q4 op in all regions and construction cool travel quarter on year over year. So there are some green shoots green shoots that which will be delivered to the polls.

Closer to first off the.

So and empower how are you sir.

It's relatively long beach project oriented.

If you look at the you kind of as you said a super strong Q4, and 22 again, we're not trying to make excuses saved with the wrong reasons and they had a super strong.

This system is particularly great in Q4, which didn't repeat this year, but I couldn't be happier with the basketball doesn't quoting pipeline byproducts palace systems projects business I'm actually really impressive, but it is going to serve us well. It's a really good foundation of base revenue across all three regions.

Right.

Thanks very much.

Thanks, Bob Thanks, Michael.

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

Yeah. Thanks for time guys.

Look I understand it's lumpy and it's hard to maybe give any guidance or cadence quarterly, but how should we think about the 24 outlook in the context of new equipment.

Versus product support you you would find I think given earlier.

They still grow in your outlook for 'twenty four you said, you're not at the peak yet, but how should we think about the ultimate contribution from those two sides of the business in 24, new equipment down slightly product support up to offset I mean, how do we think about that.

Yeah, No I think it's a steady growth environment overall, I mean, we've obviously been more explicit about product support.

The steady growth as well I mean, I know backlog is down a bit but $2 billion is a really good place to begin and you're right. Obviously, a healthy healthy portion of that is for 2024 and of course, we'll continue to keep selling so.

I think having a 2 billion dollar backlog to begin the year is a good indicator and like you said, we had solid order intake in Q4 higher than Q3.

In all regions and and so we'll continue to sell and deliver and obviously, we've got a lot of inventory, we need to sell through not 100% of his commitment to customers. So.

When it gets to steady growth environment, or our resources and focus are going to product support but new equipment.

Fits and the steady growth environment too.

Yeah, you mentioned, Steve about the Lumpiness of it again.

Again, I'm very conscious not to.

Excuse me, but I do think you know called for warrants some explanation and ultimately one or two things in the mining business you didn't cut eventually which would've.

Dramatically improve parks or.

He might be positive in Canada.

You know, we mentioned new autonomy kids, but there's also.

Some pre buying that you know on.

On balance we typically expect it didn't happen and then you know just across both both Canada and Chile and were talking about you know five or six stopes that political in 'twenty in December that will go in Q1 that did happen that would've.

I had an impact on new equipment revenue, particularly in South America. So you know.

There are some things that move our islands.

They're going to work really hard to get better visibility and forecast them those things, but you know there are operational challenges faced by the supply chain challenges that sometimes it's just difficult to identify when some of these bumps, which fortunately kind of dropping.

It doesn't change that.

The.

At our Investor day.

The detraction troubles in the company.

Okay. That's very helpful and just a follow up on your earlier comments again on the product support side I think you've just answered a little bit, but just you know the weather issues. In particular work you do on one side in Q4, the cold snap that hit early in Q1.

Is that an impediment to the short term as well or do you. How do we think about that is as we lead them through the first part of the year here.

I don't think it's an impediment I think he was.

What I'm trying to describe there is a is a incredible cold snap where.

It impacted a lot of machines very quickly and clearly what you would say is a really good thing and we need to get those machines, those folks up and running.

As quickly as we contract customers, but there is there is a finite capacity in terms of workshop is technicians and parts supply to be able to do that so.

The amount of vehicles that were impacted by the minus 57 branches.

Hum.

<unk> was probably more than we would see in a typical cold snap and so I don't expect to see a huge peak of activity for sure, but you know we need to work through that through the course of the months in the quarter that was trying to you know the oil. So I was just more of a.

In a normal state.

That's helpful. Appreciate color thanks, Chris.

Thank you.

Our next question comes from Cherilyn Radbourne TD Cowen. Please go ahead.

Good morning. Thank you guys for taking my question. This is Pat Sullivan on the line for Cherilyn.

Can you speak to the high level.

At year end, and the extent to which it is related to the scheduled 2024 deliveries.

Yeah sure I can talk to that so yeah, certainly our inventory being on the elevated side there was some progress within the quarter being down quarter over quarter.

A lot of as Kevin highlighted a substantial majority of that is committed to work our way through the system. We're delivering now quite a few continue to lift quite quite a few trucks, which are our large blocks.

Huge focus through the year to bring that inventory.

Back in line with more historical levels. So.

Get closer to that 29% working capital to sales level, we certainly want to bring that back down.

As in the Investor day to get back into the mid twenties.

New equipment would be a big piece of that.

Parts velocities, improving we'd like to grow faster than the whole teams are working around the world on roofing that normalizing that so definitely a huge focus for the year and so that'll be a big generator of.

