Q2 2024 Toromont Industries Ltd Earnings Call
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Operator: Good morning. Today is Wednesday, July 31st, 2024.
Operator: Welcome to the Toromont Industries Ltd. second 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. Your host for today will be Mr. John Doolittle, Executive Vice President and Chief Financial Officer. Please go ahead, Mr. Doolittle.
Speaker Change: Good morning. Today is Wednesday, July 31, 2024. Welcome to the Toromont Industries Ltd. second quarter 2024 results conference call.
Speaker Change: Please be advised that this call is being recorded and all lines have been placed on mute to prevent any background noise.
Speaker Change: Your host for today will be Mr. John Doolittle, Executive Vice President and Chief Financial Officer.
John Marshall Doolittle: Thank you very much, Joelle. Good morning, everyone, and thank you for joining us today to discuss Toromont's results for the second quarter of 2024. Also on the call with me this morning is Michael McMillan, President and Chief Executive Officer. Mike and I will be referring to the presentation that is available on our website. And to start, I would like to refer you to slide two, which contains our advice 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 three. Mike, it's over to you to start us off.
Speaker Change: Please go ahead, Mr. Doolittle.
Speaker Change: Thank you very much, Joelle.
John Marshall Doolittle: Good morning everyone and thank you for joining us today to discuss Toromont's results for the second quarter of 2024.
Speaker Change: Also on the call with me this morning is Mike McMillan, President and Chief Executive Officer. Mike and I will be referring to the presentation that is available on our website. And to start, I would like to refer you to slide 2, which contains our advisory regarding forward-looking information and statements.
Speaker Change: After our prepared remarks, we will be more than happy to answer questions. So, let's get started and move to slide three. Mike, over to you to start us off.
Michael Stanley Howie McMillan: Great. Thanks very much, John. Good morning, everyone, and thanks for joining us. John and I will be commenting largely on a continuing operations basis since Q2 of 2023 included the sale of our AgWest business, and for better comparability, we will generally exclude AgWest in our comments. Results for the second quarter of 2024 improved on a continuing operations basis against the same, similar period last year, with revenue up 16% and net income up 2% from Q2 of 2023. As expected, we are seeing more normalized supply when compared to the market factors we experienced last year. During the quarter, we commenced operations at our remanufacturing center in Bradford, Ontario.
Mike: Great. Thanks very much, John .
Mike: Good morning, everyone, and thanks for joining us.
Mike: John and I will be commenting largely on a continuing operations basis since Q2 of 2023 included the sale of our Agwest business and for better comparability we will generally exclude Agwest in our comments.
Speaker Change: Results for the second quarter of 2024 improved on a continuing operations basis against the similar period last year with revenue up 16% and net income up 2% from Q2 of 2023.
Mike: As expected, we are seeing more normalized supply when compared to the market factors we experienced last year.
Mike: During the quarter, we commenced operations at our remanufacturing centre in Bradford, Ontario. We continue to increase volume and activity at this facility, along with the installation of new equipment and hiring technicians.
Michael Stanley Howie McMillan: We continue to increase volume and activity at this facility, along with the installation of new equipment and hiring technicians. We are excited about this new facility, and we are increasing our capacity for remanufacturing and how this will efficiently enhance our service offer for our customers. The equipment group executed well in Q2. Revenue increased year over year as a result of improving prime product delivery against the strong order backlog. Rental markets were somewhat softer, mainly in light of the equipment rental segment.
Mike: We are excited about this new facility and we are increasing our capacity for remanufacturing and how this will efficiently enhance our service offer for our customers.
Speaker Change: The equipment group executed well in Q2. Revenue increased year over year as a result of improving prime product delivery against the strong order backlog.
Speaker Change: Rental markets were somewhat softer, mainly in light of the equipment rental segment. However, product support activity levels remained healthy and we continue to increase technician headcount.
Michael Stanley Howie McMillan: However, product support activity levels remain healthy, and we continue to increase technician headcount. Improving equipment availability, good bookings over the first half, and a healthy opening order backlog remain supportive. Simcoe continued to deliver solid results for the second quarter driven by good execution in Canada and the U.S. coupled with healthy activity levels.
Speaker Change: Improving equipment availability, good bookings over the first half, and a healthy opening order backlog remain supportive.
Simcoe: Simcoe continued to deliver solid results for the second quarter driven by good execution in Canada and the U.S. coupled with healthy activity levels.
Michael Stanley Howie McMillan: Package revenue in the quarter reflects good progression on the order backlog. Product support activity continued to demonstrate strong growth, supported by the larger technician workforce. Construction and mining markets provided solid equipment, ordering, and product support activity. Rental markets have eased somewhat through the first half of the year, challenging bottom-line results.
Simcoe: Package revenue in the quarter reflects good progression on the order backlog. Product support activity continued to demonstrate strong growth, supported by the larger technician workforce.
Simcoe: Construction and mining markets provided solid equipment, ordering, and product support activity.
Simcoe: Rental markets have eased somewhat through the first half of the year, challenging bottom line results. However, we are very comfortable managing through such cycles and remain committed to this market and its long-term prospects.
Michael Stanley Howie McMillan: However, we are very comfortable managing through such cycles and remain committed to this market and its long-term prospects. Across the organization, we continue to focus on our long-term investment strategies and remain committed to our operating disciplines, driving our aftermarket strategies, and delivering customer solutions today and in the future. Our strong financial position and order backlog position as well for the remainder of the year. On slide four, I'd like to touch on a few key financial highlights.
Simcoe: Across the organization, we continue to focus on our long-term investment strategies and remain committed to our operating disciplines, driving our aftermarket strategies and delivering customer solutions today and in the future.
Simcoe: Our strong financial position and order backlog position as well for the remainder of the year.
Michael Stanley Howie McMillan: Investment in non-cash working capital increased 17% versus a year ago. We are comfortable with this increase as it was mainly driven by higher inventory levels and accounts receivable balances, reflective of higher levels of activity and normalizing supply conditions. 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 seasonality. Accounts receivable increased in light of the higher trailing revenue. However, day sales outstanding at both the Equipment Group and Simcoe were unchanged from this time last year.
Speaker Change: On slide 4, I'd like to touch on a few key financial highlights.
Speaker Change: Investment in non-cash working capital increased 17% versus a year ago. We are comfortable with this increase as it was mainly driven by higher inventory levels and accounts receivable balances, reflective of the higher levels of activity and normalizing supply conditions.
Speaker Change: Inventory levels are higher than the prior year, driven by a number of factors, including delivery timing, inflation, foreign exchange rates on U.S.-sourced supplies, improving availability through the supply chain, seasonality, and activity levels.
Speaker Change: Accounts receivable increased in light of the higher trailing revenue.
Speaker Change: Day's sales outstanding at both the Equipment Group and Simcoe were unchanged from this time last year.
Michael Stanley Howie McMillan: Our team continues to closely manage the aging of our receivables, monitor credit levels, quality, and metrics. We ended the second quarter with ample liquidity, including cash of $804 million and an additional $461 million available to us under our existing credit facility. Our net debt to total capitalization ratio was negative six percent.
Speaker Change: Our team continues to closely manage the aging of our receivables, monitor credit levels, quality, and metrics.
Speaker Change: We ended the second quarter with ample liquidity, including cash of $804 million and an additional $461 million available to us under our existing credit facilities.
Michael Stanley Howie McMillan: We purchased and cancelled 608,000 shares for approximately $75 million on a year-to-date basis under our NCIB program. These purchases are mainly reflective of good capital hygiene and help to mitigate option exercise dilution. Overall, our balance sheet remains well-positioned to support operational needs, and we are prepared to manage challenges related to economic variables and business conditions. We continue to exercise the operational and financial discipline one would expect as we evaluate investment opportunities that may develop over time.
Speaker Change: Our net debt-to-total capitalization ratio was negative 6%.
