Q2 2025 Finning International Inc Earnings Call

Question analysts, who wish to join the question queue May Press Star then one on the telephone keypad.

Should you need assistance during the conference call you May signal, an operator pressing star then zero.

Speaker #3: Thank you standing by. This is the conference operator. Welcome to the Finning International Inc. second quarter 2025 investor call and webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded.

I'd now like to turn the conference over to David Primrose Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you operator, good morning, everyone and welcome to <unk> second quarter earnings call.

Joining me on today's call is Kevin Parks, our President and Chief Executive Officer.

Speaker #3: After the presentation, there will be an opportunity to ask questions. Analysts who wish to join the question queue may press star then one on their telephone keypad.

Following our remarks, we will open the line to questions. This call is being webcast on the Investor Relations section of fitting dot com.

Speaker #3: Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to David Primrose, Executive Vice President and Chief Financial Officer.

We have also provided a set of slides on our website that we will reference an audio file of this call and the accompanying slides will be archived before.

Before I turn it over to Kevin I want to remind everyone that some of the statements provided during this call are forward looking <unk>.

Speaker #3: Please go ahead.

Speaker #4: Thank you, operator. Good morning, everyone, and welcome to Finning's second quarter earnings call. Joining me on today's call is Kevin Parkes, our President and Chief Executive Officer.

Please refer to slides nine and 10 for important disclosures about forward looking information as well as currency and specified 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.

Speaker #4: Following our remarks, we will open the line to questions. This call is being webcast on the Investor Relations section of Finning.com. We have also provided a set of slides on our website that we will reference.

Speaker #4: An audio file of this call and the companying slides will be archived. Before I turn it over to Kevin, I want to remind everyone that some of the statements provided during this call are forward-looking.

<unk> form under key business risks and in our MD&A under risk factors and management and forward looking information disclaimer.

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

Speaker #4: Please refer to slides 9 and 10 for important disclosures, about forward-looking information, as well as currency, and specified financial measures, including non-GAAP financial measures.

In addition, as previously announced on June 32025, we successfully completed the sales of four refuel in Comtech for refuel in context operating results were previously reported as part of our Canadian operations and are now presented as discontinued operations.

Speaker #4: Please note that forward-looking information is subject to risks, uncertainties, and other factors, as discussed in our annual information forum under key business risks and in our MD&A under risk factors and management and forward-looking information disclaimer.

Yes, otherwise noted this presentation reflects the results of continuing operations Kevin over to you.

Speaker #4: Please treat this information with caution as our actual results could differ materially from current expectations. In addition, as previously announced on June 30th, 2025, we successfully completed the sales of four refuel and ComTech, four refuel and ComTech's operating results were previously reported as part of our Canadian operations, and are now presented as discontinued operations.

Thank you, Dave and good morning, everyone. Thank you for joining us today.

The positive momentum we generated in 2024 and in the first quarter of 2025 continued with another strong quarter of results.

These results reflect the commitment of our team to disciplined execution of our strategy and the diversity and health of our end markets and regions.

Speaker #4: Unless otherwise noted, this presentation reflects the results of continuing operations. Kevin, over to you.

I'm excited to have the support of Dave in his new role of Executive Vice President and Chief Financial Officer.

Dave 36 years of operating experience that feeling demonstrates its commitment to our company and our customers.

Speaker #5: Thank you, Dave, and good morning, everyone. Thank you for joining us today. The positive momentum we generated in 2024 and in the first quarter 2025 continued with another strong quarter of results.

This contribution to our business across most of our functions, including leading two of our regions makes him a great partner to support me and ideal principles to drive growth and focus on cost and capital optimization.

Speaker #5: These results reflect the mitment of our team to disciplined execution of our strategy and the diversity and health of our end markets and regions.

We're looking forward to the continued progress executing our strategy under Dave's financial leadership.

Speaker #5: I'm excited to have the support of Dave and his new role of Executive Vice President and Chief Financial Officer. Dave's 36 years of operating experience at Finning demonstrates his commitment to our company and our ustomers.

I would also like to take a moment to thank Greg Palast joke for his leadership as CFO of the past five years and its contribution to fill in for the last 11 years as he moves on to his new endeavor.

Consistent with prior quarters I'll provide a brief review of key highlights from the execution of our strategy before turning the call over to Dave who will provide more detail on the results in the quarter.

Speaker #5: His contribution to our business across most of our functions, including leading two of our regions, makes him a great partner to support me and our dealer principals to drive growth and focus on cost and capital optimization.

Please turn to slide two.

Speaker #5: We are looking forward to the continued progress executing our strategy under Dave's financial leadership. I would also like to take a moment to thank Greg Palaschuk.

We continue to build on our strong Q1 2025 results sequentially growing revenue by 6% from the first quarter to $2 6 billion.

Speaker #5: For his leadership as CFO over the past five years and his contribution to Finning for the last 11 years, as he moves on to his new endeavor.

We believe the diversity of our business positions us well for when market conditions and provides resilience and stability for our earnings, particularly in times of market uncertainty.

Speaker #5: Consistent with prior quarters, I'll provide a brief review of key highlights from the execution of our strategy, before turning the call over to Dave, who will provide more detail on the results in the quarter.

On new equipment backlog grew to $3 billion at the end of June the fifth consecutive quarter of backlog growth and a new record.

Speaker #5: Please turn to slide two. We continue to build on strong Q1 2025 results, sequentially growing revenue by 6% from the first quarter to 2.6 billion dollars.

We are encouraged by this increase given we delivered nearly $1 billion of new equipment in the quarter, our highest quarterly delivery amount in the past 10 years.

This record level of backlog provides confidence for our business and future products for opportunities.

Speaker #5: We believe the diversity of our business positions us well for all market conditions and provides resilience and stability for our earnings particularly in times of market uncertainty.

Order intake enterprise deliveries in all regions, particularly pleasing was Canada with orders up more than 80% of the same quarter last year.

Speaker #5: Our new equipment backlog grew to 3 billion at the end of June, the fifth consecutive quarter of backlog growth and a new record. We are encouraged by this increase given we delivered nearly 1 billion dollars of new equipment in the quarter, our highest quarterly delivery amount in the past 10 years.

Strong orders in all segments, including construction where orders almost doubled.

We also saw a strong order activity from several mining customers as well as in the power sector related to gas compression.

In South America. Similarly, we saw a strong mining sector order intake complemented by path from both oil and gas and prime power segments.

Speaker #5: This record level of backlog provides confidence for our business and future product support opportunities. Order intake outpaced deliveries in all regions. Particularly pleasing was Canada, with orders up more than 80% of the same quarter last year.

In the UK and Ireland, we are seeing improving orders from construction customers and steady power set to growth activity.

Moving to product support.

Speaker #5: With strong orders in all segments, including construction, where orders almost doubled. We also saw strong order activity from several mining customers, as well as in the power sector related to gas compression.

Q2 product support revenue grew in all regions, reflecting our efforts in Q1 to Reenergize sales efforts in improving market conditions.

In Canada product support revenues were up 4% led by mining more.

Speaker #5: In South America similarly, we saw strong mining sector order intake, complemented by power from both oil and gas and prime power segments. In the UK and Ireland, we are seeing improving orders from construction customers and steady power sector growth activity.

Mining product support revenues improved year over year by 10% and 3% sequentially from the first quarter.

As I've spoken about on the last couple of calls we remain committed to supporting our customers to achieve lower production costs through stronger partnerships planning and execution.

Speaker #5: Moving to product support, Q2 product support revenue grew in all regions, reflecting our efforts in Q1 to re-energize sales efforts in improving market conditions.

In South America product support revenues were up 4% in functional currency on strong mining activity.

We again added over 100 technicians in the quarters has helped support our customers, including as we ramp up our capabilities to deliver on the new equipment Awards, we announced in May 2024.

Speaker #5: In Canada, product support revenues were 4%, led by mining. Mining product support revenues improved year over year by 10%, and 3% sequentially from the first quarter.

In the UK and Ireland product support revenues were 1% in functional currency on improved power segment activity levels.

Speaker #5: As I've spoken about in the last couple of calls, we remain committed to supporting our customers to achieve lower production costs through stronger partnerships, planning, and execution.

Last quarter as we continued to support a growing population of power systems equipment in the region.

Speaker #5: In South America, product support revenues were up 4% in functional currency, driven by strong mining activity. We again added over 100 technicians in the quarter to help support our customers, including as we ramp up our capabilities to deliver on the new equipment awards we announced in May 2024.

Maximizing part of support is a key focus for our regions during.

During the second quarter. We also continued our solid progress on improving the resilience of our business to strengthen our earnings capacity with strong cost and capital control.

SG&A margin was 15, 5% in the quarter and included a meaningful increase in long term incentive plan expense, given the 44% share price appreciation.

Speaker #5: In the UK and Ireland, product support revenues were up 1% in functional currency, and improved power segment activity levels similar to last quarter, as we continue to support a growing population of power systems equipment in the region.

We also took further action in Canada, and streamlining our organization structure with expected annual future savings of over $20 million.

Speaker #5: Maximizing product support remains a key focus for our regions. During the second quarter, we also continued our solid progress on improving the resilience of our business to strengthen our earnings capacity, with strong cost and capital control.

