Q1 2024 Finning International Inc Earnings Call

Thank you for standing by this is the conference operator.

Operator: Operator. Welcome to the Finning International Inc. first quarter 2024 investor call and webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Analysts who wish to join the question queue may press star then 1 on 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.

To defending International Inc. First quarter trade 24, investor call and webcast.

Speaker Change: All participants are in a listen only mode and the conference is being recorded.

There will be an opportunity to ask questions.

Speaker Change: Lewis who wish to join the question you May Press Star then one of your telephone keypad.

You need, especially in the conference call Your Michigan, Illinois, operator by pressing Star then zero.

I'd now like to turn the conference over to Greg <unk> Executive Vice President Chief Financial Officer. Please go ahead Sir.

Greg: Thank you operator, and good morning, everyone and welcome to <unk> first quarter earnings call. Joining me today is Kevin parks, our president and CEO.

Greg Palaschuk: Thank you, operator. Good morning, everyone.

Greg: Following our remarks today, we'll open line for questions call is being webcast on the Investor Relations section of sending dot com.

Greg Palaschuk: And welcome to Finning's first quarter earnings call. Joining me today is Kevin Parkes, our president and CEO. Following our remarks today, we'll open the line to questions. The 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. These slides are posted on our website.

Greg: We've also provided a set of slides that we'll be referencing during our prepared remarks.

Greg: Slides are posted on our website an audio file of this call and accompanying presentation can and will be archived.

Greg Palaschuk: An audio file of this call and the accompanying presentation will be archived. Before turning it over to Kevin, I want to remind everyone that some of the statements made during this call are forward-looking. Please refer to Slide 9 and 10 for important disclosures about forward-looking information, as well as currency and specific financial measures, including non-GAAP financial measures. Please note that forward-looking information is subject to risks, uncertainties, and other factors as discussed in our Annual Information Form under Key Business Risks and in our MD&A under Risk Factors and Management and Forward-Looking Information Disclaimer. Please treat this information with caution as our actual results could differ materially from current expectations. Kevin, it's over to you.

Greg: Before turning it over to Kevin I want to remind everyone that some of the statements made during this call are forward looking.

Greg: Please refer to slide nine and 10 for important disclosures about forward looking information.

Greg: They're all its currency and specific financial measures, including non-GAAP financial measures.

Greg: Please note that forward looking information is subject to risks uncertainties and other factors as discussed in our annual information form.

Greg: Our key business risks in our MD&A under risk factors and management and forward looking information disclaimer.

Greg: Please treat this information with caution as our actual results could differ materially from current expectations.

Kevin Parkes: Kevin over to you.

Kevin Parkes: Thank you, Greg, and good morning, everyone. Today I would like to start by thanking our employees for their commitment to serving our customers, winning strategically important deals, diligently building the execution momentum of our strategic plan, and delivering a solid course. Our people are our greatest competitive advantage, and we are committed to building safe and supportive workplaces. We are working hard to simplify our business and empower our teams to build customer loyalty. Turning to our first quarter results, on slide two.

Kevin Parkes: Thank you, Greg and good morning, everyone.

Kevin: Today, I would like to start by thanking our employees for their commitment to serving our customers winning strategically important deals diligently building execution momentum of our strategic plan and delivering a solid quarter.

Kevin: Our people are our greatest competitive advantage and we are committed to building sites and supportive what places we are working hard to simplify our business and empower our teams to build customer loyalty.

Kevin: Turning to our first quarter results on slide two.

Kevin: My team and I'm, particularly pleased with our strong new unused equipment performance the bills population of equipment and engines in our end markets and drives future product support business we are.

Kevin Parkes: My team and I are particularly pleased with our strong new and used equipment performance that builds the population of equipment and engines in our end markets and drives future product support business. We are also encouraged by the substantial backlog and the 700 million dollars of additional backlog since the quarter ended. Following a period of record growth and a very strong first quarter in 2023, our product support is sliding down year over year. We consider this a transitionary phase due to some challenging market conditions and specific customer plans.

Kevin: We're also encouraged by the substantial backlog of $700 million of additional backlog since the quarter end.

Kevin: One of them up here to record growth in a very strong first quarter in 2023, a protocol for a slightly down year over year. We consider this a transition refis due to some challenging market conditions and specific customer plows.

Kevin: If we look at our product support CAGR over the last two years, we've seen a solid growth at 12% Tiger.

Kevin Parkes: If we look at our product support CAGR over the last two years, we've seen solid growth at 12% CAGR. Greg will provide more details on our product performance in each region. The great progress we are making to grow user equipment and parasystem sales in all regions drives resilience and helps offset the impact of lower product support in the quarter. User equipment revenue is up 48% year over year, reflecting our significantly increased participation in a very active user equipment market. We recently launched the Fused Equipment Sales Platform, specializing in selling as-is, where-is-used equipment globally and targeting mostly non-CAT, high-error machines. Our power systems revenue was up 37% year over year.

Kevin: Greg will provide more details on our product performance in each region.

Greg: The great progress, we are making scrubbing used equivalent to publicize some sales in all regions drives resilience and helped offset the impact of lower part sports in a quarter.

Greg: Used equipment revenue was up 48% year over year, reflecting our significantly increased participation in a very active used equipment market.

Kevin: We recently launched for used equipment sales platform specializing in selling houses, where he's used equipment globally and targeting mostly noncash play out of their machines.

Kevin: Our power systems revenue was up 37% year over year, we added large orders from data center customers in the UK and Ireland in Chile.

Kevin Parkes: We added large orders from data center customers in the UK and Ireland and Chile to our Q1 2024 backlog and secured significant new power systems orders post Q1. We're also demonstrating strong cost control with SG&A as a percentage of net revenue down 130 basis points from Q1 2023, which is a critical component of building full cycle resilience while increasing our earnings capacity. Looking ahead, a positive outlook for 2024 is underpinned by robust end markets and high commodity prices.

Kevin: Quarter, one 2020 full backlog and secured a significant new power systems, all the post quarter one.

Kevin: We're also demonstrating strong cost control with SG&A as a percentage of net revenue down 130 basis points from Q1, 2023, which is a critical component of building full cycle resilience, while increasing its capacity.

Kevin: Looking ahead, our positive outlook for 'twenty 'twenty four is underpinned by robust end markets and stronger commodity prices.

Kevin Parkes: Large customer orders awarded in April bolster our backlog and the continued disciplined execution of our strategic priorities. We are extremely pleased with the important strategic wins in each region in April, including multiple copper mines in Chile, oil sands in Canada, and data centers in the UK and Ireland. These awards represent over 700 million dollars in new equipment orders for delivery starting in the second half of this year, laying out a solid foundation for future product support opportunities.

Kevin: Large customer orders awarded in April, which balls dropped backlog on that.

Kevin: Continued disciplined execution of our strategic priorities.

Kevin: We are extremely pleased with you can call it a strategic wins in the region in April including multiple copper mine in Chile oil Sands in Canada and data centers in the U K and Holland.

Kevin: These awards represent over 700 million of new orders for delivery starting in the second half of this year.

Kevin: I had a solid foundation for future product support opportunities.

Kevin: As previously discussed.

Kevin Parkes: As previously discussed, with the electrification trends driving strong copper demand, Chile is mobilizing for growth. We are very pleased with the large orders in April, including with Cadelco, whose order was valued at £380 million, where the fleet will be supported under a 10-year maintenance contract, and this is an important strategic win for Finning and Caterpillar. The new agreement covers four Cadalco mines and marks the first time Caterpillar trucks will be deployed at two of those mines.

Kevin: With electrification electrification trends driving strong copper demand, Chile is mobilizing for growth.

Kevin: We are very pleased with the large orders in April, including with Codelco, whose order was valued at $390 million.

Kevin: They will be supported or 10 year maintenance contract.

Kevin: This is an important strategic way to fulfilling out of caterpillar.

Kevin: The new agreement covers four canal come lines. It marks the first time caterpillar trucks will be deployed at two of those mines.

Kevin Parkes: Building the equipment population and increasing our proportion of contracted revenue are key to our strategy, and this wing is an excellent example. We're optimistic about the second half of 2024, and we're confident in the direction of our business. We expect product support growth rates to improve in the second half of the year as we continue to book and execute rebuilds, grow contracts, and hire technicians. We remain laser focused on improving our working capital velocity and unlocking invested capital to drive substantial free cash flow generation going forward, with a number of key initiatives underway in all of our regions. These initiatives include increasing new equipment preparation velocity. We expect the new orders that we've taken to move through our backlog much faster than before.

Kevin: Building and equipment population and increasing our proportion of contracted revenue to our strategy and this win is an excellent example.

Kevin: We are optimistic about the second half of 2024, and we are confident in the direction of our business.

Kevin: Well, we expect the product support growth rates to improve in the second half the year as we continue to book and execute rebuilds grow contracts and lab technicians.

Kevin: We remain laser focused on improving our working capital velocity and unlocking invested capital to drive substantial free cash flow generation going forward.

Kevin: There are a number of key initiatives underway in all of our regions.

Kevin: These initiatives include increasing new equipment preparation velocity, we expect the new orders that we've taken to move through our backlog much faster than previously.

Kevin: Increase in inventory performance on time in full performance for our customers.

Kevin Parkes: Increasing inventory performance, on-time in-flow performance for our customers, working closely with our customers on planning component exchanges and rebuilds, and optimizing lower heroic activity. We are constantly reviewing the pace of investment in our rental fleet to ensure we are achieving our growth goals and return on investment. Our focus is squarely on executing our strategic plan, which we laid out at our 2023 Investor Day. We are growing our business in a moderating growth environment, demonstrating improved earnings power through driving product support.

Kevin: Working closely with Christmas on planning component exchanges and rebuilds.

Kevin: Optimizing lower ROIC activities.

Kevin: We are constantly reviewing the pace of investment in our rental fleet to ensure we achieve the growth goals out of her children investment.

Kevin: Our focus is squarely on executing our strategic plan, which we laid out at our 2023 Investor day.

Kevin: We are growing our business in a moderating growth environment.

Kevin: In fact in improved earnings power through driving product support building.

Kevin Parkes: Building full cycle resiliency by unlocking invested capital and delivering sustainable growth in used and power systems. We anticipate the execution of our strategy will have an increasing impact through the year, with improving product support, growth rates, and substantial pre-cash flow. We are mobilizing all resources to build momentum, efficiently deliver our newly awarded equipment packages, and execute rebuilds in a capital efficient way. We are pleased to increase our dividend by 10% and also renew our share repurchase program.

