Toromont Industries Q4 2023 Earnings Call Transcript

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Provided by Quartr
February 14, 2024

Key Takeaways

  • Toromont reported Q4 operating income down 3% year-on-year but up 5% excluding property gains, with full-year revenue up 12% and net earnings from continuing operations rising 18% to $6.43 EPS.
  • The Equipment Group delivered Q4 revenue +9% (YTD +12%), led by new equipment +19% and rental +7%, though Q4 gross margins fell 150 basis points amid competitive mix and higher costs.
  • CIMCO posted Q4 revenue +2% (YTD +13%) and product support revenue +14% in Q4, driving a 220-basis-point margin gain YTD and a 49% increase in full-year operating income.
  • Consolidated backlog of $1.2 billion (Equipment $957 m, CIMCO $255 m) remains healthy with ~85–90% expected to convert to revenue in 2024, while management monitors supply chain, inflation and construction market softness.
  • Strong balance sheet and capital discipline were underscored by net debt/total capital −17%, over $1 billion in cash, an 11.7% SG&A ratio, $37.5 million in share buybacks and an 11.6% dividend increase.
AI Generated. May Contain Errors.
Earnings Conference Call
Toromont Industries Q4 2023
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good morning. Today is Wednesday, February 14, 2024. Welcome to the Toromont Industries Limited 2023 4th Quarter and Full Year Results Conference Call. Please be advised that this call is being recorded Your host for today will be Mr. John Doolittle, Executive Vice President and Chief Financial Officer.

Operator

Please go ahead, Mr. Doolittle.

Speaker 1

Thank you. Thank you, Lara. Just double checking that you

Operator

Yes, sir. You sound great.

Speaker 1

Okay, fantastic. Good morning, everyone. Thank you very much for joining us today to discuss Toromont's results for the Q4 and the full year. Also on the call with me this morning is Michael McMillan, President and CEO. Mike and I will be referring to the presentation that is available on our website.

Speaker 1

And to start, I'd like to refer you to Slide 2, which is highly entertaining and informational and it includes the advisory on our 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 3. Please also note that our discussion today will be focused on continuing operations unless otherwise noted. Mike, over you to start us off.

Speaker 2

Great. Thank you very much, John, and good morning, everyone. We're pleased with the good operating and financial performance, which our teams delivered in the Q4 and throughout 2023, Ending the year in a strong financial position. We continue to monitor supply and other market and economic variables. The Equipment Group continued to execute well delivering against the opening order backlog in line with customer schedules and improvement in inventory flow coupled with good growth in rental and product support activity as well as continued focus on expense control.

Speaker 2

Simcoe revenue and bottom line improved for the year on good execution and higher product support activity. Across the organization, we continue to navigate through evolving economic conditions and remain committed to our operating disciplines, driving our aftermarket strategies and delivering customer solutions. 2023 has had its share of challenges. However, over the last couple of years, we've made some key organizational changes, which has enabled our team to manage well through post pandemic challenges in a variety of economic dynamics we have not seen for some time. Our team has executed very well And although there is always room to continuously improve, I'm proud of our team, how they are supporting our customers and remain focused on building our business for the future.

Speaker 2

Turning now to our financial results highlighted on Slide 4. I want to start off by noting that within the Q4 of 2022, many of you may recall that a Quebec property was sold resulting in a pre tax gain of approximately $17,700,000 which was $15,400,000 after tax or approximately $0.19 per share, where in Q4 of 2023, we had an after tax gain of just over $1,000,000 for a property sale. This impacts the comparability of our results in both the quarter year to date. 4th quarter results demonstrated strong Focused execution from our teams. While operating income decreased 3% in the quarter, excluding property gains in both years, Operating income increased 5%.

Speaker 2

Higher revenues were largely offset by lower gross margins. Higher revenue and good expense control drove positive results in the equipment group with strong year end customer demand. Results at CIMCO were moderately down from the same period last year with continued growth in product support activity levels partially offset by higher expenses and lower gross margins. For the full year 2023, the company delivered strong bottom line results, reflecting good execution on our opening backlog, customer demand for products and services and favorable operating leverage. Higher revenue in both the Equipment Group and CIMCO, lower relative expenses and higher interest income on cash balances were partially offset by lower gross margins.

Speaker 2

Rental and product support revenue increased on higher customer activity, utilization of the larger fleet and improving execution. Year end backlog was healthy and relatively unchanged for the year. Year over year at $1,200,000,000 and reflects strong 2023 order activity. Equipment inflow through the supply chain continues to generally improve. On a consolidated basis, revenue increased 9% in the quarter was up 12% for the year.

