Toromont Industries Ltd

TSX:TIH

Earnings Call Transcript 2021-Q4

[Operator]

Good morning. Today is February 10th, 2022. Welcome to the Toromont Fourth Quarter and Full year 2021 Results Conference Call. Please be advised that this call is being recorded.Your host for today will be Mr. Michael McMillan, Chief Financial Officer for Toromont Industries Limited. Please go ahead, Mr. McMillan.

[Michael Stanley Howie McMillan, Executive VP & CFO]

Great. Thank you, Eric. Good morning, everyone. Thank you for joining us today to discuss Toromont's results for the fourth quarter and full year of 2021. Joining me this morning is Scott Medhurst, President and Chief Executive Officer.For those on the phone lines, we encourage you to log into our webcast and refer to our website, as well as it features our quarterly slide deck, including Slide 2 containing Toromont's advisory and cautionary statements regarding forward-looking information and statements therein. After our prepared remarks, we will be more than happy to answer questions.So let's get started. Over to you, Scott.

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

Thank you, Mike, and good morning, everyone. Before I begin, I would ask if you move to Slide 3. The company delivered solid results in the fourth quarter and full year of 2021, reflective of our focus on operational execution and favorable operating leverage, including the benefit of ongoing integration and alignment of our dealership territory across Eastern Canada.The Equipment Group reported strong product support deliveries, while rental activity and fleet utilization improved. However, pandemic and macroeconomic factors continue to influence customer buying patterns and affect prime product and parts availability. CIMCO revenues increased year-over-year on strong package deliveries as construction on industrial projects progressed.Product support activity continued in the equipment group dampened somewhat by pandemic and supply chain-related factors. We continue to leverage the learnings from the past 2 years with respect to cost structures and new ways to do business, while maintaining focus on customer service and support. Current backlog levels are healthy and supportive of future results. However, the supply -- global supply chain, including vendor production, continues to be challenged.Product availability, prime equipment, components and parts were affected in Q4, and we will likely continue to see shifts in delivery schedules. Inflationary pressures, anticipated interest rate changes and pandemic-related developments are also being monitored closely. Technician hiring remains a key priority and is essential to support the growing demand for our product support and project construction business.Turning now to the financial results highlighted on Slide 4. End markets continue to be active with solid bookings in most market segments. We are particularly pleased to see some recovery starting in the recreational market as facilities began to open for the winter season. As mentioned, total backlogs were healthy at $1.3 billion at year-end, reflective of customer buying patterns influenced by the pandemic and macroeconomic factors and supply challenges, which have been overshadowing normal seasonality.In the fourth quarter, the Equipment Group reported lower revenues, similarly reflecting the impact of the pandemic and macroeconomic factors. Some purchases were accelerated earlier in the year, while others were shifted into 2022. CIMCO also reported lower revenues in the quarter on the timing of construction projects with a tough comparable last year.Consolidated revenues decreased 4% in the quarter versus last year. Despite the lower revenue, operating income was, up 17% in the fourth quarter, reflecting higher gross margins, strong demand, improved rental fleet utilization and a favorable sales mix. Disciplined focused on cost containment and operational efficiency continued to support results. The strong start to the year, revenues increased 12% on a full year basis, compared to 2020. A solid opening order backlog and strong demand resulted in improved equipment and package revenues, up 18%, while product support and rental revenues also increased.For the full year, operating income increased 28%, compared to 2020, reflecting improved revenues and higher overall gross margin. Revenue growth exceeded growth in expenses, resulting from the team's discipline focused on improved efficiencies and cost management.Net earnings increased 19% in the quarter versus a year ago and was up 31% for the full year, tracking the higher activity levels and positive operating leverage. Our team has expanded incredible effort, dedication and commitment over the last 2 years, adapting to a rapidly changing business environment, while maintaining focus on employee safety and executing our customer deliverables. We thank them for their resiliency and dedication.The diversity of our business, extensive product and service offerings, technology investments and financial strength, together with our disciplined operating culture continue to position us well 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 dig a little deeper with respect to the operating results, starting with the Equipment Group found on Slide 5. The Equipment Group delivered strong operating income growth in the fourth quarter, despite lower revenues, reflective of the operating leverage of our business model. The last quarter of the year has historically been the strongest for the Equipment Group. However, the impact of the pandemic over the past 2 years and more recently supply chain challenges has disrupted this trend.Delivery schedules have been altered based on customer requirements with some pull forward earlier in the year and some being shifted to '22. Equipment Group revenues were down 3% in the quarter versus last year, with equipment revenue, down 12%, reflecting that change in normal seasonality that I just described.Rental revenues increased 12% on higher activity levels across most areas, and we continue to see improved utilization of our fleet. Product support revenues increased 4% in the quarter as activity continued to improve. Our shops and field technicians were more active in Q4 than last year and slightly above 2019 pre-pandemic levels overall.Gross profit margins increased 330 basis points in the quarter, compared to 2020. Sales mix accounted for almost one-third of the increase or 100 basis points with a larger proportion of product support revenues to total revenues. Equipment, product support and rental margins were all higher in the quarter, reflective of continued focus on efficiency and productivity, higher fleet utilization and tight supply conditions.Selling and administrative expenses increased 1% in the quarter. Expenses in '21 include a $5 million charge for the settlement of defined benefit pension obligations for certain retirees. Excluding this and the government wage subsidies recorded in 2020, expenses were down $8.3 million or 8% in the quarter, reflecting the benefit of a continued focus on cost containment, more than offsetting increases for items such as increased headcount, compensation adjustments and some selective return to travel and training to support our teams.Operating income for the quarter was, up 18% reflective of the higher gross margins and operating leverage. For the full year, the Equipment Group reported an 11% increase in revenues and a 30% increase in operating income, compared to 2020, which was dampened by the pandemic, of course, and related regional restrictions in response.Equipment sales, product support and rental activity were higher across most geographic markets and product groups, most notably construction and mining. Equipment sales were, up 17% overall with improved demand in end markets. However, used sales were lower year-over-year, again, demonstrating the strong customer preference last year during the early stages of the pandemic.Rental revenues increased 8% year-over-year on higher fleet utilization and product support revenues increased 6%, reflective of improved