Toromont Industries Ltd

TSX:TIH

Earnings Call Transcript 2021-Q2

[Operator]

Good morning. Today is July 29, 2021. Welcome to the Toromont Second Quarter 2021 Results Conference Call. Please be advised that this call is being recorded. Your host for today will be Mr. Michael McMillan. Please go ahead, Mr. McMillan.

[Michael Stanley Howie McMillan, Executive VP & CFO]

Great. Thank you, Elena, and good morning, everyone. Thank you for joining us today to discuss the results of Toromont Industries Limited for the second quarter and the first half of 2021. Also on the call with me this morning is Scott Medhurst, President, and Chief Executive Officer. As noted in the press release issued yesterday, we will be referring to a package posted on our website, and we encourage listeners to download it and follow along. At this time, and as noted on Slide 2 of our presentation, I would like to advise listeners that the presentation may contain forward-looking statements and information that are subject to certain risks, uncertainties, and assumptions that may lead to actual results or events differing materially from those expected. For a complete discussion of these factors, refer to our press release from yesterday, which is available on our website. As is our practice, we'll focus on key highlights for the current quarter. Scott will begin with a few general remarks, followed by comments on our overall results, after which I'll provide some highlights on our divisional results and financial position. After our prepared remarks, we'll be more than happy to answer questions.Over to you, Scott.

[Scott J. Medhurst, CEO, President & Director]

Thank you, Mike, and good morning, everyone. Before I begin, I would ask that you move to Slide 3 of the package. On July 15, our Board of Directors announced the retirement of its Chair, Mr. Robert Ogilvie. Mr. Ogilvie's responsibilities extended beyond the original scheduled retirement date of April 2021 as the COVID crisis presented unprecedented uncertainties beginning March 2020. Mr. Ogilvie and the Board remain committed to an orderly transition while closely monitoring the economic realities during the pandemic. The company has navigated relatively well over the last 16 months, building on a strong foundation through operational excellence and strategic execution. Given the company's position and Mr. Ogilvie's belief that Toromont is well placed for the future, he advised the board it was an appropriate time to retire. Mr. Ogilvie's iconic 36-year career included 34 years as Chairman and 20 years as Chief Executive Officer. As at Q2 2021 during Mr. Ogilvie's tenure, Toromont has increased its dividend consistently each year since 1989. This record of performance built significant value for Toromont shareholders while creating opportunities for our employees. Positive outcomes are from disciplines that were embedded in a culture of decentralization, empowerment, and accountability. These principles remain core to the Toromont foundation today and a platform to build our future. During his time as Chair and Chief Executive Officer, the company's transformational growth was substantial. Mr. Ogilvie's outstanding financial and operational acumen were instrumental in leading strategic events, including the 1993 acquisition of the Ontario Caterpillar dealership. Through strong operating performance, the company accelerated further expansion with the acquisition of the Newfoundland and Labrador dealership, followed by Manitoba and most of the Nunavut territories. There are many other milestone events, including the acquisition of the Battlefield Rental business that originally consisted of 1 store and has hence grown to over 70 outlets from Manitoba to Newfoundland.In 2011, under Mr. Ogilvie's leadership, there was further transformation with the bifurcation of the Energy Enerflex Systems Limited. This decision positioned the business well to focus on growing the dealership, rental, and refrigeration businesses. As Chair, his counsel was instrumental in the acquisition of the Quebec and Maritime dealerships, our largest transaction to date. Robert has been a mentor to many of today's Toromont leadership team and directors. The entire organization wishes Robert well in his retirement and thanks him for his significant contributions to Toromont's success and his steadfast commitment to our employees, customers, and shareholders. Mr. Richard Roy joined Toromont Board in 2018 and has been appointed Chair. Mr. Roy is currently Chair of Toromont's Environmental, Social Governance Committee and is a member of the Audit Committee. During his more than 35 years of business experience, he spent 16 years at Uni-Select, where he advanced through several senior executive roles, including Vice President, Administration, and Chief Financial Officer, Vice President, Chief Operating Officer, and President and Chief Executive Officer. We congratulate Mr. Roy on his appointment.Turning to Q2 in the first half of the year on Slide 4. We are pleased with the overall activity levels in our end markets and are proud of our team's dedication and ability to adjust to ongoing changes in the environment and customer requirements. The Equipment Group reported strong prime product deliveries, reflecting robust activity levels. Rental and product support activity increased as equipment usage improved. During the quarter, we also secured 3 new Battlefield locations in the Ontario market, which are in the process of opening. With respect to CIMCO, revenues increased, reflecting the build-out of our industrial orders booked in 2020, however, product support activity remains somewhat impacted by COVID-19 restrictions, particularly within the recreational segment.Turning now to our financial results highlighted on Slide 5. Important to note, the second quarter of 2020 was hardest hit by the impact of pandemic site restrictions and shutdowns, which resulted in lower revenues and profit margins and impacts comparability of results in the current year. The company delivered solid results in the second quarter of 2021. Market activity increased and the Equipment Group and CIMCO continued to deliver on the strong order backlog. Focus on operational efficiency and leveraging learnings from the past year are of focus. We continue to operate with caution, given the rapidly changing situation driven by COVID-19 variants. Backlogs were $957.8 million at quarter end, up 93% versus Q2 2020. In the Equipment Group, mining and construction represent approximately 33% and 43% of backlog, respectively. Typical backlogs were 35% lower at the quarter end versus last year, which had exceptionally strong bookings in the first half of last year. CIMCO results in Q2 reflect good progress delivering packages related to this backlog position.On a consolidated basis, revenues increased 33%, reflecting increased activity in both the Equipment Group and CIMCO in most markets and across all regions as well as solid execution from our teams. Product support and rental revenues increased 14% and 27%, respectively, compared to the similar quarter last year and were both up 7% on a year-to-date basis. Operating income was up 59% in the quarter and 46% year-to-date on the higher revenues. Revenue growth exceeded expense growth as COVID-19 restrictions and cost containment focus continued. Net earnings increased 67% in the quarter and 51% year-to-date versus 2020, while basic earnings per share increased $0.41 to $1.03 per share in the quarter and increased $0.54 to $1.62 per share on a year-to-date basis.We continue to provide essential services and solutions to our customers while remaining diligently focused on safeguarding our employees and protecting our business for the future. We appreciate and value our entire team's incredible effort and ongoing commitment to adapt to changes in the business environment. In the quarter, market activity was very strong, and in some cases, putting pressure on supply chain availability and delivery date extensions. Although vaccination rates in the main markets we serve are improving, caution is warranted given the changing status of the pandemic and the response required. Technician hiring remains a priority to meet demand. The diversity of our geographic landscape and market served, extensive product and service offerings, and financial strength, together with our disciplined operating culture, continue to position us well to respond to the near-term business dynamics and, most importantly, build for the future.Mike, I'll turn it over to you for some more detailed comments on the group results.

