On February 14, 2024, Toromont Industries Limited (TIH) announced its fourth quarter and full-year results for 2023, demonstrating robust financial and operational performance. The company concluded the year in a strong financial position, with increased revenue and lower expenses contributing to its success. Key highlights include a healthy backlog, disciplined execution, and a focus on managing expenses and recruiting technicians to support aftermarket service strategies. Despite facing macroeconomic challenges such as inflation, interest rates, and geopolitical instability, Toromont is well-prepared for 2024 with a solid order backlog and a strong balance sheet.
Key Takeaways
- Toromont Industries reported increased revenue across its equipment group and CIMCO divisions.
- The company maintained a $1.2 billion backlog at the end of the year, with a large portion expected to be realized in 2024.
- Revenue growth was driven by equipment sales, rentals, and product support activity, despite competitive market conditions affecting gross profit margins.
- Operating income decreased in the quarter but increased for the full year.
- Bookings for the year grew in mining, power, and construction segments, with a decline in Material Handling.
- CIMCO's revenue increased by 2% for the quarter and 13% for the year, with a significant increase in operating income for the year.
- The quarterly dividend was raised by 11.6% to $0.48 per share.
- The company is focusing on cost management and technician hiring to support growth.
Company Outlook
- Toromont expects its business environment to be influenced by supply chain dynamics, inflation, and customer credit risk.
- The company is optimistic about long-term prospects and continued investment in growth opportunities, including a significant investment in power infrastructure in Quebec and potentially Ontario.
Bearish Highlights
- Gross profit margins decreased due to competitive market conditions and sales mix.
- Operating income decreased in the recent quarter.
- Material Handling bookings decreased by 21%, and the backlog was 7% lower than the previous year.
Bullish Highlights
- Bookings and backlog showed healthy growth, with the majority expected to be delivered in 2024.
- CIMCO's revenue and operating income increased significantly for the year.
- The company has ample liquidity with a negative net debt to total cap of 17%.
Misses
- Construction activity has been softer, and the company noted a decrease in heavy equipment rentals and material handling due to broader economic factors.
- The company did not provide specific guidance but is closely monitoring construction activity.
Q&A Highlights
- Executives discussed the impact of macroeconomic factors and normal seasonality on performance.
- The availability of equipment and year-end activities are expected to influence performance in the early months of the year.
- The company is leveraging technology to engage with customers, improve operational efficiency, and make it easier for customers to do business with them.
In conclusion, Toromont Industries Limited has showcased a strong performance in 2023 despite facing various challenges. With a strategic focus on disciplined execution, cost management, and leveraging technology, the company is poised to navigate the complexities of the current economic landscape and capitalize on growth opportunities in the coming year.
Full transcript - Toromont Industries (TIH) Q4 2023:
Operator: Good morning. Today is Wednesday, February 14, 2024. Welcome to the Toromont Industries Limited 2023 Fourth Quarter and Full Year Results Conference Call. Please be advised that this call is being recorded and all lines have been placed in mute to prevent any background noise. Your host for today will be Mr. John Doolittle, Executive Vice President and Chief Financial Officer. Please go ahead, Mr. Doolittle.
John Doolittle: Thank you. Thank you, Lera. Just double-checking that you can hear me, it’s okay?
Operator: Yes sir. You sound great.
John Doolittle: Okay. Fantastic. Good morning, everyone. Thank you very much for joining us today to discuss Toromont’s results for the fourth quarter and full year. Also in 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 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 to you to start us off.
Mike McMillan: Okay. 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 fourth quarter 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. CIMCO 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. Turning now to our financial results highlighted on slide 4. I want to start off by noting that within the fourth quarter of 2022, many of you may recall that a Quebec property was sold resulting in a pre-tax gain of approximately $17.7 million, which was $15.4 million after tax or approximately $0.19 per share wherein Q4 of 2023 we had an after-tax gain of just over $1 million for a property sale. This impacts the comparability of our results in both the quarter and year-to-date. Fourth 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%. 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 and product support activity levels partially offset by higher expenses and lower gross margins. For the full year of 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. Our 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. Rental and product support revenue increased on higher customer activity, utilization of the larger fleet and improving execution. Yearend backlog was healthy and relatively unchanged for the year. Year-over-year at $1.2 billion 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 and was up 12% for the year. 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 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. Expense management continues to be an area of focus and discipline. Net earnings from continuing 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 and $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, the Canadian dollar movements continue to challenge the business, as well as influence customer buying patterns. 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 remained sound with 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 to 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. With our solid order backlog and balance sheet, we are well positioned as we enter 2024 and will 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.