We remain relentlessly focused on driving efficiency in our operations, while building capabilities coverage and capacity to drive loyalty and growth.

Invested capital turns were approximately two three times this quarter have steadily improved since the beginning of 2020 for demonstrating our focus on improving capital velocity and growing our business.

Speaker #5: SG&A margin was 15.5% in the quarter, and included a meaningful increase in long-term incentive plan expense given the 44% share price appreciation. We also took further action in Canada to streamline our organization structure, with expected annual future savings of over 20 million dollars.

From a sustainable growth perspective, we continue to see strong growth in our power systems business on improvement in our rental revenues.

Our power systems backlog now exceeds $1 billion, reflecting a diversified mix of prime power packages oil and gas related equipment orders and datacenter standby packages to be delivered through 2027.

Speaker #5: We remain relentlessly focused on driving efficiency in our operations, while building capabilities coverage and capacity to drive loyalty and growth. Invested capital turns were approximately 2.3 times this quarter have steadily improved since the beginning of 2024, demonstrating our focus on improving capital velocity and growing our business.

Relative to last June our power equipment backlog is up 88%.

Power systems product support revenues also continues to have steady growth trajectory as population builds.

Speaker #5: From a sustainable growth perspective, we continue to see strong growth in our Power Systems business and improvement in our rental revenues. Our Power Systems backlog now exceeds $1 billion, reflecting a diversified mix of prime power packages, oil and gas-related equipment orders, and data center standby packages to be delivered in 2027.

Revenue in our used equipment segment decreased this quarter, mostly due to a large one off packages last year.

The used equipment margins, however, improved in 2025 as the market inventory levels have normalized.

This is generally in line with the expectations, we outlined during our third quarter results last year.

Rental revenue increased 4% with a 10% increase in Canada relative to Q2 2020 for <unk>.

Speaker #5: Relative to last June, our power equipment backlog is up 88%. Power systems product support revenues also continued a steady growth trajectory as population builds.

Including solid activity and heavy rentals, despite the more challenging construction market.

Speaker #5: Revenue now used equipment segment decreased this quarter, mostly due to large one-off packages last year. Used equipment margins have, ever, improved in 2025 as the market inventory levels have normalized.

Our new rental agency team are making solid progress as the coverage and fleet changes. We made last year are improving utilization levels in each of our rental businesses in Canada.

We remain committed to growing this line of business in the long term.

Speaker #5: This is generally in line with the expectations we outlined during the third quarter results last year. Rental revenue increased 4%, with a 10% increase in Canada, relative to Q2 2024.

Before I turn the call over to Dave I'd like to provide a few comments from each of our regions.

In South America, the team continues to execute well across all countries and across sectors.

We continue to see solid activity levels in our mining business with new Ultra class truck deliveries and support equipment awards added to our backlog in the quarter.

Speaker #5: Including solid activity in heavy rentals, despite a more challenging construction market. Our new rental leadership team are making solid progress as the coverage and fleet changes we made last year are improving utilization levels in each of our rental businesses in Canada.

Customers are actively managing our equipment fleet, adding new equipment, while maximizing the utilization of their existing aging fleets we.

Speaker #5: We remain committed to growing this line of business in the long term. Before I turn the call over to Dave, I'd like to provide a ew comments from each of our regions.

We expect continued growth for our mining business, albeit not in a linear fashion as volumes build specific optimization and growth plans.

Speaker #5: In South America, the team continues to execute well across all countries and across sectors. We continue to see solid activity levels in our mining business, with new author class truck deliveries and support equipment awards added to our backlog in the quarter.

We have also continued to focus on rebuilds in the construction sector with mining contract activity levels are strong.

Our power systems business remains active in South America, particularly in oil and gas and in the data center market.

In the UK and Ireland. The team continues to operate resiliency in a tough market. While the construction segment continues to show shines a improvement from a quoting standpoint equipment utilization levels are still subdued.

Speaker #5: Customers are actively managing their equipment fleets, adding new equipment, while maximizing the utilization of their existing aging fleets. We expect continued growth for our mining business, albeit not in a linear fashion, as mines build specific optimization and growth plans.

Our power systems business in the UK and Ireland continues to see strong quoting activity from Prime power and data center applications. While at the same time product support revenues in power are robust.

Speaker #5: We are also continuing to focus on rebuilds in the construction sector, with mining contract activity levels strong. Our power systems business remains active in South America, particularly in oil and gas and in the data center market.

We continue to leverage digital tools as mentioned on the last call to drive productivity improvements as we execute repair and rebuild work.

Speaker #5: In the UK and Ireland, the team continues to operate resiliently in a tough market. While the construction segment continues to show signs of improvement from a quoting standpoint, equipment utilization levels are still subdued.

In Canada. The team is focused on capturing growth opportunities in the market.

Driving product support growth through adding technicians and sales coverage remains a priority.

Activity levels in power systems have been solid supported by well servicing and gas compression and market demand.

Speaker #5: Our power systems business in the UK and Ireland continues to see strong quoting activity from prime power and data center applications. While at the same time, product support revenues in power are robust.

Construction activity remains on the slow side of our expectations, but we are relentlessly looking for ways to add value to our customers whether through machine rebuilds will targeted component sales.

Speaker #5: We continue leverage digital tools as mentioned on the last call to drive productivity improvements as we execute repair and rebuild work. In Canada, the team is focused on capturing growth opportunities in the market.

Our mining business continues to perform well and activity levels are robust despite some weakness in certain commodities.

Speaker #5: Driving product support growth through adding technicians and sales coverage remains a priority. Activity levels in power systems have been solid, supported by well-servicing and gas compression end market demand.

We added over 20 ultra class mining folks to backlog this quarter and quoting activity remains strong.

Overall, we remain optimistic for the second half of 2025 with a strong first half behind us and lots of opportunity in front of us and continuing momentum in the execution of our strategy.

Speaker #5: Construction activity remains on the slower side of our expectations, but we are relentlessly looking for ways to add value to our ustomers, whether through machine rebuilds or targeted component sales.

With that I'll hand, it back to date.

Thank you Kevin.

Speaker #5: Our mining business continues to perform well and activity levels are robust. Despite some weakness in certain commodities, we added over 20 autoclass mining trucks to backlog this quarter, and quoting activity remains strong.

I will now turn to slide three our.

Our Q2 revenue of $2 $6 billion was comparable to Q2 2024 with solid product support revenue growth offset by lower used equipment sales are.

Our second quarter earnings were adjusted for severance cost of $12 million for head count reductions related to consolidation efforts and changes to our organizational structure with a focus on non revenue generating positions primarily in Canada.

Speaker #5: Overall, we remain optimistic for the second half of 2025. With a strong first half behind us, and lots of opportunity in front of us, and continued momentum in the execution of our strategy.

Speaker #5: With that, I'll hand it back to Dave.

Speaker #4: Thank you, Kevin. I'll now turn to slide three. Our Q2 revenue of 2.6 billion dollars was comparable to Q2 2024, with solid product support revenue growth, offset by lower used equipment sales.

Excluding severance adjusted EBIT was down 2% from Q2 last year, primarily due to higher <unk> expense of $16 million or <unk> <unk> per share relative to Q2, 2024, reflecting a 44% depreciation of our share price during the quarter.

Speaker #4: Our second quarter earnings were adjusted for severance cost of 12 million dollars for headcount reductions, related to consolidation efforts and changes to our organizational structure.

Adjusted EPS of $1, one was up 5% from Q2, 24, EPS, reflecting lower finance costs on a lower average debt level as well as the benefit of our share repurchases.

Speaker #4: With a focus non-revenue-generating positions primarily in Canada. Excluding severance, adjusted EBIT was down 2% from Q2 last year, primarily due to higher L-tip expense of 16 million dollars or 9 cents per share, relative to Q2 2024, reflecting a 44% appreciation of our share price during the quarter.

Our adjusted EPS excludes four re fuel earnings up five cents per share in the quarter.

We are pleased to see continued momentum in our business underpinned by supportive mining and power system activities.

At the same time, we continued executing our strategy to maximize product support build full cycle resilience through diligent cost control and improving invested capital velocity.

Speaker #4: Adjusted EPS of $1.01 was up 5% from Q2 24 EPS, reflecting lower finance costs on a lower average debt level, as well as the benefit of our share repurchases.

As Kevin mentioned SG&A margin remained resilient at 15, 5% invested capital turns reached approximately two three times and we maintained our working capital to sales ratio of 26, 4% relatively in line with last quarter and with an improvement from Q2 'twenty four of <unk>.

Speaker #4: Our adjusted EPS excludes four refuel earnings of 5 cents per share in the quarter. We are pleased to see continued momentum in our business, underpinned by supportive mining and power system activities.

Speaker #4: At the same time, we continue executing our strategy to maximize product support, build full-cycle resilience through diligent cost control, and improving invested capital velocity.

110 basis points.

Consolidated adjusted return on invested capital and net debt to adjusted EBITDA also held firm from last quarter at 18, 7% and one six times respectively.