Kevin: Building full cycle is there anything to say boy walk in invested capital and delivering sustainable growth and use to power systems.

Kevin: We.

Kevin: By execution of our strategy will have an interest increase an impact through the year.

Kevin: But the premium product support growth rates and substantial free cash flow.

Kevin: Mobilizing all resources to build momentum.

Kevin: We deliver our newly awarded equipment packages and execute rebuilds in a capital efficient way.

Kevin: We are pleased to increase our dividend by 10% and also renewed our share repurchase program.

Kevin Parkes: The dividend in Greece is well supported by our improved earnings capacity and demonstrates our strong commitment to returning capital to shareholders. Before I turn it over to Greg, I want to mention that we will publish our 2023 Sustainability Report soon. We are proud of the work we're doing to improve safety, reduce our emissions, and support our customers in achieving their decarbonization goals. We're building a strong and inclusive company that has a positive impact on the communities in which we operate. I encourage you to take a look at this report when it's available on our website. With that, I'll hand it back to Greg.

Kevin: The dividend increase is well supported by improved as capacity and demonstrates a strong commitment to returning capital to shareholders.

Kevin: Before I turn it over to Greg I want to mention that we publish our 2023 sustainability report soon we are proud of the work we're doing to improve safety reduce our emissions and support our Christmas achieving that decarbonization goals.

Greg: We are building a stronger and inclusive company, which has a positive impact on the communities in which we operate.

Greg: Just to take a look at the support when it's available on our website.

Kevin: With that I'll hand, it back to Greg.

Greg Palaschuk: Thank you, Kevin. I'll talk more about our first quarter performance in detail. Turning to slide three, in the first quarter, our net revenue was $2.3 billion, up 9% from Q1 2023, marked by strong growth in new and used equipment sales. Market activity was mixed, but solid overall, supported by strong momentum in commodities and growing demand for power solutions in all of our regions. Diligent execution of our strategic priorities, including strong used equipment sales and cost control, helped offset the impact of lower product support revenue in the quarter. DPS was down 5%, primarily reflecting a shift in the mix to new and used equipment, as well as lower margins in those segments.

Greg: Thank you Kevin I'll talk more about our first quarter performance in detail.

Greg: Turning to slide three.

Greg: The first quarter, our net revenue was $2 3 billion up 9% from Q1 2023 marked by strong growth in new and used equipment sales market activity was mixed with solid overall supported by strong momentum in commodities and growing demand for power solutions and all of our regions.

Greg: Diligent execution of our strategic priorities, including strong used equipment sales and cost control helped offset the impact of lower product support revenue in the quarter EPS.

Greg: EPS was down 5%, primarily reflecting shifting the mix to new and used equipment as well as lower margins in those segments.

Greg: We've reduced risk levels in Argentina and are pleased that the business has returned to profitability in Q1, which was earlier than we anticipated.

Greg Palaschuk: We've reduced risk levels in Argentina and are pleased that the business has returned to profitability in Q1, which is earlier than we anticipated. On slide four, we show changes in net revenue by line of business compared to Q1 2023 and the composition of our equipment backlog by market sector. New equipment sales were up 25%, led by Canada and South America, where we continue to see strong demand in mining and power. Used equipment sales were up 48%, higher in all regions, reflecting the execution of our strategic focus on used equipment and our increased participation in this very active market.

Greg: On slide four we show changes in net revenue by line of business compared to Q1 2023, the composition of our equipment backlog by market sector.

Greg: New equipment sales were up 25% led by Canada, and South America, where we continue to see strong demand in mining and power systems.

Greg: Used equipment sales were up 48% higher in all regions, reflecting execution of our strategic focus on used.

Greg: Participation in this very active market.

Greg: Product support revenue was down 1% with solid growth in South America, offset by lower activity in Canada, and the U K, primarily due to a transitory phase impacting construction activity that I'll cover in the regional slides.

Greg Palaschuk: Product support revenue is down 1%, with solid growth in South America offset by lower activity in Canada and the U.K., primarily due to a transitory phase impact on construction activity, as I'll cover in the regional slide. Our equipment backlog was $2 billion at the end of March, maintained from December 31st levels. The new orders totaling over $700 million are not included in the Q1 backlog.

Greg: Our equipment backlog was 2 billion at the end of March maintained from December 31st levels.

Greg: New orders totaling over $700 million are not included in the Q1 backlog.

Greg Palaschuk: With the wind announced today, we expect to see a continued trend of an increasing proportion of backlog in mining and power. Turning to slide 5, which shows our EBIT performance. Gross profit as a percentage of net revenue is down 260 basis points from Q1 2023, mostly due to the shift in revenue mix to new and used equipment sales. As expected, with improved availability, we're seeing lower margins on used equipment and rental compared to last year. Our resiliency actions offset half the margin decline in the quarter.

Greg: With the wins announced today, we expect to see continued trend of increasing proportion of backlog in mining and power systems.

Greg: Turning to slide five which shows our EBIT performance.

Greg: Gross profit as a percentage of net revenue was down 260 basis points from Q1 2023, mostly due to the shift in revenue mix to new and used equipment sales as expected with improved availability, we're seeing lower margins in used equipment had rental compared to last year.

Greg: Our resiliency actions offset half the margin decline in the quarter SG&A as a percent of net revenue was down 130 basis points from Q1, 2023 to $17, 7%, demonstrating operating leverage and the higher revenue environment and strong cost control.

Greg Palaschuk: SG&A as a percent of net revenue is down 130 basis points from Q1 2023 to 17.7%, demonstrating operating leverage in the higher revenue environment and strong cost control. Moving to our Canadian results and outlook, which are summarized on slide 6. Equipment sales were up 39% from Q1 2023, with broad-based strength across all market sectors and deliveries from backlog. Youth equipment sales were up 37% year over year, driven by the conversion of rental equipment for the purchase option to sales, and stronger volumes across retail and wholesale channels.

Greg: Moving to our Canadian results and outlook, which are summarized on slide six.

Greg: New equipment sales were up 39% from Q1 2023 with broad based strength across all market sectors and deliveries for backlog.

Greg: Used equipment sales were up 37% year over year, driven by conversion of rental equipment for the purchase option to sales and stronger volumes across retail and wholesale channels.

Greg Palaschuk: Product support revenue is down 4% year-over-year. We're in a transitory phase in construction with the wind-up of several large construction projects and winter projects being deferred. Challenging operating conditions also led to reduced equipment utilization hours in most sectors in the first quarter.

Greg: Product support revenue was down 4% year over year, we're in a transitory phase in construction with the wind up of several large construction projects and Mr projects being deferred.

Greg: Challenging operating conditions also led to reduced equipment utilization hours and most sectors in the first quarter.

Greg: Despite this over a two year period, our products' port figure in Canada is 10%.

Greg Palaschuk: Despite this, over a two-year period, our product support CAGR in Canada is 10%. In mining, we saw mixed activity by customer, with a number of customers spending significantly more in Q1 and several spending significantly less due to adjustments in their mine plans. Overall, we are confident in product support growth going forward as customers pursue steady growth, and some winter works missed this year will need to be caught up in the future.

Greg: In mining, we saw mixed activity by customer with a number of customers spending significantly more in Q1, and several spending significantly less due to adjustments in their mine plan.

Greg: Overall, we're confident in product support growth going forward as customers pursue steady growth and some winter works best this year will need to be caught up in the future.

Greg: EBIT was down 14% year over year, primarily primarily due to a higher proportion of new and used equipment sales and the revenue mix as well as some inflationary cost pressures were working hard to continue offsetting.

Greg Palaschuk: EVA was down 14% year over year, primarily due to a higher proportion of new and used equipment sales in the revenue mix, as well as some inflationary cost pressures we're working hard to continue offsetting. Horry Fuel continues to deliver strong performance, achieving 16% growth in EBIT compared to Q1 2023 and generating positive free cash flow in the first quarter. We're proud of their consistent and strong execution.

Greg: Or if you will continue to deliver strong performance, achieving 16% growth in EBIT compared to Q1, 2023, and generating positive free cash flow in the first quarter.

Greg: Proud of their consistent and strong execution.

Greg: Our outlook for Western Canada is positive with the Trans Mountain pipeline beginning operation in May 1st we're in a new area of steady growth in the energy sector. While the completion of major pipelines has slowed some construction activity in the near term, we expect to see increased activity in the energy sector and production growth.

Greg Palaschuk: Our outlook for Western Canada is positive, with the Trans Mountain Pipeline beginning operation on May 1st. We're in a new area of steady growth in the energy sector. While the completion of major pipelines has slowed some construction activity in the near term, we expect to see increased activity in the energy sector and production growth. Turning to South America on slide seven.

Greg: Yeah.

Greg: Turning to South America on slide seven.

Greg Palaschuk: In functional currency, new equipment sales were up 20% from Q1 2023 on strong mining deliveries in Chile. Product support revenue was up 4% year-over-year, higher in all market sectors, and increased activity in mining and power systems, as well as demand for rebuilds and construction. Part sales were up 7%, partly offset by lower service revenue due to the weaker Chilean peso relative to the U.S. dollar compared to Q1 2023. In Chile, service revenues and costs are both in pesos, so the lower year-over-year peso reduces revenue growth, but ultimately, the margin percentage is held, and profitability is strong.

Greg: Functional currency new equipment sales were up 20% from Q1 2023 on strong mining deliveries in Chile.

Greg: Product support revenue was up 4% year over year higher in all market sectors and increased activity in mining and power systems as well as demand for rebuilt in construction.

Greg: <unk> sales were up 7%, partly offset by lower service revenue due to weaker Chilean peso relative to the U S dollar compared to Q1 2023.

Greg: In Chile service revenues and costs are both in pesos. So the lower year over year peso reduces revenue growth, but ultimately the margin the margin percentages health and profitability is strong.

Greg Palaschuk: We expect a weaker year-over-year Chilean peso to continue, which will impact service revenue growth rates in 2024 while at the same time supporting lower SG&A. EBITDA was up 3% from adjusted EBITDA in Q1 of 2023, and EBITDA as a percentage of net revenue is strong at 11%. Despite a large proportion of low-margin mining equipment sales in revenues, our outlook for Chile in mining is optimistic, underpinned by growth, growing demand for copper, strengthened copper prices, government approvals of large-scale brownfield expansions, and increasing customer confidence to invest in new projects. Well, the orders received in April are also strong evidence of this trend.