Speaker 2

Equipment and package sales increased in both the quarter and on a year to date basis with good increases in both groups in the quarter. Product support and rental revenue increased in both the quarter and on a year to date basis. Product support increased on stronger demand and technician availability with work in process levels remaining relatively high, while rental revenue increased on a larger fleet and higher utilization. Operating income was down 3% in the quarter and up 14% year to date reflecting the lower property gains in the quarter versus the comparative period and lower gross margins partially offset by higher year to date revenue. On a full year basis, expense levels decreased to 11.7% of revenue.

Speaker 2

Expense management continues to be an area of focus and discipline. Net earnings from continued operations decreased 3% in the quarter, again reflecting the property gain last year and increased 18% for the full year versus 2022. Basic earnings per share was $1.87 in the quarter $6.43 for the year from continuing operations. General economic and macroeconomic factors appear to be stabilizing. However, factors such as inflation, Higher interest rates, geopolitical instability and the Canadian dollar movements continue to challenge the business as well as influence customer buying patterns.

Speaker 2

We are proud of our team as they remain committed to disciplined execution of our diverse operating model, adapting to changes in the business environment, while remaining focused on executing solutions for our customers. Activity levels overall remain sound healthy with a healthy backlog, which is supportive of near term results. As noted in Q3, we've seen some softening in construction markets, which is reflective of the current economic environment. However, as one would expect, we will continue to monitor market activity levels while we focus while we follow our disciplined approach, delivering results for our customers, suppliers and employees. Additional efforts continue to focus on managing our discretionary spend and actively recruiting technicians to effectively support our critical aftermarket service strategies and value added product offering over the long term.

Speaker 2

With our solid order backlog and balance sheet, we are well positioned as we enter 2024 and we'll continue to support the business through thoughtful capital deployment. John, I'll turn it back over to you for some more detailed comments on the group results.

Speaker 1

Very good. Thank you, Mike. Let's start with the equipment group on Slide 5. Revenue was up 9% in the quarter and 12% year to date. Taken together, total new and used equipment sales were up 15% in both the quarter and the year.

Speaker 1

This growth reflects inflow and delivery of equipment against the order backlog coupled with end customer demand. New equipment sales increased 19% on the quarter Good deliveries in the construction, mining and power system markets, while material handling markets were lower. Year to date, new equipment sales increased 20% across all market segments and regions as the supply of equipment improved. Used equipment sales decreased 7% in the quarter and 4% year to date. Used equipment sales from trades and purchases have been lower in the current year as supply and demand dynamics have shifted.

Speaker 1

Used equipment sales also include rental fleet dispositions, which have increased in the current year after period of constraint, reflecting fleet management decisions as well as the availability and cost of new equipment. In the quarter, Total new and used equipment sales increased 15% in construction, 13% in mining, 22% in power systems and were 8% lower in material handling. Rental revenue was up 7% in the quarter, 8% for the year, reflecting higher market activity, strong execution in an expanded heavy and light equipment fleet. Growth was experienced in most areas for the year with the following increases: light equipment rentals up 7%, heavy equipment rentals up 11%, Power rentals up 12% and material handling up 3%. Renewal fleet was at $81,100,000 versus 44.7 a year ago and is starting to return to more typical levels.

Speaker 1

Product support revenue grew 4% in the quarter and 10% in the year with increases in both parts and service revenue across all markets and most regions. Looking at specific markets For the year, growth was as follows: Construction up 7%, Mining up 13%, Power Systems up 17% and material handling up 8%. Gross profit margins decreased 150 basis points in the quarter and 50 basis points in the year compared to 2022. Equipment margins were lower in both the quarter and the year, mainly reflecting competitive market conditions after a period of constrained supply coupled with unfavorable sales mix, higher proportion of new versus used equipment. Product support margins were slightly lower in the quarter, but higher for the year compared to 2022.

Speaker 1

We continue to focus on operational efficiencies. Rental gross margins were higher in the quarter, however, lower for the full year compared to 2022. Rental utilization is improving after a large upload to the fleet earlier in the year. Rental margins are somewhat challenged by higher recent acquisition costs in part due to a weaker Canadian dollar and higher maintenance and repair costs, sales mix was unfavorable in both periods with a higher proportion of equipment sales to total revenue. Selling and administrative expenses were up 15% in the quarter and 8% for the year.

