Q3 2023 Toromont Industries Ltd Earnings Call
Good morning today is Tuesday October 31st 'twenty 'twenty.
Welcome to the farmland Industries Ltd third quarter 'twenty 'twenty 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. At this time all lines are in a listen only malaga your host for today will be Mr. Mike Mcmillan, President and Chief Executive Officer. Please go ahead Mr. Mcmillan.
Thank you Rudy and good luck.
Everyone. Thank you for joining us today to discuss 12 months results for the third quarter of 2023.
It's a privilege and an honor to be hosting this call today is president and CEO Scott.
Scott met Hurst, who officially retired effective October 15th continues to support us as an executive adviser. However, I would like to take this opportunity to congratulate Scott and thank him for his incredible contribution throughout his successful 35 year career with four months.
His unwavering dedication.
Leadership and support has been second to none.
I look forward to continuing to work with Scott in this new capacity in the next few months and we wish him all the best as he transitions toward his retirement.
At the same time.
I am delighted to officially welcome John do Little Executive Vice President and Chief Financial Officer to the tour them on team.
John is a seasoned CFO and a highly accomplished financial executive with over 30 years of experience in large global corporations across a broad range of industries.
John officially joined tour month on October 11th 2023.
Please join me and officially welcoming John to the team.
Joe and I will be referring to the presentation that is available on our website.
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.
So, let's get started and move to slide four please note that.
Our discussion today will focus on continuing operations unless otherwise noted.
We are pleased with the operating and financial performance through the first nine months of the year.
The equipment group executed well delivering against the opening order backlog in line with customer schedules and improvement in inventory flow along with good growth in rental and product support activity as well as continued focus on expense control.
Simple revenue and bottom line improved in the quarter on good execution and higher product support activity.
Across the organization, we continue to navigate through evolving economic conditions and remain committed to our operating disciplines, driving our aftermarket strategies and delivering solutions tailored to our customer requirements.
Now turning to our financial results highlighted on slide five.
Results for the third quarter of 2023 reflected good execution on new equipment deliveries against order backlog and favorable operating leverage.
Revenue increased 8% in the third quarter and 14%.
Through the first nine months of the year with increases in both the equipment group and Simco.
Rental and product support revenue increased on customer activity.
Higher gross margins, along with lower relative expenses and higher interest income on cash balances all contributed to higher net earnings versus Q3 of last year.
Net earnings from continuing continuing operations increased 21% in the quarter compared to last year, reflecting revenue growth expense management and higher interest income.
She was the first nine months of the year net earnings increased 29% from last year to $375 million or $4 50, 756 cents per share again on a continuing ops basis.
For the third quarter bookings for the third quarter decreased 5% compared to last year and increased 5% on a year to date basis the.
The equipment group reported lower bookings during the quarter and Simco reported increased bookings on good demand for our products.
Year to date, both groups reported increased bookings.
Backlog remains healthy at $1 2 billion down slightly from last year, However, historically quite solid.
Backlog is support has been reflects good order intake progress on construction and delivery schedules as well as some improvement in equipment flow throughout the supply chain.
General macroeconomic factors, such as inflation higher interest rates and Canadian dollar movements continued to challenge the business environment as well as disrupt historical seasonality and are expected to continue to do so for the near term.
Looking forward.
Our team remains focused on executing customer deliverables and key strategies, while adhering to our operational model with disciplined execution.
We are mindful of the challenging economic environment and continue to work closely with our customers, while monitoring key metrics and supply demand dynamics.
Managing discretionary spend is critical however, we continue to actively recruit technicians in order to support our aftermarket service strategies and value added product offerings.
With a long term in mind.
John I'll turn it over to you for some more detailed comments on the group results.
You very much Mike.
Good morning, everyone I'm, absolutely delighted and honored to join the term on team I've received a very warm welcome and I'm extremely impressed by all of the folks that I've met so far as well and look forward to interacting with all of you in the coming months and quarters.
Let's start with the equipment group on slide six revenue was up 7% in the quarter and up 13% year to date with higher activity across all revenue streams.
Taken together total moving to used equipment sales were up 7% in the quarter and 16% year to date.
New equipment sales increased 5% in the quarter and 20% year to date across most market segments and regions predominantly reflecting the delivery of equipment against order block backlog, improving equipment inflow and support end customer demand used equipment sales increased 16% in the quarter, but were down 3% year to date.
Used equipment sales through trades and purchases have been lower in the current quarter current year.
Client demand dynamic shifted used equipment sales also include rental fleet dispositions, which have increased in the current year. After a period of constraint, reflecting fleet management decisions around an aging fleet as well as availability.
In the quarter total new and used equipment sales increased and construction markets up 13% in material handling up 53%. This was partly offset by a 5% decrease in mining and a 6% decrease in power systems rental revenue was up 11% in the quarter, reflecting higher market activity.
<unk> execution, and an expanded heavy and light equipment fleet growth was experienced in most areas for the quarter with the following increases light equipment rentals were up 6% heavy equipment rentals were up 11% powered power rentals up 31% and material handling slightly up 1%.
Product support revenues grew 7% in the quarter with increases in both parts and service all markets in most regions were higher in the quarter construction of 3% mining up 7% power systems up 22% and material handling was up 7%.
Gross margins increased 40 basis points in the quarter compared to Q3, 2022, largely reflecting higher new equipment margins of 130 basis points.
Set by lower rental margins down 40 basis points and lower product support margins down 60 basis points.
Selling and administrative expenses increased 3% in the quarter on a 7% increase in revenue compensation costs increase with higher head count annual salary increases and higher profit sharing on increased earnings certain expenses, such as travel and training have increased compared to the prior year with greater levels of in person interaction.
And some inflationary effects allowance for doubtful accounts decreased <unk> 8 million on improved aging as a percentage of revenue selling at a minimum administrative expenses improved to 11, 9% year to date compared to 12, 7% for the same period last year.
Operating income increased 13% for the quarter, reflecting the higher revenue and gross margins, partially offset by the higher expenses.
Bookings decreased 10% in the quarter after a strong start to the year construction order activity was lower after significant activity last year, coupled with caution given the current uncertain business and economic factors, our overriding normal seasonality through.
Through the first nine months of 2023 bookings were 4% higher and similar period last year.
Backlog was $1 billion at the end of September, reflecting improving equipment availability for manufacturers as well as planned deliveries against customer orders now the simco on slide seven.
Revenue was up 15% in the quarter, reflecting the advancement on our construction schedules against the strong order backlog and improved execution, coupled with increased product support activity.
Package revenue increased 2% in the quarter with recreational market revenue, partially offset by lower industrial market revenue.
Revenues in the U S were higher while revenues in Canada were lower.
Year to date package revenue was up 15% compared to prior year on strong industrial revenue, partially offset by lower recreational revenue revenues were higher in both Canada and the U S.
Product support revenue improved 29% in the quarter with increases in both Canada and the U S activity levels continued to improve reflecting both market conditions and increasingly labor capacity.
Gross profit margins increased 500 basis points in the quarter versus the comparable period last year packaged margins improved on good execution and the nature of projects in process product support margins increased on improved execution and a higher volume of activity and sales mix was favorable in both periods the higher proportion of products.