activity levels. Gross profit margins increased 130 basis points year-over-year. Equipment, product support and rental margins were higher for the same reasons as mentioned for the quarter. Sales mix dampened gross profit on a full year basis due to unfavorable sales mix in the first 9 months of the year with a lower percentage or ratio of product support revenues to total.Selling and administrative expenses increased 2% for the year, when excluding the pension settlement in 2021 and the government wage subsidies recorded in 2020 noted earlier. The team's focus on efficiency, productivity and cost containment has had a positive impact, while spending was selectively increased to support activity levels and certain investments as appropriate.Operating income for the year increased 30% on higher revenues and good expense levels. Bookings have maintained a healthy pace over the year, increasing 10% in the quarter and 58% year-over-year. Construction up 66% and power markets, up 55% have been stronger, compared to the lower economic activity level experienced in 2020. Additionally, several large mining orders in the early part of 2021 led to a 228% increase in mining bookings for the year.Backlogs ended 2021 at a healthy level, as Scott mentioned at $1.1 billion for the Equipment Group, more than doubled than that -- than this time last year, with increases across all sectors, we expect approximately 85% of this backlog to be delivered in 2022. However, this is subject to changes in equipment availability, delivery schedules and specific customer requirements.Now let's turn to CIMCO on Slide 6. Revenues in the fourth quarter were lower, with package revenues, down 11% and product support down 1%. Package revenues can be variable from quarter-to-quarter, reflecting the timing of customers' construction schedules can also be impacted by larger project commissioning. We are also seeing some equipment supply issues and customer delays, which have shifted some schedules during the year.We did see order levels improve in Q4 relative to 2020, up $31.4 million. And also sequentially from Q3 2021, a positive sign reflective of market activity, we are pleased to see improvements in the recreational markets as some facilities have begun to open up after a lengthy pandemic shutdown.Gross margins improved on good execution, improved package margins and favorable sales mix with a higher proportion of product support revenue to total. Selling and administrative expenses increased $2.3 million or 19% in the quarter with some specific items driving this. Bad debt expense increased $1.3 million quarter-over-quarter on some specific allowances. Additionally, last year benefited from the government subsidies of approximately $600,000, which were not repeated in 2021. Compensation was higher as we continue to hire and other investments to support activity levels for future growth.Overall, operating income improved 10% in the quarter, primarily related to improved gross margins, partially offset by expenses as noted. On a full year basis, CIMCO reported solid results, a strong opening backlog supporting CIMCO revenues in 2021, up 15% overall as construction progressed and projects were completed.Year-over-year package revenues led by industrial deliveries were, up 30%, while product support revenues were effectively unchanged year-over-year. Gross profits were lower for the full year, reflecting tight margins on certain large projects early in the year, combined with unfavorable sales mix of product support revenues to total.Selling and administrative expenses increased 11% for the year, reflecting the higher activity and staffing levels, training programs and facilities-related expenditures related to office moves. Operating income was lower by approximately $1.5 million, reflecting the lower margins on large industrial projects, lower product support mix and expenses, again, as noted. Bookings for the year were healthy at just under $190 million.Last year, bookings included several large industrial orders, making it a tough comparable. Backlogs at the end of the year were also healthy at $161 million, again, lower than last year due to the large industrial orders. However, recreational backlogs were 42% higher with increases in both Canada and the US, reflecting good order intake over the latter part of 2021. Substantially, all of the backlog is expected to be realized as revenue in 2022. However, this is subject to construction schedules, component availability and potential changes stemming from the COVID-19 pandemic.On Slide 7, I'd like to touch on a few key financial highlights. Our operating teams with a keen focus on capital employed have continued to proactively manage working capital to reflect activity levels and underlying demand. Accounts receivable aging is trending well and DSO decreased 5 days from last year, down to 36 days at the end of 2021. Inventory levels were largely unchanged from last year, which were also at a relatively low level. We would expect to see inventory levels increase as supply constraints ease.We ended the year in a strong financial position with ample liquidity, including cash of approximately $917 million, an additional $471 million available to us under our existing credit facilities. Our net debt to total capitalization ratio was at minus 16%. Our overall balance sheet is well positioned to support changes in demand, as we emerge from the pandemic as supply opens up and as other investment opportunities arise.Also of note, in 2021, we initiated our NCIB program, repurchasing approximately 470,600 shares or approximately $50 million worth. Toromont targets a return on equity of 18% over a business cycle. Return on equity was 19.6% for 2021, up from 16.6% for 2020, reflecting the improved earnings year-over-year. Over the last 5 years, return on equity has averaged 19.8%. Return on capital employed was 26.6% for 2021, up from 20.4% for 2020.And finally, as announced, the Board of Directors yesterday increased the quarterly dividend by 11.4% to $0.39 per common share. Toromont has paid dividends every year since 1968, and this is the 33rd consecutive year of dividend increases. We continue to be proud of this track record and our disciplined approach to capital allocation.On Slide 8, we continue with some key takeaways as we look forward to 2022. We expect the business environment to remain fluid in a number of factors -- with a number of factors in play, including inflationary pressures, continued uncertainty with respect to the pandemic and the related regional and market response required. And of course, the health of the global supply chain. We continue to proactively monitor developments closely, and we stand ready to respond appropriately and refine our business practices accordingly.We will continue to focus on our 3 key priorities: protecting our employees, serving our customers and protecting our business for the future. As discussed today, market activity was solid in the quarter and for the year overall, while pandemic and macroeconomic factors have affected customer buying patterns and supply chain pressures have affected delivery of both prime product and parts from suppliers, we continue to work actively with our business partners and suppliers to minimize the impact and support our customers.Across the organization, we are continuing to leverage the learnings from the past year with respect to cost structures and new ways to do business. Our backlog levels are supportive, but delivery schedules are subject to global supply chain constraints for availability, including vendor production constraints.Technician hire remains a top priority to meet demand and to 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. It has been another incredibly unique and challenging year, and we appreciate our entire team's exceptional effort and commitment to support our customers during this time. Thanks also to our valued customers, supply partners and shareholders for their continued support.That concludes our prepared remarks. We'll be pleased to take questions. Eric, over to you to start the first call, please.