John Doolittle: 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. This growth reflects the inflow and delivery of equipment against the order backlog, coupled with end customer demand. New equipment sales increased 19% in the quarter on good deliveries in the construction, mining and power system markets while materially handling markets were lower. Year-to-date new equipment sales increased 20% across all markets 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 and the current year's supply and demand dynamics have shifted. Used equipment sales also include rental fleet dispositions, which have increased in the current year after a period of constraint reflecting fleet management decisions, 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 material handling. Rental revenue was up 7% in the quarter, 8% for the year reflecting higher market activity, strong execution and 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%. Rental fleet was at $81.1 million versus $44.7 million a year ago, and it's starting to return to more typical levels. 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 continued constrained supply, coupled with from favorable sales mix, a higher proportion of new versus used equipment. Product support margins were slightly lower in the quarter, but higher for the year compared to 2022. 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 offload to the fleet earlier in the year. Rental margins are somewhat challenged by higher recent acquisition costs in part due to a weak or Canadian dollar and higher maintenance and repair costs, sales mix was unfavorable in both periods of the Harper portion of equipment sales to total revenue. Selling and administrative expenses were up 15% in the quarter and 8% for the year. Gains on property dispositions reduced expenses by $1.5 million in the fourth quarter of ‘23 and $17.7 million in the fourth quarter of ’22. Excluding these gains, expense decreased $2.5 million or 3% percent 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 levels and inflationary pressures. Allowance for doubtful accounts decreased $1.7 million in the quarter and $7.3 million 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. 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 and 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% have been slower throughout the year. Power Systems and Mining bookings were also up 32% and 14% percent 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 million 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 depending upon vendor supply, customer activity and delivery schedules. Now to Slide 6 and CIMCO. Revenue was up 2% in the quarter and 13% on a full year basis with the progress on construction schedules against strong order backlog and good customer demand. Package revenue decreased 8% in the quarter as equipment supply issues and customer delays have deferred some products into 2024. Recreational revenues were up 25%, but were more than offset by lower industrial revenues down 25% against the strong comparative. In Canada, revenue was 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. For the year, packager 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.S. Product support revenue improved 14% in the quarter and 18% percent for the year with increases in both Canada, and the US. Activity levels have continued to improve on good customer demand in the increased technician base. Margins were down 100% in the quarter, sorry 100 basis points in the quarter versus the comparable period last year as lower product support margins were only partially offset by higher package margins and a favorable sales mix. On a year-to-date basis, gross profit margins increased 220 basis points versus last year. Good project execution and the nature of projects and 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% and the year. Bad debt expenses decreased $0.7 million in the quarter and increased $2 million for the year. Overall, we remain focused on collection activity and monitor closely our aged receivables. Compensation costs increased due to an increase headcount, annual salary increases and higher profit sharing accruals with a higher earnings level. Other expenditures such as travel and training expenses increased support activity and staffing levels. As a percentage of revenue selling and administrative expenses improved to 16% in 2023, versus 16.3% in 2022 reflecting continued focus on expense control. Operating income decreased $1.7 million for the quarter as the higher revenue was dampened by lower gross margins and higher SG&A. Operating income increased 49% for the year reflecting improved gross margins and higher revenue. Bookings increased 24% for the quarter on higher orders in Canada and lower orders in the U.S. Timing of decisions by customers, the receipt of orders can vary from period-to-period. On a full year basis bookings were up 19% at $246 million with a 35% increase in Canada and an 18% decrease in the U.S. Industrial bookings were up 58% and recreation orders down 30%. Backlog of $255 million was 29% higher versus last year with an increase in the industrial market on good order intake, partially offset by 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. 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 were closely managing the aging of our receivables and credit metrics. We ended the year with ample liquidity including cash of over $1 billion, an additional $460 million available to us under existing credit facilities. Our net debt to total cap was negative 17%. Under our MCID program, the company purchased and canceled 353,000 common shares for $37.5 million to-date for the year. These purchases are reflective of good capital hygiene intended to help mitigate options exercised dilution. Overall, our balance sheet remains well positioned to score 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% compared to 23.3% for 2022 while, our five-year average is 20.8%. 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, press announced yesterday the Board of Directors increased the quarterly dividend by 11.6% to $0.48 per share. Toromont 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. On Slide eight, we conclude with 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 over but visible 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 and support growth at our aftermarket and value-added products 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?