Greg: We expect a weaker year over year, Chilean peso to continue which will impact service revenue growth rates in 2024, while at the same time supporting lower SG&A.

Greg: EBIT was up 3% from adjusted EBITDA in Q1 of 2023 and EBITDA as a percentage of net revenue was strong at 11%.

Greg: Despite a large proportion of low margin mining equipment sales and the revenue mix.

Greg: Our outlook for Chile, and mining is optimistic underpinned by growth growing demand in copper strength in copper prices government approvals of large scale brownfield expansions and increasing customer confidence to invest in new projects.

Greg: Well the orders received in April are also strong evidence of the trend we are seeing broad based increase in quoting and tender activity for mining equipment across customer base and their growth plans are advancing and with greater confidence.

Greg Palaschuk: We are seeing a broad-based increase in quoting and tender activity for mining equipment across our customer base, and their growth plans are advancing with greater confidence. We also continue to see healthy demand for large contractors supporting mining operations in Chile and growing power systems activity in industrial and data center markets. In Argentina, while we see pockets of strong activity, especially in the oil and gas sector, we will continue to take a low-risk approach in 2024. Please turn to slide 8 for our results in the UK and Ireland.

Greg: We also continue to see healthy demand for large large contractors supporting mining operations in Chile, and grow our growing power systems activity industrial and data center markets.

Greg: And Argentina, while we see pockets of strong activity, especially in oil and gas sector. We continue to take a lower risk approach in 2024.

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

Greg: And functional currency new equipment sales were comparable to Q1 of 2023 with higher power systems deliveries offset by lower volumes in construction due to soft market activity.

Greg Palaschuk: In functional currency, no equipment sales were comparable to Q1 of 2023, with higher power system deliveries offset by lower volumes in construction due to soft market activity. However, used equipment sales nearly doubled year over year as we work to increase our participation in the used equipment market. Product support volumes were reduced by lower customer activity levels and lower machine utilization. EBIT as a percentage of net revenue is down 120 basis points year over year, mostly due to a lower proportion of product support in the revenue mix and continued inflationary cost pressure.

Greg: Used equipment sales nearly doubled year over year as we work to increase our participation in the used equipment market.

Greg: Product support volumes were reduced by lower customer activity levels and lower machine utilization hours.

Greg: EBIT as a percentage of net revenue was down 120 basis points year over year, mostly due to a lower proportion of product support and the revenue mix and continued inflationary cost pressure.

Greg Palaschuk: We are pleased with sequential improvement in the UK and Ireland and a 4.5% EBIT margin given these tough markets. However, we expect demand for new construction equipment in the UK and Ireland to remain soft, reflecting low GDP growth projected in 2024.

Greg: We are pleased with the sequential improvement in the UK, and Ireland and 4.5% EBIT margin.

Greg: Given these tough market conditions.

Greg: We expect demand for new construction equipment in the UK and Ireland to remain soft, reflecting low GDP growth projected in 2024. However, we expect to see growing contribution from used equipment and power systems are resilient product support because we continue to execute on our strategy.

Greg Palaschuk: However, we expect to see growing contribution from used equipment and power systems and resilient product support as we continue to execute on our strategy. We've renewed our normal course issuer bids for the repurchase of up to 14 million shares. At our current NCIB, which expires on May 12th, we repurchased 7.2 million shares, or 5% of our public flow. Our balance sheet remains healthy with net debt to adjust EBITDA at 1.9 times at the end of March, reflecting the normal seasonal build of our inventory.

Greg: We've renewed our normal course issuer bid.

Greg: A repurchase of up to 14 million shares at our current at CIP, which expires may 12, we repurchased seven 2 million shares or 5% of our public float.

Greg: Our balance sheet remains healthy with net debt to adjusted EBITDA at one nine times at the end of March reflecting normal seasonal build of our inventory.

Greg Palaschuk: Expect substantial free cash flow in 2024 as we sell through our inventory, start delivering new orders with improved cash-to-cash cycles versus prior backlog build, and continue to execute our Capital Unlock and Velocity Plan. Operator, I'll now turn the call back to you for questions. Operators, just checking that you're there and we're ready to go.

Greg: <unk> substantial free cash flow in 2024, as we sell through our inventory start delivering new orders with improved cash to cash cycles versus prior backlog build and continue to execute our capital unlock and velocity plan.

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

Speaker Change: Operators, just checking that you're there and we're ready to go to questions.

Speaker Change: Thank you Sir pardon me I was on mute we will now begin the question and answer session analysts who wish to join the question. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request.

Operator: Thank you, sir. Pardon me; I was on mute.

Operator: We will now begin the question and answer session. Analysts who wish to join the question queue may press star then 1 on their telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then. The first question comes from Jacob Bout of CIBC; please go ahead.

Speaker Change: Youre using a speakerphone please pick up your handset before pressing any.

Speaker Change: To withdraw your question. Please press Star then two.

Jacob Jonathan Bout: The first question comes from Jacob bout.

Jacob: CIBC. Please go ahead.

Jacob: Good morning.

Jacob: Jacob.

Jacob: Well, let me just talk us through some of the competitive pressures that you're seeing currently.

Jacob Jonathan Bout: Let me just talk us through some of the competitive pressures that you're seeing currently. I know with supply chain improvement, you know, a number of your competitors and talking about, you know, competitive or pricing pressures, you know, is this broad-based, or is this kind of, you know, more on smaller horsepower equipment?

Jacob: I know with supply chain improving.

Jacob: The number of your competitors are talking about.

Jacob: But at this.

Jacob: Pricing pressures.

Jacob: Is this broad based or is this kind of a you know more on our smaller horsepower equipment.

Speaker Change: I think we've said this before Jacob.

Kevin Parkes: Yeah, I think we've said this before, Jacob, you know, in my 30 years, we've always worked in a competitive environment. And for sure, the pandemic changed the dynamics around that competitive environment, due to different performance in the supply chain. I think we're in a more normal position now, I think broadly, you know, in terms of, particularly in terms of construction equipment sales, I think, you know, supply chains have recovered. So most most companies would have, you know, equipment to sell.

Jacob: He is we've always worked in a competitive environment.

Jacob: Environment and for sure the pandemic change the dynamics around that competitive environment.

Jacob: Due to different performance in supply chain I think we're a little more normal.

Speaker Change: No I think broadly.

Speaker Change: Tim is particularly in terms of construction equipment sales I think you know supply chains or pre COVID-19. Most most companies would have.

Speaker Change: Equipment to sell.

Kevin Parkes: But I think we're, you know, competitive; we're always, you know, always looking at acceptable premiums for our products and services, and our early market share in construction equipment that I've seen through the course of the first part of this year would be encouraging. And, you know, what I'm hearing from the teams; I was in the UK last week, which is a very competitive marketplace. What I'm hearing is that they feel well supported by Caterpillar.

Speaker Change: But I think where we would consider that we're competitive we're always.

Speaker Change: We're always looking at acceptable premiums for App for our parts and services.

Speaker Change: And I really market share and construction equipment that I've seen through the course of the first part of this year would be encouraging.

Speaker Change: And you know what I'm hearing from the team does in the U K last night, which is a very competitive market.

Speaker Change: Marketplace.

Speaker Change: I'm hearing is they feel well supported by caterpillar.

Speaker Change: They feel like I asked our head of sales have you got the tools you need to be competitive in the UK market right now and the answer is yes.

Kevin Parkes: They feel like I asked our head of sales, "Have you got the tools you need to be competitive in the UK market right now?", and the answer was yes. And, you know, we see more support coming from areas like Cat Finance, with several, you know, financing programs in place to help, you know, kind of push orders through that are maybe stuck in the decision-making process due to, you know, capital.

Speaker Change: And.

Speaker Change: We see more support coming from from areas like Cat finance that with several financing programs in place to help them.

Speaker Change: Push it push orders through that it might be still stuck in the decision making process due to capital constrain.

Speaker Change: Constraints without customers, but I wouldn't say that we're finding you know a dramatic shift in the competitive environment.

Speaker Change: And I have a margin decrease in this quarter. It was very much driven by mix.

Jacob Jonathan Bout: And maybe just looking back at, you know, the investor day, talking about this full cycle resilience and, you know, this focus on earnings stability. I know driving product support was a big part of the strategy, but, you know, you look over the past two quarters, and, you know, margins in product support have lagged. You know, as you look at that, is there anything you could have done differently to mitigate either some of these weather-related issues or utilization issues? Yeah, I mean, you live and learn all the time.

Speaker Change: So maybe just looking back at the Investor day talking about this full cycle resilience and let's focus on earning stability.

Speaker Change: I know driving product support was a big part of the strategy you look over the past two quarters margins in product support of Lake.

Speaker Change: You know as you look at that is there anything you could have done differently to mitigate either some of these weather related issues or utilization issues and so on.

Speaker Change: Yeah, I mean, you live and learn all the time Jacob and so.

Kevin Parkes: Yeah, we live and learn all the time, Jacob. And so, for sure, part of resilience is better planning, working more closely with our customers. I do think, as it relates to this particular first quarter, there were some distinct operational issues with our customers. General utilization of equipment was down on a broad basis across our segments in construction. But we had that. Major Project Transition, particularly in Western Canada, which, you know, I've spoken to a lot of people in the past, we've never, never seen such a swing in major product activity.

Speaker Change: For sure part of resiliency is better planning and working more closely with that question, but I do think as it relates to this particular.

Speaker Change: First quarter there were some.

Speaker Change:

Speaker Change: Inked operational issues without without customers generally utilization of equipment was down.

Speaker Change: In the.

Speaker Change: The broad base across our segments increase in construction.

Speaker Change: We had that major.

Speaker Change: Major project transition, particularly in Western Canada, which I'll speak to a lot of people in the past we've never never seen such a swing in major part of the activity.

Kevin Parkes: And then we have some very specific mining plans and mine changes to mine plans within our customers. And so we're seeing, you know, perhaps we could have been closer to that with our customers to understand a little bit more about that. I actually think the biggest thing we underestimated, if I'm honest, Jacob, was just how strong Q1 2023 was. And I think, you know, we maybe could have managed that or communicated that a little better as we move through.

Speaker Change: Then we have some very specific.

Speaker Change: Mining plans in mind changes to mine plans, because they're not close to list and so we're seeing them.

Speaker Change: Perhaps we could have been close to that with that closeness to when they started a little bit more about that I actually think the biggest thing we.

