Toromont Industries Ltd

TSX:TIH

Earnings Call Analysis

Year-end Growth Amidst Strategic Challenges

The company reported a successful year with key financial indicators showing positive trends, despite some operational challenges. Operating income grew 12%, driven by a 2% quarterly and 13% annual increase in revenue, with lower selling and administrative expenses. Bookings surged 53% for the quarter and 14% for the year, with notable demand in the construction sector. Even as the backlog decreased by 7%, a robust 90% is anticipated to be delivered in 2024. The firm exhibited prudent financial management, evidenced by an 11.6% dividend increase and share repurchases under the NCIB program. Strong inventory levels and over $1 billion in cash reserves demonstrate preparedness for managing economic uncertainties. With a focused growth strategy, the company remains committed to serving customers and delivering stakeholder value in a complex business environment.

A Solid Year with a Focus on Execution and Customer Solutions

Toromont Industries Limited recently recapped their fiscal achievements and challenges during their fourth quarter and full-year earnings call. Executives expressed satisfaction with the company's strong financial position at the end of 2023, highlighting the team's ability to maintain consistent operations amidst supply chain improvements and market fluctuations. This performance was anchored by effective execution within their Equipment Group and CIMCO division, as well as an emphasis on rental and product support growth, and continuous expense control.

Financial Highlights and Comparative Analysis

Financial results showed that despite a 3% decrease in operating income for the quarter, when adjusted for property gains, operating income actually grew by 5%. The company enjoyed higher revenues, although these were met with lower gross margins. Yearly results depicted a more robust picture with the bottom line reflecting strong execution, demand for products and services, and positive operational leverage, leading to a revenue increase of 9% in the quarter and 12% for the year. It is important to note that year-over-year comparison is somewhat skewed due to a significant property gain in the fourth quarter of 2022. Rental and product support revenues climbed thanks to higher customer activity and improved execution, with the year-end backlog remaining substantial at $1.2 billion.

Macro Stability with Undercurrents of Challenge

From a broader perspective, general and macroeconomic conditions show signs of stabilization, yet persistent factors such as inflation, higher interest rates, geopolitical concerns, and currency fluctuations continue to test the business. The company remains vigilant in monitoring these elements due to their potential impacts on customer purchasing behaviors. Despite market softening, especially in the construction sector, Toromont's backlog supports their near-term outlook, while efforts to manage expenses and strengthen aftermarket services are expected to drive long-term value.

Equipment Group Paves the Way for Profitable Operations

A deep dive into the Equipment Group's performance reveals a 9% rise in revenue for the quarter and a 12% uptick year-over-year, fueled by heightened new equipment sales and robust delivery against the order backlog. Though used equipment sales dipped, the group still saw substantial growth across construction, mining, and Power Systems, with rental revenue escalating due to enhanced market activity and fleet expansion. Parts and services experienced positive strides in product support revenue, even though gross profit margins encountered challenges due to competitive market forces and sales mix shifts. Operational efficiencies remain a focus area to navigate through such margin pressures.

Earnings Call Transcript 2023-Q4

[Operator]

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

[John Doolittle, executive]

Okay. Fantastic. Good morning, everyone. Thank you very much for joining us today to discuss Toromont's results for the fourth quarter and the full year. Also on the call with me this morning is Michael McMillan, President and CEO. Mike and I will be referring to the presentation that is available on our website. And to start I'd like to refer you to Slide 2, which is highly entertaining and informational and it includes the advisory on our forward-looking information and statements. After our prepared remarks, we will be more than happy to answer questions. So let's get started and move to Slide 3. Please also note that our discussion today will be focused on continuing operations, unless otherwise noted. Mike, over you to start us off.

[Mike McMillan, executive]