Port revenue to total revenue.
Selling and administrative expenses were up 16% in the quarter.
Compensation costs increased due to an increase in headcount annual salary increases and higher profit sharing accruals with a higher earnings level other expenditures such as travel and training expenses increased to support activity in staffing levels as a percentage of revenue selling and administrative expenses were lower at $15 eight.
8% through the first nine months of 2023 versus $16 five in the similar period last year.
Operating income was double that of last year, and $6 3 million for the quarter, reflecting improved gross margins and higher revenue.
Bookings increased 18% in the quarter industrial orders increased 20% compared to last year with an increase in Canada offset by lower U S orders on tough comparable from last year recreational bookings were up 14% higher in the U S slightly offset by weaker bookings in Canada.
Backlog of $245 million was 20, 21% higher versus last year with an increase in both markets, reflecting continued good order intake and some deferral of our delay in construction schedules, mainly resulting from supply chain constraints.
On slide eight I'd like to touch on a few financial highlights investment in noncash working capital increased 32% versus a year ago, mainly driven by higher inventory levels inventory levels are higher from the prior year driven by a number of factors, including strong backlog delivery timing variability in the supply chain for both equipment and parts.
Coupled with foreign exchange and inflation.
Accounts receivable continues to be an area of focus and while DSO increased slightly we are actively closely managing the junior over receivables and credit metrics. We ended the first quarter with ample liquidity, including cash of $807 million, an additional $460 million available to us under our existing <unk>.
What facilities are net debt to cap ratio was at negative 7%.
NCI B program was renewed during the quarter year to date, we have purchased and canceled 238000 common shares for $25 million. These purchases are reflected of good capital hygiene intended to help mitigate option exercise dilution or.
Overall, our balance sheet remains well positioned to support operational needs and we're prepared to manage manage challenges ahead related to the economic variables and business conditions, we will continue to exercise the operational and financial discipline. One would expect as we evaluate investment opportunities that may develop over time.
Torn month targets of return on equity of 18% over a business cycle ROE improved to 24, 3% compared to 21, 5% for Q3, 2022 and exceeds our five year average of 27%.
Return on capital employed was 31, 5% up from 34% for Q3 2022 and improvement in both of these metrics reflect improved earnings.
<unk> capital discipline.
And finally as announced yesterday pardon me the board of directors approved a regular quarterly dividend of <unk> 43 per share payable on January four 2024 to shareholders on record on December eight 2023.
On slide nine we conclude with some key takeaways as we look forward to the last quarter of the year, we expect the business environment to be influenced by a number of factors that are in play some of which include geopolitical developments the evolving dynamics of the global supply chain, improving availability inflationary and macroeconomic trends and managing customer.
Risk along with growth opportunities all of which can overshadow normal seasonality and customer buying patterns. We continue to proactively monitor developments closely and take actions that we believe are appropriate.
As one would expect we consistently focus on key priority areas, including safe operational execution, serving and supporting our customer requirements and our disciplined approach to capital allocation as we focus on building our business for the long term.
Our backlog remains well positioned however, as noted care must be taken to monitor customer buying patterns and preferences in terms of technician hiring we continue to actively recruit and this remains an essential focus to support growth in our aftermarket.
Value added product and service offerings.
Operationally and financially we are well positioned with ample liquidity and our strong leadership teams discipline culture and focused operating models. We appreciate our entire team's effort and commitment to continue to support our customers and deliver value for our stakeholders. Thanks Al you also to our valued customers suppliers partners and shareholders for their.
The continued support.
That concludes our prepared remarks and at this time, we will be pleased to take questions. So <unk> I'll turn it back to you.
And.
If you could provide us with questions. Please.
Thank you and ladies and gentlemen, we will now begin the question and answer session. So do you have a question. Please press the star followed by the number one on your telephone keypad.
Anthony Thong from acknowledging your request and Youre question is you'll be followed into order. They are received.
And should you wish to decline falling conference. Please press star followed by the member team if you will.
Using a speakerphone please lift the handset before pressing adults.
One moment please for the first question.
And your first question comes from the line of Cherilyn Radbourne from TD Securities. Your line is open.
Thanks, very much and good morning, Congratulations Q congratulations to both of you on your new roles and our best wishes to Scott as he retires following a very impressive career at four months that's great. Thank you Sir.
In terms of the quarter it sounds like construction customers are acting a bit more cautiously as it relates to capex, but on the other hand, you indicated that activity levels and product support and rental were healthy across all markets, including construction. So just curious what you make about that on an overall basis.
Yes, it's a great question Cherilyn. Thanks, Thanks for your well wishes as well.
Yeah, a couple of things I think again the tone is pretty cautious I think just given the macroeconomic factors right and normally as you know we would see in Q4, a lot of times, we'd have some conversions on our T O as we'd have capital decisions by customers, depending on their financial position and so forth and so I think.
What we're seeing is.
You know a little bit better availability of equipment gives our customers a little bit of time to think through their timing decisions as they wrap up their year end and they make they make their decisions on how they see things.
And there are requirements as they go into Q4, and so I would say it still feels very cautious I think given some of the questions around interest rates and so forth on the other hand.
We are seeing as a result of pretty strong activity over the last several quarters you know that.
Product support business.
Other parts of our business, including rental continue to perform reasonably well so it's a bit of a mix and that's why we're cautious by their comments around overriding normal seasonality as we go into Q4 and as you know we don't we don't provide much in the way of guidance, but our backlog certainly also shows that its fairly supportive as we go into the next year.
Okay. That's helpful and then on the supply chain I was hoping you could give us a bit more color on how that functioning now, particularly as it relates to large machines and large engine and how that's influencing how you're continuing to manage around any remaining constraint.
Yes, it's a great question. It is so broadly speaking.
I'd say that.
The supply chain continues to improve.
There are certain units that we've been talking a little bit about you know around excavators.
Operator: Good morning. Today is Tuesday, October 31, 2023. Welcome to the Parliament Industries Ltd. 3rd quarter for 2020 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. At this time, all lines are in a listen only mode. Your host for today will be Mr. Mike McMillan, President and Chief Executive Officer. Please go ahead, Mr. McMillan. Thank you, Loody. Good morning, everyone.
And so forth.
Again, the supply is improving we're still constrained to a certain degree uncertain.
Let's say consistent with the past larger units when you look at and even in the like when you think of certain models of sort of the medium sized equipment or small wheel loaders.
And so forth and so.
I think.
As we go forward, we continue to work really closely with our customers just to try to make sure that we understand the delivery schedule from adult slots.
Mike Mcmillan: Thank you for joining us today to discuss Toromont's results for the third quarter of 2023. It's a privilege and an honor to be hosting this call today as President and CEO. Scott Methurst, who officially retired, effective October 15, continues to support us as an Executive Advisor. However, I would like to take this opportunity to congratulate Scott and thank him for his incredible contribution throughout his successful 35-year career with Toromont. His unwavering dedication, leadership and support has been second to none. I look forward to continuing to work with Scott in this new capacity in the next few months and we wish him all the best as he transitions toward his retirement.
Mentioned large engines I mean large engine still have extended timeframes until you know as we navigate and we see supply improving each month or each quarter.