Speaker Change: We underestimated if I'm honest Jacob is just how strong Q1 2023 was and I think you know we may be you could manage that or communicated that a little better as we lose faith, but I feel confident as we move forward.

Speaker Change: That product support growth.

Kevin Parkes: But I feel confident as we move forward, that product support growth rate will return to that kind of level. And, you know, we're getting closer to customers and increasing the number of unique customers we deal with to try and offset some of the lumpiness in our major customers. Of course, thank you.

Speaker Change: To that <unk> level.

Speaker Change: We're getting closer to customers.

Speaker Change: And increasing the number of unique customers, we deal with to try and offset some of the lumpiness.

Speaker Change: The lumpiness.

Speaker Change: Major customers.

Speaker Change: That's helpful. Thank you.

Speaker Change: Thanks Jacob.

Speaker Change: The next question comes from Yuri Lynk Canaccord Genuity. Please go ahead.

Yuri Lynk: The next question comes from Yuri Lynk of Kanaka Genuity. Please go ahead.

Yuri Lynk: Hey, good morning, guys.

Yuri Lynk: Martin here.

Yuri Lynk: Just looking at our product support.

Kevin Parkes: Just looking at product support, you know those projects you mentioned rolled off in Canada; the UK is a bit tough, so just wondering if you could put a little more meat on the bone in terms of where you're getting the comfort level to call for improving product support growth rates throughout the year.

Martin: Those projects you mentioned are rolled off in Canada. The U K is a bit tough. So just wondering if you could put a little more meat on the bone in terms of.

Yuri Lynk: Youre, where youre getting the comfort to call for.

Yuri Lynk: Improving product support growth rates throughout the year.

Yuri Lynk: Yeah, sure. So, a couple of areas. So, we're seeing equipment mobilization. We watched the equipment utilisation rate, and they've improved in April, so they kind of bounced back to more normal levels. We also see that through our rental fleet utilisation. So, in the UK last week, I met with three customers, and they all were consistent in saying it was a really terrible winter, but their activity levels, just in the last three weeks, have really started to improve.

Speaker Change: Yeah sure.

Speaker Change: So a couple of areas so well, we're seeing equipment mobilize we watch the equipment utilization that isn't that have improved in April. So part of that is back to more normal levels. We also say that some of our rental fleet utilization.

Speaker Change: So we are in.

Speaker Change: In the UK last week I met with three customers.

Speaker Change: And they all have they all were consistent decided it was a it was a really terrible winter, but their activity levels. Just in the last three weeks it really started to improve and so there's some cushion in the sense that that sentiment out there and some activity levels around.

Yuri Lynk: And so, there's some customer sentiment out there and some activity levels around utilization hours and rental fleet utilisation that give us some encouragement that the construction season is starting, albeit a little bit late. So that's point one, so we just feel better. And I'm talking specifically about construction, more so than mining and power systems. The secondary is execution capability. So, you know, to Jacob's question about what you could do differently, I do fully believe that, you know, our commitments at our Investor Day and some of the softness in Q1 have reinvigorated and made us, you know, double down and revisit some of the basics in the plan, things like customer coverage, making sure we've got the right propositions for our customers.

Speaker Change: Utilization of our rental fleet utilization that gives us some encouragement that the cost of construction.

Speaker Change: Season is starting albeit a little bit a little bit light.

Speaker Change: That's 0.1, so I would just feel better and I'm talking specifically about construction.

Speaker Change: Most other mining and power systems.

Yuri Lynk: So I think there's an execution, an execution quality that improves as we move through the course of the year, so we just get better at what we're doing and build on where we're at, and then I think more broadly as we look into the second half of the year, we still have the view that the macro improves, the pipeline capacity comes on in Canada which drives activity around the oil sands, and we're already seeing, as Greg mentioned in his remarks, mobilisation of contractors around Chile as well to support the large mining wind, so we're already seeing things improve coming out of the winter season, I think we're very, very focused on execution, and I think generally the macro starts to help us, and of course we'll be lapping different comparisons in the second half of the year.

Speaker Change: The second area is execution capability. So to Jacob's question about what could you do differently I do fully believe that.

Speaker Change: All of our commitments in our Investor day, and and some of the softness in Q1 is reinvigorated natus.

Speaker Change: <unk> down in a revisit some of the basics in the plan you know things like Crystal our coverage, making sure. We've got the right propositions for our customers. So I think theres an execution.

Kevin Parkes: Yeah, for sure. That makes sense.

Speaker Change: And execution.

Speaker Change: Quality that improves as we move as we move through the course of the year.

Speaker Change: So if we just get better at what we're doing and build on where we're at and then I think more broadly as we look into the second half of the year, we still have the view that the macro improves the pipeline capacity comes on in the.

Speaker Change: And in Canada, which drives.

Speaker Change: Activity around the oil sovereigns.

Speaker Change: And we're already seeing as Greg mentioned in his remarks.

Speaker Change: <unk> contractors around in Chile, as well as to support the large volume in the south.

Speaker Change: That would be that would be I think things are we're already seeing things improve coming out of the winter season.

Speaker Change: We're very very focused on execution and I think generally the macro starts to help us.

Speaker Change: Of course, we will be lapping.

Speaker Change: Lumpiness different comparison in the second half of the year.

Speaker Change: Yeah for sure that makes sense.

Speaker Change: Maybe Kevin staying with you just trying to get your temperature here on the on the overall outlook last quarter, you kind of characterized it as a steady growth.

Yuri Lynk: Maybe Kevin, staying with you, just trying to get your temperature here on the overall outlook. Last quarter, you kind of characterized it as steady growth. You've removed that language from the MD&A. You got these great awards in April. You seem to have better visibility on product support. So just overall, I mean, how are you feeling about, you know, top line growth in 2024 versus, you know, a few months ago when you last updated the market?

Kevin: You've removed that that language from from the M. D N a.

Kevin: You've got these great awards in April.

Kevin: You seem to have better visibility on product support. So just overall I mean, how are you feeling about them.

Kevin: Top line growth in 2024 versus you know a few months ago. When you last updated the market.

Kevin Parkes: As I just said, I would be happier, and I would be more confident than I was, you know, working through Q1. Our investor day targets remain, and so we're not moving off those. We believe, you know, that those moderated growth targets and moderated growth rates are still in play over that two-year period. As we said on the last call, it's not linear, and for sure, this Q1 was more transitionary than we thought it was going to be, but the optimism level has improved.

Speaker Change: I was just Oh I would be happy to always be more confident that it was working through Q1.

Speaker Change: Our Investor day targets remain and so we're not moving off those we believe that those.

Kevin Parkes: Those models the moderated growth.

Speaker Change: All right your growth rates.

Speaker Change: Still imply over that two year period is what we said on the last call it's not linear.

Speaker Change: And for sure. This is Q1 was more transmission rate.

Speaker Change: We thought it was going to be but we still are the optimism level has improved clearly you know what.

Kevin Parkes: Clearly, we're still seeing some restrained behavior and spending behavior. I think that will improve as our customers get a better line of sight to the utilisation of their equipment. And of course, you know, we're really excited about the commitment of capital from our major customers in all three regions.

Speaker Change: Still seeing some restrained behavior and spending behavior I think that improves as our customers get better line of sight to the utilization of their equipment.

Kevin Parkes: And of course, we're really excited about the commitment of capital from our major customers in all three regions.

Speaker Change: Right.

Speaker Change: <unk>, two large capital spend which gives us that.

Kevin Parkes: Broader horizon.

Speaker Change: Better activity levels, So I would say in general more optimistic.

Speaker Change: Then.

Speaker Change: The prior quarter.

Speaker Change: And.

Speaker Change: Our committee that stated.

Speaker Change: Goals from the Investor day, everybody.

Yuri Lynk: Okay. Thanks for the call there, Kevin. I'll turn it over.

Speaker Change: Okay. Thanks for the color, Kevin I'll turn it over.

Yuri Lynk: Sorry.

Speaker Change: Your next question comes from Sharif also buying of Bank of America. Please go ahead.

Sherif Abdul: The next question comes from Sherif Al-Sabahi of Bank of America; please go ahead. Hi, good morning.

Sharif: Hi, good morning.

Sherif Abdul: I just wanted to get a bit more color, looking at order patterns, you obviously have those big orders in April. Typically, for the second quarter, would we see orders ramp through the quarter, or are they weighted towards April?

Sherif Abdul: I just wanted to get a bit more color you know looking at order patterns. You you obviously have those big orders in April typically for the second quarter or would we see orders ramp through the quarter or are they weighted towards April.

Speaker Change: Yes, so normally in the second quarter, we'd have you werent selling seasons with some of the construction will have inventory on hand, and sell through and we expect that to be pretty active this year.

Kevin Parkes: Yeah, normally in the second quarter, we'd have, you know, we're in the selling season. So some of the construction, we'll have inventory on hand and sell through, and we expect that to be pretty active this year. But otherwise, order intake on mining and power tends to be a little lumpier.

Kevin Parkes: But otherwise the we know order intake on mining and power tends to be a little Lumpier of course, we've had a number of wins right in April.

Kevin Parkes: There are more and more out there that we continue to wait to hear on and continue to quote on so.

Kevin Parkes: Of course, we are at 700 million, which is a very large amount for one month, but of course, we expect to close more deals in may and June as we highlighted particularly in South America.

Kevin Parkes: Of course, we've had a number of wins right in April, but there are more, more out there that we continue to wait to hear about and continue to quote on. So, of course, we've had 700 million, which is a very large amount for one month. But, of course, we expect to close more deals in May and June. And as we highlighted, particularly in South America, a year on from the royalty review, copper prices in the mid-fours, you know, we're seeing a lot of customers look at both refresh and [inaudible].

Kevin Parkes: Can I have your on from the royalty review copper.

Kevin Parkes: Copper prices in the mid fours and we're seeing a lot of customers look at both refresh and expansion of fleet and so nearly all lines have some form of tender going at the moment, so lots of activity and so we expect that to continue through the year and it's a bit lumpy, but certainly we've had some great wins in April, but we expect some more activity elevated particularly in.

Kevin Parkes: Trillium in May and June.

Kevin Parkes: I'll just highlight another area, Sheriff. So our backlog in Canada is predominantly construction equipment now, which is encouraging. Order intake for construction equipment in the UK for quarter one versus quarter one was up considerably, and so we are seeing the construction industry starting to move. And so there are a couple of points of encouragement there. But we need to know that as our mining business mobilizes and we continue to grow our power systems, those revenue streams are way more lumpy. And so they can make dramatic changes within a quarter. And so we just need to be conscious of that.