Speaker #4: As Kevin mentioned, SG&A margin remained resilient at 15 and a half percent, invested capital turns reached approximately 2.3 times, and we maintained our working capital to sales ratio of 26.4%, relatively in line with last quarter and with an improvement from Q2 24 of 310 basis points.

Our Q2 free cash flow usage of $164 million reflected higher inventory levels to support increased customer activity.

On slide four we show changes on our revenue by line of business compared to Q2, 2024, and the composition of our equipment backlog by market sector.

Speaker #4: Consolidated adjusted return on invested capital and net debt to adjusted EBITDA also held firm from last quarter at 18.7% and 1.6 times, respectively. Our Q2 free cash flow usage of 164 million dollars reflected higher inventory levels to support increased customer activity.

New equipment sales were comparable to Q2, 'twenty four with strong mining deliveries in Canada, and South America offset by slower construction sales in Canada, and the timing of power projects in the UK and Ireland.

Used equipment sales were down 43% as in Q2 2024, we have large auction sales and onetime deals in Canada that did not repeat this quarter.

Speaker #4: On slide four, we show changes in our revenue by line of business compared to Q2 2024, and the composition of our equipment backlog by market sector.

Product support revenue was up 5% with consolidated growth benefiting from a stronger U K pound.

Speaker #4: New equipment sales were comparable to Q2 24, with strong mining deliveries in Canada and South America, offset by slower construction sales in Canada, and the timing of power projects in the UK and Ireland.

And as Kevin mentioned, we saw growth across all regions led by mining in Canada.

Our equivalent backlog reached an all time high of $3 billion at the end of June which is up 38% from the end of June last year and up 6% from the end of March 2025.

Speaker #4: Used equipment sales were down 43%, as in Q2 2024, we had large auction sales and one-time deals in Canada that did not repeat this quarter.

We are pleased to continue to see the sustainable growth in our power systems backlog to over $1 billion now representing 35% of our total backlog, which is another testament to our strategy execution focus.

Speaker #4: Product support revenue was up 5%, with consolidated growth benefiting from a stronger UK pound. And as Kevin mentioned, we saw growth across all regions, led by mining in Canada.

Turning to our EBIT performance on slide five.

Speaker #4: Our equipment backlog reached an all-time high of 3 billion dollars at the of June, which is up 38% from the end of June last year, and up 6% from the end of March 2025.

Gross margin was up 40 basis points, primarily driven by a higher proportion of product support revenue in Canada, and the UK and Ireland.

SG&A margin was up 50 basis points, primarily due to the $16 million in higher <unk> expense in the quarter.

Speaker #4: We are pleased to continue to see the sustainable growth in our power systems backlog to over 1 billion dollars, now representing 35% of our total backlog, which is another testament to our strategy execution focus.

We remain focused on simplifying our business and our restructuring efforts. This quarter are expected to result in annual SG&A savings of over $20 million.

Speaker #4: Turning to our EBIT performance on slide five, gross margin was up 40 basis points, primarily driven by a higher proportion of product support revenue, in Canada, and the UK and Ireland.

Looking ahead, we will continue to seek opportunities to further improve efficiency reduce overheads and build more resilience into our operating model to drive higher earnings capacity.

Speaker #4: SG&A margin was up 50 basis points, primarily due to the 16 million dollars and higher L-tip expense in the quarter. We remain focused on simplifying our business and our restructuring efforts this quarter are expected to result in annual SG&A savings of over 20 million dollars.

Q2, adjusted EBIT margin was 10, 1% and South America, nine 4% in Canada, and five 2% in the UK and Ireland.

Moving to our South American results and outlook, which are summarized on slide six.

Speaker #4: Looking ahead, we will continue to seek opportunities to further improve efficiency and reduce overheads, and build more resilience into our operating model to drive higher earnings capacity.

In functional currency, new equipment sales were up 6% from Q2 24, driven by strong mining deliveries in Chile.

Product support revenue was up 4% driven by strong demand from the mining sector, coupled with higher rebuild activities and construction.

Speaker #4: Q2 adjusted EBIT margin was 10.1% in South America, 9.4% in Canada, and 5.2% in the UK and Ireland. Moving to our South American results and outlook, which are summarized on slide six.

EBIT was up 2% in functional currency and EBIT margin was down 30 basis points due to a higher proportion of lower margin mining equipment sales.

Speaker #4: In functional currency, new equipment sales were up 6% from Q2 24, driven by strong mining deliveries in Chile. Product support revenue was up 4%, driven by strong demand from the mining sector, coupled with higher rebuild activities in construction.

Our outlook for Chile mining remains strong underpinned by growing demand for copper and strong copper prices as well as solid levels of quoting tender and award activity for mining equipment and product support.

While activity levels and outlook remain positive. We also expect a more challenging labor environment, including higher compensation and Union agreement payments and upcoming Union negotiations.

Speaker #4: EBIT was up 2% in functional currency, and EBIT margin was down 30 basis points due to a higher proportion of lower-margin mining equipment sales.

These negotiations are expected to include cash bonus payments as is customary in that market.

Speaker #4: Our outlook for Chile mining remains strong, underpinned by growing demand for copper and strong copper prices, as well as solid levels of quoting, tender, and award activity for mining equipment and product support.

These payments may occur in late 2025, or potentially 2026, and we will have an impact on capital expenditures.

In Chile, we continue to see healthy demand from large contractors supporting mining operations, and we expect infrastructure construction activity to remain steady in.

Speaker #4: While activity levels and outlook remain positive, we also expect a more challenging labor environment, including higher compensation and union agreement payments in upcoming union negotiations.

In the power system sector activity remains strong in the industrial and data center markets.

Speaker #4: These negotiations are expected to include cash bonus payments, as is customary in that market. These payments may occur in late 2025 or potentially 2026 and will have an impact on capital expenditures.

In Argentina, we continue to take a low risk approach and closely monitor the government's new rules and policies at the same time. We are also positioning our business to capture potential growth opportunities in the oil and gas and mining sectors and we are encouraged by steps taken by the government to reduce currency risk.

Speaker #4: In Chile, we continue to see healthy demand from large contractors supporting mining operations, and we expect infrastructure construction activity to remain steady. In the power system sector, activity remains strong, in the industrial and data center markets.

Frictions.

Turning to Canada on slide seven.

New equipment sales were down 3% from Q2, 24, primarily due to slower construction sector activity.

Speaker #4: In Argentina, we continue to take a low-risk approach and closely monitor the government's new rules and policies. At the same time, we are also positioning our business to capture potential growth opportunities in the oil and gas, and mining sectors, and we are encouraged by steps taken by the government to reduce currency restrictions.

Used equipment sales were down 58%, primarily due to the large auction sales of onetime deals in Q2 2024 that were not repeated this quarter.

Product support revenue was up 4% driven by higher spending for mining customers.

Adjusted EBIT margin was up 50 basis points from Q2 to 24, driven by a higher proportion of product support revenue.

Speaker #4: Turning to Canada on slide seven. New equipment sales were down 3% from Q2 24, primarily due to slower construction sector activity. Used equipment sales were down 58%, primarily due to the large auction sales and one-time deals in Q2 2024, that were not repeated this quarter.

We incurred $11 million of severance costs in our Canadian business, primarily in selected back office and technology roles.

In terms of outlook, we are encouraged by the recent Bill C. Five legislation and announcements regarding the potential to accelerate resource development and infrastructure project activity.

Speaker #4: Product support revenue was up 4%, driven by higher spending from mining customers. Adjusted EBIT margin was up 50 basis points from Q2 24, driven by a higher proportion of product support revenue.

But we remain cautious with respect to the exact timing and magnitude. Meanwhile, we continue to expect ongoing commitments from governments and private sector projects for infrastructure development supporting activity in the construction sector.

Speaker #4: We incurred 11 million dollars of severance costs in our Canadian business, primarily in selected back office and technology roles. In terms of outlook, we are encouraged by the recent Bill C-5 legislation and announcements regarding the potential to accelerate resource development and infrastructure project activity.

On the mining side, we expect our mining customers to deploy capital to renew maintain and rebuild aging fleets and for power systems. We continued to see healthy demand for reliable and efficient electric power solutions.

Speaker #4: But we remain cautious with respect to the exact timing and magnitude. Meanwhile, we continue to expect ongoing commitments from governments and private sector projects for infrastructure development, supporting activity in the construction sector.

And finally, we remain focused on managing costs and working capital levels.

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

In functional currency, new equipment sales were down 8% compared to Q2 2024 due to the timing of power system project deliveries, partially offset by higher construction new equipment sales.

Speaker #4: On the mining side, we expect our mining customers to deploy capital to renew, maintain, and rebuild aging fleets. And for power systems, we continue to see healthy demand, for reliable and efficient electric power solutions.

Support revenue was up 1% with higher activity levels in the power system sector offset by slower activity in construction.

Speaker #4: And finally, we remain focused on managing costs and working capital levels. Please turn to slide eight for our results in the UK and Ireland.

EBIT margin was up 60 basis points, reflecting higher proportion of product support and the revenue mix and a continued strong focus on cost control.

Speaker #4: In functional currency, new equipment sales were down 8%, compared to Q2 2024, due to the timing of power system project deliveries, partially offset by higher construction new equipment sales.