Great. Thank you very much, John, and good morning, everyone. We're pleased with the good operating and financial performance, which our teams delivered in the fourth quarter and throughout 2023, ending the year in a strong financial position. We continue to monitor supply and other market and economic variables. The Equipment Group continued to execute well, delivering against the opening order backlog in line with customer schedules and improvement in inventory flow, coupled with good growth in rental and product support activity as well as continued focus on expense control. CIMCO revenue and bottom line improved for the year on good execution and higher product support activity. Across the organization, we continue to navigate through evolving economic conditions and remain committed to our operating disciplines, driving our aftermarket strategies and delivering customer solutions. 2023 has had its share of challenges. However, over the last couple of years, we've made some key organizational changes, which has enabled our team to manage well through post pandemic challenges in a variety of economic dynamics we have not seen for some time. Our team has executed very well. And although there is always room to continuously improve, I'm proud of our team, how they are supporting our customers and remain focused on building our business for the future. Turning now to our financial results highlighted on Slide 4. I want to start off by noting that within the fourth quarter of 2022, many of you may recall that a Quebec property was sold, resulting in a pretax gain of approximately $17.7 million, which was $15.4 million after tax or approximately $0.19 per share, where in Q4 of 2023, we had an after-tax gain of just over $1 million for our property sale. This impacts the comparability of our results in both the quarter and year-to-date. Fourth quarter results demonstrated strong focused execution from our teams, while operating income decreased 3% in the quarter, excluding property gains in both years, operating income increased 5%. Higher revenues were largely offset by lower gross margins. Higher revenue and good expense control drove positive results in the Equipment Group with strong year-end customer demand. Results at CIMCO were moderately down from the same period last year with continued growth in product support activity levels, partially offset by higher expenses and lower gross margins. For the full year 2023, the company delivered strong bottom line results, reflecting good execution on our opening backlog, customer demand for products and services and favorable operating leverage. Higher revenue in both the Equipment Group and CIMCO, lower relative expenses and higher interest income on cash balances were partially offset by lower gross margins. Rental and product support revenue increased on higher customer activity, utilization of the larger fleet and improving execution. Year-end backlog was healthy and relatively unchanged for the year. Year-over-year at $1.2 billion and reflects a strong 2023 order activity. Equipment inflow through the supply chain continues to generally improve. On a consolidated basis, revenue increased 9% in the quarter and was up 12% for the year. Equipment and package sales increased in both the quarter and on a year-to-date basis, with good increases in both groups in the quarter. Product support and rental revenue increased in both the quarter and on a year-to-date basis. Product support increased on stronger demand and technician availability with work in process levels remaining relatively high, while rental revenue increased on a larger fleet and higher utilization. Operating income was down 3% in the quarter and up 14% year-to-date, reflecting the lower property gains in the quarter versus the comparative period and lower gross margins, partially offset by higher year-to-date revenue. On a full year basis, expense levels decreased to 11.7% of revenue. Expense management continues to be an area of focus and discipline. Net earnings from continued operations decreased 3% in the quarter, again reflecting the property gain last year and increased 18% for the full year versus 2022. Basic earnings per share was $1.87 in the quarter and $6.43 for the year from continuing operations. General economic and macroeconomic factors appear to be stabilizing. However, factors such as inflation, higher interest rates, geopolitical instability and the Canadian dollar movements continue to challenge the business as well as influence customer buying patterns. We are proud of our team as they remain committed to disciplined execution of our diverse operating model, adapting to changes in the business environment while remaining focused on executing solutions for our customers. Activity levels overall remain sound with health -- with a healthy backlog, which is supportive of near-term results. As noted in Q3, we have seen some softening in construction markets, which is reflective of the current economic environment. However, as one would expect, we will continue to monitor market activity levels while we focus -- while we follow our disciplined approach, delivering results for our customers, suppliers and employees. Additional efforts continue to focus on managing our discretionary spend and actively recruiting technicians to effectively support our critical aftermarket service strategies and value-added product offering over the long term. With our solid order backlog and balance sheet, we are well positioned as we enter 2024, and we'll continue to support the business through thoughtful capital deployment. John, I'll turn it back over to you for some more detailed comments on the group results.

[John Doolittle, executive]

