Q2 2022 Toromont Industries Ltd Earnings Call
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Good morning today is July 27th 2022.
Welcome to the terrible second quarter 2022 results conference call.
Please be advised that this call is being recorded.
Host for today will be Mr. Michael Mcmillan.
Please go ahead this mcmillan.
Thank you Paul good morning, everyone.
Thank you for joining us today to discuss Tora months' results for the second quarter and the first half of 2022.
On the call with me. This morning is Scott <unk>, President and Chief Executive Officer Scott.
Scott and I will be referring to the presentation that is available on our web site to start I would like to refer listeners to slide two which contains our advisory regarding forward looking information and statements.
After our prepared remarks, we will be more than happy to answer questions. Let's get started we can move to slide three and Scott will start us off.
Thank you, Mike and good morning, everyone.
In June we announced my intention to retire after 34 years with tourmaline.
Including the past 10 years as president and CEO .
The company is well positioned and the timing is right.
Yeah.
In addition to offering a lengthy noticed I've offered to assist in the <unk>.
Transition.
As an adviser to the new President and CEO .
A special committee of the board of Directors of <unk> has been struck to address an orderly transition and has initiated a comprehensive process.
It has and continues to be an honor to work beside an incredible team supportive supply partners loyal customers and shareholders for these many years.
Now turning to page four of the package.
We are pleased with our operating and financial performance during the second quarter and the first half of the year.
And market activity levels remain reasonably solid.
Persistent supply constraint challenges macroeconomic developments continue to contribute to affluent and complex operating environment and this is expected to continue for some time.
The equipment group reported solid results in rental and product support well global supply chain challenges persist and continue to impact the timing of equipment rental disposition in parts deliveries.
Chemical revenues decreased in the quarter on timing of project construction schedules against a strong comparable last year.
Product support activity improved.
Across the organization. There is continued attention to our operating disciplines, we're working closely with our customers ensure and stakeholders to manage through persistently uncertain conditions.
And backlog levels are healthy and supportive of future results. However, our global supply chain challenges do persist.
Develop really most serious prime product components and parts continue to be tight resulting in shifts in the delivery of prime product and repair schedules.
Inflationary pressures ongoing interest rate changes pricing increases from suppliers other global economic and geopolitical factors and continued.
Developers are also being monitored closely.
Turning now to our financial results highlighted on slide five.
The company delivered strong bottom line results in the second quarter and the first half of 2022, reflecting a favorable sales mix consisting of higher rentals and product support revenues to total.
<unk> gross margins managed expense growth.
And lower net interest costs.
Revenues were challenged by a tough comparable in 2021, which benefited from an increase in equipment and package deliveries.
I mentioned earlier the current year continues to be challenged by a host of ongoing supply chain and macroeconomic factors some of which have not been fully realized such as inflation and interest rate changes.
Backlogs for $1 5 billion at quarter end up 53% versus Q2 2021.
With increases in both the equipment group of 59% and simple up 18%.
Reflecting strong order activity over the past year, coupled with ongoing supply chain constraints.
On a consolidated basis revenues decreased 4% quarter were largely unchanged at $1 9 billion on a year to date basis.
In the quarter equipment sales were down 19% compared to the prior year with the equipment group down 16%.
Package revenues were lower by 38% with both groups continue to experience delays in construction project schedules and deliveries due to supply chain constraints in the current year.
Product support and rental revenues increased in both the quarter and on a year to date basis.
Product support increased on stronger demand and a technician availability.
With work in process levels remaining high while rental revenues increased on a larger fleet higher utilization.
Operating income was up 28% in the quarter and 26% year to date, primarily due to higher percentage of rentals and product support revenues to total improved gross margins expense levels were up slightly at 12, 1% of revenue, reflecting continued cost focus in an inflationary environment and in support.
The graduate business reopening.
Net earnings increased 31% quarter.
28% year to date versus 2021, well basic EPS increased 32 cents to $1 35 per share in the quarter and increased 46 cents to $2.08 per share on a year to date basis.
We are proud of our team as they continue as they remain committed to a disciplined execution of our diverse operational model adapting to changes in this business environment, while remaining focused on executing our customer deliverables.
Activity remains sound with favorable backlog levels, but supply chains remain challenged.