[Michael Stanley Howie McMillan, Executive VP & CFO]

Thanks, Scott. Let's put a bit more color on the operating results, starting with the Equipment Group on Slide 6. Revenues were up 31% in the quarter and 22% on a year-to-date basis on strong equipment sales, combined with higher product support and rental activity in most markets and regions. Total new and used equipment sales were up 44% overall in the quarter and 38% year-to-date. Sales increased across all markets and regions in both the quarter and year-to-date. In the quarter, construction markets were up 38%; power systems up 15%; material handling, up 26%; agriculture up 76% and mining was up 181%. Rental revenues were up 27% in the quarter and 7% year-to-date. Most markets and segments were reflecting continued improvement in the market activity in the second quarter against a weak comparable last year. Again, recall that in Q2 of 2020, the full impact of COVID-19 was being experienced with temporary shutdowns in care and maintenance procedures in many of our mining locations.Light equipment rentals were up 22% in the quarter and 7% year-to-date. Heavy equipment rentals were up 100% in the quarter and 49% year-to-date. Power rentals up 29% in the quarter and 5% year-to-date and material handling rentals were up 34% in the quarter and 13% year-to-date. RPO, our rental with a purchase option revenues were down 15% in the quarter and 35% year-to-date on a smaller average fleet, reflecting the recent theme where customers have preferred to purchase outright versus the RPO option. The RPO fleet was at $32.2 million versus $43 million a year ago. And in both cases, well below more normal levels we'd operate with prior to the pandemic.Product support revenues were -- grew 15% in the quarter and 9% year-to-date in both parts and service revenues in the majority of markets and regions. Activity within construction markets was up 19% in the quarter and 12% year-to-date. Mining was up 12% in the quarter, 5% year-to-date. Material handling was up 37% and 25% year-to-date. Agricultural activity was relatively unchanged for the quarter and year-to-date. Gross profit margins increased 20 basis points in the quarter and remained flat year-to-date compared to last year. While equipment margins and product support margins were largely unchanged in both the quarter and year-to-date, rental margins were higher by 150 basis points and 120 basis points for the quarter and year-to-date, respectively. These improvements reflect higher utilization as well as benefits from fleet adjustments, including selective dispositions and acquisitions over the last year.Selling and administrative expenses in the quarter increased $13 million or 12% and $14.5 million or 7% for the first quarter of '21. The increase is mainly attributable to the mark-to-market adjustments on deferred share units due to the higher share price and higher compensation costs. Other expenses increased reflecting higher activity levels. Cost discipline remains a strong focus. However, areas such as travel and training are being managed carefully to support the business requirements after several quarters of significant reduction. Allowance for doubtful accounts decreased $3 million in the quarter and $1.9 million in the first half of the year on good collection activity.Operating income for the quarter and year-to-date was up 61% and 46%, respectively, reflecting the higher revenue level, coupled with lower expense ratio. In other words, revenue improvement outpaced expense growth. Bookings increased 113% in the quarter and 108% year-to-date across all sectors, except agriculture, which was lower by 34%. Construction and mining bookings were up 122% and 165%, respectively, in the quarter, reflecting several large orders. Backlogs of $810 million were 201% higher than this time last year across all sectors. Approximately 65% of which are currently expected to be delivered in this year and subject to timing differences depending on vendor supply, customer activity, and delivery schedules.Let's turn now to CIMCO on Slide 7. Revenues were up 52% in the quarter and 45% year-to-date, mainly due to strong package revenues on continued progress against industrial orders booked in 2020. Product support sales remained flat in the quarter and decreased 4% year-to-date, largely due to lower activity in the recreational segment stemming from ongoing site restrictions. Package revenues were up 104% in the quarter and 105% for the first half of 2021, with increases in both recreational and industrial markets. For the quarter, package revenues in Canada were up 149%, reflecting higher industrial revenues. In the U.S., package revenues decreased 9% on a smaller base with higher revenues in the industrial market and lower revenues in the recreational markets. On a year-to-date basis, package revenues increased in both Canada, up 120%, 27%; and in the U.S., up 26%, with increases in both recreational and industrial markets in Canada across all regions and the U.S. Product support revenues remained flat for Q2 and decreased 4% for the first half of the year versus last year. In Canada, lower