Q1 2022 Toromont Industries Ltd Earnings Call

Speaker 2: Michael McMillan. Please go ahead, MR McMillan.

Speaker 3: Great Thank you very much donena.

Speaker 3: Well good morning everyone. Thank you for joining us today to discuss tormont's results for the first quarter of 2020 -two.

Speaker 3: Also with me on the call today is scot mehurst, President and Chief Executive Officer.

Speaker 3: scot and I will be referring to our presentation that is available on our website.

Speaker 3: To start, I would like to refer our listeners to Slide 2, which contains our advisory regarding forward-looking information and statements.

Speaker 3: After our prepared remarks, we will be more than happy to answer questions.

Speaker 3: So let's get started. We can move to Slide three and scot will kick us off.

Speaker 4: Thank you Mike, and good morning everyone.

Speaker 4: We are pleased with our operating performance and financial results through a challenging business environment.

Speaker 4: While end market activity levels remain solid, as pandemic restriction ES in some markets, persistent supply constraint, pressures and inflation contribute to a fluid, complex and uncertain operating environment.

Speaker 4: The equipment group reported good activity in rental and product support, while global supply chain challenges persist and continued to impact timing of equipment deliveries.

Speaker 4: dimco revenues decreased in the quarter of timing of project construction schedules, while part support activity improved.

Speaker 4: Across the organization, we are continuing to leverage the learnings from the past year and maintain our operating disciplines, while incorporating new ways to do business with uncertain conditions.

Speaker 4: Current backlog levels are healthy and supportive future results. However, the global supply chain challenges persist.

Speaker 4: Product availability in most serious prime product components parts continue to be tight, resulting in shifts in delivery of prime product and repair schedules.

Speaker 4: Inflationary pressures- anticipated interest rate changes.

Speaker 4: Pricing increases from suppliers and other global economic factors and continued pandemic-related developments are also being monitored closely.

Speaker 4: Turning now to our financial results, highlighted on Slide four.

Speaker 4: The company reported improved results in the first quarter of 2022 compared to the prior year.

Speaker 4: End markets continue to be active, while bookings were lower by 16% the quarter compared to the cemer period last year, which included several large construction and mining orders.

Speaker 4: Backlogs were one point five billion a quarter, end up 68% versus Q1 2021, reflective of customer buying patterns influenced by the easing of pandemic restrictions, supply chain constraints, inflationary pressures and other global economic factors which have been overshadowing normal seasonality.

Speaker 4: In the equipment group mining construction represent approximately 30% and 45% of our backlog respectively.

Speaker 4: Sim go backlogs were 3% lower reflecting execution.

Speaker 4: On a consolidated basis, revenues increased 7%, reflecting improved activity in most areas and solid execution from our teams.

Speaker 4: Product support revenues increased 10% on increased demand in technician headcount, while rental revenues grew 29% on larger fleet and higher utilization.

Speaker 4: Operating income was 26% higher, reflecting higher revenues and gross margins.

Speaker 4: Expense levels were up slightly at 15% of revenue and 9% versus prior year, reflecting our continued cost focus in an inflationary environment.

Speaker 4: The team continues to manage discretionary spending areas reasonably well.

Speaker 4: Net earnings increased 24% in the quarter versus a year ago, while basic earnings per share increased 14 cents to 72 cents per share.

Speaker 4: Technician hiring remains a key priority and is essential to support the growing demand for our product support and project construction business.

Speaker 4: We value our team's ongoing commitment to adappt changes in the business environment and focus on safely executing customer deliverables.

Speaker 4: Activity remains sound, as demonstrated by new bookings and our current backlog levels but, as stated, supply chains are challengge.

Speaker 4: This has restricted availability and is likely to result in delivery date extensions.

Speaker 4: We continued to monitor cost pressures and supply-demand dynamics of the economic environment changes.

Speaker 4: Our team has also started to implement a gradual reentry plan enabling our employees to engage safely in our workplaces over time.

Speaker 4: We have learned a lot over the last few years and new ways to work have clearly emerged.

Speaker 4: one such example is the hybrid work from home and office model, which we will continue to be to refined as we find the right balance for our team and business.

Speaker 4: It's great to begin to see a higher level of in-person engagement, although how we work has changed and we strive to build our work processes that maintain our strong culture, operational and financial disciplines.

Speaker 4: Advance our service levels and enhance our competitive position across the business.

Speaker 4: And with that Mike, I'll turn it over to you for some more detailed comments on the group's results.

Speaker 3: Thanks scot. Let's start with the equipment group on Slide five.