Very good. Thank you, Mike. Let's start with the Equipment Group on Slide 5. Revenue was up 9% in the quarter and 12% year-to-date. Taken together, total new and used equipment sales were up 15% in both the quarter and the year. This growth reflects inflow and delivery of equipment against the order backlog coupled with end customer demand. New equipment sales increased 19% in the quarter and good deliveries in the construction, mining and power system markets while material handling markets were lower. Year-to-date, new equipment sales increased 20% across all market segments and regions as the supply of equipment improved. Used equipment sales decreased 7% in the quarter and 4% year-to-date. Used equipment sales from trades and purchases have been lower in the current year as supply and demand dynamics have shifted. Used equipment sales also include rental fleet dispositions which have increased in the current year after pre constraint, reflecting fleet management decisions as well as the availability and cost of new equipment. In the quarter, total new and used equipment sales increased 15% in construction, 13% in mining, 22% in Power Systems and were 8% lower in material handling. Rental revenue was up 7% in the quarter, 8% for the year, reflecting higher market activity, strong execution and an expanded heavy and light equipment fleet. Growth was experienced in most areas for the year with the following increases: Light equipment rentals up 7%; heavy equipment rentals up 11%, power rentals up 12% and material handling up 3%. Rent fleet was at $81.1 million versus $44.7 million a year ago and starting to return to more typical levels. Product support revenue grew 4% in the quarter and 10% in the year, with increases in both parts and service revenue across all markets and most regions. Looking at specific markets. For the year, growth was as follows: Construction up 7%, mining up 13%, Power Systems up 17% and material handling up 8%. Gross profit margins decreased 150 basis points in the quarter and 50 basis points in the year compared to 2022. Equipment margins were lower in both the quarter and the year, mainly reflecting competitive market conditions after a period of constrained supply, coupled with unfavorable sales mix, higher proportion of new versus used equipment. Product support margins were slightly lower in the quarter, but higher for the year compared to 2022. We continue to focus on operational efficiencies.Rental gross margins were higher in the quarter, however, lower for the full year compared to 2022. Rental utilization is improving after our large upload to the fleet earlier in the year. Rental margins are somewhat challenged by higher recent acquisition costs, in part due to a weaker Canadian dollar and higher maintenance and repair costs. Sales mix was unfavorable in both periods with a higher proportion of equipment sales to total revenue. Selling and administrative expenses were up 15% in the quarter and 8% for the year. Gains on property dispositions to reduce expenses by $1.5 million in the fourth quarter of '23 and $17.7 million in the fourth quarter of '22. Excluding these gains, expenses decreased $2.5 million or 3% in the quarter, reflecting good focus on cost controls. Compensation costs were largely unchanged with good cost control focus, offsetting costs in support of higher activity levels and inflationary pressures. Allowance for double accounts decreased $1.7 million in the quarter and $7.3 million on a full year basis, reflecting good collection activity and improved aging of receivables. Selling and administrative expenses were lower at 11.3% as a percentage of revenue versus 11.8% last year. Operating income decreased 2% for the quarter and increased 12% year-to-date. For the quarter, the decrease mainly reflects the larger property gain in the prior year, along with the lower gross margins in the current period. For the year, the increase reflects the higher revenue and lower expenses offset by the lower gross margins. Bookings increased 53% in the quarter and 14% year-to-date. Customer demand improved late in the quarter, mainly in the construction sector, which was up 94%, which had been slower throughout the year. Power Systems and Mining bookings were also up 32% and 14%, respectively, while materially handling was down 12%. For the full year, bookings were as follows: Mining was up 66%, power 23% and construction of 1%, partially offset by lower material handling bookings, which were down 21%. Backlog of $957 million was 7% lower than last year, reflecting improving equipment delivery from manufacturers as well as planned delivery skin customer orders. Approximately 90% of the backlog is expected to be delivered in 2024. But of course, it's subject to timing differences, it's depending common vendor supply, customer activity and delivery schedules. Now to Slide 6 and CIMCO. Revenue was up 2% in the quarter and 13% on a full year basis. with the progress on construction schedules against strong order backlog and good customer demand. Package revenue decreased 8% in the quarter as equipment supply issues and customer delays have deferred some projects into 2024. Recreational revenues were up 25%, but were more than offset by lower industrial revenues down 25% against a strong comparative. In Canada, revenue was down with stronger recreational activity being offset by weaker industrial activity. In the U.S., package sales were also down mainly on lower recreational activity. For the year, package package revenues were up 8% with increases in both markets. Industrial market revenue was up with higher activity in the U.S., offset by lower revenue in Canada. Recreational market revenue increased as higher revenue in Canada was offset by lower revenue in the U.S. Product support revenue improved 14% in the quarter and 18% for the year, with increases