Q1 2025 Toromont Industries Ltd Earnings Call
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Good morning, today's Thursday me first 2025 welcome to the apartment industry is limited first quarter 'twenty 25 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.
Host for today will be Mr. John Doolittle, Executive Vice President and Chief Financial Officer. Please go ahead Sir.
Speaker Change: Okay. Thank you very much Angelina and good morning, everyone. Thanks, a lot for joining us today to discuss four months' results for the first quarter of 2025 also on the call with me as usual is.
Speaker Change: Mike Mcmullen, our president and Chief Executive Officer, Mike and I will be referring to a presentation that is available on our web site to start I would like to refer listeners to slide two which contains our advisory regarding forward looking information statements.
Speaker Change: After our prepared remarks will be more than happy to answer questions. So, let's get started to move to slide three and over to you Mike.
Mike McMullen: Great. Thanks, very much John good morning, everyone.
Speaker Change: I'm pleased with the performance of the team in the quarter and a somewhat challenging market, we had consolidated revenue growth.
Speaker Change: 7% overall with growth in both the equipment group and Simco.
Speaker Change: Although we did not match our bottom line performance from last year due largely to business mix and lower interest income the team managed expenses very well and enhanced our already solid financial position.
Speaker Change: The equipment group continued to execute well against order backlog.
Speaker Change: Revenue increased unimproved, new equipment deliveries and construction mining and power systems, which includes the newly acquired ABL operations.
Speaker Change: Until revenue improved in the quarter, reflecting the larger fleet, while used equipment sales declined year over year.
Speaker Change: Product support revenue decreased on lower parts volume and was partially offset by higher service activity.
Speaker Change: Operating income was lower versus the prior year as expected given the strong comparator, which reflected the dynamics at play at the time, along with unfavorable sales mix lower gross margins and slightly higher expenses Sim.
Speaker Change: Simcoe revenue and bottom line improvements demonstrated the teams strong execution.
Speaker Change: Simcoe had a solid start to the year in both Canada and the U S against a strong order backlog, resulting in good package revenue growth.
Speaker Change: Product support activity continues to demonstrate good growth in the U S and Canada.
Speaker Change: Supported by our larger technician workforce operating income increased on the higher revenue and good execution, partially offset by unfavorable sales mix that is lower product support revenue to total revenue.
Speaker Change: And slightly higher expenses to support activity and growth.
Speaker Change: As previously announced we acquired a 60% ownership interest in ABL manufacturing Inc. At the end of January we see a good fit for this business with our current operations and markets. While we expect the business to be accretive to our results. The business is building its productive capacity and the bottom line.
Speaker Change: Contribution is not expected to be significant over the near term.
Speaker Change: We will also buy out the remaining ownership by 2031, which will follow a predefined schedule.
Vince Cristofaro: At this time I'd like to also welcome Vince to Cristofaro, the president of ABL and the ABL team to the tour them on family.
Vince Cristofaro: During Q1, our solid financial position was maintained while we continue to exercise disciplined capital management and allocation.
Vince Cristofaro: Across the organization, we continue to focus on their long term investment strategies and remain committed to our operating disciplines, while driving aftermarket strategies and delivering customer solutions.
Vince Cristofaro: On slide four I'd like to touch on a few key financial highlights.
Vince Cristofaro: Investment in noncash working capital increased 40% versus a year ago with higher levels of inventory higher accounts receivable slightly offset by lower accounts payable balances due primarily to the timing of equipment received.
Vince Cristofaro: Accounts receivable increased in part, reflecting higher revenue as well as receivables acquired with a V L.
Vince Cristofaro: DSO increased up one day compared with last year at 42 days overall.
Vince Cristofaro: Our team continues to do a nice job closely managing the aging of our receivables and monitoring customer credit levels and metrics.
Vince Cristofaro: 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.
Vince Cristofaro: We ended the first quarter with ample liquidity, including cash of 977 million, an additional $456 million available to us under our existing credit facilities.
Vince Cristofaro: We successfully issued a $300 million.
Vince Cristofaro: In.
Vince Cristofaro: Senior debentures in the quarter.
Vince Cristofaro: As a result of our plan to refinance of one of our bonds, which was due to mature later this year.
Vince Cristofaro: Our net debt.
Vince Cristofaro: To total capitalization ratio was negative 1%.
Vince Cristofaro: Overall, our balance sheet remains well positioned to support operational needs and we are prepared to manage challenges related to the economic variables and business conditions. As one would expect we will continue to exercise the operational and financial discipline as we support our customer requirements and evaluate investment opportunities that may develop.
Vince Cristofaro: Over time.
Vince Cristofaro: Tore them on targets of return on equity of 18% over a business cycle.
Vince Cristofaro: Return on equity was slightly above this target level at 18, 5% compared to 22% for Q1 of 2024.
Vince Cristofaro: Return on capital employed was 24, 1% comparatively lower than 29% in Q1 of 2020 for both of these metrics reflect our higher capital investment and comparatively lower earnings.
Vince Cristofaro: And finally.
Vince Cristofaro: As announced yesterday the board of directors approved a regular quarterly dividend of <unk> 52 cents per share payable on July three 2025 to shareholders on record on June six 2025.
