Q1 2024 Toromont Industries Ltd Earnings Call
Good morning today is Thursday may 2nd 2024, welcome to declare them on industry L. T. D. First quarter 2024 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.
As for today will be Mr. John Doolittle executive.
John Marshall Doolittle: Vice President and Chief Financial Officer, Mr. Doolittle. Please go ahead.
John Marshall Doolittle: Okay very good thank you Lee and good morning, everyone.
Thank you for joining us today to discuss four months results for the first quarter of 2024 also on the call with me. This morning is Mike Mcmillan, President and CEO, Mike and I will be referring to the presentation that is available on our web site to start I would like to refer our listeners to slide two which contains our advisory regarding forward looking information and statements.
Mike Mcmillan: After our prepared remarks will be more than happy to answer questions and let's get started to move to slide three and Michael I'll pass it off to you great.
Mike Mcmillan: Great. Thanks, very much John good morning, everyone.
Mike Mcmillan: Results for the first quarter of 2024 are reflective of the evolution toward more normalized supply and demand dynamics when compared to the market factors. We experienced last year overall, we saw a decline in revenues year over year, however activity levels remain solid with healthy bookings and backlogs across the business.
Mike Mcmillan: Historically this period reflects seasonality in areas of our business, including construction.
Mike Mcmillan: The equipment group delivered lower results in the first quarter of 2024 versus the similar period of last year, which was a strong comparator given specific customer deliveries and market dynamics in play at that time.
Mike Mcmillan: Prime product delivery with lower impacted by delays in customer deliveries, while rental was also lower mainly due to market and abnormal weather conditions.
Mike Mcmillan: Product support reported good market activity and we continue to increase technician head count.
Mike Mcmillan: Improving equipment availability solid bookings in the quarter and a healthy opening order backlog remains supportive for the future.
Mike Mcmillan: <unk> had a solid start to the year driven by good execution in both Canada and the U S. Coupled with healthy activity levels product support activity continued to demonstrate growth supported by larger technician workforce.
Mike Mcmillan: Operating income increased.
Mike Mcmillan: On the higher revenue improved gross margins and favorable sales mix with a higher proportion of product support revenue to total partially offset by higher expenses.
Mike Mcmillan: Across the organization, we continue to focus on our long term investment objectives and remain committed to our operating disciplines, driving our aftermarket strategies and delivering customer solutions.
Mike Mcmillan: On slide four I'd like to touch on a few key financial highlights.
Mike Mcmillan: Investment in noncash working capital decreased 9% versus a year ago, mainly driven by higher deposits and customer billings against long term contracts in order backlog.
Mike Mcmillan: Counts receivable decreased in light of slightly lower revenue levels, while DSO increased up four days compared with last year at 41 days overall, our team continues to closely manage the aging of our receivables and monitor credit levels and metrics.
Mike Mcmillan: Inventory levels are higher than the prior year, driven by a number of factors, including delivery timing inflation foreign exchange rates on U S source supplies, improving availability through the supply chain and activity levels.
Mike Mcmillan: We ended the first quarter with ample liquidity, including cash of $983 million and an additional $461 million available to us under our existing credit facilities.
Mike Mcmillan: Our net debt to total capitalization ratio was negative 14%.
Mike Mcmillan: Overall, our balance sheet remains well positioned to support operating needs and we are prepared to manage challenges 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.
Mike Mcmillan: <unk> targets are return on equity of 18% over a business cycle.
Mike Mcmillan: Return on equity was 22% compared to 24, 9% for Q1 of 2023 and exceeds our five year average of 28%.
Mike Mcmillan: Return on capital employed was 29% down from 32, 4% for Q1 2023, both of these metrics reflect our higher capital investment.
Speaker Change: And as announced yesterday the board of directors approved a regular quarterly dividend of <unk> 48 per share payable on July five 2024 to shareholders on record on June seven 2024.
Speaker Change: John I'll turn it back to you for some more detailed comments on our Q1 results. Okay. Thank you, Mike, Let's turn to slide five for a few additional comments on the consolidated numbers as Mike noted results in the first quarter of 'twenty four were lower than the first quarter 'twenty three as expected given market dynamics in play at that time, lower revenue lower gross margins and higher expenses.
John Marshall Doolittle: Were partially offset by the higher interest income on cash balances solid opening order backlog and good order bookings during the quarter were supportive bookings increased 62% compared to similar period last year equipment group bookings increase in several large orders in mining and construction Simcoe bookings increase on solid demand for our products and services.
John Marshall Doolittle: Backlog remains healthy at $1 4 billion up 24% year over year with an increase in both the equipment group up 15% and at Cinco up 62% backlog is supportive and reflecting good order intake some deferrals or delays in construction and customer delivery schedules and supported by improving equipment and flow through the supply chain.
John Marshall Doolittle: On a consolidated basis revenue decreased 3% in the quarter with the equipment group down 3% up.
John Marshall Doolittle: Up 3%.
John Marshall Doolittle: Expense levels increased to 14% of revenue year over year, reflecting the higher staffing levels and activity activity as well as inflationary pressures.
