Toromont Industries Ltd

TSX:TIH

Earnings Call Transcript 2022-Q2

[Operator]

Good morning. Today is July 27, 2022. Welcome to the Toromont Second Quarter 2022 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 McMillan, Executive Vice President and CFO]

Thank you, Paul. Good morning, everyone. Thank you for joining us today to discuss Toromont's results for the second quarter and the first half of 2022.

On the call with me this morning is Scott Medhurst, President and Chief Executive Officer. Scott and I will be referring to the presentation that is available on our website. To start, I would like to refer our listeners to Slide 2, which contains our advisory regarding forward-looking information and statements. After our prepared remarks, we'll be more than happy to answer questions.

Let's get started. We can move to Slide 3 and Scott will start us off.

[Scott Medhurst, President and Chief Executive Officer]

Thank you, Mike, and good morning, everyone. In June, we announced my intention to retire after 34 years with Toromont, including the past 10 years as President and CEO. The company is well positioned and the timing is right for this transition.

In addition to offering a lengthy notice period, I have offered to assist in the transition and act as an advisor to the new President and CEO. Special Committee of the Board of Directors of Toromont has been struck to address an orderly transition and has initiated a comprehensive process. It has and continues to be an honor to work beside an incredible team, supportive supply partners, loyal customers and shareholders for these many years.

Now turning to Page 4 of the package. We're pleased with our operating and financial performance during the second quarter and the first half of the year as end market activity levels remained reasonably solid. Persistent supply constraint challenges, macroeconomic developments continue to contribute to a fluid and complex operating environment. And this is expected to continue for some time yet.

Equipment Group reported solid results in rental and product support, while global supply chain challenges persist and continue to impact the timing of equipment, rental disposition and parts deliveries. Rental revenues decreased in the quarter on timing and project construction schedules against a strong comparable last year, while product support activity improved.

Across the organization, there is a continued attention to our operating disciplines, while working closely with our customers ensure and stakeholders to manage through persistently uncertain conditions. Current backlog levels are healthy and supportive of future results. However, the global supply chain challenges do persist.

Product availability in most areas, prime product, components and parts continue to be tight, resulting in shifts in the delivery of prime product and repair schedules. Inflationary pressures, ongoing interest rate changes, pricing increases from suppliers, other global economic and geopolitical factors and continued pandemic-related developments are also being monitored closely.

Turning now to our financial results highlighted on Slide 5. Company delivered strong bottom-line results in the second quarter and the first half of 2022, reflecting a favorable sales mix consisting of higher rentals and product support revenues to total, improved gross margins, managed expense growth and lower net interest costs.

Revenues were challenged by a tough comparable in 2021, which benefited from an increase in equipment and package deliveries. Mentioned earlier, the current year continue to be challenged by a host of ongoing supply chain and macroeconomic factors. Some of which have not been fully realized, such as inflation and interest rate changes.

Backlogs were $1.5 billion at quarter end, up 53% versus Q2 2021, increases in both Equipment Group of 59% and CIMCO up 18%, reflecting strong order activity over the past year coupled with ongoing supply chain constraints. On a consolidated basis, revenues decreased 4% in the quarter and were largely unchanged at $1.9 billion on a year-to-date basis.

In the quarter, equipment sales were down 19% compared to the prior year with the equipment group down 16% and CIMCO Package revenues were lower by 38%; with both groups continued experienced delays in construction project schedules and deliveries due to supply chain constraints in the current year.

Product support and rental revenues 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 high, while rental revenues increased on larger fleet higher utilization.

Operating income was up 28% in the quarter and 26% year-to-date, primarily due to higher percentage of rentals and product support revenues to total improved gross margins. Expense levels are up slightly at 12.1% of revenue, reflecting continued cost focus in inflationary environment and in support of the gradual business reopening.

Net earnings increased 31% in quarter, 28% year-to-date versus 2021; while basic EPS increased $0.32 to $1.35 per share in the quarter and increased $0.46 to $2.08 per share on a year-to-date basis.

We're proud of our team as they remained committed to a disciplined execution of our diverse operational model, adapting to changes in this business environment; while remaining focused on executing our customer deliverables.

Activity remains sound with favorable backlog levels but supply chains remained challenged. That says restricted availability is likely to continue to result in delivery date extensions. Pandemic challenges remained and will continue to measure inflationary pressures, interest rate movements, and supply demand dynamics as the economic environment continues to evolve and change.