Speaker Change: We purchased and cancelled 608,000 shares for approximately $75 million on a year-to-date basis under our NCIB program.
Speaker Change: These purchases are mainly reflective of good capital hygiene and help to mitigate option exercise dilution.
Speaker Change: Overall, our balance sheet remains well-positioned to support operational needs and we are prepared to manage challenges related to economic variables and business conditions.
Speaker Change: We continue to exercise the operational and financial discipline one would expect as we evaluate investment opportunities that may develop over time.
Michael Stanley Howie McMillan: Toromont targets a return on equity of 18% over a business cycle. However, return on equity was lower at 21 percent compared to 25.1 percent for Q2 of 2023 and remains above our five-year average of 20.8 percent.
Speaker Change: Toromont targets a return on equity of 18% over a business cycle.
Speaker Change: Return on equity was lower at 21% compared to 25.1% for Q2 of 2023 and remains above our five-year average of 20.8%.
John Marshall Doolittle: Return on capital employed was 27.9%, down from 32.2% for Q2 of 2023. Both of these metrics reflect our higher capital investment and excess cash on hand. Finally, as announced yesterday, the Board of Directors approved a regular quarterly dividend of 48 cents per share payable on October 2nd, 2024 to shareholders of record on September 6th, 2024.
Speaker Change: Return on capital employed was 27.9%, down from 32.2% for Q2 of 2023.
Speaker Change: Both of these metrics reflect our higher capital investment and excess cash on hand.
Speaker Change: Finally, as announced yesterday, the Board of Directors approved the regular quarterly dividend of $0.48 per share, payable on October 2, 2024, to shareholders of record on September 6, 2024.
John Marshall Doolittle: John, I'll turn it back to you for some more detailed comments on the results. Thanks a lot, Mike. Let's turn to slide five for a few additional comments on the consolidated results. As Mike noted, results improved in the second quarter of 2024 on good growth and revenue, and good execution against order backlog and project schedules. Gross profit margins were lower compared to the prior year, as expected, given the sales mix and market dynamics. Higher revenue and higher interest income on cash balances were effectively offset by the lower gross margins and higher expenses.
Speaker Change: John , I'll turn it back to you for some more detailed comments on the results.
John Marshall Doolittle: Thanks a lot, Mike. Let's turn to slide 5 for a few additional comments on the consolidated results. As Mike noted,
John Marshall Doolittle: Results improved in the second quarter of 2024 on good growth in revenue, good execution against order backlog, and project schedules. Gross profit margins were lower compared to prior year as expected given sales mix and market dynamics.
John Marshall Doolittle: Higher revenue and higher interest income on cash balances were effectively offset by the lower gross margins and higher expenses.
John Marshall Doolittle: New bookings are strong through the first half of the year and are supportive of future results. Bookings for the second quarter decreased 13% compared to last year and increased 13% on a year-to-date basis, with good orders in mining, construction, and Simcoe. Backlog remains healthy at 1.3 billion as of June 30.
John Marshall Doolittle: New bookings are strong through the first half of the year and are supportive of future results.
John Marshall Doolittle: Bookings for the second quarter decreased 13% compared to last year and increased 13% on a year-to-date basis, with good orders in mining, construction, and Simcoe.
John Marshall Doolittle: Similar to that reported at this time last year with a decrease in the equipment group, which is down 7%, and an increase at Simcoe, up 40%. Backlog is supportive of future results. On a consolidated basis, revenue increased 16% in the second quarter and 7% through the first half of the year, with increases in both the equipment group and Simcoe for both periods. Expense levels decreased to 11.1% of revenue for the quarter and increased to 12.4% year-to-date, reflecting higher staffing levels and activity, as well as general inflation. Operating income decreased 1% in the quarter and 7% year-to-date as higher revenue was more than offset by lower gross margins and higher expenses.
John Marshall Doolittle: Backlog remains healthy at 1.3 billion as of June 30th, similar to that reported at this time last year, with a decrease in the equipment group, which is down 7%, and an increase at Simcoe up 40%. Backlog is supportive of future results.
John Marshall Doolittle: On a consolidated basis, revenue increased 16% in the second quarter and 7% through the first half of the year, with increases in both the equipment group and Simcoe for both periods.
John Marshall Doolittle: Expense levels decreased to 11.1% of revenue for the quarter and increased to 12.4% year-to-date, reflecting the higher staffing levels and activity, as well as general inflation.
John Marshall Doolittle: Operating income decreased 1% in the quarter and 7% year-to-date as the higher revenue was more than offset by the lower gross margins and higher expense levels.
John Marshall Doolittle: As a percentage of revenue, operating income was 12% on a year-to-date basis, compared to 13.8% last year. Net earnings on a continuing operations basis increased 2% or $2 million in the quarter compared to last year and decreased 4% or $10.2 million for the first half of the year. Basic earnings per share on a continuing operations basis were $1.65 in the quarter and $2.67 year-to-date.
John Marshall Doolittle: As a percentage of revenue, operating income was 12% on a year-to-date basis, compared to 13.8% last year.
John Marshall Doolittle: Net earnings on a continuing operations basis increased 2% or $2 million in the quarter compared to last year and decreased 4% or $10.2 million for the first half of the year.
John Marshall Doolittle: Basic earnings per share on a continuing operations basis of $1.65 in the quarter and $2.67 year-to-date.
John Marshall Doolittle: Let's look at the equipment group in more detail and turn to slide 6. Revenue was up 15% in the quarter and 7% for the first half of the year. Equipment sales, including both new and used equipment, were up 33% in the quarter and 13% year-to-date, reflecting a good inflow and delivery of equipment. New equipment sales increased 39% in the quarter and 15% year-to-date, with good activity in the mining and construction markets.
Speaker Change: Let's look at the equipment group in more detail and turn to slide six.
Speaker Change: Revenue was up 15% in the quarter and 7% for the first half of the year. Equipment sales, including both new and used equipment, were up 33% in the quarter, 13% year-to-date, reflecting good inflow and delivery of equipment.
Speaker Change: New equipment sales increased 39% in the quarter and 15% year-to-date with good activity in the mining and construction markets.
John Marshall Doolittle: Used equipment sales increased 4% during the quarter and remained relatively unchanged due to higher rental fleet dispositions reflecting fleet management. In the quarter, total equipment revenue increased 16% in construction, 130% in mining, 25% in power, and we're down 32% in material handling. Rental revenue is 5% lower in the quarter and 4% lower year to date, mainly in light equipment.
Speaker Change: Used equipment sales increased 4% during the quarter and remained relatively unchanged due to date on higher rental fleet dispositions reflecting fleet management decisions.
Speaker Change: In the quarter, total equipment revenue increased 16% in construction, 130% in mining, 25% in power, and we're down 32% in material handling.
Speaker Change: Rental revenue is 5% lower in the quarter and 4% lower year-to-date, mainly in the light equipment market.
John Marshall Doolittle: The RPO fleet was 64.1 million vehicles at June 30, 2024 versus 44.2 million a year ago, and rental revenue is up 41% for the quarter and 46% year to date compared to similar periods last year. We think of RPO as a financing tool that normally results in an eventual sale. Looking at specific markets for the quarter, change in revenue is as follows: construction is up 1%, mining up 5%, power systems relatively unchanged, and material handling up 5%. Gross profit margins decreased 310 basis points in the quarter compared to last year and decreased 210 basis points on a year-to-date basis.
Speaker Change: The RPO fleet was 64 point million at June 30th, 2024 versus 44.2 million a year ago and rental revenue was up 41% for the quarter and 46% year to date compared to similar periods last year.
Speaker Change: We think of RPO as a financing tool that normally results in an eventual sale.
Speaker Change: Product support revenue grew 3% in both quarter and for the first half of the year with increases in both parts and service generally up across all markets and most regions on good end user demand and a higher technician base.
Speaker Change: Looking at specific markets for the quarter, change in revenue is as follows. Construction is up 1%, mining up 5%, power systems relatively unchanged, and material handling up 5%.