As restricted availability is likely to continue to result in delivery date extensions.
Delek challenges remain and we continue to measure inflationary pressures interest rate movements and supply demand dynamics as the economic environment continues to evolve and change.
Fishing hiring remains a priority for our product support offerings and to meet our long term growth objectives.
The diversity of our geographic landscape and market served extensive product support service offerings technology investments and financial strength together with our disciplined operating culture continues to position us well for the long term.
Mike I'll turn it over to you for more detailed comments on the group results.
Thanks, Scott starting with the equipment group on slide six.
Revenues were 2% lower in the quarter and up 2% on a year to date basis on weaker equipment sales offset by higher product support and rental activity in most markets and regions.
Total new and used equipment sales were down 16% overall in the quarter.
Down 9% year to date sales.
Sales decreased across all markets and regions in both the quarter and year to date, new equipment sales decreased 19% in the quarter and 12% on a year to date basis. That's continued inventory supply constraints delay deliveries to customers you used equipment sales decreased 7% in the quarter and increased 1% year to date.
In the quarter construction markets were lower 15% mining lower 25% power systems that were 14% material handling lower 49% in agriculture.
4%.
As Scott mentioned.
Rental and product support performance, partially offset new and used sales in the quarter.
Rental revenues were up 19% in the quarter and 23% year to date.
All markets and segments were up reflecting continued improvement in market activity in the second quarter and for the first half of the year.
[noise] light equipment rentals were up 22% in both the quarter and year to date heavy equipment rentals were up 3% in the quarter and 13% year to date power rentals were up 38% in the quarter and 35% year to date.
Kirill handling retro rentals were up 16% in the quarter and 18% year to date.
The RP O fleet rental with a purchase option fleet was at $44 2 million versus $32 2 million a year ago, reflecting higher demand. However is still well below pre pandemic levels.
Product support revenues grew 14% in the quarter and 11% year to date in both parts and service revenues and the majority of markets and regions.
Activity with within construction markets was up 17% in the quarter and 14% year to date money was up 15% in the quarter and 11% year to date material handling was up 19% in the quarter and 6% 6% year to date.
Agriculture activity was down for both the quarter and year to date, reflecting a slower start to the year.
Gross profit margins increased 380 basis points in the quarter and 280 basis points year to date compared to last year with approximately half of the improvement driven by favorable sales mix that being higher product support and rental revenues to total.
Rental margins were up 80 basis points for the quarter and 90 basis points year to date, reflecting improved activity and fleet utilization.
Equipment margins contributed 70 basis points in the quarter and 90 basis points year to date, reflecting sales mix new versus used product support margins improved in the quarter, but were lower in the first half with higher cost stemming from the supply chain challenges inflationary factors and persistent.
To make impact.
Yes.
Selling and administrative expenses in the quarter decreased $2 1 million or 2% were up $8 1 million or 4% for the first half of 2021.
Compensation costs were higher in both periods, reflecting staffing levels regular salary increases and increased profit sharing accruals on higher income.
Other expenses, such as training travel and occupancy costs have increased in light of activity levels resumed spending and inflationary pressures well information technology spend has decreased on the completion of several integration projects.
Bad debt expense increased $1 2 million in the quarter on slower collections late in the quarter and decreased <unk> 5 million on a year to date basis.
Selling and administrative expenses were 20 basis points higher as a percentage of revenues that is 12, 9% versus 12, 7% last year.
Operating income increased for both the quarter up 30% and year to date was up 27%, mainly reflecting the higher rental and product support revenues improved gross margins and favorable sales mix bookings decreased 37% in the quarter and 27% year to date across most sectors.
Sept for material handling, which was up 40% and agriculture up 36%.
Construction and mining bookings were down, 43% and 5% respectively in the quarter, reflecting a strong prior year comparable that included several large orders power systems were also lower 42 per cent.
Backlogs of $1 3 billion or 59% higher than this time last year across all sectors.
Approximately 65 of which are currently expected to be delivered this year and subject to timing differences, depending on vendor supply customer activity and delivery schedules.
Let's now turn to Simcoe on slide seven.
Revenues were down 21% in the quarter and 15% year to date, mainly due to weaker package revenues versus a tough comparable which included several large construction projects last year compounded by supply chain challenges, which is resulting in the deferral of some construction scheduled product support sales were up 14% in the core.