Efficient hiring remains a priority to our product support offering and to meet our long term growth objectives. Diversity of our geographic landscape and market served extensive product support service offerings, technology investments and financial strength together with our disciplined operating culture continued to position us well for the long term.

Mike, I'll turn it over to you for more detailed comments on the Group results.

[Michael McMillan, Executive Vice President and CFO]

Thanks, Scott. Starting with the Equipment Group on Slide 6. Revenues were 2% lower in the quarter and up 2% on a year-to-date basis on weaker equipment sales offset by higher product support and rental activity in most markets and regions.

Total new and used equipment sales were down 16% overall in the quarter and down 9% year-to-date. Sales decreased across all markets and regions in both the quarter and year-to-date. New equipment sales decreased 90% in the quarter and 12% on a year--to-date basis, as continued inventory supply constraints delayed deliveries to customers.

Used equipment sales decreased 7% in the quarter and increased 1% year-to-date. In the quarter, construction markets were lower 15%, mining lower 25%, power systems lower 14%, material handling lower 49% and agriculture up 4%.

As Scott mentioned, rental and product support performance partially offset new and used sales in the quarter. Rental revenues were up 19% in the quarter and 23% year-to-date. All markets and segments were up reflecting continued improvement in market activity in the second quarter and for the first half of the year.

Light equipment rentals were up 22% in both the quarter and year-to-date; heavy equipment rentals were up 3% in the quarter and 13% year-to-date. Power rentals were up 38% in the quarter and 35% year-to-date. Material handling rentals were up 16% in the quarter and 18% year-to-date.

The RPO fleet rental with a purchase option fleet was at $44.2 million versus $32.2 million a year ago, reflecting higher demand, however still well below pre-pandemic levels. Product support revenues grew 14% in the quarter and 11% year-to-date in both parts and service revenues in the majority of markets and regions.

Activity within construction markets was up 17% in the quarter and 14% year-to-date. Mining was up 15% in the quarter and 11% year-to-date. Material handling was up 19% in the quarter and 6% year-to-date.

Agriculture activity was down for both the quarter and year-to- date, reflecting a slower start to the year. Gross profit margins increased 380 basis points in the quarter and 280 basis points year-to-date compared to last year with approximately half of the improvement driven by a favorable sales mix.

That being higher product support and rental revenues to total. Rental margins were up 80 basis points for the quarter and 90 basis points year-to-date, reflecting improved activity in fleet utilization. Equipment margins contributed 70 basis points in the quarter and 90 basis points year-to-date, reflecting sales mix new versus used.

Product support margins improved in the quarter, but were lower in the first half with higher costs stemming from the supply chain challenges, inflationary factors and persistent pandemic impacts.

Selling and administrative expenses in the quarter decreased $2.1 million or 2%, were up $8.1 million or 4% for the first half of 2021. Compensation costs were higher in both periods, reflecting staffing levels, regular salary increases and increased profit sharing accruals on higher income.

Other expenses such as training; travel and occupancy costs have increased in light of activity levels, resumed spending and inflationary pressures. While Information Technology spend has decreased on the completion of several integration projects. Bad debt expense increased $1.2 million in the quarter on slower collections late in the quarter and decreased $0.5 million on a year-to-date basis.

Selling and administrative expenses were 20 basis points higher as a percentage of revenues; that is 12.9% versus 12.7% last year. Operating income increased for both the quarter, up 30% and year-to-date was up 27%, mainly reflecting the higher rental and product support revenues, improved gross margins and favorable sales mix.

Bookings decreased 37% in the quarter and 27% year-to-date across most sectors except for material handling, which was up 40% and agriculture up 36%. Construction and mining bookings were down 43% and 5% respectively in the quarter, reflecting a strong prior year comparable that included several large orders.

Power systems were also lower 42%. Backlogs of $1.3 billion were 59% higher than this time last year across all sectors. Approximately 65% of which are currently expected to be delivered this year and subject to timing differences depending on vendor supply, customer activity and delivery schedules.

Let's now turn to CIMCO on Slide 7, revenues were down 21% in the quarter and 15% year-to-date, mainly due to weaker package revenues versus a tough comparable, which included several large construction projects last year, compounded by supply chain challenges, which is resulting in the deferral of some construction schedules.