activity levels from continued site restrictions in most areas and reduced demand, particularly in recreational centers, which have been closely -- closed or severely restricted by the pandemic resulted in lower product support revenues in both the quarter and year-to-date.In the U.S., the higher technician base continued to support activity levels resulting in a 16% increase in the quarter and a 4% increase year-to-date, albeit on a smaller base. Gross profit margins decreased 420 basis points in the quarter and 470 basis points year-to-date versus last year. The decrease in gross profit margins was due mainly to less favorable sales mix of product support revenue to total revenue. Margins primarily reflect activity levels, nature of projects in process, and construction schedules, which can be somewhat variable.Selling and administrative expenses were up 21% in the quarter, 10% year-to-date, reflecting the higher activity levels. Certain costs, such as travel and training were higher after a period of contained spending. Compensation expenses increased in support of higher activity levels and reflecting higher profit sharing accruals with higher income. Operating income was up 31% for the quarter and 35% for the first half of the year, largely reflecting higher package revenues, partially offset by lower gross margins. Bookings were $46.1 million in the quarter, down 11% versus last year, which included an exceptionally strong level of bookings due to several large industrial orders in Canada. Recreational bookings were 4% lower on reduced market activity in Canada, slightly offset by higher activity in the U.S. The industrial markets were down 15% with reduced activity in both Canada and the U.S. Year-to-date, bookings were lower 49% to $84 million. As noted, several exceptionally large industrial orders were received in Canada in the first quarter of 2020, resulting in a decrease in bookings compared to last year. Industrial orders were down 59% with a decrease in Canada, offset by an increase in the U.S. Recreational orders decreased 18% to $34.7 million, with decreases in both U.S. and Canada.Backlogs of $147.5 million or 35% lower than the end of last year, mainly related to progress against relatively large industrial orders, as noted earlier. We expect approximately 90% of this backlog to be realized as revenue in the year. However, again, this is subject to construction schedules and potential changes stemming from the COVID-19 pandemic.On Slide 8, I'd like to touch on a few key financial highlights. Non-cash working capital reflects our team's focus and effective actions to proactively manage changes related to activity levels and underlying demand. Management of our working capital continues to be a focus area as we position the company for the future. Accounts receivable aging receives continuous focus. It is trending well with DSO down 5 days compared to Q2 of 2020. Inventory levels continue to be adjusted in light of market activity and are below prior year levels. Accounts payable reflects the timing of purchasing and the wind down of certain extended terms with suppliers, which is effectively complete, partially offset by higher DSU liability related to the higher relative closing share price.We ended the first quarter with a strong financial position with cash of $661 million, ample liquidity and balance sheet -- a balanced net cash position, and our balance sheet well positioned to support changes in demand. And finally, as announced, the Board of Directors yesterday approved the regular quarterly dividend at a rate of $0.35 per common share, consistent with last quarter when it was increased by $0.04 or approximately 12.9%.On Slide 9, we conclude with some key takeaways as we look forward to Q3 and the second half. As one would expect, we continue to focus on our 3 key priorities: protecting our employees, serving our customers, and protecting our business for the future. We expect the business environment to remain dynamic in 2021 and the tone of caution to persist given the changing status of the pandemic and response required to new variants and vaccine rollout schedules. We continue to proactively monitor developments closely and refine our business practices appropriately. As discussed today, market activity was very strong in the quarter, and in some cases, unique buying patterns relative to historical trends and prime product and parts supply pressures were evident, including extended delivery dates. We continue to work actively with our suppliers in this regard, monitoring availability, delivery schedules, and customer buying behaviors. Our teams are working diligently on the pipeline forecast, repair schedules, and parts demand signals. Additionally, technician hiring also remains a priority to meet demand and build our team for the future. We are positioned to effectively respond to customer requirements and market opportunities, leveraging our disciplined operating model, culture, and solid financial position.That concludes our prepared remarks at this time. We'll be pleased to take questions. Elena, over to you, please, to set up the first call.