And 23% year to date.
<unk> continued to present strong results, especially in the recreational market.
Package revenues were down 38% this quarter and three 7% in the first half of 2022, largely due to several large industrial projects in process in Canada in the prior year.
Industrial market revenues were down 52%, partially offset by an increase in the recreational market up 9% for the quarter. The U S markets are relatively consistent revenues year over year for the quarter.
On a year to date basis, both market segments were down primarily due to large industrial project as previously noted.
Product support revenues improved by 14% in Q2, and 23% from the first half of the year versus last year.
Revenues in Canada increased 24% in the quarter and 30% year to date, reflecting higher economic activity levels.
Activity levels increased with easing of pandemic restrictions at a reopening of recreational centers after a prolonged pandemic closure.
In the U S revenues were down 9% for the quarter and up 3% year to date the increased technician base continues to support our activity levels.
Gross profit margins increased 420 basis points in the quarter 330 basis points on a year to date basis.
Versus last year.
Both sales mix with a higher proportion of product support revenues to total accounted for 250, and 280 basis points of the increase respectively.
Package revenues improved.
In both periods on improved execution and the nature of projects in process that said product support margins were slightly lower in both periods on inflationary factors and supply chain constraints.
Selling and administrative expenses were up 3% in the quarter and 2% year to date, mainly reflecting increased occupancy costs associated with relocation of the Canadian head office to Burlington and changes made another branch facilities expenditure control measures on discretionary spend remains in effect.
Operating income was down 16% for the quarter and 4% for the first half of the year, reflecting lower package revenues, partially offset by the strong product support revenues and higher gross margin on a favorable sales mix.
Bookings were up 6% for the quarter and year to date at $48 9 million in the quarter and 88 points.
$7 million on a year to date basis.
Industrial orders were higher in both Canada, and the U S. While recreational orders were down mainly in Canada.
Offset by an increase.
And orders in the U S.
Backlogs of $174 5 million or 18% higher than the end of June last year, both recreational industrial DUC backlog increased in part, reflecting slightly better order input in the deferral or delay in construction schedules, resulting in some supply chain constraints.
Recreational backlogs increased in both Canada up 16% in the U S up 78%.
Industrial backlog also increased in both Canada up 5% and in the U S up 26%, we expect approximately 95% of this backlog to be realized as revenue in the year. However, again this is subject to construction schedules and potential changes stemming from supply chain constraints.
On slide eight I'd like to touch on a few key financial highlights.
Noncash working capital was relatively unchanged versus a year ago up 2%.
As always our operating team's focus on capital employed and continue to proactively manage working capital to respond to customer requirements activity levels and supply chain challenges.
Accounts receivable collections were slower, but DSL up five days compared to Q2 of 2021.
And group was up five days and simple was up 14 days inventory.
Inventory levels are.
Our higher than prior year levels, driven mainly by the equipment Group Inc.
Including equipment work in process and parts levels.
Availability challenges, however, persist and key contributor to this increase.
We ended the second quarter with ample liquidity, including cash of 778 million.
And an additional $465 million available to us under our existing credit facility.
Our net debt to total capitalization ratio was at minus 7%.
Under our N T. I D program, the company purchased and canceled 362000 common shares for $37 7 million during the quarter.
It is intended to exercise good capital hygiene, primarily by mitigating option exercise dilution.
Overall, our balance sheet remains well positioned to support the operational needs be prepared to manage challenges related to the economic variables, we're all experiencing and consider other investment opportunities as they arise.
Paramount targets are return on equity of 18% over a business cycle.
Return on equity improved one five percentage points to 25% in the quarter compared to 19% for 2020 one.
This exceeds our five year average of 19, 8%.
Turn on capital employed was 29% for the quarter up from 24, 2% for Q2 of 2021, both metrics, reflecting improved earnings and capital discipline.
And finally as announced the board of Directors yesterday approved a regular quarterly dividend of 39 cents per share payable on October four 2022 to shareholders on record September eight 2022.
On slide nine we conclude with some key takeaways as we look forward to Q3 in the second half of 'twenty two.
We expect the business environment to remain challenging with a number of factors in play while industry activity levels have improved as pandemic restrictions continued to ease in most markets.