Mike McMillan: Yeah.
John Doolittle: We appreciate our entire teams’ exceptional efforts and commitment to continue to support our customers and deliver value for our stakeholders. 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. Lera?
Operator: Thank you, sir. [Operator Instructions] We have our first question coming from the line of Cherilyn Radbourne from TD Cowen. Please go ahead.
Cherilyn Radbourne: Thank you very much and good morning.
Mike McMillan: Good morning, Cherilyn.
John Doolittle: Good morning, Cherilyn.
Cherilyn Radbourne: 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 curious we could make of that. You actually back to your late year budget flush or other factors?
Mike McMillan: Yeah. Thanks for the question, Cherilyn. I think a couple things I would say is, as we’ve been talking about – first of all, I would say availability of equipment for certain models has improved a fair bit and I think – I think also we had not unusual as you know for us to see a little bit of a yearend buy depending on where customers are positioned and so forth. And so I think we want to be cautious on that where the team did, 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 so, 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. But again, we have to monitor things as we go into the first quarter here and be mindful of the activity that we see in front of us.
Cherilyn Radbourne: 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?
Mike McMillan: Yeah, it's a good question. You know, I think on one hand, I would say the team has done a really nice job. There's been a number of changes in some leadership and the team has executed really well in the past year. And so, a lot of focus on that business and less than what we had a nice projects come through which we’re working through for backup power and standby and peak shaving and so forth. And so those were in progress, but here's to your second part of your question I think is important and that I would say when we look at availability of equipment one of the areas that certain models are constrained and still 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’s order backlog, right? And so, that's promising as well. But lead times are still relatively extended.
Cherilyn Radbourne: Thank you.
Mike McMillan: Great. Thank you, Cherilyn.
Operator: We have our next question coming from the line of a Yuri Lynk from Canaccord Genuity. Please go ahead.
Yuri Lynk: Hi, good morning, guys.
Mike McMillan: Hey, good morning.
John Doolittle: Hey, good morning.
Yuri Lynk: Just on your SG&A excluding the gain on the real estates. That was a really good quarter. I mean that's the lowest ratio to revenue on SG&A that I've - I think that I've ever seen out of the company. Was there anything unusual in the SG&A? Whether it be LTIP expense or anything that would have explained such a really low ratio relative to revenue?
John Doolittle: No there was nothing unusual there. I would just say, having been here for over three months now the company is very focused on managing costs and that continued in the fourth quarter. And that's what you see in results.
Mike McMillan: Can you mention 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 we had a quite a strong quarter. So that's certainly ones down the ratio.
Yuri Lynk: 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. But then I look at your inventory levels and your whip levels and I do see the opportunity for another unusually strong first quarter. So how do I square that? Where are we in terms of getting back to a typical seasonal year?
Mike McMillan: Yeah. So, it's a 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. And then you can't get away from normal seasonality and weather patterns here in general what’s been a little warmer and that sort of thing. But I think, we are encouraged I guess, you'd say in a sense just in terms of the flow and the availability. Some constrained units still exist in the supply chain which we will 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 we've come through some of 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 there in the mining side for example is, longer duration - longer term order books and so forth and working with customers to continue to work on that side of the business. And so that you know has its own unique cycle, as well. 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.
John Doolittle: Okay, another nice quarter guys. I'll turn it over.
Mike McMillan: Thanks. Thank you, Yuri.
John Doolittle: Thank you, Yuri.
Operator: Our next question comes from the line of Jacob Bout from CIBC. Please go ahead.
Q - Rahul Kumar: Hi, good morning, Mike and John. This is Rahul on for Jacob.
Mike McMillan: Great. Good morning, Rahul.
John Doolittle: Good morning, Rahul.
Rahul Kumar: Morning, morning. So I had a question on margins. I noticed that mix of mining equipment and backlog is higher this year but I suspect that part of 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?
Mike McMillan: Yeah. No. Thanks for the question. Maybe I'll start with that and then John can add color. I think again, we would always direct you to the factors of flex affecting. When you look at our margin you look at our margin over the course of the year and because we provide the visible number and you mentioned mining, 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 you look at the order book today, we've got in the backlog for example mining 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 things through it, you know, one of the things we've been talking about is a little bit of softness and better availability for everybody in the in the industry. 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 offs and 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 has been holding in nicely even with our 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 one 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.