[Operator]

[Operator Instructions] The first question is from Jacob Bout with CIBC.

[Jacob Jonathan Bout]

My first question is just on equipment availability. Are you seeing any supply chain issues? Or did you see anything in the second quarter? And how are you thinking about this for the second half of the year?

[Scott J. Medhurst, CEO, President & Director]

Yes. We did see a bit of a change in the second quarter. We saw some tightening of prime product availability through the various supply chains as well as parts. What we're pleased about, we stated it earlier in the year and last year was our continued focus on working closely with our supply partners on our pipeline forecasting as well as our repair scheduling requirements and demand signals in the parts area. So I think that discipline laid out reasonably well when you see those very strong new equipment sales particularly in the Equipment Group, and then the -- parts activity was -- we held up reasonably well. So there are some pressures in there, and that's why we're in a cautious outlook here or state relative to some of the variables in play.

[Jacob Jonathan Bout]

So in the MD&A, you talk about expecting to deliver 65% of the backlog to be delivered in the second half of this year, subject to vendor supply. If under normal circumstances where equipment was readily available, would that number have been higher?

[Scott J. Medhurst, CEO, President & Director]

Well, what we're focused on right now is working closely with the suppliers relative to those time frames. But what we saw in the second quarter was some extension relative to delivery dates. So we continue to work closely on that.

[Michael Stanley Howie McMillan, Executive VP & CFO]

Yes. One thing to keep in mind too, Jacob, is we did speak to some of the mining orders and different things. And some of the equipment does have longer lead times, as you know, and would be delivered into the next fiscal period and beyond, right? So there is a bit of a mix when you look at the composition of the backlog that we've disclosed as well.

[Jacob Jonathan Bout]

Okay. Second question is just how you're thinking about margins in the second half of the year given the phasing back of discretionary spending and labor inflation?

[Scott J. Medhurst, CEO, President & Director]

Well, a couple of things on that front. If you look at the quarter on a percentage basis, I mean, the equipment sales were very strong as was the project revenue streams at CIMCO. So on a proxy support basis, as a percentage of total, I mean, they were below what they normally are. We also -- it's a bit of a favorable operating environment because we're still very much in a controlled environment relative to the COVID. And so we're going to be very focused on that going forward, that area on operating expense and leverage. We've got some learnings in there. But as things open up, that's going to create a different environment on that front. So that's an area of focus for us. You have got anything else to add there, Mike?

[Michael Stanley Howie McMillan, Executive VP & CFO]

No, I think that's right. I think it's the product support, the mix of sales. And like you say, the containment of spending, we're still under a reasonably restricted environment, right? And so discretionary spend in areas like that, of course, we'll be managing that carefully go forward, as Scott mentioned. But that will pace a little differently as people are more mobile.

[Jacob Jonathan Bout]

How about any offsets here to the, space back in discretionary either from a work from home perspective or anything else we should be thinking about?