Vince Cristofaro: John I'll turn it over to you for some more detailed comments on the results. Okay. Thank you, Mike, let's turn to slide five for additional comments on our consolidated results as Mike noted profitability for the first quarter of 2025 was lower than the first quarter 'twenty 'twenty four is expected given the current economic environment uncertain market conditions led to cautious.
And customer purchasing decisions or our revenue was generated by both the equipment group in Simcoe with new equipment deliveries and execution against order backlog and project schedules rental revenue improved during the period, however utilization levels remained lower than the prior year product support revenue was lower overall with an increase of central.
Vince Cristofaro: More than offset by a decrease in the equipment group gross profit margins were lower compared to the prior year in large part due to sales mix with a lower percentage of product support revenues to total revenue. Additionally, the prior year was a stronger comparator in the equipment group given market dynamics in play at the time.
Vince Cristofaro: Operating income was down 8% compared to strong results last year as the higher top line revenue was offset by lower gross margins and slightly higher expenses.
Vince Cristofaro: Bookings decreased 12% compared to Q1, 'twenty 'twenty four and both the equipment group and synchrony reflective of the lumpy nature of the projects and the current economic uncertainty, causing delays in customer buying decisions.
Vince Cristofaro: Backlog remains healthy at $1 3 billion down 6% year over year with the decrease in the equipment group down, 9% and an increase with <unk> up 8% backlog is supportive and reflects good order intake over the last year and supported by improving equipment and flow through the supply chain.
Vince Cristofaro: On a consolidated basis revenue increased 7% in the quarter with the equipment group up 7% and Simco up 9%.
Vince Cristofaro: <unk> expenses decreased to 13, 3% of revenue, reflecting our strong focus on cost controls.
Vince Cristofaro: <unk> increased 1% in the quarter with a $4 million increase in expenses from ABL, excluding <unk> expenses were down 2% allowance for doubtful accounts was down $3 8 million or unimproved land and certain exposure. It's been good collections as well as lower day issue Mark to market adjustments down $2 3 million on a lower share price.
Vince Cristofaro: Other expenses increased modestly on higher volumes and other investment initiatives.
Vince Cristofaro: Operating income decreased 8% in the quarter. It was 9% of revenue compared to 10, 5% in the similar period last year.
Vince Cristofaro: Although revenue was higher lower gross margins in the equipment group and slightly higher expenses dampened the results.
Vince Cristofaro: Interest income was down $4 5 million or 29%, reflecting a slightly lower interest rate year over year net earnings decreased 11% or $9 5 million in the quarter compared to last year basic earnings per share. It was 98 cents in the quarter trying to the decrease in earnings.
Vince Cristofaro: Turning to the equipment group on slide six revenue was up 7% in the quarter equipment sales, including both new and used equipment were up 17% in the quarter across most market segments and regions new equipment sales increased 24% in the quarter with good increases in mining and power systems, which includes the acquired operations.
Vince Cristofaro: Used equipment sales decreased 21% in the quarter predominantly in the construction market with lower rental fleet dispositions on fleet management decisions and lower sales of used equipment for trade and purchases, reflecting supply and demand economics in.
Vince Cristofaro: In the quarter total equipment revenue increased 4% in construction, 50% and mining five per cent of material handling and 32% in power systems.
Vince Cristofaro: Rental revenue was up 11% in the quarter, while market conditions remain soft revenues increase compared to the prior year, reflecting a larger fleet and improved utilization in some areas revenue improved in most areas for the quarter. It was false light equipment rentals up 8% heavy equipment rentals up 16% from here material.
Vince Cristofaro: Material handling up 12%, partially offset by a decrease in power rentals down 20%.
Vince Cristofaro: The <unk> fleet was $101 million versus $70 million, a year ago, and rental revenue was up 50%, 51% compared to last year.
Vince Cristofaro: Product support revenue declined 3% in the quarter with the decrease in parts down 5%, partially offset by service up 4% activity was lower across most markets and regions, reflecting end user demand and activity levels looking at specific margins for the quarter changes revenues. This fall's construction was down 3% money.
Vince Cristofaro: Down, 3% power systems unchanged immaterial handling down 6%.
Vince Cristofaro: Gross profit margins decreased 260 basis points in the quarter compared to Q1, 'twenty 'twenty four and unfavorable sales mix with a lower proportion of product support revenue to total dampen margins 110 basis points equipment margins decreased 60 basis points on a cautious market conditions.
Vince Cristofaro: Rental margins decreased 30 basis points on higher recent fleet acquisitions in part due to a weaker Canadian dollar and higher maintenance and repair costs product support margins decreased 60 basis points on generally higher costs.
Vince Cristofaro: So let me give an administrative expenses were relatively unchanged compared to the same period last year. The acquisition of baby all increased expense $4 million, which includes noncash expenses related to purchase price accounting items.
Vince Cristofaro: Compensation costs were lower year over year, reflecting lower profit sharing accruals and do you see your mark to market expenses, partially offset by regular annual increases other expenses, such as training travel information technology professional and consulting fees and arguments cost of increase in light of activity levels and inflationary pressures allowance for doubtful accounts decrease.