Speaker 3: Revenues were up 8% in the quarter, with higher activity in both rental up 29% and product support up 7%, combined with moderate equipment sales.

Speaker 3: Total new and used equipment sales were up 4% overall. New equipment sales were constrained by supply chain challenges that are affecting the availability of inventory and delaying deliveries to customers.

Speaker 3: Sales across the market segments were as follows: construction markets: up 7%. Mining: up 49%. Power Systems: lower 25%.

Speaker 3: Material handling: lower 6%. In agriculture: lower 11%.

Speaker 3: Rental revenues were up 29% year-over-year across all market sectors and most regions.

Speaker 3: Please note.

Speaker 5: The year-over-year breakdown in our mdna was understated and should be as follows: combined light equipment and heavy equipment rentals increased 23% on improved utilization and recent fleet expansions, both reflecting improved market activity.

Speaker 5: Power rentals increased 32%. In material handling rentals were up 19%.

Speaker 5: Rpo revenue was about double on a larger average fleet.

Speaker 5: The RPO fleet was at five million versus 39 million a year ago- a nice increase, but still well below prepandemic levels.

Speaker 5: Product support revenues grew 7%, on higher parts at 6% and service up 11%.

Speaker 5: Market activity and construction and mining markets increased 11% and 7% respectively, with increases in all of our regions.

Speaker 5: Power Systems activity was relatively unchanged compared to the prior year, while material handling and agriculture were down on a smaller base.

Speaker 5: Service revenue growth also represents the increase in technician headcount to service demand.

Speaker 5: Gross profit margins increased 140 basis points in the quarter versus last year.

Speaker 5: Rental margins, contributed 1, one hundred and twenty basis points to margin reflecting improved activity and fleet utilization.

Speaker 5: Equipment margins contributed to 110 basis points to margin, reflecting strong demand and sales mix.

Speaker 5: Product support. Dampened margin: 90 basis points overall, with higher input costs due mainly to supply chain challenges and pandemic impacts.

Speaker 5: Selling and administrative expenses in the quarter increased one million or 10%.

Speaker 5: The increase is mainly attributable to higher compensation costs, up five point a half million, reflecting higher staffing levels, regular salary increases and increased profituring accruals on the higher income in the period.

Speaker 5: Other expenses, such as training, travel and occupancy costs have increased in light of activity levels, resumed spending and inflationary pressures.

Speaker 5: This was offset by a decrease in bad debt expenses of about one point seven million on improved collections. Selling in administrative expenses were 20 basis points higher as a percentage of revenues, at 15%, versus last year.

Speaker 5: Operating income was up 22%, reflective of the higher revenues and gross margins.

Speaker 5: Bookings were lower, 17% in the quarter, as several large mining and construction orders were received in the prior period.

Speaker 5: Bookings in the construction and mining sectors were lower, partially offset by higher power systems and agricultural orders. Material handling orders were relatively flat to prior year.

Speaker 5: Backlogs of one point four billion were 85% higher than this time last year across all sectors.

Speaker 5: Approximately 80% of which are currently expected to be delivered this year, but subject, of course, to timing differences depending on vendor supply, customer activity and delivery schedules. Now let's turn to syco on Slide six.

Speaker 5: Revenues were down 7% in the quarter on lower packaged revenues on construction schedules partially offset by higher product support revenue.

Speaker 5: Package revenues were down 34%, with decreases in both the recreational industrial markets. Package revenues were dampened by prolonged winter conditions in supply chain challenges which resulted in construction delays.

Speaker 5: In Canada package revenues were lower 41%. In the? U's package revenues increased 5% on a smaller activity base.

Speaker 5: Product support revenues increased 32% versus the first quarter of last year. On higher activity levels in both Canada and the? U's. Activity levels increased by the easing of pandemic restrictions and a reopening of recreational centers after prolonged pandemic closures.

Speaker 5: The increased technician base continues to support our backlog and positions the business for the gradual improvement of activity levels.

Speaker 5: Gross profit margins increased 230 basis points in the quarter versus last year. A favorable sales mix with a higher proportion of product support to total contributed 310 basis points.

Speaker 5: Gross profit margins and product support were up 10 basis points, while package margins were were lower by 90 basis points.

Speaker 5: Margins mainly reflect the activity levels, nature of projects in process and construction schedules, which can be somewhat variable.

Speaker 5: Selling and administrative expenses were largely unchanged from the similar period last year and expenditure control measures on discretionary spend remained in effect. As a percentage of revenues, selling and administrative expenses were higher at 17% versus last year, reflecting the lower revenues in the current period against the consistent level of expenses.