We continue to just work with our customers in terms of helping them understand the time frames and as they can work through the winter months and so forth. So a bit of a long answer to your question here, but I would say you know there are some areas in parts that are still a little bit challenged.
Certain units as I mentioned still have fairly tight supplier extended timeframes, but.
But we certainly see that improving as we get into next year.
That's my two thank you for your time, great. Thanks Cheryl.
And your next question comes from the line of Devin Dodge from BMO Capital markets. Please proceed with your question.
Mike Mcmillan: At the same time, I am delighted to officially welcome John Doolittle, Executive Vice President and Chief Financial Officer to the Toromont team. John is a seasoned CFO and a highly accomplished financial executive with over 30 years of experience in large global corporations across a broad range of industries.
Alright, Thanks, Good morning, guys good morning.
Good morning.
It seems like.
Peak, new equipment demand may be behind us, but are you able to give us a sense as to where the machine population in your territory.
Hits now versus a couple of years ago.
Mike Mcmillan: John officially joined Toromont on October 11, 2023. Please join me in officially welcoming John to the team. John and I will be referring to the presentation that is available on our website.
Yes, I think it's.
Thanks for the question there Devin and I you know I think we have to be careful on that particular position just given where we've come from and I think where we're headed and I think a couple of things I'd mention though just to give you a little bit of directional thinking.
Mike Mcmillan: To start, I would 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 questions. So let's get started and move to slide four.
Overall.
As we mentioned and you look at our sales in the last quarter or two.
We're quite happy with new sales, it's improving and so forth, but the mix I think it's important to think about the mix of the product that we've also put into the field.
Mike Mcmillan: Please note that our discussion today will focus on continuing operations unless otherwise noted. We are pleased with the operating and financial performance through the first nine months of the year. The Equipment Group executed well delivering against the opening order backlog in line with customer schedules and improvement in inventory flow along with good growth in rental and product support activity as well as continued focus on expense control. Simco revenue and bottom line improved in the quarter on good execution and higher product support activity. Across the organization, we continue to navigate through evolving economic conditions and remain committed to our operating disciplines driving our aftermarket strategies and delivering solutions tailored to our customer requirements.
And also the Rollouts on the rental side and so there are a number of dynamics that I think would be quite different than pre pandemic. So for example, you know.
The team has worked really hard on the mining side and then the way into a number of greenfield opportunities and that's been positive for us So let's see.
Mix is a little stronger on some of the larger gear I think when you look at.
Our past with used was quite strong when we are in more constrained environment and so that's starting to you know.
Change a little bit, but we also see with availability some of the rollouts coming in to the market from a rental business right as we replace the rental fleets and so forth and so again.
I'd say the population has moved around a fair bit.
But it's I would say I wouldnt want to mislead you in terms of what that mix looks like and that overall population until things stabilize and get a better idea of what our annual run rates are going to be.
Mike Mcmillan: Now, turning to our financial results highlighted on slide five. Results for the third quarter of 2023 reflected good execution on new equipment deliveries against order backlog in favorable operating leverage. Revenue increased 8% in the third quarter and 14% through the first nine months of the year, with increases in both the equipment group and SIMCO. Rental and product support revenue increased on customer activity. Higher growth margins, along with lower relative expenses and higher interest income on cash balances, all contributed to higher net earnings versus Q3 of last year.
Okay. Thanks, a lot that's good color okay.
Look over to the to the rental business, so you've generated pretty solid revenue growth and rental services, but we have noticed that had lagged the growth and the original equipment cost at the fleet at least for the last couple of quarters.
Can you give us a sense is this primarily related to mix.
Just talk more broadly about the utilization trends that youre seeing across your rental platforms.
Yes, it's a great question I think what we're seeing there is a number of factors contribute to our rental business.
Generally speaking when we talked in the equipment group were up on a quarter over quarter basis and stuff I think it's about 11% in the quarter and eight year to date now part of that is driven by as availability of equipment and we've been able to start to replace our fleet.
Mike Mcmillan: Net earnings from continuing operations increased 21% in the quarter compared to last year, reflecting revenue growth, expense management, and higher interest income. Through the first nine months of the year, net earnings increased 29% from last year, to $375 million or $4.50 per share again on a continuing off-spaces.
You know, we're replacing the fleet with a higher acquisition cost right and then rolling out some of the other old H units and so what I would say is we have a larger fleet in terms of number of units, we have a higher cost fleet.
Mike Mcmillan: For the third quarter, bookings for the third quarter decreased 5% compared to last year and increased 5% on a year-to-date basis. The equipment group reported lower bookings during the quarter and SIMCO reported increased bookings on good demand for our products. Year-to-date, both groups reported increased bookings. Backlog remains healthy at 1.2 billion, down slightly from last year, however historically quite solid. Backlog is supportive and reflects good order intake, progress on construction and delivery schedules, as well as some improvement in equipment flow throughout the supply chain.
And so utilization is a little bit lower and this is just driven off of the fact that we have a larger number of units out there and so forth and so I.
I think the other piece that's important to us the labor side of the market.
We continue to higher tax and it's a constrained market and that can affect our business a little bit at times just in terms of how we get our rental units back and ready to rent and so forth, but generally speaking I wouldn't say any of that surprising it's natural given where we've been.
And as we look forward, we expect to continue to drive the utilization improve some of our turnarounds and.
As we look at the economy, where things go.
Mike Mcmillan: General macroeconomic factors such as inflation, higher interest rates, and Canadian dollar movements continue to challenge the business environment as well as disrupt historical seasonality and are expected to continue to do so for the near-term. Looking forward, our team remains focused on executing customer deliverables in key strategies, while adhering to our operational model with disciplined execution. We are mindful of the challenging economic environment and continue to work closely with our customers while monitoring key metrics and supply demand dynamics. Managing discretionary spend is critical, however we continue to actively recruit technicians in order to support our after-market service strategies and value-add product offerings with a long-term in mind.
I think I think we're quite happy with where we're positioned on the rental side.
Okay. Thanks, a lot I'll turn it over.
Great. Thanks, Kevin.
Your next question comes from the line of Michael <unk> from Scotiabank. Your line is open.
Hey, good morning, Mike and Ron.
John.
Thank you Michael good morning.
I just just to clarify.
One earlier question on the cautioning for demand.
Construction equipment.
It sounds like.
You know better available and the higher rates and there is some uncertainty but.
I just wanted to make sure that there wasn't any slowdown.
As far as the end market activity.
Something that you'd probably be able to see.
Tracking of the machine hours, so I just wanted to clarify.
You know what the end market activity was.
Mike Mcmillan: John, I'll turn it over to you for some more detailed comments on the group results. Thank you very much, Mike.
Yeah, I think a couple of things to mention there Michael I think you know what.
And I think we're all aware of what you hear in the marketplace today around residential construction and infrastructure right and so I.
John Doolittle: Good morning, everyone. I'm absolutely delighted and honored to join the tourment team. I've received a very warm welcome and I'm extremely impressed by all of the folks that I've met so far, as well as I look forward to interacting with all of you in the coming months and quarters. Let's start with the equipment group on slide six. Revenue was up 7% in the quarter and up 13% year-to-date with higher activity across all revenue streams.
I would say couple of things.
