Q3 2019 Earnings Call
All participants please standby you conference is ready to begin.
Good morning today is Tuesday November 2019, welcome to the tour I want you announced for third quarter 2019 results Conference call. Please be advised this call is being recorded your host for today will be Mr., Paul or George. Please go ahead Mr. George.
Thank you worry and good morning, everyone. Thank you for joining us today to discuss the results of term on industries level look for the third quarter of 2019 also on the called me, It's got matters, President and Chief Executive Officer.
Before we continue it likes advise listeners with this presentation may contain forward looking statements informational are subject to certain risks uncertainties and assumptions for a complete discussions of factors risks and uncertainties that may lead to actual results or events to differ materially from those expected referred to term out the press release, and then DNA from yesterday, which is available on our website.
We assume you've had the opportunity to review our personal isn't really the financial information such will focus on key highlights.
I'll begin with a few general remarks, and some comments on her out looking for which I'll provide some highlights on the financial results that will be more than happy to answer your questions Scott.
Thank you Paul and good morning, everyone.
Last week, Mark two year anniversary of the acquisition I think you back in Maritime operations, and we're pleased with the progress to date.
New Eastern Canada equipment team came together during this period to execute a complex and demanding integration, while maintaining focus on business deliverables.
Putting battlefield transition to a common system platform. This past June .
We think the entire team for their level of commitment and contributions.
We continue on the path to leverage the strengths of the larger geographic footprint and standardize best practices across the organization, all while delivering uncompromising quality and standards that are key stakeholders expect.
How much work still remains on the integration, what we're well underway and continued believes it's this expansion presents a great opportunity for the long term performance and success of our company.
Our financial results for the quarter reflects solid execution in a disciplined expense management.
This increasing a portion of product support and rental revenues.
Total revenues across the enterprise continues to contribute positively higher earnings.
Consolidated revenues increased 8% in the quarter and 5% year to date with gross growth in most revenue streams any equipment group and on parts support revenues at Stemco.
Net earnings were up 16% in the quarter and 15% year to date after adjusting for a nonrecurring gain recorded in the first quarter of this year.
In the equipment group investment in infrastructure projects and broader construction activity continue to present opportunities although market activity has softened on a year over year basis.
Parts and service business has realized significant growth in recent years driven by the larger installed base of equipment and provides opportunity for further growth together with increased stability and predictability in the variable business environment.
Our shops and technicians remain busy and we continue to higher investing in infrastructure to address growing demand signals.
Developing technology supporting remote diagnostics and telematics is very exciting for us and also present opportunities for long term growth.
We continue to accept as assess our rental footprint with a disciplined investment approach, which includes a balanced diversified fleet and strategic go to market strategies to stabilize seasonality.
We're pleased with the results to date.
Yes, recognizing it takes time to absorb the recent investments and build the proper infrastructure.
Very cognizant of the return curve and stand by our analogy of the orchard versus the week field.
I mean, the mining sector activity has been slower to date versus a strong year in 2018, which included large deliveries.
Production. However continues at existing mine sites in is generating meaningful product support opportunities with the potential for incremental equipment sales.
Facilitate mine expansion.
Sip goes project execution continued to improve in the quarter, but markets remain competitive with tight operating environments.
Strong product support growth continues to bode well for the long term success.
Booking activity backlog levels were good and inline with expectations.
Across all our businesses the diversity of our regions market served extensive product support and service offerings and financial strength combined with the discipline operating culture position us well for the long term.
I'll now turn the call over to Paul to take you through highlights the financial results Paul.
Thanks, Scott, let's put some color on the operating results starting with the equipment group revenues were up 10% in the quarter and 5% year to date.
Equipment sales rebounded following a slow start to the first half of the year with good sales under construction and agriculture markets offsetting softer mining and power system sales.
This equipment sales were up on higher fleet dispositions as source and go to use aren't remain challenging.
As a result, total new and used equipment sales were up 14% in the quarter, but were unchanged as a percentage year to date construction sales increased 30% in the quarter and 8% year to date.
Activity levels and good market penetration was good in Qubec, while road activity ramped up in Ontario, and Manitoba in the quarter.
And mining sales were down 32% in the quarter and 29% year to date.
Finally, reflecting a tough prior year compared or which includes large deliveries.
Our system sales were down 11% in the quarter and temperature of year to date, largely reflecting deferrals and customer construction schedules and limited availability of certain models.