Speaker 5: Operating income improved to one point two million, resulting mainly from the higher gross margins with a favorable sales mix.

Speaker 5: Bookings were four million in the quarter, up 5% versus last year. Industrial bookings were up 17%, with increases in both Canada and the? U's as activity increased with the continued lifting a most pandemic restrictions. Recreational bookings were 8% lower on reduced market activity, mainly on lower bookings in Canada, down 23%, while bookings in the U's were up 80%.

Speaker 5: Backlogs of 17 million were 3% lower than the end of March last year, mainly related to progress of construction projects.

Speaker 5: Recreational backlog increases in both Canada and the U? S.

Speaker 5: Increased it in both Canada and U's. Industrial backlog decreased in both Canada and U's, reflecting project completions.

Speaker 5: Substantially all the backlog is expected to be realized as revenue this year. However, this is subject to construction schedules and potential changes stemming from the supply chain constraints.

Speaker 5: On Slide 7, I'd like to touch on a few key financial highlights.

Speaker 5: Noncash working capital was relatively unchanged versus a year ago.

Speaker 5: Our operating teams, with a keen focus on capital employed, have continued to proactively manage working capital to reflect customer requirements, activity levels and supply chain challenges.

Speaker 5: As receivable aging receives continuous focus and this trending well with DSO down two days compared to Q1 of 2021 .

Speaker 5: Inventory levels are higher than prior year levels driven mainly by the equipment group, including equipment work in progress, process in parts levels. Availability challenges however, persist.

Speaker 5: We ended the first quarter with ample liquidity, including cash of 796 million and an additional 467 million available to us on our existing credit facility.

Speaker 5: Our net debt to total capitalization ratio was at minus 8%.

Speaker 5: Overall our balance sheet remains well positioned to support changes in demand as supply challenges alleviate and as other investment opportunities arise.

Speaker 5: tormont targets a return on equity of 18% over a business cycle.

Speaker 5: Return on equity improved zero point one percentage points to 20% in the quarter, compared to 19.6 for 2021. This is close to our five -year average of 19 pointtwenty percent.

Speaker 5: Return on capital employed was 27% for the quarter, up from twenty-one point a half percent for Q1 of 2021, reflecting improved earnings.

Speaker 5: And finally, as announced by the Board of Directors yesterday, approved the regular dividend quarterly dividend of 39 cents per share, payable on July fifth of two y and 22 to shareholders of record on June ninth twent y and 22.

Speaker 5: On Slide eight we conclude with some key takeaways as we look forward to Q2.

Speaker 5: We expect the business environment will remain challenging with a number of factors in playwhile. Industry activity levels have increased as pandemic and restrictions have eased in most markets. Health of the global supply chain, inflationary pressures and other global economic factors are exerting pressure and presenting challenges that overshadow normal seasonality in customer buying patterns.

Speaker 5: We continue to proactively monitor developments closely and we stand ready to respond appropriately. We will continue to focus on our three key priorities: protecting our employees, serving our customers and protecting our business for the future. Across the organization, we are continuing to leverage the learnings from the past year with respect to cost structures in new ways to do business. Our backlog levels are supportive, but delivery schedules are subject to persistent global supply chain challenges.

Speaker 5: Technician hiring also remains a top priority to meet demand and build our team for the future.

Speaker 5: Operationally and financially, we are well positioned to effectively respondable of customer requirements and market opportunities, leveraging our operating disciplines and culture. We appreciate our entire team's exceptional effort and commitment to support our customers during such unique and challenging times. Thanks also to our valued customers, supply partners and shareholders for their continued support.

Speaker 5: That concludes our prepared remarks and at this time we will be pleased to take questions done up over to you. To set the first call, Please.

Speaker 2: Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speaker phone, Please letft your handset before making your selection. If you have a question, please press Star one on your devices key pad to cancel the question. Please press star two Please press Star one at this time. If you have a question, there will be a brief pause of participspin register. Thank you for your patients.

Speaker 2: And the first question is: some Jacob about from C Ib C, Please Class. Good morning DER got. Yeah, had a question on supply chain and and inventory. Looks like there were significant vestment into inventory during the quarter but and know inventory level still well, the whole low prepandemic levels maybe just comment on the lead times from CAT. You know how does it compare today? You know I know you talked a bit about concerns going forward, but are you seeing any? Any improvement today versus seplacity quarters or do you think it's just going to get worse?

