Q2 2021 Toromont Industries Ltd Earnings Call
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This conference is being recorded.
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All participants please standby your conference is ready to begin good morning. Today is July 29th 2021 welcome cheat each 1 of them on second quarter 'twenty 'twenty..1 results conference call. Please be advised that this call is.
Is being recorded.
Your host for today will be Mr. Michael Mcmillan. Please go ahead Mr. Mcmillan.
Great. Thank you Elena and good morning, everyone.
Thank you for joining us today to discuss the results of tour them on Industries Ltd for the second quarter and the first half of 'twenty 'twenty 1.
Also on the call with me this morning.
<unk> met Hurst, President and Chief Executive Officer.
As noted in the press release issued yesterday, we will be referring to a package posted on our website and we encourage listeners to download it and follow along.
At this time and as noted on slide 2 of our presentation.
I would like to advise listeners that the presentation may contain.
<unk>.
Forward looking statements and information that are subject to certain risks uncertainties and assumptions that may lead to actual results or events differing materially from those expected for a complete discussion of these factors refer to our press release from yesterday, which is available on our website.
As is our practice we.
We will focus on key highlights for the current quarter.
<unk> will begin with a few general remarks, followed by comments on our overall results after which I'll provide some highlights on our divisional results and financial position.
After our prepared remarks will be more than happy to answer questions over to you Scott.
Thank you, Mike and good morning, everyone.
Before I begin I would ask that you move to slide 3 of the package.
On July 15th our board of Directors announced the retirement of its chair Mr. Robert globally.
Mr. Ogilvy's responsibilities extended beyond the original scheduled retirement date of April 2021, as the Covid crisis.
On that an unprecedented uncertainties beginning March 2020.
Mr Ogilvy and the board remain committed to an orderly transition while closely monitoring the economic realities during the pandemic.
The company has navigated relatively well over the last 16 months building on a strong.
<unk> foundation through operational actions for strategic execution.
Given the company's position and Mr. Ogilvy's belief that <unk> is well placed for the future. He advised the board it was an appropriate time to retire.
This drove ov's iconic 36 year career included.
Strong for 34 years, as chairman and 20 years as Chief Executive Officer.
As at Q2.2021 during Mr. Ogilvy's tenure trauma has increased its dividend consistently each year since 1989.
This record of performance built significant value for <unk> shareholders, while creating opportunity.
<unk> for our employees.
Positive outcomes are from disciplines that were embedded in our culture of decentralization empowerment and accountability.
These principles remain core to the tour on what foundation today, and a platform to build our future.
During his time as.
As chair and Chief Executive Officer, the Companys transformational growth was substantial.
Mr Ogilvy's outstanding financial and operational acumen were instrumental in leading strategic events, including the 1993 acquisition of Antero Caterpillar dealership.
Through strong operating performance of the company accelerated further expansion.
<unk> with the acquisition of Newfoundland and Labrador dealership, followed by Manitoba, and most of the new on vet territories.
There are many other milestone events, including the acquisition of the battlefield rental business that originally consisted of 1 store and has since grown to over 70 outlets for Manitoba Newfoundland.
From 2011 under Mr.
All of these leadership there was further transformation with a bifurcation of the energy enter Flex systems Ltd.
This decision positioning the business well to focus on growing the dealership rental and refrigeration businesses.
As chair is council was instrumental in the acquisition of the Quebec and Maritime dealerships.
Our largest transaction to date.
Robert has been a mentor to many of today's term on leadership team of directors the.
For the entire organization wishes, Robert well on his retirement and thank him for his significant contributions to <unk> success, and our steadfast commitment to our employees customers and shareholders.
<unk> Chargois joined <unk> Board in 2018 and has been appointed chair.
Sure why is currently chair of <unk> Environmental Social governance Committee and is a member of the audit Committee.
During his more than 35 years of business experience. He spent 16 years at Uni select where advanced through.
Senior executive roles, including Vice President Administration, and Chief Financial Officer, Vice President and Chief operating Officer, and President and Chief Executive Officer.
We congratulate Mr. <unk> on his appointment.
Turning to Q2 from the first half of the year on slide 4.
Several pleased with the overall activity levels in our end markets and are proud of our team's dedication and ability to adjust to ongoing changes in the environment and customer requirements.
The equipment group reported strong prime product deliveries, reflecting robust activity levels.
Rental and product support activity increases.
We are as equipment usage improved.
During the quarter, we also secured 3 new battlefield locations and antero market, which are in the process of opening.