Product support sales were up 14% in the quarter and 23% year-to-date, as activity continued to present strong results, especially in the recreational market. Package revenues were down 38% in the quarter and 37% in the first half of 2022 largely due to several large industrial projects in process in Canada in the prior year.

Industrial market revenues were down 52%, partially offset by an increase in the recreational market up 9% for the quarter. The U.S. markets are relatively consistent revenues year-over-year for the quarter. On a year-to-date basis, both market segments were down primarily due to large industrial projects previously noted.

Product support revenues improved by 14% in Q2 and 23% in the first half of the year versus last year. Revenues in Canada increased 24% in the quarter and 30% year-to-date, reflecting higher economic activity levels. Activity levels increased with the easing of pandemic restrictions and a reopening of recreational centers after a prolonged pandemic closure.

In the U.S., revenues were down 9% for the quarter and up 3% year-to-date. The increased technician base continues to support our activity levels. Gross profit margins increased 420 basis points in the quarter, 330 basis points on a year-to-date basis versus last year. A favorable sales mix with a higher proportion of product support revenues to total accounted for 250 and 280 basis points of the increase respectively.

Activity revenues improved in both periods on improved execution and the nature of projects and process. That said product support margins were slightly lower in both periods on inflationary factors and supply chain constraints.

Selling and administrative expenses were up 3% in the quarter and 2% year-to-date, mainly reflecting increased occupancy costs associated with relocation of the Canadian Head Office to Burlington and changes made in other branch facilities. Expenditure control measures on discretionary spend remained in effect.

Operating income was down 16% for the quarter and 4% for the first half of the year, reflecting lower package revenues partially offset by the strong product support revenues and higher gross margin on the favorable sales mix. Bookings were up 6% for the quarter and year-to-date at $48.9 million in the quarter and $88.7 million on a year-to-date basis.

Industrial orders were higher in both Canada and the U.S., while recreational orders were down mainly in Canada, offset by an increase in orders in the U.S. Backlogs of $174.5 million were 18% higher than the end of June last year. Both recreational and industrial backlog increased in part reflecting slightly better order input and the deferral or delay in construction schedules resulting from supply chain constraints.

Recreational backlog increased in both Canada, up 16% and the U.S. up 78%. Industrial backlog also increased in both Canada up 5% and in the U.S., up 26%. We expect approximately 95% of this backlog to be realized as revenue in the year. However, again, this is subject to construction schedules and potential changes stemming from supply chain constraints.

On Slide 8, I'd like to touch on a few key financial highlights. Non-cash working capital was relatively unchanged versus a year ago, up 2%. As always, our operating teams focus on capital employed and continue to proactively manage working capital to respond to customer requirements, activity levels and supply chain challenges.

Accounts receivable collections were slower with DSO up 5 days compared to Q2 of 2021. Equipment Group was up 5 days and CIMCO was up 14 days. Inventory levels are higher than prior year levels, driven mainly by the equipment group, including equipment; work in process and parts levels. Availability challenges however persist and a key contributor to this increase.

We ended the second quarter with ample liquidity, including cash of $778 million and an additional $465 million available to us under our existing credit facility. Our net debt to total capitalization ratio was at minus 7%. Under our NCIB program, the company purchased and canceled 362,000 common shares for $37.7 million during the quarter, which is intended to exercise good capital hygiene, primarily by mitigating option exercise dilution.

Overall, our balance sheet remains well positioned to support the operational needs to be prepared to manage challenges related to the economic variables we're all experiencing and consider other investment opportunities as they arrive. Toromont targets a return on equity of 18% over a business cycle. Return on equity improved 1.5 percentage points to 20.5% in the quarter compared to 19% for 2021.

This exceeds our 5-year average of 19.8%. Return on capital employed was 29% for the quarter, up from 24.2% for Q2 of 2021, both metrics reflecting improved earnings and capital discipline. And finally, as announced, the Board of Directors yesterday approved a regular quarterly dividend of $0.39 per share payable on October 4, 2022, to shareholders on-record September 8, 2022.

On Slide 9, we conclude with some key takeaways as we look forward to Q3 and the second half of '22. We expect the business environment to remain challenging with a number of factors in play. While industry activity levels have improved as pandemic restrictions continue to ease in most markets, health of the global supply chain, inflationary pressures and other global factors are exerting pressure and presenting challenges that overshadow normal seasonality and patterns.