Speaker 6: I'll speak to what we saw in the quarter. We continue to see challenges in there on some slippage in prime and parts that. The breakdown of that inventories is interestingwe.

Speaker 4: We have whip levels increased 43%. Portion of that is due to the partkss challenges, So that impacted execution of some of those repairs.

Speaker 4: Then you had parts and I think some of the parts build was due to some of the disciplines that were're taking place last year by our team and our suppliers that worked really hard on demand planning schedules. You saw some upload in their large components and some remote site requirements. So you saw some build in their but it still remains very challenging and complex environment. There's a lot of variation in their jacup rel to the types of products and components you're ordering. So it's tough to tyisolated into one tight number of a lot of variables in play and.

Speaker 4: That's what we saw in the quarter and with inflationary factors starting agreement and you talked about 80% of equipment backlog to be delivered over the balance of the yeardoes this assume thatsupply chain constraints ease through the year or?

Speaker 4: Well again I think that's what we see in the based on our current variables but.

Speaker 4: There's risk, right with. There's so many moving parts in there, we haven't seen this type of variation before- and slippage, So we'll see what happens. We're just giving you a number of what we see now, based on projectctions but, as we've been experiencing, these things continue to shift.

Speaker 7: So if you look at the hierarchy of availability that you know where a large trucks and is. It is a by size of machine, ry. It's based on models, it's based and it thre it all our businesses. I just want isolate, I think, because some of the other businesses are.

Speaker 4: Experiencing similar factors. So there's just a lot of variation in there by product families and models and components, different types of parts.

Speaker 7: Last question just on simco.

Speaker 7: How are you feeling about that business right now? I know there's been some focus specifically on the? U's. Do you feel like you're doing a good job there, or is there a lot more work to be done?

Speaker 4: There's still more strategic work to be done in there. We did see some progress in the quarter on revenues since profitabilityia there in the U 's. So we're satisfied with what's going on there what we were really pleased with that simco in the quarter was the product support side. We started to see that recreational service activities really start to improve. That's why it was key driver of those numbers and.

Speaker 4: thewhat we also saw the project side in terms of some bookings. Was this is an I think example of what's happened. isary pressures some of those recreational projects. There's a little bit of a pause and assessments that we're we were quoting on because of the inflationary factors. So now the bunch have to be reevaluated what was some of these recreational activities. So it shows you what can happen here with some of these inflationary pressures. So.

Speaker 4: But what we're we still? We love the simco business with return on capital component and strategically in the U's we remain focused on it.

Speaker 7: Great Thank you for your answers. Thank youthank you. The next question is from your remain from Canaccord Genuity. Please go ahead.

Speaker 8: And good morning. I Lo good morning.

Speaker 8: moring, can you talk a little bit about the steps you're taking to defend your margins from the inflationary pressures you talked about and to ensure that you achieve the target return on equity 18% that you've got out there?

Speaker 6: Yes's, and that's really where we are right now. We're we're trying to work on improvement of our ineficiencies. We're really pleased we got those ERP platforms integrated. We did in last year Q4. We got the material handling business integrated.

Speaker 4: That's all part of our operating disciplines are trying to improve our operating efficiencies. We're trying to maintain focus on discretionary expense as well, trying to be as efficient as possible in managing our asset management components of the business.

Speaker 4: So these are all factors, but you know we did see some shift in there in the quarter on expenses, we overall I think the operating leverage remain favorable, and other previous quarters, but we CAn't take that for granted and those are some of the areas we're working on gethaving to there. Yeah, I think the only other piece there you mentioned return on equity, and I think goes without saying the team know it's working really closely with our model. We were cloly with our customers, decentralized basis on know, managing receivables, invenattory levels, requirements and so forth, and so just really trying to trying to optimize the capital employed in the marketplace as well, and so you know's it. It's about margin. It's also manag the balancesheet and the teams done nice child there. This, this is so complex right now. You're balancing many factors, right and what? Certainly margin in, but you've got to be careful. You know you want to maintain your strategic approach on growth to bed.

Speaker 4: Populations and make sure you're building over the long term. This quarter by quarter analysis right now it's very delolicate. I think we're we're looking at this more broadly on full year than these quarter to quarters, because's there's some historical shifts going on then there- that in behavioral changes in customer activities. So these are things we're monitoring closelygot it. one thing you didn't mention in your margins, and I do get the efficiency side, but what about? It's probably the last leavever you want to pull, but passing some of this on to your customers. How of those discussions been that? That all comes down to your value propositions right, and how you your positioning yourselves in the market and how we we.