Respect to simple revenues increased reflecting the buildout of our industrial orders booked in 2020.
However product support activity remains somewhat impacted by COVID-19 restrictions, particularly within the recreational segment.
Turning now to our financial results highlighted on slide 5.
It's important to note the second quarter of 2020 was hardest hit by the impact of pandemic site restrictions.
Increased shutdowns, which resulted in lower revenues and profit margins and impacts comparability of results in the current year.
The company delivered solid results from the second quarter of 2021 market activity increased in the equipment group and simple continued to deliver on the strong order backlog.
Focus.
<unk> operational efficiency and leveraging learnings from the past year are our focus.
<unk> to operate with caution given the rapidly changing situation driven by COVID-19 variance.
Backlogs were $957.8 million at quarter end up 93% versus Q.
Q2.2020.
In the equipment group mining and construction represent approximately 33% and 43% of backlog respectively.
Typical backlogs, where 35% lower at quarter end versus last year, which had exceptionally strong bookings in the first half of last year.
Simple results in Q.
On op reflect good progress delivering packages related to this backlog position.
On a consolidated basis revenues increased 33%, reflecting increased activity in both the equipment group and simple in most markets and across all regions as well as solid execution from our teams.
Q2 rock support and rental revenues increased 14% and 27% respectively compared to the similar quarter last year and were both up 7% on a year to date basis.
Operating income was up 59% in the quarter and 46% year to date on the higher revenues.
Revenue growth.
Growth exceeded expense growth as COVID-19 restrictions and cost containment focus continued.
Net earnings increased 67% in the quarter and 51% year to date versus 2020, while basic earnings per share increased 41.
To $1.3 per share in the quarter increased 54.
To $1.62 per share on a year to date basis.
We continue to provide essential services and solutions to our customers, while remaining diligently focused on safeguarding our employees and protecting our business for the future.
We appreciate the value of our entire team's incredible effort.
And ongoing commitment to adapt to changes in the business environment.
In the quarter market activity was very strong and in some cases, putting pressure on supply chain availability and delivery date extensions.
Although vaccination rates in the main markets. We serve are improving caution is.
Warranted given the changing status for the pandemic and the response required tech.
Technician hiring remains a priority to meet demand.
The diversity of our geographic landscape and market served extensive product and service offerings and financial strength together with our disciplined operating culture continue to possess.
<unk> us well to respond to the near term business dynamics and most importantly build for the future.
Mike I'll turn it over to you for some more detailed comments on the group results.
Thanks Scott.
Let's put a bit more color on the operating results starting with the equipment group on slide 6.
Revenues were up 31% in the quarter on 22% on a year to date basis on strong equipment sales combined with higher product support and rental activity in most markets and regions.
Total new and used equipment sales were up 44% overall in the quarter and 38% year to date sales increased across all.
All markets and regions in both the quarter and year to date.
In the quarter construction markets were up 38% power systems up 15% material handling up 26% agriculture up 76% and mining was up 181%.
Rental revenues were up 27% in the quarter and 7%.
Okay.
Most markets and segments were up reflecting continued improvement in the market activity in the second quarter against a weak comparable last year.
Again recall that in Q2 of 2020, the full impact of COVID-19 was being experienced with temporary shutdowns in care and maintenance price.
Procedures in many of our mining locations.
Light equipment rentals were up 22% in the quarter and 7% year to date heavy equipment rentals were up a 100% in the quarter and 49% year to date power rentals up 29 in the quarter and 5% year to date in material handling rentals were up 34% in the quarter.
Year to 13% year to date.
Our Po, our rental with a purchase option revenues were down 15% in the quarter and 35% year to date on a smaller average fleet, reflecting the recent theme where customers have preferred to purchase outright versus the <unk> option.
The <unk> fleet was at $32.2 million versus $43 million, a year ago and in both cases, well below normal levels, we'd operate with prior to the pandemic.
Product support revenues were grew 15% in the quarter and 9% year to date in both parts and service revenues.
And the majority of markets and regions activity within construction markets was up 19% in the quarter and 12% year to date.
Mining was up 12% in the quarter, 5% year to date material handling was up 37% and 25% year to date agricultural activity was relatively unchanged for the quarter and year to date.
Gross profit margins increased 20 basis points in the quarter and remained flat year to date compared to last year.
Equipment margins in product support margins were largely unchanged in both the quarter and year to date rental margins were higher by 150 basis points, and 120 basis points for the quarter and year to date, respectively.