John Marshall Doolittle: Operating income decreased 17% in the quarter and was 10, 5% of revenue compared to 12, 2% and similar period last year net earnings decreased 13% or $12 2 million in the quarter compared to last year and basic EPS was one or two in the quarter tracking the decrease in net earnings both reflecting the lower revenue higher relative to <unk>.
John Marshall Doolittle: Spence levels and higher interest income.
John Marshall Doolittle: Turning to the equipment group on slide six revenue was down 3% in the quarter equipment sales, including both new and used equipment were down 10% in the quarter across most market segments.
John Marshall Doolittle: New recruitment sales decreased 11% in the quarter against a stronger comparative in 2023 in part reflecting delays in customer delivers used equipment sales decreased 6% in the quarter on lower sales from trades and purchases, reflecting shifting supply and demand dynamics used equipment sales also include rental fleet.
John Marshall Doolittle: <unk>, which have increased reflecting fleet management decisions as well as availability and the cost of new equipment in the quarter total equipment revenue decreased 4% and construction, 34% and mining 20% in material handling and increased 34% and power systems.
John Marshall Doolittle: Rental revenue was down 3% in the quarter, most markets and regions were lower reflecting competitive market conditions and unfavorable weather conditions revenue was lower in most areas for the quarter with the following decreases light equipment rentals were down 6% heavy equipment rentals were down 13% material handling down 8%.
John Marshall Doolittle: Which was partially offset by an increase in power rentals, which were up 9%. Our RP O fleet was $70 million versus $39 million, a year ago and rental revenue was up 50% compared to last year on that <unk>.
John Marshall Doolittle: Product support revenue grew 3% in the quarter with increases in both parts and service across most markets and regions on good end user customer demand and a higher technician base looking at specific markets for the quarter change in revenue was as follows construction was up 3% mining up 4% power systems up three <unk>.
John Marshall Doolittle: Material.
John Marshall Doolittle: Material handling down 5%.
John Marshall Doolittle: Gross margins decreased 100 basis points in the quarter compared to 23 equipment margins increased slightly up 10 basis points on sales mix rental margins were down 130 basis points on lower fleet utilization higher recent acquisition cost in part due to a weaker Canadian dollar and higher maintenance and repair.
John Marshall Doolittle: Product support margins decreased 60 basis points on generally higher costs sales mix with a higher proportion of product support revenues to total increased margin by 80 basis points.
John Marshall Doolittle: And SG&A expenses were up 6% in the quarter compensation costs were higher year over year, reflecting staffing levels regular salary increases partially offset by lower profit sharing accruals on the lower income other expenses, such as training travel and occupancy increase in light of activity levels and inflationary pressures.
John Marshall Doolittle: As a percentage of revenue.
John Marshall Doolittle: <unk> and administrative expenses were higher at 13, 8% in the period versus 12, 6%.
John Marshall Doolittle: Similar period last year.
John Marshall Doolittle: Operating income decreased 20% for the quarter, mainly reflecting the lower revenue lower gross margins and higher relative expenses bookings increased 51% in the quarter mining bookings were up significantly in several large orders received in the quarter. Construction bookings were also healthy up 40%. These were partially offset by lower <unk>.
John Marshall Doolittle: Orders in power down 35% in material handling down 42%.
John Marshall Doolittle: Backlog of $1 1 billion remains at healthy levels up 15% versus last year, reflecting good new bookings and some delivery delays on customer orders.
John Marshall Doolittle: 85% of the backlog is expected to be delivered over the next 12 months, but of course, it's subject to timing differences, depending on vendor supply customer activity and delivery schedules.
John Marshall Doolittle: Now turning to <unk> on slide seven.
John Marshall Doolittle: Revenue was up 3% in the quarter package revenue decreased 7% in the quarter, mainly due to delays in equipment delivery and customer schedules of large industrial projects, partially offset by an increase in the recreational market industrial market revenue was down 24% with lower activity in both Canada and the U S. While recreational activity.
John Marshall Doolittle: Increased 85% up in both Canada and the U S.
John Marshall Doolittle: Product support revenue improved 11% in the quarter with increases in both Canada and U S activity levels continue to improve reflective of market conditions and increased labor labor capacity gross margins increased 450 basis points in the quarter versus the comparable period last year packaged margin margins were up 270 basis points.
John Marshall Doolittle: On a good execution and the nature of the projects and process and product support margins increased 120 basis points on improved execution and higher market activity, a favorable sales mix increased margins by 60 basis points, reflecting a higher proportion of product support revenues to total revenue.
John Marshall Doolittle: Selling and administrative expenses were up 10% in the quarter allowance for doubtful accounts decreased $1 6 million, reflecting focused effort on collections and an improvement of age receivable balances compensation cross cost increase reflecting staffing levels annual salary increases and higher profit sharing accruals on a higher.
John Marshall Doolittle: Earnings other expenditures, such as travel and training expenses increase to support activity and staffing levels and as a percentage of revenue.
John Marshall Doolittle: Selling and administrative expenses increased to 17, 9% in the period versus 16, 7% in the similar period last year in part driven by higher revenue.
John Marshall Doolittle: Spending control measures on.
John Marshall Doolittle: On discretionary spend to remain a key focus area for the Simco team.
John Marshall Doolittle: Operating income was up $3 million was 61% for the quarter, reflecting improved gross margins and higher revenue operating income as a percentage of revenue increased 330 basis points to eight 9% compared to the first quarter of last year.