Vince Cristofaro: $3 6 million, reflecting good collections and improvement in certain exposures.
Vince Cristofaro: As a percentage of revenue selling and administrative expenses improved to 12, 9% in the current period versus 13, 8% and a similar period last year.
Vince Cristofaro: Operating income decreased 10% for the quarter, mainly reflecting higher revenue more than offset by lower gross margins bookings.
Vince Cristofaro: Bookings decreased 4% in the quarter mining bookings were down 41% versus last year on strong comparable which included several large customer orders construction bookings were up 1% along with material handling orders up 39% power systems orders increased 48% and a good market activity, including the acquired business.
Vince Cristofaro: Backlog of 982 million at March 31, 2025 remains at healthy levels backlog includes approximately 230 million acquired with ABL, which has a strong delivery schedule over the next two years. Excluding this backlog was 32% lower compared with the same period.
Vince Cristofaro: Last year reflect the good deliveries against customer orders over the last 12 months, along with good order intake new order intake.
Vince Cristofaro: Actually 80% of the backlog is expected to be delivered over the next 12 months, but of course subject to the timing differences, depending on vendor supply customer activity and delivery schedules.
Vince Cristofaro: Some go on slide seven.
Vince Cristofaro: Revenue was up 9% in the quarter package revenue increased 15% in the quarter with good execution on equipment delivery and progress from our schedules.
Vince Cristofaro: Real market revenue was up 24% with higher activity in the U S relatively unchanged in Canada recreational activity decreased 6% as higher revenue in Canada was more than offset by lower activity in the U S.
Vince Cristofaro: Product support revenue increased 5% in the quarter on higher activity levels in both Canada and the U S activity levels continue to improve on good customer demand and increased technician base.
Vince Cristofaro: Gross profit margins increased 100 basis points in the quarter versus the comparable period last year package margins were up 160 basis points on good execution and the nature of the projects in process product support margins decreased 40 basis points on the profile of activity and unfavorable sales mix with a lower proportion of pockets revenues total revenue dampen.
Vince Cristofaro: Margins by 20 basis points.
Vince Cristofaro: Selling and administrative expenses increased 8% in the quarter compensation costs increased reflecting staffing levels annual salary increases and higher profit sharing accruals on higher earnings.
Vince Cristofaro: Other expenditures such as travel training expenses increase to support activity in staffing levels as a percentage of revenue selling and administrative expenses improved to 17, 8% in the current period versus 17, 9% in the similar period last year.
Vince Cristofaro: Operating income was up $1 8 million or 23% for the quarter, reflecting improved gross margins for revenue operating income as a percentage of revenue increased 110 basis points to 10% compared to the first quarter of last year.
Vince Cristofaro: Bookings decreased 54% or $55 million in the quarter against a strong comparator industrial orders were down 70% and recreation orders were down 32% with Florida orders in both Canada and the U S. Generally activity is continuing with good strategic capital investment levels over the current economic uncertainty as delayed customer buying.
Vince Cristofaro: <unk>.
Vince Cristofaro: Backlog of $348 million was 8% higher versus last year, approximately 75% of the backlog is expected to be realized over the next 12 months wherever again subject to construction schedules and potential changes stemming from supply chain dynamics.
Vince Cristofaro: We can move to slide eight.
Mike McMullen: I'll turn again to Mike to highlight some key takeaways as we look forward to Q2.
Mike: Thanks, John.
Mike: We continue to focus on key priority areas, including safe operational execution, serving and supporting our customer requirements and exercising the usual discipline and rigor expected as we focus on building our business for the future.
Mike: We continue to expect the business environment to be influenced by a number of factors that are at play.
Mike: Trade negotiations between the U S and Canada is resulting in ongoing uncertainty. Our team is highly engaged and has prepared an appropriate action plan to navigate the potential impacts which will continue to evolve.
Mike: Foreign exchange rate volatility and other weaker and a weaker Canadian dollar are also being monitored given the majority of our supply of equipment and parts are sourced in U S dollars.
Mike: Hedging practices and policies will continue to be used of course to manage the bottom line exposure to changing exchange rates. However, the impact on the economy as a whole may present further challenges.
Mike: Other general economic and macroeconomic factors, such as inflation and interest rates continue to be monitored.
Mike: Our backlog levels as John mentioned remained healthy and the equipment supply chain is well positioned to support our customers.
Mike: We continue to hire technicians to support our operations and this remains an essential long term focused investment supporting our aftermarket and value added product and service offerings.
Mike: Operationally and financially we remain well positioned with ample liquidity and our strong leadership teams disciplined culture and focused operating models. We continue to monitor key metrics supply and global trade dynamics as noted our long term focus on growth and returns means we remain committed to our operating.
Mike: And financial disciplines to manage our cost structure, while we invest in capacity and capabilities to provide exceptional service to our customers today and for the future.
Mike: We appreciate our entire team's effort and commitment to support our customers and deliver value for our stakeholders.
Thanks also to our valued customers and supply partners and shareholders for their continued support.
Mike: That continues or that concludes our prepared remarks at this time, we will be pleased to take questions.
Speaker Change: Angeline, if if we cut over to you for the first call. Please.
Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the number one on your Touchtone filing and you will hear a problem that you had has been race should you wish to decline from the polling process. Please press the star followed by the number two and if you are using a speaker phone.
Speaker Change: Please lift the handset before pressing any keys one moment. Please for your first question.
Charlie Radbourne: Your first question comes from Charlie Radbourne with TD colleagues. Please go ahead.
Charlie Radbourne: Thanks, very much and good morning, good morning, Kevin.
Speaker Change: The thing that surprised me the most in the numbers was slight decline in product support in the equipment group, because I think customers might have stocked up on park in anticipation of potential price increases.
Charlie Radbourne: That's surprising to you as well.
Speaker Change: Yeah no. Thanks, Thanks for the question Cherilyn I think.
Speaker Change: And in part what we're seeing is there's a couple of factors as we lead into the year.
Speaker Change: I think theres, just broadly economic uncertainty I think.
Speaker Change: With some of the the trade tensions and so forth I think we haven't seen a lot of evidence of customers stocking up in advance in anticipation.
Speaker Change: But also keep in mind, what we we've gone through this period of you know I would say even from a political perspective, provincially and federally some uncertainty combined with the with the you know the.
Speaker Change: The trade restrictions and I think what we're seeing is just a tone of caution there and so when you look at.
Speaker Change: What we've seen in the quarter you see that parts are slightly down and you'll see our labor and so forth is up and so.
Speaker Change: So there is routine maintenance going on I think the other thing to keep in mind as you know in the last 18 to 24 months. We've delivered you know a fairly strong component of new equipment into the market.
Speaker Change: Given the supply has improved and some of those machine.
Speaker Change: Machines need to need to build hours before we get into higher levels of consumption, that's especially true when we think about the mining business, where we've had some some nice deliveries over the last couple of years.
Speaker Change: And those pieces of equipment need to need to build hours and experience before we start to see consumption pickup.
Speaker Change: Makes sense.
Speaker Change: The other thing I noted was that the construction backlog, while it's down year over year remains high by historical standards, especially considering that that business does it typically operate with much of our backlog what if any read throughs do you take away from that.
Speaker Change: Yeah, I think we're still like you say and that's a that's a great observation because although comparatively as you mentioned, we would be down if we take out ABL. Construction is in is in a very strong position relative to historic trends and I think part of it is we're still going through a little bit of an equipment replacement cycle that extends back into the early part of last year.
Speaker Change: And so.
Speaker Change: With a better supply and so forth.
Speaker Change: And I would say the interest rate environment and other economic factors have led.
Speaker Change: Stronger interest in new equipment, and so we certainly have seen that persist, although I think in terms of delivery schedules and so forth. There is a bit of a patient says customers weighed on closing our bids in and.
Speaker Change: And our development opportunities.
Speaker Change: And then lastly for me.
Speaker Change: If memory serves customers usually have a pretty good view of the highway program for the upcoming construction season by now can you make any comments on how that looks relative to prior years.
Speaker Change: Yeah, I would say, it's a bit difficult to speculate I'd sort of go back to my comments in terms of how we entered into the year in terms of.
Speaker Change: Some of the decision making for you know when you think of provincially are federally sponsored projects and given the uncertainty that we've had.
Speaker Change: Leading into the year is probably delayed a little bit of that I'd say you know.
Speaker Change: The backdrop, though as you mentioned is constructive for the long term, we do have a number of projects that we're aware of that should be.
Speaker Change: Investment and it should be kicking off and we see that as a longer term positive trend, but at this stage I would say, it's still a little bit early to know the exact time and given that we've just come through a couple of election cycles here and.
Speaker Change: The budget process and everything else that follows right.
Speaker Change: Great I will pass it over to somebody else. Thank you. Thanks Sheila.
Speaker Change: Thank you the.
Speaker Change: The next question comes from.
Christa Friesen with CIBC. Please go ahead.
Christa Friesen: Hi, Thanks for taking my question.
Speaker Change: Wondering if you can just.
Speaker Change: Maybe elaborate a little bit more.
Speaker Change: Okay.
Speaker Change: And what Youre hearing from your customers at this point in time, obviously.
Speaker Change: Still it's still a lot of uncertainty but.
Speaker Change: Is there any comments around just pushing it out for a shorter period of time or are you starting to see some indefinite delays in projects.
Speaker Change: Yes, I think just to start and thanks for the thanks for the question Kristen I think like I said earlier I think what we've seen is a fairly cautious environment one would think.
Speaker Change: When you look at the Canadian environment interest rate backdrop, and so forth you know we're in a pretty reasonable position from that perspective, when you think of capital goods investment I think what we've seen slower is.
Speaker Change: Due to the uncertainty south of the border.
Speaker Change: Potential for a recession or depressed economic conditions for a period of time, but then also just as the new governments.
Speaker Change: Governments and leadership get positioned the investment decisions that they'll make in the project initiation, which is a bit early yet at this point right as we've just seen so.
Speaker Change: Yeah, I would just add Mike like the overall backdrop, assuming we reach an agreement with the U S is very positive I think in terms of development of our minerals in our territory.
Speaker Change: Pipelines across our territory, that's thing that kind of infrastructure spend is a positive.
Speaker Change: Long term feature.