As we continue to grow our product support business, which is more cost intensive we remain committed to keeping our SG&A resilient.

We expect demand for new construction equipment in the UK and Ireland to remain soft in line with the lower projected GDP growth.

Speaker #4: Product support revenue was up 1%, with higher activity levels in the power system sector, offset by slower activity in construction. EBIT margin was up 60 basis points, reflecting higher proportion of product support in the revenue mix, and a continued strong focus cost control.

We continue to expect a growing contribution from used equipment and power systems and resilient product support as we execute our strategy.

Before I turn it back to Kevin I would like to reiterate our go forward strategic priorities.

Speaker #4: As we continue to grow product support business, which is more cost-intensive, we remain committed to keeping our SG&A resilient. We expect demand for new construction equipment in the UK and Ireland to remain soft, in line with the low projected GDP growth.

With the sale of <unk> and contact now completed we are sharpening our focus and our core dealership operations to execute our strategy.

To maximize product support it will be our top priority to grow equipment population and market share across all areas of our business to unlock future opportunities.

Speaker #4: We continue to expect a growing contribution from used equipment and power systems, and resilient product support, as we execute our strategy. Before I turn it back to Kevin, I would like to reiterate our goal forward strategic priorities.

We are also actively seeking to grow our technician base to capitalize on our extensive service network and parts distribution platform.

On full cycle resilience building upon the restructuring actions that we undertook this quarter. We will continue seeking further opportunities for cost and capital efficiencies while at the same time maintaining growth momentum in our business.

Speaker #4: With the sale of four refuel and ComTech now completed, we are sharpening our focus in our core dealership operations to execute our strategy. To maximize product support, it will be our top priority to grow equipment population and market share across all areas of our business to unlock future opportunities.

Meanwhile, we also expect to continue to invest strategically in core dealership to support future sustainable growth and rental used in power.

Speaker #4: We are also actively seeking to grow our technician base to capitalize on our extensive service network and parts distribution platform. On full-cycle resilience, building upon the restructuring actions that we undertook this quarter, we will continue seeking further opportunities for cost and capital efficiencies.

Overall, we expect our adjusted return on invested capital to improve as a result of the sale of four refueling Comtech and.

And not the reduction of earnings from the sale of those businesses will be offset through a combination of share repurchases under our normal course issuer bid subject to market conditions get repayment and core dealership momentum, including SG&A reductions in Canada.

Speaker #4: While at the same time maintaining growth momentum in ur business. Meanwhile, we also expect to continue to invest strategically in core alership to support future sustainable growth in rental, used, and power.

The allocation of net cash proceeds from the sales will remain dynamic as we assess investment opportunities in our core operations and refine our future plans.

Speaker #4: Overall, we expect our adjusted return on invested capital to improve as a result of the sale of four refuel and ComTech. And that the reduction of earnings from the sale of those businesses will be offset through a combination of share repurchases, under our normal course issuer bid, subject to market conditions, debt repayment, and core dealership momentum, including SG&A reductions in Canada.

I'll now turn it back to Kevin for some closing remarks.

Thank you, Dave before I turn the call back to the operator for Q&A I would like to summarize our remarks and underlying the strength of our core business. Following the sale of <unk>, which we can happy to complete ahead of schedule.

We are proud of the.

Speaker #4: The allocation of net cash proceeds from the sales will remain dynamic as we assess investment opportunities in our core operations and refine our future plans.

Accomplishments of this quarter as our teams continue the disciplined execution of the key pillars of our strategy.

Product support grew in all regions and is up 7% year to date.

Speaker #4: I'll now turn it back to Kevin for some closing remarks.

New equipment sales were strong and we achieved a new record backlog, which positions us well for future opportunities.

Speaker #5: Thank you, Dave. Before I turn the call back to the operator for Q&A, I would like to summarize our remarks and underline the strength of our core business.

And we continue to demonstrate cost discipline and increased capital velocity and we are pleased with year over year earnings growth.

Speaker #5: Following the sale of four refuel, which we are happy to complete ahead of schedule. We are proud of the accomplishments of this quarter, as our teams continue the disciplined execution of the key pillars our strategy.

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

Thank you Angela.

Analysts who wish to ask a question. Please press Star then one on the telephone keypad your head John acknowledging your request.

Speaker #5: Product support grew in all regions, and is up 7% year to date. New equipment sales were strong, and we achieved a new record backlog, which positions us well for future opportunities.

Anything on Speakerphone, please pick up your handset before pressing anarchy.

I'll try a question please press star one too.

Speaker #5: And continue to demonstrate cost discipline and increased capital velocity and we are pleased with year over year earnings growth. Operator, I'll now turn the call over to you for questions.

Our first question comes from Devin Dodge with BMO capital markets. Please go ahead.

Alright. Thanks, Good morning, I wanted to start with a question on earnings and the South American Division.

Speaker #3: Thank you. Analysts who wish to ask a question, please press star then one on their telephone keypad. You will hear a tone acknowledging our request.

Last year, I think there was a meaningful drag from currency related risks.

In Argentina, and with revenues up about 6% this year I would've expected a bit of a stronger flow through down to operating income. So I'm trying to get a sense. If there was some cost pressures in that business and if there was it mostly a one off or could some of this linger until pricing our operating efficiencies provide an offset.

Speaker #3: If ou're using a speaker phone, please pick up your handset before pressing any keys. To withdraw your estion, please press star then two. The first question comes from Devin Dodge with BMO Capital Markets.

Speaker #3: Please go head.

Speaker #6: All right. Thanks, good morning. I wanted to start with a question on earnings in the South American division. You know, last year, I think there a meaningful drag from currency-related risks.

Yeah sure. Thanks, Kevin I appreciate the question, Yes Fisher.

As we continue to grow in South America.

And the business of all of their all cost pressures in South America, I think may extend beyond infineon into the general mining.

Speaker #6: In Argentina, and with revenues up about 6% this year, I would have expected a bit a stronger flow-through down to operating income. So I'm just ying to get a sense if there was some cost pressures in the business, and if there were, was it mostly a one-off, or could some of this linger until pricing or operating efficiencies provide offset?

Industry.

We're seeing we're still seeing.

Labor the labor market being very hot that results in.

Some increased costs of labor we are currently negotiating with.

A couple of units are pleased to have closed the two unions. So far we're still negotiating with copel.

Speaker #5: Yeah, sure. Thanks, Devin. I appreciate the estion. Yeah, for sure. You know, as we continue to grow in South America, and the business evolves, there are cost pressures in South America.

And also there is the incremental cost of executing the.

The growth down in the region as well so.

Speaker #5: I think they extend beyond Finning into, you know, the general mining industry. You know, we've seen, we're still seeing labor, the labor market being very hot.

Growth is not linear and sometimes you have to invest ahead of the.

The growth as well so.

At times, you know, we're adding cost into the business to get ahead of that growth and to make sure. We can support our customers. So there is some of that in there as well, but generally.

Speaker #5: That results in, you know, in some, you know, increased costs of labor. We're currently negotiating with a couple of units. We're pleased to have closed with two unions.

There is a part of it is we are seeing some pressures from.

Speaker #5: So far, and we're still negotiating with a couple. And also, there is, you know, there's an incremental cost of executing the growth down in the region as well.

Product support margins.

We continue to grow the business as well but.

Overall, we're pleased that that business still operates at a margin in excess of 10% and very strong ROIC.

Speaker #5: So, you ow, growth is not linear. Sometimes you have to invest ahead of, and ahead of the growth as well. So, at times, you know, we're adding cost into the business to get ahead of that growth and to make sure we can support our ustomers.

Okay. Okay. Thanks for that.

Second question.

Fairly meaningful buildup in working capital in the quarter I think year to date is actually a bit higher.

Speaker #5: So there's some of that in there as well. But, you know, generally, you ow, the other part of it is, you know, we are seeing some pressures from, you know, product support margins.

And then last year I think theres been obviously, a big focus.

The leadership team to kind of streamline invested capital I'm. Just wondering if you could talk about the drivers of that working capital buildup and how we should be thinking about.

Speaker #5: As we continue to grow the business as well. But, you know, overall, we're pleased that that business still operates at a margin, in excess of 10%, and very strong growth.

The back half of the year in terms of working capital.

Yes, I think they are worth.

Capsule buildup I mentioned on the last call Devin in the us.

Speaker #6: Okay. Okay. Thanks for that. Second question, fairly meaningful build-up working capital in the quarter. I think year to date it was actually a bit higher than last year.

Was the highest it's been for 10 years. So that's a result of the product support growth.

The future business. So a lot of it is can be attributed to that.

And increased parts inventories, we also have some.

Speaker #6: I think there's been obviously a big focus amongst the leadership team to kind of streamline invested capital. Just wondering if you could talk about the drivers of working capital build-up, and how we should be thinking the back half of the year in terms of working capital.

Lumpy.

MP inventory around and the mining truck deliveries as well so that the three main drivers of that and I would say that I would expect working capital to remain at those kind of levels. As we continue on this growth. The current growth trajectory. As you mentioned, we're always looking for ways to streamline that and to close I closeouts with Dr. Julia to move equipment.