You know our business is pretty well diversified when you think of our end markets right, whether it's in mining construction.
Infrastructure.
And so far so residential and our customers putting in sewer water and things like that is it's likely where we'd see a little bit of softness in that marketplace I think as a tailwind to that of course.
John Doolittle: Taken together, total new and used equipment sales were up 7% in the quarter and 16% year-to-date. New equipment sales increased 5% in the quarter and 20% year-to-date across most market segments and regions. Predominantly reflecting the delivery of equipment against order block backlog, improving equipment inflow, and supporting end customers. Matt. Use the equipment sales increased 16% in the quarter, but we're down 3% year today. Use equipment sales from trades and purchases have been lower in the current quarter, current year, as supply demand dynamic shifted.
One of our primary markets here in the in the GTA.
And in Canada in General you know the immigration policy. The labor shortage is also driving a need for affordable housing and so.
I think as we look through into the longer term, we're certainly comfortable with both the diversified nature of our business, but also that sort of tailwind and demand for housing as you know the economic variables and factors worked their way through so so that that's where we would see a little bit of softness is probably more on the <unk>.
John Doolittle: Use the equipment sales also include rental fleet dispositions, which have increased in the current year after a period of constraint, reflecting fleet management decisions around an aging fleet as well as availability. In the quarter, total new and used equipment sales increased in construction markets of 13% in material handling of 53%. This was partly offset by a 5% decrease in mining and a 6% decrease in power systems. Rental revenue was up 11% in the quarter, reflecting higher market activity, strong execution and an expanded heavy and light equipment fleet.
Residential.
Timing of projects and in the perhaps in the near term.
But when we look at some of the larger commitments and other infrastructure projects and so forth.
It seems.
Generally solid at this stage.
Thanks for that Mike and then on the on the equipment margins.
That was up quite noticeably in the quarter and I would've thought that given the improved availability miners had the or would've had the opposite effect.
I was just wondering if you can explain.
The bump in the equipment margins in the quarter.
John Doolittle: Growth was experienced in most areas for the quarter with the following increases. Light equipment rentals were up 6%, heavy equipment rentals up 11%, power rentals up 31%, and material handling slightly up 1%. Product support revenue grew 7% in the quarter with increases in both parts and service. All markets in most regions were higher in the quarter, construction of 3%, mining up 7%, power systems up 22%, and material handling was up 7%.
Yeah, a couple a couple of things I mean part of it is driven by fulfilling the backlog and some of the lead times, so new equipment, new equipment as we disclosed in our in our financials. The new equipment component when I think of gross profit overall were up about I think it was about 40 bps, but.
New equipment is being.
Contributing to that but where we saw some tightness in overall margin was in say rental is a little tighter partly because as I mentioned earlier on the call the the acquisition costs and rates and so forth so a higher base.
John Doolittle: Growth margins increased 40 basis points in the quarter compared to Q3 2022, largely reflecting higher new equipment margins of 130 basis points offset by lower rental margins down 40 basis points and lower product support margins down 60 basis points. Selling an administrative expenses increased 3% in the quarter on a 7% increase in revenue. Compensation costs increased with higher head count annual salary increases in higher profit sharing on increased earnings. Certain expenses such as travel and training have increased compared to the prior year with greater levels of in-person interaction and some inflationary effects.
Product support as well.
Are you seeing it we're seeing a little bit there it's really.
It's really driven off parts pricing and things like that and so.
But not overly material net net where operate 40 basis points on the quarter and so it is really I think of it as broadly mix when you think of parts.
Rental and new equipment, and then of course used we're.
We're seeing in.
In the used segment itself, we're seeing a couple of factors there one would be.
Targeted purchasing of used and trades and so forth, but also the rollout of some of our rental fleet does tend to go through that channel as well and so there's a bit of a.
John Doolittle: Allows for debt flow accounts decreased 0.8 million on improved aging as a percentage of revenue selling in a minute straight of expenses improved to 11.9% year today compared to 12.7% for the same period last year. Operating income increased 13% for the quarter, reflecting the higher revenue in growth margins, partially offset by the higher expenses. Bookings decreased 10% in the quarter after a strong start to the year. Construction order activity was lower after significant activity last year, coupled with the caution given the current uncertain business and economic factors are overriding normal seasonality.
There's a bit of a factor there as well.
Perfect. Thanks, Mike Okay.
Okay no problem.
Your next question comes from the line of Yuri Lynk from Canaccord Genuity. Your line is open.
Hey, good morning, guys.
Good morning, good morning, yes.
Just wanted to follow up on the on the seasonality question.
You are talking about some changes there and the pattern is that just wanted to confirm is that mostly confined to <unk> conversions that normally occur in Q4 or.
It sounds like Youre also hinting at.
John Doolittle: Through the first nine months of 2023, bookings were 4% higher in similar period last year. Backlog was 1 billion at the end of September reflecting improving equipment availability for manufacturers as well as planned deliveries against customer orders.
Delayed purchasing decisions and as a follow on to that are you seeing any other seasonality changes in product support or the rental business at all.
Yeah, Great Great question, you're right I think a couple of components you break down there I would say.
John Doolittle: Now the SIMCO on slide 7. Revenue was up 15% in the quarter reflecting the advancement on construction schedules against a strong order backlog and improved execution, coupled with increased product support activity. Package revenue increased 2% in the quarter with recreational market revenue, partially offset by lower industrial markets.
Starting with ERP, Oh, if you look at our P O.
Level right now it was about $55 million in the equipment group, which.
If you roll back historically as you mentioned, we tend to see conversions in Q4, but we usually enter Q4 at a higher level right. So where maybe maybe two thirds of the value we would would've seen pre pandemic and so.
John Doolittle: Revenue. Revenue is in the US for higher while revenues in Canada were lower. Year-to-date package revenue was up 15% compared to prior year on strong industrial revenue partially offset by lower recreational revenue. Revenue is rehired in both Canada and the US. Product support revenue improved 29% in the quarter with increases in both Canada and the US. Activity levels continue to improve reflective of market conditions and increased labor capacity. Gross profit margins increased 500 basis points in the quarter versus a comparable period last year.
I do think.
From a customer perspective, they're evaluating you know.
Their Q4 decisions still given given the higher cost of borrowing.
Their options that they have ahead of them like an RP O and.
And what their pipelines look like and so I think that's where we see some caution going into Q4 in a sense.
On the rental side again rental business has been pretty solid in terms of activity level.
As I mentioned earlier, we you know we have a slightly higher cost base with new equipment and so forth as we're changing that fleet over and I think that's a natural thing, but we do we do feel that I think both on the product support side being up and the rental side of the business.
John Doolittle: Package margins improved on good execution and the nature of projects and process. Product support margins increased on improved execution in a higher volume of activity and sales mix was favorable in both periods with a higher proportion of product support revenue to total revenue. Selling an administrative expenses were up 16% in the quarter. Compensation costs increased due to an increase in heck count and you'll salary increases in higher profit sharing of cruells with a higher earnings level.
Activity levels are still fairly fairly solid and so comfortable with where that's positioned.
Okay.
I think the first call for for your two gentlemen, as a team maybe I'll just ask.