Speaker Change: Feature so.
Speaker Change: Yeah.
Speaker Change: Okay, Great and then maybe just finish with just one more on the <unk> acquisition is if there's any update you up there just on.
Speaker Change: The integration if theres anything that said that's been surprising to us in the short period of time that you've had it.
Speaker Change: I don't think there's been anything that's surprising when we.
Speaker Change: We have.
Speaker Change: A great team at <unk> led.
Speaker Change: Led by Vince as Mike said.
Speaker Change: And the production facility in Hamilton Thats terrific.
Speaker Change: I think the overall.
Speaker Change:
Speaker Change: The economic backdrop, there is very positive in terms of data center build outs, particularly in the U S. I mentioned on the last call that we we realize we know as part of this deal that we're going to have to increase the capacity of that business and it will likely be in the U S and.
Speaker Change: That remains a focus of ours at the moment.
Speaker Change: Yeah.
Speaker Change: Thanks, I'll turn the line.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from.
Speaker Change: You read link with Canaccord Genuity. Please go ahead.
Speaker Change: Hey, good morning, gentlemen, good morning.
Speaker Change:
Speaker Change: Maybe just on the on the gross margin.
Okay.
Speaker Change: Much weaker than what I was expecting for what for what that's worth I appreciate the color given in the in the MD&A, but just wondering if.
Speaker Change: Youre seeing a anymore.
Speaker Change: Is there one thing that caused it more than others was it the dollar was it more of a mix shift.
Speaker Change: Are you seeing anything on change on in terms of competitive conditions on pricing.
Speaker Change: Well, let me just take the first part of that I mean really in my mind. There was a shift in mix. It was a shift in mix between new and used equipment and product support that was the primary reason for the decrease in margins in the equipment group and then the competitive environment, Mike I don't know if you want to comment on I guess a couple.
Speaker Change: Things are I would say like we mentioned, we certainly are in a period, where the market is well supplied right.
Speaker Change: It's probably the right way to think about it and so certainly if you look at our mix within the equipment.
Speaker Change: Well youll see a much stronger like the team did a really nice job on new equipment sales you know in terms of when we think about our market share.
Speaker Change: And competing in our marketplace were quite pleased with how the team delivered in Q1 on that side and you see it in our new equipment sales now you'll see lower performance relative in the used market and that's natural in the sense that there's a bit of a fleet renewal process and.
Speaker Change: Again, good supply in both new and used markets I think the other piece to keep in mind. There are two areas. When you think of mix you think of the rental side of our business. We've mentioned that it's up slightly and so forth, but on a higher invested fleet cost. When you think of what we've been through over the last several years, we completely have added significant.
Speaker Change: <unk> to our fleet, our acquisition costs, a little bit higher and so.
Speaker Change: There is certainly a little bit of pressure on that side, but the team is doing a nice job in terms of starting to see utilization rates improve and of course, that's a function of activity in our marketplace that we've talked about earlier in the call. So there are a number of levers there that I think.
Speaker Change: You should consider as you evaluate the margin.
Speaker Change: And going forward.
Speaker Change: Okay.
Speaker Change: And for my model.
Speaker Change: Especially with the <unk> acquisition.
Speaker Change: In the quarter, we're just wondering if the $63 million of DNA in the quarter as a good run rate.
Speaker Change: Going forward or was there some accelerated.
Speaker Change: And there.
Speaker Change: Yes, I think.
Speaker Change: John can speak to our run rates and so forth a little bit, but I would say like just sort of building up my last comments I think it's like you say, we've got a higher fleet we do.
Speaker Change: We do.
Speaker Change: We do manage that part of our financials very conservative land straight line a lot of our fleet.
Speaker Change: As you know within the rental business for example, and so forth and so.
Speaker Change: I think thats, probably a reasonable level of where you consider I don't know Jonathan Theres anything else you wanted to mint.
Speaker Change: Just on the accounting for deferred ABL will treat that as a purchase accounting transaction.
Speaker Change: And there weren't a lot of hard assets in the deal. So there will be intangibles amortization of those intangibles over time. So you could expect an ongoing amortization there.
Speaker Change: That was you or if that was your question.
Speaker Change: Okay. That's helpful and just last one.
Speaker Change: Any.
Speaker Change: Again from my model.
Speaker Change: Capex.
Speaker Change: Both rental and on the base assets.
Speaker Change: Particularly around your comments on maybe increasing capacity at ABL I don't know if any of that comes this year or next year.
Speaker Change: Yes, I would expect sort of capex on rental I mean, we're monitoring every quarter as I mentioned last quarter, we anticipate the net rental costs.
Speaker Change: Cost to be about where they were last year, but not 150, but as I said, we will look at that each quarter, depending upon market conditions and then on the <unk> acquisition in the U S.
Speaker Change: Increasing the scope there I would anticipate that to be in the current year. So as I said last quarter, we would expect facilities Capex to go up this year. These V last year for a couple of reasons one is the be all.
Speaker Change: That transaction that I, just mentioned and secondly, we're going to begin to build out our new facility head office facility and branch facility in.
Speaker Change: In the Toronto area and so those two factors combined with a few others will increase the capex in facilities. This year and regular run rate Capex will be about the same as it's always been.