Speaker #5: Yeah, I think the working capital build-up, I mentioned it on the last call, Devin, as we was the highest it's been for 10 years.

Speaker #5: So, that's a result of the product support growth and the future business. A lot of it can be attributed to that, along with an increased parts inventory.

Shipment through the supply chain faster.

But I think it's more a function of the growth that we're seeing in the outlook.

Speaker #5: We also have some lumpy inventory around the mining truck deliveries as well. So they're the three main drivers of that. And I would say that I would expect working capital to remain at those kind of levels as we continue on this growth, the current growth trajectory.

Okay, great. Thanks for that I'll turn it over.

Hey, Devin.

Yes.

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

Good morning.

Can you just Kevin expand a little bit on the construction markets I think sales activity was weaker but I thought in your prepared remarks, you mentioned that bookings activity has picked up so.

Speaker #5: As you mentioned, we're always looking for ways to streamline that and to close, like, close and sweep jobs earlier to move equipment through the supply chain faster.

Speaker #5: But I ink it's more a function of the growth that we're seeing in the look.

Any more detail on what's going on there.

Speaker #6: Okay. Great. Thanks for that. I'll turn it over.

Yes.

Speaker #5: Cheers, Devin.

To be clear, we're very pleased with the order enticing, Canada I mentioned that the bookings doubled that's super encouraging for the future.

Speaker #3: The next question comes from Yuri Link with Kanako Genuity. Please go head.

Speaker #7: Good morning. Can you just, Kevin, expand a little bit on construction markets? I think sales activity was weaker, but I thought in your prepared remarks you mentioned that bookings activity had kind of picked up.

So talking in my comments around software consumption really relate back down to product support for the moment, we're still we've seen a healthy in order intake in the UK as well. So we are seeing investment in renewals of lease and construction, but utilization levels, which we track is still at the lower end of the range. If you look at like Korean output.

Speaker #7: So any more detail on what's going on there?

Speaker #5: Yeah, Yuri. To be clear, we're very pleased with the order intake in Canada. I mentioned that the bookings doubled. That's super encouraging for the future.

Aggregate <unk> in the U K, it's still at the lower end of the range. So the actual utilization of equipment and therefore, the product support that.

That we're achieving in that space remains still a bit subdued.

Speaker #5: The talk in my comments around, you know, softer construction, really relates back down to product support for the moment. You know, we're still seeing a healthy order intake in the UK as well.

But for sure the order intake in construction in all three regions actually but particularly in Canada.

It is very encouraging and I would say that.

Speaker #5: So we are seeing investment or renewals of fleets in construction. But utilization levels, which we track, are still at the lower end of the range.

We're very happy and we believe that part of that is through growth of market share and obviously that plays well to product support opportunities in the future.

Speaker #5: If you look at, like, quarrying output, the aggregate output in UK, it's still at the lower end of range. So the actual utilization of equipment and therefore the product support that we're achieving in that space remains still at, ou know, a bit subdued.

Okay.

I just want to switch to the backlog, particularly power systems.

It's almost <unk>.

Our system cycle has almost doubled versus last year.

Speaker #5: But for sure, the order intake in construction in all three regions actually, but particularly in Canada, is very encouraging. And I would say that, you ow, we're very happy and we believe that, you know, part of that is through growth market share.

Of that backlog that <unk> got now.

How much of that is data centers versus prime in standby power.

Now I'll turn the U K and South America, it's nearly all data centers are a huge prize so 80% leased in the data center market I think it's more broader split in Canada with the oil and gas.

Speaker #5: And obviously, that plays well to product support opportunities in the ure.

Speaker #7: Okay. I just want to switch to the backlog, particularly power systems. It's almost the power systems backlog is almost doubled versus last year. Of that backlog that ou've got now, how much of that is data centers versus prime and standby power?

And can provide gas compression gas compression sector.

But I would say data centers are the secular secular demand driver.

Backlog levels for sure.

And how has <unk>.

Quoting activity.

Speaker #5: I would say in UK and South America, it's nearly all data centers. So if you use Pareto, 80% at least in the data center market.

Moved over the last few months.

Yes, yes.

We were aware of some narrative around data centers and demand in some polling.

Speaker #5: I ink it's a more broader split in Canada, with to the oil and gas and gas compression. So gas compression sector. So but, you know, I'd say data centers are, you know, the secular demand driver in that backlog number for sure.

Not saying that in our in our order intake or in the general markets that we're seeing.

Okay.

Helpful I'll turn it over thank you.

Tahira.

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

Speaker #7: And how has quoting activity evolved over the last few months?

Yes, good morning, guys. Thanks for the time.

Wanted to follow on <unk> question, just on the power systems side is it possible just to maybe describe some of the pros and cons that you sort of see facilitating this large buildup in backlog and order flow. It's all encouraging of course, but I think you described it as being more cost intensive.

Speaker #5: Yeah, yeah. So we were aware of some narrative around data centers and, you know, demand and some pausing. We're not seeing that in our order intake or in the general markets that we're seeing.

Maybe just give us some other things to think about as we're thinking about the margin profile going forward and how you manage that sort of extended runway.

Speaker #7: Okay. Helpful. I'll turn it over. Thank you.

Speaker #5: Cheers, uri.

Speaker #3: The next question comes from Steve Hansen with Raymond James. Please go head.

Yes.

A good question and I'll make sure I understand it so for sure the secular trend that we're seeing in data centers as a meaningful driver of business growth for four 4 billion.

Speaker #8: Yeah, good morning, guys. anks for the time. Just want to follow on Yuri's question just on the power system side. Is it possible just to maybe describe some of the pros and cons that you sort of see as facilitating this large build-up and backlog and order flow?

And.

So I.

I think that in terms of the equipment sales the engine sales thats, a very healthy business of course dependent on the application of the power systems.

Speaker #8: It's all encouraging, of course, but I think you described it as being more cost-intensive. Maybe just give us some other things to think as we're thinking about the margin profile going forward and how you manage that sort of extended runway.

Deliveries than product support intensity can differ differently it can be very different.

Speaker #5: Yeah, no, it's a good question. I'll make sure I understand it. So, you know, for sure, the secular trend that 're seeing in data centers is a meaningful driver of business growth for Finning.

But we've always said that and we've seen it as a driver in the UK that.

Data center maintenance and.

And customer value agreements are a really good source of product support.

Speaker #5: And, you know, so I think that in terms the equipment sales, or the engine sales, you know, that's a very, you know, healthy business.

Revenue moving forward.

And so we think it's we know it's a very healthy business.

Speaker #5: Of course, depending on the application of the power systems, you know, deliveries, the product support intensity can differ. It can be very different.

We're very pleased to going over $1 billion of backlog in that spot and in that segment there and.

Yes, I think net net.

Margin it would be helpful to margins over time.

Speaker #5: But we've always said that, and 've seen it as a driver in the UK, that, you know, data center maintenance and, you know, and customer value agreements are a really good source of product support.

But.

As you know in our business if that makes of new equipment sales. So if you do in healthy.

A big delivery of a big project.

In a quarter that can change the mix that we're seeing we're seeing that quarter and it can impact margins in that quarter.

Speaker #5: Revenue moving forward. And so, you know, we think it's a, ou know, we know it's a very healthy business. And, you know, we're very pleased to, you know, going over a billion dollars of backlog in that in that segment now.

I'd encourage you to think about power systems as the long term secular trend hasn't delivered.

Speaker #5: And, you ow, I think from, you know, net net, you know, margin it would be helpful to margins over time. But, you know, you just, you know, as you know in our , you know, that mix of new equipment sales.

He is going to be lumpy and continue to be lumpy.

But the underlying population and therefore the product support.

The product support revenue stream annuities is kind of a net new or an incremental for our dealership. Okay ill just add.

Speaker #5: So if you do a healthy, or like a big delivery of a big project in a quarter, you know, that can change the mix that we're seeing in that quarter, and it can impact margins in that quarter.

Add that Steve with the power customers are typically the larger the data center and large global sophisticated customers, who do long term planning and we worked very closely with them in that long term planning is beneficial to them and also to us as we plan our execution of those projects.

Speaker #5: The way I'd encourage you to think about power systems is the long-term secular trend. How they're ivered and, is, is, is going to be lumpy.

Speaker #5: And continue to be lumpy. but the underlying population, and therefore the product support, the product support revenue stream annuity is, is kind of a net new or an incremental for our alership.

So.

In terms of kind of I don't see any calls to your original question Steve.

Okay. That's helpful. Thanks.

<unk>.

Just want to go back to the cost savings efforts that are still underway here in Canada. You described some of the take out already and that $20 million of savings is it possible just to give us a sense for where we sit on that journey, maybe and just in terms of where are we in the fifth inning sixth inning, presumably a lot of the big changes happen upfront you got the CK playbook, but I just want to get a sense of whether it will be.

Speaker #5: Okay.

Speaker #8: I was just to add to . Steve, you know, with the power customers, they're typically the large, the data center large global sophisticated customers who do long-term planning, and we work very closely with them.

Speaker #8: And that long-term planning is, you know, beneficial to them and also to us as we plan our execution of those projects.

Seeing additional actions for the balance of this year and then Paul Thanks.