[Scott J. Medhurst, CEO, President & Director]

Yes. Well, those are -- that's the area, Jacob, that we're very focused on as things develop in terms of opening here relative to lessons learned. And that's the area that we're going to try and incorporate some different actions, but still early stage on that front. And so that's why in Q2, I think we still have some favorable outcomes relative to how we're operating right now.

[Michael Stanley Howie McMillan, Executive VP & CFO]

Yes. Yes. A good case in point there would be, if you think of our perspective, work from home, you mentioned, we do own most of our real estate. So from that perspective, largely, what you'll see is the discretionary spend in the sense of travel, entertainment and other things where we can be more effective. We've learned to use technology as many have, and there will be a different balance there on that particular area of discretionary spend.

[Operator]

The next question is from Yuri Lynk with Canaccord Genuity.

[Yuri Lynk]

I wanted to dig in a little bit. I wanted to dig in a little bit on the new awards. I mean they've exploded here in the first half of the year. Can you just give a little more color on the nature of these awards in terms of their size, like I know I think in the first quarter, there was a large equipment package in mining. Was there any carryover to that package? Were there other large packages in Q2? Or was this mostly small and medium-sized awards?

[Scott J. Medhurst, CEO, President & Director]

Well, I don't know about exploded. I think it's all relative to -- as we tried to articulate, comparing to Q2 maybe isn't the way to go about this. It's the market activities in Q2 on a historical basis, were extremely strong, okay? And that's just reality. So we're monitoring buying behaviors. Now relative to the deals that were booked, our construction was very strong in the quarter, and there wasn't anything of magnitude in there. I think the team performed reasonably well in the market relative to the opportunities. Mining, your -- you get lumpy in there on mining. Yes, in the first quarter, there was a couple of large orders, but we continue to progress reasonably well in there. So I think it's all relative to a very strong industry activity levels in that quarter. And again, reinforcing, if you look at it over a 10-year period, it was strong. So we're really assessing and absorbing the buying behavior patterns right now, determining, was there a pull forward? What does that mean? So there's some real interesting dynamics in play right now, Yuri.

[Yuri Lynk]

Yes, for sure. Second question, just on your inventory levels, I don't think I've seen them since you did the acquisition of QM. I don't think I've seen them this low, and you're sitting with, obviously, a record backlog that we just talked about. So how do I think about that in terms of investment in inventory for the back half of the year? Is the product available, first of all? And I guess, should I be expecting a larger-than-normal investment in inventory or working capital in the back half of '21?

[Scott J. Medhurst, CEO, President & Director]

Yes. Great observation. Again, reflective of the market dynamics in play, the activity -- industry activity levels were so strong. And again, I think it reflects that we were able to react reasonably well when you look at those new sales up about 57%. So because of the disciplines that were in place there on pipeline forecasting with our suppliers, we were able to react reasonably well. But what that meant was there was a drain on the inventory when normally we see a build, right? Let me give you an example. So RPOs were down -- were down around $32 million, which is historically low. I mean when you look at that level of activity and normal trends, we should be sitting here with well over $100 million on RPO. So that's usually in your inventory, which also usually transcends well for second half conversions. We're sitting here on a low level which impacts that inventory as well as the used equipment market, we didn't -- we're not even seeing the same trends on trades. Our used equipment revenues, we're pleased with how the team operated there. We got 10% growth, but it was driven really by our purchase strategies, not our normal like demo class or trade revenue streams. So that's impacting inventory levels as well. So a lot of dynamics in play there that played out to with that, as you stated, the current inventory relative to comparison -- on a comparison basis.

[Michael Stanley Howie McMillan, Executive VP & CFO]

And just on the working capital question as well, Yuri. We've been saying for a couple of quarters that we're positioned. We've been running lower in inventory deliberately. And so forth, even last year, we're about $220 million below where we were last year at this time and things tapered. And so I would just say, again, reinforce the fact that we are prepared to invest in working capital and primarily inventory. You've seen our cash balance. That's a reflection of the tightening working capital environment. But I could see easily that we would be investing upwards of $200-plus million in inventory over time, going into a more normal environment as things stabilize whenever that might be. There's still certainly a lot of uncertainty right now, but we're prepared to have that level of investment as we go forward.

[Operator]

The next question is from Michael Doumet with Scotiabank.

[Michael Doumet, Analyst]

So yes, first off, nice quarter. And just to maybe build off of the commentary from Yuri and looking at the results. I would have thought that we would have seen equipment gross margins expand versus last year, given the strong demand. I mean, was there a specific reason it didn't? And I guess the thought is, given the tight supply conditions, on the strong demand, how should we think about the potential volume and pricing trade-offs going forward for the equipment sales?