Speaker 4: Provide overviews to our customers. That's ongoing and yes, with these inflationary factors in play, it's we're monitoring end market activities closely. Okay, last one for me just curious if you're seeing any decline in your parts market share due to the supply chain issues, or are your competitors facing similar issues?

Speaker 6: I think in in the holistic view there's common alalthity throughoutit's timing to a large extent. So you.

Speaker 4: I think we're holding up reasonably well. We were pleased with some of the increases in those revenues both on parts and service. Really pleased on the service side with our headcount on the techniciian side, even with we some challenges on thats and D of them on the service side in the quarter, we're moving forward reasonably well. We're working strategically on our online parts. We ING improve in the quarter. Lots work in there, but we did, we did reason me well and that's an area remains an area of focus.

Speaker 8: Okay I'd better turn it over there. Thank guys. Thank IR. Thank you. The next question is from Michael jummee from Scotia Bank. Please go ahead.

Speaker 9: cagor, I gess what, Michael.

Speaker 10: First question just wondering if you guys can elaborate a little bit on the supply chain challenges and what you call the pandemic impacts that compress the product support margins in the quarter, whether that had to do more with parts or service, just trying to think of it's over time. If it's logistics and just have recoverable, you think that is in subsequent quarters.

Speaker 5: Yes maybe just to start on that, my gos. We mentioned, we mentioned both those areas and scot think talked a little bit to the part supply. I think there are two.

Speaker 5: two major factors. I would would say: you supply chain generallywhen we're doing repairs on equipment in the product support side, availability of parts and so forth, and just managing that flow as best we can. You can imagine there's a little bit of inefficiency there in times, just as we move units in and out based on parts of availability and trying to keep our technicians optimized and so forth, and so that groureeps in a little bit. Certainly we've had to deal with that in number of locations, but the team is doing a nice job. I think the pandemic component that we mentioned- and we have seen this scot mentioned some absenteism and it's come. It's come off a little bit recently. However, when you recall, early in the quarter we came out of the Christmas season in for January , February I think. Broadly speaking, absente levels were higher, cross most businesses and so we did see some improvement. We've we've maintained our protocols very tightly, masking social distancing, trying to keep everybody safe from some conttesting and things, and that's been helpful. But we have noticed a higher level which we're looking to try to manage very carefully So that itself brings.

Speaker 5: Capacity done a little bit as well. So there's some cocess associated there. That certainly makes sense when I appreciate the color there. And the second question on's G n A. anyway, you guys can help us frame it. You know's G n, how should should think about it through 20 and 20 two. Yes, you know whether growth and expenses will exceed C P I maybe you know there's discretionary spend that comes back and you're looking at acity or you know whether or not you still have levers that you think you could used to offset some of those inflationary pressure. Is just trying to really place's G n's G a growth in 20 two or 20 two.

Speaker 4: It's hard respectively. You're right, like the inflationary pressures are real and that's where we're maintaining a lot of focus on the operating efficiencies.

Speaker 6: That's where I think can make a difference but things are starting to open up and we do have to be attentive to our culture here' in reconnecting it's been a few years operating in this unique environment. So.

Speaker 6: But I think, from our efficiencyes' perspective and just on some of the discretionary, that's what we're we're going to focus and in regards to these expense levels, but what the flationary pressures are real and we're going re going try manage them the best we can. Being efficient on your asset management comes into playate here as well. Right and strickly one year're in these very fluid and complex environments, things can shipt quickly. So you've got to be attentive to those, those assets, as well. Asset management.

Speaker 11: Got it. I'm going to seek in a third. I'm just curious- and thiswas dissic, got's previously, yet with simco.

Speaker 10: Some pretty good products for growth there. I'm just wondering whether there was kind of some kind of one timeish based on the reopening and recreational just the overall sustainab ofthosenumb is. I'm just trying to get a better sense really.

Speaker 10: For simco recreational and industrial activity. oums moved inversely since the pandemic started. I'm just trying to think about how we come out of into 2022 and beyond and how much growth. To think about how those two markets shape up.

Speaker 4: That's a great question, because have we've just been operating in such unique environment at simco as well, and that's what know. That recreational activity was a.

Speaker 4: Bit of a drag when you compare it.

Speaker 6: Previous from historical levels. It came back in the quarter. We're delighted it and we were able with with some execution taking place, finishing projects. We were shifting over to recreational, So that worked out reasonably well. Again I don't want to speculate, but it was just. The recreational came back and I think you know hopefully we're going to get back into a normal demand signals here with the recreational side of is on the service side.