John Marshall Doolittle: <unk> increased 156% or $62 9 million in the quarter industrial orders were up 194% recreational orders were up 119% with higher orders in both Canada and the U S backlog at $323 million was 62% higher than last year, largely driven by an increase of 114.
John Marshall Doolittle: Sent in the industrial market, a 17% increase in the recreational market with increases in both Canada and the U S and approximately 80% of the backlog is expected to be realized over the next 12 months. However, again this is subject to construction schedules and potential changes stemming from supply chain dynamics.
John Marshall Doolittle: And with that we can move to slide eight.
John Marshall Doolittle: I'll hand, it back to Mike to highlight some key takeaways as we look forward to Q2 and the balance of the year.
Mike Mcmillan: Thanks, John.
Mike Mcmillan: Most of the thing today would be familiar we consistently focus on key priority areas, including safe operational execution, serving and supporting our customer requirements and our disciplined focus on building our business for the future.
Mike Mcmillan: We recently began operating our new 143000 square foot Green manufacturing center in Bradford, Ontario.
Mike Mcmillan: This $70 million facility will enhance our capacity and efficiency as we contribute to the circular economy. In addition, this facility features advanced environmental and contamination controls, including an energy efficient simple heat pump and robotic soda cleaning system the.
Mike Mcmillan: The plant can employ up to 160 technicians with the majority transferring from other facilities.
Mike Mcmillan: Our backlog levels remain healthy and bookings in the quarter improved we continue to hire technicians to support our operations, including our Bradford facility and this remains an essential focus for our aftermarket and value added product and service offerings operationally and financially we remain well positioned with ample liquidity.
Mike Mcmillan: Quiddity.
Mike Mcmillan: And our strong leadership team disciplined culture and focused operating loss.
Mike Mcmillan: Our team remains committed to disciplined execution with our decentralized and empowered operating model adapting to changes in the business environment, while remaining focused on executing customer deliverables.
Mike Mcmillan: We continue to monitor key metrics and supply dynamics as noted our long term focus on growth and returns means that we remain committed to our operating and financial discipline to manage our cost structure, while we invest in the capacity and capabilities to provide exceptional service to our customers today and in the future.
Mike Mcmillan: Additional efforts continue to focus on managing our discretionary spend.
Mike Mcmillan: With a solid backorder and balance sheet, we are well positioned and will continue to support the business through thoughtful capital deployment.
Mike Mcmillan: We appreciate our entire team's effort and commitment to support our customers and deliver value for our stakeholders. Thank you also to our valued customers supply partners and shareholders for their continued support.
Speaker Change: That concludes our prepared remarks and at this time, we'll be pleased to take questions looming over to you to set up the first call. Please.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session. If you have a question. Please press star followed by one on your Touchtone phone, you'll hear three pronged acknowledging your request and your questions will be called in the order. They are received should you wish to decline from a welding process. Please press star followed by Tim and <unk>.
Speaker Change: I think a speaker phone please lift your handset before pressing any key one moment for your first question.
Speaker Change: Your first question comes from Cherilyn Radbourne with TD Cowen. Please go ahead.
Cherilyn Radbourne: Thanks, Brian and good morning.
Cherilyn Radbourne: For the year.
Cherilyn Radbourne: Gotten off to a bit of a slow start.
Cherilyn Radbourne: For various reasons, but chronic depart with pretty robust and you saw some notable bookings strength. So I'm curious what you make of all of that taken together and how your teams are positioned tactically.
Brian: Yeah. Thanks. Thanks for the question Cherilyn, Yes, I think those are great observations I think if you compare to Q1 of last year. We had again, we can't forget we had a number of different dynamics affecting timing of availability and supply or this year I think in through the course of the last year, we did signal with <unk>.
Brian: Speak to improving availability, which is one component.
Brian: I think we continue to see in Q4, we had a pretty strong finish and.
Brian: I think that combined when you think about you know.
Brian: A return to more normalized availability supply.
Brian: Seasonality also plays a factor. We're also in an environment I think where interest rates remain high and our customers are managing the timing of delivery.
Brian: The other projects and so forth and so I think thats really what youre seeing there is.
Brian: Little bit of patients in the marketplace as we've been talking about for several quarters.
Brian: And I think when it comes to product support you mentioned again, we're seeing some good good.
Brian: <unk>.
Brian: Look at construction I think John mentioned was up 3% mining's up for and so forth. So we are seeing some decent activity there and I think thats just in preparation for the summer season, and what we think may be I wouldn't say, it's completely normal, but it's it's certainly feeling more normalized than we've seen for several years.
Brian: And is there any further color you can give on that customer and equipment delivery delays the aesop across both groups.
Brian: In the quarter like is that is that weather, driven and that buyer driven or.
Brian: Is that the customers that you're indicating just being a bit cautious in trying to.
Brian: They are delivering.
Speaker Change: Yes, I think it's maybe to start John can weigh in too I think it's it is more of a ladder Sharon when you think about it just really.
Speaker Change: We're in a in a supply environment today, where there's more availability.