Speaker 1

Gains on property dispositions reduced expenses by $1,500,000 in the Q4 of 'twenty 23 $17,700,000 in the Q4 of 'twenty 2. Excluding these gains, expenses decreased $2,500,000 or 3% in the quarter, reflecting good focus on cost controls. Compensation costs were largely unchanged with good cost control focus offsetting costs in support of higher activity late levels and inflationary pressures. Allowance for doubtful accounts decreased $1,700,000 in the quarter and 7.3% on a full year basis, reflecting good collection activity and improved aging of receivables. Selling and administrative expenses were lower at 11.3% as a percentage of revenue versus 11.8% last year.

Speaker 1

Operating income decreased 2% for the quarter and increased 12% year to date. For the quarter, the decrease mainly reflects the larger property gain in the prior year along with the lower gross margins in the current period. For the year, the increase reflects the higher revenue lower expenses offset by the lower gross margins. Bookings increased 53% in the quarter and 14% year to date. Customer demand improved late in the quarter, mainly in the construction sector, which was up 94%, which had been slower throughout the year.

Speaker 1

Power Systems and Mining bookings were also up 32% 14% respectively, while Material Handling was down 12%. For the full year, bookings were as follows: Mining was up 66%, Power 23% and Construction 1%, partially offset by lower material handling bookings, which were down 21%. Backlog of 957,000,000 was 7% lower than last year reflecting improving equipment delivery for manufacturers as well as planned deliveries against customer orders. Approximately 90% of the backlog is expected to be delivered in 2024, but of course subject to timing differences, it's depending upon vendor supply, customer activity and delivery schedules. Now to Slide 6, in CIMCO, Revenue was up 2% in the quarter and 13% on a full year basis with the progress on construction schedules strong order backlog and good customer demand.

Speaker 1

Package revenue decreased 8% in the quarter as equipment supply issues and customer delays have for some projects into 2024. Recreational revenues were up 25%, but were more than offset by lower industrial down 25% against the strong comparative. In Canada, revenue is down with stronger recreational activity being offset by weaker industrial activity. In the U. S, package sales were also down, mainly on lower recreational activity.

Speaker 1

For the year, package revenue was Package revenues were up 8% with increases in both markets. Industrial market revenue was up with higher activity in the U. S. Offset by lower revenue in Canada. Recreational market revenue increased as higher revenue in Canada was offset by lower revenue in the U.

Speaker 1

S. Product support revenue improved 14% in the quarter and 18% for the year with increases in both Canada and the U. S. Activity levels have continued to improve on good customer demand and the increased technician base. Margins were down 100% in the quarter 100 basis points in the quarter versus a comparable period last year as lower product support margins were only partially offset by higher package margins and a favorable sales mix.

Speaker 1

On a year to date basis, gross profit margins increased 220 basis points versus last year. Good project execution and the nature of projects in process along with favorable sales mix all contributed to the increase in margins. Selling and administrative expenses were up 9% in the quarter and 11% in the year. Bad debt expenses decreased $700,000 in the quarter and increased $2,000,000 for the year. Overall, we remain focused on collection activity and monitor closely our aged receivables.

Speaker 1

Compensation costs increased due to an increased headcount, annual salary increases and higher profit sharing accruals with a higher earnings level. Other expenditures such as travel and training expenses increased to support activity and staffing levels. As a percentage of revenue, selling and administrative expenses improved 16% in 2023 versus 16.3% in 2022, reflecting continued focus on expense control. Operating income decreased $1,700,000 for the quarter as the higher revenue was dampened by lower gross margins and higher SG and A. Operating income increased 49% for the year, reflecting improved gross margins and higher revenue.

Speaker 1

Bookings increased 24% on the quarter on higher orders in Canada and lower orders in the U. S. Timing of decisions Receipt of orders can vary from period to period. On a full year basis, bookings were up 19% at 246,000,000 With a 35% increase in Canada and an 18% decrease in the U. S, industrial bookings were up 58% and recreational orders down 30%.

Speaker 1

Backlog of $255,000,000 was 29% higher versus last year with an increase in the industrial market on good order intake, partially offset by a decrease in the recreational market. Approximately 85% of all the backlog is expected to be realized as revenue in 2024. However, again, this is subject to construction schedules and potential changes from supply chain constraints. On Slide 7, I'd like to touch on a few key financial highlights. Investment in non cash working capital increased 20% versus a year ago, mainly driven by higher inventory levels.

Speaker 1

Inventory levels are higher than the prior year driven by a number of factors including a strong backlog, delivery timing, variability in the supply chain for both equipment and parts, coupled with foreign exchange and inflation. Accounts receivable continue to receive focus and while DSO remained flat at 42 days compared to the prior year, we are closely managing the aging of our receivables and credit metrics. We ended the year with ample liquidity including cash of over 1,000,000,000 an additional $460,000,000 available to us under existing credit facilities. Our net debt to total cap was negative 17%. Under our NCIB program, the company purchased and canceled 353,000 common shares for $37,500,000 to date for the year.