Our culture sales increased 31% in the quarter, but were down 4% year todays material handling sales were down 3% in the quarter at 11% year to date.
Rental revenues were up 3% in the quarter and 10% year to date battlefield report a good growth in most regions with tobacco accounted for approximately half of their increase in the quarter and 60% on a year they basis.
Heavy rentals were down in the quarter, Andy year to date with only cut back reporting growth on a larger fleets.
Our rentals increase in Quebec, and Atlanta, Canada book were offset by lower activity, Ontario in both the quarter and year to date.
RPL revenues were up 17% in the quarter and 33%.
With the fleet growing 17 million to 96 million versus this time last year.
Product support revenues grew 9% the quarter and 10% year to date on growth in both parts and service in most Merck both most markets gross profit margins decreased 110 basis points on the quarter and 10 basis points year to date, largely on lower equipment rentals and products of our burdens.
The sales mix of product support revenues to total revenues, Devon merges with quarter, but had a favorable impact year to date.
Selling and administrative expenses in the first quarter in the third quarter includes in first quarter could a nonrecurring gain which I will exclude and not reference for the remainder of the year to date remarks.
For the quarter and year to date expenses were relatively unchanged as a percentage, which translated the lower expense to sales ratios.
Operating income increased 12% of both quarter and year to date as a percentage of revenues operating income increased 10 basis points on the core and 60 basis points year todays.
Bookings increased 4% or the quarter, but were down 5% year todays construction activity levels have been healthy throughout the three quarters and served to offset softness in other segments. Although we did see higher mining and material handling orders come through the quarter.
Backlogs of 325 million were 11% lower than this time last year, 75% of which we expect to be delivered over the remainder of this year.
Now, let's turn to Simco.
Revenues were down 6% in the quarter and 3% year to date.
Package revenues decreased 18% in the quarter and 16% year to date in Canada, and the U.S. lower industrial sales more than offset increases in recreational activity in both quarter and year to date.
Transport revenues were up 13% in the quarter and 16% year to date with growth in both Canada and the U.S.
Gross profit margins increased 530 basis points in the quarter and 190 basis points year to date on significantly improved project execution in the third quarter versus the cost overruns on one U.S. project in 2018.
A favorable sales mix of product support revenues total revenues also lifted margins.
Selling administrative expenses were relatively unchanged as a percentage of both the quarter and year to date, but were up 70 basis points and 50 basis points, respectively as a percentage of revenues.
Operating income increased 62% in the quarter and 21% year to date on the higher gross profit margins.
Bookings in the quarter increased 34% with higher Canadian orders offsetting lower at U.S. orders.
To date bookings were up 1% with increases in both Canada and the you us.
Backlog of 129 million were up 3 million or 2% and we expect approximately half to be realized as revenue over the remainder of year.
On a consolidated basis net earnings increased 16% to 79.7 million in the quarter and 15% to 192.7 million.
Basically P.S. was a 14 cents to 98 cents for the quarter and up 31 cents to $2.37 year to date.
Investments a noncash working capital were up 98 million to 476 million versus year ago, largely as a result of strategically increasing inventory levels, given improved availability and aggressive positioning for better penetration of the expanded markets and in light of transitional terms from suppliers.
We expect to return to more normal levels as these terms and midyear 2020 .
As of September Thirtyth, we maintained our very strong financial position with cash from 226 million and a strong balance sheet leverage as a percentage as represented by the net debt to total capitalization ratio was 22% compared to 25% at this time last year.
We're also pleased to continue our long track record of superior shareholder returns look delivering increased dividends at 21%, 21.9% trailing 12 month return on opening shareholders' equity at a 22.9% trailing 12 month pretax return on capital for it.
That concludes our prepared remarks, and we'll be pleased to take your questions Laurie.
Thank you we will now take questions from the telephone lines.
And you are using of speakerphone. Please lift your handset before making your selection. If you have a question. Please press star one on your telephone keypad. If at any time you wish to cancel your question. Please press the pound sign.
Please press star one at this time, if you have a question there will be every possible. The participants register for questions. Thank you for your patience and the first question is from Jacob bout from RBC. Please go ahead.
Good morning.
So we're starting to pick up.
Backlog down quarter on quarter year on year and.
What we're seeing the lowest level since you added a hewitt.
This just.
Our mining activity or is there something structural we should be thinking about.