So unlocking that working capital and I highlighted earlier in Q2 and beyond.

Okay. Thank you for that and then I guess to what extent would you attribute the moderation in your year end backlog to supply chain normalization versus a change in the level of order and quoting activity.

I think its two things one is there's definitely a supply chain normalization element. So we now have stock that we can sell off the off the fence, which hasn't been the case.

Couple of years here and not you know, obviously that generates backlog, which you would call that has to be unusual but there's also the lumpiness in the proportion of our backlog, which is power systems mining.

Makes now which is just lumpier. So if you go to the.

Example of that would be.

In South America, where we have <unk>.

Opportunities are large adds to the backlog and then maybe as well we don't add to the backlog for maybe a quarter.

Again, you know encouraged you know we have the escondida opportunity that we've talked about where we thought we ought to that backlog.

The program delivery program progresses.

And we're still.

Still optimistic and more activity in the oil sands is there.

Had publicly disclosed capital spending figures are set to increase this year. So you.

You know, we're not concerned at all about backlog.

And we're still really pleased.

At a healthy level.

Yep.

Okay, great. Thank you very much.

Thank you.

Our next question comes from David Raso of Evercore ISI. Please go ahead.

Hi, Good morning, Thank you for taking the questions.

I was curious about pricing for 'twenty for how are you thinking about pricing and I assume there's a bit of a difference geographically and machines versus engines anyway, you can help us with pricing that you expect to be shipping out of the backlog and maybe even more importantly, I was kind of new new orders, how should we think about price.

On a year over year basis and of course any color you can provide us on incentives being provided from any of your OEM suppliers would be helpful. Thank you.

Okay.

That should have it and so you know of course, we are entering in a normal supply tantalum supply chain environment and therefore.

A more normal pricing environment, and so I mean, most of it yes, I would suggest that the environment. We're in right. Now is just typically see what all would've experienced selling equipment, albeit a sales manager.

You know we are really pleased with our market share gains on GCI, which is super critical right.

Product gross in the futures of GEC only be knock on him top 14 models.

That we calculate top of the best parts or opportunity outside of mining.

And are really encouraged with the pins pins marketshare are in are in Canada and Chile.

Towards the end of last year. So our teams are doing a great job. There. So that that would suggest that we are competitive and that we're getting the right propositions in the market place and support with our with our OEM partner.

And Ah well always have to be competitive.

Need to be mindful of as you mentioned that mix. So typically bonding equipment margins tend to be a little lower so when we look at the mix as we delivered in the quarter, it's important to tell because I called out in <unk>.

And just on what's going on there, but that business is so strategically important.

There are very very focused on winning that so I wouldn't suggest that we're entering a normal pricing environment. The one exception I would say to that diabetes, probably used to quite low which has been stellar daiichi for many years now and so typically we see used equipment.

Slightly higher than the new equipment margins and that's still that's still the case and see that playing out into the future.

So can I take that answer to me and do you believe your retail pricing, we'll be able to stay flat to up for the year.

Want to make sure. The normalization is a normalization in how you usually think of growth in pricing or the price would have to moderate a bit.

Given the high levels were coming from.

Okay.

Yeah, no new equipment basis that obviously it didn't move as much as they used side and so on 'twenty 'twenty. Two there were some outsized increases both on equipment at prices I think we're now back into that kind of.

Low single digit type.

Type increases.

That's helpful. Thank you and just a quick follow up on mining.

Just trying to be thoughtful about mix for 24, and what you plan to ship for the oil Sands I I thought there was a decent opportunity this year to replace some of the seven nine and seven sat or aging.

And I wasn't sure if I heard that in the prepared remarks are the slides I didn't see any mention of that I know you mentioned the rebuilds are strong, but I thought there was maybe a little stronger new opportunity. This year and then somewhat related down in South America.

Housecat doing providing you the the strength that you're seeing in the electric drive trucks, how are they do doing ramping up production of the 798 as well as any comments on the 794 would be helpful. Thank you.

Yeah. So.

I was going to eat a program is ahead of schedule.

And and going really well.

When we were.

Slow down that so you know where we're a little bit ahead of schedule, there and maybe how the pace would be.

The progress.

And likewise.

You know I would suggest silk lead times, all completely manageable and we're working with our customers all of them because the day before yesterday and we've been very transparent looking at mining plans looking at expansion plans.

I'm Lucky to work really hard with our with caterpillar.

They are very in tune with that part of those discussions and so their model and not into the supply chain and so building pipeline I guess in terms of the Brookfield.

