Q3 2022 Toromont Industries Ltd Earnings Call
Okay.
[music].
Good morning, ladies and gentlemen.
He is Wednesday November the second 2022, and I would like to welcome you all to the tour amount industries third quarter 2022 results conference call.
Please be advised that this call is being recorded and all lines have been placed on mute to prevent any background noise.
Your host for today will be Mr. Michael Mcmillan, Executive Vice President and Chief Financial Officer.
Please go ahead Mr Mcmillan.
Great. Thank you very much Michelle.
Good morning, everyone. Thank.
Thank you for joining us today to discuss tour months results for the third quarter and the first nine months of 2022.
On the call with me. This morning is Scott <unk>, President and Chief Executive Officer.
Scott and I will be referring to the presentation that is available on our web site.
To start I'd like to refer our 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 some questions. So let's get started we can move to slide three and Scott will start us off.
Thank you, Mike and good morning, everyone.
The team delivered solid operating and financial performance in the third quarter.
The persistent supply constraint pressures market and economic variables continue to contribute to a fluid and complex operating environment.
The equipment group reported good utilization activity in rental and positive product support demand, while uncertainties persist and timing of equipment and parts deliveries.
<unk> revenues improved in the quarter, our project construction and higher product support activity.
Across our organization our team remains committed to the disciplined execution of our operational model adapting to changes in the business environment, while remaining focused on executing customer deliverables and solutions as we manage through these uncertain conditions.
The company implemented revised employee compensation long term incentive program during the quarter.
Introducing performance share units.
Restricted share units and equity settled deferred share units. The program continues to encourage employee share ownership and now also adds performance metrics, namely our oce and relative Ts.
We are proud of our culture of performance and ownership and we believe these changes will continue to motivate our team to drive long term sustainable and industry leading results.
Turning now to our financial results highlighted on slide four.
Company delivered strong bottom line results in the third quarter and first nine months of 2022, reflecting a favorable sales mix higher rentals and product support revenues to total revenues improved gross margins and lower net interest costs.
Rental and product support revenues increased in both the quarter and year to date on good market activity.
Equipment revenues increased in the quarter after a slow start to the year as mentioned, we continue to be challenged by the ongoing supply constraints and general macroeconomic factors such as inflation interest rate changes and lingering pandemic concerns.
Backlog for $1 4 billion at quarter end up 31%.
Rent versus Q3 2021 with increases in both the equipment group and Semco back.
Backlogs are supportive and reflects strong order activity over the past year, coupled with ongoing supply chain constraints.
On a consolidated basis revenues increased 14% in the quarter and were up 5% on a year to date basis equipment impact sales were up 11% compared to the prior year with good increases in both groups.
Year to date equipment sales were down 5% with both groups continue to experience delays in deliveries and construction project schedules due to supply chain constraints in the current year.
Product support and rental revenues increase in both the quarter and on a year to date basis.
Product support increased on stronger demand and technician availability with work in process levels remaining high while rental revenues increased on a larger fleet and higher utilization.
Operating income was up 26% to both the quarter and year to date on higher revenues and improved gross margins in part due to a favorable sales mix with a higher percentage of rentals and product support revenues to total revenues.
Vince levels increased slightly to $12 112, 9% of revenue year to date, reflecting some planned increase in spend to support higher activity in staffing levels as well as inflationary pressures.
Expense management continues to be an area of focus and discipline given the economic environment.
Net earnings increased 31% in the quarter and 30% year to date versus 2021.
Basic earnings per share increased to $1 15 in the quarter and $3 57 for the year to date basis.
We are proud of our team as they remain committed to a disciplined execution of our diverse operational model adapting to changes in the business environment, while remaining focused on executing the customer deliverables.
Activity remains sound with healthy backlog levels supportive of future results, but supply chain challenges do persist.
Product availability, including prime product components parts continued to be tight, resulting in shifts and delays and schedules.
Endemic challenges are persisting, while we continue to measure inflationary pressures ongoing interest rate changes price increases from suppliers other global economic and geopolitical factors and supply demand dynamics as the economic environment continues to evolve and change.