Also the global supply chain inflationary pressures and other global factors are exerting pressure in presenting challenges that overshadow normal seasonality and patterns.
We continue to proactively monitor developments closely and we stand ready to respond appropriately.
We will continue to focus on our key three priorities protecting our employees, serving our customers and protecting our business for the future our backlog levels are supportive but.
Subject to global supplier challenges and related delivery schedules tech.
Technician hiring remains our top priority to meet long term demand and build our team for the future operationally and financially we are well positioned to effectively respond to both customer requirements and market opportunities leveraging our operating disciplines and culture.
We greatly appreciate our entire team's exceptional effort and.
Commitment to support our customers during such a unique and challenging time.
Thanks also to our valued customers supply partners and shareholders for their continued support.
That continues our prepared remarks at this time, we'll be pleased to take questions. Paul over to you to set up the first call. Please.
Thank you very much we will now take questions from the telephone lines.
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Yeah.
The first question is from Jacob bout from CIBC. Please go ahead. Your line is open.
Good morning, good morning.
Jacob.
So the first question is on the sustainability of margins I think when I look back.
This is the highest second quarter EBITDA margins ever and mean, obviously mix plays into this but maybe just talk a bit about the sustainability is this the new normal when and how should we think about inflationary pressures heading into the second half.
Well I think I think similar to what we commented on in the first quarter I mean, you're you're in a very.
And complex operating environment.
We were pleased at.
You know when we we stuck to that rental strategy as best we could through some difficult times with low utilization.
And are you know, we're really proud of the team that they stuck with it and of course the.
The integration of Quebec in the Maritimes on the go to market approach.
No I mean, not started too that really paid off for shows what can happen with that operating model.
Those utilization numbers were really strong we've been uploading, we even expanded our footprint in there last year.
With the capital allocation and that contributed as well. So we're really pleased with the team's execution on it came true everywhere Jacob It was it was the power rental was the heavy rental component. It was material handling rental and then of course, the full rental services model. So it was favorable.
You have a I mean, I think we were fortunate with the how it was executed with combined with the product support.
We had nice growth in there in the product support side. So you had you had those two go to market channels are doing reasonably well.
And.
Yeah, Alex shows the strength of that model in terms of going forward. I mean, I think you know there's a lot of factors in there right now with inflationary factors interest rate changes our monitoring things closely but you know we've we were we were fortunate with how some of those most models played out and came together so.
That that's that's what happened to choices the diversity of the model, but you know the equipment sales were down a lot of it was due to the constraints. So you've got some shifts in there that led to this outcome. So and again some results are distorted and have been for a while now so I think you've got to look at.
Things over the longer term.
The second question here is just on on new bookings, you know down quarter on quarter and year on year.
You know it looks like construction power systems and markets down are you seeing any evidence right now, but you know construction project decisions are being pushed out.
So I think it's important to understand this.
Tough comparable on a quarter over quarter, and that's why again I think a year ago.
You know when you look at the views of whats going on you've got to look at it longer longer term last year, you'll recall in Q2, we said those were historical.
Historically strong.
Our second quarter activity levels.
And when you compare it on a previous years.
And it's a lot of it was do you remember when we were just starting to open up it was coming out of the pre the pandemic buildup I think so.
So we knew this was going to be a tough comparable.
When you break it down I mean, certainly the industry activities came off over 20% on a quarter over quarter basis, but that was expected that they were still historically strong when you compare it to pre pandemic I mean, it was reasonably solid.
But and there was some shift there also on how the mix plays out in your industry activity. So you know a little more smaller activity or smaller products. So you know there were some tough comps and they're tough comps at central as well. So that's what went on there.
So any evidence of sticker shock at all one on one.
Well that's.
We're we're monitoring that closely right because you're starting at that quarter Bill you started to see.
See the trends of the increased inflationary factors that where we're building throughout the quarter. So that's you know we're monitoring I mean, the backlog is strong.
And you know I think the key is that we continue to work hard on our value propositions with our customers and that's what we're doing and just maybe Jacob just a little more color on the on the bookings and so forth for Q2 like when you think of where we've been go back to 19, we would we work we're slightly above where we would be in this quarter for.
Example, I think we were at about 470 million back in Q2, and 19 that dropped in 'twenty with the pandemic of course that was the first full quarter right at 350 or so.