Speaker Change: Gross profit margins decreased 310 basis points in the quarter compared to last year, and decreased 210 basis points on a year-to-date basis.
John Marshall Doolittle: Sales mix was the largest factor, with a lower proportion of product support revenue to total, dampening margin by 180 basis points in the quarter. Equipment margins decreased 30 basis points, as expected, given market dynamics at play in the prior year. Resil margins were down 90 basis points on lower fleet utilization and some softer market activity. Product support margins decreased 10 basis points, reflecting higher input costs being observed by the business. Selling and administrative expenses were up 8% in the quarter and 7% year-to-date, reflecting higher revenue and activity.
Speaker Change: Sales mixed was the largest factor with a lower proportion of product support revenue to total, dampening margin 180 basis points in the quarter.
Speaker Change: Equipment margins decreased 30 basis points as expected given market dynamics at play in the prior year. Rental margins were down 90 basis points on lower fleet utilization with some softer market activity.
Speaker Change: Product support margins decreased 10 basis points, reflecting higher input costs being observed by the business.
Speaker Change: Selling and administrative expenses were up 8% in the quarter and 7% year-to-date, reflecting the higher revenue and activity levels.
Speaker Change: Compensation costs were higher year over year on headcount and regular salary increases. Other expenses such as training, travel, and occupancy costs have increased in light of activity levels and general inflation. We are comfortable with the increases as they largely represent investments in our team.
John Marshall Doolittle: Other expenses, such as training, travel, and occupancy costs, have increased in light of activity levels and general inflation. However, operating income decreased 2% for the quarter, and 10% for the first half of the year as the higher revenue is more than offset by lower gross margins and higher.
Speaker Change: Operating income decreased 2% for the quarter, 10% for the first half of the year as the higher revenue is more than offset by lower gross margins and higher expenses.
John Marshall Doolittle: Bookings decreased 9% in the quarter to $610 million versus a tough comparable in 2022, up 12% with a continuing evolution towards more normalized supply and demand dynamics. Mining markets were also strong, with good orders received through the first half of the year. However, down 17% from last year's Q2, which was a very strong comparable. However, product support revenue increased 12% in both the quarter and on a year-to-date basis, with higher market activity in Canada in both periods. Activity in the U.S. was relatively flat for the quarter, but it was up year-to-date.
Speaker Change: Bookings decreased 9% in the quarter to $610 million versus a tough comparable in 2023, which included several large mining and power systems orders.
Speaker Change: Construction markets were active.
Speaker Change: Up 12% with a continuing evolution towards more normalized supply and demand dynamics.
Speaker Change: Mining markets were also strong with good orders received through the first half of the year, however down 17% from last year's Q2, which was a very strong comparable. Power systems order activity was lowered down 50% reflecting a large project received last year.
Speaker Change: Backlog of a billion remains at healthy levels down 7% versus last year, reflecting deliveries against customer orders from the opening backlog and good new bookings.
Speaker Change: Approximately 90% of the backlog is expected to be delivered over the next 12 months, but of course, this is subject to timing differences depending on vendor supply, customer activity, and delivery schedules.
Speaker Change: Now I'll turn to Simcoe on slide 7.
Simcoe: Revenue is up 19% in the quarter and 11% for the first half of the year.
Simcoe: Package revenue increased 25% in the quarter and 11% year-to-date, with good progress on construction in the quarter after a slower start to the year. Industrial market revenue was up 16% with higher activity in Canada and lower activity in the U.S. versus a tough comparator.
Simcoe: Revenues from the recreational market increased 51% with higher activity in both Canada and the U.S.
Simcoe: Product support revenue increased 12% in both the quarter and on a year-to-date basis, with higher market activity in Canada in both periods. Activity in the U.S. was relatively flat for the quarter, however, up year-to-date. Activity levels are reflective of market conditions and increased labor capacity.
John Marshall Doolittle: Activity levels are reflective of market conditions and increased labor capacity. Gross profit margins increased 10 basis points in the quarter, reflecting higher product support margins on improved execution and higher market activity, largely offset by lower package margins and unfavorable sales. On a year-to-date basis, gross profit margin increased 200 basis points, with higher margins on both packages and product support margins. Selling and administrative expenses were up 15% in the quarter and 13% for the first half of the year.
Simcoe: Gross profit margins increased 10 basis points in the quarter, reflecting higher product support margins on improved execution and higher market activity, largely offset by lower package margins and an unfavorable sales mix.
Simcoe: On a year-to-date basis, gross profit margin increased 200 basis points, with higher margins in both packages and product support margins.
Simcoe: Package margins reflect good operational execution and the nature of projects in process. Product support margins increased on improved execution and a higher volume of activity.
Simcoe: Selling and administrative expenses were up 15% in the quarter and 13% for the first half of the year. Compensation costs increased reflecting staff levels, annual salary increases, and higher profit-sharing accruals on higher earnings.
John Marshall Doolittle: Compensation costs increased, reflecting staff levels, annual salary increases, and higher profit-sharing accruals on higher earnings. Other expenditures, such as travel and training, increased support activity and staffing levels. As a percentage of revenue, selling and administrative expenses increased to 16.2% in the first half of the year versus 15.9% in the similar period last year, reflecting higher spending levels to support current and future business. Expenditure control measures on discretionary spend remain a key focus area for the Simcoe team and the company in general.
Simcoe: Other expenditures, such as travel and training, increase the support activity and staffing levels.
Simcoe: As a percentage of revenue, selling and administrative expenses increased to 16.2% in the first half of the year versus 15.9% in the similar period last year, reflecting higher spending levels to support current and future business.
CINCO team: Expenditure control measures on discretionary spend remain a key focus area for the CINCO team and the company in general.
John Marshall Doolittle: Operating income was up $2.4 million, or 25% for the quarter, and $5.4 million, or 37% for the first half of the year, reflecting higher revenue and improved gross margins, partially offset by higher relative expenses. Operating income as a percentage of revenue increased 180 basis points compared to last year to 9.5%. Bookings decreased 49% to $32.6 million in the quarter, but were 31% higher for the year-to-date period.
CINCO team: Operating income was up $2.4 million, or 25% for the quarter, and $5.4 million, or 37% for the first half of the year, reflecting the higher revenue and improved gross margins partially offset by higher relative expense levels.
CINCO team: Operating income as a percentage of revenue increased 180 basis points compared to last year to 9.5 percent.
Speaker Change: Bookings decreased 49% to $32.6 million in the quarter, ever worth 31% higher for the year-to-date period. Recreational bookings were 166% higher through the first half of the year, with excellent activity in both Canada and the U.S.
John Marshall Doolittle: Recreational bookings were 166% higher through the first half of the year, with excellent activity in both Canada and the US. However, industrial orders were down 15% in the first half. Canadian orders were lower against a strong comparative while the U.S. was higher. Backlog of $289.7 million was 40% higher versus last year with an increase in both markets. Industrial backlog increased 45% with an increase in both Canada and the U.S. Recreational backlog was up 34%, reflecting a strong increase in Canada and a modest increase in the U.S.
Speaker Change: Industrial orders were down 15% in the first half. Canadian orders were lower against a strong comparative, while the U.S. was higher.
Speaker Change: The backlog of $289.7 million was 40% higher versus last year with an increase in both markets. Industrial backlog increased 45% with an increase in both Canada and the U.S. Recreational backlog was up 34% reflecting a strong increase in Canada and a modest increase in the U.S.
Michael Stanley Howie McMillan: 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. And with that, we can move to slide eight and turn it back to Mike to highlight some of the key takeaways as we look forward to the second half. Thanks, John.
Speaker Change: 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.
Speaker Change: And with that, we can move to slide 8, turn it back to Mike to highlight some of the key takeaways as we look forward to the second half of the year.