Technician hiring remains a priority to support our aftermarket and value added product and service offerings in order to meet and exceed client needs.
Reflective of product support outcomes progress has been made on the skilled labor hiring front.
We continue to focus on our people strategies, including recruitment and retention.
The diversity of our geographic landscape and market served extensive product and service offerings and technology investments and financial strength together with our disciplined operating culture continue to position us well for the long term.
Mike I'll turn it over to you for some more detailed comments on the group results.
Thanks, Scott, let's start with the equipment group on slide five.
Revenues were up 14% in the quarter and 6% year to date taken together total new and used equipment sales were up 10% in the quarter and lower 3% year to date.
New equipment sales increased 13% in the quarter on good deliveries in the mining power systems and agricultural markets, while ongoing inventory supply constraints continued to dampen deliveries in the construction and material handling markets.
Year to date, new equipment sales decreased 3%, reflecting the slower start to the year again, primarily due to supply chain constraints.
Used equipment sales.
<unk>, 3% in the quarter and remained flat year to date, mainly due to lower fleet dispositions.
So one should keep in mind used equipment demand has been relatively strong given the availability constraints in economic conditions during the pandemic time frame.
In the quarter total new and used equipment sales increased 22% and mining 48% in power systems, 28% in our agricultural market.
It's being lower in both construction markets by 1% and material handling by 8%.
Rental revenues were up 13% in the quarter and 19% year to date all markets in most regions were up reflecting improved utilization on solid market activity in.
In terms of the quarter and on a year to date basis.
Light equipment rentals were up 14% and 19%, respectively, and heavy equipment rentals were up 12% and.
13% respectively.
In the same manner power rentals were up 18% and 28% material handling rentals were up 2% and 11%.
For the quarter and year to date, respectively.
The <unk> fleet was at $38 7 million versus $37 3 million a year ago, reflecting slightly higher demand however, continuing to trend below pre pandemic levels.
Product support revenues grew 20% in the quarter and 14% on a year to date basis with increases in both parts and service revenues across all markets in most regions.
Likewise on a quarter to date and year to date basis activity within construction markets was up 23% and 17%.
<unk> was up 22% and 15%.
Material handling was up 13% and 8% power systems up 5% and 2% in.
In agricultural activity was up 31% and 4% again on a quarter to date and year to date basis, respectively.
Gross profit margins increased 130 basis points in the quarter and 230 basis points year to date compared to last year, largely driven by higher rental and product support margins, coupled with a favorable sales mix.
Which is higher product support and rental revenues to total revenues.
Rental margins were up 80 basis points for the quarter and 90 basis points year to date, reflecting improved activity in fleet utilization.
Product support margins increased 60 bps in the quarter and 10 bps year to date, reflecting supply chain challenges inflationary factors and pandemic impacts.
New and used equipment margins were down 60 basis points in the quarter and were up 40 basis points year to date, largely reflecting sales mix.
Selling and administrative expenses were up $14 7 million or 13% in the quarter and were up $22 7 million or 7% for the first nine months of 2022.
Compensation costs were higher in both periods, reflecting staffing levels regular salary increases and increased profit sharing accruals on the higher income.
Other expenses, such as training and travel and occupancy costs have increased in light of activity levels and inflationary effects.
Bad debt expense increased $3 6 million in the quarter and $3 1 million on a year to date basis, mainly due to an increase in age receivables.
Selling and administrative expenses were 12, 6% as a percentage of revenues up slightly from 12, 5% last year.
Operating income increased 26% for both the quarter and year to date, mainly reflecting the higher revenues and gross margin improvements, partially offset by higher expenses.
Bookings decreased 29% in the quarter and 28% year to date construction and mining bookings were down, 19% and 71% respectively in the quarter, reflecting a strong prior year comparable that included several large orders power systems bookings were down 27%.
Along with agricultural lower 13%.
Backlogs of $1 2 billion were 31% higher than this time last year across all sectors, approximately 40% of which are currently expected to be delivered this year and subject to timing differences, depending on vendor supply customer activity and delivery schedules.
Now, let's turn to Simcoe on slide six.