Speaker 1

These purchases are reflective of good capital hygiene intended to help mitigate option exercise dilution. Overall, our balance sheet remains well positioned to support operational needs and we're prepared to manage challenges related to economic variables and business conditions. We will continue to exercise the operational and financial discipline as we evaluate investment opportunities that may develop over time. As you know, Toromont targets a return on equity of 18% over a business cycle. Return on equity decreased to 22.8% to 23.3% for 2022, while our 5 year average is 20.8%.

Speaker 1

Return on capital employed was 30.1%, down from 32.1% last year. Both metrics decreased year over year reflecting higher investments in working capital. And finally, as announced yesterday, the Board of Directors increased quarterly dividend by 11.6 percent to $0.48 per share. Farmland has paid dividends every year since 1968, And this is the 35th consecutive year of dividend increases. We continue to be proud of this track record and our disciplined approach to capital allocation.

Speaker 1

On Slide 8, we conclude some takeaways as we look forward to 2024. We expect the business environment to be influenced by a number of factors that are in play, some of which include the evolving dynamics of global supply chain, improving availability, Inflationary and macroeconomic trends and managing customer credit risk along with growth opportunities, all of which can overshadow normal seasonality and customer buying patterns. We continue to proactively manage, proactively monitor developments closely and take actions that we believe are appropriate. As one would expect, we consistently focus on key priority areas, including safe, operational execution, serving and supporting our customer requirements and our disciplined approach to capital allocation as we focus on building the business for the long term. Our backlog remains well positioned.

Speaker 1

Care must be taken to monitor customer buying patterns and preferences. In terms of technician hiring, we continue to actively recruit And this remains an essential focus to support growth in our aftermarket and value added product service offerings. Operationally and financially, we are well positioned with ample liquidity and strong leadership, disciplined culture and focused operating Models. You want to finish the yes. We appreciate our entire team's exceptional effort and commitment to continue to support our customers and deliver value for our stakeholders.

Speaker 1

Thanks also to our valued customers, supply partners and shareholders for their continued support. And so that concludes our prepared remarks. And operator, if we could turn it back over to you and we're all set to take questions.

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. We have our first question coming from the line of Cherilyn Radbourne from TD Cowen. Please go ahead.

Speaker 3

As you've noted, you've seen some softness in construction and yet your Q4 bookings were quite strong in part due to late quarter strength in construction. So I'm curious what you make of that? Do you attribute that to a late year budget flush or other factors?

Speaker 2

Yes. Thanks for the question, Cherilyn. I think a couple of things I would say is, as we've been talking about, first of all, I'd say, Availability of equipment inflow for certain models has improved a fair bit. And I think also it's not unusual as you know for us to see a little bit of a year end buy depending on where customers are positioned and so forth. And I think we want to be cautious on that.

Speaker 2

The third thing I'd mention is the team just did a tremendous job working with our customers and moving products through our supply and getting them ready for distribution. And so it was a considerable effort. And It's a number of factors. I would say again, we when we look at the construction markets, We would position it conservatively just given the activity levels again. I don't think a month makes a trend, but we I would say it was a great finish.

Speaker 2

But again, we have to monitor things as we go into the Q1 here and be mindful of the activity that we see in front of us.

Speaker 3

Okay. And then I was hoping you could give us some color on the strength that you're seeing in power systems specifically and the extent to which engine supply is a constraint on that activity if at all?

Speaker 2

Yes, it's a good question. I think on one hand, I would say the team has done a really nice job. There's been a number of changes with some leadership and the team has executed really well in the past year. And so a lot of focus on that business over the last go well. We had a couple of nice projects come through, which we're working through for backup power and standby and peak shaving and so forth.

Speaker 2

And so those were in progress. But to your second part of your question, I think is important in that, I would say when we look at availability of equipment, one of the areas that certain models are constrained in still or have longer lead times, put it that way, would be on some of the large bore engines in areas like that. And so, again, if you look at our order backlog, You can see that power makes up a fairly significant portion of the equipment group sort of backlog, right? And so that's promising as well, but lead times are still relatively extended.

Speaker 3

That's my 2. Thank you.

Speaker 2

Great. Thank you, Charlotte.

Operator

We have our next Question coming from the line of Yuri Lynk from Canaccord Genuity. Please go ahead.