John Doolittle: Other expenditures such as travel and training expenses increased to support activity and staffing levels. As a percentage of revenue selling in administrative expenses were lower 15.8% through the first time months of 2023 versus 16.5 in the similar period last year. Operating income was a double lot of last year at 6.3 million for the quarter reflecting improved gross margins and higher revenue. Bookings increased 18% in the quarter, industrial orders increased 20% compared to last year with an increase in Canada offset by lower US orders on tough comparables from last year. Recordation of bookings were up 14% higher in the US slightly offset by weaker bookings in Canada.
T J priorities.
For this management team going forward over the next.
Youre going to talk about the long term. So what are what are those priorities. If you could just give us an update on how you see it okay.
Sure why don't I.
I start and then we can get John's impression here, a few weeks and health advocate.
Okay.
Fundamentally I would just say strategically we don't see a big shift there I think given where we are.
We have the team focused on the controllable managing all aspects of our business.
And just working closely with our customers we've got some some good activity in the mining segment.
You can see in our order backlog, we still you know as we look at most of our businesses.
John Doolittle: Backlog of 245 million was 21% higher versus last year with an increase in both markets reflecting continued good order intake and some deferral or delay in construction schedules mainly resulting from supply chain constraints.
Some decent positions in the backlog.
Simple as well you know, we often don't bring simcoe into the equation too much but Simcoe had just had a couple of nice quarters year to date, good performance and a solid backlog and so.
John Doolittle: On slide 8 I'd like to touch on a few financial highlights. Investment in non-cash working capital increased 32% versus a year ago mainly driven by higher inventory levels. Inventory levels are higher from the prior year driven by a number of factors including strong backlog, delivery timing, variability in the supply chain for both equipment and parts coupled with foreign exchange inflation.
I'd say, our first priority again is is organic support for the business like executing on what we have ahead of us driving our opportunities from an organic perspective.
Our debts in good position.
And so forth technician hiring as I mentioned earlier is also a big part of what we're trying to do and think long term continue to make sure that we have.
John Doolittle: Accounts receivable continues to be an area of focus and while DSO increased slightly we're actively closely managing the aging of our receivables and credit metrics. We ended the first quarter with ample liquidity including cash at 807 million and additional 460 million available dots under existing credit facilities. Our net debt to cap ratio was at negative 7%. Our NCI-B program was renewed during the quarter year-to-date we have purchased and canceled 238,000 common shares for $25 million. These purchases are reflected of good capital hygiene and tend to help mitigate option exercise dilution.
You know growth in that area. So we can increase our product support and we have a number of investments underway as we Bradford for example, with the Remanufacturing facility due to come online in Q2 next year.
A lot of a lot of work being done.
Within that organization to to just prepare.
For that opportunity so.
Maybe I'll hand, it to John.
Observation.
Thanks, Mike.
I'll just give you my perspective, which I think is very consistent with what Mike just described in terms of capital allocation thoughts on capital allocation strategy.
Company has been an absolutely great stewards of capital.
John Doolittle: Overall our balance sheet remains well positioned to support operational needs and we're prepared to manage challenges ahead related to economic variables and business conditions. We will continue to exercise the operational financial discipline one would expect as we evaluate investment opportunities that may develop over time. Toromont Targets of Kernont Equity of 18% over a business cycle are we improved to 24.3% compared to 21.5% for Q3 2022, and exceeds our five-year average of 20.7%. Returning on capital employed was 31.5% up from 30.4% for Q3 2022, and improving in both of these metrics reflect improved earnings and continue capital discipline.
And the company for that we're lucky to have a lot of flexibility Mike.
As Mike pointed out with the balance sheet is very strong.
That reinsurers are very good.
And I always think first about feeding the business organically as our first priority as well.
As you know we've renewed our NCI V program, we've got a great history on dividends and of course over the course of time, we'll look at inorganic opportunities, but we'll be disciplined and methodical.
Careful as we do that to make sure that they are good fit for the organization.
And what those opportunities are those opportunities.
A limited too.
Ships or are you looking at.
Potentially a third business line.
John Doolittle: And finally, as announced yesterday, pardon me, the board of directors approved the regular quarterly given in the 43 cents per share, payable on January 4, 2024, to shareholders on record on December 8, 2023.
You know I would say, we always we're always careful when we think about those opportunities right area. I think for example, I mean.
We're a number I think theres a number of things that we can even small tuck ins to complement our service offerings. So anything that is like the dealership side of things as we said in the past.
John Doolittle: On slide nine, we conclude with some key takeaways as we look forward to the last quarter of the year. We expect the business environment to be influenced by a number of factors that are in play, some of which include geopolitical elements, evolving dynamics of the global supply chain, improving availability, inflationary and macroeconomic trends, and managing customer credit risk along with growth opportunities, all of which can overshadow normal seasonality and customer buying patterns.
We want to be well positioned we want to be a top performer and if an opportunity comes we'll evaluate that carefully and with discipline.
We want to make sure we can make a difference in whatever we look at.
Outside of that which you don't necessarily have control over outside of how you execute and operate your business. We look at complementary like if we do look at say scope and scale I'd be very careful to say anything thats considered new scope would be complementary and so when we look at new business opportunities that would be adding a broader product value.
John Doolittle: We continue to proactively monitor developments closely and take actions that we believe are appropriate. As one would expect, we consistently focus on key priority areas, including safe operational execution, serving and supporting our customer requirements, and our discipline approach to capital allocation, as we focus on building our business for the long term. Our backlog remains well-positioned, however, as noted, care must be taken to monitor customer buying patterns and preferences. In terms of technician hiring, we continue to actively recruit, and this remains an essential focus to support growth in our aftermarket and value added product and service offerings.
Customer value prop for for our business.
Expanding our product support offer that type of thing or a line of equipment that doesn't conflict with that with what we offer today.
But it is attractive to our customers who may be opened us up to a.
A broader set of customers so again that would be.
Very disciplined pretty intentional when we think about that outside of a completely different line of business, which frankly.
John Doolittle: Operationally and financially, we are well-positioned with ample liquidity in our strong leadership teams, discipline culture, and focused operating models. We appreciate our entire team's effort and commitment to continue to support our customers and deliver value for our stakeholders. Thanks all you also to our value customers, supply partners, and shareholders for their continued support.
Is outside of our sweet spot right in what we do.
Thanks for the color guys.
Yes.
That's the question.
Your next question comes from the line of Jacob.
From CIBC your line is open.
Good morning Nathan.
Good morning, Jamie.
Question on Simcoe here.
Margin recovery, you're seeing it build in bookings and backlog.
Operator: That concludes our prepared remarks, and at this time, we'll be pleased to take questions, so Ludi, I'll turn it back to you, and if you could provide us with the questions, please. Thank you, and ladies and gentlemen, we will now begin the question in the next session. Should you have a question, please press the star, followed by the number one on your telephone keypad. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received.
Just maybe provide a little more detail on what youre seeing in the U S versus Canada.
And then.
What the outlook is here for the foreseeable future.
Both those areas.
Maybe a bit of a compare contrast, instead of a color yeah no. Thanks, thanks for that way.
As we've spoken about Jacob in the last few years, let's say in the U S. We've put a.