Speaker Change: Yeah.
Speaker Change: Okay. Thanks, guys. Okay. Thank you.
Speaker Change: Thank you. The next question comes from Davis, Bainton with BMO capital markets. Please go ahead.
Speaker Change: Hi, Good morning. This is David on for Devin Dodge.
Speaker Change: Good morning, Dave.
Speaker Change: So just touching on rental so it seems like there's likely some cross currents in this business. So on the one hand activity levels in some end markets seems sluggish, but altogether increased customer caution could tip the scales in favor of renting over outright ownership I.
Speaker Change: Just wondering if you could touch a bit more on what you've seen so far in the rental business.
Speaker Change: Sure, Yes, that's a good it's a good observation David So a couple of things to point out as you mentioned.
Speaker Change: Sometimes what we do see an uncertain economic conditions with projects, we do see customers opt.
Speaker Change: Into.
Speaker Change: The rental program and so far as well they see how cash flow and project bidding processes Pan out and one of the areas, you'll see that very clearly on the heavy side as our RP O.
Jon: Inventories and Jon mentioned in his comments that in all of our appeal level.
Jon: Was about $101 million versus about 70 last year, which is again I would look back to pre pandemic periods and you'd say that would be a strong number relative to that period and I think that's a little bit of an indication that we are seeing customers look for options and alternatives to manage through you know through the economic variables.
Jon: <unk> dynamics that we're seeing today.
Jon: Yeah.
Jon: Yeah.
Jon: Okay. Thank you and then maybe just switching gears a little bit here. So.
Jon: Equipment bookings held up quite well in the quarter, despite the uncertain backdrop.
Jon: I know you touched on this a bit with parts, but did you just to get a sense that some customers who are looking to buy ahead of tariffs.
Jon: Yes, I would say again when you breakdown the booking activity one of the things certainly to your point as you see the mix of new equipment, and so forth coin financials, you see some decent bookings I think across the space one of the areas. We do call out a lot of times as mining where it tends to be a little bit more.
Jon: Lumpy and so you see mining is a little lower than it has run historically, because we've earned our way into a number of deliveries and new new development opportunities and expansion. So that is going to ebb and flow, but when you look at construction for example, I think our backlogs, but about 28% of our backlog is construction its pretty consistent level.
Jon: And trending positively power as well, but that keep in mind that includes some of the ABL activity, but yes, I was just going to say this the comment that Mike made in response to <unk> question I would say, it's the same one on new equipment, which is we haven't seen a lot of orders are advancing as a direct result of the potential tariffs.
Jon: Correct Yeah.
Jon: Yep.
Jon: Great. Thanks for the color I'll turn it over thank you.
Jon: Thank you.
Speaker Change: The next question comes from <unk> Khan.
Jon: Ken with RBC capital markets. Please go ahead.
Hey, good morning to start their own for Sabre.
Speaker Change: So you might have just touched on this but.
Speaker Change: Just wanted to dig into the indirect tariff impacts.
Speaker Change: Especially I guess on the private construction customer side within the equipment group.
Speaker Change: Have you seen any projects getting delayed or canceled so far or things generally still chugging along.
Speaker Change: Yes, I would say maybe just to start on that is I.
Speaker Change: I would say as we mentioned earlier, we haven't seen any advanced buying in anticipation I think theres certainly been a period of wait and see and folks are being prepared I think because were well supplied in the marketplace. I think that does give our customers a little bit more flexibility than we might have seen over the last couple of years.
Speaker Change: I think a bigger trend too is also like we mentioned earlier is the investment cycle and with some of the change in political.
Speaker Change: Positions and things like that that had to work its way through and then the investment cycle would follow so.
Speaker Change: But I would say from a tariff perspective again it's.
Speaker Change: We have a team in place that is actively managing the tariff developments as they occur and I think we're monitoring obviously, our customer impacts on U S. Tariffs. We're also trying to make sure we're keeping apprised of any potential reciprocal actions that our government takes because.
Speaker Change: As you know our industry is largely an import market for heavy equipment and capital goods that we distribute and so we do certainly received from our largest supplier products that come from other markets outside of the U S. Obviously like Brazil and other areas. However, I would say, it's a bit early for us.
To comment or speculate and I think our customers. It just been cautious given.
Speaker Change: The industry and the supply levels.
Speaker Change: Yeah.
Speaker Change: That's it for me thank you great.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from Steve Hansen with Raymond James. Please go ahead.
Speaker Change: Yeah.
Steve Hansen: Yes, good morning, guys. Thanks for the time.
Speaker Change: Will I recognize most of the margin.
Speaker Change: Pressure was related to mix, which referenced earlier is it possible to parse out at all which areas of the market youre seeing more competitive pressures and that will play out.
Speaker Change: That might be impacting margins is it is it in the general construction space in mining I mean, how we think about that.
Steve Hansen: Yeah, I think maybe just start on that Steve I again, we will.
Steve Hansen: Tried to give you a little bit of color. When you look at the bookings and the backlog I think thats your best indication in terms of how things go and I like I mentioned earlier, we've had some good mining deliveries in the past we've seen some of that in Q1, and so I think as you balance out that backlog that gives you an indication.