John Marshall Doolittle: And so that allows our customers to plan their cash flow. Accordingly, I mean, we mentioned weather a little bit here and I would just say look we we operate in Canada, and we have variability and so we tend to not look look at those factors as significantly although they can they can shift things around but we don't measure cycles right in months or quarters. So.
John Marshall Doolittle: I think it's more it's really more about the business environment, a little bit of patients as I mentioned earlier.
John Marshall Doolittle: You mentioned, our backlog and our bookings were pretty strong in the quarter and that bodes well I think as we continue to proceed through the year, it's less about I would say.
John Marshall Doolittle: The supply this year versus last year, certainly more about tie.
John Marshall Doolittle: Timing and just managing cash flow.
Speaker Change: Okay, that's great.
Speaker Change: And then last one for me.
Speaker Change: On the bookings and backlog strength.
Speaker Change: Now how much of that work would you say it relates to customers looking to improve the energy efficiency or greenhouse gas profile of their operation.
Speaker Change: I would say.
Speaker Change: We didn't break it out cherilyn, but I would say, we're certainly getting more interest in.
Speaker Change: I think natural refrigerants, and also energy efficiency, which translates into reduction of GHT emissions and so forth and so.
Speaker Change: Later on today will during the annual meeting, we'll talk a little bit about.
Speaker Change: Simcoe symbol horse, one platform and how that is starting to get quite a bit of interest and so I would say, it's you know I wouldn't say, it's early days, but I think as as.
Speaker Change: Plants are modernized for moving to natural refrigerants far more efficient.
Speaker Change: Plants, and so forth and so it's starting to take shape in that form but.
Speaker Change: Again I think it's.
Speaker Change: The product support side again as maintenance the packages and so far they are split between industrial and recreational and so forth.
Speaker Change: And if it's a new installer replacement certainly we're seeing the gains in that side, but we haven't broken out.
Speaker Change: I would just add Sharon what we're really pleased with the results this quarter kind of across the board there.
Speaker Change: And we're also really proud and pleased with the progress they are making on ghd in general and as Mike said, we didn't break break it out in terms of the backlog, but but theyre, making great steps thermal one is one component of that for sure and in our ghd plants.
Speaker Change: Thank you for the time I'll pass it on.
Speaker Change: Great. Thanks, everyone.
Jacob Jonathan Bout: Your next question comes from Jacob bout with CIBC. Please go ahead.
Jacob Jonathan Bout: Good morning, good morning.
Jacob: Yes, I wanted to go back to the <unk>.
Comments, you made about more normalized supply and demand dynamics.
Jacob: What does this mean for margins.
Speaker Change: I guess when we take a look at the year on year performance.
Speaker Change: New equipment was down.
Speaker Change: Alex Court was up but yet margins were down almost 200 basis points. So is this kind of new new dynamic we're looking at here going forward.
Speaker Change: Maybe just to start on that Jacob we've.
Speaker Change: We've been talking a little bit over the last several quarters, probably the course of the last year that we think with more normalized supply we're going to see some mix shift in that and we always try to direct everybody back to I guess, a couple of things I would say back to the factors that affect margin right and so.
Speaker Change: New new and used.
Speaker Change: We've seen some pretty strong margin in that area that was really because of constrained supply as that normalizes, we expect that that would come back to more.
Speaker Change: More normalized levels, so to speak but also I think when you think of mixed.
Speaker Change: We're seeing a shift between new and used for example to more targeted used at where when they were constrained we had a higher mix of used product and you know a little bit of margin benefit can be realized there I think the other piece. There. Obviously, though is is the rental side of things and so when we look at our blended margin.
Speaker Change: Rental was down the number of factors for that I think part of it is.
Related to <unk>.
Speaker Change: Higher equipment acquisition costs last year, we invested significantly in both heavy and light fleet that brings our cost up a little bit.
Speaker Change: And it does tighten margin now we continue to invest and we're really committed to that market and happy with how it's performing but we you know our utilization obviously comes off a little bit with a larger fleet, that's a higher cost base and I think <unk>.
Speaker Change: Combine that with a little bit of the timing to get things ready that that plays a factor and I think the last piece I would mention.
Speaker Change: On product support you know we're seeing.
Speaker Change: Some decent activity across the business on the product support side and as that mix increases then we saw a little bit of a pickup there, but overall I think you know we have to look at the factors affecting that and the availability on the new and used equipment certainly a significant portion of our sales and margin.
Speaker Change: Yeah.
Speaker Change: Okay and then.
Speaker Change: Maybe just on the customer delays that you saw.
Speaker Change: Much of those sales are lost or.
Speaker Change: Pushed out into the second quarter.
Speaker Change: Yeah, I think again, we manage our our call it our lost deals and so forth and we wouldn't we wouldn't say that that's a significant factor in many cases, it's really more about <unk>.
Speaker Change: Customer behavior, and timing right and cash flow management from that perspective, and so you know when you see our backlog you see the the bookings that we saw in the quarter and.
Speaker Change: We also signaled that you know over 80% of that should be realized throughout the course of the couple of things I would also note, though when you think of backlog you know our mining orders, we often talk about our lumpy even the sales mix on mining is lumpy and so we have to remember that that's you know when it comes to equipment, it's dictated by the delivery schedule for that mine and that development.
Speaker Change: Also in the power side.
Speaker Change: Generally what we're seeing as you know.