Speaker 4

Hey, good morning guys.

Speaker 1

Hey, good morning. Hey, good morning.

Speaker 4

Just on your SG and A, excluding the gain on the real estate, That was a really good quarter. I mean, that's the lowest ratio to revenue on SG and A that I've I think that I've ever seen out of the company. Was there anything unusual in the SG and A, whether it be LTIP expense or anything that would have explained Such a really low ratio relative to revenue?

Speaker 1

No, there was nothing unusual there. I would just say, Having been here for over 3 months now, the company is very focused on managing costs And that continued in the Q4

Speaker 5

and that's

Speaker 1

what you see in the results.

Speaker 2

And you mentioned Yuri just in terms of the ratio of revenue, again strong revenue numbers, right? And so beyond the discipline which John mentioned, I think That's a factor as well, right, when you see had a quite a strong quarter. Yes. And so that's certainly blends down the ratio.

Speaker 4

Okay. Good. Nice to see. For my second one, maybe just some clarity. I mean, it sounds like we're getting back to Typical seasonality where Q1 would normally be the weakest quarter of the year.

Speaker 4

But then I look at your inventory levels and your WIP levels and I do see the opportunity for another unusually strong Q1. So how do I square that? Where are we in terms of getting back to a typical seasonal year?

Speaker 2

Yes, it's a good question. I would still say that we're seeing the effects of some of the macroeconomic factors we continue to reference there. You can't get away from normal seasonality and weather patterns here in Canelago. It's been a little warmer and that sort of thing. But I think We are encouraged, I guess, you'd say in the sense just in terms of the flow and the availability.

Speaker 2

Some constrained units still exist in the supply chain, which we'll continue to work through. But I would I think just broadly when you think of the marketplace, we've mentioned constructions a little bit softer. Now it's we've come through several years of Pretty robust activity, so comparatively speaking. When you look at our other parts of the business, I think one of the benefits we have in the mining side, for example, is longer term order books and so forth and working with customers continue to work on that side of the business. And so that has its own unique cycle as well.

Speaker 2

And so that's been a benefit to us as we look back and as we complete some of the orders in the backlog as well.

Speaker 4

Okay. Another nice quarter guys. I'll turn it over.

Speaker 1

Okay. Thank you. Thank

Operator

you. Our next question comes from the line of Jacob Bout from CIBC. Please go ahead.

Speaker 6

Hi, good morning, Mike and John. This is Rahul on for Jacob.

Speaker 2

Great. Good morning,

Speaker 1

Rahul. Good morning, Rahul.

Speaker 6

Good morning. So I had a question on margins. Notice that the mix of mining equipment in backlog is higher this year, but Suspect that product support and rental may be a bigger part of the mix this year as well. So lots of moving parts as always, but just curious to get your thoughts on how you see overall margins evolving this year?

Speaker 2

Yes. No, thanks for the question. Maybe I'll start with that and John can add color. I think, again, we would always direct you to the factors affecting margin. You look at our margin over the course of the year and because we provide you with You mentioned mining.

Speaker 2

Again, we've had in our backlog over the course of all of last year and probably back into 22, some nice order bookings in the mining side of the business. Now they have longer duration to fulfill those orders and so forth and they can be a little bit lumpy. But when you look at the order book today, We've got in the backlog, for example, mining is about 38%, I think, and constructions 25% to 30%. So generally, you're going to see different profiles there. I think when it comes to margin though and you Think through it, one of the things we've been talking about is a little bit of softness and better availability for everybody in the industry.

Speaker 2

And so we anticipate a little bit coming off a little bit on some of the historic high margins in certain segments. But offsetting that you also need to think about as you mentioned the mining side used equipment is a little bit more targeted coming off some stronger numbers as well, especially with availability on new. But also on the rental side, for example, when we look at rental activity levels, utilization have been holding in nicely even with higher acquisition costs and product support mix, as you touched on, I think is the other factor to keep in mind the mix of product support will also affect our gross profit in terms of that ratio to total revenue. So keep that in mind too as we go through quarters. Again, 1 quarter, we always tend to look at it longer term Because some of there can be some lumpiness when you think of even on the CIMCO side, mining side and so forth.

Speaker 6

Great. Thank you. And then on the rental side, so high single digit growth in 2023 following A couple of years of pretty strong investment into expanding the fleet now. Do you expect this sort of growth rate to continue this year? And what What sort of investment are you planning into the rental fleet this year?