Kevin Parkes: I'll just highlight another shape.

Kevin Parkes: So our backlog in Canada is predominantly construction equipment now.

Kevin Parkes: Which is which is encouraging order in tight for construction equipment in the U K was a corridor a border wall versus quarter, one was up considerably.

Kevin Parkes: So we are seeing in the construction industry starting to move.

Kevin Parkes: And so there's a couple of points of encouragement that book.

Kevin Parkes: We need to know that as a margin business.

Kevin Parkes: <unk> will continue to grow power systems, those revenue streams of Whitehall lumpy and so they can be they can make dramatic changes within a quarter and so I'm just need to be conscious of that.

Speaker Change: Of course, and you know I realize there's a bit of a digestion.

Sherif Abdul: And, you know, I realize there's a bit of a lag time with some of these larger project completions in construction, but looking ahead, do you see a project pipeline to fill the gaps as we head into 2025?

Sherif Abdul: With some of these larger project completions in construction, but looking ahead do you see a project pipeline to fill the gaps as we head into 'twenty five.

Speaker Change: Yeah, you definitely see some more projects coming through you know that the highway one expansion in British Columbia.

Kevin Parkes: Yes, you definitely see some more projects coming through, you know, with the Highway 1 expansion in British Columbia. But we do expect more private sector ramp-up over the next couple of years versus some of the public works of the last couple of years. And so, you know, the activity that goes in and around the LNG upstream development, as well as some oil capacity now in Alberta for that to grow, you'll see some effects around road clearing, well pad construction, gas plants, and gathering lines.

Kevin Parkes: But we do expect more private sector ramp up over the next couple of years versus some of the public works for the last couple of years.

Kevin Parkes: So the activity that goes in and around the LNG upstream development.

Kevin Parkes: As well as some oil capacity that would Alberta for that to grow you will see some effect around road clearing well pad construction gas plant and gathering line. So I would expect to see more of that over the next couple of years.

Kevin Parkes: So we expect to see more of that over the next couple of years, particularly if you start to see natural gas tick back up a bit more. Yeah, I think power systems again give us, that's probably the most visible segment we have. And so we're seeing visibility well into next year and even beyond in power systems projects, particularly in the UK, but also Chile. And so that gives us some confidence that revenues are robust in that segment.

Kevin Parkes: If you start to see natural gas ticked back up a bit more.

Kevin Parkes: And I think power systems again it.

Kevin Parkes: It gives us that's probably the most visible cycle that we have and so where we're seeing visibility well into next year and even beyond in power systems projects, particularly in the U K, but also in Chile.

Kevin Parkes: And so that gives us some confidence that there the revenues are already boosted in all segments.

Sherif Abdul: Thank you. And specifically with the mining wins, are you seeing a share shift towards cap products take place with these orders coming in, or is it more broad-based strength across mining?

Speaker Change: Thank you.

Sherif Abdul: Just looking specifically at the mining wins are you seeing a share shift towards cat products take place with these orders coming in or is it more broad based strength across mining.

Kevin Parkes: No, definitely, you know, definitely a market share shift. You know, I think following a period when our market share in Chile, particularly, was probably not where we wanted it to be in the previous cycle. You know, we've talked about this previously in relation to the electric drive truck and how that was essential to winning South America. I think we have a great electric drive truck now. You know, we clearly know that with BHP Escanida last year, we went from two-thirds to full cap site.

Sherif Abdul: No definitely definitely.

Kevin Parkes: Definitely market share shift.

Kevin Parkes: You know I think following a period of where our market share in Chile, particularly was.

Kevin Parkes: That's probably not where we wanted it to be.

Kevin Parkes: In the previous cycle, we've talked about this previously around the electric drive choking and have that was essential to winning in South America I think we have a great electric drive.

Kevin Parkes: We clearly know that with BHP Escondida last year, we went from two thirds to full top cat site.

Kevin Parkes: We believe in the Cadelco win that we're announcing today, and we want a high proportion of the available equipment there for, you know, the biggest opportunity in Chile as well. So, I would say that the team in South America is doing an absolutely amazing job, you know, using the tools they have, the product they have, partnering with Caterpillar to make. We have the appetite and the solutions to serve our customers, but, without a shadow of a doubt, it's market share.

Kevin Parkes: We believe the codelco win at where we were announcing today.

Kevin Parkes: We want a high proportion of the available equipment lab for the beat.

Kevin Parkes: The biggest opportunity in Chile, as well, so I would say that the team in South America are doing an absolutely amazing job.

Kevin Parkes: Using the tools they have the product they have partner with caterpillar to.

Kevin Parkes: Make sure you know where.

Kevin Parkes: We have the appetite.

Kevin Parkes: The solutions to serve our customers without a shadow of a doubt its market share.

Sherif Abdul: Thank you. And just lastly, there's been some large M&A in the mining space that's been announced. Is that holding back capital expenditure at all? And historically, has that typically held back CapEx in the space?

Speaker Change: Thank you and just lastly, there's been some large M&A in the mining space Thats been announced is that holding back capital our capital spend at all and historically has that typically held back capex in the space.

Sherif Abdul: I mean of course that there'll be something.

Kevin Parkes: I mean, of course, there'll be some decisions that are considered when there's a bigger M&A affair. I don't think there's anything other than the Glencore tech that would impact us directly right now. Other things are on the kind of..., are on the burner plate.

Kevin Parkes: And is that all considered when those bigger M&A I don't think there's anything.

Kevin Parkes: What was it in the the Glencore Tech.

Kevin Parkes: Practice directly right now it was I think it was around the kind of.

Kevin Parkes: So, you know, I know, again, we've met with Glencore locally here in Canada. The initial conversations suggest that they run a very decentralized model and that we're looking forward to working with them locally in the Elk Valley for sure. So no, I don't specifically think that it's impacting us today, but sure, if some of this big M&A happens, there'll be a period of consolidation and review around fleets and performance, and even individual assets.

Kevin Parkes: Or on the flight so.

Kevin Parkes: You know again, we've met with black coal.

Kevin Parkes: Locally here in Canada.

Kevin Parkes: And the initial conversations suggest that they were in a very decentralized model that.

Kevin Parkes: We're looking forward to working with them locally.

Kevin Parkes: And they are in the Elk Valley for sure. So no at all specific do you think that.

Kevin Parkes: Impacting us today.

Kevin Parkes: But sure if some of these big M&A happens there'll be a period of consolidation as I review, our Rabat fleet performance and even individual assets.

Kevin Parkes: But what we're seeing is that even where assets change hands, they're typically being picked to open.

Kevin Parkes: You know, in some cases, run more locally, and we're enjoying some good success. A good example of that is just the coal business in northern British Columbia, where we have some customers that are picking up and running with assets that were owned by larger miners in the past, and they're doing it very well.

Kevin Parkes: In some cases, one rollout play and Oh.

Kevin Parkes: We're enjoying some good success. Good example of that is just the coal business and all of which won't be aware.

Kevin Parkes: Christopher pick it up and running with assets that were on biologic monitors in the past and I'm doing it very well.

Speaker Change: Thank you I'll pass it on.

Sherif Abdul: Thank you. I'll pass it on.

Speaker Change: Oh sure.

Sherif Abdul: Yeah.

Sherif Abdul: The next question comes from Michael <unk> of Scotiabank. Please go ahead.

Michael Doumet: The next question comes from Michael Doumet of Scotiabank. Please go ahead.

Michael Doumet: Hey, good morning, guys.

Michael Doumet: I was wondering if you could maybe isolate the impact from the completion of the major projects for product support in Canada, and you also talked about improved product support growth in the second half. I was wondering how we should think about the Q2 bridge to that.

Michael Doumet: Anyway I was wondering if you could maybe isolate the impact from the completion of the major projects to pilot sport in Canada and also you talked about improved products for growth in the second half.

Michael Doumet: I'm wondering how we should think about the Q2 bridge to that.

Michael Doumet: Okay.

Michael Doumet: Sure well on the Canada side.

Greg Palaschuk: Sure. Well, on the Canada side, obviously being 4% down, a portion of that is due to construction, as well as some of the lower utilization hours. So I'd say that the decline part would be there, because on the mining side, as I highlighted, there are, you know, a couple customers that were up quite significantly over a year. There are a couple that were reworking mine plants that were down significantly, and therefore kind of flat. So from a construction perspective, I'd say the decline portion was a pretty direct drive.

Greg Palaschuk: Obviously being 4% down a portion of that through to construction.

Greg Palaschuk: Well some of the lower utilization hours, so I'd say the decline part which would be there because on the mining side as I highlighted there as you know a couple of customers that were up quite significantly over a year Theres. A couple that we're reworking mine plants that were down significantly and therefore were kind of flat so.

Greg Palaschuk: From a construction perspective, I'd say the decline portion was was it was pretty direct drive.

Kevin Parkes: And I would just add, Michael, that within the construction phase, we can very much point to the decline. It's less than 10 customers, and that's what I mentioned in my early answer around what we could learn differently. And I think, you know, we're very focused on increasing the number of unique customers we deal with to try and manage some of the lumpiness in our revenues, but we know that the vast majority of the decline in Canada was from less than 10 customers, and we can name them, and we can attribute them to those projects.

Speaker Change: And I would just add Michael that within the construction phase weak environment, you point to the decline.

Kevin Parkes: It's less than 10 close to this and that.

Kevin Parkes: What I mentioned in my earlier answer around what could we learn differently and I think we're very focused on it.

Kevin Parkes: And the number of unique customers, we deal with to try money some of the lumpiness in our revenues, but we know it.

Kevin Parkes: Majority of the decline in Canada was less than 10 close to listen we can name them, but we can we can attribute them to those projects.

Speaker Change: Okay Perfect and then just in terms of the Q2 bridge because look I'm looking at my model here and it's a pretty tough comp as well, so just thinking about that quarter versus maybe expectations in the second half.

Michael Doumet: Okay, perfect. And then just in terms of the Q2 bridge, because, like, I'm looking at my model here, and it's a pretty tough comp as well. So just thinking about that quarter versus maybe expectations in the second half.

Michael Doumet: I think that wed see that kind of part of the support rewrite continuing into Q2.