And then Q2, we saw an exceptionally like more activity a lot of buying patterns have shifted and we were up around 680, so comparatively where we are this quarter at four.
448, or so is lower but relative to what you might think of and I wouldn't say, we're near normal seasonality, but just to give you the color of the the trending has been as Scott said distorted due to all the other exceptional factors.
But that gives it some context when you think of pre pandemic levels.
I appreciate the color. Thank you. Thank.
Thank you.
Yeah.
Thank you. The next question is from Michael <unk> from Scotiabank. Please go ahead. Your line is open.
Hey, good morning, guys. Good morning, Michael Good morning.
Yeah, you spoke about the increased inflationary factors to the quarter and I'm wondering if maybe you can help us think about the cadence of the business trends here.
One thing just in terms of what we're reading it does seem like the sentiment for non res construction remains quite resilient, even I guess given all the bearishness in the markets.
But any color in terms of customer behavior purchasing patterns as Q2 progressed any change from beginning to quarter two to call. It July .
Well, the only trend and saw it wasn't me again, we knew it was going to happen with it.
And that historically high activity level.
Last year, we knew it would get into a more regionally comparative to previous Q2's in cycles. So that that happened you know activity levels remains active.
When you compare it to previous normal Q2s.
The practice support or we're pleased there so that was an indicate customers are active right and.
Ours are going on units and we're tracking that closely so we didn't see it.
Any kind of thing you know other than.
The supply constraints or impactful again in the quarter.
And you saw that in the in the new and the new sales in particular right.
Okay. Thanks armed with this quarter relative to last year.
Yeah.
Sure. Okay. Thanks, and then maybe any way you can break out.
You know the lower technology spend in the quarter related to the integration.
Wondering if the amount was material because it reasons, though.
You know it was enough to offset higher inflation in compensation training and travel.
I'm just wondering again, if it's material and if it's a number that we should think about you know on a go forward basis.
Yeah, maybe just a little bit of color. We don't we don't break it out Michael but just to give you some context I mean in our in our spending numbers I think yes, certainly at this time last year. We were we were integrating on our main platform for Quebec, and Maritimes and there's a lot of activity going on there and I think you know and that persisted all the way into Q4.
This year this year when you look at our spend as we mentioned you know we have a slightly higher compliment of head count we have the inflationary factors a lot of discipline on spending at this point in time as well, but but also within our numbers. You know we did give some color you know we also have things like on an aggregate basis. The D. S.
Our mark to market does bring our spend out so there are a number of moving parts in there and so you know if we strip that out.
You know I would say we are up year over year overall.
But we were spending at a higher pace as opposed to you know when we were doing the integration component. So give you a bit of flavor. There. There there are a number of moving parts in there that I think you know we can you can probably isolate.
To get a better sense.
Got it and I guess, just trying to think about the trend for the second half I mean any way you can comment on you know maybe the impact from Pier C. P. I.
To your SG&A and maybe some.
Some of the moving parts and where that leads to down or are up for the second half.
Yeah, I mean, I think we we focus on our spend I mean, our model our operating model and really making sure that you know we run pretty lean on a corporate basis right and.
We often say its gotten our blood center, and the sharps or where we invest.
Revenue generators, the technicians and the folks that are there working with our customers and so you know I think we're going to continue to see a little bit of inflationary pressure there.
On the variable cost side as far as you know as we do you know we we've been pulling back pretty hard we still have controls in place for things like travel leveraging technology, so there'll be a little more discretionary spend.
As activity levels ward and customer requirements dictate as well.
That's great quarter guys. Thank you.
Thank you Mike.
Thank you. The next question is from Brian <unk> from Raymond James. Please go ahead. Your line is open.
Yeah. Thanks, good morning, guys.
Right.
Yeah, just given the the shifting macro backdrop could you provide some comments just on the strength of the backlog and have you done any stress testing and seen any cracks.
Well, that's being monitored very closely you know.
And what we saw in the quarter.
We didn't really see any cracks in the quarter, we're monitoring it closely working closely with our customers and our supply partners are.
Relative to these shifting delivery periods. So that's that's.
That's what we're doing is staying very very close to it.