Revenues were up 14% in the quarter, However were lower 6% year to date on a tough comparable last year, coupled with ongoing supply chain challenges.
Package revenues increased 19% in the quarter on the advancement of construction projects, largely reflecting an increase in both industrial and recreational activity in Canada U S activity was lower in the quarter. However, it does vary due to the smaller base.
On a year to date basis package revenues were 23% lower than last year. Since 2021 included several large industrial projects.
We're underway and made for a tough comparable.
Product support revenues improved by 9% in Q3, and 17% year to date with increases in both Canada and the U S activity levels have improved slowly with easing of pandemic restrictions.
And our reopening of recreational centers after a prolonged pandemic closure period.
The increased technician base continues to support activity levels.
Gross profit margins were unchanged in the quarter versus the comparable period last year as higher package margins were offset by lower product support margins and unfavorable sales mix on a year to date basis gross profit margins increased 240 basis points versus last year, good project execution and favorable sales mix.
More than offset inflationary factors and supply chain constraints.
Selling and administrative expenses were up 9% in the quarter and 4% year to date bad debt expense increased by $5 million in the quarter and <unk> 9 million year to date, mainly due to <unk> increased aged receivables.
<unk> and training expenses increased to support activity and staffing levels occupancy cost increase on a year to date basis. As a result of the relocation of the Canadian head office to Burlington, along with other related branch changes.
As a percentage of revenues selling and administrative expenses were higher at 16, 5% for the first nine months of 2022 versus 14, 8% for a similar period last year.
Expenditure control measures on discretionary spend remain a key focus area for the Simco team.
Operating income was up 26% for the quarter, reflecting higher revenue and lower relative expense levels.
Operating income was up 9% year to date, reflecting improved gross margins in part due to sales mix, partially offset by lower package revenues and a higher relative expense level.
Bookings were up 50% in the quarter at $72 7 million industrial orders were higher in both Canada and the U S with general activity, improving with the continued easing of pandemic restrictions and improving capital investments.
Additionally, recreational orders were slightly higher with higher bookings in Canada, largely offset by lower bookings in the U S.
On a year to date basis.
Bookings were up 22% at $161 5 million.
Industrial orders were higher in both Canada, and the U S. After a slower start to the year recreational orders decreased 5% overall, mainly due to decreases in Canada.
Backlog of $202 6 million or 32% higher than this time last year.
Both recreational and industrial backlog increased in part, reflecting recent order activity and the deferral or delays in construction schedules, resulting from supply constraints. We expect approximately 30% 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 seven I'd like to touch on a few key financial highlights.
Investment in noncash working capital increased 35% versus a year ago, mainly driven by higher accounts receivable and inventory levels reflective of higher activity levels.
As always our operating team's focus on capital employed and continue to proactively manage working capital to respond to customer requirements.
Evolving market conditions activity levels and supply chain challenges accounts receivable continued to receive focus and while DSO improved down one day compared with last year. We are closely managing the aging of our receivables inventory levels are higher than prior year, driven by a number of <unk>.
Factors, including availability challenges, which hampered delivery timing with completion with parts availability, coupled with solid demand and inflation.
We ended the third quarter with ample liquidity, including cash of $771 million and an additional $465 million available to us under existing credit facilities, our net debt to total capitalization ratio was at minus 6%.
Under our NCI program the company purchased and canceled 473100 common shares for $48 5 million to date for the year, which is intended to exercise good capital hygiene by mitigating option exercise dilution. This program was also renewed in Q3 for another year.
Overall, our balance sheet remains well positioned to support operational needs and we are prepared to manage challenges related to the economic variables. We're all experiencing we will continue to exercise the operational and financial discipline. One would expect as we evaluate investment opportunities that may develop within this dynamic environment.
<unk> targets return on equity of 18% over the business cycle.
Return on equity improved to 21, 7% on a trailing 12 month basis compared to 19, 3% for 2021 and exceeds our five year average of 19, 8%.
Return on capital employed was 31% again on a 12 month trailing basis.
Up from 25, 3% for the comparable period last year, both metrics, reflecting improved earnings and continued capital discipline and.