Team in place and we continue to refine that operating model, but I would say that the team is.
Operator: And should you wish to decline the polling process, please press the star, followed by the number two. If you're using a speaker phone, please leave the hands up before pressing any keys. One moment please, for the first question.
Is executing nicely in both sides of the border frankly.
<unk> put a lot of focus on the team put in a new project management system.
That's given us better visibility the team has worked really hard on on focusing on execution around projects and controls.
Cherilyn Radbourne: And your first question comes from the line of Sherylyn Radborn from QD Securities, your line is open. Thanks very much and good morning, congratulations to both of you on your new roles, and our best wishes to share. Thank you, Scott, as he retires following a very impressive career at Toro Mont. That's great. Thank you. In terms of the quarter, it sounds like construction customers are acting a bit more cautiously as it relates to Catholics. But on the other hand, you indicated that activity levels in product support and rental were healthy across all markets, including construction. So just correct what you make about that on an overall basis.
And you can see it in the results like they've they've done a really nice job there and I think on both sides of the border.
In the U S of course for a small.
Portion of the market in a few orders does tend to move their numbers around a bit but the team is executing on a couple of larger deals right now and doing a very nice job and so certainly the opportunity.
<unk> is in the U S. In many regards as far as.
New organic growth opportunities in the commercial industrial and recreational space and so we're.
We're in Canada, it's similar in the sense, we just have a higher market share and the team continues to to look at some of the product offers that we have as well we've talked in the past a little bit about.
Mike Mcmillan: Yeah, that's a great question, Cherilyn. Thanks for your roll wishes as well. Yeah, a couple of things. I think, you know, again, the tone is pretty cautious. I think just given the macroeconomic factors, right? And normally, as you know, we would see in Q4, a lot of times we'd have some conversions on RPOs. We'd have capital decisions by customers depending on their, you know, financial position and so forth. And so, you know, I think what we're seeing is, you know, a little bit better availability of equipment gives their customers a little bit of time to think through their timing decisions as they wrap up their year end and they make, they make their decisions on how they see things and their requirements as they go into Q4.
Hum.
C O two in pneumonia and getting away from synthetic refrigerants team has a couple of nice a they've got some capabilities in some product lines that they've developed to help drive efficiency gains and heat recovery and I.
I think youre going to hear more of that as we go forward, but generally speaking I would say you know the team is well positioned both sides of the border and I think now it's about execution.
And you can see it from the backlog, they're getting some decent traction.
At 245 million there.
Do you feel like you've turned the corner in the U S.
Mike Mcmillan: And so I would say it still feels very cautious. I think given, you know, some of the questions around interest rates and so forth. On the other hand, we are seeing, you know, as a result of pretty strong activity over the last several quarters, you know, the product support business and other parts of our business, including rental, continue to perform reasonably well. So a bit of a mix. And that's why we're cautious whether comments around overriding normal seasonality as we go into Q4. And as you know, we don't, we don't provide much in the way of guidance but our backlog certainly also shows that it's fairly supportive as we go into the next year. Okay, that's helpful.
I think I would say the team is well positioned.
You know.
I think the growth opportunity there is.
Is pretty attractive in that sense again, a very fragmented market and in some regards.
But.
In terms of their project execution the management team's leadership, there we set up a new facility.
<unk> facility in South Carolina, which is really just getting off the ground, which would be a good center for us top rated out of and so.
Ill turn the corner I'm, not sure, but I think but I think well positioned to to start to grow that business and leverage the management expertise we have there.
Mike Mcmillan: And then on the supply chain, I was hoping you could give us a bit more color on how that functioning now, particularly as it relates to large machines and large engines and how that's influencing how you're continuing to manage around any remaining constraints. Yeah, it's a great question. It is so broadly speaking, I would we would say that, you know, the supply chain continues to improve. You know, there are certain units that we've been talking a little bit about, you know, around excavators and and so forth that that again, the supply is improving.
Maybe just going back to the comments around the cautiousness in the construction sector as you look across your.
Various business groups.
How do you how do you see this playing out and maybe just talk specifically about battlefield and whatnot, but weakness in residential construction would be for that group.
Yeah, I think again we've.
Actually when you look at Capex for example, we've in both heavy and light sweets, but battlefield.
It's split fairly evenly between heavy and light categories, we continue to invest.
Mike Mcmillan: We're still constrained to a certain degree on certain. That's a consistent with the past larger units when you look at and even in the like when you think of certain models of sort of the medium sized equipment or small wheel loaders and and so forth. And so, you know, I think as we go forward, we continue to work really closely with our customers just to try to make sure that we understand the delivery schedules and the build slots.
And upgrade the fleet in the battlefield side of things I think the opportunity continues to be.
Driving the Quebec in the Maritimes market I mean, we've the team has done a nice job there.
But we still have a ways to go to get to the utilization levels. We like as we continued to invest in that fleet and so I think there's a nice opportunity there to continue to to increase our market share and grow that part of the business I think the rest of the business again, we're looking at.
Mike Mcmillan: You mentioned large engines. I mean large engines still have extended time frames. And so, you know, as we navigate and we see supply improving each month or each quarter, you know, we continue to just work with our customers in terms of helping them understand the time frames. And as they could work through the winter months and so forth. So, a bit of a long answer to your question here, but I would say, you know, there are some areas in parts that are still a little bit challenged.
Other locations other opportunities in markets that we think we can.
Add.
Our location here in there like we have when you think of our Mississauga are calling with another facilities. We've set up over the last somewhat so all that to say you know I think the team that the business is well positioned.
Mike Mcmillan: You know, certain units as I mentioned still have fairly tight supplier extended time frames, but but we certainly see that improving as we get into next year. That's my two. Thank you for the time. Great. Thanks, Sheila.
Fleet is in good condition, we're starting to see the rollouts of the H slate as availability improves and that's helpful as well.
And I think the big you know one of the considerations as I mentioned earlier is again, just continuing to build our team our technician team, there and helping to support our customer requirements, but generally if you see you know.
Devin Dodge: As your next question comes from the line of Devon Dodge from BMO capital markets, please proceed with your question. All right. Thanks. You want to guys? Want to get some more?
In an environment like this with some uncertainty.
And so far its rental business tends to do reasonably well.
Mike Mcmillan: It seems like peak new equipment demand may be behind us, but are you able to give us a sense as to where the machine population in your territory sits? It's now versus, you know, a couple of years ago. Yeah, I think it's thanks for the question there, Devin. You know, I think we have to be careful on that particular position just given where we've come from and I think where we're headed, you know, and I think a couple of things I've mentioned, they'll just give you a little bit of directional thinking, you know, overall, you know, as we mentioned, you look at our sales in the last quarter or two, you know, we're quite happy with new sales, it's improving and so forth.
But by market it can vary a fair bit rate.
Thank you.
Sure.
Great. Thanks, Jay and there are no.
And there are no further questions at this time I would like to turn it back to Mr. <unk> for closing remarks.
Yes. Thank you.
And thanks to everyone for joining the call, it's where I thought it was a great great call and I appreciate everybody's participation and that concludes our call. Please be safe hungry to everyone.