Rahul Kumar: Great. Thank you. And then, on the rental side, so high-single-digits growth in 2023 following a couple years is pretty strong investment into expanding the fleet now. Do you expect this sort of growth rate to continue this year? And what sort of investment are you planning into the rental fleet this year?
Mike McMillan: Yeah, a couple things there I would say. You're right. We have come off a couple of years with availability of higher investments. And so when you look at her disclosure around CapEx, you'll see two things actually you'll see you see higher investment this year and you’ll also start to see higher level of disposal which is our used, you'll see some rollouts and we do disclose a rental proceeds and so forth from disposals and so you'll see that picking up a little bit as we turn over the older fleet and replace it with new and higher acquisition costs. I think again, we don't provide a lot of guidance certainly, but we, I think John would concur 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 ’23 is that we would be pretty consistent for the next year or two.
John Doolittle: Yeah I agree.
Rahul Kumar: Excellent. Very helpful. We'll leave it there. Thank you.
John Doolittle: Thank you.
Mike McMillan: Thank you.
Operator: Thank you. We have our next questions on the line of Michael Doumet from Scotiabank. Please go ahead.
Michael Doumet: Hey, good morning, Mike and John.
Mike McMillan: Hey, good morning, Michael.
John Doolittle: Good morning.
Michael Doumet: Morning. So to follow up on Yur’s SG&A question, strong cost containment in the quarter and the year and really during the last couple years. Maybe the question is, can you call out if there's been any specific initiatives, that the company is undertaking to help drive that? And how we should think about, the potential for more operating leverage going forward?
Mike McMillan: Yeah, a couple thoughts there to share with you. I mean, number one, as you know, we tend to manage our cost structure and very consistently through the cycle. And so, I would say a couple things we own about 86% of our real estate. 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 fixed to our occupancy and maintenance costs are pretty fixed. I think what you also see on there is, intentional hiring and so forth. So when we're adding to our team, we're looking at the long-term requirements and not over or under reacting. So, that 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. 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.
Michael Doumet: Got it. Helpful color. That was really impressive. And may be moving over to the part sales but 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, maybe some of the price increases we got in 2022, but I guess the question is did you get a sense at all that 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?
Mike McMillan: Yeah, I think we had 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 like that paper anomaly where everybody's just trying to protect the business and stock up where they think they need to. And so, with availability we certainly 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. There's more confidence in the supply chain and gone are the days I think at this point where we're scrambling for even just filters and other things. So, that should that should, 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 is 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'll start to show some normalization on the product support side, as well.
Michael Doumet: Thanks Mike.
Mike McMillan: Thanks Mike.
Operator: Our next question is from the line of Steve Hansen from Raymond James. Please go ahead.
Steve Hansen: Good morning, guys. Thanks for the time. Just a quick one to follow-up on Cherilyn’s earlier question I think you described the construction activity picking up bleed into the period. Is that’s been something that’s continued into January and February?
Mike McMillan: No we don't as you know say 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 yearend planning process, right?
John Doolittle: Yeah, I would just add like Steve. I think we talked about this on the third quarter call. Mike I know you 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.
Steve Hansen: Appreciate that. And just want to follow up is just around the rental market. I think the activity increased in the quarter, which is good to see, but you didn't note that heavy equipment rentals and material handling both down notably in the period. Is there anything to read into that as being a continued trend? Or is it just something you're seeing as a one-off in the quarter?
Mike McMillan: Yeah, I think it's probably more of a quarterly phenomenon. I think, again, 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. 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 will, the ground is a little easier to work with. And so that be other opportunities there too. So it's really a function of I’d say the broader macro piece. But also, 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.
Steve Hansen: Appreciated and thanks.
Mike McMillan: Thank you.
John Doolittle: Thanks, Steve.
Operator: Our next question is from the line of Sabahat Khan from RBC Capital Markets. Please go ahead.
Sabahat Khan: Great. Thanks and good morning. I guess, just one, it took brighter bit of color by end market. But I was 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?
Mike McMillan: Yeah, thanks, Sabahat. I think broadly if you step back, I would say, on one hand where you have a 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 areas aggregates and support. So, on one hand, one of the things we mentioned in the past is, we did see and everybody's aware of some of the residential activity has sort of tapered off a wee that having said that in some of the markets we serve, the immigration policies in Ontario and different things has been pretty, pretty strong. I think, you know affordable housing, the lockout 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 the infrastructure in behind some of those opportunities, but again, as we look, we tend to look at that as a longer-term tailwind. And so, 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 in investing for that longer-term view.