We continue to proactively monitor developments closely and we stand ready to respond appropriately. We'll continue to focus on our key 3 priorities: protecting our employees, serving our customers and protecting our business for the future. Our backlog levels are supportive, but subject to global supply challenges and related deleverage schedules.

Technician hiring remains our top priority to meet long-term demand and build our team for the future. Operationally and financially, we are well positioned to effectively respond to both customer requirements and market opportunities, leveraging our operating disciplines and culture.

We greatly appreciate our entire team's exceptional effort and commitment to support our customers during such a unique and challenging time. Thanks also to our valued customers, supply partners and shareholders for their continued support. That concludes our prepared remarks.

At this time, we'll be pleased to take questions. Paul, over to you to set up the first call, please.

[Operator]

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

[Jacob Bout, CIBC Capital Markets]

The first question is on the sustainability of margins. I think when I look back; this is the highest second quarter EBITDA margins ever. And obviously, mix plays into this, but maybe just talk a bit about the sustainability. Is this the new normal? And how should we think about inflationary pressures heading into the second half?

[Scott Medhurst, President and Chief Executive Officer]

Well, I think similar to what we commented on in the first quarter, I mean, you're in a very unique and complex operating environment. I think we are pleased that when we stuck to that rental strategy as best we could through some difficult times with low utilization. And we're really proud of the team that stuck with it and of course the integration of Quebec and Maritimes on that go-to-market approach.

So I mean that started to -- that really paid off for us shows what can happen with that operating model. Those utilization numbers were really strong. We've been uploading. We even expanded our footprint in there last year with capital allocation and that contributed as well. So we're really pleased with the team's execution. And it came through everywhere, Jacob.

It was the power rental. It was a heavy rental component. It was material handling rental and then of course, the full rental services model. So it was favorable. You have a -- I mean, I think we're fortunate with the -- how it was executed with -- combined with the product support component. We have nice growth in there on the product support side.

So you had those 2 go-to-market channels doing reasonably well and all it shows the strength of that model. In terms of going forward, I mean, I think there's a lot of factors in there right now with inflationary factors, interest rate changes.

We're monitoring things closely. But we're fortunate with how some of those models played out and came together. So that's what happened and shows you the diversity of the model. But the equipment sales were down. A lot of it was due to the constraints. So you've got some shifts in there that led to this outcome. So and again, some results are distorted and have been for a while now. So I think you got to look at things over the longer term.

[Jacob Bout, CIBC Capital Markets]

And the second question here is just on new bookings, down quarter-on-quarter and year-on-year. And it looks like construction Power Systems end markets down. Are you seeing any evidence right now that construction project decisions are being pushed out?

[Scott Medhurst, President and Chief Executive Officer]

So I think it's important to understand this very tough comparable on a quarter-over-quarter. And that's why, again, I think when you look at the views of what's going on, you got to look at it longer term.

Last year, you'll recall in Q2, we said those were historical, historically strong second quarter activity levels. And when you compared it on a previous years, and a lot of it was due. Remember, we were just starting to open up. It was coming out of the pre-pandemic buildup I think.

So we knew this was going to be a tough comparable. When you break it down, I mean, certainly, the industry activities came off over 20% on a quarter-over-quarter basis, but that was expected. They were still historically strong. When you compare it to pre-pandemic, I mean it was reasonably solid.

But and there was some shift there also on how the mix played out in your industry activity. So a little more smaller activity or smaller products. So there are some tough comps in there, tough comps at CIMCO as well. So that's what went on there.

[Jacob Bout, CIBC Capital Markets]

So any evidence of sticker shock at all on the residual process?

[Scott Medhurst, President and Chief Executive Officer]

Well, that's what we're monitoring that closely, right? Because you're starting as that quarter built, you started to see the trends of the increased inflationary factors that were building throughout the quarter.

So that's -- we're monitoring. I mean, that backlog is strong. And I think the key is that we continue to work hard on our value propositions with our customers and that's what we're doing.

[Michael McMillan, Executive Vice President and CFO]

Yes. And just maybe, Jacob, just a little more color on the bookings and so forth for Q2. Like when you think of where we've been go back to '19, we would -- we weren't -- we were slightly above where we would be in this quarter for example.

I think we were at about $470 million back in Q2 of '19. That drop in '20 with the pandemic. Of course, that was the first full quarter, right, at $350 million or so. And in Q2, we saw an exception -- like more activity, a lot of buying patterns had shifted and we were up around $680 million.