Yeah.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Mike Mcmillan: But the mix, I think it's important to think about the mix. The mix of the product that we've also put into the field and also the role that's on the rental side. And so there are a number of dynamics that I think would be quite different than pre-pandemic. So, for example, you know, the team has worked really hard in the mining side and they're in the way into a number of green field opportunities and that's been positive for us.
Mike Mcmillan: So we'll see, you know, our mix is a little stronger on some of the larger gear. I think when you look at, you know, our past with used was quite strong when we were in more constrained environment and so that's starting to, you know, change a little bit, but we also see with availability some of the roll notes coming in to the market from our rental business, right? As we replace the rental fleets and so forth.
Mike Mcmillan: And so, again, you know, I'd say the population has moved around a fair bit, but it's, I would say I wouldn't want to mislead you in terms of what that mix looks like and that'll roll population until things stabilize and we get a better idea. What are annual run rates are going to be? Okay. Thanks for that. That's good color. Okay.
Mike Mcmillan: I'm going to switch over to the rental business. So you've generated, you know, pretty solid revenue growth in rental services. But we have noticed that it's lagged the growth in the original equipment cost of the fleet, at least for the last couple of quarters. Just. Can you give us a sense if it's primarily related to mix and can just talk more broadly about the utilization trends that you're seeing across your rental platforms?
Mike Mcmillan: Yeah, it's a great question. I think what we're seeing there is a number of factors contribute to our rental business. So, you know, generally speaking, when we talked in the encryption group, you know, we're up on a quarter of a quarter basis and stuff. I think it's about 11% in the quarter and eight year to date. Now, part of that is driven by as availability of equipment and we've been able to start to replace the fleet.
Mike Mcmillan: You know, we're replacing the fleet with a higher acquisition cost, right? And then rolling out some of the other old aged units. And so, you know, what I would say is we have a larger fleet in terms of number units. We have a higher cost fleet. And so, you know, utilization is a little bit lower in a sense, just driven off of the fact that we have a larger number of units out there and so forth.
Mike Mcmillan: And so, I think the other piece it's important to is the labor side of the market. You know, we continue to hire tax and it's a constrained market. And that can affect our business a little bit at times, just in terms of how we get our rental units back and ready to rent and so forth. But generally speaking, I wouldn't say any of that surprising. It's natural given where we've been. And as we look forward, we expect to continue to drive the utilization and improve some of our turn around. And as we look at the economy, where things go, you know, I think I think we're quite happy with where we're positioned on the rental side. Okay, thanks for that.
Operator: I'll turn it over. Great.
Michael Doumet: Thanks, Tim. Your next question comes from the line of Michael Doumet from Scotia Band. Your line is open. Hey, good morning, Mike, and welcome, John. Thank you, Michael. Good morning.
Mike Mcmillan: I just just to clarify one earlier question on the cautioning for demand in construction equipment. It sounds like, you know, better availability, higher rates, and there's someone's certainty, but I just wanted to make sure that there wasn't any any slowdown for the end market activity, you know, something that you'd probably be able to see with, you know, tracking of the machine hours, so just wanted to clarify, you know, what the end market activity was.
Mike Mcmillan: Yeah, I think a couple of things to mention there, Michael. I think, you know, and I think we're all aware of what you hear in the marketplace today around residential construction and infrastructure, right? And so, you know, I would, I would say a couple of things. You know, our business is pretty well diversified when you think of our end markets, right? Whether it's in mining construction, you know, infrastructure and so far.
Mike Mcmillan: So residential and our customers putting in, you know, sewer water and things like that is, effectively where we'd see a little bit of softness in that marketplace. I think as a tailwind to that, of course, you know, say in our one of our primary markets here in the GTA and in Canada and general, you know, the immigration policy, the labor shortage is also driving a need for affordable housing. And so, you know, I think as we look through into the longer term, we're, you know, we're certainly comfortable with both the diversified nature of our business, but also that sort of tailwind and demand for housing.
Mike Mcmillan: As, you know, the economic variables and factors work their way through so, so that, you know, that's where we would see a little bit of softness is probably more on the residential timing of projects and perhaps in the near term. But when we look at some of the larger commitments and other infrastructure projects and so forth, it seems reasonably solid at the stage.
Mike Mcmillan: Thanks for that Mike and then on the on the equipment margins, that was up quite noticeably in the quarter and I would have thought that given the improved availability, it might have had the or would have had the opposite effect. So just wondering if you can explain. You know, the bump in the equipment margins in the quarter. Yeah, a couple, a couple of things. I mean, part of it is, is driven by fulfilling the backlog and some of the lead times, so new equipment, you know, new equipment as we disclose in our, in our financial, the new equipment component when I think of ghost profit overall, you know, we're up about, I think it was about 40 bits, but, you know, new equipment being, you know, contributing to that, but, you know, where we saw some tightness and overall margin was in say rental was a little tighter.
Mike Mcmillan: Partly because, as I mentioned earlier on the call, the acquisition costs and rates and so forth, so a higher base product support as well, you know, you're seeing, we're seeing a little bit there. It's really, it's really driven off parts pricing and things like that. And so, but not overly material net net, we're off right 40 basis points on the quarter. And so it is really, I think of it as broadly mixed when you think of parts rental and new equipment and then, of course, you use, you know, we're seeing, in the use segment itself.
Mike Mcmillan: We're seeing a couple of factors there. One would be, you know, targeted purchasing of used and trades and so forth, but also the rollout of some of our rental fleet does tend to go through that channel as well and so there's a bit of a, there's a bit of a factor there as well. Perfect. Thanks, Mike.
Operator: Okay, well problem.
Yuri Lynk: Your next question comes from the line of Yuri Lynk from Canada, Virginia. Your line is open. Good morning, guys. Good morning. Yeah, just want to follow up on the on the seasonality question. You're talking about some changes there in the pattern. Is that just want to confirm? Is that mostly confined to RPO conversions that normally occur in Q4 or it sounds like you're also hinting at some delayed purchasing decisions? And as a follow on to that, are you seeing any other seasonality changes in say product support or the rental business as a whole?
Yuri Lynk: Yeah, no great question here. I think a couple of components you break down there. I would say starting with the RPO, if you look at our RPO level right now, it was about 55 million in the equivalent group, which, you know, if you roll back historically, as you mentioned, we tend to see conversions in Q4, but we usually enter Q4 at a higher level, right? So we're maybe maybe two thirds of the value we would would have seen pre pandemic.
Yuri Lynk: And so, you know, I do think, you know, from a customer perspective, you know, they're they're evaluating, you know, their Q4 decisions still given given the higher cost of borrowing their options that they have ahead of them like an RPO and and what their pipelines look like. And so I think that's where we see some caution going into Q4 in a sense. On the rental side, again, rental business has been pretty solid terms and activity level.
Yuri Lynk: As I mentioned earlier, we, you know, we have a slightly higher cross-base with new equipment and so forth as we're changing that fleet over. And I think that's a natural thing, but we do, you know, we do feel that I think both on the product support side being up and the rental side of the business activity levels are still fairly fairly solid. And so comfortable with for that position.
Mike Mcmillan: Okay. And this is, I think the first call for for you to gentlemen as a team, maybe I'll just ask, you know, strategic priorities for this management team going forward over the next. Over the you're going to talk about the long term. So what are what are those priorities? If you could just give us an update on how you see it. Why don't why don't I start and then we could we get John's impression here a few weeks and you know, I fundamentally I would just say strategically we don't see a big shift there.