Sabahat Khan: Great. And then just on the product support side, I guess, and I 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 moderation in used, just wondering kind of directionally speaking are these in line with how we should think about just the mix as we go forward what we saw maybe in the last quarter or two? Or how are you thinking about how are you planning for kind of inventory and things like that, by kind of subs to the business lines?
Mike McMillan: Yeah, a couple of things there I think and you had a couple of key points there I think, Sabahat, 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 are buying packages because of the shortages and we are working with customers, customer might need a new unit if we can get it if that's not available in the time frame to require we were actively looking for used. 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 you know our remanufacturing facility in Bradford come on middle to latter part of Q2 we will 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, I think the mix there is reasonable at the moment. I think we 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 we got some newer used product you're looking for.
Sabahat Khan: Great. And then, maybe just one topic we probably 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 there anything major that you wanted to get done there before the pandemic all kind of dealt with it. Maybe just a quick update on maybe just a status of kind of the additional kind of Quebec maritime territories and where we stand today?
Mike McMillan: Yeah. No I would say, generally, the team has done a nice job. And you mentioned the pandemic it did pause some of the activities there for a period. We still feel that there's good opportunity there, like where 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 will 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 of 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 investments and the focus continues as one of the opportunities within the rental side. I think the other piece for us to is just continuing across the rental business to look at, complementary products that we can offer our customers that we don't today. Or you know 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 metro market, but in particular in Quebec and Maritimes, we still have some opportunity there just to penetrate the market more deeply.
Sabahat Khan: Great. Thanks very much.
Mike McMillan: Thank you.
Operator: [Operator Instructions] We have our next question coming from the line of Maxim Sytchev from National Bank Financial. Please go ahead.
Maxim Sytchev: Hi, good morning, gentlemen.
Mike McMillan: Good morning, Max.
John Doolittle: Good day, Max.
Maxim Sytchev: 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 ten years. And I am curious to see when you think some of that spending could be spilling over to your new P&L? Thanks.
Mike McMillan: Yeah, it is a good question, Max. I guess part of it is I wouldn't speculate, that’s certainly a longer-term investment cycle. John and I had heard that 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 the way into. So infrastructure investment, I think, also if that also results in some excess into some of the resource industry side of things, I mean that could be positive. But longer term duration there.
John Doolittle: Yeah, I would agree. And I'm actually - we probably heard the same thing you have which is, I can't remember the number, but it's like a hundred plus billion dollars. It needs to go into infrastructure - power infrastructure in Quebec and then I'm sure in Ontario we'll have to do something similar. So, but it's over a long term - over the long-term cycle.
Mike McMillan: So generally a positive tailwind, but I wouldn't speculate on exactly on timing and I haven't seen too much detailed information or any bidding process or anything at this stage for sure.
John Doolittle: Yeah.
Maxim Sytchev: Okay. So, 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, you should avoid providing bit more color, what are you doing there exactly? And the potential benefits that ultimately flows down to the P&L. Thank you.
Mike McMillan: Yeah. No, I think certainly digital in our business in general is a focus both for our OEMs including Caterpillar (NYSE:CAT) and ourselves in terms of - I think the pandemic has forced a lot of folks to and 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 our customers to do business with us. You know, of course, we have the infrastructure behind it with our branch network. I think, we have some other applications, for used and in online to auction and so forth. And so, that's sort of the go-to-market strategy is I think you know 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 but with I am gold approach. You think about even just using analytics in a way that we can reach out to customers and be more proactive on product support, I think a number of a number of areas there to help drive different segments of our business with its 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. Rental is another piece to that we - with our applications and so forth we continue to advance to a degree. And again is to support how we go to market and how we ideally we're going to be easy to do business within the rental side for example and easier for customers to locate equipment secure, extend and do other things like that as well.
Maxim Sytchev: Great. Okay. Super helpful. Thank you so much.
Mike McMillan: Great. Thank you, Max.
Operator: There are no further questions at this time. I'd now like to turn the call back over to Mr. Doolittle for final closing comments.
John Doolittle: Yeah. Okay. Thank you. Thank you, Lera. Just wanted to thank everybody for joining us this morning. Thank you for the great questions for listening and appreciate your interest in our results. So, Mike, thank you and thanks to everybody on the call.
Mike McMillan: That's great everybody. Have a great day. And please be safe.
Operator: Thank you so much. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.
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