These improvements reflect higher utilization as well as benefits from fleet adjustments, including selective dispositions and acquisitions over the last year.
Selling and administrative expenses in the quarter increased $13 million or 12% and $14.5 million or 7% for the first quarter of 'twenty 1.
The.
This is mainly attributable to the mark to market adjustments on deferred share units due to the higher share price and higher compensation costs.
Other expenses increased reflecting higher activity levels cost discipline remains a strong focus however areas such as travel and training are being managed carefully to support the business requirements.
For several quarters of significant reduction.
Allowance for doubtful accounts decreased $3 million.
In the quarter and $1.9 million in the first half of the year on good collection activity on.
Operating income for the quarter and year to date was up 61 per cent and 46%, respectively, reflecting the higher revenue level.
Coupled with lower expense ratio in other words revenue improvement outpaced expense growth.
Bookings increased 113% in the quarter and 108% year to date across all sectors, except agriculture, which was lower by 34%.
Construction and mining bookings were up 122.
<unk> hundred 65%.
Respectively in the quarter, reflecting several large orders.
Backlogs of $810 million or 201% higher than this time last year across all sectors, approximately 65% of which are currently expected to be delivered in this year and subject to timing differences depending on.
And 1 on apply customer activity and delivery schedules.
Let's turn now to Simcoe on slide 7.
Revenues were up 52% in the quarter and 45% year to date, mainly due to strong package revenues on continued progress against industrial orders booked in 2020.
Product support sales remained.
Vendors in the quarter and decreased 4% year to date, largely due to lower activity in our recreational segment stemming from ongoing site restrictions.
Package revenues were up 104% in the quarter and 105% for the first half of 2021 with increases in both recreational and industrial markets.
Flat for the quarter package revenues in Canada were up 149%, reflecting higher industrial revenues in the U S package revenues decreased 9% on a smaller base with higher revenues in the industrial market and lower revenues in the recreational markets.
On a year to date basis package revenues increased in both Canada.
Up 120 per cent, 27%.
And in the U S up 26% with increases in both recreational and industrial markets in Canada across all regions and the U S.
Product support revenues remained flat for Q2 and decreased 4% for the first half of the year versus last year in.
In Canada.
On a lower activity levels from continued site restrictions in most areas and reduced demand, particularly in recreational centers, which had been closely.
Closed are severely restricted by the pandemic resulted in lower product support revenues symbol for quarter and year to date.
In the U S higher technet, the higher technician base continued.
To support activity levels, resulting in 16% increase in the quarter and a 4% increase year to date, albeit on a smaller base.
Gross profit margins decreased 420 basis points in the quarter and 470 basis points year to date versus last year.
The decrease in.
Profit margins was due mainly to a less favorable sales mix of product support revenue to total revenue.
Margins, primarily reflect activity levels nature of projects in process and construction schedules, which can be somewhat variable.
Selling and administrative expenses were up 21% in the quarter.
10% year to date.
Affecting the higher activity levels certain costs, such as travel and training were higher after a period of contained spending.
Compensation expenses increased in support of higher activity levels, and reflecting higher profit sharing accruals with higher income.
Operating income was up 31 per cent for the quarter and.
35% for the first half for the year, largely reflecting higher package revenues, partially offset by lower gross margins.
Bookings were $46.1 million in the quarter down 11% versus last year, which included an exceptionally strong level of bookings due to several large industrial orders in Canada.
Recreation.
Bookings were 4% lower on reduced market activity in Canada, slightly offset by higher activity in the U S.
The industrial markets were down 15% with reduced activity in both Canada and the U S.
Year to date bookings were lower 49% to $84 million.
As noted several exceptionally large industrial orders.
Creation of in Canada in the first quarter of 2020, resulting in a decrease in bookings compared to last year.
Industrial orders were down 59% with a decrease in Canada offset by an increase in the U S. Recreational orders decreased 18% to $34.7 million with decreases in both U S and Canada.
Backlog.
We received $147.5 million or 35% lower than the end of last year, mainly related to progress against relatively large industrial orders as noted earlier.
We expect approximately 90% of this backlog to be realized as revenue in the year. However, again this is subject to construction.
<unk> of duals and potential changes stemming from the COVID-19 pandemic.
On slide 8 I'd like to touch on a few key financial highlights.
Noncash working capital reflects our teams focus and effective actions to proactively manage changes related to activity levels and underlying demand management.
<unk> schedule working capital continues to be a focus area as we position the company for the future.
Accounts receivable aging receives continuous focus.