So comparatively, where we are this quarter $448 million or so is lower, but relative to what you might think of. And I wouldn't say we're near normal seasonality. But just to give you the color. The trending has been, as Scott said, distorted due to all the other exceptional factors. But that gives it some context when you think of pre-pandemic levels.

[Operator]

The next question is from Michael Doumet from Scotiabank.

[Michael Doumet, Scotiabank]

You spoke about the increased inflationary factors through the quarter. And I'm wondering if maybe you can help us think about the cadence of the business trends here. On one thing, just in terms of what we're reading, it does seem like the sentiment for non-res construction remains quite resilient, even, I guess, given all the bearishness in the markets.

But any color in terms of customer behavior purchasing patterns as Q2 progressed, any change from beginning to quarter through to call it, July?

[Scott Medhurst, President and Chief Executive Officer]

Well, the only trend we saw was when we -- again, we knew what was going to happen was that on that historically high activity level. Last year, we knew it would get into a more reasonably comparative to previous Q2s and cycle.

So that happened. Activity levels remained active; you compare it to previous normal Q2s. The product support, we're pleased there. So that was -- customers were active, right? And ours are going on units and we're tracking that closely.

So we didn't see anything other than the supply constraints were impactful again in the quarter. You saw that in the new and the new sales in particular and softening quarter relative to last year.

[Michael Doumet, Scotiabank]

Sure. Okay. And then maybe any way you can break out the lower technology spend in the quarter related to the integration? Just wondering, if the amount was material because it even though it was enough to offset higher inflation and compensation, training and travel. Just wondering, again, if it's material and if it's a number that we should think about on a go-forward basis?

[Michael McMillan, Executive Vice President and CFO]

Yes, maybe just a little bit of color. We don't break it out, Michael, but just to give you some context. I mean in our spending numbers, I think, certainly, at this time last year, we were integrating on our main platform for Quebec and Maritimes and there's a lot of activity going on there. And I think that persisted all the way into Q4.

This year, when you look at our spend; as we mentioned, we have a slightly higher complement of headcount. We have the inflationary factors; a lot of discipline on spending at this point in time as well.

But also within our numbers, we did give some color. We also have things like on an aggregate basis, the DSU mark-to-market does bring our spend down. So there are a number of moving parts in there. And so if we strip that out, I would say we are up year-over-year overall.

But we were spending at a higher pace as opposed, when we were doing the integration component. So I give you a bit of flavor there. There are a number of moving parts in there that I think we can -- you can probably isolate to get a better sense.

[Michael Doumet, Scotiabank]

Got it. And I guess, just trying to think about the trend for the second half. I mean any way you can comment on maybe the impact from pure CPI to your SG&A and maybe some of the moving parts and where that leads to down or up for the second half?

[Michael McMillan, Executive Vice President and CFO]

Yes. I mean I think we focused on our spend. I mean our model -- our operating model and really making sure that we run pretty lean on a corporate basis, right? And as we often say, Scott -- and blunts and the sharps are where we invest. So, the revenue generators, the technicians and the folks that are working with our customers.

And so I think we're going to continue to see a little bit of inflationary pressure there on the variable cost side as far as -- as we do -- we've been pulling back pretty hard. We still have controls in place for things like travel leveraging technology.

So there'll be a little more discretionary spend as activity levels reward and customer requirements dictate as well.

[Operator]

The next question is from Bryan Fast from Raymond James.

[Bryan Fast, Raymond James]

Yes. Just given the shifting macro backdrop, could you provide some comments just on the strength of the backlog? And have you done any stress testing and seen any cracks?

[Scott Medhurst, President and Chief Executive Officer]

Well, that's being monitored very closely. And what we saw in the quarter, we didn't really see any cracks in the quarter. We're monitoring it closely, working closely with our customers and our supply partners relative to the shifting delivery periods. So that's what we're doing, staying very, very close to it.

[Bryan Fast, Raymond James]

And then just could you maybe comment on the product support side of things? Was -- there any constraints on the growth there, whether it'd be technician availability or other factors?

[Scott Medhurst, President and Chief Executive Officer]

We're very pleased with how our team is executing our recruitment of technicians. That's steady progress in there, remains a priority and you saw that in the numbers. Okay. That's been going on for some time now, right, Bryan?