Kevin Parkes: I think that we will see the kind of product support run rate continuing into Q2. You know, the potential to improve slightly because of the activity levels in construction and some of the optimism around copper. But, you know, I think if we look at product support growth rates, as I mentioned in my remarks, if you look back over two years to this point, we're 12% CAGR. And, you know, that's double Broadly double our Investor Day targets, and so we think it's probably better. We feel quite confident that when we get to the end of the year and run right into next year, we'll be able to demonstrate that Investor Day target today.

Kevin Parkes: A potential to improve slightly because of the activity levels in construction.

Michael Doumet: Perfect. Very clear, Kevin.

Michael Doumet: Some of the optimism around <unk> around copper, but.

Michael Doumet: I think if we look at product support growth rates as I mentioned in my remarks, if you look back over two years to this point, where 12% CAGR.

Speaker Change: And that's doable.

Michael Doumet: Broadly double our Investor day targets and so we think it's probably better we feel quite confident that when we get to the end of the year when Reits into next year will be we will be able to demonstrate.

Speaker Change: That investor day target of trajectory.

Speaker Change: Perfect very clear, Kevin and then just maybe moving at gross margins look those were lower in Q1, and I think Greg you talked about lower used rental but from what I can tell no equipment and product support margins were firm year on year. So I'm. Just wondering if you can maybe just clarify that for US and then you know as it relates to.

Greg Palaschuk: And then, just maybe, moving to gross margins. Look, those were lower in Q1. And I think, Greg, you talked about lower use and rental. But from what I can tell, you know, equipment and products for margins were firm year on year. So just wondering if you can maybe just clarify that for us. And then, you know, as it relates to passing price, and retaining price cost spreads for the balance of the year, what are your thoughts?

Greg Palaschuk: Passing price retaining price cost spreads for the balance of the year what are your thoughts.

Greg Palaschuk: Yeah. So on on margin, it's proportionate mix with as you said lower margins in rental and used which as we've said many times before we don't expect the margins. The last two years, we would average those into the future. So those have come down to more kind of normalized levels.

Greg Palaschuk: Yeah, so on margin, you know, it's proportion and mix with, as you said, lower margins and in rental and used, which, as we've said many times before, we don't expect the margins of the last two years; we would average those into the future. So those have come down to more kind of normalized levels.

Greg Palaschuk: So that would be that really the margin mix.

Greg Palaschuk: Story within the quarter.

Speaker Change: Yeah, and going forward you know I think we are in more normalized rental and end.

Greg Palaschuk: And used margins, maybe a bit better and rental given some of the pick up that Kevin talked about as we get into the spring here.

Greg Palaschuk: So that would be the really the margin mix story within the quarter. Yeah, and going forward, you know, I think we are in more normalized rental and used margins, maybe a bit better in rental, given some of the pickup that Kevin talked about, as we get into the spring here. But on new products and product support, we feel fine. I mean, a large proportion of what's going through is mining equipment and data centers, and those margins don't move as much. There wasn't, you know, a big windfall, and there isn't any normalization going on. So we feel solid that new and product support are in the same zip code, and rental and used are more normalized.

Greg Palaschuk: But on new and product support before fine I mean, a large proportion of what's going through is as mining equipment and data centers and in those margins.

Greg Palaschuk: Don't move as much there wasn't a big windfall and there isn't a normalization going on so we feel solid that new and product support are in the same zip code and in rental and used our more normalized.

Speaker Change: Perfect. Thank you guys.

Michael Doumet: Perfect. I'll pass the line. Thank you, guys.

Speaker Change: Thank you Michael.

Michael Doumet: The next question comes from Steve Hansen from Raymond James. Please go ahead.

Steven P. Hansen: The next question comes from Steve Hansen of Raymond James. Please go ahead.

Steven P. Hansen: Yeah got it thanks for the time.

Steven P. Hansen: Yeah, thanks for that. Greg, just following up on the rental market commentary, understanding that margins have normalized here. Does that change any of the capital spending plans that you aligned at Investor Day? I think 15 sites were talked about in terms of build out in Western Canada, just by memory, but just any plans for capital deployment there?

Steven P. Hansen: Greg just following up on the rental market commentary understanding margins have normalized here does that change any of the capital spending plans that you outlined at the Investor Day, I think 15 sites was talked about in terms of the build out of Western Canada.

Steven P. Hansen: Memory, but just any plans on the capital deployment there.

Greg Palaschuk: Yes, yes, certainly it had been when we look at the market some of the utilization factors or data.

Greg Palaschuk: Yeah, certainly. I mean, when we look at the market, some of the utilization factors are down across the industry. And, you know, we, of course, look at our fleet and see what our utilization levels are and want to manage those appropriately. So certainly, we continue to have that as a priority area, and we will continue to deploy capital at a reasonable rate, probably down somewhat from a few months ago, we think, just to make sure utilization factors or profitability are in the zone that we want.

Greg Palaschuk: The industry.

Greg Palaschuk: And we of course look at our fleet and see what our utilization levels are and what to manage those appropriately. So certainly we continue to have that as a priority area. We will continue to deploy capital at a reasonable rate probably down somewhat from a few months ago. We're thinking just to make sure utilization factors or profitability are in the zone.

Greg Palaschuk: We want so it's kind of more of a steady growth.

Greg Palaschuk: So it's kind of more of a steady growth year, as opposed to, you know, what we thought a few months ago might have been at a higher level. But that's something we'll continue to monitor the market and evaluate.

Greg Palaschuk: Year as opposed to what were thinking a few months ago with at a higher level, but that's something we'll continue to monitor the market and evaluate.

Greg Palaschuk: And we so we're.

Kevin Parkes: And we, so we're, I'm encouraged that the, the, um... Original cost of rent is back to where it was last year after a slower start and a kind of clunky winter. That's pretty encouraging given the lack of perks and the lack of major projects that we've spoken about previously. But we did make some investments last year, so the lack of major projects has adjusted our sentiment for this rental season. So we'll just make the adjustments to make sure we're well positioned to meet our growth targets, but we're not overcommitting.

Kevin Parkes: I'm encouraged that the.

Kevin Parkes: Original cost on rent is back to where it was last year. After a slower start kind of clunky wait until that's pretty encouraging given the lack of parks or lack of major projects that we spoke to previously but we did make some investments last year, so and we the lack of major projects has adjusted a sentiment.

Kevin Parkes: So this rental season, so we'll just make any adjustments to make sure we're well positioned to meet our growth targets, but we're not out of committee.

Speaker Change: That's helpful. Thanks, and just to follow on the UK margin side again down year over year.

Steven P. Hansen: That's helpful, thanks. And just to follow on the UK margin side, again, down year-over-year, but a nice sequential uptick. Is that the new range that we should be thinking about here? I'm trying to understand the sustainability of that pattern on this latest print.

Steven P. Hansen: Nice sequential uptick is that is that the new range that we should be thinking about here trying to understand the sustainability of that pattern on this latest print.

Steven P. Hansen: Yes.

Greg Palaschuk: Yep, it's a bit of a tough market out there, as we said, in the low GDP environment. It's a bit of a grind in construction, but power has got quite a bit of momentum. So, good to see this sequential improvement, as Kevin said, you know, being there recently, there's some improved sentiment, but you know, it's still a bit of a slog through the year. So I'd look for some sequential improvement, but not huge moves.

Steven P. Hansen: Bit of a tough market out there as we said in the low GDP environment.

Greg Palaschuk: It's a bit of a grind in construction, but power has got quite a bit of momentum. So good to see the sequential improvement as Kevin said, you know being there recently, there's there's some improved sentiment, but felt that of a slog through the year. So.

Greg Palaschuk: I would look for some sequential improvement, but not huge but I think that I'd be surprised if the second half the year wasn't Whitehall constructed in the first half, but obviously, if we started to see the real.

Kevin Parkes: I think that I'd be surprised if the second half of the year wasn't way more constructive than the first half. And obviously, we started to see the real..., continues to work, so, you know, very encouraging week last week in the UK.

Kevin Parkes: Real slowdown.

Kevin Parkes: The backend of the solar last year so.

Kevin Parkes: A lot of optimism about the UK had a great ways that last week.

Kevin Parkes: With employees and customers and of course, there related to an election.

Kevin Parkes: <unk> had a great few hours on the <unk> project.

Kevin Parkes: Absolutely amazing to see that come to fruition. After so many years and that work is well underway, so and not the actual love deliver product any more product to that but that that continues to work. So.

Kevin Parkes: Very encouraging week last week in the UK.

Kevin Parkes: That's where it gets pushed through.

Steven P. Hansen: That's great guys, I appreciate you coming by; I'll turn it over.

Speaker Change: Thanks, Steve.

Steven P. Hansen: The next question comes from Devin Dodge of BMO capital markets. Please go ahead.

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

Devin Dodge: Yeah, thanks. Good morning, guys. Hey there. Technician at Canada, I think it was a bit higher every year, and product support was a bit lower. I'm just wondering if you have a sense for the drag this had on margins and earnings in the quarter, or were you able to pull some levers to kind of neutralize that impact?

Devin Dodge: Yeah. Thanks, Good morning, guys Hey.

Speaker Change: Hey, Devin.

Speaker Change: Uh huh.

Devin Dodge: Canada a look.

Devin Dodge: I think it was a bit higher given your practice support I was a bit lower I was just wondering if you have a sense for the drag that's had on margins and earnings in the quarter or where you were able to pull some levers to kind of neutralize that impact.

Speaker Change: Yeah. So I mean definitely had a drag in the quarter product support as a huge value creator for us as I said in my remarks.

Kevin Parkes: Yeah, so, I mean, definitely had a drag on the quarter. Product support, you know, is a huge value creator for us. As I said in my remarks, Devin, we were really pleased that the additional new equipment, and particularly used in Canada, which was up considerably, helped mitigate that. You know, we always felt that use would play an important role in building resilience into the company, and that has played through in this quarter, which is very encouraging.

Kevin Parkes: We were really pleased that the additional new equipment, and particularly used in Canada, which was up considerably helped mitigate that you know we see that as we always felt to us will play an important role in.

Kevin Parkes: In and building resilience into the into the company and that has played through in this quarter, which is very encouraging.

Kevin Parkes: But for sure, the product support trajectory has been a drag, and, you know, we'll probably see that more normalize. As Greg mentioned previously, we don't expect usage to continue at that trajectory, and we expect product support to sequentially improve. So, it's nice to be talking about offsets and levers in Canada, being able to deliver that earnings performance.

Kevin Parkes: But for sure the parts support trajectory Asia has been a drag.

Kevin Parkes: We'll probably see more normalizing as Greg mentioned previously we don't expect us to continue on that trajectory and we expect part of support to to sequentially improve.