[Scott J. Medhurst, CEO, President & Director]

Part of that reflects the mix. I mean, you saw some -- I mean, both the small iron as well as the large industry activities increased. But the smaller was very large than a percentage basis. So there is a bit of mix impact in there on equipment margins and relative to position, and relative to volume. So really, I think it really reflects the mix. We're operating still in a competitive environment. So there's probably a inflection of that as well.

[Michael Doumet, Analyst]

And going forward, just in terms of thinking about tight inventory and demand being high, anything to think about on pricing and how that should look like for equipment sales?

[Scott J. Medhurst, CEO, President & Director]

Yes. It's difficult to really comment on that on a go-forward basis because, again, we're trying to assess these buying behaviors and what that means over a longer period of time, right? I mean, you look at it historically, that was a very strong activity level for Q2. So what does that mean relative to buying behaviors over the long term we're assessing that.

[Michael Doumet, Analyst]

And then second question, with product support, effectively back to pre-pandemic levels, I mean, could you speak to the extent of whether site restrictions is still a limiting factor here? Or if hiring and retaining tax is more of a limiting issue going forward? Just to try to get a sense for maybe what are the challenges going forward in the recovery going forward?

[Scott J. Medhurst, CEO, President & Director]

Yes. We did see some COVID impact on product support on the equipment side as well as CIMCO with some site restrictions and things of that nature. So that's why we're saying there's still uncertainty in the operating environment, particularly on product support. So it's sort of eyes wide open right now relates to that. No need to speculate. It's still a complex environment as with vaccinations and various areas where there could be outbreak. So we're just in trying to manage our way through that. We're really pleased with how the team is able to react to these quick signals. And -- but there is still impact on the product support what we saw in the quarter.

[Michael Stanley Howie McMillan, Executive VP & CFO]

Yes. Good case in point there. Michael is like we -- it's very clear to say, in the CIMCO business, for example, in particular, in recreational markets where 1/2 the rings in Canada have been shuttered for an extended period of time. And so that makes sense. Certain locations where social distancing is more challenged or different areas like that or unique locations and mining where you're monitoring case by case. I mean, those are areas that we have seen the COVID effects and the activity level is different than maybe what we would consider normal, right? But…

[Scott J. Medhurst, CEO, President & Director]

And the other variable you touched on was technicians and even the supervisory level. We've seen this before. When you start to come out commodity prices are recently strong. So this is another complexity and introduces a dynamic in the marketplace. We've been here before, but we're working wrestle be on that front.

[Michael Doumet, Analyst]

Perfect. Hopefully, things continue to get better for all of us.

[Operator]

The next question is from Cherilyn Radbourne with TD Securities.

[Cherilyn Radbourne, Analyst]

Before I get to questions, I did just want to take a moment to recognize Robert and wish him our very best in his retirement.

[Scott J. Medhurst, CEO, President & Director]

Thank you for doing that, Cherilyn. Appreciate it.

[Cherilyn Radbourne, Analyst]

In terms of the purchasing patterns, like, obviously, the booking strength in the Equipment Group is really exceptional. And I'd just love to get your thoughts on whether you think it's a release of pent-up demand or a pull forward as customers try to get ahead of possible supply chain issues? And just how that impacts how you're managing the business?

[Scott J. Medhurst, CEO, President & Director]

Yes. Great observation. When you look at it on a historical basis, it could very well be a pull forward. And that's why we're not getting ahead of ourselves here. When we assess it, is you can't assess this on a quarter-over-quarter from last year, right, as Mike articulated in his opening comments. So historically, it would suggest so. What that means for the balance of the year, we're just monitoring it. And that's why we're staying very disciplined on these pipeline forecasting and proud of the team and how they work through it to get a reasonable outcome in Q2 relative to those bookings. It's all relative to the market performance, how we perform in the market. So we'll see how things progress here, Cherilyn.

[Cherilyn Radbourne, Analyst]

And then on the rental business, you had a nice year-over-year lift in the margin on higher utilization and some selective fleet adjustments. So maybe you could talk a little bit about the interplay between rates and utilization in that market?

[Scott J. Medhurst, CEO, President & Director]

Yes. So we did see improved utilization, which we both on the light equipment as well as the heavy. We saw it in power. We saw even the material handling business, we had nice improvement in there. So that was good. We have seen a bit of an uptick when you look at the rental rates relative to the benchmarks. So that was encouraging, but we still have a ways to go in there. I mean, we're actually behind a bit on our capital allocation there on the rental because we've had to shift and react to it to the retail. So -- and again, with some of the availability constraints that we saw in the second quarter that impacted things a bit there. But yes, overall, I mean, we saw some improvement. We'll see how it plays out for the balance of the year.