Brookfield that building so we feel that we're certainly not incumbent from that.

Supply chain or a lead time perspective in that regard and to your first question for sure. We expect them, we expect to buy trucks. They all signs this year.

We still do the oilsands they still working.

Working in a very restrained passion and very thoughtful around that capital allocation, whether it goes to.

Whether it goes to their at that plant, well, then Melbourne equipment and so on.

We're working through that and then trying to think of some inventory buys to support them, but yeah. We I need 70 odd trucks to do all of a sudden slash yeah, and we think we're going to continue to drive trucks. This year.

Okay. So no real change in your view on oil Sam.

Since new trucks to be delivered this year is that correct.

That's correct.

Thank you so much I appreciate the time.

Okay.

Our next question comes from Sao Hot <unk> of RBC capital markets. Please go ahead.

Great. Thanks, and good morning, I'm quite a bit of color I guess on South America.

So we're just seeing some headlines runs kind of political environment, there being a bed.

Volatile kind of through Chile, and a little bit thrives and Tina just wondering.

If you think about your larger customers there.

The royalty was sad and some visibility I guess, increasing visibility to the constitution.

Are they pretty comfortable making longer term plans at this point or how are they thinking about Doug I know, there's a bit of a pause before some of the dust settled on those two issues, but just curious how those capex plans are kind of getting put in place now they're back on track.

Yeah.

Yeah, I would say that we continue to be encouraged in Chile, So bad I.

It's been a number of brownfield expansions announced.

You know in the last year QB, two it's going to ramp up.

Significantly this year and so that's additional capacity coming on so I would describe the environment in Chile is constructive.

The royalty of political stability.

Stable.

Sports investment clearly slightly higher copper price would push that along a little bit all but are the current dynamics.

Our Oh Jeez continued.

Continued investment.

And so so yeah, that's Chile, and Argentina, that's that's a difficult one to answer right I mean.

Lot of.

International completions, a lot of our margin opportunities as we've discussed previously and I know it was a delegation Daphne in Argentina, a couple of weeks ago from Canada.

Yeah.

President and so that's the option value we've seen.

In Argentina.

We're being really thoughtful of that that you know it's also about our relationship with those international mining companies, making sure we have a balanced.

Approach and a balanced approach of at risk. So it doesn't all fall on an opinion.

And so you know I'd say that they.

The outlook for the mining and resource development.

And change it was net positive to where it was middle of last year, given the change in government, but lots and lots of hurdles to jump them as we can.

So through that process, but you.

Pretty stable I'm, calling for NHI.

Great. Thanks, and then maybe just on the Capex side, maybe more for Greg If you could just walk us through.

What some of the maybe the larger buckets are.

How big of a mix for rental fleet as part of that Capex and sort of.

How we should think about that in terms of cadence for the rest of this year, how that will flow through thanks.

Sure so slightly up year over year Hasnt been the theme for the last couple of years more focus on it.

More focused on rental.

As a proportion over say past a little bit more I E.

The balance.

And so that's that's the general profile.

Walk through at Investor Day, we'll be doing some facilities or build out and the Antofagasta region. We sold the branch first somewhat self funded spend that money, but then start spending that money within the year, so a bit more on facilities in South America.

I'll focus.

And some capacity expansion and automation of some warehouses.

Continue into Canada, but also to be walked through.

Yeah.

Okay, Great and then I guess, just broadly I'm, assuming similar kind of capital allocation strategy based on this capex number in terms of.

Buybacks et cetera, just if theres any change on that as we head into 'twenty four.

Oh, no no change look to continue growing the dividend.

To buyback about 1% of the fourth quarter.

And.

We expect to unlock working capital and generate more cash and pay down debt.

And obviously interest rates are high and so that'll make some impact in the second half of the year as we generate the cash.

So that continues to decline.

Great. Thank you.

Thanks Bye bye.

Once again, if you have a question. Please press Star then one.

Our next question comes from Maxim <unk> Chip of National Bank Financial. Please go ahead.

Hi, good morning, gentlemen.

And I bet.

Kevin I was wondering if you don't mind, maybe commenting on kind of the success of your wholesale channel initiative when they used our friends and our friends at first if you don't mind.

Yeah, So and we're building a number of new channels and used equipment.

You know certainly in the quarter, we launched a marketplace or.

On the online continuously bidding.

Environment, which you've seen which we've had before and.

You see the PISCES inside of something pretty common channel and it's a channel that finished should have them and we're really pleased at most encouraging thing we've seen is not maxis.

New customers that we're finding through that channel Heidi Hot very high proportion of customer interactions China Law Christmas We don't know.

And that's a new thing.