Speaker 2

Yes. A couple of things there. I would say, you're right, we have come off of higher investment. And so when you look at our disclosure around CapEx, you'll see 2 things actually. You'll See higher investment this year, and you'll also start to see a higher level of disposal, which is In our used, you'll see some rollouts and we do disclose rental proceeds and so forth from disposals.

Speaker 2

And so you'll see that ticking up a little bit as we Turn over the older fleet and replace it with new and a higher acquisition cost. I think, again, we don't provide a lot of guidance certainly, but we I think John would concur as we look at our investment profile, the rental business on its own, the Quebec and Maritimes market, which we're still investing in and building Market share there and our presence in particular in that market, but we're always looking at different opportunities and different product lines to complement our Allied fleet. And so we were we would say that generally speaking what you're seeing in the financials for 2023, We'd be pretty consistent for the next year or 2.

Speaker 1

Yes, I agree.

Speaker 6

Okay. Very helpful. We'll leave it there. Thank you.

Speaker 1

Thank you. Thank you.

Operator

We have our next question from the line of Michael Doumet from Scotiabank. Please go ahead.

Speaker 7

Hey, good morning, Mike and John.

Speaker 1

Hey, good morning, Michael.

Speaker 7

Good morning. So to follow-up on Yuri's SG and A question, strong Cost containment in the quarter and the year and really I'd say in the last couple of years. Maybe the question is, can you call out If there's been any specific initiatives that the company has undertaken to help drive that And how we should think about the potential for more operating leverage going forward?

Speaker 2

Yes. A couple of thoughts there to share with you, Mike. I mean, number 1, As you know, we tend to manage our cost structure and very consistently through the cycle. And so I would say a couple of things. We owned about 86% of our real estate.

Speaker 2

And so when you look at our cost structure, it's relatively fixed in that sense. And so you don't see our numbers moving due to moving in and out of leased properties. We like to own our properties. So that's a fixed Our occupancy and maintenance costs are pretty fixed. I think what you also see in there is intentional hiring and so forth.

Speaker 2

So when we're adding to Our team were looking at the long term requirements and not over or under reacting. So that's pretty consistent approach as well. I think The discretionary spend areas when you look at travel, entertainment and so forth, we've learned as we've always said, we've learned quite a bit through the pandemic. We are Very actively going out and meeting with customers. However, we're trying to leverage what we've learned using different means like electronically to touch customers And just also just trying to meet customers and how they prefer to interact.

Speaker 2

And so that's helped us as well balance a little bit of the spend even with inflationary factors when you consider travel and fuel and so forth. And so I wouldn't say there's anything in particular. You should just expect us to continue to aggressively manage our discretionary spend, but also make sure that we're providing the appropriate support.

Speaker 7

Got it. Helpful color. Obviously, really impressive. Maybe moving over to the part sales, that moderated in terms of pace of growth versus the last couple of quarters and I presume much of the slowdown relates to tougher comps and maybe some of the price increases we got in 2022. I guess the question is, did you get a sense at all Your customers may be destocking somewhat on parts given they're also probably adjusting to the better supply chains as well and Anything we should consider going forward?

Speaker 2

Yes, I think you hit a couple of interesting items there, Michael. I would say it's hard to gauge When you think of customers destocking, like I guess what we did see early in the pandemic is in some areas, it's like the toilet paper anomaly where Everybody is just trying to protect the business and stock up where they think they need to. And so with availability, we certainly have seen We have seen some of that activity. Again, it's not something of great visibility to, but as we have monitored our parts flow, We start to see the requirements normalizing to a certain degree. And so I think that will ebb and flow a little bit.

Speaker 2

There's more confidence in the supply chain in Gone Are the Days I think at this point where we're scrambling for even just filters and other things. So that should it I would say we saw a few bumps last year just as the supply chain improved and The parts volume ebbed and flowed. I think the other piece though really importantly is when you look at like we've talked a little bit about construction activity. And so as that's moderated and you mentioned coming off some pretty active and tough comps, I think that will start Show some normalization on the product support side as well.

Speaker 5

Thanks. Thanks Mike.

Speaker 2

Thanks Mike.

Operator

Our next question is from the line of Steve Hansen from Raymond James. Please go ahead.

Speaker 8

Yes, good morning guys. Thanks for the time. Just a quick one to follow-up on Cherilyn's earlier question. You described the construction picking up late into the period. Is that been something that's continued into January February?

Speaker 2

So we don't As you know, Steve, we don't comment on guidance or current quarter until it comes out. And I would say it's again, it's early to tell. I would say it's more a function of availability, some year end activity by our team, as we mentioned, doing a tremendous job Closing out the year and also just our customers evaluating their own financial situation looking at what they need to have for equipment and their year end planning process, right?