Yeah, there's many variables impacting that right now one obviously is the availability has improved.
A year over year comparison.
Our inventory levels are up we went into the year. When we started you start ordering you know in Q4 for the for the current here and at that time, you're still operating in a.
Peter availability market and we want it to be aggressive continuing with our market penetration strategies and then.
We've seen market softening throughout the year, particularly in the third quarter. So you know that's a combination of availability in fact, you backlog in the big factors of backlog use the or the mining in the power systems business and that's been a bit softer over the years. So those are the variables that are really impacting things.
Okay.
Construction markets.
Thank you saw us some quite some nice growth there up 30%.
Yeah we're.
One of the highlights for the quarter was the construction team the execution of the penetration in the markets markets were softer we saw heavy construction.
Down about a 13% year to date, so you know, but we're getting good market penetration so that was.
Very favorable outcome for us for the team with the execution with our strategies in that area.
And on the construction sales numbers, what was the growth in turnovers come back.
Well, we had good growth through but conduct in particular, we saw some some great strides being made and markets.
And how are you feeling about the interior market right now.
Last quarter.
Commenting on some weakness, but it sounds like.
In softer it's soccer yeah.
Productivity it was better.
It's a little better in there, but it's softer market overall and year over year comparison, but again the teams executing with the opportunities that are being presented.
Right.
I'll leave it there thank you.
Thank you.
Thank you. Your next question is from Cherilyn Radbourne from TD Securities. Please go ahead.
Thanks, very much and good morning.
Good morning, I'm sure.
Maybe I could just pick up on.
Jacobs questions to start on and ask if you could give us a bit more detail in terms of industry sales trends in the quarter in year to date.
Well where you're.
You know on a on a year to date when I I'll talk more smaller iron is it's only down slightly it's.
It's in the.
Other markets the mining that the heavy construction so you've got some some declines going on in there on a year over year around 13% overall.
Larger on your down about seven on either end date so.
It's softer softer markets, but theres you know that that's the smaller iron is holding up but we're pleased with how the team is executing and delivering those value propositions in the market.
And then on the rental side.
You see the growth rate.
3% in the quarter versus 15% in first half of the year.
And just give us a bit more color on that.
Yeah heavy heavy heavy rental was down.
And what.
There was a again, it's mainly in the Ontario market because we had some large projects. The rental group was able to capitalize on last year and that wasn't repeated this year.
Okay.
And is there any change to your plan net rental capex.
You've been talking about 170 to 180.
I think it will be a bit light it up at this point in time and heavier dispositions. The numbers were always quote or on that basis. Charlotte. So I think we're probably maxed out at about the 135 or where you're today, that's where we our year to date.
What's going on there.
We've got some very good growth going on and came back but.
We're continuing to build the infrastructure rig to execute and that's an area of focus right now.
And then I did want to also touch on the rental fleet dispositions, because I think you're holding back on those last year. So should I interpret that that your rental fleet district dispositions are starting to normalize.
On better supplier availability you equipment.
Yes, that's one of the factors you're absolutely right last year, we had to hold on a longer than we want it too and this year, we're trying to come into and I didn't get internal normal state in there with the disposition relative to the.
The uploads.
Okay, great. Thank you I'll pass it off.
Thank you.
Thank you next question is from Michael demand from Scotia Bank. Please go ahead.
Hey, good morning, guys.
Hey, Michael.
Just wanted to talk about the products parts of parts growth exceeded service growth I think for the second consecutive quarter I'm just why there wondering whether there's anything driving a trend year and whether it's possible that demand for services exceeding the ability to higher technicians or.
Matt This is Tom on gaining share in parts.
We continue to be very focused on that opportunity on the part Spartan parts in particular, that's a key a benchmark for us and we are improving the team is doing a nice job in there.
The other thing that we continue to see nice trends on his these rebuilds were up 18% in there on the unit rebuilds, which is continue to be good trends and that can now those are some large components being.
Integrated into that that process. So.
That's a bit of a shift to you get some you get some swings in there with with these rebuilds and that component demands in the mining sector. So.
Those are the variables and play but.
We're pleased with the products port growth.
And just as it relates to to labor.
Do you feel like you've got enough technicians, given some of the labor markets are pretty tight.
We continue to increase our head counts and technicians and that we're satisfied with the uptick there and.
We got to make sure we're.