[Operator]

We will now take questions from the telephone lines. [Operator Instructions] And we will take the first question from Jacob Bout from CIBC.

[Jacob Jonathan Bout]

My question is on the improvement in margins that we saw in the fourth quarter. Maybe just start off, break down maybe how much of this was mix. I think you said in your commentary around 100 basis points versus rental revenues versus equipment margins. And then maybe just talk a bit about the sustainability of each one of these buckets?

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

Okay. Thanks, Jacob. I think it's reflective of sort of the sum of all the parts and what took place there in the quarter. As we said, the rental utilization really improved, continued to improve and we're delighted to see. And particularly, we saw improvement in our -- with the integration taking place in Quebec and Maritimes area. So I mean, we had some nice gain there about 5 points on utilization. So that certainly contributed. As did the mix, as Mike outlined in the opening comments, that was about 100 basis points. Then you had some good closeouts at CIMCO and some of the projects, which was pleased to see that.And then, of course, our total value propositions, including the improvement on CVA offerings, that all added up to an improved margin. And combined with the unique operating environments, we had some efficiencies operationally that we've been really focused on, particularly, as you recall, last year, we had the ERP plug-in to get a common platform in most of the equipment group. We got the material handling business done in the fourth quarter, so that will be good going forward. So we continue to work hard on the operational efficiencies. And -- but we had some really favorable operating leverage, again, due to the unique environment. So those are the areas that really, I think, added up when you talk about the sum of all parts.