in both Canada and the U.S. activity levels have continued to improve on good customer demand and the increased technician base. Margins were down 100% in the quarter -- sorry, 100 basis points in the quarter versus the comparable period last year as lower product support margins were only partially offset by higher package margins and a favorable sales mix. On a year-to-date basis, gross profit margins increased 220 basis points versus last year. Good project execution and the nature of projects in process along with favorable sales mix all contributed to the increase in margins. Selling administrative expenses were up 9% in the quarter and 11% in the year. Bad debt expenses decreased $0.7 million in the quarter and increased $2 million for the year. Overall, we remain focused on collection activity and monitor closely our aged receivables. Compensation costs increased due to an increased headcount, annual salary increases and higher profit sharing accruals with a higher earnings level. Other expenditures such as travel and training expenses increased to support activity and staffing levels. As a percentage of revenue, selling administrative expenses improved 16% in 2023 versus 16.3% in 2022, reflecting continued focus on expense control. Operating income decreased $1.7 million for the quarter as a higher revenue as dampen lower gross margins and higher SG&A. Operating income increased 49% for the year, reflecting improved gross margins and higher revenue. Bookings increased 24% in the quarter on higher orders in Canada and lower orders in the U.S. Timing of decisions by customers and receipt able orders can vary from period to period. On a full year basis, bookings were up 19% and $246 million with a 35% increase in Canada and an 18% decrease in the U.S. Industrial brokings were up 58% and recreational orders down 30%. Backlog of $255 million was 29% higher versus last year, with an increase in the industrial market on good order intake, partially offset by a decrease in the recreational market. Approximately 85% of all the backlog is expected to be realized as revenue in 2024 however, again, this is subject to construction schedules and potential changes from supply chain constraints. On Slide 7, I'd like to touch on a few key financial highlights. Investment in noncash working capital increased 20% versus a year ago, mainly driven by higher inventory levels. Inventory levels are higher than the prior year, driven by a number of factors, including a strong backlog, delivery timing, variability in the supply chain for both equipment and parts, coupled with foreign exchange and inflation. Accounts receivable continue to receive focus and while DSO remained flat at 42 days compared to the prior year. We are closely managing the aging of our receivables and credit metrics. We ended the year with ample liquidity, including cash of over $1 billion, an additional $460 million available to us under existing credit facilities. Our net debt to total cap was negative 17%. Under our NCIB program, the company purchased and canceled 353,000 common shares for $37.5 million to date for the year. These purchases are reflective of good capital hygiene intended to help mitigate option exercise dilution. Overall, our balance sheet remains well positioned to support operational needs, and we're prepared to manage challenges related to economic variables and business conditions. We will continue to exercise the operational and financial discipline as we evaluate investment opportunities that may develop over time. As you know, Toromont targets a return on equity of 18% over a business cycle. Return on equity decreased to 22.8% compared to 23.3% for 2022, while our 5-year average is 20.8%. Return on capital employed was 30.1%, down from 32.1% last year. Both metrics decreased year-over-year, reflecting higher investments in working capital. And finally, Quest announced yesterday the Board of Directors increased the quarterly dividend by 11.6% to $0.48 per share. Toromont has paid dividends every year since 1968, and this is the 35th consecutive year of dividend increases. We continue to be proud of this track record and our disciplined approach to capital allocation. On Slide 8, we conclude some takeaways as we look forward to 2024. We expect the business environment to be influenced by a number of factors that are in play, some of which include the evolving dynamics of global supply chain, improving availability, inflationary and macroeconomic trends and managing customer credit risk, along with growth opportunities, all of which can overshadow normal seasonality and customer buying patterns. We continue to proactively manage, proactively monitor developments closely and take actions that we believe are appropriate. As one would expect, we consistently focus on key priority areas, including safe, operational execution, serving and supporting our customer requirements and our disciplined approach to capital allocation as we focus on building the business for the long term. Our backlog remains well positioned over care must be taken to monitor customer buying patterns and preferences. In terms of technician hiring, we continue to actively recruit and this remains an essential focus to support growth in our aftermarket and value-added product service offerings. Operationally and financially, we are well positioned with ample liquidity and strong leadership, disciplined culture and focused operating models. Do you want to finish the yes? We appreciate our entire team's exceptional effort and commitment to continue to support our customers and deliver value for our stakeholders. Thanks also to our valued customers, supply partners and shareholders for their continued support. And so that concludes our prepared remarks. And operator, if we could turn it back over to you, and we're all set to take questions. Laura.