You know training is another key focus with the inflow of the apprentices. So I think we're doing a decent job in there and like ours. Our service numbers are up in our when you look at our our revenue labor hours were pleased with that so yeah. I think we're satisfied what's going in there and it's a continues to be a.
An area that we need to.
Execute.
And then just turning to Simco just another good quarter.
Could you discuss whether the execution challenges of recent quarters are fully behind and whether some of those growing pains of maybe change or operating philosophy or growth expectations for that business going forward.
So we are pleased with the second quarter in a row, where there was improvement in the execution.
Our.
I don't I don't think we should get too far ahead or so we're pleased we're progressing we've addressed a lot areas. We continued to focus on areas like project coordination estimating that's improving.
Obviously, the execution the interface with our supply chain.
So there's there's good progress.
And we will continue to focus on those areas and.
That's a but we're we're satisfied with the progress so far.
Alright, Thank you guys.
Thank you next question is from Yuri Lynk from Canaccord Genuity. Please go ahead.
Can you talk about the return profile of your heavy and power rental fleet.
Compared to this time last year, when you were really in investment mode, and and compared to where you ultimately want to get those those returns.
Well, we're still in investment mode, and but the utilization came off a bit but part of that as you know the denominator with these uploads and so that puts a little pressure, but long term we feel we're doing the right thing I mean, we're expanding here in the rental services as well same thing and it's getting that infrastructure.
Our.
Investment to meet those uploads, but were satisfied with the progress and realize that theres a bit of a drag in there right now.
But that's how you build this this model for the long term.
Okay, and we're very focused your we're very focused on long term with us thing right now.
Now.
We have over use the orchard Whitfield analogy, but it is apt one of things that we certainly find them and continue to find as Scott said, we're in investment mode and what that means is.
As we ramp up the fleets, we haven't really focus on the ability for both the company in the markets absorb the splits.
We're making meaningful investments and obviously have to have the other people and infrastructure processes in place to make sure that gets absorbed and you know we increased the amount of capital its allocated into specific market, let us be absorbed so I think we just by the normal at this point in time as we wrap this up.
Right.
But Paul how do you how do you think about making those those investments when.
Based on the Mdna and your comments on the call. It looked like activity softened in the third quarter and I understand the long term.
When thinking but just this is.
Capital intensive part of the business that.
This is tougher much tougher to manage when when the demand is not there as you know.
Yes and no.
As it relates into our ability to manage this and we certainly as we saw a downturn in 2000.
Nine which is not the circumstance that we're currently in.
We certainly manage fleets at that point in time, but by stretching age. So you have a that ability basically two to manage that fleet overtime.
Really not a lot of died.
Change, but certainly overtime.
Listen to what we've seen so far we've seen the some decent performances in rental fleets and largely what we're finding is is this absorption factor is the key element that we're doing this just give you the basic fat basic stassen terms tossing out at battlefield in the quarter rental revenues were up 11% depreciation charges were up 20% right.
As you ramp these things up we simply have or depreciation on the straight line basis.
Those are one of the elements that get reflected this absorption comment that I'm referring to.
Just a little more color there what one of the things were really focused on year as Paul said, we're getting in some years. This revenue growth, which is excellent and it reflects the on the long term investment here isn't the demands in the market.
We.
We have to improve our turnarounds.
When they come off rent, we got to get quick turnaround. So it's building that infrastructure with this inflow that's going on it takes time, so that's where we're satisfied with how we're progressing there.
Okay. That's it from you guys. Thanks.
Thanks or.
Thank you. The next question is from Derek Spronck from RBC. Please go ahead, yeah. Good morning. Thank you for taking my questions. Just just wanted to get you guys. Just wanted to get a you know overall sense of how you're feeling about.
General market trends that heading into 2020.
So it's a cautious I use our Pos is up 25% on year over year basis.
So that.
We're pleased that we're capturing that opportunity.
We'll see how that plays out you know with conversion rates are going to be but I think it also reflects there's some caution out there with our customers.
Any any particular markets or segments that are you feeling.
More more optimistic there are less optimistic.
Well, let me frame it a different way here.
Well, we're really pleased that after two years with the progress we've made in mining markets admin down and we're still able to generate growth and I think thats reflective of the.
Expanded territories in the diversity that we have in there and work. So we're we're pretty pleased with that.
But it's helped it's helping through some softness right which is.
The power of this.
This new operating World we're in.
There's been a little bit of the H.