[Jacob Jonathan Bout]

So in your mind, this continues into 2022?

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

I wouldn't want to speculate in this environment on anything right now. There's a lot of variables in play. As we outlined in those opening comments, you've got -- we're still operating, I think, Eastern Canada is demonstrating -- trying to demonstrate discipline in the COVID environment. And so there's a lot of factors still in play there. So I wouldn't want to speculate. What we're doing is trying to stick to the disciplines, trying to stick to our core business components and philosophies, operating and improving our efficiencies, while really focused on our customer value propositions.But I think the team operated favorably in the quarter. I think it's tough to compare quarter-over-quarter. I think when we look at -- we try and -- what we've done is to take a broader look at how we're performing. And I think if you look at the full year, that's a better view, because there's a lot of uniqueness in these quarters from a historical basis quarter-over-quarter.

[Operator]

The next question will be from Michael Doumet from Scotiabank.

[Michael Doumet, Analyst]

So it's somewhat of a follow-up to Jacob's question. But on a like-for-like basis, SG&A declined 8% and the MD&A reads as though there were several moving parts. And Scott, you mentioned I think there is some movement within the quarters as well. I mean, how should -- or how much should we read into that, particularly in the context of the inflationary pressures that were noted across the economy?

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

Maybe just to start on that, Michael. Thanks for that. I think a couple of things to mention. With the pandemic and, call it, the extension of some of the safety protocols and constraints that we all operate under, I think what we're saying is we've learned a lot through the pandemic. We're also still restricting some of the discretionary spend, right? And so the operating leverage we're seeing is partly a function of that as well.There are 2 things really, I would say are 3 things. What we've learned and how we're operating more efficiently and effectively. The second thing, I think, is what I just mentioned, the pandemic and some of the restrictions that we're managing and navigating very carefully through. And then I think the other piece is, there's certainly inflationary factors coming into play, and I don't think anybody has realized those effect like completely. And so I think through the course of the next year or 2 depending on how the macroeconomic conditions change, we would likely see some additional inflationary factors over time, right? So that kind of gives you some backdrop. But I think the team has done a very good job of managing costs very effectively and trying to make sure that we preserve some of those learnings.

[Michael Doumet, Analyst]

And the second question, maybe a little bit of a nitpicky question, but can you provide some color as to why inventories increased sequentially, which isn't typical, I guess, for Q4? And again, equipment availability remained tight and backlog increase. I mean, is that explained by mix, maybe more parts versus equipment? Any color there would be great.

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

Yes. I think -- well, part of it is when you -- there's so many moving parts in there. So part of it was like we had a significant amount of slippage in terms of our estimated deliveries in the quarter and what took place and slipped into '20. Some of it was we couldn't get iron through the shops, because we're waiting on some components and parts when we're getting iron ready to ship. So that's part of it. So you've got a bit of a build there.We did see some increase on the RPO inventory. But again, it was up, I think, almost $10 million, but still historically very low, right? I mean, we're used to seeing coming into the fourth quarter, $80 million, $90 million of RPO, but the RPO revenue increased, I think, over 10%, and that reflects some increase there in the inventory on a comparable basis to last year. So you've got some -- and WIP was up slightly. So again, it's a lot of different factors in there, but that inventory traditionally in Q4 declines as you're saying. But there's still just unique environment right now with some variables.

[Michael Doumet, Analyst]

Yes. No, makes sense. And just as a follow-up, I mean, were those factors help evenly across the quarter? Or did they worsen at some point through the quarter? Just to get a little bit of color there.

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

Sorry, I missed that. Michael, in terms of?

[Michael Doumet, Analyst]

Yes, just in terms of the slippage and the components coming a little bit late, I'm just wondering if that played, you know, played evenly across the quarter? Or if that was felt a little bit more towards the end of the quarter?

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

Towards the end, I mean, usually, we build through that quarter in terms of deliveries. And it was -- on a historical basis, I mean, it was a lot higher than normal on that slippage, both on our larger iron and our small irons. So we felt it in the rental services business, as well as the heavy equipment. So -- and then some jobs, even the rebuild activity was strong throughout the year, and that's softened because we just -- we were waiting on some parts and components.

[Michael Doumet, Analyst]

Yes. That makes sense in this environment. All right, guys. Thanks a lot.