Inventory levels continue to be adjusted in light of market activity and are below prior year levels.
Accounts payable reflects the timing of purchasing and the wind down of certain extended terms with suppliers, which is effectively complete.
Partially offset by higher DSC liability related to the higher relative closing share price.
We ended the first quarter with a strong financial position with cash of.
<unk> hundred $66.661 million ample.
Ample liquidity, our balance sheet, our balance net cash position.
And our balance sheet, well positioned to support changes in demand.
And finally.
As announced the board of directors yesterday approved the regular quarterly dividend at a rate of 35.
Per common share consistent with last quarter. When it was increased by 4 cents or approximately 12, 9%.
On slide 9 we conclude with some key takeaways as we look forward to Q3 in the second half.
As 1 would expect we continue to focus on our 3 key priorities protect.
Of 6 employees, serving our customers and protecting our business for the future.
We expect the business environment to remain dynamic in 2021, and the tone of caution to persist given the changing status of the pandemic and response required to new variance and vaccine rollout schedules.
We continue to proactively monitor.
<unk> closely and refine our business practices appropriately.
As discussed today market activity was very strong in the quarter and in some cases unique buying patterns relative to historical trends and prime product and parts supply pressures were evident <unk>.
Including extended delivery dates.
We continue to work actively with our.
Suppliers in this regard monitoring availability delivery schedules and customer buying behaviors. Our teams are working diligently on the pipeline forecast repair schedules and parts demand signals.
Additionally, technician hiring also remains a priority to meet demand and build our team for the future.
We are positioned to effectively respond to customer requirements and market opportunities leveraging our disciplined operating model culture.
In solid financial position.
That concludes our prepared remarks at this time, we'll be pleased to take questions.
Atlanta over to you please to set up the first call.
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The first question is from Jacob bout with CIBC. Please go ahead.
Good morning.
Morning Jacob.
My first question is just on equipment availability.
You know are you.
Any supply chain issues or did you see anything in the second quarter and how are you thinking about this for the second half of the year.
Yeah, we do.
Did see a bit of a change in the second quarter.
Saw some tightening of prime product availability through the various supply change as well.
As parts.
What we're pleased about we stated earlier in the year.
And last year was our continued focus on working closely with our supply partners on our pipeline forecasting as where as well as our repair scheduling environments.
Demand signals.
And the parts area so.
I think that discipline.
Laid out reasonably well when you see those.
Strong.
New equipment sales.
Particularly on the equipment group.
And the parts activity was held up reasonably well. So there are some pressures in there and Thats why.
We are going to cautious outlook here state relative to some of the variables in play.
So in the <unk>.
MD&A you talk about.
And to deliver 65% of the backlog.
To be delivered in the second half of this year.
Object.
2 vendor supply.
Under normal circumstances, where equipment was readily available would that number have been higher.
Well, what we're what we're focused on right now is working closely with the suppliers relative to those timeframes, but what we saw in the second quarter.
There was some extension relative to delivery dates. So we continue to work closely on that.
Yeah, 1 thing to keep in mind too Jake is.
We did.
Speak to some of the mining orders and different things on some of the equipment does have longer lead times as you know and we'd be delivered into the next fiscal period and beyond right. So there is a bit of a mix.
When you look at the composition of the backlog that we've disclosed as well.
Okay.
Second question is just how are you thinking about margins in the second half of the year, given the phasing back of discretionary spending and labor inflation.
For a couple of things on that front.
Look at the quarter on a percentage basis.
<unk> sales were very strong as was the prop.
Project.
Revenue streams at Simcoe show on a on a <unk> basis as a percentage of total I mean, they were they were below what they normally are.
We also.
It's a bit of a favorable operating environment, because we are still very.
Watch in a controlled environment relative to the.
Covid and.
So.
We're going to be very focused on that going forward that area on operating expense leverage we've got some learnings in there but.
As things open up that's going to Cree.
Created a different environment on that front. So that's an area of focus for us you've got anything else to add there Mike No I think Thats I think thats right I think it's the product support the mix of sales and like you say the containment of spending we're still under.
Reasonably restricted environment right and so discretionary.
But spend in areas like that of course will be managing that carefully go forward as Scott mentioned, but.
But that will pace, a little differently as people are more mobile.
How about any offsets here.
2.2 this stays back on discretionary.
Either from a work from home perspective.
Or anything else, we should be thinking about.
Yes, well those are the that's theory.
Debt.
We focused on as things develop in terms of opening here relative to lessons learned.