[Operator]

The next question is from Sabahat Khan with RBC Capital Markets.

[Sabahat Khan, Analyst]

Just kind of following up on the discussions around the inventory and kind of the outlook for more investments going forward. I guess more from a philosophical perspective, I guess, where would you put the next dollar of investment? Are you thinking, pushing it towards the new equipment because of the elevated backlog, maybe towards rentals because of the drawdown there, how are you making those decisions at this point in the cycle given demand?

[Michael Stanley Howie McMillan, Executive VP & CFO]

Yes. I think, I guess, nothing -- I would say it's a pretty standard approach, Saba. When you think of the support of the business, obviously, as demand warrants, we will invest in inventories and support the business growth, whether that's working capital, parts support for opportunities, it's inventory for new equipment. And as Scott mentioned, even securing used equipment and providing that to the marketplace. I mean, as demand warrants, we'll continue to invest, and we're prepared to do that. I think the second piece there, too, is also some CapEx as we see demand moving. We talked a little bit about rental. Again, we've increased our CapEx in that space. We'll continue to invest for the long-term future of growing that business as well, as well as Scott mentioned a few new locations and things like that. So we continue to think about expansion and where we need to have a presence and investing in locations and the supporting fleet that we require for that part of the business. So I'd say the care and feeding and support of the business and organic initiatives would be the first focus of our investment strategy, right?

[Scott J. Medhurst, CEO, President & Director]

Yes. We were pleased that the team was able to secure 3 new locations, getting back to that expanded footprint strategy. That means we have to allocate some capital with rental fleets and things of that nature.

[Sabahat Khan, Analyst]

Great. And then just in terms of some of the initiatives that you put into place in the Quebec, Maritime's region, there was a bit of a push out, I guess, amidst a pandemic. Any updates on the progress with the ERP rollout there and any opportunities for location on the Quebec side? I know you mentioned the Ontario one. Just any update on anything left still to do on the Legacy Hewitt platform?

[Scott J. Medhurst, CEO, President & Director]

Well, the integration, we had to slow a bit there last year, obviously. Although during -- even though with the pandemic, we were able to get the common ERP platform integrated. So we're delighted that now we're in a steady-state for the dealership and for Battlefield. We still have ways to go with the material handling business on that integration front, and we're working towards that plug-in with the common platform there. We still have some things to work on operationally, particularly on the parts and service excellence initiatives that we are focused on. So that continues as well as our coverage areas we're assessing. So we're still about ways to go there. And particularly on the rental side. On the rental services side, we're making progress, but we're not where we need to be. There was improvement in the first half. The rental revenues increased nicely, particularly in Quebec, I think we're up over 30%. But you look at it relative to the original investments, we still have a ways to go there in terms of our execution and fundamentals of running those fleets and coverage.

[Sabahat Khan, Analyst]

And if I could just squeeze in one more. Just on the commentary around having to hire technicians as demand kind of ramps up. Obviously, we're all seeing headlines around labor shortages and labor inflation. How are you finding it on the ground level?

[Scott J. Medhurst, CEO, President & Director]

It's an area that is -- with a lot of focus. Yes, you're right. It's respective of the environment. We've seen it before, okay? When you see these little -- these upticks. So it creates some complexity and challenges. But you know what, it's all about execution, right? And that's what we ought to do. And that's what we're focused on, both on technician as well as the supervision management in there. That's another key element on the front lines.

[Operator]

The next question is from Bryan Fast with Raymond James.

[Bryan Fast, Equity Research Analyst]

As you reflect on the last 1.5 years here, are there practices you expect either yourself or your customers will adopt going forward that maybe you were not utilizing prior to the pandemic? I guess, I expect buying and selling trends to shift in a post COVID world, if at all?

[Scott J. Medhurst, CEO, President & Director]

Yes. I think there's many learnings, both, I think, customer behaviors as well as how we will operate. This is what we're assessing right now, operating in a complex environment still, but we are working on technology, what we've learned and utilization of technology, how we manage fleet, how we manage distribution of our people, and how we integrate internally and externally, so cooperate. So these things that are all being assessed on our plan and we're monitoring customer activities and how they might be changing in this new world that we're operating in. So I think it's really early still relative to firm plans, but it's something that is now part of our planning process.

[Bryan Fast, Equity Research Analyst]

Okay. And then maybe just to dig into supply constraints a bit more, in particular, parts where inventory was down year-over-year. Is there any concern on parts availability or signals you're getting from your suppliers?