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

Thank you.

[Michael Stanley Howie McMillan, Executive VP & CFO]

Thank you.

[Operator]

The next question will be from Yuri Lynk from Canaccord Genuity.

[Yuri Lynk]

Just wondering, if it's your sense that your competitors are facing the same parts of availability issues? Or do you feel you might be at risk of losing some parts market share given the constraints?

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

Well, this is where we're doing a better job tracking our data coming off the units. And I think we're -- I think everybody is feeling the same pressures. We were pleased with -- when we look at our overall performance parts and service, I think, the team did originally good job on that front, when you look at the activity levels. So we're -- I mean, if you look at it, like rebuilts, we're very focused strategically on our rebuilds. And overall for the year, on a unit basis, we were up 45%. There was some slowing a bit, even though we're still up on a quarter-over-quarter basis, about 30% plus, but because we had to wait for components and some things and even some of the fast-moving parts we had gotten some tightness there.So I think we've been performing reasonably well there. I mean, the service numbers were coming up in the quarter. Good that shows we're continuing to hire and be able to meet those demand signals, but the service was up more than the parts. And I think that's reflective of some of these constraints.

[Yuri Lynk]

Just to SG&A, your -- in absolute dollars, you're kind of back to pre-pandemic levels in 2021. Albeit on higher revenue, can you just talk about how you feel your scale here for -- to handle additional revenue in 2022? And is there a bit of slack in your overhead to handle additional revenue? It does look like you're running pretty lean at this point. So just wondering if you can comment on operating leverage and the ability to continue to drive that ratio to sales lower as we go through the years here?

[Michael Stanley Howie McMillan, Executive VP & CFO]

Yes. I think a couple of things I would mention there, just to start and Scott will have some color, too. I think as you look at our numbers, certainly, we put a lot of focus on the discretionary aspect of our spend rate. And so when you look at -- I'd say from a staffing level, I mean, we've worked really hard to help our people through the pandemic. We initially used some different programs and things, but we bridged benefits and did everything we could to retain our people. And so from a staffing level, managing our costs that way, we're really looking at the long-term and preserving our support for the future as we work our way through it.So what you are seeing there really is a function of more of the discretionary side of the business and how we're willing to operate, manage that type of cost structure at this point. And as I mentioned earlier on the call, we expect we're going to spend more on travel and training and some other things as conditions these, and we can get out a little more effectively, but we are targeting lower levels because of what we've learned and how we use technology and things like that. So it's really a function of a couple of those factors.

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

Yes. And I think, Mike is right. We always try to be attentive over the long-term, particularly with our skilled labor requirements and that we were pleased that we were able to get some traction in the last year with some increases. But we're also very focused that -- having that common platform, I think, helped out a bit last year. We still have some work in there. But that helped in some of these SG&A factors as well with some of the operating efficiencies.I mean, we really have been working hard to clean some of these, like material handling business and there were some progress there in some of our other parts and service areas that needed to improve. So, there is a bit of that. And again, a lot of different variables on the SG&A, but it was a favorable, as Mike alluded to on the discretionary, I think our teams have showed a lot of discipline in there. And there has been some favorable operating leverage in there as well.

[Operator]

The next question is from Cherilyn Radbourne from TD Securities.

[Cherilyn Radbourne, Analyst]

I was hoping you could give us a bit more color on the supply chain constraints that the company is experiencing and how they compare it in Q4 versus Q3 and how you would characterize them sort of versus prior cycles?

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

I'll start with Q4 a bit. So, we saw, I'd say, some further tightening, because we saw that slipped -- there was the slippage occurred, right. And that's reflected in the backlog a bit as well, Cherilyn, right, when we experienced that in Q4. I'm actually -- I think, we applied our teams, our teams have been working very closely with all our supply partners throughout the year. And that's why there was a -- be careful isolate in Q4 because there was -- we saw that shift in buying pattern from a historical basis. So really -- so there were some softening in the industry activity in Q4, so -- but our teams worked hard with our supply partners to really get a hold of the demand signals.So when you look at it overall through the year, I mean, I applaud what our supply partners did to help us meet those demands. But there was some further tightening in Q4 and -- but we continue to work hard on that. And historically, when you compare it to cycles, that's an interesting question. I tell you, I haven't really thought about it on historical. I mean, you and I both been around a while. And so, this one is unique, right, in some ways with the pandemic, right. And because it's added some complexities with both our employees and how we're managing through shutdowns and things of that nature, it's very variable. So I don't know how to compare it on a historical other than, I think, both our teams worked well with our supply partners to try and meet these demands as best we could. But there was some tightening in that quarter.