Speaker Change: Longer lead times, just given the demand for large or engines and so forth when you think of <unk>.
Speaker Change: <unk> North American probably globally for cat.
Large bore engines and data centers and so forth are driving.
Speaker Change: Stronger demand, which creates longer lead times and so that can go beyond the end of the year. If we're looking at certain classes of engines.
Speaker Change: And in that time frame.
Speaker Change: Thank you.
Speaker Change: Okay. Thanks Kirk.
Speaker Change: Your next question comes from Yuri Lynk with Canaccord Genuity. Please go ahead.
Yuri Lynk: Hey, good morning, guys.
Yuri Lynk: Eric.
Can you just give us a bit more color on the Bradford facility.
Yuri Lynk: It ramps up I'm thinking about two things first in the initial couple of months as you ramp it up.
Yuri Lynk: Would there be additional costs associated with that is youre, probably operating a bunch of facilities simultaneously.
Perhaps.
Yuri Lynk: Few months, there and then more broadly.
Does this make you more efficient does it increase your capacity just trying to.
Yuri Lynk: Think about it in the long term.
Speaker Change: Yes, it's a great question. Thanks for that here, Yeah, I think so I think just to start out certainly.
Speaker Change: And as a matter of fact, we've just started the transition of that facility. This week and so we do have some activity there.
Speaker Change: And to your point, we mentioned that we would hire upwards of 160 tax I would say you know we're in around 100 at the moment in transition from other locations and product and so there is a little bit of cost in the quarter between facilities, but the capacity. If you think of the head count and even just naturally the product flow throughout that facility, where we're going for.
Speaker Change: For example from say three facilities in say for example between two billings that are very close together the efficiency that we'll see just in terms of.
Speaker Change: Fit for purpose facility were modernized equipment, even just the cleaning facilities and so forth will be far more efficient.
Speaker Change: We expect to see that start to take hold as we transition throughout the quarter now it will take us several quarters to move product.
Speaker Change: And in operations into that facility, but pretty excited about that I think capacity wise, it's 143000 square feet.
Speaker Change: You know that the facilities that we have today are probably in the 80 to 90 range and so that does give us a little bit more.
From that regard as well.
Speaker Change: I would just add here the bulk of the costs have already been incurred in terms of getting that facility up and running.
Speaker Change: And there may be some transition costs as we move workforce et cetera, but it will be minimal and of course, we own all of our facilities. So there's no kind of duplication and we see costs or that sort of thing.
Speaker Change: Okay. That's helpful.
Speaker Change: Maybe just on the on the rental side.
Speaker Change: A few things wondering I'm wondering if you could help me out with Capex expectations for the year in terms of fleet additions and then.
Speaker Change: Maybe a bit more color on there was a line in the MD&A talking about more and more competitive market conditions just.
Speaker Change: What exactly you are seeing on the rental side of the business.
Speaker Change: Yes, maybe just a couple of quick comments and then we can tag team that I think from a capex perspective, I think what you'll see is pretty good pace relative to last year. When you look at overall capex in both heavy and light.
Speaker Change: I think as we look at the year and the activity levels, we'll monitor that carefully.
Speaker Change: But I would say we continue to invest at a pace similar to the prior year and so forth and so it.
Speaker Change: Depending on the composition and keep in mind also last year. We also saw.
Speaker Change: A better availability on certain units and an ability to change and dispose of units. We saw disposals increase last year as we were able to replace the fleet with with a better availability and so youll see a little bit of that I think when it comes to.
Speaker Change: The marketplace itself.
Speaker Change: Everybody in this space has better availability of equipment to higher cost and naturally I think what we're going to see us is.
Speaker Change: You're going to have to compete.
Speaker Change: In that marketplace, we're prepared to do that and and happy too and so I think that's really the essence of that comment is just everybody has available equipment competing.
Speaker Change: For the dollar out there on the rental side, but we are seeing we are seeing some good activity. The other piece, which is not entirely rental related about the ERP old fleet is probably worth note too and you see that our customers also are starting we saw the <unk> fleet was about $70 million in Q1.
Speaker Change: And compared to last year at the same time. It was 39 and so we're seeing a little bit better appetite for that particular type.
Speaker Change: Type of financing via yes, I mean, just a couple of things to add on that.
Speaker Change: We were asked that question last quarter or the quarter before and we said we.
Speaker Change: Our plan was to continue acquiring.
Speaker Change: Acquiring in the rental space.
Speaker Change: On the same pace this year as last year and nothing in the first quarter changes that we're committed to the rental market. We went through the cycle one quarter doesn't determined.
Speaker Change: Determine our plan.
Speaker Change: We changed the mix a little bit as we go Mike in terms of the used versus new in the rental and the rental fleet, but we'll manage that a little bit as we go so.
Speaker Change: Anyway, that's where we're at here okay.
Speaker Change: The other portion of your Capex just on PP&E.
Speaker Change: Sure.
Mike Mcmillan: I think it was like over well over $110 million last year.
Mike Mcmillan: And where would you ballpark that.
Speaker Change: Yes, I think keep in mind, the Bradford facility is a big part of that it's really a lot of it is driven I guess by a couple of things that would be you know when you think of the modernization of our fleets.