Fairly volatile shift between.
New sales and rental growth.
Is that just general quarterly variance or is there anything.
From a trend perspective that we should be thinking about there.
The core factors that you're looking at in terms of new equipment sales on a year over year basis would be the impact of mining sales year over year, largely right. So that would certainly be a curtailing of little but so I wouldn't look at it as anything more than typical quarterly lumpiness. Okay.
And ER and the you mentioned.
Pricing pressure just on gross margins is that just that.
Competitor pressures that competitors trend to underprice or or where.
Where is that comment stemming from.
It's a tight operating environment, but that's not something we haven't seen before and you've also got some some drag in there with the rental.
Uploads that are going on as Paul as Paul outlined.
And so those are key areas impacting some of the margins in some of the mix in there as well in the products port.
Revenue streams.
Okay, and maybe just one one more for myself the aesynt SGN a costs as a percent of revenue came in nicely.
Look like there was a couple of nonrecurring or or or or.
Yes recurring items.
I should we think about SDN and costs.
Going forward here.
Well there were really wouldn't be a nonrecurring items. When there are always puts and takes that were duvelisib in terms of quarter draw attention to those elements, but.
Largely look at a linearity at a cost trends as being largely related to.
Inflationary growth basically at this point in time and one of the largest components that we have as is compensation.
And as an underlying factored in the continues to track.
Inflation basically.
Okay Alright.
Thanks, a lot guys.
Okay. Thank you.
Thank you. The next question is from Ben turn asking from Raymond James. Please go ahead.
Good morning, guys. Most of my questions have been asked already.
If I could.
Not could not to get too granular, but if I could ask you maybe just to comment on the AG side.
Pretty significant growth in all its a small business so you're sort of.
Last small numbers on that but.
Even year to date.
4%, that's pretty good in the context of what we're seeing in the AG markets generally what what's happening there for you guys.
It's a tough market Ben.
We were fortunate what happens we had some slippage into the quarter.
Particularly on our combined sales so the team.
There's a decent job.
Capturing.
Some of the market penetration and we had.
And I get those pre books, so we were pretty solid with the pre books coming into the year and so the team executed in there, but it is a tough operating environment.
You know you've heard it throughout western Canada, and it's consistent in our area of Manitoba, but we're satisfied.
With those deliveries in the quarter, but it is challenging environment.
Are these.
All right these challenging environments.
In some ways, what you guys thrive on like does this.
Present opportunities to try to grow the business and acquire some some some of the operators out there might be struggling and.
If you're not doing what does that say about your long term commitment like how to pocket asked another way I think you're into this experiment for five years, maybe longer now I lost track, but.
How satisfied have you been with the business in general on your and your willingness to grow it.
We're still very.
Well the markets are off significantly in there and the AG segment in Manitoba.
We still have a ways to go in there on the operational site.
I'd say last year, we made some progress and now the.
It's just the troubling environment, what's going with many outside variables impacting it as we're we're hearing about weekly but.
You know, we're still focused on the operational side and we're pleased with the Arkon share, particularly with our combined.
He has done a nice job and there will continue to focus on that.
You know.
Yes.
Continue to perform and we'll see where we go with it.
But you're not prepared at this point to to expand it in any material.
We're focused on improving the thesis before we look at it expansion opportunities.
Okay.
And.
Like I said the few questions have been asked asked already but if I could just maybe.
Try to get you elaborate a little more on Simco.
Because the huge margin variability.
Over year, and even just over the last few quarters.
I respect you don't want to do too much handholding with respect to margins, but.
We have to put something in our models and whats.
What what can we expect like this was a record number was there anything unusual in the quarter that produced this kind of a margin or have you made some changes that might make.
These kind of numbers give or take some you know basis points.
Sustainable over the next few quarters or into next year.
So Ben it's again highly focused on the execution the project coordination and the estimating and the interface with our suppliers so that two quarters in a row good progress.
Obviously, we want to sustainable outcome here and so that's where the focus is basically the other thing that was impactful as we're very pleased again with the product support growth.
You know even in the U.S. depressed support growth you asked was very strong was up from 4% to 40% quarter. So so good trends in there were hiring technicians were seeing good labor demands in there so.
So those are good signals, but on the project side.
I need to be focused on the execution.
To build that sustainable model, there's not enough products supports been that's a deliberate strategy to right Thats. The result of guest focused on absolutely.