Kevin Parkes: So.

Kevin Parkes: Nice to be talking about offset to leave us in Canada.

Kevin Parkes: To deliver that performance.

Kevin Parkes: Yeah.

Devin Dodge: Okay, makes sense. And then the book mentioned a broad-based increase in quoting, tendering, and award activity in Chile for mining equipment. Is there any way to scale that or provide a framework for how that sales funnel looks now versus whether it's 12, 24 months ago?

Kevin Parkes: Okay makes sense and then do you have.

Devin Dodge: You mentioned, a broad based increase in quoting tendering in award activity in Chile for mining equipment is there any way to scale that or provide a framework for how that sales funnel looks now versus whether it's 12 24 months ago.

Devin Dodge: Yeah, I would just say it's matured as we highlighted at Investor Day, I mean, most fleets are quite aged in Chile. So people have been evaluating decisions for quite some time.

Greg Palaschuk: Yeah, I would just say it's matured. As we highlighted yesterday, most fleets are quite aged in Chile.

Kevin Parkes: So people have been evaluating decisions for quite some time now. So it's gone more from the budgetary quote to competitive quotes to people making decisions and awards. I mean, even the words that we've recently got, you know, there were some delays in getting those, and decision making that still takes some time. We're just seeing it more mature and more serious. And nearly every mine is looking at some form of refresh or expansion, whether that's dealing with ore grades or some of the brownfields announced. So it's pretty broad-based, but it's matured also.

Kevin Parkes: One more from the budgetary quote to competitive quotes to people, making decisions and awards.

Kevin Parkes: Even the words that we've recently got you know there were some delays.

Kevin Parkes: And getting those in decision, making that still take some time, we're just seeing it more mature and more serious and.

Kevin Parkes: And nearly every mine is looking at some form of a refresh for expansion, whether that's dealing with ore grades or some of the brownfields are now so it's pretty broad based but it's matured also.

Kevin Parkes: I'd say, you know, I think we'll be in a better position to answer that question on the next call. I mean, obviously, even before the orders that we announced that came in after the quarter ended, order intake for mining in South America was up 48%. And, you know, as these orders percolate through the system, and miners start to calibrate that to the supply chain and lead times, I think, you know, these orders will probably make miners think more about thinking ahead and where they're placing their capital and their capital program.

Kevin Parkes: You know I think we'll be in a better position to answer that question on the next call. Devin I think you know obviously, even before the orders that we announced the timing after the fourth.

Kevin Parkes: Order intake for mining in South America was up 48%.

Kevin Parkes: And you know as these as these orders percolate through the system and minus.

Kevin Parkes: Minus stock calibrate that to supply chain and lead times I think you know that these orders will probably.

Kevin Parkes: Hum.

Kevin Parkes: Minus think more about thinking ahead and have one of the places that capital in a couple of program, which ive already imagine that we'll see more of those tenders.

Kevin Parkes: And so I would imagine that we'll see more of those tenders and a clearer pipeline looking forward, you know, over the next few weeks here because there definitely has been a mobilization shift in the last quarter.

Kevin Parkes: They are our pipeline looking forward over the next few weeks here because of the definitely has been a mobilization shift in the last the last quarter.

Speaker Change: Okay. Good color thanks for that I'll turn it over.

Devin Dodge: Okay, good color. Thanks for that. I'll turn it over.

Devin Dodge: Constantly.

Devin Dodge: The next question comes from Salman Khan of RBC capital markets. Please go ahead.

Sabahat Khan: The next question comes from Sabahat Khan of RBC Capital Markets. Please go ahead.

Sabahat Khan: Great. Thanks, and good morning, I guess, maybe just a bigger picture question on product support them. Obviously, there was a there.

Sabahat Khan: Great, thanks, and good morning. I guess maybe just a bigger picture question on product support. Obviously, there was a bit of a push into product support during the lower equipment availability that threw off sort of the natural cyclicality of that business. I guess, presumably, the product support mix may be improved here after a bit of an uptick in equipment sales in the first half of this year.

Sabahat Khan: There was a bit of a push into product support during the lower equipment availability that threw off sort of the natural cyclicality of that business.

Sabahat Khan: I guess, presumably the products CT mix, maybe improves year after a bit of uptick in equipment sales in the first half of this year maybe.

Sabahat Khan: Can you share some perspective on how you view the product support trajectory over the next, you know, six, 12 months and where you think we are on that sort of longer-term trajectory of product support based on the macro? Thanks. Yes, sure.

Sabahat Khan: Can you share some perspective on how you view the product support trajectory over the next.

Speaker Change: You know 612 months and where you think we are in that sort of longer term trajectory of product support based on the macro.

Kevin Parkes: Yes, sure, Sabahat. So, I think I mentioned this previously. We expect the trajectory to remain at the lower end of David Hulme, Unknown Executive, Bryan Fast, Kevin Parkes, Kieran Holm, Tim Ferwerda, Unknown Executive, Bryan Fast, Kevin Parkes, Kieran Holm, Tim Ferwerda, Unknown Executive, Bryan [inaudible] targets. And, you know, I would suggest that the activity we've seen in the last three, four weeks here, just general activity, particularly in Canada, would support a more improved outlook, specifically in Canada, but also to a certain degree in the UK, and Chile's doing fine.

Speaker Change: Yes sure so.

Kevin Parkes: I think I mentioned this previously we expect that trajectory to remain at the lower end of that.

Kevin Parkes: Or just off our Investor day targets in Canada, specifically.

Kevin Parkes: And order intake remained strong on new equipment, including powder systems, and we have all parts of the fact that we are testing is a strategically important win in the oil sands on this call as well.

Kevin Parkes: That product support makes might move.

Kevin Parkes: Three or four basis points up or down, but we expect all of the all of the lots of business to be growing as we as we look forward.

Kevin Parkes: So we're very confident that if he you know that if we look back and you know as we turned the year, we were right with the right into next year that will be on those investor type Investor day.

Kevin Parkes: Targets and you know I would suggest that the activity we've seen in the last three or four weeks here just general activity, particularly in Canada would support a more improved outlook specifically.

Kevin Parkes: Specifically in Canada, but also to a certain degree.

Kevin Parkes: In the U K and.

Kevin Parkes: Chile is doing fine.

Speaker Change: That's fair.

Speaker Change: Great and then there's a bit of discussion earlier sort of round pricing and inflation.

Sabahat Khan: And then there was a bit of discussion earlier sort of around pricing and inflation. The expectations or the market thought that pricing could generally be lower this year, but I guess given where inflation is at, can you just talk us through how your discussions with customers are going? Are you sort of managing to a certain margin or just how you're thinking about that given where demand seems to be in a good place, or how are you sort of managing that inflation and cost situation?

Sabahat Khan: The expectations, where the market had was pricing could generally be lower this year, but I guess, given where inflation is that can you.

Sabahat Khan: Just talk us through how your discussions with customers are going are you sort of managing to a certain margin.

Sabahat Khan: How are you thinking about that given where you know the math seems to have been a good place. So how do you sort of managing that inflation.

Sabahat Khan: Cost situation.

Sabahat Khan: Yeah. So we've said previously that we see pricing right toward returning to a more normalized level.

Kevin Parkes: Yeah, so I think we've said previously that we see pricing returning to a more normalized level now. And, you know, pricing and margin are different things.

Kevin Parkes: Level now.

Kevin Parkes: Price and a margin of different things and we work with our partner really closely to make sure where we have.

Kevin Parkes: The right value proposition to win to win share.

Kevin Parkes: As I said previously I'd be very encourage by the.

Kevin Parkes: Public well the publicly.

Kevin Parkes: Credit feed market share data that we have a rather C&I businesses. So we'd be happy with the start that we've had to expect a competitive reaction expect a more normalized competitive environment that but also know that we've got the strongest partner in caterpillar, we're very committed to growing our business and as I said previously I traveled for diodes.

Kevin Parkes: And we work with our partners really closely to make sure we have the right value proposition to win, to win share. As I said previously, I'd be very encouraged by the public or the publicly accredited market share data that we have around us in our businesses. So we'd be happy with the start that we've had, expect a competitive reaction, expect a more normalized, competitive environment there, but also know that we've got the strongest partner in Caterpillar.

Kevin Parkes: The head of sales in the UK last weekend.

Kevin Parkes: In the most competitive environment, we have an estimate that you've got the tools to be successful this year.

Kevin Parkes: It was yes.

Kevin Parkes: And.

Kevin Parkes: Certain degree you know I was thinking about you know if there's any incremental we could inc.

Kevin Parkes: Incremental business, we could win this year for us.

Kevin Parkes: You know, having a negative impact of the capacity environment. So we love the competitive environment is what we've done for years, we can be very creative caf, one and sort of amazing partner in that regard.

Kevin Parkes: So you know this you.

Kevin Parkes: You know why I described when I will credit salespeople right. Now this is normal right. This is normal what we are experiencing the possible not normal. This is normal and we have to rollout sleeves up and get out of that participate in as much business should be kind of be as creative as we can.

Kevin Parkes: We're very committed to growing our business. And as I said previously, I traveled for a day with the head of sales in the UK last week, and I asked him, you know, in the most competitive environment we have, if he'd got the tools to be successful this year. And the answer was yes. What we experienced in the past was not normal. This is normal, and we have to roll up our sleeves and get out there, participate in as much business as we can and be as creative as we can. And I think we have the sales team to do that.

Kevin Parkes: We have the sales team to do that.

Speaker Change: Great. Thanks, very much for the color.

Sabahat Khan: Great, thanks very much for the color.

Speaker Change: That's helpful.

Sabahat Khan: The next question comes from Cherilyn Radbourne TD Cowen. Please go ahead.

Cherilyn Radbourne: The next question comes from Sherilyn Radbourne of TBCohen. Please go ahead.

Cherilyn Radbourne: Thank you very much and good morning.

Cherilyn Radbourne: Thanks very much and good morning. Many of my questions have already been asked, but in terms of the strength and used equipment sales that you saw in the quarter, is most of that equipment staying in territory? And, just strategically, would you give up something on price or margin on a used sale to ensure that it stays in territory?

Cherilyn Radbourne: Many of my questions have been asked but in terms of the strength in used equipment sales that you saw in the quarter.

Cherilyn Radbourne: Is most of that equipment in territory and just strategically would you give up something on price or margin on a new deal to ensure that it does stay in territory.