Speaker #4: So, so I, I mean, in terms of, I don't see any cons to your original question, Steve.

Yes, I mean, it's.

We've said this continuously as well and I think you've seen it through our overall SG&A, we will never stop looking and I've been consistent initially we will never stop looking for cost efficiencies for sure.

Speaker #8: Okay, that's helpful. anks. just want to go back to the cost savings efforts that are still underway here in Canada. You described some of the takeout already.

Speaker #8: And the 20 million dollars of savings. Is it possible just to give us a sense for where we sit on that journey, maybe in just inning terms?

You bring a new president into the company.

They are reviewing the business and looking for opportunities with the <unk>.

Speaker #8: Are we in the fifth inning, the sixth inning? Presumably, a lot of the big changes happen up front as you adopt this UK playbook. But I just want to get a sense for whether we'll be seeing additional actions to the balance of this year and in Q3.

Fresh set of eyes, and some different perspective from a different operating region and so we fully expected that Tim taking on that role we would start to see some changes there.

Speaker #8: Thanks.

Speaker #4: Yeah, I mean, it's, we've said this continuously as well. You know, I think you've en it through our overall SG&A. We'll never stop looking.

We think there's more to go on it's very difficult to decide which inning. We're in right now.

<unk> for the fact that we believed.

Speaker #4: And I've consistent in this remark. We'll ever stop looking for a cost efficiency, for sure. When you bring a new president into the company, you know, they, they are reviewing the business and looking for opportunities with a fresh set of eyes and and some different perspective from a different operating region.

We believe theres more to go out there and in Canada.

Sure.

Yes, I think I'll just add there is we see this definitely is a continuous journey and if you look back in time.

We've taken our SG&A percent from 20 or 2018, we're now in the 15 range. So.

Speaker #4: And so we fully ected that, you know, with Tim taking on that role, we would start to see some changes there. And, you know, we think there's more to go.

Look at it a bit like safety.

It is never finished and we're always going to be looking to improve and with.

Speaker #4: It's very icult to just say which innings we're in right now. say for the fact that we, believe there's more to go out there in the in Canada.

With Tim coming into Canada again, we're just we'll continue to identify opportunities in all regions.

Appreciate the time.

Speaker #8: Yeah, I think people are just out there as, you know, we see this definitely as a continuous journey. And if you look back in time, you know, we've taken our SG&A percent from 20, or 19, or 18.

Thanks, Steve.

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

Hi, Good morning, it's actually Patrick on for Sharon. Thanks for taking my questions. The first one is just back on product support margins in South America. So you mentioned a bit of pressure there I guess with park support up but new equipment sales also up does new equipment going up tayo technicians, who could be worse.

Speaker #8: We're in the 15 range. So it's a, look at it a bit like safety. You know, we're, we're, it's never finished, and we're always going to be looking to improve.

Speaker #8: And that, Tim coming into Canada, again, we just will continue to identify opportunities in all regions. Appreciate the time.

On the higher margin product support business.

Speaker #4: Thanks, Steve.

So is that something that could be at play there with the margins or is the drag related to that hiring of technicians.

Speaker #3: The next question comes from Sherlyn Radborn with TD Cohen. Please go head.

I think you said more than a 120 since last quarter.

Speaker #9: Hi, good morning. This is actually Patrick on for Sherlyn. Thanks for taking my questions. The first one is just back on product support margins in South America.

Yes, no we.

We definitely wouldn't say that.

The delivery of new equipment, we have a very a super process I think with some of your historic lost when we did the.

Speaker #9: So you mentioned a bit of pressure there. I guess with product support up, but new equipment sales also up. Does new equipment going up out tie up technicians who could be working on the higher margin product support business?

The Investor day, and how we deliver equipment in.

From a la Negra facility in Antofagasta, and so no. There is definitely not a mix of shift of technicians a lot of technicians are dedicated to.

Speaker #9: So, is that something that could be at play there with the margins? Or is the drag related to that hiring of technicians? You know, I think you said more than 120 since last quarter.

Mine sites for me, it's more of the <unk>.

Describe it as the kind of growing pains, the extra costs from growing pains training technicians theyre not as productive as they would be if there if they were fully trained.

Speaker #5: Yeah, no, we, we, we definitely wouldn't say that, you ow, the delivery of new equipment, we have a very super process. I ink some of you saw it last when we did the investor day.

Moving parts around in new volumes.

Speaker #5: And how we deliver equipment in, yeah, from our egra facility in Antifagasta. And so, no, there's definitely not a mix of a shift of technicians.

It is also so there is also more expensive and so I would say that it's more a function of growing pains, we were very focused on the ROIC.

Speaker #5: A lot of technicians are dedicated to mine sites. You know, for me, it's more the, you know, I would describe it as the kind of growing pains.

And.

The margin, but then the ROIC that we created.

Delivering in South America, we still like it has a very strong business, but.

Speaker #5: The extra cost from growing pains, you know, training technicians, they're not as productive as they would be if they're, you know, if they were fully trained.

So the other question around that.

We just either in cost savings, we will never stop looking at ways to offset that we want to be competitive we have to be competitive.

Speaker #5: You know, moving parts around in new volumes is also more expensive. So, I would say that it's more a function of growing pains.

And our business.

We want to grow the business and we feel like there's opportunity to grow the business. So there might be some movement around for margins to cost.

Speaker #5: We're very focused on the ROIC, you know, and the, you know, the margin, but then the ROIC that we're, that we're delivering in South America, we feel like it's a very strong business.

From margin and looking for cost offsets as we move forward I think that's healthy and I think most businesses most of the businesses would look to do that.

Speaker #5: But, you know, like to the other question around that we just had regarding cost savings, we will never stop looking at ways to offset that.

Okay, great. Thanks for that and then I guess on the call. You also mentioned the target component rebuilds being a strategy to accelerate.

Speaker #5: You know, we want to be competitive. We have to be competitive. And our business, and you know, we want to grow the business. We feel like there's an opportunity to grow the business.

<unk> business in Canada, I guess is that something are there learnings and sales practices being levered from the UK, Ireland business implemented in Canada with the scenario you identified as something that needed more focus or what's like a playbook brought in.

Speaker #5: So there may be some movement around from margins to costs and, you know, from margin, and looking for cost offsets as we move forward.

Yes, I think.

Speaker #5: I ink that's healthy. And I ink most businesses would, good businesses would look to do that.

So.

It's been a focus for a while in Canada.

I'm pleased to win back a big chunk of component business from a major customer that was being sourced elsewhere and so that's that's driving.

Speaker #8: Okay, great. Thanks for that. And then I guess on the call, you also mentioned the target component rebuilds being a strategy to accelerate product support business in Canada.

Speaker #8: I guess is that something? Are there learnings in sales practices being leveraged from the UK/Ireland business implemented in Canada? Or was this just an area you identified as something that needed more focus, or was it like a playbook brought in?

Some of them with some growth that we see obviously the rebuilds, we've been rebuild activity machine rebuild activity.

Being strong since the postponement in the post pandemic area era as that rebuild opportunity we talked about before as you come down the pyramid of sized classes of machines.

Speaker #5: Yeah, I think it's, so no, it's, it's, it's been a focus for a while. You know, we in Canada, you know, we've been pleased to win back a big chunk of component business from a major customer.

The value proposition for a full machine rebuild gets tested were constantly looking at ways to expand the pool of equipment, we can rebuild to get into that kind of ops.

Speaker #5: That was being outsourced elsewhere. And so that's, that's driving some, some growth there. You know, we see obviously the rebuilds, we've been rebuild activity machine, rebuild activity.

Cost optimization window.

But in cases, where we call we're using our network to rebuild individual components engines transmissions.

Speaker #5: Has been strong since the, you know, post-pandemic, in the post-pandemic period era. As that rebuild opportunity we talked about before, you know, as you come down the pyramid of size classes of machines, you know, the value proposition for a full machine rebuild gets tested.

A full rebuild.

It makes sense. So I think its two things one is constantly looking ways to expand the opportunity for rebuilding equipment and components and the other one is significant incremental wins with large customers.

Speaker #5: We're constantly looking at ways to expand the pool of equipment we can rebuild to get it into that kind of, you know, that cost optimization window.

Great. Thanks, I'll turn the call back.

Thank you.

Speaker #5: But in cases where we can't, we're using our network to rebuild individual components. Engines, transmissions, where a full rebuild, you ow, we doesn't make sense.

The next question comes from Costa <unk> Reportable. Please go ahead.

Hi, Thanks for taking my question.

Maybe if I can just go back to the previous question on margins in South America can you give a bit more color as to.

Speaker #5: So I think it's two things. One is constantly looking at ways to expand the opportunity for rebuilding equipment. And components, another one is significant incremental wins with large customers.

Maybe what key.

Internal.

Impact is whether it's in technicians, and maybe not being fully trained versus the external impact of just that operating environment.

Speaker #8: Great. Thanks all. Turn the call back.

Speaker #5: Thank you.

I'm, just curious kind of.

Speaker #3: The next question comes from Krista Friesen with CIBC. Please go head.

What's within your control versus what's more of a macro impact.