[Cherilyn Radbourne, Analyst]

What impact, if any, did the Omicron wave have on your operations during the quarter and those of your customers, whether as a result of absenteeism or other factors?

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

We started to see a bit of it. Again, it's a very fluid environment with the COVID situation. So, I think we continue to operate with eyes wide open. We're trying to maintain disciplines here and protect our employees. That's been our mantra from day one. So, I mean, that remains a very fluid environment.

[Michael Stanley Howie McMillan, Executive VP & CFO]

I think, just on that too, Cherilyn, as we look at Q4, it was starting to build, Omicron was becoming more prevalent. You'd say that the peaks I think that you've seen publicly and stuff have hit really in January, February. It's an interesting dynamic. We've maintained strong protocols all the way through, like Scott mentioned, to protect our employees and protect our customers frankly and just make sure we're there to provide service. And so, I'd say from that perspective, the team has done a really nice job of really being disciplined and safe. But we are seeing -- certainly are seeing more cases, shorter duration on average, but we expect to see some absenteeism as we go into this year until this particular strain tapers off, and we see what happens after that.

[Cherilyn Radbourne, Analyst]

And if I could sneak in a last one. I assume that mining relates to the backlog that now stretches into 2023. So, it would be great if you could give us some color on just the composition of the mining backlog by commodity and by geography as it stands today?

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

Well, we're more diverse in there now with our integration. But we're still -- we're seeing -- in that backlog, we saw good activity in gold, but there's also some activity in other, the nickel and iron ore. So, there's a bit of a mix there, but gold was solid in that backlog, but construction is also quite prevalent in that backlog as well. So, we're kind of pleased that it's spread out a bit even in power. So that's good.

[Michael Stanley Howie McMillan, Executive VP & CFO]

Ad you'll note that we do have -- we do give some color there. And you mentioned the mining piece, which is round numbers 30%, 31% of the backlog, roughly speaking. And when you look at the backlog that's there today, I think we note in the equipment side, about 85% of that's expected, of course, dependent on the availability and so forth, but expected to be fulfilled within the year. The balance of that goes into '23 and would relate primarily to mining, right. So, it gives you a bit of flavor there. I think construction is about 45%, 46% of that backlog number as well.

[Operator]

Thank you. The next question is from Bryan Fast from Raymond James.

[Bryan Fast, Equity Research Analyst]

Just on rental, we saw strength this quarter, and has it performed in line with your expectations? And then, maybe what kind of investments do you see to get your fleet size to where you want it to be?

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

We were very pleased as we progress through the year. Our teams have been working very hard on how we look at the assessed -- the utilization on the different product families, and that's in our rental services business, our heavy rents, our power and material handling were strategically we really had to work through a complete reset in there as well. So, I think we've improved, the efficiencies have improved, still ways to go. And the utilization we were very satisfied with the improved utilization as the year progressed.That said, it's been -- we might be a bit unique because we have strategically such a strong strategic view and investment strategy on the rental throughout all the different businesses. It's been a balance with this tight supply on fleet allocation as well as meeting retail. And that might be a bit unique for us, how things are balancing out here. I think the teams have done a nice job balancing those demand things with our supply partners. But I mean, we were tight on fleet uploads, trying to balance these both factors of retail and rental fleet upload. So, I think, overall, the team did a reasonably good job in there and we're pleased with the progress we're seeing now on the rental business.

[Bryan Fast, Equity Research Analyst]

And then, maybe as you reflect on the last couple of years and the pressures you have faced on the supply side, will this change the way you approach inventory management going forward? Or are there any learnings that you are able to take away?

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

So, we -- it's a combination of, I think, we've always tried to be good -- showing good discipline on the asset management. And when we try and be opportunistic relative to demand signals, both on new, used and how we look at rebuild activities and rentals. But there is some learnings in there. I think also we're assessing data better than we did a couple of years ago. And how we work with our suppliers are ordering our parts and being better providers of demand signals to our supply chain through the data points that we're monitoring closely and as well as how we look at customers fleet aging, we get better information there. So, I think that's an area we continue to focus on with our investments in our digital strategies. And we continue to build on that strategy as well. I mean, we saw some continued improvement in our CVA activity as well as how we're monitoring our parts flow. So, yes, those are all areas that we continue to look at strategically.