Okay, and then just could you maybe comment on the product support side of things was there any constraints on the gross there whether it be technician availability or other factors. We're very pleased with how our team is executing our recruitment of technicians, that's a steady progress in there.
<unk> remains a priority and you saw that in the numbers. Okay. That's been going on for some time now right Brian .
You know what levels remained high okay and that again reflects the supply chain I mean, we've got.
We're up over 50% weapon and over 40% of that web is a help because we're waiting on on parts components things of that nature. So that's impactful than there are in the quarter.
So what's what's taking place there. So it is easy it's broader than just equipment.
It's impacting and so that's the color on the but we're pleased with.
The progress on product support please with our technology investments our tracking data in there as well online part sorry.
Okay. That's it for me thanks for the color. Thank you.
Thank you once again, please press star one on the devices keypad. If you have a question. The next question is from Maxim <unk> from National Bank Financial. Please go ahead. Your line is open.
Hi, Good morning, gentlemen, good morning Max.
I was wondering if it'd be possible to comment a little bit on your build capacity.
You're investing on the side and just what that could be.
What's called you know for the medium term for the business I'm, sorry, I missed that we missed that Max and what what capacity you're referring to is true.
Good building capacity because I think you are right now so all I can say.
Yes, sorry.
Okay. So so are we were so that's a key strategic area for US we continue to invest.
We are I think we're what we saw in the quarter again was.
Tremendous growth on our rebuilt in our component and so the capacity is in there we're putting more resources in there we're investing for the future in there in a big way, so where we're pleased with how the team executed in the first half and again rebuild activity was up over I think.
We weren't in double that so.
Units sold so that's a very positive and it's another example of how were shifting in this complex environment relative to value propositions for customers and the same thing you know even though our used was down. We are are used purchased was up over 35%. So, whereas then again that's.
<unk>, we're rebuilding units and there are buying cores and rebuilding units to go to market. So so we're pleased with it.
Yes on that front, as well, which transcends into some of that reman activity.
I think maybe Max just what are you may be alluding to to US is the capex and so forth, where we're investing in a new facility as we mentioned in the last quarter or two.
You know to the tune of $65 million to $70 million over the next two years two to support our future business as well and so we have a facility we're developing on some of our own property north of the G. T. A and so that you'll continue to hear a little bit more of that as we are as we make progress yeah. We we see this as a real growth Avenue. It's also part.
Our circular economy.
Yeah, right and then I guess on like in terms of capacity and I don't know if you have the ability to sort of put a percentage on that but I don't like 10, 15% sort of increase to throughput that that we could think about where where it's tough to say.
Well you got it got it.
We have dedicated reman centers, but we can also do rebuilds in our shops as well right.
It's not not everything flows through to remember when you talk about rebuilds.
Right.
Okay. Okay. That's helpful. And then my other question just pertains to potential capital deployment I mean, obviously, it's called you telegraphed.
Thought process around you know the Mexican the kimpton months I'm just.
Curious you know how you approach. This particular subsequent now thanks.
Look at facts. This is all about a team here and the disciplines that are embedded with this team. This is a we will continue to move forward execute our strategies a stay the course when opportunities present themselves. We're ready to this team is assessed as a team by our supply partners.
And that's why we are so nothing nothing really changes here on that front yeah. It just just broadly to Max on on capital allocation I think.
You know one of the things you see in our results as an increase in some working capital inventory and Scott touched on that and I think we anticipated now number one we've always prioritized the care and feeding in support of our business and growth for our customers and supporting our customer base.
You know our inventories up to the tune of about even I think equipment was up about 100 and.
$89 million here in the quarter, our year to date and so.
You know that the mix of that inventory as Scott mentioned is also.
Somewhat dictated by the availability and supply and so we expect it to continue to invest a little more in inventory as availability improves and things like that get to a more normalized mix. If you will but that'd be our first priority I think the other things we've been spending more on is capex.
You know as availability improves building our rental fleet are investing at a pace that we would have expected to be at.
To support the growth in the business, especially in the QM and so forth and so those would be areas developing that rental model further so.
But it's really more about organic initiatives and then you know we've we're in a good cash position, we talked a little bit about in CIB. We continue to work away at that in a very disciplined fashion.