Operator: As one would expect, we consistently focus on key priority areas, including safe operational execution, serving and supporting our customer requirements, and our disciplined long-term focus on building our business for the future. Our backlog levels remain healthy, as John highlighted. While bookings in the quarter were softer in both groups, this is reflective, in part, of a relatively strong start to the year. We continue to hire technicians to support our operations, and this remains an essential focus for aftermarket service strategies and value-added product and service offerings.
Mike: Thanks, John . As one would expect, we consistently focus on key priority areas, including safe operational execution, serving and supporting our customer requirements, and our disciplined long-term focus on building our business for the future.
Mike: Our backlog levels remain healthy, as John highlighted.
Mike: While bookings in the quarter were softer in both groups, this is reflective in part to a relatively strong start to the year. We continue to hire technicians to support our operations.
Mike: And this remains an essential focus for aftermarket service strategies and value-added product and service offerings.
Operator: Operationally and financially, we remain well positioned with ample liquidity and our strong leadership teams, disciplined culture, and focused operating models. Our teams remain committed to disciplined execution with our decentralized and powered operating model, adapting to changes in the business environment while remaining focused on delivering customer deliverables. We continue to monitor key metrics, including supply and demand dynamics. As noted, our long-term focus on growth and returns means we remain committed to our operating and financial disciplines to manage our cost structure and discretionary spend while we invest in capacity and capabilities to provide exceptional service to our customers today and in the future.
Speaker Change: Operationally and financially, we remain well positioned with ample liquidity and our strong leadership teams, disciplined culture, and focused operating models.
Speaker Change: Our teams remain committed to disciplined execution, with our decentralized and powered operating model adapting to changes in the business environment, while remaining focused on executing customer deliverables.
Speaker Change: We continue to monitor key metrics including supply and demand dynamics. As noted, our long-term focus on growth and returns.
Speaker Change: means we remain committed to our operating and financial disciplines to manage our cost structure and discretionary spend while we invest in capacity and capabilities to provide exceptional service to our customers today and in the future.
Operator: With our solid order backlog and balance sheet, we are well positioned and will continue to support the business through thoughtful capital deployment. We appreciate our entire team's effort and commitment to support our customers and deliver value to our stakeholders. Thanks also to our valued customers, supply partners, and shareholders for their continued support. That concludes our prepared remarks at this time. We'll be pleased to take questions. Joelle, it's over to you, please, to set up the first call. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press Star, followed by the number on your touch screen.
Speaker Change: With our solid order backlog and balance sheet, we are well positioned and will continue to support the business through thoughtful capital deployment. We appreciate our entire team's effort and commitment to support our customers and deliver value to our stakeholders.
Speaker Change: Thanks also to our valued customers, supply partners, and shareholders for their continued support.
Speaker Change: That concludes our prepared remarks, at this time we'll be pleased to take questions.
Speaker Change: Joelle, over to you please to set up the first call.
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the 1 on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by the 2.
Operator: This concludes today's conference. We wish to decline for the moment. If you are using a speakerphone, please lift the handset.
Speaker Change: If you are using a speakerphone, please lift the handset before pressing any keys.
Operator: One moment. The first question comes from Sherilyn Radbourne with TD Cowan. Your line is now open. Thanks very much and good morning.
Speaker Change: One moment please for your first question.
Speaker Change: Your first question comes from Sherilyn Radbourne with TD Cowen. Your line is now open.
Michael Stanley Howie McMillan: The first question is on the equipment group. Clearly, there was some contribution from deliveries that were delayed in the first quarter. But with new equipment sales up 15 percent on the year-to-date period, you know, it's hard to say that that's all it is. What is your overall sense of customer confidence levels at this point? Yeah, thanks Sherilyn. It's a good question.
Cherilyn Radbourne: Thanks very much and good morning.
Speaker Change: The first question is on the equipment group.
Speaker Change: Clearly, there was some contribution from deliveries that were delayed in the first quarter.
Cherilyn Radbourne: But with new equipment sales up 15% on the year-to-date period, you know, it's hard to say that that's all it is. What is your overall sense of customer confidence levels at this point?
Michael Stanley Howie McMillan: I think I would reflect back as well on Q4 where we had a pretty solid finish to the year, which again, I think affected some timing of delivery and so forth in Q1, but then we also, as you mentioned, saw on a year-to-date basis, we saw good numbers at 15% on new, you're referring specifically to new, and really 39% in the quarter. I think there's still, you know, a tone of caution out there.
Speaker Change: It's a good question. I think I would reflect back as well on Q4 where we had a pretty solid finish to the year.
Speaker Change: You know, I think it affected some timing of delivery and so forth in Q1, but then we also, as you mentioned, saw on a year-to-date basis, we saw good numbers at 15% on new, you're referring specifically to new, and really 39% in the quarter. I think, you know, I think there's still...
Michael Stanley Howie McMillan: If you look at our backlog today, it's a nice split between the construction side, the mining side, the power side, and so forth. And so, you know, I think generally, depending on the vertical, there's still considerable investment and work we're doing on the mining side. I think on the construction side, you know, there has been this tone of patience while we look at the broader economic factors. You know, we did see, I think, in certain segments as well, like when we think of residential in other areas, we see a little bit lower activity on that side on the infrastructure side supporting residential.
Speaker Change: We are a small company, but we have a ton of caution out there. If you look at our backlog today, it's a nice split between the construction side, mining power and so forth. I think generally, depending on vertical,
Speaker Change: There's still considerable investment and work we're doing on the mining side, I think, and the construction side. There has been this tone of patience while we look at the broader economic factors.
Speaker Change: You know, we did see, I think in certain segments as well, like when we think of residential...
Speaker Change: In other areas we see a little bit lower activity in that side, on the infrastructure side supporting residential, but you know in other areas we...
Michael Stanley Howie McMillan: But, you know, in other areas, we continue to see some decent activity. And so, you know, I think it's a multidimensional sort of view, but, you know, we feel confident. I think, you know, cautiously, in that sense, when we look forward, just because of the backlog and some of the availability, I think it also supports customer decision making gives them some time to think through the timing of their cash flows as they monitor economic factors.
Speaker Change: They kept coming out with good projects and keeping them going even though we continued to see some decent activity. So I think it's a multi-dimensional sort of view, but we feel confident and cautiously
Speaker Change: In that sense, when we look forward, just because of the backlog and some of the availability I think also supports customer decision making, gives them also some time to think through the timing of their cash flows as they monitor economic factors.
Michael Stanley Howie McMillan: Okay, that's a helpful perspective. And then it seems to us that, on a mixed adjusted basis, the equipment group margins are holding in very well relative to the high level of experience during that 2022-2023 period. Is that your impression as well?
Speaker Change: Okay, that's helpful perspective.
Speaker Change: And then it seems to us that on a mixed-adjusted basis, the equipment group margins are holding in very well.
Speaker Change: Relative to the high levels of experience during that 2022-2023 period, is that your impression as well? And are there margin-specific initiatives that you have underway?
Michael Stanley Howie McMillan: And are there margin-specific initiatives that you have underway? You know, I think we always refer, I think, to, and John, I can weigh in on this, we always, when we think of margin, I mean, we always go back to the fundamentals, right? When we think of, you know, certainly, as you mentioned, we've had a period of strong margins but limited availability, and availability has changed quite dramatically. And I think, you know, the mix has also been a big factor.
Michael Stanley Howie McMillan: So when we think of the mix of new, certainly, we just covered that, you know, much stronger availability, a higher proportion of the mix. I think also within the mix, when you think of, you know, mining deliveries and their contributions versus other equipment, you know, that can, that can affect margin in the near term. The mix of sales on equipment, new and used, versus, say, product support is also a factor. You know, where we see stronger unit deliveries on prime products. That's a big factor.
Speaker Change: You know, I think we always refer, I think, to, and John , I can weigh in on this, we always, when we think of margin, I mean, we always go back to the fundamentals, right, when we think of...