That's really good obviously you know the team are also working on re titled physical retail really partnering and traveling and are supporting our.

Our published sales our existing sales force on growing that channel as well you know it would put you at all to customers every day and that's the only thing you just sell in that solution as well and then the wholesale channel.

He said he is really encouraging and we're building capabilities that we've always had a really good basic capabilities that.

With the new leadership, we have there.

Its really empowering unleashing the potential we have hum.

Wholesale.

Almost timeless come to finish they always have done that both can you just give them a whole lot of use we don't have to be multi findings in wholesale.

People to come in and work with Fannie, but how do you manage the balance and the mix between the different channels and making sure that our primary focus is on the zoning and use population, particularly in our out of territory, So, but I would say on all three primary channels.

We're maintaining we're making good progress I think we had a really strong into the year as I said to a previous question I wouldn't expect that that level of growth to continue year over year, but I do expect.

The business to continue to build.

Got to be twice.

'twenty four and 'twenty five.

Particularly as you used to kind of course most of movies in the industry.

Yeah is it fair to say that this would be kind of higher margin business and kind of sit in between.

Or maybe even a ballpark support or how should we think about that.

So I wouldn't I wouldn't say used equipment.

Thats all I think it's a massive contract a primary reason for being in used equipment used to drive parts or destroyed population and we know that where we sell to an end user propensity about was achieving a strong product support relationship with a service contract is way higher than in the aftermarket where somebody else.

Sales of equipment.

But I wouldn't suggest that you just couldn't do that.

I wouldn't suggest that used equipment is is that product support kind of profitability levels, but certainly its you know.

Huntsman, a bank or an increase of new equipment levels.

More importantly, it's a fantastic way to build population to win new market share.

To build resiliency in our organization. So that we can we've got the capabilities to move stock some of them we need to.

Brian.

Yeah, Okay. That's perfect. Thank you.

The product support I mean, you still think that's sort of that 7%.

CAGR that you telegraphed to join the Investor Day I mean this is still.

Visible based on what you're observing right now from a client perspective, especially in 2024.

Yeah. So I think I already said that Max to previous question I can say at 6%.

But ultimately I don't think it's a straight line and not a straight line quarter by quarter, you know I'd be I'm I've been encouraged by what we've seen since the middle of December.

But certainly as we mentioned before tough in November where were difficult a difficult months for us but.

Just don't know why it would come it also this target we presented in September.

No we don't.

Given the softness that we're seeing in construction.

Not a linear process linear aligned over the two years and suddenly.

I would assume that the macro is gonna be discussing kind of improve as we move through the year and into next year. So that'll that'll help with that but we're.

Nothing to suggest that would come out so I was talking to you at all.

Yeah, and I guess I mean, how should we think of it.

About sort of the age of equipment in the field should not be a tailwind as well for the business on a prospective basis or how do you think about it.

Yeah of course, I mean, the equipment continues to age, but then I think we've actually the lenses ultra class trucks over two years that new right. So now you don't consume the same products or intend to stay that they'll start to kick component. So I understand we'll get a tailwind from that.

When looking at boxes, you know without any of the Fabs and technicians out about two years.

Workshop.

Capacity and we've got plans to lay any technicians off so those technicians that go to work and they are going to continue to the technician nuts.

Slowed year over year, and they'll slow again going in specie. So you Wanna be released also provide security for our employees.

We are adding capacity I mean, we measure every day I hope, you'll keep that so that would.

Makes sense and then just one quick one for Greg I guess in terms of sort of capital allocation I realize it.

Mentioned sort of that DNC I D, but.

In terms of like it it feels that the buybacks have been more programmatic in nature and I'm, just trying to think about sort of.

Make sure that NCI does not value diluted because I think you bought back stock around putting a box.

Oh on the LTM basis just.

Maybe your thought process between you know one to kind of really lean into it.

Just maybe any comments there.

Sure I mean, it's pretty simple process, we rebuilt the business plan you run a DCF off that business plan and make capital allocation decisions.

So we're happy to be consistent on that Hum, but if there's bigger opportunities in particular as we unlock more capital here, we'll look at that more but it's thrown off the DCF value and then we look at the price on the screen, we'd like to be consistent on it but if.

There's a bigger gap over time or and when we're more successful in unlocking capital. We can look at higher levels, if that equation works.

Okay. Okay understood. Thank you so much differently.

Okay.

Yeah.

This concludes the question and answer session I would like to turn the conference back over to Greg Palace check for any closing remarks.

Great. Thank you operator that concludes our call for today I'd like to thank you for your participation and hope everyone has a safe day.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

Hum.

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