[Scott J. Medhurst, CEO, President & Director]

Well, we saw some challenges creep in the quarter. Again, really proud of the team. They're working very aggressively with our supply partners to monitor those demand signals and planning or repair planning schedules. So we'll see how things play out here, but it is at the forefront of a heightened focus. And because we did see some changes in there in the quarter on some of the availability. But again, it comes down to a lot to do with us and our operating disciplines. And so we're working hard on that front, taking ownership of it.

[Operator]

[Operator Instructions] The next question is from Maxim Sytchev with National Bank.

[Maxim Sytchev, MD & AEC]

Just a couple of questions for me, if I may. The first one, I wanted to circle back to the 3 locations that you opened up for Battlefield. Just trying to get a better sense in terms of how long does it take for kind of a new location to get to an optimal revenue profitability level? Just any direction else you can provide there? Thanks.

[Scott J. Medhurst, CEO, President & Director]

Yes, it does take time. We're pleased that we're able to secure those locations. Team did a nice job there. But you're going to put fleets in there, get yourself established, get the operating practice embedded. So this is not something that happens immediately. It can take a couple of years to get to where you want to be. And -- but we're just really pleased that our footprint strategy is back at the forefront, and we're able to move forward in a couple of these areas. But it takes time. You've got to mature. It's like Quebec. I mean, we still -- the aging of that fleet is not where we want it to be. So it does take time.

[Maxim Sytchev, MD & AEC]

Is there an opportunity to add more locations?

[Scott J. Medhurst, CEO, President & Director]

That's something we strategically look at regularly and relative to our annual plans. So that's ongoing Max.

[Maxim Sytchev, MD & AEC]

Okay. Fair enough. And then last question. You made an interesting comment around the ability to manage supply chain inventory. You mentioned several times about enhanced forecasting capability and tools with your supply chain. Do you mind maybe providing a bit of color in terms of how the management of all these systems is different now versus maybe 5 or even 10 years ago, that would be super helpful? Thank you.

[Scott J. Medhurst, CEO, President & Director]

Yes, that's a great question. But we have more intel relative to data flow, right? And so when we're monitoring, we saw in the quarter, increase in usage on iron, which was good. So you start to factor those in and project that with this data flow to help with your parts demand signals and repair schedules where we work closely with customers. And we're also getting better connectivity with our CVA activities with our customers, and they're seeing value in that, I think. So this really comes down to the data and the technologies to assess and some of the predictive analytics to help on, particularly on that part side, but also to help gain good solutions and consultant services for our customers on prime product ownership period, things of that nature. So a lot of dynamics in play there. I think a long way to go, but we're pleased with some of the progress. And that transcends into our interface with our suppliers on the demand signals and so that's where we are on that front.

[Maxim Sytchev, MD & AEC]

And I guess, maybe for Scott and maybe Mike can comment, but is it fair to say that, obviously, as you get tighter in terms of managing some of these dynamics that we should see, I mean, down the line a positive ROIC impact? Is that how you guys think about this in Toromont as well?

[Scott J. Medhurst, CEO, President & Director]

The ROIC, on these dynamics.

[Maxim Sytchev, MD & AEC]

Yes. Yes. I think, like you say, I think part of it is the efficiency and just the predictive nature of some of the analytics we can do. I think there's also just optimization, just having better visibility. The integration of our platforms. If you think at TDMS, we did with the QM business. Those are fundamentals where you have greater visibility across the network. You can optimize locations, you can shift our fleets in the rental side. You can do some things like that. And so that lends to marginal benefits, I think, on returns that we continue to chip away and focus on. And so just having better visibility and then coupling that with better predictive analytics and ordering behaviors and stuff, I think, over time, can provide better efficiency on the model. I mean, the market is very competitive, and everybody is doing a bit of that. And so you can expect that there is pressure to be more competitive on the margin side, too.

[Scott J. Medhurst, CEO, President & Director]

So -- but Max, to your point, I mean, theoretically, it should help, but it all comes down to execution, like always, right? So we're not getting ahead of ourselves here. We're pleased with the progress we're making and relative to investments, but we've got to execute.

[Operator]

There are no further questions registered at this time. So I would now like to turn the meeting back over to Mr. McMillan.

[Michael Stanley Howie McMillan, Executive VP & CFO]

Great. Thanks very much, Elena. And thanks, everyone, for your participation today. I conclude our call. I wish everybody a safe and healthy balance of your summer. Take care.

[Operator]

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.