Speaker Change: Certainly, as you mentioned,
John Marshall Doolittle: We've had a period of strong margins but limited availability, and availability has changed quite dramatically.
Speaker Change: The mix has also been a big factor, so when we think of the mix of new, certainly we just covered that.
Speaker Change: you know, much stronger availability, a higher proportion of mix. I think also within the mix, when you think of...
Speaker Change: you know, mining deliveries and their contributions versus other equipment, you know, that can that can affect margin in the near term. The mix of sales on equipment, new and used versus a product support as well as a factor, you know, where we see stronger unit deliveries on prime product.
Michael Stanley Howie McMillan: And the other piece that we always refer to is on the rental side. And so it is not unusual to see, you know, a softening in some rental when equipment sales are stronger, and vice versa. And so a number of factors, I think, when we look at the margin levels, I think, you know, we need to consider and always reflect on that composition of the mix.
Speaker Change: That's a factor, and the other piece that we always refer to is on the rental side, and so not unusual to see.
Mike: you know, a softening in some rental when equipment sales are stronger and vice versa. And so a number of factors, I think, when we look at the margin levels, I think, you know, we need to consider and always reflect on that composition of mix. Yeah, I mean, I would just add to that, Mike, and say, Sherrilyn, we've been kind of calling out some compression on new and used equipment over the last couple of quarters.
John Marshall Doolittle: Yeah, I mean, I would just add to that, Mike, and say, Sherilyn, we've been kind of calling out some compression on new and used equipment over the last couple quarters, which we continue to see, although maybe not as... Maybe not as marked as you would have thought. And then on rental, rental's down 90 basis points, and that reflects lower utilizations. And we also have been calling out the softness in the residential activity sector, and that's what we saw in rental.
Mike: which we continue to see, although maybe not as...
Mike: Maybe not as marked as you would have thought. And then on rental, rental's down 90 basis points and that reflects lower utilizations and we also have been calling out the softness in the residential activity sector and that's what we saw in rental in the quarter.
John Marshall Doolittle: And if I could sneak in just the last one on that rental performance, is your intention to respond to that in terms of your net suite ads for the year? Or are you going to continue to drive on and invest for the future as planned?
Speaker Change: And if I could sneak in just the last one on that rental performance. Is your intention to respond to that in terms of your net suite ads for the year, or are you going to continue to drive on and invest for the future as planned?
Michael Stanley Howie McMillan: Yeah, I think, you know, again, it's a little bit of an optimization, but I would say, as I mentioned in my comments, we're very committed to this market, we're very supportive of long-term prospects, and so the investment, if you look at our numbers today, we'll taper our CapEx a little bit, but it's really marginal, so we are quite committed. We're also renewing the fleet, and we're turning over some of those fleets with availability, and so you see a little higher acquisition cost going in, but the short answer, I think, is that we are committed to the long-term investment strategy there.
Speaker Change: Again, it's a little bit of an optimization, but I would say...
Speaker Change: As I mentioned in my comments, we're very committed to this market, we're very supportive of the long-term prospects, and so the investment, if you look at our numbers today, we'll taper our CapEx a little bit, but it's really marginal.
Speaker Change: So, we are quite committed. We're also renewing the fleet and we're turning over some of those fleets with availability and so you see a little higher acquisition cost going in.
Speaker Change: But the short answer, I think, is we are committed to the long-term investment strategy there.
Michael Stanley Howie McMillan: We are going to manage through cycles, and we always have in the past, and I think the key there is not to overreact but also look, you know, for investment in other areas. We continue to look at broadening our product offer, increasing our fleet, and looking at some specialty areas as well. I think those are longer-term perspectives in that business, and, you know, again, we're very committed to that. That's all for me.
Speaker Change: We are going to manage through cycles and we always have in the past and I think the key there is not to overreact but also look for investment in other areas. We continue to look at broadening our product offer.
Speaker Change: increasing our fleet and looking at some specialty areas as well. And I think those are longer term perspectives in that business. And, you know, again, we're very committed to that piece of our business.
Operator: Thank you. Your next question comes from Yuri Lynk with Canaccord. Your line is now open. Hey, good morning, Mike. Good morning, guys.
Speaker Change: That's all from me. Thank you. Thank you, Sherilyn.
Speaker Change: Your next question comes from Yuri Lynk with Canaccord. Your line is now open.
Yuri Lynk: Good morning, Gary.
Operator: John, maybe just to follow up on the question on the equipment sales, $559 million. I think that's far and away a record for the company.
Yuri Lynk: Hey, good morning, Mike. Morning, guys.
Yuri Lynk: John , yeah maybe just follow up on the question on the the equipment sales that in the quarter you know 559 million
Speaker Change: I think that's far and away a record for the company.
Operator: Some of the supply-demand dynamics and availability. But just any additional color in terms of there being one or more large package sales in there, or is it just simply the fact that you've got... Yeah, you know, maybe a couple things just to highlight there, Yuri, and, you know, again, I would look at it on a year to date basis, because we have seen some, you know, we continue to see some, some, some interesting dynamics there in terms of customer buying behaviors in the macro environment.
Speaker Change: Understand some of the supply-demand dynamics and availability, but just any additional color in terms of there being one or more large package sales in there, or is it just simply the fact that you've got...
Speaker Change: You know the equipment on hand now to be able to put it into the customer.
Speaker Change: Maybe a couple of things just to highlight there, Yuri. Again, I would look at it on a year-to-date basis because we continue to see some interesting dynamics there in terms of customer buying behaviors in the macro environment.
Operator: But, you know, when we look at, and we do break out in some of our disclosures a little bit more color, a little bit around the composition, like when you think of construction, mining, and so forth.
Speaker Change: When we look at and we do break out in some of our disclosure, a little bit more color, a little bit around the composition, like when you think of construction, mining and so forth, we had.
Michael Stanley Howie McMillan: We had some good deliveries in Q2 on the mining side, for example, and so those are things to keep in mind as we go forward because those can be a little bit more lumpy based on customer delivery schedules and requirements. But broadly, you're correct in the sense that availability has improved significantly over the last 12 months, and we continue to support that execution with our teams and so forth. So you're seeing a bit of that in Q2 also, and seasonality is not uncommon, right?
Speaker Change: We had some good deliveries in Q2 on the mining side, for example.
Speaker Change: And so those are things to keep in mind as we go forward, because those can be a little bit more lumpy based on customer delivery schedules and requirements, you know. I think, but broadly you're correct in the sense that...
Speaker Change: Availability has improved significantly over the last 12 months and we continue to support that execution with our teams and so forth. So you're seeing a bit of that in Q2 also with the seasonalities, not uncommon, right?
Michael Stanley Howie McMillan: Yeah, okay, that's helpful. I do want to acknowledge Simcoe. They're on a very nice roll here, really impressive results over the last little while. Keep on with the organic growth strategy because it's obviously working, but is there an opportunity to support that with some acquisitions? Or what's the plan? Yeah, maybe just to start on that, Yuri, I think, you know, again, the team has done a really nice job, both in Canada and the US. I think if you look at our backlog, they've secured some good business and in doing a nice job there, managing our margins, our execution, building the team, a little bit of spending there to support future growth, and generally quite pleased with the systems and processes they put We tend to look at opportunities; it's pretty fragmented.
Simcoe: I do want to acknowledge Simcoe. They're on a very nice roll here, really impressive results over the last little while. Is the plan to just...
Speaker Change: Keep on with the organic growth strategy because it's obviously working, but is there an opportunity to support that with some acquisitions, or what's the plan there?
Speaker Change: Yeah, maybe just to start on that Yuri, I think, you know, again, the team has done a really nice job, both in Canada and the U.S., and I think if you look at our backlog, they've secured some good business in doing a nice job there. Managing our margins, our execution, building the team, a little bit of spending there to support future growth.
Speaker Change: And, you know, generally quite pleased with the systems and processes they put in place as well.