[Michael Stanley Howie McMillan, Executive VP & CFO]

A couple of things, 2. Bryan just mentioned, sort of elaborate on what Scott mentioned. When we look at what we've -- pandemic aside for a year now we've been on TDMS on our platform for the Toromont Cat business with Quebec and Maritimes, that's given us that visibility Scott talks about. The ability to optimize better, plus we're still working the integration, right, and working with the teams on that side of things. So that's been helpful.But outside of that, 2 businesses that have done a really nice job on the inventory side in the interim have been like in the material handling side and also in the AgWest business. And so, both of those business have really done a nice job managing the inventories. And those are, of course, smaller pieces for us within the Equipment Group. But we've taken the opportunity during this time to really work on those businesses and the teams have done a nice job.So, I would say, there's better optimization across the business units, partly due to systems but also the focus that the team has put on it. And again, the third piece may be as we look at some of the new opportunities in mining spaces and things like that, we often with CVAs and things, we will invest to partner with those customers for the long-term that provide long-term service agreements. So, we would expect to be strategically investing and partnering with those folks as well.

[Operator]

[Operator Instructions] And the next question is from Maxim Sytchev, National Bank Financial.

[Maxim Sytchev, MD & AEC]

I just have a couple of quick ones, if I may. So, Scott, when I look at the language in terms of some of the equipment deliveries were brought forward, and then there was obviously slippage at the backhand. I don't know if you can quantify this like, is it like sort of 40-60, 60-40 in terms of how that played down for the entirety of the year. So we can just try to pick up a calibration on a go-forward basis.

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

Well, it's kind of difficult to break it down. But I'll give you some color on like, there was combination of, again, that first half, particularly in the second quarter, from a historical basis, that industry activity was incredibly strong. And then, so as the year progressed and we expected it because it was such a heated market. And I was pleased that we were able to meet those demands recently well with the iron that we had ordered.In the fourth quarter, there was some softness that came in. I think the overall industries were down almost 10%. So, there were some softness in there. But we were pleased again that our bookings on the equipment side were still up in the quarter 10%. But in terms of the slippage, it was mainly on the new units, both on some of the general construction products as well as the smaller products. So CCE, but there's just a lot of moving parts in there. And we just -- I think we did as best we could with our suppliers, but there was delivery slippage for various factors. And it shifted in, you see some of it in the backlog, but that's what took place.

[Maxim Sytchev, MD & AEC]

And I guess, just in terms of maybe, again, thinking forward a little bit, has that dynamic accelerated throughout, especially as you mentioned Omicron picked up its pace in Jan and well, I guess, what February already. Were the learnings that you have had in late Q4 sort of moderated a little bit. So how should we think about that?

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

Well, I think it was -- again, we were thinking we were going to deliver more quickly on the new product in the quarter. So, it began to tighten a little more as the quarter progressed. But, again, we're working hard with our suppliers on the demand signals. And I think it's been stated throughout the industry that it's a very fluid environment on that front with many factors. And so, we'll see how things play out here, but we are pleased with that backlog. I mean, that backlog, I think, represents a bit of the slippage as well as some good execution with providing good customer value propositions. And so that's reflected in there as well and the efforts for 2021.

[Maxim Sytchev, MD & AEC]

Yes, 100%. And then, given obviously the state of the balance sheet, I'm just curious if you have sort of an updated thought process around continuing to invest via M&A versus return potentially off capital, obviously become a bit more active on that CIB. But just trying to see if your thoughts on priorities have shifted at all, given all the moving parts that we're seeing right now.

[Michael Stanley Howie McMillan, Executive VP & CFO]

Yes, there's a couple of things. I think, first and foremost, I don't think our approach and our thinking process or discipline around capital allocation really has changed. First and foremost, Max, we will be focusing on supporting the business requirements, right, investing organically, supporting availability and reinvestment in the balance sheet to a certain degree like on the inventory side. We certainly have said that we would be investing more there as availability is there to put some capital to work. And so, we've now lapped a reasonably low inventory level and we expect to see that come back up over time. We'll support growth in the business, of course, as opportunities come up.And I think, again, we'll be looking at a very disciplined approach and projects on a return basis. We haven't deviated from that. And then, sitting on -- I guess, we're sitting on a cash balance right now, which is pretty reasonable, but we're pretty patient company. And so, we'll look at opportunities. Integration is the other piece that we've done a lot of work on the QM business. We continue to work through that. That's been a real priority for us throughout. And we're, I'd say, in the battlefield side and so forth. We still have a couple years to get to full cycle there. There'll be some more investment going in as we optimize that fleet as well. And so, those would be the priorities first and foremost.