Speaker Change: Yes, and yes, so yeah.

Kevin Parkes: Yes and yes. So, our best data suggests that, you know, it's an 80-20 scenario, Sherilyn, so 80% is staying within the territory. And for sure, as we would do in, you know, we have this term in the company now, which is kind of a product support bias. So we have a very strong bias towards equipment that generates, which generates population, which builds population, which generates, you know, product support activities for us.

Kevin Parkes: Our best data suggests that it's.

Kevin Parkes: <unk> 20th scenario, Charlotte, so 80% staying within the territory and for sure as we were doing we have this at.

Kevin Parkes: At this time.

Kevin Parkes: We know, which is which is kind of product support buyers. So we have to have a very strong bias towards equipment that would generate which generates population, which bills population, which generates product support activities for us and so we would have a very creative view on on that type of equipment.

Kevin Parkes: And so we would have a very creative view of that type of equipment and where its second life is, and how we ensure that its second life is within a territory that provides us with product support opportunities. You know, I think if I told you that, walking around Edmonton three weeks ago, seeing machines with UK customers' logos taken off, and you could still see the UK customer logo, was an extremely important moment for me.

Kevin Parkes: Larry Larry Webb.

Kevin Parkes: And life is.

Kevin Parkes: How do we ensure that he second life, usually they're not terrible either.

Kevin Parkes: Territory that provides as part of support opportunities.

Kevin Parkes: I think if I told you that multi brand Edmonton site three weeks ago, I'm seeing same machines with with U K coastal is logos taken off and could still city U K logo customers was an extremely important milestone for me you know.

Kevin Parkes: Been asking the teams obviously working in the U K and Canada for many years to two aligned.

Kevin Parkes: Our approach in those two markets, we were very lucky to participate in a very active used equipment market in the U K and so our first priority is to is to make sure that that stays in the territories that territory is it is in a different.

Kevin Parkes: If that territory is on a different continent but it's in Finning territory, we're working hard to make that happen in the first instance. Where we're not, then we would look to participate actively in that deal and partner with our other cat dealers in North America to make sure that that opportunity stays within the family.

Kevin Parkes: Continent, but it didnt fitting territory, we're working hard to make that happen in the first instance, why went off.

Kevin Parkes: Then we would look to participate actively in that dealer partner with or without the data top dealers in North America to make sure that.

Kevin Parkes: Opportunities to stays within the family.

Speaker Change: Okay. That's good color.

Cherilyn Radbourne: Okay, that's good color. Um, and then in terms of the inventory level, obviously, pretty elevated, so I assume that bringing that down is a priority for the rest of the year. Is there any way you can kind of give us some guidelines on what you're looking for in terms of free cash flow for the year?

Cherilyn Radbourne: And then in terms of the inventory level, obviously, I'm pretty elevated so I assume that bringing that down.

Cherilyn Radbourne: Priority for the rest of the year is there any way you can kind of give us some guidepost on what you were looking for in terms of free cash flow for the year.

Speaker Change: Yeah, absolutely a big priority for US obviously, we've got some more equipment came in for the selling season.

Greg Palaschuk: Yeah, absolutely a big priority for us. Obviously, we've got some more equipment coming in for the selling season. We do think the backlog build that we're talking about today moves through the system much faster on a cash to cash cycle than the last backlog build over the last couple of years. So we do think we'll convert that at a faster pace, as we highlighted, a lot of these orders will start delivering pretty early in Q3. We have moderated some of our orders given the improved availability of certain product lines.

Greg Palaschuk: We do think the backlog build that we're talking about today.

Greg Palaschuk: It moves through the system much faster on a cash to cash cycle, then than the last backlog built over the last couple of years and.

Greg Palaschuk: So we do think we will convert that at a faster pace as we highlighted a lot of these orders will start delivering are pretty early in Q3.

Greg Palaschuk: We have moderated some of our orders given the improved availability on certain product lines and we continue to work on all the items, we looked at our Investor day around warehouse automation.

Greg Palaschuk: And we continue to work on all the items we listed in our investor day around warehouse automation and velocity. And then we continue to work on some of those low-margin activities. So we think all of those contribute, and so we highlighted 450 million of capital to unlock. And that continues to be the plan, and we think you'll see more and more of those catalysts here in the second half of the year.

Greg Palaschuk: And velocity, so and continue to work on some of those low ROIC activity. So.

Greg Palaschuk: We think all of those contribute and so we highlighted $450 million of capital unlock.

Greg Palaschuk: And that continues to be the plan and we think you'll see more and more of those those catalysts here in the second half of the year.

Speaker Change: That's my two thank you for the time.

Cherilyn Radbourne: That's my cue. Thank you for the time. Thanks, everyone.

Speaker Change: Thanks Carolina.

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

Maxim Sytchev: Once again, if you have a question, please press star then 1. The next question comes from Maxim Sytchev of National Bank Financial. Please go ahead.

Maxim Sytchev: The next question comes from Maxim <unk>.

Maxim Sytchev: National Bank financial please go ahead.

Maxim Sytchev: Hi, good morning, gentlemen.

Maxim Sytchev: Yes.

Maxim Sytchev: I just have a couple of very quick ones in terms of when we look at the oil sands, you know, sort of customer behavior, because on the one hand, obviously, as you mentioned, WTI is a good spot and takes a look at a path that is improving. Is there anything structural about client behavior that is sort of different from how they behaved sort of previously? Or is it really just sort of a tactical, intermittent dynamic that was solved in the last couple of quarters?

Maxim Sytchev: I just had a couple of very quick ones in terms of when we look at the oil sands.

Maxim Sytchev: Sort of customer behavior, because on the one hand, obviously as you mentioned W. Try good sports and takeaway capacity is improving.

Maxim Sytchev: Anything structural from the client behavior, which is sort of different from how they behave sort of previously or.

Maxim Sytchev: It's really just sort of a tactical into Midland on them, because we're so close to a couple of quarters. Thanks.

Kevin Parkes: And I'd say the latter, Max. I think there are some, you know, as you can probably read, there are some specific plans in place. I think the oil sands are moving to a transitionary phase as well as a lot of talk of expansion and mine development. You know, there's a pivot between mines slowing down and mines ramping up. And so I would suggest that it's not structural, and we remain optimistic about the long-term fundamentals, particularly given WTI and the incremental pipeline capacity. So it really is more a function of the mine plans today and the specifics for a more constructive and consistent outlook in the oil sands.

Maxim Sytchev: And I would say the latter lots I think there's some you know as you probably read there are some specific plans in place I think the Oilsands is moving to transition refis as well, there's a lot of.

Kevin Parkes: Talk of expansion.

Kevin Parkes: And mine and mine development.

Kevin Parkes: Pivots between <unk> slowed down the mines ramp yield.

Kevin Parkes: And so I would just I would suggest that it's not structural.

Kevin Parkes: We remain optimistic about the long term fundamentals, particularly given the beauty I think incremental pipeline capacity. So.

Kevin Parkes: It really is all a function of the mine plans today and the specifics I am.

Kevin Parkes: Everything points to Jim more constructive and consistent I look in the oil sands.

Speaker Change: Okay, Okay no its way thank you.

Maxim Sytchev: Okay, that was great. Thank you. And then lastly, just going back on used, obviously, very strong performance. And I'm just wondering, in terms of what you have changed. And when it comes to, you know, gold market strategy, processes, people, maybe, you know, some of that stuff, if you can provide any in the column there. Thanks.

Maxim Sytchev: Let me just.

Maxim Sytchev: Going back on US obviously, there is some performance I'm just wondering in terms of what have you changed when it comes to you don't go to market strategy.

Maxim Sytchev: Since people, maybe some folks off if you could provide any color there.

Kevin Parkes: All of those things, Max, so it starts with people and talent, and so we have dedicated leadership that wakes up every morning and thinks about used, and they have a team that wakes up every morning and thinks about used and acts on used, you know, and works with all the regions to participate more effectively in that market. [inaudible]

Speaker Change: All of those things Max tow it starts with people and talent. So we have dedicated leadership that wake up every morning, and think about used and they have a team that wakes up every morning, and think about used and act on used.

Kevin Parkes: You know I worked with all the regions to participate more effectively in that market are.

Kevin Parkes: Each process is you mentioned that the team are absolutely committed to simple agile processes, which wouldn't typically you know which would have an opportunity in the rest of the day the ship to ER to ER to work to improve them to work onsite there they come from a different DNA in a different space.

Kevin Parkes: It's a close relative.

Kevin Parkes: It's a different DNA than there were in Paris, and giving them space to do what they need to do to participate in.

Kevin Parkes: Very active used equipment market, we see that moderating because I think there's a.

Kevin Parkes: There's a sense that you know coming out of the pandemic and supply chain, improving maybe a little bit of overshoot.

Kevin Parkes: In terms of.

Kevin Parkes: Customers buying equipment, and we see them adopt part of calibration.

Kevin Parkes: You know happening right now and we're just really happy to be participating in that more than we have done in the past, but used equivalent looks and feels very different than it did 12 to 18 months ago that fit in and as I mentioned in my remarks, you know we've launched an independent.

Kevin Parkes: Used equipment pothole used equipment platform of occupy school for used equipment.

Kevin Parkes: That does.

Kevin Parkes: That's helping us to participate in the in the non cat side of the business as well so.

Speaker Change: That's important.

Kevin Parkes: Well to have those capabilities so.

Kevin Parkes: It looks and feels very different really excited by the trajectory over the last couple of quarters.

Kevin Parkes: Building this for the previous six quarters before that and hopefully you know we've got really strong.

Kevin Parkes: The hopes that we can build a sustainable business that it can contribute more to feed it.

Speaker Change: Very helpful. Thank you so much.

Maxim Sytchev: Very helpful; thank you so much.

Max: Hi, This is Max.

Maxim Sytchev: This concludes the question and answer session I would like to turn the conference back over to Greg <unk> for any closing remarks.

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

Greg Palaschuk: Okay.

Greg Palaschuk: Great, thank you. That concludes our call. Thanks to everyone for participating, and I hope you have a safe day.

Greg Palaschuk: Great. Thank you that concludes our call. Thanks for everyone for participating and I Hope you have a safe day.

Greg Palaschuk: This brings to an end today's conference call you may disconnect your lines. Thank you.

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

Greg Palaschuk: For participating and have a pleasant day.

Operator: [music].

Operator: Hum.

Operator: [music].

Operator: Okay.

Operator: [music].

Operator: BF-WATCH TV 2021