Steve Hansen: The other markets I would say again the team has done a nice a nice job competing in the general construction equipment category continuing to work hard at that with the supply levels we have.
Steve Hansen: And so youll see a mix there in BCP and compact construction again is very well supplied market, especially in the compact areas with lots of participants and so one might imagine that.
Steve Hansen: That market has been quite competitive now one of the things we have done internally as we transitioned our compact construction.
Steve Hansen: Mark.
Steve Hansen: <unk> from the battlefield rental group for retail sales into the dealership and that transition took part took place throughout the course of last year and what that does is provide us with better coverage and so forth and so I think youre going to see again, some some stronger activity, but also in a in a market that's quite competitive.
Steve Hansen: On its own right. So yes, the only other thing I would add there Steve is just if you look at the disclosure.
Steve Hansen: And in terms of the revenue mix in the quarter.
Steve Hansen:
Steve Hansen: It was 4%.
Steve Hansen: Construction was up 4% mining was actually up 50% in the quarter in terms of equipment. So that's something to consider as you are thinking about your model.
Steve Hansen: Very helpful.
Steve Hansen: Just going back to <unk> question earlier on the product support.
Steve Hansen: I know you referenced the economic uncertainty in the general tone of caution in the market but.
Steve Hansen: Do you have a sense for whether activity levels or utilization of the fleet at your customers is down as well I know you've got some larger new packages out there that are consuming parts, just yet, but just trying to understand how much that utilization rate might have changed in the fleet for the customers whether that's.
Steve Hansen: Whether that's going to continue ultimately through the balance of the year.
Steve Hansen: Yeah, I think I would say you sort of touched on it there in your comments, Steve I think a big part of it has to be like I would say, it's two or three factors. One is broadly I would say activity has been.
Steve Hansen: Fairly flat in the sense that we talked a little bit about you know in the past about in our key markets.
Steve Hansen: Lack of affordable housing and infrastructure projects, it's been a little bit slower to develop although there's certainly a requirement for some significant investment in infrastructure and in that supporting.
Steve Hansen: And everything that goes into a like.
Steve Hansen: Immigration and things like that so we do see that coming over time, but I think more importantly, I think what youre seeing outside of same machine hours, which we learned that quite carefully as you know.
Steve Hansen: As we talked about over the last couple of years, we have seen.
Steve Hansen: Some some good new product sales and as those new products are put to work. It does take some time for them to accumulate hours and get to a stage, where we start to see higher consumption on parts and so forth and so we see a little little stronger labor supply at times doing preventative maintenance for example versus <unk>.
Steve Hansen: Component replacement and repair so I think that that's a factor you would see within those numbers as well just.
Steve Hansen: Just go back to the comment that.
Steve Hansen: That I made earlier and Mike's made as well Steve.
Steve Hansen: As kind of we think about the long term, we always think about the long term as opposed to a quarter this quarter that quarter.
Steve Hansen:
Steve Hansen: Ability in our government, assuming we get a trade deal with the U S.
Steve Hansen: Our all of our governments across the country are talking about infrastructure spend very significant infrastructure and residential housing been in mining construction, but you name. It so the long term.
Steve Hansen: Economic backdrop, assuming all of these things come to fruition is positive.
Steve Hansen: Yes, no doubt looking forward to hoping a couple of things going it is there just as a related question do you slow down the tech.
Steve Hansen: As in any facility at this point just to sort of manage it with the demand side or how do you think about that part of the business.
Steve Hansen: Yes, I mentioned I mentioned in my comments, Steve that we continue to hire technicians I would say that in this market again, we're what we're trying to rebuild the team has done a nice job we've talked about.
Steve Hansen: Our expense levels, and so forth and that they managed our team has managed that quite well part of that obviously has.
Steve Hansen: Managing the productivity of our tax the build hours training and all those types of things and you know what I would say is we continue to actively hire.
Steve Hansen: In the marketplace I think we're monitoring that carefully, though and we're targeting that.
Steve Hansen: <unk> like more senior technicians in certain markets to make sure that we continue to not only cover our natural retirements and things like that that we always have with.
Steve Hansen: I will say in the dealership with over 2000 tax, but also just where we do have requirements in key markets, where I would say that activity has continued in areas where were well supplied or say for example in our premises and so forth, we will taper that back a little bit at times, just because we wanted to make sure we have the right.
Steve Hansen: Composition of the workforce.
Speaker Change: Okay very good thanks.
Steve Hansen: Thanks.
Steve Hansen: Yeah.
Steve Hansen: Thank you.
Speaker Change: There are no further questions at this time I would like to turn the call over to back to Mr. John Doolittle. Please go ahead Sir.
Speaker Change: Okay. Thank you very much angeline. Thanks, a lot everyone for your participation in the call today.
Speaker Change: Before concluding the call I'd like to remind our listeners that are.
Speaker Change: Annual General meeting of shareholders will be held today at 10, a M. Eastern it's an in person events being held at the Navajo Novo Novotel Hotel 200, bass Pro Mills drive and barring, Ontario and for those unable to attend in person a recording of the meeting will be available through <unk> website.
Speaker Change: Tom on Dot Com and that concludes our call. Please be safe and have a great day. Thank you very much. Thank you everyone.