Speaker Change: Our service truck fleets, and so forth and again it comes back to sort of availability in replacement of that fleet over time.
Mike Mcmillan: But it was certainly higher like we talked with the Bradford for example, being.
Mike Mcmillan: From a facility perspective about a $70 million investment spread between last year, a large portion of that was incurred last year, but we do have some in the first half of the year and probably into Q2 as we call. It as we finalize that transition so you'll see that come off directionally.
Mike Mcmillan: And it'll be based on you know from that perspective going forward it'll be based on a facility by facility network development, both for the dealership for our rental business and so forth and so that'll we'll give you a little more color as we go forward as we think about expansion or or markets that we want to have a presence at.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from Michael <unk> with Scotiabank. Please go ahead.
Michael: Hey, good morning, guys.
Michael: Good morning apologize, but another rental question here.
Michael: Thinking about.
Michael: Certainly the softness in Q1 was.
Michael: Quite a bit but if I think for the balance of the year is it fair to say.
Michael: That may be the seasonally busier quarters would help ease some of that market that margin variability.
Michael: And did you guys see maybe a little bit of a seasonal uptick into Q2.
Speaker Change: Yeah as you know thanks for the question Mike as you know, we don't we try not to provide or we certainly don't provide guidance for the year, but when you think of when we talk about normal seasonality and you look back into Q1.
Speaker Change: Generally we would see a little bit less activity in the rental space right, especially if you look at battlefield and we look at Landscapers you look at certain areas you know.
Michael: That that business benefits from <unk>.
Michael: Heating propane sales snow removal in Q1, and so depending on what we see there in terms of markets and weather, but as we get into Q2, then we start to see other activities pick up and so you know with availability I think that's you know that's what we anticipate that we're going to see a little bit more seasonality in terms of.
Michael: The types of equipment being rented and activity levels right as as we see the warmer months.
Speaker Change: Okay that makes sense thanks, Mike.
Speaker Change: Look maybe I wanted to revisit the the M&A thinking here.
Speaker Change: Net cash position.
Speaker Change: Thank you guys are too good for us to assume that that will just get bigger how are you thinking about.
Speaker Change: Or maybe how would you qualify M&A opportunities today and is there a point, where you guys would decided you've got enough cash.
Speaker Change: Increasing the return of capital call it a special or maybe more buyback would make more sense for you guys.
Speaker Change: Hey, Michael.
Michael: We're pretty proud of the balance sheet that we have gives us lots of flexibility.
Speaker Change: To manage economic activity.
Michael: As we've talked about before you know our priorities in terms of using that cash or one we've got a lot of organic growth opportunities, we talked about rental simco, we talked about.
Michael: Growing in the U S. We've increased the dividend as you know every year for 35 years, that's important to US we've got a buyback program, we bought back $25 million worth of shares in the third quarter and we are active in looking at M&A opportunities as well and so.
Michael: Those are really the priorities for our for our cash balance yeah, Yeah, I would just say like on that basis too Michael when we think of capital allocation again, its really business case oriented right. If we see an opportunity to even tuck in or service offering that we think is going to provide the return expectations that we're going to certainly pursue that.
Michael: And and so forth, but as John said, I think our priorities our capital allocation thinking hasnt changed.
Michael: We'll be patient, but aggressive on the operations.
Speaker Change: Perfect. Thanks, guys. Thanks, a lot Michael.
Michael: Your next question comes from Steve Hansen with Raymond James. Please go ahead.
Michael: Okay.
Steven P. Hansen: Yes, good morning, guys. Thanks for the time.
Steven P. Hansen: Is it really as it relates to the product support I think you referenced gross margins slipping 60 basis points year over year on from additional cost is that something that you could make up through the balance of the year or how do you sort of see the margin profile of holding on the export side as you bring in all of these attacks.
Speaker Change: Yeah, I think and you sort of touched on it there Steve I think a couple of things we were gonna see ebbs and flows there again we.
Steven P. Hansen: You know a couple of things we've seen depending on the mix of parts versus service I think also we talked about we continue to hire technicians. There's you know I think we have well over 550 apprentices. We're training our teams we're trying to build capacity you know a little bit of investment there for Bradford and so.
Steven P. Hansen: I think again I think longer term, we're very very comfortable with the product support margin outlook.
Steven P. Hansen: And the investment levels that we want to get to to provide that service and so again I wouldn't.
Steven P. Hansen: I wouldn't get too focused on the quarter in that sense, but our goal is to optimize the use of all of our resources and deliver the quality support that we need to.
Speaker Change: Okay. That's great. That's helpful and just a follow up I don't want to beat the horse on rental too hard here, but just wanted to circle back is there a way to think about the pressures as it relates to seasonality with the winter being super warm relative to the competitive aspect of it.
Speaker Change: I get a sense for how the margin or I guess, two things how they utilize decent profile is expected to evolve.
Steven P. Hansen: The changes and then secondarily, how the margin profile of boxes that utilization.
Speaker Change: Yeah, and again I think John that with both.
Speaker Change: Besides the factors affecting.
Speaker Change: When you think of rental rental margins and so forth and again I would go back to like.
Speaker Change: Whether although we mentioned that I think we're in Canada, we're going to see variability and that's just a fact of where we operate.