Speaker 6: As I said, on the project side, there's some caution in there right now. We'll see how that plays out, but the service certainly came back.

Speaker 5: Maybe just just on that to Michael, I thinkyou sort of touch on it. one of the things we've been experiencing. scot mentioned the uniqueness of the environment overriding normal seasonality. We'd normally see more of a ramp up in Q4, maybe spread over several months. We did see, as scot said, we did see some of that pickup here So I'd be careful there, I think. Think I think also when you've had a nice plant down or you've had refrigeration down, there can be some costs were start up, especially if it's an ialle for year a half and that likely WOn't get and WOn't persist. But you know the ongoing maintenance. We're hoping it's going to be more consistent.

Speaker 6: And that's a good point. This we had it. We had a lot of close-ups on some of that service that were pent off of bit as well, So that certainly contributed as well as we're.

Speaker 4: Waiting for supply and things. So you got to be careful in your interpretation in there. Appreciate the color this quarter again guys, but thank you well.

Speaker 2: Thank you. The next question is from sheryn radborourne, from TV Securities. Please go ahead.

Speaker 12: Thanks very, I think, good morningi're hoping you could give us a bit of perspective on how your customers are reacting to these supply chain constraints and whether you're starting to see them come to you more proactively to understand what their options are for projects a little further out. Are they starting to try to get ahead of inflationary price increases? Just a bit of color there.

Speaker 6: Yes that's been going on for a while now, and that's why our planning is really important with our customers as well as our supply partners.

Speaker 6: thingsms have been doing a lot of work and they're working closely with customers on their demand signals, So that continues. In terms of end market activities we.

Speaker 4: Again these quarters and buying behaviors have shifted dramatically over last year and a half or so. We talked about that a lot last year, particularly in the first half last year. Those are credible historical end user activity levels. So we actually overall the numbers are still solid. On market activity, some of the smaller iron, we did see some softening.

Speaker 6: But it had to happen. I mean, the demands have been so strong, but what we were pleased. When you look at and try to interpret end markets, we were very pleased with that rental activity. That rental activity and start to come back. We were positioned for it.

Speaker 4: Our fleets of sizes have increased slightly, still not where we want to be surete and that- but strictly on the rental services business. I mean we expanded the footprint last year.

Speaker 6: And invested there a bit more. Really was pleased with the QM activities. On rental: still a long way to go in there, but that improvement really.

Speaker 6: Satisfied with how the team on the rennold servic side start to move forward and the market, the end user activities improved both on time and the dollar utilization. So that was that was good to see that.

Speaker 4: Do monitor that key strategy going forward.

Speaker 12: And presumably being able to share inventory between your own branches- whether it's prime product or reumble fleet- and with other cdealers is critical in this environment. Can you just give us a bit of color on the extent to which you're taking an advantage of that to satisfy customer requirements and the extent to which having a broader franchise of your own is helpful in that regard? That's extremely helpful or counals to power of scale, and you know, with that expanded territory.

Speaker 6: Because we that's been going on, for while shifting products of you know, in normalized environment you really stay this point on your pipeline and where you deliver directly. But you know that's part of expenses. We're dealing what's right now because you are moving around a bit relative to demand but at least we have the a bit more scale to handle that. In terms of you know, acquiring iron from other dealers, everybody's tight So I think everybody's being cautious on that front in terms of movement of iron outside tertory know what. one other aspect of that I think to sheryland is just the remanufacturing in all our shops rebuilt buying, our helping customers with alternatives I think also has has been very important for us as we've talked all over several quarters right. That's been an active part of our business. We were satisfied again with the used revenue stream quickly.

Speaker 6: On the larger products construction mining. Our used purchases were're up again: pu 52% team steams working hard in their tight. It's not easy but it was good to see a little more progress on that front as well. But it'sa it's a delicate environment channel and we're not getting ahead of ourselves here. We're very fortunate it maries of that quarter.

Speaker 12: Maybe just in terms of a longer term question, can you give us some color on the critical moral strategy that was in the latest federal budget and just what that might meaning for your territory kind of be in the long term? Sure miss that critical, the critical Mineral strategy. Minerals yes, that's interesting.

Speaker 6: We're monitoring that closely with our customers, I mean think mining industry overall for us over the last years.

Speaker 6: Been favorable with the backlog and the team's done a nice job ningneeds some business. In there customers we'll see how that plays out obviously a lot of activities in there with mlectfication and things and help how.

Speaker 6: In our territory with some of the Mineral diversity in there. We'll see how that plays out early stage, but we're monitoring to things in there closelythank you for the time. Thank you, CH Jo.