Hello, I'm, sorry, Hello, Youre still there John.
Speaker Change: Yes, yes, John I do apologize there was a quick hands.
Speaker Change: <unk> for the question is it a K to accommodate for that.
Speaker Change: Sure.
Speaker Change: Yes, I do apologize it was a sudden hendry so.
Speaker Change: Let me call on Maxon.
Speaker Change: Do you have with National Bank financial Please go ahead great.
Speaker Change: Thank you.
Speaker Change: Good morning, I'm not sure what happened on the phone there, but I just had a question in terms of capital deployment priorities right. Now obviously, you have been a bit more active on CIB.
Speaker Change: But just.
Speaker Change: Curious around what you guys are thinking, especially whether it's your questions at the moment.
Speaker Change: Yes.
Speaker Change: It Hasnt changed much in terms of our priority same things.
Speaker Change: Continue to invest in organic growth.
Speaker Change: The dividend Mike talked about the 52 dividend we are in a bit more active and NCI D and we will continue to monitor that it's a tool in the toolbox.
Speaker Change: And fourthly, M&A, which you've seen we've been reasonably active over the last couple of quarters. So really no change in our thinking there as we've talked about we'll we'll monitor our capital investment in rental and that sort of thing quarter by quarter.
Speaker Change: But but no real change in philosophy, we're thinking about the long term here.
Speaker Change: Alright, and then just one quick question on power.
Speaker Change: Obviously positive commentary overall and do you mind, maybe differentiating between.
Speaker Change: It kind of like what's happening on the standby side of things in your initiatives on the cooling side.
Speaker Change: If things maybe just any comment there.
Speaker Change: Yes.
Speaker Change: Yeah, no. Thanks for that thanks for that matter. So I think like we mentioned and you sort of touch on.
Speaker Change: <unk> for example, indirectly in that comment and I think as we look at the power side, where we're seeing some interest in that space I would say both in standby power for data centers and other applications ABL plays a part in that because theres a packager in it.
Speaker Change: The enclosures that go around the standby generation and so.
Speaker Change: We're certainly seeing good interest in the U S markets through the dealer network for example, and in Canada.
Speaker Change: Not as well developed.
Speaker Change: I'd say on the heating and cooling side, we've talked a little bit on that certainly simcoe can play a part in those markets I think one of the keys, there, though is working with those.
Speaker Change: Those in the datacenter space for example, and as they develop their designs.
Speaker Change: For their facilities to have.
Speaker Change: To be able to bid on those opportunities get designed in which takes time.
Speaker Change: It's still early stage in Canada by far.
Speaker Change: And it's something that we're.
Speaker Change: We're keen to look into it as we develop our presence.
Speaker Change: With the ABL business downhill.
Speaker Change: That's great. Thanks, so much.
Speaker Change: Thanks, Matt.
Speaker Change: Thanks Angela.
Speaker Change: Thank you we have another one.
Speaker Change: Hey, Jonathan Goldman with Scotia Bank. Please go ahead Sir.
Jonathan Goldman: Hey, good morning, guys. Thanks for squeezing me in just a couple from me.
Speaker Change: What is the lag time between when a new piece of equipment is delivered and when it starts requiring products a quarter consumption of parts.
Speaker Change: Yes. It does vary by product as you can imagine Jonathan I think for example, if you think of mining applications in St large trucks haul trucks.
Speaker Change: It could be a couple of years, even though when you think of the application those trucks are running very hard seven by 24, but quite resilient investments and so you know we tend to we tend to see consumption outside of preventative maintenance and so forth pickup as they approach the third year views say 253 years.
Speaker Change: Beyond.
Speaker Change: I think when you look at some of the other classes of equipment and it could be a little earlier in terms of.
Speaker Change: The hours on the machine, but also keep in mind that the utilization of that equipment is less than you'd see in the mining environment and so.
Speaker Change: Not not unusual to see it in the round it in that two year period, where you start to see.
Speaker Change: Other types of consumption or unplanned.
Speaker Change: Requirements right.
Speaker Change: No very interesting color and I guess my second question is how are you thinking about any potential impacts of higher steel and aluminum prices as a result of recent announced tenants.
Speaker Change: Yeah, I would say again, we wouldn't want to speculate too much on especially specific to aluminum I think.
Speaker Change: Obviously.
Speaker Change: We're monitoring that in terms of our customers and.
Speaker Change: Think of our mining segment and also their customers those in the fabrication side of things over time.
Speaker Change: Again, we're we're monitoring it as we go forward a lot of our equipment as you know has still componentry and so forth and so certainly I think that has to work its way through the supply cycle and through our suppliers over time.
Speaker Change: Perhaps less so in that sense right.
Speaker Change: No that's great color I appreciate it guys. Thanks for taking my questions.
Speaker Change: Jonathan.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yes. Thank you for your accommodating the questions. There are no further questions at this time and I will be turning the call over to Mr. John Doolittle. Please go ahead Sir.
Speaker Change: Yes.
Speaker Change: So I already think everybody and reminded folks of the AGM. So I think that's it for us. So thank you very much Greg be safe everyone. Thank you for your time.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Yes.