And finally as announced the board of Directors yesterday approved the regular quarterly dividend of 39 cents per share payable on January five 2023 to shareholders on record on December eight 2022.
On <unk> on slide eight we continue with some key takeaways as we look forward to Q4 and next year.
We expect the business environment to remain challenging with a number of macro and industry factors at play.
While industry activity levels have improved as pandemic restrictions have eased in most markets health of the global supply chain inflationary pressures customer credit risk higher interest rates 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 are prepared to respond appropriately. We will continue to focus on our three key priorities, keeping our employees safe, serving our customers and protecting our business for the future our backlog levels are supportive, but subject to global supply chain challenges and related delivery schedules.
As Scott mentioned technician hiring remains a top priority to support our aftermarket and value added product and service offerings to meet and exceed clients' needs and build our team for the future.
Additionally, our operationally and financially we are well positioned to effectively support our customer requirements and evaluate market opportunities leveraging our operating disciplines and culture. We appreciate our teams exceptional effort and commitment to continue to support our customers during this unique and challenging time.
Thanks also to our valued customers supply partners and shareholders for their continued support.
That continues our prepared remarks, our concludes our prepared remarks and at this time, we will be pleased to take some questions Michelle over to you. Please to set up the first call.
Thank you Sir.
Ladies and gentlemen, we will now begin the question and answer session.
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One moment. Please for your first question.
Your first question will come from Jacob bout of CIBC. Please go ahead.
Good morning good.
Morning Heiko.
My first question is on bookings.
They were down.
In the third quarter.
Quarter on quarter and down I think slightly in second quarter.
How concerned are you about this and what's the messaging that youre getting from your customers or are you seeing any pause cautiousness at all from them.
Yes, maybe I'll start Jacobs, it's Mike Thanks.
Thanks for the question.
A couple of things to keep in mind that we've been I think we've been speaking about this for some time.
The I think there are so many macroeconomic and business factors in the environment today that our overwriting normal seasonality like when we look at the bookings in the quarter that certainly are down versus 21 Q3.
We also look back into normal seasonal trends that were pre pandemic. If you will and we're pretty comfortable I guess you'd say on the surface looking at the bookings as they are in Q3 and the backlog of course is quite supportive.
That being said I think we're in an environment, where we have escalating interest rates were all aware of inflationary factors and so forth and so it's something that we're monitoring very carefully we did see I think we did also see some improvement in the simple business, which we saw some good order activity and pleased to see that as.
We lead into the new year.
I'll, just maybe a little more color there Jacob.
As Mike said I mean.
These comps are tough because of the because I think you are reflective of some of the distorted outcomes.
Since the onset of Covid.
And we've talked about that throughout <unk>.
There is some softening in there in the quarter, but overall, that's a solid booking I think on a comparative to pre COVID-19, but.
Where we saw some softening in the quarter was in.
Sure to your large construction.
That industry was down slightly.
<unk>.
CPE to very small equipment was also down but you are coming off historical levels. There in terms of some of the activity levels. So.
No.
It's tough comparisons on a quarter by quarter because of what's been going on.
Due to the Covid situation and how the markets came back so.
I think that frames it reasonably well.
Then you've got what are your comps in there are lumpy you've got your normal lumpiness right in mining and power that impact us regularly because we had some some the team executed some solid orders last year.
So those areas.
Nicholas <unk>.
<unk>.
And then just on the customer side of things.
Cautiousness at all from them.
Are you seeing at all.
I would say the work on hand remains reasonably solid I think they're they're monitoring.
Monitoring things closely I mean, what you have in the third quarter as they are focused on the execution right. So where you get a better read is in the November timeframe November December and how they are bringing in their years.
But work on hands, which means solid, but I think I think some of them are there is a little more cautious environment creeping in this inflationary factors interest rates started to shift so we're monitoring that closely.
Okay.
My second question here just on.
New inflationary world we're living in.
How do you what do you think is the weakest link here for 'twenty, one I think you've talked quite a bit about margins, obviously, you get concerned about margin compression but.
What is your exposure to residential.
Production.
And how big.
How big.
And marketers to battlefield.
Well, maybe just to start on that Jacob I think I mean, we are we are quite fortunate in the sense that we are.