Steven P. Hansen: And so forth and so outside of that you know I think I would take that off the table. When we look at that part of our business. We've invested as we mentioned.
Steven P. Hansen: Slightly higher acquisition costs as we modernize the fleet and replace the fleet and we've been doing that for the year, you've seen a bit of that I think you know the other factors are our ability to execute return product our fleets to ready the more efficiently we continue to focus on driving operational efficiencies.
Steven P. Hansen: The other piece of that of course that feeds into it is labor availability and as we continue to hire and train staff to still a fairly tight labor market in certain areas and so you know.
Steven P. Hansen: I think also that helps us drive better utilization and financial utilization. So there is there's naturally some seasonality, we're starting to see a little bit more what we may have maybe even go back to pre COVID-19 timeframes and you'd say yeah. That's that's something we would expect but I think it's the other factors too we have to weigh in in terms of the.
Steven P. Hansen: The fleet itself and then our team that we're building to support.
Speaker Change: I appreciate that guys. Thanks.
Speaker Change: Thanks, Steve Thanks, Steve.
Speaker Change: Your next question comes from it.
RBC: With RBC. Please go ahead.
RBC: Hi, Good morning. This is John on for Saba, maybe just a high level question on technician head count here quickly given.
John Marshall Doolittle: It sounds like.
John Marshall Doolittle: You are taking some head count from other facilities and moving them to the new Rockford facility can.
John Marshall Doolittle: Can you maybe just expand on.
John Marshall Doolittle: What your technician head count target might be and how far away. We are from that are really 10% below 15% below where you'd like to be.
Speaker Change: Yeah. Thanks, John.
Speaker Change: A couple of things again, but directionally, what I think we would tell you is.
Speaker Change: In terms of Bradford we've been planning this facility for a couple of years and working with folks who've been hiring in that market area as well and so keep in mind that some of the folks we've hired from that region had been working theater other facilities and now we're able to start to to operate out of out of the Bradford location. So there's a real mix in terms of our ability to hire.
John Marshall Doolittle: We're seeing some good interest in that market to hire technicians, which is terrific.
John Marshall Doolittle: You know I would say we naturally we have.
John Marshall Doolittle: We have over 2000 technicians say in the in the term on cat business and we continue to hire we have natural retirements with the population of that size and so you know on any given quarter. You know we continue to be hiring.
John Marshall Doolittle: The 80 to 100 in a quarter, depending on what the need is for the business and the replacement or the transition for retirements and so forth and so.
John Marshall Doolittle: That's directionally, where we go out we don't see that declining for some time as well.
Speaker Change: Okay got it and then I understand you typically don't provide.
Speaker Change: Not too much in the way of forward looking guidance, but.
Speaker Change: Just wondering if this was a strong quarter for bookings.
John Marshall Doolittle: Can you give any indication of how bookings have trended through Q2, so far.
John Marshall Doolittle: And maybe what youre hearing from customers.
John Marshall Doolittle: I understand that they're managing cash flows given the availability is a bit better but.
John Marshall Doolittle: What type of end demand or are they preparing for what type of market are they preparing for anything you can offer there would be great. Thanks.
Speaker Change: Yeah, maybe just to start on that John I think again, you're right that we don't provide guidance I think.
Speaker Change: You know what we can tell you is what we've seen you know we're pretty happy with what we've seen in terms of the bookings in our in both frankly in the <unk> business is very strong the backlog there is highest level I've seen.
John Marshall Doolittle: So nice to see that appetite in that activity in that business. I think you know again, we saw some strong <unk>.
John Marshall Doolittle: <unk> in Q1 for the for the Tomo CAD business as well.
Speaker Change: And so, but we wouldn't speculate or I think directionally, we wouldnt provide you with anything on Q2, I think it's really about.
Speaker Change: The environment and just there is some patients I think in the construction side, we have seen a little bit.
Speaker Change: We had a really strong year last year and I think we also have to remember the factors that are dealing with a year ago relative to what we're seeing today in terms of you know.
Speaker Change: Business activity and timing of delivery and so those are big factors that would play into that.
Speaker Change: Great. Thanks very much.
Speaker Change: Ladies and gentlemen, as a reminder, if you do have any questions. Please press star one.
Speaker Change: Next question comes from Maxim <unk> with National Bank Financial Please go ahead.
Maxim: Hi, Good morning, gentlemen, good morning, Matt.
Maxim: Mike I was hoping you can sort of mind I mean, let's talk about this in the past, but your thoughts maybe around the budget from Ontario, and Quebec when it comes to.
Maxim: Infrastructure.
Maxim: Just maybe any rigs that you have especially over.
Speaker Change: In the medium term some puts and takes there. Thanks.
Mike Mcmillan: Yeah. Thanks, Thanks, Matt I think you know.
Maxim: John I think we watched this pretty carefully but I would say.
Speaker Change: One hand, we've always I think been fortunate in the sense that provincially and federally theres been some pretty strong commitments to infrastructure spend over the next decade say for example, and I know that's going to ebb and flow we have election years to consider but I think in behind that you know in our particular markets. We've seen strong immigration we've seen a lack of affordable how.
Maxim: <unk> and infrastructure to support that.