Speaker Change: When it comes to acquisition side, again, we always look at that very carefully because I think in that business.
Speaker Change: It's capital-like in a sense, we tend to look at opportunities, it's pretty fragmented. We certainly will look at opportunities, but organically, we are well positioned to grow that business.
Michael Stanley Howie McMillan: We certainly will look at opportunities, but organically, we are well positioned to grow that business. I think with the technologies in that business and you think of some of the things that we're doing, we talked about Blatchford at our annual meeting, you look at some of the Net Zero initiatives, and so forth, and I think you know I think they're in a good position from that perspective, and I would say the primary focus is organic but supplemented with other opportunities if we think it makes sense at good value and we can make a difference Okay, guys. I'll turn it over.
Speaker Change: I think with the technologies in that business, and you think of some of the things that we're doing, we talked about Blatchford at our annual meeting, you look at some of the Net Zero initiatives.
Speaker Change: I think they're in a good position from that perspective and I would say the primary focus is organic but supplemented with other opportunities if we think it makes sense at good value and we can make a difference with the tuck-in and that sort of thing.
Speaker Change: Okay, good to hear. Okay guys, I'll turn it over. Thanks. Thanks Yuri.
Operator: Your next question comes from Steve Hansen. Yeah, good morning guys. Thanks for the time. I was just hoping you could give a little more granularity on where exactly you're at on the remand site staffing levels and sort of the pace that you expect to ramp up utilization here going forward, given that it's a relatively new marquee facility for you. Yeah, no thanks for that, Steve.
Speaker Change: Your next question comes from Steve Hansen with Raymond James. Your line is now open.
Steven P. Hansen: I was just hoping you could give a little more granularity on where exactly you're at on the remand site staffing levels and sort of the pace that you expect to ramp up utilization here going forward, given that it's a relatively new marquee facility for you.
Michael Stanley Howie McMillan: As a matter of fact, we had one of our meetings there yesterday, and you know, the facility is, the activity is pretty good. We still, I would say, we've mentioned it's about a 143,000 square foot facility, and we expect that full peak to be in around the 150, 160 technician range. You know, I'd say we're just over 100 at the moment as we transition activity into that operation.
Speaker Change: Thanks for that Steve, as a matter of fact we had one of our meetings there yesterday and the facility is pretty good. I would say we've mentioned it's about a 143,000 square foot facility.
Speaker Change: You know, we expect that full peak to be in around the 150-160 technician range. You know, I'd say we're just over 100 at the moment as we transition.
Speaker Change: We're doing a lot of engine work and other things at the moment. But there's still some other areas that we're continuing to put equipment in to support.
Michael Stanley Howie McMillan: You know, we're doing a lot of engine work and other things at the moment. But there's still some other areas that we're continuing to put equipment in to support, you know, other opportunities and transfer some volumes. So I would say, you know, we're going to be in transition there for a period of time yet, as we look at our facilities down here at our office in Concord on Edgeley and continue to, you know, install pretty sophisticated equipment in that facility, but it is fully functional for the most part and pretty accurate.
Speaker Change: We are in transition there for a period of time yet as we look at our facilities down here. Our office is in Concord on Edgeley.
Speaker Change: and continue to, you know, install.
Speaker Change: Some pretty sophisticated equipment in that facility, but it is fully functional for the most part and pretty active.
Michael Stanley Howie McMillan: That's very helpful and just a quick follow-up. It's a smaller piece, but the power generation market hasn't been one that's been as robust as the others lately. Just maybe some commentary around that and how that's been performing and why it's been difficult. Sorry, Steve. You were asking about the power segment? Yeah, the power segment. Thanks.
Speaker Change: Just a quick follow-up. It's a smaller piece, but the power gen market has not been one that's been as robust as the others lately. Just maybe some commentary around that and how that's been performing and why it's been dipping.
Michael Stanley Howie McMillan: Yeah, no, you know, I think the power segment's actually done pretty well in our results. You'll see, you know, we booked, for example, if you look at our backlog, we booked a fairly large project last year, and the team has been executing on that project for a customer throughout the course of the year and into Q2. And so it can be a little bit lumpy, just the nature of that business. But, you know, I would say it's performing well. But it is project-based.
Speaker Change: Sorry, Steve, you were asking about the power segment? Yeah, the power segment, thanks.
Steven P. Hansen: Yeah, no, you know, I think the power segments actually done pretty well. In our results, you'll see
Steven P. Hansen: If you look at our backlog, we booked a fairly large project last year and the team has been executing on that project for a customer throughout the course of the year and into Q2. It can be a little bit lumpy, just the nature of that business.
Steven P. Hansen: But, you know, I would say it's it's performing well, but it is project based in a lot of ways. It's somewhat similar when I think of Simcoe at times where you can have some larger projects in certain periods and then a number of.
John Marshall Doolittle: In a lot of ways, it's somewhat similar to when I think of Simcoe at times, where you can have some larger projects in certain periods and then a number of, you know, smaller and aftermarket support projects as well. And so, you know, I think the future potential for that business is very strong as we look at the energy transition supporting customers in remote locations like mines and the standby power opportunities if we think of other areas, other segments that we can look at and actively pursue in Canada here. Yeah, The only thing I would add there, Steve, is that Mike said it was a bit lumpy.
Steven P. Hansen: You know smaller and aftermarket support projects as well. And so, you know, I think the future potential for that business is very strong as we look at energy transition supporting customers in remote locations like mines and the standby power opportunities if we think of other
Steven P. Hansen: Other areas, other segments that we can look at and actively pursue in Canada here. Yeah, the only thing I would add there, Steve, is Mike said it was a bit lumpy. If you look at the backlog in the equipment group, it's about a billion dollars and 280 million of that approximately is in power. So we've got a very good backlog sitting there.
John Marshall Doolittle: If you look at the backlog in the equipment group, it's about a billion dollars, and $280 million of that, approximately, is in power. So we've got a very good backlog sitting there. Go get very old.
Steven P. Hansen: Go get very old. Appreciate it. Great.
Operator: I appreciate it. Great, thanks. Your next question comes from Devin Dodge with the Animal Cop.
Operator: The line is now open. Thanks. Good morning guys. Hey, morning Devin.
Steven P. Hansen: Your next question comes from Devin Dodge with BMO Capital Markets. Your line is now open.
Michael Stanley Howie McMillan: Starting with a question on the rental business, so just wondering if you can, you know, I'm just wondering how much of the sluggish rental demand can be attributed to softer end market conditions versus maybe the unwind of some customers that were maybe forced into the rental channel due to limited availability of newer use? It's a good question, Devin. I would tend to say that the dynamics that we outlined in some of our comments and talked about earlier are really the ones to think about.
Steven P. Hansen: Thanks. Good morning, guys. Good morning, Devin.
Devin Dodge: I'll start with a question on the rental business. I'm just wondering how much of the sluggish rental demand
Devin Dodge: Do you attribute a softer end market conditions versus maybe the unwind of some customers that were maybe forced into the rental channel due to limited availability of new or used?
Devin Dodge: It's a good question, Devin. I would tend to say that the dynamics that we outlined in some of our comments and talked about earlier are really the ones to think about.
Michael Stanley Howie McMillan: When you go through business cycles, you know, and we had a pretty robust rental market, when we had a lack of availability, we deliberately managed our fleet so that we had options available for customers, and so that supported rental activity and utilization. I think when we get into a period like we are in now with higher levels of availability, certainly customers are able to secure equipment and time it more effectively. I would say there is a small factor there.
Devin Dodge: When you go through business cycles, you know, and we had a pretty robust rental market.
Devin Dodge: When we had a lack of availability,
Devin Dodge: We deliberately managed our fleet so that we had options available for customers, and so that supported the rental activity and utilization. I think when we get into a period like we are in now with
Devin Dodge: Hard levels of availability, you know certainly customers are able to secure equipment.