Clearly our customer base is pretty well diversified as you know.
We do a lot of infrastructure and road works and things like that and support that type of industrial activity and commercial activity.
Where we would see some residential sensitivity could be in the rental side, although it's.
That's part of our business has continued to perform quite well and the team has done a nice job balancing fleets.
Managing the utilization rates.
And so I think over time, we'll start to see that through our customer base.
In terms of project deferrals, and so forth but.
The balance we have with diversification does support I suppose some of the results youre seeing today rate inflation in general I mean, I think we've sort of talked a little bit of orders and the order book and I think Thats certainly is one of the factors we've talked about quite a bit in terms of customer behavior and buying patterns trying to get ahead of it.
Dissipated increases and things like that and so that that I think is also an important factor to keep in mind.
Thank you for your answers.
Great. Thanks James.
Your next question comes from Michael <unk> of Scotiabank. Please go ahead.
Good morning, Hey, good morning, guys.
Yeah.
Fantastic quarter guys.
So first question is on rental.
It looks like the margins there.
And to record territory, so for several quarters.
You've indicated that there has been in the limited equipment supply and Thats slowed down uploads.
It looks like the uploads are increasing now so maybe a little bit of a tie in to the last question for next year. How do you think about balancing growth and rental with the increasing risks of a recession.
Okay. So we've been balancing the snow I'd say for two years.
There's been some real tough decision, making in their I applaud the team.
How they looked at this strategically.
We did start to shift.
No.
<unk>.
We have a fairly.
Large rental services business.
We consciously appears to build the team and decision we had to sacrifice retail a bit.
Make sure we got back to the rental model.
So the team did shift a bit and again at the beginning of 2022.
Allocated more capital to the rental fleet uploads versus retail and because of the tightness of availability, we had to make some tough decisions, but I think we're pleased the team is executing that decision how we allocated some of that capital and as you know we allocated quite a bit of capital after the acquisition in 2017.
And to the Quebec in the Maritimes markets.
That was a drag for a while but we're very pleased with the team's execution there and how customers are now gravitating towards the rental services model that we brought in the value.
Our position has been introduced.
Year to date that Quebec in maritime as rental revenues were up 18% on a year to date basis, we're very pleased with how the team in <unk>.
Customers are responding to that broader.
Rental services offerings so.
So there were some some delek.
Delicate decisions in there and how we allocate the capital, but I think overall, we're pleased with Michael <unk>.
Going forward, we're going to have to make some more we'll monitor it.
Those decisions are pending.
Okay.
Yes, good performance no doubt, maybe transitioning to the product support growth.
I'm wondering if you guys can comment on ours.
Give some color on price versus volume and I'm, asking because product support growth has accelerated through the year.
I assume pricing here is <unk>.
Happening through the year potentially as we think about that as more transitory that the volume trends underneath.
So that's the first question and then secondly, I noticed that the work in progress.
That decline on a sequential basis, so I wonder if the bottlenecks and product support a reason.
Yeah lots to that question. So maybe just to start I think when you break it apart to parts and service to your point I mean, we've had we've had some increases on parts pricing. For example, we've been working very carefully on a labor rate side of things.
As you noticed have been pretty busy and so we don't we don't break it apart or disclose it in terms of price versus activity and so forth, but I think if you look at that.
Our goal is always to be very transparent and work our way through that with customers and make sure that.
They understand the pricing that we're working through and they have some time to respond and planned work and so forth and so.
On the parts side.
We we've experienced a few increases through time and again.
Quite clear on how that's expected to play out I think you mentioned web I think again, we would be.
Providing you with a little bit of caution on the web side because.
Part of the reason that that has built is just availability of parts.
As well as just trying to stage work and work it through the shop and so forth and that continues to be a challenge it's really more the persistent supply chain challenges, we've been talking about for some time and so.
As as that eases over time.
Probably see that moderate or normalize, but what we are seeing a lot of our inventory as we commented on broadly.
We've increased some of our working capital investment just to support.
The transition we're waiting on attachments were waiting on add ons were waiting on parts to complete and deliver product and so those are factors that we continue to be managing carefully.