Speaker 1

Yes. I would just add like Steve, I think we talked about this on the Q3 call. Mike and I are watching this very, very carefully every week because to monitor whether there's a trend there and we'll continue to do that. Mike said, we're not going to provide guidance on the quarter, but we're watching it very carefully like everybody is. So thank you for the question.

Speaker 8

Appreciate that. And just one quick follow-up is just around the rental market. I think the activity increased in the quarter, which is good to see, but you did note that heavy equipment rentals handling were both down notably in the period. Is there anything to read into that as being a continued trend? Or is it just something that you're seeing as a one off in the quarter?

Speaker 2

Yes, I think it's probably more of a quarterly phenomenon. I think, again, a little bit less activity in construction. However, we are Seeing some good results in other areas. I think the other thing to keep in mind is just the broader economic Factors, when you think of interest rates, inflation, timing of projects, customers are going to rent depending on the seasonality as well. We've seen, for example, we're all aware of the weather patterns and things like that.

Speaker 2

And so as you can imagine, we're not Renting a lot of heating maybe this week and going into next we'll start to see more of that. But heating propane would be a little bit lower. Having said that, we'll The ground is a little easier to work with and so there'll be other opportunities there too. So it's really a function of, I'd say, the broader macro piece, but What we're seeing here in terms of weather patterns and just generally activity levels in construction as everybody monitors the economic factors, interest rates and so forth.

Speaker 8

Appreciate it, Tim. Thanks.

Speaker 1

Thank you. Thanks, Steve.

Operator

Our next question is from the line of Sabahat Khan from RBC Capital Markets. Please go ahead.

Speaker 5

Great. Thanks and good morning. I guess just one, you know, it took quite a bit of color by end market, but I was just wondering if you dig a little bit deeper into some of the commentary around the construction markets. I think at some point last year, I think you commented about the housing market moderating. Can you maybe just talk a little bit about regions and across some of the sub segments within construction, what you're seeing there, whether it's on the demand front or just the outlook?

Speaker 2

Yes. Thanks, Eb. I think broadly, if you step back, I would say, on one hand, we have Pretty diversified customer base, right? We're blessed with the GTA Montreal's major markets and across the entire space, whether it's road construction, residential, sewer water, a number of various aggregates and support. On one hand, one of the things we've mentioned in the past is we did see and everybody is aware of some of the residential activity has sort of tapered off a wee bit.

Speaker 2

Having said that in some of the markets we serve, immigration policy say in Ontario and different things has been pretty Strong, I think affordable housing, the lack of affordable housing does mean over the long term that One would anticipate there's going to be some good investment there because that's a challenge that we all face. So our customers are there to provide infrastructure in behind some of those But again, as we look, we tend to look at that as a longer term tailwind. And Maybe those are just some thoughts to plant. I think at this point, we're coming off some pretty strong activities in comps. And I think, patiently, we're investing for that longer term view.

Speaker 5

Great. And then just on the product support side, I guess, Particularly some of the other line items here as well like around used. I know you obviously don't give guidance, but broadly speaking kind of the pickup in new, kind of the moderation in used. Just wondering kind of directionally speaking, are these in line with how we should think about the mix as we go forward what we saw maybe in the last quarter or 2 or how are you thinking about how are you planning for kind of inventory and things like that by kind of subs the business lines?

Speaker 2

Yes, a couple of things there, I think. And you hit a couple of key points there, I think, When you look at availability, if you roll back 18 months, team was really active in the used market as we are today. I mean, But it was a different approach in the sense that we were buying packages because of the shortages and we were working with customers. Customer might need a new unit if we can get it. If that's not available in the timeframe they require, we were actively looking for used.

Speaker 2

We had a good consignment business as well and so forth and rebuilds. And so when you think about that and how it's changed, availability is improving, that gives our customers some different options. And so maybe purchase activity is a little bit lower, but we're coming off some pretty strong used comps. And so all that to say it's The used is a little bit down, new is up, and we continue to target products and the alternatives our customers are looking for as well As the rebuild business and our remanufacturing facility in Brad Stone come on middle to latter part of Q2, we'll continue to build that facility as well to make sure that we have the options we need for our customers. So long answer to your question, but I think the mix there is reasonable at the moment.

Speaker 2

I think you have to keep in mind our historic trends And also just when you think of the requirements for our customers, what's ideal for them, right, depending on their utilization And that's a newer used product they're looking for.