Mike Mcmillan: I think given where we are. You know, we have the team focused on the controllables, managing all aspects of our business and just working closely with our customers. We've got some some good activity in the mining segment. You can see in order backlog. We still, you know, as we look at most of our businesses, you know, some decent positions in the backlog. Simco was well, you know, we often don't bring simple into the equation too much, but Simco had, it's had a couple of nice quarters here today, good performance and a solid backlog.
Mike Mcmillan: And so, you know, I'd say our first priority again is is organic support for the business like executing on what we have ahead of us driving our opportunities from an organic perspective. You know, and I think our debts and good position and so forth technician hiring as I mentioned earlier is also a big part of what we're trying to do and think long term continue to make sure that we have, you know, growth in that area so we can increase our product support.
Mike Mcmillan: And we have a number of investments underway as we, you know, Brad, for example, with the re manufacturing facility due to come online in Q2 next year. A lot of a lot of work being done within that organization to just prepare for that opportunity. So maybe I'll hand it to John. Yeah, some observations. No, thanks, Mike. Me, I'll just give you my perspective, which I think is very consistent with what Mike just described in terms of capital allocation thoughts on capital allocation strategy.
Mike Mcmillan: I mean, the company has been an absolutely great steward of capital. I commend the company for that. We're lucky to have a lot of flexibility. Mike pointed out the balance sheet is very strong. That reaches a very good man. I always think first of a feeding the business organically as our first priority as well. We, as you know, we renewed our NCID program. We've got a great history on dividends. And of course, over the course of time, we'll look at in organic opportunities, but we'll be disciplined, thoughtful and careful as we do that to make sure that they're good fit for the organ.
Mike Mcmillan: And with those opportunities limited to dealerships, or are you looking at potentially a third business line? You know, I would say we're always careful when we think about those opportunities right here. I think, for example, I mean, we're a number, I think there's a number of things that we can even small tuck into to complement our service offering. So anything that is like the dealership side of things as we said in the past, you know, we want to be well positioned.
Mike Mcmillan: We want to be a top performer. And if an opportunity comes, we'll evaluate that carefully and with discipline. And we want to make sure we can make a difference in whatever we look at. Outside of that, which you don't necessarily have control over outside of how you execute and operate your business, you know, we look at complimentary, like if we do look at, say, scope and scale, I would be very careful to say anything that's considered new scope would be complimentary.
Mike Mcmillan: And so when we look at new business opportunities, it would be adding a broader product value, you know, customer value prop for our business, expanding our product support offer or that type of thing. Or a line of equipment that doesn't conflict with that with what we offer today, but is attractive to our customers and maybe open to subtest broad, a broader set of customers. Again, that would be very disciplined, pretty intentional when we think of that outside of a completely different line of business, which frankly, you know, is outside of our sweet spot, right? And what we do.
Mike Mcmillan: Thanks for the color, guys. Thanks for question.
Jacob Bout: Your next question comes from the line of fake of bow from CIBC, your line is open.
Mike Mcmillan: Good morning. Question on SIMCO here, you know, strong margin recovery, seeing it build in booking and backlog. Maybe provide a little more detail on, you know, what you're seeing in the US versus Canada. And then what the outlook is here for the foreseeable future for both those areas, just maybe a bit of a, you know, compare contrast. Bit of a color. Yeah. No, thanks. Thanks for that. As we've spoken about Jacob in the last few years, say in the US, we've put a team in place and we continue to refine that operating model.
Mike Mcmillan: But, you know, I would say that the team is executing nicely on both sides of the border, frankly. You know, we put a lot of focus on the team, put in a new project management system. It's given us better visibility. The team has worked really hard on focusing on execution on around projects and controls. And you can see it in the results like they've done a really nice job there. And I think on both sides of the border, you know, we have a, in the US, of course, we're a small portion of the market.
Mike Mcmillan: And a few orders does tend to move their numbers around a bit. But the team is executing on a couple larger deals right now and doing a very nice job. And so certainly the opportunity is in the US in many regards as far as new organic growth opportunities in the commercial industrial and recreational space. So, we're in Canada. It's similar in the sense we just have a higher market share and the team continues to look at some of the product offers that we have as well.
Mike Mcmillan: You know, we've talked in the past a little bit about... CO2 and pneumonia, getting away from synthetic refrigerants. Team has a couple of nice, they've got some capabilities in some product lines that they've developed to help drive efficiency gains and heat recovery, and I think we're going to hear more of that as we go for, but generally speaking I would say, you know, the team is well positioned both sides of the border, and I think it's now it's about execution.
Mike Mcmillan: And you can see it from the backlog, they're getting some decent traction at $2.45 million there. Do you feel like you've turned the corner in the US? You know, I think I would say the team's well positioned, you know, I think the growth opportunity there is is pretty attractive in that sense. Again, a very fragmented market in in some regards, but, but, you know, in terms of their project execution, the management team leadership there, we set up a new facility in South Carolina, which is really just getting off the ground, which would be a good center for us to operate out of. And so, you know, turn the corner I'm not sure, but I think I think well positioned right to just start to grow that business and leverage the management expertise we have there.
Mike Mcmillan: And maybe just going back to the, you know, the comments from the cautiousness and the construction sector, you know, actually look across your various business groups, you know, how do you, how do you see this playing out maybe just talks specifically about, you know, battlefield and what that, what weakness and residential construction we've been for the doctor. Yeah, I think again, we've actually, when you look at CapEx, for example, we've in both heavy and light fleets, but battlefield, you know, it's split fairly evenly between the heavy and light categories, we've continued to invest and upgrade the fleet in the battlefield side of things.
Mike Mcmillan: I think the opportunity continues to be driving the Quebec in the maritime market. I mean, we've the team has done a nice job there, but we still have a ways to go to get to the utilization levels we like as we continue to invest in that fleet. And so I think there's a nice opportunity there to continue to increase our market share and grow that part of the business. I think the rest of the business.
Mike Mcmillan: Again, we're looking at other locations, other opportunities and markets that we think we can add a location here and there like we have. When you think of Mrs. Saga or Cohen with another facilities, we've set up over the last little bit. So all about to say, you know, I think the team, the business is well positioned. The fleet is in good condition. We're starting to see the rollouts of the age fleet as availability improves, and that's helpful as well.
Mike Mcmillan: And I think the big, you know, one of the considerations, as I mentioned earlier, is again, just continuing to build our team, our technician team there and helping to support our customer requirements. But generally, if you see, you know, an environment like this with some uncertainty and so forth, the rental business tends to do reasonably well. But by market, it can very fair.
John Doolittle: Thank you. Thanks, Jay. And there are no. And there are no further questions at this time. I would like to turn it back to Mr. Doolittle for closing remarks. Yeah, thank you, Ludy. And thanks to everyone for joining the calls when I thought it was a great call and appreciate everybody's participation. And that concludes our call. Please be safe. Have a great day, everyone.
Operator: Ladies and gentlemen, this concludes today's conference call.
Operator: Thank you for participating in me now at this corner.