Yes, just a little more color.
So I mean, if you break it down.
Certainly some of the inflationary factors are impacting in there, but overall the proxy for demand has been.
Solid.
Across all areas of the businesses.
We were pleased with is that labor.
<unk> is up and that was through some.
0.2 recruitment.
Strategies and tactics.
Pleased with that.
The rebuild program and strategy, we've got going continues to be strong I think I.
Nick on the dollar volume were up over 60% on a year to date. So so these things are all contributing but.
Yes.
It's an interesting environment out there, we'll continue to monitor things, but that's what we've seen so far.
Thanks, very much guys nice quarter again.
Thanks, Mike.
Your next question comes from Yuri Lynk of Canaccord Genuity. Please go ahead.
Good morning, guys.
Morning, Eric.
EBIT margins.
Very strong in the quarter, continuing a nice trend.
They look to be higher than even what.
Your mix might suggest at this point.
You have mentioned.
That's a different market dislocations introduced by the pandemic I'm just wondering if you're not seeing some favorable margin tailwind in there due to these dislocations that we should be.
Looking to maybe roll off in the coming quarters.
Yes, maybe a little bit of color to start yours.
One of the things, we've been seeing and we've been talking a little bit about on broadly on margins, especially if you think of the equipment group is the mix of the rental activity utilization has been very strong. The team has done a really nice job as Scott described Prada.
Product support also.
A higher proportion of our revenue provides us with that favorable mix and I think when you look at the equipment side again, it's been it's been tight as we've talked about I think even on the used side. Although if we look at equipment that continues to persist. So on the new side is up as we mentioned like 10% overall.
But new was up 13.
The use side was down a little bit that's really more around disposal of.
Our rental side, but we're seeing good activity when you look at purchased and trades and so forth and so.
Just sort of speaking through that the tightness in availability.
Certainly has provided us with the mix provides us with strong margin.
For several quarters, and I think as availability and things ease and maybe activity levels, we'll see how things develop as we go into next year.
With the slowdown and how that.
How that progresses, one would expect that.
There would be more normalization, perhaps in some of that on the equipment side of things.
Yes, thanks, Mike articulated fairly well.
Again.
<unk> got a lot of different moving parts in there.
<unk>.
<unk> has been favorable right I mean, you look at our equipment group team has done a nice job executing the aftermarket aftermarket is a key strategy for us and that's been outlined.
Youre pushing over 40% in there as a percentage of total so thats thats favorable along with those I mean, you are getting some real high time utilization in there. Some some areas of our rental fleet Youre seeing 70%. That's very strong. These are favorable we're fortunate in that we were allocating the capital.
<unk> two.
For the team to drive these outcomes and demonstrate to our customers and solid value proposition. So we will see the key is I think the team executed fairly well in the quarter.
But a lot of variables in play so we'll see what happens.
Understood that's helpful.
My second and final question maybe for Scott.
Any update on the CEO search the board level.
Any update on timing or if you've started.
Interview candidates.
Or anything like that.
Working through an orderly process as we try to always do.
That's what I thought okay guys.
Thank you.
Your next question comes from Brian <unk> of Raymond James. Please go ahead.
Yes, good morning, guys.
Good morning.
Could you just talk a bit about inventory levels here I mean are you comfortable with where inventory sits.
Still below pre pandemic levels, but maybe just talk about.
Your comfort level here.
Yeah.
It greatly and we spoke a little bit about it earlier there Brian I think if you look for example were up over $200 million on a year to date basis right and the majority of that is.
Is it related to and is spread fairly fairly evenly when you think of.
Our equipment attachments parts.
With for example.
And so I would say the composition of that is.
Sure.
As I characterized it earlier, we're waiting on deliveries of certain things like parts to support with delivery and execution completion.
Some add ons for the equipment and so forth a little bit of timing on delivery schedules also brings that number up a little bit on the new equipment side.
And also the teams have been really active on the used side like bringing in purchasing used in supporting our customer base with that activity has done a nice job there and so composition I think would be a little bit different than you traditionally would see.