You know.
That theory that.
We're going to try and incorporate.
Some different.
<unk> actions.
But still early stage on that front and.
So that's why in Q2, I think we still had some favorable outcomes.
How we're operating right now.
Yeah, a good case in point there would be if you think of our perspective work from home you mentioned.
We do on most of our real estate.
Current.
From a from that perspective, largely what youll see is the discretionary spend in the sense of travel entertainment and other things, where we can we can be more effective we've learned to use technology as many have and there'll be a different balance there on that particular area of discretionary spend.
Okay.
We'll leave it there thank you.
Thank you Jacob Thanks Jacob.
Thank you. The next question is from Yuri Lynk with Canaccord Genuity. Please go ahead.
Hey, good morning, guys.
Wanted to dig in a little bit hey, good morning, I wanted to dig in a little bit on on the New awards I mean, they have exploded.
Loaded here in the first half for the year.
Just give a little more color on on the nature of these awards in terms of their size like I know on the I think on the first quarter there.
There was a large equipment package and mining was there any carryover to that package for their other.
Large packages and in Q2 or was this mostly small and medium sized awards.
Well.
I don't know about exploded I think it's all relative too.
Yes.
As we tried to articulate comparing to Q2, maybe isn't the way to.
It's the market activities.
In Q2 on a historical basis were extremely strong okay.
And that's just reality, so we're monitoring buying behaviors now relative to the deals that were booked a construction was very strong.
Both in the quarter and there wasn't anything of magnitude in there I think.
The team performed reasonably well on the market relative to opportunities.
Mining Youre you get lumpy in there on mining, yes in the first quarter. There was a couple of large orders, but we continued to progress from reasonably well on there.
So.
I think it's all relative to a very strong industry activity levels in that.
On that quarter.
And again reinforcing.
You look at it over a 10 year period it was strong.
<unk>.
So, we're really assessing and absorbing the buying behavior patterns.
Turns right now.
On determining was there a pull forward what does that mean.
So there's some real interesting dynamics in play right now.
Yes for sure.
Second question here.
On the inventory level.
I don't think I've seen them.
Since you did the acquisition of QM I don't think I've seen them in this low.
And and you're sitting with a obviously a record backlog that we just talked about so.
On.
How do I think about that in terms of investment.
Investment in inventories.
For the back half for the year.
The product available first of all in on.
I guess should I be expecting a larger than normal investment in.
On the inventory or working capital in the bypass on for 'twenty 1.
Yeah, great great observation.
Again.
Selective of the market.
Dynamics in play.
The activity industry activity levels were so strong and again I think it reflects that we were able to react reasonably well when you look at those new sales up about 57%. So because of the disciplines that were in place there on pipeline forecasting with our suppliers.
We were able to react reasonably well, but what that meant was there was a drain on the inventory when normally we see a build rate. So let me give you. An example, so RP OS.
We're down we're down around $32 million, which is historically low I mean, when you look at that level of activity and normal trends.
We should be sitting here with well.
Well over $100 million on our appeal. So that's usually in your inventory, which also usually transcends well for second half conversions.
We're sitting here on a on a low level of impacts that inventory as well as.
The used equipment market.
We're not even seeing the.
Trends on trades.
Our used equipment revenues.
We're pleased with how the team operating there we got to 10% growth book.
It was driven really by our purchase strategies.
Not our normal like demo class for trade revenue streams, so that's impacting inventory.
Inventory levels as well so a lot of dynamics in play there that play to <unk> with that as you stated the current inventory relative to comparisons on a comparison basis.
And just just on the working capital question as well, we've been saying for a couple of quarters that were per.
Position that we've been running lower on inventory deliberately and so forth even last year were about $220 million below where we were last year at this time and things tapered and so I would just say again reinforced the fact that we were prepared.
To invest in working capital and primarily inventory.
You've seen our cash.
So on so that's a reflection of the tightening working capital environment, but I could see easily that we would be investing upwards of 200 plus million in inventory over time going into a more normal environment as things stabilize.
Whenever that might be there is still certainly a lot of uncertainty right now, but we're prepared to have that level of investment.
But as we go forward.
From France.
Thank you.
The next question is from Michael <unk> with Scotiabank. Please go ahead.
Hey, good morning, Scott Good morning, Mike.
Michael.
So first off nice quarter.
Cash balance maybe build off some of the commentary.
From year end looking at the results I would've thought that we would've seen equipment gross margin expand.