With levels remained high, okay? And that again reflects the supply chain. I mean, we've got -- I think we're up over 50% in web and over 40% of that web is held because we're waiting on parts, components, things of that nature. So that's impactful in there in the quarter and you look at what's taking place there.

So it's broader than just equipment. It's impacting. And so that's the color on -- but we're pleased with progress on product support, pleased with technology investment. We're tracking data in there as well in online parts order.

[Operator]

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

[Maxim Sytchev, National Bank Financial]

I was wondering if it would be possible to comment a little bit on your rebuild capacity as I think you're investing on this side and just what that could mean, let's call it, for the medium term for the business.

[Scott Medhurst, President and Chief Executive Officer]

Sorry, I missed that. We missed that, Max. What capacity you're referring to, sorry?

[Maxim Sytchev, National Bank Financial]

Rebuilding capacity because I think you are…

[Scott Medhurst, President and Chief Executive Officer]

Okay. So solar -- and that's a key strategic area for us. We continue to invest. We -- I think we're -- what we saw in the quarter again was tremendous growth on our rebuild and our component.

And so the capacity is in there. We're putting more resources in there. We're investing for the future in there in a big way. So we're pleased with how the team executed in the first half. And again, rebuild activity was up over more than doubled it so net-net so that's a very positive thing.

And it's another example of how we're shifting in this complex environment relative to value propositions for customers. And same thing, even though our used was down, we -- our used purchased was up over 35%. So we're -- then again, that's reflective.

We're rebuilding units in there. We're buying cores and rebuilding units to go to market. So we're pleased with that what progress on that front as well, which transcends into some of that remained activity.

[Michael McMillan, Executive Vice President and CFO]

Yes. And I think maybe, Max, just what you may have been alluding to, too, is the CapEx and so forth. We're investing in a new facility, as we mentioned in the last quarter to the tune of $65 million or $70 million over the next 2 years to support our future business as well.

And so we have a facility we're developing on some of our own property north of the GTA. And so that -- you'll continue to hear a little bit more of that as we make progress.

[Scott Medhurst, President and Chief Executive Officer]

Yes. We see this as a real growth avenue. It's also part of our circular economy.

[Maxim Sytchev, National Bank Financial]

Yes, right. And I guess like in terms of capacity and I don't know if you have the ability to sort of put a percentage on that. But is it, I don't know, like 10%, 15% sort of increase to throughput that we could think about or it's tough to say?

[Scott Medhurst, President and Chief Executive Officer]

Well, you got to remember, a lot of these -- like, we have dedicated reman centers. But we can also do rebuilds in our shops as well, right? Not everything flows through the reman when you talk about rebuilds.

[Maxim Sytchev, National Bank Financial]

Okay. That's helpful. And then my other question just pertains to potential capital deployment. I mean, obviously, Scott, you telegraphed your thought process around the next kind of 15 months. Just curious how you approach this particular subject right now?

[Scott Medhurst, President and Chief Executive Officer]

Look Max, this is all about a team here. And the disciplines are started embedded with this team. This is -- we'll continue to move forward, execute our strategies, stayed the course when opportunities present themselves.

We're ready that this team is assessed as a team by our supply partners and that's where we are. So nothing really changes here on that front.

[Michael McMillan, Executive Vice President and CFO]

Yes. And just broadly too, Max, on capital allocation. I think one of the things you see in our results is an increase in some working capital inventory and Scott touched on that.

And I think we anticipated -- number one, we always prioritized the care and feeding in support of our business and growth for our customers and supporting our customer base. Our inventory is up to the tune of about even, I think equipment was up about $189 million here in the quarter or year-to-date.

And so that -- the mix of that inventory, as Scott mentioned, is also somewhat dictated by the availability and supply. And so we expect that to continue to invest a little more in inventory as availability improves and things like that get to a more normalized mix, if you will.

But that will be our first priority. I think the other things we've been spending more on -- is CapEx. As availability improves, building our rental fleet, investing at a pace that we would have expected to be at to support the growth in the business, especially in the QM and so forth.

And so those will be areas developing that rental model further. So -- but it's really more about organic initiatives. And then we've -- we're in a good cash position. We talked a little bit about NCIB. We continue to work away at that in a very disciplined fashion.

[Scott Medhurst, President and Chief Executive Officer]

Yes. And just Max, on the rental fleet and that's been a real balancing act there. We really shifted in the quarter to try and prioritize some of these fleet uploads because we've compromised a bit through the challenging environment for the last few years. So that impact because of the tight supply that impacted our retail a bit.