Michael Stanley Howie McMillan: I think really though, when we look at that business in particular, outside of those cycle dynamics, I would say, again, the residential market. We are seeing a little bit of softness in some of the infrastructure and the kick-off of some projects. But I think, long-term, we feel very positive about that because there is a lack of affordable housing. We expect, especially in our primary markets, to see a significant amount of activity, and you hear about that quite commonly. I would say that is probably more of a factor. That combined with slightly higher acquisition costs on our fleets as we continue to replace the fleets with new equipment. There are a number of dimensions.
Devin Dodge: and time it more effectively. And so there is a, you know, I would say there is a small factor there. I think really, though, when we look at that business in particular.
Michael Stanley Howie McMillan: Okay, good call. Thanks for that. And then maybe just continuing on that theme, just wondering if you can give us a sense for where financial utilization of the rental fleet sits currently versus what you view to be an acceptable level and what is the path to narrow or close that gap? Is it just demand, or are there things internally you're working on as well? Yeah, well, a couple things I'd say. I think, you know, again, we don't publish our utilization rates, but, you know, if you looked at some of the public available information, you know, through routes and other sources, I think what you'll find is industry physical utilization is running a little lower than last year, which is pretty common. So that's kind of the benchmark to look at. It is, you know, it is just a few points. Now, it's going to happen flow through the summer season here as well.
Speaker Change: Okay, good caller. Thanks for that. And then maybe just continuing on that theme, just wondering if you can give us a sense for where...
Speaker Change: Financial utilization of the rental fleet sits currently versus what you view to be an acceptable level and what is that path to narrow or close that gap? Is it just demand or are there things internally you're working on as well?
Michael Stanley Howie McMillan: And so that's a difficult one to predict. But I would say, you know, it is lower than last year. You know, and I think from our perspective, again, we're committed to the market. As far as where we'd like to see it, we still have growth potential, I think. We often talk about Quebec in the Maritimes, but I think broadly, as we enhance our offer with fleets and some specialty products, we get some of that equipment into the marketplace.
Speaker Change: Well, a couple of things I'd say. I think, you know, again, we don't publish our utilization rates, but you know, if you looked at some of the public available information.
Speaker Change: You know, through Rous and other sources, I think what you'll find is industry physical utilization is running a little lower than last year, which is pretty common. So that's kind of the benchmark to look at.
Speaker Change: You know, and I think from our perspective, again, we're committed to the market.
Speaker Change: As far as where we'd like to see it, we still have growth potential. We often talk about Quebec in the Maritimes, but I think broadly, as we enhance our offer with fleets, some specialty products.
Operator: You know, that's going to provide us with an opportunity to deploy more capital and also penetrate a market and build utilization. And so, you know, ultimately, I think we have room in all of our markets to continue to improve utilization, maybe perhaps a little bit more in the eastern part of our territory as we continue to work through that business plan. And then on that specialty side... Okay, thanks a lot. I'll turn it over to you.
Speaker Change: We get some of that equipment into the marketplace, you know, that's going to provide us with an opportunity to
Speaker Change: Deploy more capital and also penetrate a market and build utilization and so, you know, ultimately, you know, I think we have room in all of our markets to continue to improve utilization, maybe perhaps a little bit more in the eastern part of our territory, as we continue to work through that business plan. And then on that specialty side I just covered.
Operator: Great, thanks. Your next question comes from Sabahat Khan with RBC Capital Markets. Your line is open.
Operator: Sabahat Khan, RBC Capital Markets. Sabahat Khan, RBC Capital Markets. Sabahat Khan, RBC Capital Markets.
John Marshall Doolittle: Yeah, it was a bit tough to hear you, if you wouldn't mind just, uh... Just a quick question on product support. Given the improvement in the equipment supply backdrop, I'm just curious what your outlook is for this business line over the coming quarters or years. I mean, obviously, we're committed to driving product support improvements and increases. We continue to hire technicians, which is the most important part or component of increasing product support revenue.
Speaker Change: Yes, it was a bit tough to hear you if you wouldn't mind just.
Speaker Change: Matthew again, yes can you hear me a bit better now yes, that's great. Thanks, Okay perfect. Yeah, just a quick question on the product support.
Speaker Change: So given the improving equipment supply backdrop, just curious what your outlook is for this business line kind of over the coming quarters or years.
Speaker Change: I mean.
Speaker Change: Obviously, you were committed to driving.
Speaker Change: To support improvements and increases we continue to hire technicians, which is the most important part or component of increasing product support revenue.
John Marshall Doolittle: The new equipment sales so far this year and in the quarter bode well for product support increases in the future, but in terms of a specific number, I'm not going to give that, but that's generally our feeling on product support.
Speaker Change: The new equipment sales, so far this year and in the quarter bodes well for product support increases in the future but in terms of.
Speaker Change: A specific number and not going to give that but but that's generally our feeling on product support yes, and I think just on just on your unit deliveries sort of implied in your question you know I think over the long term of course, as we see unit deliveries and good sales numbers unused I mean that that supports a longer term view and we look at certain verticals like mining construction, so the larger <unk>.
Michael Stanley Howie McMillan: I think just on your unit delivery, sort of implied in your question, I think over the long term, of course, as we see unit deliveries and good sales numbers in use, that supports a longer term view, and we look at certain verticals like mining, construction, and some larger gear again. Those are great opportunities for us over the long term. Like Bradford, we're investing now for the long term, and we want to be there to support our customers as they utilize the equipment and it goes through its normal cycles, and rebuild cycles, and so forth down the road.
Speaker Change: Again those are those are great opportunities for us over the long term and so you know we like Bradford you know where.
Speaker Change: We're investing now for the long term and we want to be there to support our customers as they utilize equipment and it goes through their normal.
Speaker Change: Cycles, and rebuild cycles, and so forth down the road.
Michael Stanley Howie McMillan: Okay, and I think you mentioned that equipment margins were down 30 basis points on the year just given the market dynamics at play in the previous year. Is that just referring to the sort of improving equipment supply backdrop where margins last year might have benefited from, you know, a lack of equipment availability? That's correct. We always have to think about mixing within those components as well. Again, availability and certain things like that certainly is a factor, but I think it's also when you think of the overall mix.
Speaker Change: Okay, and I think you mentioned that equipment.
Speaker Change: Margins were down 30 basis points on the year, just given the market dynamics that play in the previous year is that just referring to the sort of improving equipment supply backdrop, where margins last year might have benefited from.
Speaker Change: A lack of equipment availability.
Speaker Change: That's correct.
Speaker Change: Yeah, and I think you know, we always have to think about mix within those components as well.
Speaker Change: You know again, you know availability and certain things like that certainly is a factor, but I think it's also when you think of the overall mix I mentioned earlier.
John Marshall Doolittle: I mentioned earlier the composition of mining equipment versus some of our construction equipment in CCE, where you have different market factors to consider depending on demand and mix within those categories. And then, just last one for me, obviously, you guys were active on the buyback in the quarter. Just curious to hear your thoughts on how you're thinking about the buyback today and kind of over the course of the remainder of the year.
Speaker Change: The composition of say mining equipment versus some of our construction equipment NCC, where you have different market factors to consider depending on demand and mix within those categories.
Speaker Change: And then just a last one for me.
Speaker Change: Obviously, you guys were active on the buyback in the quarter.
Speaker Change: Just curious to your thoughts on how you're thinking about the buyback today and kind of over the course of the remainder of the year and if you have any updates to sort of your capital allocation outlook, just given the current macro backdrop.
John Marshall Doolittle: And if you have any updates to sort of your capital allocation outlook, just given the current macro backdrop. Yeah, so as Mike noted in his remarks, our primary goal for the buyback program is capital hygiene, which is offsetting option exercise issuance.
Speaker Change: Yes, so as Mike noted in his remarks, our primary goal on the buyback program as capital hygiene, which is offsetting option exercises at issuance.