Maxim: We certainly see that as a positive over the long term right and so those those projects will will ebb and flow, but we anticipate that there'll be a continued focus on affordable housing some infrastructure and road projects and so forth I think.
Maxim: You know outside of that I mean, we also monitor the commodity markets pretty carefully because of our customers in the mining side.
Maxim: There at a pretty reasonable cycle fairly strong cycle and.
Maxim: We monitor those areas as well for our business so all that to say.
Maxim: Labour supply immigration affordable housing infrastructure, we anticipate there'll be a few puts and takes there but.
Speaker Change: Hello, Jonathan anything else with that.
Jonathan: Okay. That's good summary.
Jonathan: Okay, and Mike maybe because you did mention.
Mike Mcmillan: Mining I was wondering if youre seeing increased level of opportunities right now on the precious metal side of things, obviously, given where the commodity price signals.
Mike Mcmillan: Yeah, you know.
Mike Mcmillan: I guess part of it is as we all know these are low duration projects with lots of engineering and investment going in upfront and you know we.
Mike Mcmillan: We do see over the last couple of years, we've seen on the precious side, you know our customers have been expanding and developing existing sites and some new ones and so forth and we've been able to participate in and their requirements there and that's been very positive and so you know again.
Mike Mcmillan: We monitor it carefully.
Mike Mcmillan: We also are watching our base metal customers in that very carefully as well because those commodities move around quite a bit electrification is always an undertone and and you know I would say, where we're conservative and cautious in terms of how we're thinking about that but we're prepared.
Mike Mcmillan: To support our customers in those markets remotely and have the technicians and parts availability and aftermarket support they need so.
Mike Mcmillan: Generally I would say.
Mike Mcmillan: It's been positive if you look at historic commodity pricing, but that's certainly something we watch carefully as we go forward and we monitor investment going in as well.
Speaker Change: Yeah makes sense and maybe just one last one if I may.
Mike Mcmillan: Increased talk around sort of simple natural refrigerants and things like that.
Mike Mcmillan: Maybe some optionality on the data center side of things just curious if you don't mind, maybe expanding a little bit on that topic.
Speaker Change: Yeah, I think a couple of things there Max like we really like the business in the sense that it it's really less about refrigeration moura boat thermal heating and cooling and we talked a little bit earlier on the call about.
Mike Mcmillan: Some of the products that they have like thermal force one the natural refrigerants and I think you know I think.
Mike Mcmillan: You're seeing that in some of the backlog actually and it was pretty well balanced Canada and U S awesome strong commercial like industrial and recreational.
Mike Mcmillan: Bookings, we have we have also.
Mike Mcmillan: Opened up a small facility.
Mike Mcmillan: In South Carolina, and I think you know the team we have a great team down there in the U S. That's executing very nicely in both.
Mike Mcmillan: You know the industrial or or you have to think of grocery and other areas Theyre doing a nice job down there and so.
Mike Mcmillan:
Mike Mcmillan: We're excited about it we like the technologies the team has.
Mike Mcmillan: The commitment to natural refrigerants, and I think the appetite for reducing and G H G and stronger efficient.
Mike Mcmillan: Practical applications heat recovery, you mentioned data centers and I think that's an area that's evolving over time.
Mike Mcmillan: We continue to look at those opportunities both from our power business you know for backup power generation standby power as well as temperature control and so I think those would be areas.
Mike Mcmillan: We'll hear a little bit more about overtime.
Speaker Change: Okay excellent and also for me thanks, so much.
Speaker Change: Thanks, guys.
Speaker Change: Your next question comes from David Barden with BMO capital markets. Please go ahead.
David Barden: Hi, This is David on for Devin Dodge Thanks for taking my question.
David Barden: From this.
David Barden: So you've touched on this a bit of just a quick one for me, but could you. Please expand on what youre seeing in the underlying demand and how we can think about that with a normalized supply dynamics. So equipment orders were up over 50% year over year. So maybe just some color as to how to frame that positive underlying demand trend with puts and takes of normalization.
Speaker Change: Yeah, I think you know David I think again you know we.
Speaker Change: We tend to look at the quarter activity and speak to that.
David Barden: We really don't provide forward looking guidance you know I think part of this is just just monitoring each of the markets that we play in the projects that are there.
David Barden: I mentioned earlier some of the factors to think about and so when you think about demand I would prefer you to you know.
David Barden: Longer term trends when we think of immigration affordable housing infrastructure.
David Barden: Commitments by federal provincial governments those are things that certainly play in when you think specifically to construction mining is project by project and again, we continue to work and.
David Barden: Tried it can be worked really hard to earn our way into those opportunities and those will be.
David Barden: A little more lumpy based on you know the.
David Barden: <unk> of our customers and the timing of their development.
Speaker Change: Okay. Thanks, I'll turn it over.
Speaker Change: Thanks.
Speaker Change: There are no further questions at this time. Please proceed.
Speaker Change: Okay.
Speaker Change: Okay. Thank you Moody thanks, everyone for joining our call today, we really appreciate it and before concluding the call I'd like to remind listeners that our AGM.
Speaker Change: We will be held today at 10, a M. Eastern it's a virtual meeting only and the details are available on our website at <unk> Dot com.
Speaker Change: This concludes our call and once again thank you.
Speaker Change: Have a safe and great day.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a great day.