Yeah, and just Max on the rental fleet and that's been a real balancing act here, we really shifted in the quarter to try and prioritize some of these fleet uploads because we've compromised a bit through the through this challenging environment for the last few years, so that impact because of the tight supply that impacted our retail a bit but because we we.
So it's a bit of a balancing act there were delighted that we started to shift last year almost rental fleets and you saw a bit of that outcome in the quarter with a very high utilization and strong rental revenues through.
Makes sense Super helpful. Thanks, So much thank you Matt.
Thank you. The next question is from summer Hot Com.
RBC capital markets. Please go ahead your line is open.
Great. Thanks, and good morning, if I could just follow up quickly in the morning, if I could follow up quickly on the kind of the capital allocation commentary, we shared I guess, just given the where the macro backdrop and things that are going on you know just the market price of shares potentially.
Potentially business was impacted in your industry.
Big picture does it change your view on whether you're more likely to direct our capital towards things like capital N C. I b or whether you think maybe there's some more opportunities out there in the market.
Curious you know as the markets evolved whether thinking on external versus internal deployment has changed.
Yeah, I would say we were pretty disciplined as you know some of it in terms of how we think about it in good and bad cycles, so to speak or evolving cycles.
I think number one we're very disciplined on our on our cash flow, our working capital investment and monitoring our customer activity and risks in the business and so forth and so you know we we will focus very keenly on the working capital deployed and what we require for that as a first step I think to your point I mean I think.
Well as we evaluate this market and it's very fluid as everybody's well aware with interest rates and inflation, we want to be very comfortable with our cash position going into a potential recession and so you know, we'll be well well stay the course on our discipline. There I think first and foremost investing where we think it makes sense purchasing equipment for rebuild supporting organic.
Opportunities and growth in the business I think first thing that's a priority for sure and then outside of that NCI B.
We've been doing it out of a pretty systematic approach in the last two years and I wouldn't say that that will change I mean again, we'll evaluate.
The best returned to shareholders, we feel comfortable with our cash position will you know, we'll consider some options in that area, but first and foremost is just the building the business for the future.
Okay, great and Theres a comment during the kind of the opening remarks, I think from Scott around the impacts of pending inflation of some of the stuff and not maybe fully reflected just curious if that mean the impact on your customers or maybe through your cost structure I just want to get a little bit more color on that comment that that's where we continue to work on our value.
Propositions with ease inflationary factors that are coming through.
Awesome great.
Okay, but definitely I guess in our model is our model played out in that quarter, particularly with the rental and as we look at capital allocation were still behind on our fleet up votes.
Okay that makes sense and then can you talk.
A bit about this right now some of the pricing that you've put through just I guess big picture.
Clearly as you look into the more cyclical sectors like mining, where it's kind of directionally the conversations with those investors going and kind of how the market sort of commodity prices change their tone, maybe I have to think about your soft backlog with the pipeline of discussions that you're having with them just curious the big picture Morgan more from your cyclical sectors versus infrastructure well, let you know.
Mining mining is a lumpy sector it is cyclical and.
We were pleased with the performance in terms of our win ratios over the last year in the mining sector.
Now we've got to execute that backlog and that's that's a priority for us and are continuing to work hard on our product support offering in the mining sector, that's where we are but certainly it's cyclical you've got to stay close to it.
Monitor what's going on in there.
Okay, and then just one last one if I could squeeze it in I guess it looks like the product support revenue is trending well, but theyre, obviously still some constraints on product available parts availability I guess it was it just the type of work that was coming through you know how are you kind of just pushing that along with the parts supply still remains constrained.
Doing our best and working with our customers on demand signals and then communicating with our supply partners as best we can it's it's not again, it's distorted because in some cases, when when components or parts become available we're taking them.
It's not totally as efficient as we'd like to be on our pipeline and forecasting but you know so you're you're again, it's it's a bit distorted its not a normal you saw parts increase, but where we're where we're projecting out we're not as tight as we like to be on those processes, but that's what we're working with so it's.
Just staying close to our customers as best we can on demand signals.
And then working with our supply partners to ensure that we do our best to.
To provide the necessary offerings for our customers.
Thanks, very much for the color.
It makes them.
Thank you.
There are no further questions registered at this time I will return the call back to Mr. Mcmillan.
Great. Thanks, very much Paul and thanks to everyone for your participation today that concludes our call. Please be safe and have a great day.
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