But because we -- so it's a bit of a balancing act that we're delighted that we started to shift last year on those rental fleets. And you saw a bit of that outcome in the quarter with a very high utilization and strong rental revenues throughout.

[Operator]

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

[Sabahat Khan, RBC Capital Markets]

If I could just follow up quickly. If I could follow up quickly on the kind of the capital allocation commentary you shared. I guess just given where the macro backdrop and things that are going on, just some market price or shares, potentially businesses impacted in your industry. Big picture, does it changed your view on whether you're more likely direct that capital toward things like capital NCIB or whether you think maybe there's some more opportunities out there in the market.

I was wondering, just curious, as the markets evolve, whether you're thinking on external versus internal deployment has changed?

[Michael McMillan, Executive Vice President and CFO]

Yes. I would say we're pretty disciplined, as you know, Saba, in terms of how we think about in good and bad cycle, so to speak, for evolving cycles. I think, number one, we're very disciplined on our cash flow, our working capital investment and monitoring our customer activity and risk in the business and so forth.

And so we will focus very keenly on the working capital deployed and what we require for that as a first step. I think to your point, I mean, I think as we evaluate this market and its very fluid as everybody is well aware with interest rates and inflation. We want to be very comfortable with our cash position going into a potential recession.

And so we'll be -- we'll stay the course on our discipline there. I think, first and foremost, investing where we think it makes sense, purchasing equipment for rebuild, supporting organic opportunities and growth in the business. I think, first, that's our priority for sure.

And then outside of that NCIB, we've been doing it at a pretty systematic approach in the last 2 years. And I wouldn't say that that will change. I mean, again, we'll evaluate the best return to shareholders.

If we feel comfortable with our cash position, we'll consider some options in that area. But first and foremost is just building the business for the future.

[Sabahat Khan, RBC Capital Markets]

And there's a comment during the kind of the opening remarks, I think from Scott around the impact of inflation and some of the stuff is not maybe fully reflected.

Just curious if that means the impact on your customers or maybe through your cost structure. I just want to get a little bit more color on that comment.

[Scott Medhurst, President and Chief Executive Officer]

That's where we continue to work on our value propositions with these inflationary factors that are coming through.

But our model is -- our model played out in that quarter, particularly with the rental. And as we look at capital allocation, we're still behind on our fleet uploads.

[Sabahat Khan, RBC Capital Markets]

And then you talked a bit about this during some of the pricing, some of that you put through. Just I guess big picture, particularly as you look into the more cyclical sectors like mining, where is kind of directionally the conversations with those investors going kind of have the markets or the commodity prices changed their tone?

Maybe have you think about your soft backlog with the pipeline of discussions that you're having with them. I'm just curious the big picture more from your cyclical sector versus infrastructure?

[Scott Medhurst, President and Chief Executive Officer]

Well, mining is a lumpy sector. It is cyclical. And we're pleased with the performance in terms of our win ratios over the last year in the mining sector. Now we've got to execute that backlog and that's a priority for us and continuing to work hard on our product support offering in the mining sector. That's where we are.

But certainly, it's cyclical. You've got to stay close to it and continue to monitor what's going on in there.

[Sabahat Khan, RBC Capital Markets]

And then just one last one, if I could squeeze in and I guess it looks like the product support revenue is trending well. But there are obviously still some constraints on parts availability.

I guess is it just the type of work that was coming through? How are you kind of just pushing that along while the part supply still remains constrained?

[Scott Medhurst, President and Chief Executive Officer]

Doing our best in working with our customers on demand signals and then communicating with our supply partners as best we can. It's not -- again, it's distorted because in some cases, when components or parts become available, we're taking them.

It's not totally as efficient as we'd like to be on our pipeline forecasting. But -- so again, it's a bit distorted. It's not a normal. You saw parts increase, but we're projecting out. We're not as tight as we like to be on those processes, but that's what we're working with.

So it's, again, just staying close to our customers as best as we can on demand signals and then working with our supply partners to ensure that we do our best to provide the necessary offerings for our customers.

[Operator]

There are no further questions registered at this time. I will return the call back to Mr. McMillan.

[Michael McMillan, Executive Vice President and CFO]

Great. Thanks very much, Paul and thanks, everyone, for your participation today. That concludes our call. Please be safe and have a great day.

[Operator]

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