Speaker 5

Great. And then maybe just one that, Tapia, we discussed a while ago, but I think your comments around investment in Quebec and Maritimes, is that just sort of is that tied to some of the kind of the last bit of integration there on Hewitt? Is anything major that you wanted to get done there before the pandemic all kind of dealt with? Maybe just a quick update on maybe just the status of kind of The additional kind of Quebec and Maritime territories, where we stand today?

Speaker 2

Yes. No, I would say generally, The team has done a nice job. You mentioned the pandemic. It did pause some of the activity there for a period. We still feel that there's good opportunity there.

Speaker 2

Like we're We've made some management changes there, which is starting to bear some fruit, which we think is great. We have invested heavily in that marketplace. We'll continue to do that in the sense that market penetration, we still feel there's great opportunity. I think just broadly utilization rates, The team has done a nice job improving operational execution in Quebec and the Maritimes, but we still feel that there's opportunity there to improve that aspect of our business. And so I would say the investment and the focus continues as one of the opportunities within the rental side.

Speaker 2

I think the other piece for us too is just continuing across the rental business to look at complementary products that we can offer our customers that we don't today or by market and region, we're always evaluating The demand locally with our decentralized model and just trying to make sure that we have the products and services available for that unique marketplace. So we still feel quite positive that over the long term there's some good opportunity in across the rental market, but in particular in Quebec and Meritimes we still have some opportunity there just to penetrate the market more deeply.

Speaker 5

Great. Thanks very much.

Operator

We have our next question coming from the line of Maxim Sytchev from National Bank Financial. Please go ahead.

Speaker 9

Mike, I was wondering if you don't mind maybe commenting on Quebec, I mean, we've heard some positive data points around Hydro Quebec looking to invest in its capacity over the next 10 years. And I'm just curious to see when you think some of that spending could be spilling over into your new P and L?

Speaker 2

Yes. Good. It's a good question, Max. I guess part of it is I wouldn't speculate. Certainly, longer term investment cycle.

Speaker 2

John and I had heard There's quite a bit of investment going into support expanded infrastructure over the next decade. And so I think broadly speaking, That's an opportunity that our teams will have to work hard to earn their way into. So infrastructure investment, I think also If that also results in some access into some of the resource industry side of things, I mean that could be positive, but longer term duration there.

Speaker 1

Yes, I would agree, Max. We probably heard the same thing you have, which is I can't remember the number, but it's Like $100,000,000,000 plus that needs to go into infrastructure, power infrastructure in Quebec. And I'm sure Ontario will have to do something similar. So, but it's over a long term over the long term cycle.

Speaker 2

So generally a positive tailwind, but I wouldn't speculate on exactly on time. I haven't seen too much detailed information Or any bidding process or anything at this stage for sure. Yes.

Speaker 9

Okay. Fair enough. Thank you so much. And then in your outlook section, gentlemen, you talk about the ability to leverage use of technology, to engage with customers, employees and so forth. I'm just wondering, if you don't mind providing a bit more color, What are you doing there exactly and the potential benefits that ultimately flows down to the P and L?

Speaker 9

Thank you.

Speaker 2

Yes. No, I think certainly digital in our business in general is a focus both for our OEMs including Caterpillar and So in terms of I think the pandemic has forced a lot of folks to adopt technology in a different way. It's given us an opportunity to interface with customers electronically, if you look at what we've been doing, we've talked a little bit about parts online and things like that, which was A great opportunity for us to continue to make it easier for customers to do business with us. Of course, we have the behind it with our branch network. I think we have some other applications for used in online to auction and so forth.

Speaker 2

And so that's sort of the go to market strategies. I think in addition to that, Just broadly with technology, it continues to advance in the equipment itself and provide our customers with more efficiency on their fleets. Whether you're talking about the autonomous equipment we have up at with IAMGOLD at Cote or you think about even just using analytics in a way that we can reach out customers and be more proactive on product support. I think a number of areas there to help drive different segments of our business, whether it's product support or even just like you say, just how we reach our customer more effectively and Just make it easier for them to do business rentals, another piece too that we with our applications and so forth, we continue to advance to a degree. And again, it's to Support how we go to market and how we ideally we're going to be easy to do business with in the rental side, for example, an easier for customers to locate equipment, secure or extend and do other things like that as well.

Speaker 9

Okay. So we're helpful. Thank you so much.

Speaker 2

Great. Thank you, Max.

Operator

There are no further questions at this time. I'd now like to turn the back over to Mr. Doolittle for final closing comments.

Speaker 1

Yes. Okay. Thank you. Thank you, Lara. Just wanted to thank everybody for joining us

Operator

Thank you so much. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask would you please disconnect your lines. Have a lovely day.

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