Versus last year, given the strong demand I mean was there a specific reason it didnt and I guess the thought is you know given the tight supply conditions.
I mean on the strong demand how should we think about the potential volume and pricing tradeoffs going forward for the equipment sales.
Part of that reflects.
The mix.
You saw some.
I mean, both the small iron as well as the large the industry activity increased.
And just.
But the smaller was very large as on a percentage basis. So there is a bit of mix impact in there on.
Equipment margins.
Relative to dispositions on a relative too.
So.
Really I think it really reflects the mix.
We are operating still on a competitive environment. So there's probably some reflection of that as well.
And going forward just in terms of thinking about you know tight.
Tight inventory and demand being high anything to think about on on pricing.
And how that should look like for.
<unk> sales.
Yes.
It's difficult to really comment on that on a go forward basis, because again, we're trying to assess the buying behaviors and what that means over over a longer period of time right. I mean, you look at it historically that was very strong.
<unk> level for Q2.
So what does that mean relative to buying behaviors over the long term, we're assessing that.
Gotcha, Okay, well that's helpful. Thanks, and then second question with.
With product support.
Effectively back to pre pandemic levels, I mean could you speak.
To the extent of whether it's site restrict.
Restrictions is still a limiting factor here or if you know hiring and retaining Texas is more of a limiting issue going forward just to try to get a sense for may.
Maybe what are the challenges going forward.
And the recovery going forward.
Yes, we did see some some COVID-19 impact on product support.
On the equipment side as well as simple.
With some site restrictions and things of that nature.
So that's why we're saying there's still uncertainty in the operating environment, particularly on progress on board.
So it's sort of eyes wide open right now relative to that.
No need to speculate it still.
Complex environment.
With vaccinations and.
Various areas, where it could be <unk>. So.
We're just we're just.
We're trying to manage our way through that we're really pleased with how the team is able to react to these quick signals.
And but there is still impact on the price for what we saw on the quarter yes.
Yes, good good case in point there Michael is it like we've it's very clear to say on the Simco business. For example, in particular and recreational markets, where you no longer have the ranks in Canada have been shuttered for for an extended period of time, and so that that makes sense certain.
<unk> were.
Social distancing is more challenged or different areas like that or unit locations and mining where you're monitoring case by case I mean, those are areas that we have seen.
The COVID-19 effects and the activity levels different than maybe what.
What we would consider normal rate but.
And the other variable you touched.
<unk> was technicians.
And Steven.
Steven.
Supervisory level is this we've seen this before when you start to come out commodity prices are.
Recently.
Strong so.
This is another complexity.
Introduces a dynamic in the marketplace, we've been here before but we're working on restaurant.
And on that front.
Perfect. Thanks, guys.
Things continue to get better for for all of US. Thanks, Yes.
Yes, they will.
Thank you. The next question is from share then radbourne with TD Securities. Please go ahead.
Thanks, very much and good morning.
Before I get to your questions I did just want to take a moment to recognize Roberts and wish him our very best in his retirement.
Thank you for doing that Cherilyn I appreciate it.
In terms of the purchasing patterns like obviously the bookings strength in the equipment group is really exceptional.
And I.
Love to get your thoughts on whether you think it's a release of pent up demand or a pull forward as customers try to get ahead of possible supply chain issues and just how that impacts how you're managing the business.
Yes, great observation.
When you look at it on a historical basis.
But could very well be a pull forward and thats why were.
We're not getting ahead of ourselves here.
It won't be assess it.
Can't reassess this on a quarter over quarter from last year rate as Mike articulated in his opening comments.
So historically it would suggest so.
What that means.
Is it for the balance of the year.
We're just monitoring it and that's why we're staying very disciplined on these pipeline forecasting and.
Proud of the team on how they work through it to get a reasonable outcome in Q2 relative to gross bookings.
<unk>.
It's all relative to the market performance, how we perform in the market. So.
So we'll see how things progress here share.
And then on the rental business you had a nice year year over year lift in the margin on higher utilization and some selective fleet adjustments.
So maybe you could talk a little bit about the interplay between rates and utilization in non <unk>.
Market.
Yes, so we did see.
Improved utilization, which for bolt on Wolf on the light equipment as well as the heavy.
In par we saw even in the material handling business, we had nice improvement in there.
So that was that was good we have seen a bit of an uptick.
Yeah.
Look at the <unk>.
Rental rates relative to the benchmarks so.
That was encouraging but we still have a ways to go in there I mean.
We're actually behind a bit on our capital allocation there on the rental because competitive shift and react to a bit to the retail so and again was with some of the availability.