Yeah, absolutely just go back to add to the comments then there's nothing unusual in the third quarter 2019 related to project close outs are they love nature, but certainly just start attention back to Q3 2018, we have the $2.3 million charge basically that we disclosed in the last year related to one project right. So if you're just comparing year over year, obviously thats a significant factor.
Yes, it was an easy comp.
But yeah, but sometimes you have some closeouts and things like that that absolutely yeah. Okay. So.
And if I could sneak in one more again sort of along lines of what's what's been asked already with respect to the competition, but.
Or the competitive pressures, but if you look at it another way.
The last few years caterpillars been reporting very material growth from price realization.
The last quarter was not it was not as material, but over the last few years, it's been a big contributor.
To their performance and is it is it correct to assume that that you know by and large I know they do some stuff OEM direct but by and large that those are price increases their passing on to the dealers and how do you guys manage that when the market is as competitive as it's been and how material has that been could you.
Don't really disclose gross margins on.
Just segmented by equipment group, but how material has that been as a challenge view in the current environment.
Well, then I think it there hasn't been anything totally a news we've been in this business along time and you know we worked closely with caterpillar on our value propositions and they've been a good partner for us to help execute we're seeing some some decent market penetration. We're pleased we don't want to get ahead of ourselves there.
But we're pleased with our our alignment with caterpillar and how we're executing in the market on.
Product sales and part sales so.
I can't comment on on now there are.
What's driving that for caterpillar their global company I, just we just focus on on area and our value propositions to our customers, but I think we're satisfied so far.
Can you elaborate a little bit on on the value proposition on what you're like what is the pitch that you get to a customer that makes him consider the cat product even at the premium and maybe a tons an increase in premium on the competition.
I don't want to get now we're very very careful here with our.
Imperative, we right now.
Here, Here's I'll say, we're focused on the building blocks of the model to deliver the product support investments are very important for us and and that's what we're trying to continue you're seeing that I think we're talking about that openly that's a key area strategically for us and that's where we try and really make a difference for our customers on that side and that's what we've been building up and come back.
And and Maritimes and focus on there and then the same thing on the rental business looking at the fundamentals and making sure we can deliver for those customers.
So cost of ownership.
Uptime, all those uptime availability operating costs, all those variables and that they differ relative to some of the and the applications that you're operating in.
Yeah.
Okay. Thanks, guys. Thank you. Thanks.
The next question is from Maxim Maxim Sytchev from National Bank Financial. Please go ahead.
Hi, good morning, gentlemen.
Florida Inox.
I'm I'm just not.
I'm trying to beat the dead horse there, but in terms of kind of the overall macro commentary seems a bit softer but at the same time you guys are hiring technicians.
You know when you talk about demand signals being pretty pretty positive and some of the markets. So is it much more AWS.
Market share penetration dynamic right now that.
You see an opportunity how should we just think about.
Got a somewhat contradictory dynamic between industry and and hiring.
Yes. Good question Max let me clarify that so one when we're talking about softening we're talking about the new unit industry deliveries in the territories were operating it. Okay. Then when we shift over to the product support side, we continue to get good demand signals in their plus when we were were much better at quantifying or our market opportunities in there and that's why.
They were saying, we're hiring technicians revenue generating positions to strategically execute our plans. So so that's that's what's going on there.
Like I just wanted to clarify this and then can you maybe talk about a at all about the demand signals on mining what are you seeing in both antero and come back maybe if you can you can delve into those to jump is please.
[noise] product support continues to be a solid in there. So that's good the mines are producing.
You know I think it's a cautious environment.
In terms of.
Purchasing of prime product there is opportunities.
But it's it's a.
It's a very cautious environment.
But theres opportunities.
We have to we have to when those opportunities.
Improve our value proposition.
And here, you're talking about both on the new equipment side on products in portable Justin.
On the new side, Yes, I think you said, Okay and then maybe just one last question for Paul If I may have you made.
Reference to you had an agreement with.
Suppliers ending by mid 2020 I'm can you maybe talk a little bit in terms of how that could potentially impact.
On the noncash working capital inventory sort of all these things so that we can put ourselves like ones.
So the any any any impact sorry.
So this goes back to something as buildup of courses past couple of years from the transaction time frame and we'll as we say the report will start to unwind in the middle of next year on wind through the balance of.
Without getting specific into specific numbers related to maybe you can certainly in your modeling your Max.