Speaker #10: Hi, thanks for taking my estion. Maybe if I can just go back to the previous question on margins in South America. Can you give a bit more color as to maybe what the internal impact is, whether it's technicians maybe not being fully trained versus the external impact of just that operating environment?

Yes, so as we've said before and I think if you look into the mining.

The mining sector.

Most of the mining sector are looking for ways to improve costs improve efficiency. If you think about mining growth oil oil grades of declined.

Fleets of IAG.

Theres been alive, a challenge across the whole sector.

Speaker #10: I'm just curious, what kinds of things are within your control versus what has more of a macro impact?

All of these things are a perfect storm of growing pains, which we're helping our customers to navigate.

Speaker #5: Yeah, okay. So, ou know, as we've said before, and I think if you look into the mining sector, you ow, most of the mining sector are looking for ways to improve costs, improve efficiency.

And so for sure we're looking for ways to be more efficient and to.

And help our customers lower their costs, but I would describe most of it.

And while we have that and where we have to become more efficient.

Speaker #5: You know, if you think about mining growth, all grades have declined; you know, fleets are aging. There's been a labor challenge across the whole sector.

And we will look for the SG&A offset so I think what youre seeing in South America as I mentioned.

In my previous remarks too.

On the previous question.

Speaker #5: And so, all of these things are, you know, a perfect storm of growing pains, which we're helping our customers to navigate. For sure, we're looking for ways to be more efficient and to help our customers lower their costs.

I would categorize it more so as growing pains as we strive to.

More than a thousand technicians and add new supply chains. We have we have a dedicated warehouse that we are open to help us increase the velocity of parts that we're shipping into the mines and the Antofagasta region. That's an incremental cost that we didn't have to two years ago, and so I would categorize it more of those growing pains.

Speaker #5: But I would describe most of it as, and where we have that and where we have to become more efficient, then we'll look for the SG&A offsets.

Speaker #5: I think what ou're seeing in South America, as I mentioned on, you know, in my previous remarks to on the previous question, you know, I would categorize it more so as growing pains, as we strive to add, you know, add more than 1,000 technicians and add new supply chains, you know, we have a dedicated warehouse that we've opened to help us increase the velocity of parts that we're shipping into the mines in the Antifagasta region.

And then external pressures.

For sure we take our responsibilities very seriously and we're very focused on helping our customers reduce.

First of all pricing costs.

Just add there Chris is you again keep in mind.

So the equipment shift to mining.

In South America so.

As we see a shift of mining product support and a shift in mining equipment does.

Speaker #5: That's an incremental cost that we didn't have two years ago. And so I would categorize it more of those growing pains than external pressures.

Put pressure on that but at the same time like Kevin said earlier, we're in that still in that range that we've talked about before for South America and to the extent their margin pressures, we're always looking to offset that.

Speaker #5: But for sure, we take our responsibilities very seriously, and we're y focused on helping our customers reduce, you know, their operating costs.

To the extent, we can through SG&A as well.

Speaker #8: What I was just out there, Krista, is, you know, in, keep in mind that also the equipment shift to mining in the South America.

Okay, great. Thank you and then maybe just shifting gears a bit.

Your outlook for Canada.

Modestly more are more positive than last quarter, just as a result of.

Speaker #8: So you know, as we see a shift to mining product support and a shift to mining equipment, it does put pressure on that. But at the same time, like Kevin said earlier, you know, we're still in that range that we've talked about before for South America.

Recent legislations and announcements there can you add any color as to what you're hearing at this point.

Yes, I would say.

Speaker #8: And to the ent of margin pressures, we're always looking to offset that to the extent we can through SG&A as well.

We are encouraged by the enhancements.

And.

The approach of the new the new government.

Significantly more positive.

Speaker #10: Okay, great. Thank you. And then, maybe just shifting gears a bit, your outlook for Canada seems modestly more positive than last quarter, just as a result of recent legislation and announcements there.

Sentiment or commentary about how they want to build Canada kind of the strong. So that's a net positive for us I wouldn't say that that's an incremental positive we feel better about kind of and then we did a year ago.

Speaker #10: Can you add any color as to what you're hearing at this point?

Also I think thats, giving you some confidence in the market and you're seeing that customers willing to commit capstone and place orders, particularly in construction.

Speaker #5: Yeah, I would say, you know, we're encouraged by the announcements. And the approach of the new government, it's significantly more positive sentiment or commentary about how they want to build Canada and build Canada strong.

But I think.

More.

Our comments around more positive around Canada.

R R.

Are more a function of what we're seeing in the business which is.

Speaker #5: So, that's a net positive for us. I wouldn't say that; so that's an incremental positive. We feel better about Canada than we did a year ago.

Good product support growth strong equipment sales very very significant backlog building, Canada this quarter.

And so I comment some more.

Speaker #5: You know, I think that's given some confidence in the market. And you're seeing that in customers willing to commit capital and place orders, particularly in construction.

What we have seen in the business more so than <unk>.

Being getting too carried away with the initial.

Sentimental commentary from the government.

Speaker #5: But I think our comments around Canada are, you know, more positive, and I believe they're a function of what we're seeing in business, which is, you know, good product support growth, strong equipment sales, and a very significant backlog building in Canada this quarter.

It's more rail jump back in queue alright. Thank you. Thanks Kristen.

The next question comes from <unk> Khan with RBC capital markets. Please go ahead.

Great Thanks, and good morning.

Just a little bit on this across some of the questions, but maybe if you can just.

Speaker #5: And so our comments are more around, you know, what we're seeing in the business, more so than, you know, being getting too carried away with the initial kind of sentiment or commentary from the government.

Dig a little bit into your current backlog and I think in the past you made comments around the backlog during the peak mining cycle would be sort of X percent.

Can you maybe just talk about where you see the mix of the backlog relative to typically when demand is at high levels and then secondly.

Speaker #10: Thank you. I'll jump

Speaker #5: So it's more real.

Speaker #10: Back in the queue. Perfect. Thank you.

Speaker #5: Thanks, Krista.

As we look at the backlog mix across mining power system in construction.

Speaker #3: The next question comes from Sabak Khan with RBC Capital Markets. Please go ahead.

We just generally assumed the power systems part becomes a bigger proportion over the next 123 years is maybe quarter accelerates relative to the rest of the business. Thanks.

Speaker #8: Great. Thanks, and good morning. You know, I touched a little bit on this across some of the questions, but maybe if you can just dig a little bit into your current backlog.

Yes sure.

Speaker #8: And I think in the past, ou've made comments around, you know, the backlog during a peak mining cycle would be sort of X percent.

For sure. So I mean this is a record backlog level. So it's hard it's hard to kind of comment on previous.

Speaker #8: One, can you maybe just talk about where you see the mix of the backlog relative to typically when demand is at high levels? And then secondly, you know, we look at the backlog mix across mining power system and construction, you know, should we just generally assume the power systems part becomes a bigger proportion over the next one, two, three years as maybe growth or accelerates relative to the rest of the business?

Previous comparisons.

I I would describe it and we have done previously is that yes, our constructions back at more normalized levels.

So it.

It would be 20%, 20% range of backlog.

As a reminder.

We obviously have been very successful in mining.

Speaker #8: Thanks.

Orders over the past little while they take a longer time to go through the system. So.

Speaker #5: Yeah, sure. Thanks, Sabak. For sure. So, I mean, this is a record backlog level. So it's hard, it's hard to kind of comment on previous comparisons.

Backlog would be around half of that sorry mining would be about half of our backlog right now.

And then obviously, we talked about power systems being a $1 billion not just incrementally it keeps growing as part as a proportion of the share of the backlog and every quarter and to your question, we would see that continuing.

Speaker #5: You know, the way I would describe it, and we have done previously, is that, you know, construction is back at more normalized levels and so, you know, it would be, you know, in the 20, 20 percent range of backlog.

As we move forward.

Part of that as we've said previously some of that is due to the.

Speaker #5: And the remainder, you ow, there's we obviously have been very successful in mining. Orders over the past little while, and they take a longer time to go through the system.

The growth that we've seen in the ability to supply that backlog in.

Speaker #5: So, you ow, backlog would be around half of our sorry, mining would be about half of our backlog right now. And then, viously, we talked about power systems being a billion.

But we are building more capacity to help us with the velocity that we can deliver those.

Engines and some of it is Dave mentioned, just a few minutes ago is around the <unk>.

Speaker #5: That just incrementally keeps growing as part of the proportion of the share of the backlog in every quarter. And to your question, you know, we would see that continuing.

Datacenter business on the power systems customers tend to plan longer term, they're having to build infrastructure.

<unk> sheds or by service or Theyre planning widened further ahead than we would typically see in our other segments.

Speaker #5: As we move forward, and part of that, as we've identified, some of that is due to the growth that we're seeing and the, you know, the ability to supply.

That helps us with backlog so some of that backlog thats in there.

Is deliberately going to deliver in 2027, because thats when they want it.

And then just one other comment around.

Your OEM sort of supporting this growth in power systems can you maybe just talk about the availability of the products that your customers want within power systems, having the right products are they getting it on time, because presumably the data center demand oriented likely seen globally. So just.

Ability and confidence in delivering against this elevated demand over the next call it 12 months or something.