Constraints that we.
We saw on the second quarter that impacted things a bit there, but overall I mean, we saw some improvement we'll see how it plays out for the balance for the year.
Thank you that's my 2.
Thank you thanks, Joe.
Thank you. The next question is from Scott ahead Cohen with.
We see capital markets. Please go ahead.
Okay, great. Thanks, and good morning, just kind of following up on the discussions around the inventory and kind of the outlook for more investments going forward I guess more from a philosophical perspective, I guess, where would you put the next dollar of investment are you thinking pushing it towards the new equipment because of the elevated back.
With maybe towards rentals, because the drawdown there how are you, making those decisions at this point in the cycle given demand.
Yes, I think I guess, nothing I would say, it's pretty standard approach that on.
When you think of the support of the business.
Obviously as demand warrants, we will invest in inventories.
And support the business growth, whether that's working capital parts support for.
For opportunities, it's inventory for new equipment, and as Scott mentioned, even securing used equipment and providing that to the marketplace. I mean, you know as demand warrants, we will continue to invest and we're prepared to do that.
I think the second piece there too is.
Backlog on Capex as we see demand moving we talked a little bit about rental again, we've increased our capex in that space.
We will continue to invest for the long term future of growing that business as well as well as as well as Scott mentioned, a few new locations and things like that so continuing to think about expansion and where we need to have a presence.
It also is investing in locations and the supporting our fleet debt that.
On that we require for that part of the business. So I would say the care and feeding in support of the business and organic initiatives would be the first focus of our investment strategy right. Yeah. We were pleased that the team was able to secure 3 relocations.
And into that expanded footprint strategy.
That means.
Allocates capital with rental fleets and things of that nature.
Yeah.
Okay, great. Thanks for that and then just in terms of some of the initiatives that you've put into play it on the Quebec Maritimes region. There was a bit of a push out I guess amidst the pandemic.
Any any updates on the progress with the ERP rollout, there and any opportunities for location on the Quebec side. I know you mentioned the interior won this any update on anything lots still to do on the legacy platform.
Well the integration.
Slow a bit there last year obviously.
Although during even though it depends on if we were able to.
To get the common ERP platform integrated so we're delighted that now were in a steady state.
For the dealership and for battlefield.
We still have.
Ways to go with some share with handling business on that integrate.
Confronted in working towards that to plug in there.
Platform there.
We still have we still have some things to work on operationally, particularly on the parts and service excellence initiatives that we.
Our focused on so that continues as well.
Average areas.
We're assessing so we're still got a ways to go there and particularly on the rental side on the rental services side, we're making progress, but we're not where we need to be.
There was improvement in the first half the rental revenues increased nicely, particularly in Quebec, I think we're up over 30% but.
You look at it relative to.
For the original investments, we still have a ways to go there in terms of our execution and fundamentals of running those fleets and coverage.
And then frankly, just squeeze in 1 more just on the commentary around having to hire technicians that demand kind of ramps up obviously, we're all seeing headlines around labor shortages on labor inflation. How are you finding it on the go.
Sound level.
It's an area that debt.
As a team.
With a lot of focus.
Yes, you are right its relative to its respective of the environment. We've seen it before okay. When you see these little up for these upticks so.
It creates.
Some complex.
Sitting on challenges, but you know what it's all about execution right and that's what we got to do and that's what we're focused on both on technician as well as you know.
The the supervision management in there that's another key element on the front lines.
Thank you.
Okay. Thanks Ann.
Okay.
Complex on queue. The next question is from Brian <unk> with Raymond James. Please go ahead.
Thanks, Good morning, guys.
Good morning, Brian Europe early on.
Of course of course.
As you reflect on the last year and a half here.
Are there practices you expect either yourself.
For your customers will adopt going forward that maybe you were not utilizing prior to the pandemic.
Buying and selling trends to shifts in a post COVID-19 world if at all.
Yes, I think I think there's many learnings both protecting customer.
Behaviors as well as how we will operate this is what.
We're assessing right now.
Operating income complex environment still but we are working on technology, what we've learned and utilization of technology, how we managed fleet, we manage distribution of Epo.
People and how.
Yes.
We integrate.
Internally and externally so per operate so these things there.
All being assessed.
Our plan.
And for monitoring customer activities and how they might be changing in this new world.
Now that we're.
We're operating in.
So I think it's really early still.
Relative to firm plans.
But it's something that is now part of our.
Planning process.