Speaker 2: Thank you once again. Please press Star one if you have a question and the next question is from Maxim cchair, from National Bank financial, Please go ahead.

Speaker 13: one and gent, lemen the lowry maxbei'll search with. I think Mike made that comment around how the supply chain issues right now kind of impactingon the typical asonalgy. I'm just wonderingif you can maybeclarified kind of built on that comment in terms of- I don't want to be too obviously short term focused, but in terms of how that could be impacting kind of upcoming Q2 relative to how we see sort of revenue RP typically use quarterin terms of the seasonality. That's what you're focused on. There is right, the normal behaviors yes actlythat, yes.

Speaker 6: And you know these these quarter-of-quarter comparisons. Right now are very complex in my view because you know you had last year. We saw his and first half saw some historical behaviors withend user. I think you know we got to look at how these markets evolve over UL role in 12 at least to see how it all all plays out because of the complexities because of your supply challenges and.

Speaker 4: Shifts that are taking place right now with new to use. I mean it's it's just a lot of variables in play there on the normal behaviors in the historical quarter-over.-quarter. So, and there's always some lumpiness. As you know MAX, with large instruction and power in particular, and mining, you get some lumpiness in there, even on we see that our syplco business. So that's another factor that has always been there and that' that impacted some of these.

Speaker 14: These COS as well right okay that's helpful and then just let lybe thinking about labor and kind of the fight to get the technicians especially when I see sort of huut patch decoupling from gear on their marketing abagram into North America and I think they're going to be looking to scale up the distribution that work. I'm just wondering in terms of labor and how you're addressing this issue specifically yes.

Speaker 4: There's no question, that's another key variable that is challenging right now. I'd say we're, we're satisfied, we still we want to do better in their terms of recruitment and retention and but also it goes beyond that. Like we're, we were pleased last year with our buildup of apprenticeships. On the apprenticeship program, I think we're up 31% on apprentices, So that's that's good. You need to continue to focus on that as well. That's another variable. We focus on the training component. We're starting to see our training costs go back up what we need to this this environment over the last few years challenging on that front. So we're ramping up there and we think that's a recruitment component that we really can offer. So these are things we're focusused on. On that front. There's a lot of moving, moving things that we think we can do to retain, but it is challenging, there's no question.

Speaker 15: And then maybe just one last 1, if I can again, you mentioned in the mdna ag being down yon year. I'm just curious in terms of the output for that part of the business, given where obviously food pricing has gone up. So presumably we should see improvements in this. But just curious. Any colum on the site I take take play again.

Speaker 13: Yeah OK or excellent, but's we think very much, Thank you. Thank you. The next question is from saabhhad con from R B C capital markets. Please go ahead.

Speaker 16: And great thanks and good morning. Just I guess, directionactually speaking, can you talk about the inventory that you do all have on hand and you how does that align with the backlog in terms of composition? I So the comment about 80% of your sort of best estimate at this time- But how do youfeel about that- makes So what you have on hand or what might be available in the next little while relative to the demand that you have.

Speaker 17: it'.s we'd like to be bettertheyou know that again, that 80%.

Speaker 4: That's what we saw based on our signals in the quarter but that things are changing rapidly. So we're being careful with that number right. It just continues to vary byy model and it goes beyond just just prime product. It's in your component rebuilds as well. I mean we were pleased. Our rebuilds increased again on revenue on volume. I think was over 80%. So that you but.

Speaker 4: We just got to be careful with projecting here. Right now we're just staying within the quarters and see how it plays out, because it is is tight and But I our inventory levels did go up a bit, but a lot of that was due to the whip. Somewhat was in some models that on knew which, which was helpful as well as we described the parts component.

Speaker 5: Yes in addition to that too. So I think at times our units have gone up and you'll see the breakdowns in our disclosure, but we could be waiting on attachments, add on some things, as well as parts on certain areas right soalso again, supply constraints are the challenge and we're just kind of wor throughit. As scot mentioned, it's by model, but it's also it's also on things like that that also complement the base product, and I think I mentioned it before. I mean we're.

Speaker 4: You know we've got to execute that backlog. You know So I don't. We've got a group as well with all these variables in play. So then there's a big picture of gu. Backlog is in a good shape. But how are your discussion going when your clients, whether it's a CRO infrastructure or maybe even more on the inside, but the demand looks to be good we're now, but no, it's getven on mrostff. That's happeningwhether's its icalstuff like every te talent. Or to change in tone at all, or is it more just business as usual still?