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

That rental fleet, again, we've been -- that's been a tough environment to manage over the last few years, Max. And we would like to have been investing more in there in certain areas, and not just in the rental services business, but some of the other businesses like TMH and the heavy and the power. So, we're going to be very focused on there in terms of capital allocation again. So, it depends on availability and that balance between shifting from retail to rental. But we like the rental business strategically, right. And we think it's a growing market and we've got to invest in there. So that's important.We also need to invest in our product support, continue to -- not -- that's a combination of not just investing in the old bricks and mortar, but investing in our digital and in IT environment to take that to the next level on how we operate differently. So there's some areas in there that we're strategically focused on. And historically, we've kept our powder dry at times and it's a unique environment. But we continue to look at different things that might complement some areas, but we're very focused on the organic growth opportunities that we see right now.

[Operator]

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

[Sabahat Khan, Analyst]

I guess, there's a lot of -- there's been a lot of discussion around the inventory position. And it looks like demand is obviously strong given the backlog. But maybe can you comment on the mix of demand or the type of products reflected in your equipment backlog and the inventory that you have or you're expecting? Is there -- is it more a matter of volume? Or maybe if you can comment on the type of products that customers are looking for versus what you're able to get your hands on and how's that matching up?

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

There is a mix in there. I mean, obviously -- but it's a mix with construction mining power even at CIMCO and even in our smaller -- we even have a backlog in there on our small compact equipment, which we -- you normally don't see it at that level for year end. So, there is a mix in there in the backlog. We were very fortunate to secure some large orders as well in the mining space. So that adds up on the dollar side. But -- so I think, overall, we're pleased with that backlog and how it is balanced through the different areas. And now we got to go -- you got to execute that backlog. So that's where our focus will be as well.

[Sabahat Khan, Analyst]

And then, there's some interesting comments earlier around, you said, you maybe want to spend some more. And I just want to get a bit of clarification on the digital commentary. Is it more a matter of maybe investing a bit more to get better demand signals? Or is it may be spending a bit more time, just better understanding of the data that you have on hand just to understand just kind of what's happening out in the field. Just a bit more color on that, please.

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

Yes, both. I mean, it's managing the data flow of equipment, and that's all our businesses in understanding utilization factors, predictive analytics, things of that nature that help us be better service and solution providers to our customers. We're very focused on that. We saw -- we continue to make progress on our connected assets and our online buying. So that and then getting into investing in new platforms and how we connect with different channels, go-to-market channels with our customers. So, that's a key strategic area, and we're being attentive to that area as well. But we have to -- I think we'd like to go prove it. That's what we're doing. I mean, we can talk about how many assets we got connected in all these good things, but it's about what we do with it. So that's what we're focused on.

[Sabahat Khan, Analyst]

And then, just one last kind of quick follow-up there. You obviously rolled out a lot of systems and undertook some integration with the Hewitt platform. Are you finding that the visibility to the digital data there and the fleet utilization, et cetera? Is it at similar levels between Ontario and Quebec? Or is it maybe a little bit more work to do on the Quebec side, as you know the folks here ramp up on the new tools that they have? Just in terms of getting kind of visibility and what's happening in the field.

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

Yes, we've got much better visibility now that we got that done. And again, I applaud our teams. I mean, we did that in a pandemic. It's hard to move around. And I'm just really -- and it was a successful integration. I think everybody knows the complexities of those things and the investments. So really pleased with that. So last year, we did get better visibility on a more consistent level. And so that helped in some of the operating efficiencies.Again, we got to continue to work on executing that. In terms of how that transcends into the digital strategies with our Quebec and Maritimes, yes, we're -- I think we're on a more even playing field now. We're getting better intel off the -- from the equipment. But -- so that's encouraging. And even on our material handling and we just got the plugin done on the common ERP on material handling business in Q4, which is good because that's been very complex to operate. I mean, we were at one point on 3 different platforms. So, a lot of heavy-lifting in there. And we're delighted that that's now in a much better spot.

[Michael Stanley Howie McMillan, Executive VP & CFO]

And I think importantly, just on that point to that Scott mentioned, Sabahat is, I mean the support staff. I mean, they're not spending time putting stuff together, they're able now to spend time looking at the platform supporting the business more productively, right. And so those are not may be digital, but process efficiencies are starting to take hold. And that's been helpful going into the year now.

[Operator]

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

[Michael Stanley Howie McMillan, Executive VP & CFO]

Great. Thank you very much, Eric. And thanks to everyone for the participation today. That concludes our call. Please be safe and have a great day. Thanks again.

[Operator]

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