John Marshall Doolittle: And then occasionally we'll be opportunistic, but Mike also mentioned we have ample opportunities to deploy our capital in organic growth. That's our primary, number one capital allocation objective. We're also, we have an active funnel of M&A opportunities. Somebody asked about the Simcoe side, and we have an active funnel kind of across the group, and buybacks are just one tool in the toolbox in striking a good balance on capital allocation. So our capital allocation priorities have not changed. It's organic growth, it's our dividend, it's M&A opportunities, and it's a buyback program. That's it for me.
Speaker Change: And then occasionally we'll be opportunistic but.
Speaker Change: Mike also mentioned, we have ample opportunities to deploy our capital in organic growth. That's our most our primary number one.
Speaker Change: Capital allocation objective.
Speaker Change: We're also we have an active funnel of M&A opportunities somebody asked about some co side.
Speaker Change: We have an active funnel and kind of across the across the group.
Speaker Change: Buybacks are just one tool in the toolbox and striking a good balance on capital allocation. So our capital allocation priorities have not changed its organic growth.
Speaker Change: <unk>.
Speaker Change: Our dividend.
Speaker Change: M&A opportunities and its a buyback program as well.
Speaker Change: That's it for me thank you.
Speaker Change: Great. Thanks.
Operator: Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the. Your next question comes from the Roman National Bank.
Speaker Change: Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by the one.
Roman <unk>: Your next question comes from Roman <unk> with National Bank. Your line is now open.
Operator: Your line is now open. Good morning, it's Roman here at National Bank Financial, and I was wondering if you could maybe provide a bit more color on the efficiencies behind the Bradford Remine plant and maybe what the longer-term strategic opportunities would be there. Thank you. Sorry, I missed the first part of that. Oh, my apologies. Is that better? A little better, yep. See you then, baby.
Speaker Change: Okay.
Matt Rowland: Good morning, Matt Rowland, our National Bank financial and I was wondering if you can maybe provide more color on the efficiencies behind the Brad three one time.
Matt Rowland: And maybe what the longer term strategic opportunities would be there. Thank you.
Speaker Change: Sorry, I missed the first part of that.
Speaker Change: Oh, my apologies that better.
Speaker Change: Little better yet.
Matt Rowland: Yeah.
Speaker Change: Excuse me.
Michael Stanley Howie McMillan: Prospects for the Bradford remand plant and the potential opportunity for efficiencies there. Oh, and the Bradford facility for efficiencies, I think if that's your question. Yeah, so I think a couple things, early days there, you know, I think ultimately what we're looking at is it's a great facility in terms of the design, the flow, the efficiency, and so I think over time, you know, as we look at that facility versus where we were before, you know, we are currently in three locations, each performing great operations, but I think if you naturally look at a state-of-the-art facility with more contemporary cleaning facilities, work flow, and within one building and so forth, you can imagine, you know, we're going to be able to see some efficiencies come out of that, not to mention the occupancy and the overall maintenance and support costs that we would have for facilities over time.
Brian: Sure, Brian <unk> plant and the potential opportunity for efficiencies there.
Brian: Oh in the Bradford facility for efficiencies.
Brian: If that's your question.
Brian: Yeah. So I think a couple of things. It's early days there I think ultimately what we're looking at is it's a great facility in terms of the design the flow the.
Brian: The efficiency and so I think over time.
Brian: You know as we look at that facility versus where we were before you know we are currently in three locations.
Brian: Each performing great operations, but I think if you if you're naturally look at our <unk> facility.
Brian: With more contemporary cleaning facilities product flow.
Brian: And in within one building and so forth you can imagine we're going to we're going to be able to see some efficiencies come out of that not to mention the occupancy in the overall maintenance and support costs that we would have for facilities over time.
Michael Stanley Howie McMillan: And so, you know, ultimately, we're going to see, you know, I would say, you know, in context, I mean, product support is a large part of our business; it runs over 40%. And so, you have to keep that in mind, this is one facility within the network, but certainly it's a great business model for us that we plan to develop further. Thanks so much. That's very helpful. And just one more question, more related to Simcoe.
Brian: So ultimately we're going to see you know I would say.
Brian: In context, I mean product supports a large part of our business. It runs over 40% and so you know you have to keep that in mind. This is one facility within the network, but certainly it's a great business model for us that we plan to develop further.
Speaker Change: Thanks, So much that survey helpful and just one more question more related to some co.
Michael Stanley Howie McMillan: Just wondering, what are the fundamental drivers of the more recent strengths we've seen this quarter especially? And, you know, what is driving that from a thematic point of view? You know, there are good activity levels in the market in this segment. I think the team has done a really good job. We've implemented a new project management system, which has increased discipline within the organization in managing each of the projects. It's the new technology that Mike mentioned that is environmentally friendly.
Speaker Change: I'm just wondering what are the fundamental drivers of the more recent strength, we've seen this quarter, especially and.
Speaker Change: What is driving that promotes a matter of point of view.
Brian: Yes.
Speaker Change: There is good activity levels in the market in this segment I think the team has done a really good job we've implemented the new project management system, which has increased the discipline within the organization and managing each of the projects.
Brian: New technology that Mike mentioned, which is greenhouse gas friendly and so I think kind of those three things.
John Marshall Doolittle: And so I think kind of those three things, you know, go into the blender, and Simcoe's been doing a very good job over the last few quarters. And I think if you look at, for example, in that particular space, we've made a commitment to natural refrigerants. Moving away from synthetics, we have some great products; we have a ThermalForce One product that we're working with the market on, and I think you know a number of other things that support both recreational and industrial uses. You think of things like cold food storage, grocery, and food processing.
Speaker Change: You don't go into the Blender and Syncrude has been doing a very good job over the last few quarters and I think if you look at for example in that particular space. You know we've made a commitment for natural refrigerants moving away from synthetics, we have some great.
Speaker Change: We have a thermal horse one.
Speaker Change: Product that we're working with the market on and I think you know a number of other things that support both recreational industrial and you know when you think of things like.
Speaker Change: Cold food storage grocery.
John Marshall Doolittle: A lot of colleges, universities and so forth also are looking at ways to optimize and move towards you know non-synthetics and more efficient, Thermal heating and cooling plants and so you know I would say all those things come together in terms of we have a strong offer there, we have a great team in place and you know we've done some work also in the U.S., we have a strong management team in that particular market and you know developing our presence.
Speaker Change: And food processing.
Speaker Change: Lot of colleges universities, and so forth also we're looking at ways to optimize.
Speaker Change: And move towards you know.
Speaker Change: Non synthetics and more efficient.
Speaker Change: Thermal heating and cooling plants, and so I would say all of those things come together in terms of.
Speaker Change: We have a strong offer there we have a great team in place and you know we've done some work also in the U S.
Speaker Change: We have a strong management team in that.
Speaker Change: Market and.
Speaker Change: Developing our our presence. So I think those are those are good factors at least late.
Michael Stanley Howie McMillan: So I think those are good factors that will lead us forward. Thank you. I appreciate the call. I earned that.
Speaker Change: Thus forward.
Speaker Change: Thank you I appreciate the color on that.
Operator: Thanks. That will do it for the questions at this time. I will now turn the call over to management for closing. Yeah, okay.
Robyn: Great. Thanks, Thanks Robyn.
Speaker Change: There are no further questions at this time I will now turn the call over to management for closing remarks.
Michael Stanley Howie McMillan: Well, thank you very much, Joel, and thank you for hosting us and for everybody joining the call this morning. And for lots of great questions. So that concludes our call, please be safe, have a great day, everyone. Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect. The Ultimate Parody Site! BF-WATCH TV 2021
Speaker Change: Okay, well, thank you very much joelle and thank you for hosting us and I appreciate everybody joining the call. This morning.
Speaker Change: And for lots of great questions. So that concludes our call. Please be safe and have a great day, everyone. Thank you. Thanks again.
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.
Robyn: [music].
Robyn: Okay.