Yes, So let me type backlog, we book orders with Caterpillar of build slots and you know obviously with any supply chain that can move around a little bit, but I think in power system, specifically due to the declining nature, we're confident and we will.

Quite a track record of delivering power systems projects.

Projects on time, I guess, we all.

<unk> seen a tightening of our supply chain.

As I previously mentioned, that's why caterpillar are expanding.

Our production capacity is at Lafayette, and that will come on stream I believe next year and into 2027, so that will further improve our ability to support our customers in this space. So yes, we're super confident and we have debate. These projects are very precise and we need to deliver them effectively and on time.

Alright, thanks very much.

And so.

The next question comes from Maxim <unk> with National Bank Financial. Please go ahead.

Hi, good morning, gentlemen.

Hi.

I was wondering if it's possible to get a bit of an update on your <unk>.

<unk> initiative in Canada, and when do you think we could see the potential benefits down the road. Thanks.

Okay, Great question, Max and so I mean, so thats all signed off my understanding is that will be implemented in the second half of the year.

As we've seen in South America.

You saw the plan when you came down there in 2023.

<unk> got new auto store technology.

Demonstrably changes the way that we pick and pack and ship parts and it reduces the library intensity, which is important given the labor scarcity and labor cost in South America, but libraries is at high cost in Canada as well.

So we would say that is one of the key streams for further.

SG&A reduction in Canada. So if we look at the runway in Canada that we spoke about it and we've got teams.

Classes.

<unk> is looking at the organization.

And removing any excess that we might have it may have built up over the post pandemic period, and then Theres a theres another section of transformational cost change, which we need to ensure that we remain competitive.

And we put the past transformations in the auto store in fact conjugate. The good thing about it is we have either in South America for a year now.

Or over a year.

And it's working fantastically well so we've got a proven track record. We've got people that have used it in South America for a long while there are other cat dealers uncut distribution centers that use the same technology.

And so we'd have a high degree of confidence of of execution, there and say in the subsequent cost savings.

Okay. So Scott Thomas Thank you and then just wanted to if it's a little bit to the Houston market I mean, like obviously, the whole thing's kind of Recalibrating, but I'm wondering if you don't mind kind of a lung cancer.

The use of product with Samsung.

Caterpillar is talking about sort of a normalization of.

Pricing dynamic on the new side, and I guess general availability, how do you think.

That buckets I useful play out on glassware basis, Okay.

Yes, it's a new equipment suppliers broadly normal.

And so what that's led to is.

A bit of an excess in used equipment of the past year, which obviously when there is an excess of used equipment prices.

Prices come down and that can impact your current inventory I think you saw that through the course of last year, especially the second half of last year in Canada specifically.

We would say that <unk> got used equipment business is more normal now the sales are outside the demand is a little lighter.

The normal right now as the market Recalibrates. So as you suggest book margins of more than improved horizon.

There is an offset to margin, which means that the business is performing.

Well, our priority and our intention is to is to effectively participate more in that market Max and so.

If youre participating more in the used equipment business.

When the prices are lighter, it's going to it's going to hurt you. When the prices are better volumes will drop and we also you have to roll into that.

So we are really funded participate more in mining used equipment as we move parties buying music moving equipment between our own regions on orders and Thats that can be very lumpy as well.

And I'm sorry, just to follow up on that do you have to invest incrementally or you already have like sort of all the capability.

The slides and people wise too as you said participate more in that vertical.

Used equipment is something that we do we just werent participating Mike.

Mike So we have the capabilities and we've enhanced it with.

People coming from the market into our company and.

When available so.

We have more than enough capability to do that it's a very light business. We have the branches you have the infrastructure. We have the systems are now there's very little incremental cost.

That's why it's just going to participate in it.

Of course of course, it makes sense and then just.

Just one clarification in how much of your data central capability correct me, if I'm wrong in the past. So we're saying that you were working with other.

Dealers.

Outside of your geographies like in Europe. For example is that still the case and is that also part of the reason.

That's why seeing that accelerated growth carbon empower thanks.

Not so much in power and Thats, just specifically in Europe, as we help the European dealers.

We've developed a track record of delivering on data centers and we collaborate with the support of caterpillar in the local dealers to execute on those programs were also.

We have we have the daily shipping Northern Ireland, where a lot of this equipment is built and packaged and so that gives us an advantage there as well but.

Yes, I wouldn't say that's part of the incremental that's a big part of the incremental growth I think it's more coming from the from our domestic model from our <unk>.

Legacy in domestic markets.

Okay, that's fair.

A big driver that's not a big driver.

The drivers are domestic markets.

Okay. Thank you.

Chip.

Our next question comes from Jonathan Goldman with Scotiabank. Please go ahead.

Hi, good morning team and thanks for taking my questions, maybe just to start off that when we spoke a lot about growth in this call and youre investing for that and thats encouraging but.

But how much visibility do you have on that growth when youre, making the plans and you're investing how many quarters or years out are you thinking or do you have visibility on.

Yeah, well, so I think if you look at it by sector in terms of mining that growth is steady in Canada.

Good visibility to the mining the Oilsands producers.

And.

Steady, 2%, 3% growth that youre looking to add technicians, and there's not a huge.

Huge amount of additional capital needed in that space, we will look to increase efficiency of the facilities, we have and to support customer that there might be.

A little bit of incremental capacity.

But not but not significant South America. The plant has been significant and I would say that we've just finished phase one of that.

The developments we've had in the what we call the Antofagasta Master plan, which we outlined at the Investor day. So the buys are open the auto stores in <unk>.

Right now we're just.

I would say in the process of stepping back from that a little bit and looking at what the longer term.

The trend in commodity trend is for <unk> for copper mining, we're talking to our customers about their plans or their mine plans. So I would say that.

So copper has taken a breath right now, but it doesn't take away from the long term trend in the long term opportunity and cost us I would say that currently calibrate and then looking out to the second half of the decade now in terms of what additional capital we need to support to support the growth of copper production in that region. So I would expect more.

So more to come on that.

The UK is really growth is low and solid and visibility is not very good. So for the moment, it's more about maintenance capex, there and what we're doing to improve our facilities to improve efficiency.

So I would say the only.

The only other I mean, the growth in power systems.

Again, that's just secular so we continue to look at the capabilities, we have to support that business.

And Kevin you touched on this on the UK is there any incremental positives there from a new budget that was passed in may be stimulus money that may flow in the second half or maybe more fulsome in 2026.

No John no not at the moment.

The government.

I've learned over time not to listen to governments, but to watch what they do and so obviously, there's some encouragement in terms of equipment deliveries some of our customers are closer to the actual contracts and the execution of those contracts or there's some encouragement to be heard from that but I've learned a long time ago not to not to prune our business based on what the governments do.

So what they do.

I plead the fifth.

On that one and then maybe just one more for me on the backlog build really nice build another record, but based on the activity levels, we're seeing today and maybe the conversations youre, having with customers do you have a sense. There's continued momentum there on the new equipment side or is there risk were approaching peak cut the backlog build.

Yeah, it's hard to say.

<unk>.

We don't like to talk about Paychex, we are growing our business were sent in on a peaking power systems as well.

For the reasons, we've previously articulated on this call. So we continue to try and grow market share that they are planning further out so well.

Whilst the backlog what are you seeing in power systems deliveries and we will see more deliveries in the second half of the year than we did in the first half the year. So youll see timing of big deliveries happening in new orders coming in and so.

So it could be lumpy over time.

And the same for same for mining.

Lot of quoting activity going on in.

In South America, right now and we've taken orders from all three oil sands producers in the quarter, hence the Canadian backlog.

And.

We will see that continue in so.

Currently we work on delivering it and mining took a week.

Between South America, and Canada, and that's encouraging and we've got further opportunities ahead of us.

Most importantly, it's a good indicator for the health of those end markets and the product support opportunities in the future.

Oh definitely thanks for the color I'll get back in queue.

Thanks, Jonathan.

Yeah I'll follow up question from Ian Hansen, Raymond James. Please go ahead.

Yes, thanks as it went along.

I know, it's only been two quarters, but is it fair to say that product support growth.

Pressures that we saw in products of our growth in the oil sands that you endured through I guess 23 months 24 are largely now behind us.

I know there's been different elements to that line item in the sense that construction was also pressured but just in the oilsands specifically the behaviors. We described over the past year and a half or so is that are we past that now into a more regular cadence of rhythm.

Yes, I think from a component perspective, our OEM, our OEM might remanufacturing facility I would say.

Yes, and we are working with our customers to us.

To optimize component change out in terms of machine rebuilds that will always be lumpy based on local on the local mining there.

Their plans on what they're doing.

And so and then of course, the summer months tend to be slower for us in the oil sands.

The soft underfloor conditions so.

What we're saying about mining stages that it remains dynamic based on individual mine plans and activities.

And we don't expect it to be linear quarter after quarter after quarter, but we do expect to grow every year.

Very good thank you.

Yeah.

That concludes our question and answer question I would like to turn the conference back over to Mr. Carlos <unk>.

Please go ahead.

This concludes our call today. Thank you for your participation and please have a safe day.

Today's conference call will now disconnect. Your lines. Thank you for participating and have a pleasant day.