But we had prepared for that and so I would say that as we go into the new year. We continue to expect to invest in working capital to support the customer base and then the transition over time as availability improves and so hopefully that gives you a little bit.
I'll just add a few more comments there I mean, the working capital we're very focused on this.
We're certainly not in our normal flow of ordering process.
For obvious reasons.
Sometimes we.
We take what we can get so youre parts are a little distorted there.
It took to normal flow and ordering disciplines.
It's also reflective of that whips high minority settling sequential basis somebody said, it's not but it's still.
<unk> been smoother, sometimes we're stopping and starting and our and our activity levels in shops renting equipment.
<unk>, sometimes on parts and attachments things of that nature, even in our reman centers will get slowed up waiting for components. So.
Creates a bit of a build in there.
And as Mike said I mean, we're we're very aggressive breakdown continues to be on our execution of our even though usual scale to use purchase consignment strategy continues to be very.
I think our team is doing a nice job on there I think we're pushing 30% increase in the quarter. So.
Thats, where youre seeing a build in there as well so but we're monitoring these inventory levels closely.
Given the environment.
No that's very helpful.
And then my other question here, you flagged customer credit risk is something that you're monitoring.
Already starting to see some cracks there.
Triste rates ticked higher.
I think it's just a risk factor, Brian one would expect with higher cost of capital for our customer base as well as the environment. We're in.
Inflationary environment, some pressure on our customers.
I would say that we are our team is very disciplined and works very closely with our decentralized model I mean, thats I would say that's one of the advantages is our team is close to the customers working with them very actively and managing that risk and so.
But naturally I think as we go into an economic slowdown that puts a lot of pressure on on all aspects of the business environment and so it's something we're monitoring.
I'm wondering carefully some of our numbers, we did increase our bad debt expense.
Mentioned on the commentary.
And Thats systematic approach that we have as I mentioned, we're quite disciplined on that.
But it is a risk factor that I think is going to be a broad based.
Experienced that people are across all businesses were going to start to see right.
Especially if we continue to see the cost of capital.
And wage pressure.
Utilizing cash flows for our customer base right.
No fair enough I appreciate the color that's it for me thanks.
Your next question comes from Maxim.
Of National Bank financial Please go ahead.
Good morning Max.
Hello Max.
Michelle we may have Michelle.
Tissue here, we may have lost mix.
Your next question will come from <unk> Khan of RBC capital markets. Please go ahead.
Alright, great. Thanks, and good morning, just I guess a question on the backlog.
Is there I guess, how should we think about maybe pricing that's built into the backlog because I guess you know prices are going up there was obviously unit demand also going up but I guess on the other side.
As economic activity moderates pricing likely also moderates and soda units just trying to get understanding of.
Is there any perspective, you can give on how much pricing might be in there and also maybe just overall in the market or are you still pricing to your customers at this point.
In terms of the backlog, we're working closely with.
Our OEM partners and our customers to make sure that we've got this as tight as possible obviously, there's moving parts in there and it's all going to come down to execution. So.
So far as you saw in the quarter and we started to execute some of that backlog. That's why some of the new sales increased and I think we did reasonably well. So that's what we're going to continue to do.
Okay, Great and then I guess just on the labor side as the economic activity moderates labor availability probably goes up.
Is that something on your radar or has the skill set required for a technician that maybe not something where you can take somebody from a different industry and create a relatively quickly just trying to understand your income in some industries that might be a positive how do you view that I guess in terms of labor availability through the cycle.
Yes.
Think nothing has really changed too dramatically their server.
We've been actively recruiting and trying to bring in some quality technicians and Scott mentioned that we've made some nice progress. This year I would say just broadly to your question. We're always looking for good technicians and we do have for.
For example, if we look at our rental business.
Certifications and different things that they work on a different fleet small hand tools and different things that gives us a little more flexibility to look at other locations. We work very actively with.
With the trade schools, and so forth as well recruiting apprentices and.
And then as the market freeze up but certainly we'd be looking to attract quality technicians, and our heavy business as well and so I'd say, it's a very broad program broad based program and will continue to be very active he.
You raise a good point there.
In terms of working through cycles.