Okay. Thanks, and then maybe just to dig into supply constraints a bit more in particular.
Your parts, where inventory was down year over year.
Is there any concern on parts availability or signals, you're getting from your suppliers.
Well, we certainly saw some challenges creek and in the quarter again.
Really proud of the team they are working very aggressively with our supply partners too.
Senator those demand signals and planning a repair planning schedules.
So we'll see how things play out here, but it is at the forefront of heightened focus.
And.
Because we did see some some changes in there in the quarter on some of these.
Availability, but.
But again it comes down to a lot to do with us on our operating disciplines and so we're working hard on that front taking ownership.
Okay. That's it for me thanks.
Okay.
Thank you once again, please press star 1 on your devices keypad. If you have a question. The next question is from.
Maxim <unk> with National Bank. Please go ahead.
Hi, Good morning, gentlemen, just a couple of questions from me.
Okay.
The first 1 I wanted to circle back to the selenium locations that you've opened up for battlefield, just trying to get a better sense in terms of you know.
How long does it take for kind of a new location.
And to get to an optimal revenue profitability level.
Any directionality you can provide there.
Yes, it does take time.
We're pleased that we're able to secure those locations team did a nice job there, but you've got it you are going to put our fleets and their kid yourself established.
<unk> get the operating practices embedded so this this is not something that happens immediately can take you know a.
A couple of years to get to where you want to be and but we're just really pleased with it.
Footprint strategy is back at the forefront and we are able to move forward on a couple of these areas, but it takes takes time you got to mature.
It's like Quebec, I mean, we're still the aging of that fleet is not where we want it to be so it does take time.
Is that opportunity to add more locations.
That's something we strategically.
Look at.
Regularly and relative to our annual plans.
So that's ongoing.
So from a thank you and then last question.
You make an interesting comment around.
The ability to manage supply chain inventory.
You mentioned several times about enhanced forecasting capability on tools with your.
I mean, do you mind, maybe providing a bit of color in terms of.
How the management of all these systems is different now versus maybe 5 or even 10 years ago that would be super helpful. Thank you. That's a great. That's a great question, but we have more intel relative to data flow.
And so when we're monitoring.
Supply.
In the quarter increasing usage on.
On Iron, which was good so you start to factor those in and project debt with this data flow to help with your from your parts demand signals.
Repair schedules, where we work closely with customers and we're also getting.
Better connectivity with our CVA activity.
<unk>.
With our customers.
Theyre seeing value in that I think so so that's really it comes down to the data on the technologies to assess some of the predictive analytics to help on particularly on the debt part side, but also to help king good solutions.
Consultant services for a customer.
We saw on prime product ownership periods things of that nature. So a lot of dynamics in play there I think you know a long way to go but we're pleased with some of the progress on that transcends into our interface with our suppliers on the demand signals in the.
Yes.
So that's that's where we are on that front.
Right and.
Customers, maybe a follow up.
Maybe Mike can comment, but is it fair to say that obviously as you get.
Tighter in terms of managing some of these dynamics that we should see I mean down the line a positive ROI fee impact on is that how you guys think about this on farm like small.
Okay.
Zero.
Oh, yeah on.
These dynamics yeah, Yeah, I think like you say I think part of it is is the.
The efficiency and just.
The predictive nature of some of the analytics. We can do I think I think there's also just optimization just having better visibility of the integration of our platforms. If you think.
And I guess, even as we did with the QM business.
Those are fundamentals, where you have greater visibility across the network you can optimize locations you can shift.
Our fleets in the rental side, you can do some things like that and so that lends to.
On that lends to.
Our marginal benefits I think on on returns that we continue to chip away.
Okay. So on and so just having better visibility and then coupling that with better predictive analytics and ordering behaviors.
Behaviors and stuff I think over time can provide better efficiency on the model I mean, the market is very competitive and everybody is doing a bit of that and so you can expect that there is pressure.
And for more competitive on the margin side too so, but Max to your point I mean theoretically it should help but it all comes down to execution, Nick always right. So we're not getting ahead of ourselves here.
We're pleased with the progress, we're making in that relative to the investments, but we've.
Got to execute.
Okay. That's super helpful. Thank you so much.
Thanks Max.
Thank you there are no further questions registered at this time I would now like to turn the meeting back over to Mr. Mcmillan.
Great. Thanks, very much Atlanta.
And thanks, everyone for your participation today.
Our call.
To be Buddy.
Safe and healthy balance of your summer take care.
Thank you.
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Okay.
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