Certainly see that.
And Tories and and payables would have a different trajectory basically so you could you could get some estimation on that front, but you'll see us the slow unwinding as we go through the back half of last year.
And we're certainly a in a position to deal with.
Right and do you can you maybe comment on materiality at all or how do you feel about that.
It will be it will be managed within the within the context server or current operating environment and operating lines.
Okay. Okay. That's very helpful. Thanks, very much that's it for me.
Thank you Max.
Thank you. The next question is from Devon Dodge from BMO capital markets. Please go ahead, hey, good morning, guys.
Good morning Rindo in.
Just wondering what we should be expecting for a they'd be net rental capex for the balance a 2019 and I know, it's still early but.
How should we be thinking about rental capex in 2020.
So her 20 not in the basically I'd expect that we're pretty much stable at this point in time. So we've had about a net of 135 million. So far so well have some more dispositions will have some more investments, but in total it'll probably somewhere around that number we're just kicking into our planning process at this point in time, Devon. So as we look into next year.
Starting point would be reasonably consistent with those numbers for next year, but you know, we'll we'll have to see and fine tune that as as we hear from a management teams.
Okay got it makes sense okay.
Maybe just broader question, but you know you're about 24 months for closing the he would deal.
You've had a lot of successes demonstrated a lot of progress and rolling that that business. Your business model any rate Hewitt into your legacy operations just looking ahead.
What do you see is the biggest remaining opportunities maybe you know over next 12 months and then over the medium to longer term.
So yeah, we're we're pleased with how the team has.
Come together and how Weve executed some of these are the first two years of the plans.
You know next phase we've you know we talked about battlefield. It was it was really a non event with that the ERP integration. So that's how we like it we still have another move to make on that front on the.
Got it for business that we operate in so that will be.
Instrumental in.
You know, helping us execute we're very focused on the next phase with.
More disciplines in the operating side more asset management focus that's a that's coming the forefront. We've we've got our model in there with our branch managers and we're starting to move forward with those initiatives and help trainer our managers on that front, so still looks still ways to go but so far are pleased with integrate.
Nation and in some of the outcomes.
Okay. That's great. Thank you.
Q.
Thank you once again, please press star one on your telephone keypad. If you have a question. The next question is from Cherilyn Radbourne from TD Securities. Please go ahead.
Thank you just a couple of quick follow up for me.
Just in terms of Ontario, I guess, what we were hearing anecdotally in the first half of the year anyway is that there was some uncertainty related to the transition to a new provincial governments.
Is that still the primary driver or were there other market developments during Q3.
When you break break up the segments I mean [noise].
Minings down the.
Heavy construction is down and overall, we saw softness in the quarter, but I I think there's a lot of variables in there. It's not just attribute to one thing sherilyn.
I mean, there's still decent activity levels out there I don't you know when you look at it on a historical basis, but it's just softened on a year over year and I think it's just a cautious environment.
Okay.
In terms of rollout.
Sure when I when I say that your great thing is that the our qubec industry numbers were pretty well flat. So that's that's good right.
Right.
And just last one from me as it relates to the rollout of your Ickes systems.
On the rental side and the acquired territory.
Early data points on.
He impacted me execution in the rental business.
No if anything it that's giving us better visibility to run the business that that a when we say non event. It went as planned we're very pleased with that a lot of heavy lifting in there, but some of our people and we applaud them for their for their efforts and the execution, but this is just giving us better visibility.
Thank you that's all for me.
Thank you.
Thank you there are no further questions registered at this time I'd now like turn meeting back over to Mr. Paul June .
Thank you Laurie and thanks, everyone for their participation today, mostly devote <unk> devote puts especially on some of the to.
This concludes our call have a great that.
Thank you. The conference has now ended please disconnect your lines at this time when we thank you for your participation.
This conference is no longer being recorded Nols as you promote does it go see homes it does WP.
50 for though.
Please note that this conference call has ended please disconnect your lines at this time. Thank you.
Okay.
She was funding.
50, though.
At this conference call has ended.
Thank you line at this time thank you.
You know.
<unk>.
She was pending.
Yes, I don't process before.
Please note that this conference call has ended please disconnect your lines at this time. Thank you.
Opinion.
Oh sit down meaning.
Yeah, she was pending.
<unk> Office depot.
Please note that this conference call has ended please disconnect your lines at this time. Thank you.
Okay.