Skilled labor. This is something we're very attentive to I hope, it's a bit of a differentiation in terms of recruitment that.
We hold onto our skilled labor and we've demonstrated that before through downturns as best we can.
And.
We're very attentive also to the strategy relative to your percentage of our premises to the experienced.
Journey people and so.
So that's something we monitor closely as well as the breakdowns. There is how we build and protect our skilled labor.
Great. Thanks very much.
Great. Thanks, Adam.
Your next question comes from Maxim <unk> of National Bank Financial. Please go ahead.
Hi, gentlemen, hopefully you can hear me now yeah. Good morning magazine that Youre loud and clear enough.
Thanks.
I just wanted to clarify one of the comments you made in your prepared remarks, just around sort of the interplay between the typical seasonality and macro what's that in relation to Q4, what exactly were you referring to.
A couple a couple of things on the Max I wouldn't as you know, we don't provide guidance or forward looking.
Direction.
Any large extent I think it's I think it is however, it's not unusual we've been talking about how.
The macro factors as well as the pandemic annualized we needed out of the pandemic connectivity levels have changed behaviors have changed.
But when you combine that with an inflationary environment higher rates and so forth.
Those all of those combined factors have overridden normal seasonality and so.
If we look at for example, a good example was the bookings that we talked about I think in that context to say.
Q3 of 'twenty, one was a very strong period for bookings.
Our bookings in this quarter, we're comfortable with especially when you think back to 19% or 2020 was already independent even 19 levels.
We're pretty comfortable with what we would see but the macro factors have overridden a lot of the normal behaviors you'd see in Q3 and Q4 for that matter. So.
So just in that context, there are so many moving parts right now.
We would suggest that.
They're more influential on on the behaviors and patterns than you would normally see.
In a different environment right.
We're just give any color on what we're seeing so far yes, that's right and I guess I mean, because you'll have a much higher installed base right now.
Telematics.
Are you seeing any major shifts in terms of utilization of equipment I presume none but.
Can you provide any color that nothing major at this time, but monitoring closely right.
Right.
That's basically what we do.
That's something we're staying very close to.
Yes.
And just one last question in terms of the rental it's kind of competitive environment, because I mean, we've had.
Number of transactions.
In some of your areas wondering if that sort of change of ownership is changing.
Anything for you guys on the ground so maybe any color. Please thanks.
Hank.
Yes.
We're competing.
Relatively well when you see those numbers, but team's doing a nice job executing we allocate it.
Capital Accordingly.
Stated in regards to the shift in balance be from rental to retail allocation of units.
We're pleased with those decisions the teams made the capital allocation and I think we're continuing to compete reasonably well in there.
We'll continue to work on our value proposition and that's our key areas of that rental area for us.
Alright, and so maybe just just one last one to squeeze in terms of the remand.
Capacity.
Is that project going.
Obviously super early days, but maybe any color there. Thanks.
Yes, youre thinking of the announcement on Bradford <unk>, Yes, yes, yes. So we just as a matter of fact of about two weeks ago, we had a.
Small event just to initiate this upturn. So we're just at the early stages in Bradford of getting the site prep.
And grading and so forth and then I think what Youll see is for the majority of 'twenty three will be in the construction mode and getting that facility up so that we can have a prepared for ideally in the first half of 'twenty four.
And start to build start to attract volume and start doing operations. There maybe in Q2 of 24, So thats I would say that's at the early stages at this point, but we're quite happy to get.
Started in that environment and also I think the other piece for that I would suggest is it's given us opportunities to start to recruit for that in the long term and so we've also been pretty active.
On the Labor force side, just trying to prepare to staff and build some new jobs up there.
Okay excellent that's it for me thanks, so much thank.
Thank you. Thank you.
Ladies and gentlemen, once again, if you do have a question. Please press star one now.
At this time there are no further questions I will turn the conference back to Mr. Mcmillan for closing remarks.
Great. Thanks, very much Michelle and thanks, everyone for your participation today that concludes our call please be safe and have a great week.
Yeah.
Ladies and gentlemen, this does indeed conclude your conference call for this morning, we would like to thank everyone for their participation and you may now disconnect your lines.
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Thanks.