Speaker 4: We're working closely with our clients. We we're fortunate last year with the business that was earned. That's in that backlog. We're working very closely with our mining customers to make sure we're meeting their demands both on the product sport side as well as PR product again look at mining is very cyclical. We don't get ahead of ourselves. There. We've we've seen the interesting shift before or many many years through mining and particickly with this type environment. So we're being cautious and working closely with our suppliers as well as our customers to keep things and in check. There So.

Speaker 4: Lot of work going on in there to make sure we deliver and execute with our customers. And then just one last one for me- and you're probablyanticipatingin this question, but I guess- was the cap locationside at this point in the cycle. I think the focus of the last year heard a lot on CapEx and working capital. Is that still the focus are? Are you thinking about that now, given the balance sheet?

Speaker 5: Yes yes, a good question. I wouldn't say things shifted their satellite. When you look at our cash balance you see it come down, but on hundred 20 or so this quarter juston the inventory and they are supporting the business. So first and foremost, we anticipate that, like we've said for the last several orders frankly, working capital as we can, we're building some inventory and getting up to more normalized levels and just managing the demand there. Capex, as you mentioned, we have been talking about again putting more capital into the fleet. We're quite pleased with how the rental businesses going and go back to the n row times in battlefield and we're adding more capital, as we did last year versus two thousand and 20, to build out that fleet, so forth. We have a few facilities we're also playing some capital into. We have mentioned a few new opportunities in battlefield, moving our simco office, a little bit of capital there and also on the torma outside to support some of our product support business. So the focus right now is is supporting the organic growth and the requirements of the business.

Speaker 5: And you know working our way through the year on that basis right as availability improvesand sorry if I could squeeze in one Quick one is on the mention of a Q1 region is there any still major integration stuff still have to do on that front or is it more just kind of getting you to the system that you've rolled out and then you you know what it's be field locations or any of that. So just maybe even a percent update on where you are on your planned Jo have to what you initially anticipatedyeah. I'd say we've come a long way. There. Even pendemics focuseded down a bit but getting the.

Speaker 4: Those systems integrree, it was key and that's certain helping on the operational side. We still have a ways to go, as as know that with Yeah, training and on the rental services, a lot of work to place last year to give us a better outcome. But we still have room to improve in there. But you know we don't like talking about, like proving it, So that's sort of where we are. But we did make progress in there, particularly with our coverage model and and then in interior of course we expanded the footprint a bit and we were, we are, satisfied with the early stage results there. We're keep working hard at that. And then you know there's some other areas of the business on the some of the larger equipment in Q M that we continue to work on so, and our coverage model as well. So I'd say you know we've done reasonably well there.

Speaker 4: Certainly when you go through these types of cycles, scale has been. We've been fortunate with that scale. I'd say what we So always to go, but what we have to prove it still, the progress is being made, Thank you, Thank you. The next question is from Brian fast, from Ray James, Please go ahead.

Speaker 8: yesgoodning. Gentlemen, just one question for myself here. The bulk of them have been answered. I was hoping to get some more color. Just on rebuilds, have you noticed an increase, I guess, in customer appetite for rebuilds as they look to address their own sustainability goals?

Speaker 4: Yes that's a great question Brian the rebuild in our the manufacturing center. But that's we probably don't talk about that enough in terms of the circular economy and.

Speaker 4: Even last year, I mean, I think we rebuilt over 400 engine.s, So it continues to be a key strategic area for us.

Speaker 5: The end user demand for continues to increase, particularly given the shifts in constraints here. So we saw in the quarter we saw continued improvement on the rebuilt activity, both on the units and the and the total volume. As I said, I think our total volume was up quarter over-quarter, about 80% on rebuilt. Those are large rebuil, certified in cptt. So we continue to invest in there and that's we continuue to really be focused on what demand signals for component requirements, their tight. So yes, that's a key area in.

Speaker 5: It's good on the. It makes a lot sense on the SG site from the circular economy perspective. Good, that's for me. Thanks, Thank you thanks good, Thank you. Don no forurthe questions. I iste out this time. I'd like to turn the meeting back over to MR McMillan. Great, Thank you again, Donna. Before concluding the call, I'd like to remind listeners that our annual and special meeting of shareholders will be held today at 10 am. This is a virtual meeting only. Website details are available on our website, of course, at tormont T com. Thank to everyone for their participation today. This does conclude our call. Please be safe and have a great day.

Speaker 2: Thank you, MR mcnoonthe conference has now endedplease disconnect your lines at this time, and we thank you for your participation.