[Operator]

[Operator Instructions]. We have our first question coming from the line of Cherilyn Radbourne from TD Callon.

[Cherilyn Radbourne, analyst]

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

[Mike McMillan, executive]

Yes. No, thanks for the question, Cherilyn. I think a couple of things I would say is, as we've been talking about, first of all, I'd say, availability of equipment and inflow for certain models has improved a fair bit. And I think also, it's not unusual, as you know, for us to see a little bit of a year-end buy depending on where customers are positioned and so forth. And so I think we want to be cautious on that. We're -- the team did -- the third thing I'd mentioned is the team just did a tremendous job working with our customers and moving products through our supply and getting them ready for distribution. And so it was a considerable effort. And so it's a number of factors, I would say. Again, we -- when we look at the construction markets, we would position it conservatively just given the activity levels, again, I don't think a month makes a trend. But we -- I would say is a great finish. But again, we have to monitor things as we go into the first quarter here and be mindful of the activity that we see in front of us.

[Cherilyn Radbourne, analyst]

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

[Mike McMillan, executive]

Yes, it's a good question. I think on one hand, I would say the team has done a really nice job. There's been a number of changes with some leadership and the team has executed really well in the past year. And so a lot of focus on that business over the last [indiscernible]. We had a couple of nice projects come through, which we're working through for backup power and standby and peak shaving and so forth. And so those are in progress. But the second part of your question, I think, is important in that I would say when we look at availability of equipment, one of the areas that certain models are constrained and still or have longer lead times, with it that way, would be on some of the large bore engines in areas like that. And so again, if you look at our order backlog, you can see that power makes up a fairly significant portion of the equipment group sort of backlog, right. And so that's promising as well, but lead times are still relatively extended.

[Operator]

We have our next question coming from the line of Yuri Lynk from Canaccord Annuity.

[Yuri Lynk, analyst]

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

[John Doolittle, executive]

No, there was nothing unusual there. I would just say, having been here over 3 months now, the company is very focused on managing costs and that continued in the fourth quarter, and that's what you see in the results.

[Mike McMillan, executive]

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

[Yuri Lynk, analyst]

Okay. Good. Nice to see. For my second one, maybe just some clarity. I mean it sounds like we're getting back to typical seasonality where Q1 would normally be the weakest quarter of the year. But then I look at your inventory levels and your WIP levels, and I do see the opportunity for another unusually strong first quarter. So how do I square that? Where are we in terms of getting back to a typical seasonal year?

[Mike McMillan, executive]

Yes, it's a good question. I would still say that we're seeing the effects of some of the macroeconomic factors we continue to reference there. And you can't get away from normal seasonality and weather patterns here and although it's been a little warmer and that sort of thing. But I think we are encouraged, I guess you'd say, in the sense just in terms of the flow and the availability. Some constrained units still exist in the supply chain, which we continue to work through. But I would -- I think just broadly, when you think of the marketplace, we've mentioned construction is a little bit softer. Now we've come through several years of pretty robust activity, so comparatively speaking. When you look at our other parts of the business, I think one of the benefits we have in the mining side, for example, is longer-term order books and so forth and working with customers continuing to work on that side of the business. And so that has its own unique cycle as well. And so that's been a benefit to us as we look back and as we complete some of the orders in the backlog as well.

[Operator]

Our next question comes from the line of Jacob Bout from CIBC.

[Unknown Analyst]

This is Rahul on for Jacob. So I had a question on margins. I noticed that the mix of mining equipment in backlog is higher this year, but I suspect that product support and rental may be a bigger part of the mix this year as well. So lots of moving parts, as always. But just curious to get your thoughts on how you see overall margins evolving this year.

[Mike McMillan, executive]

Yes. No, thanks for the question. Maybe I'll start with that, and John can add color. I think, again, we would always direct you to the factors affecting margin. You look at our margin over the course of the year and because we provide you with the blended number. And you mentioned mining, again, we've had in our backlog over the course of all of last year and probably back into '22, some nice order bookings in the mining side of the business. Now they have longer duration to fulfill those orders and so forth, and they can be a little bit lumpy. But when you look at the order book today, we've got in the backlog, for example, mining is about 38%, I think, and construction is 25% to 30%. So generally, you're going to see different profiles there. I think when it comes to margin, though, and you think through it, one of the things we've been talking about is a little bit of softness and better availability for everybody in the industry. And so we anticipate a little bit -- coming off a little bit on some of the historic high margins in certain segments. But offsetting that, you also need to think about, as you mentioned, the mining side, used equipment is a little bit more targeted coming off some stronger numbers as well, especially with availability on new but also on the rental side. For example, when we look at rental activity levels, utilization have been holding in nicely even with higher acquisition costs and product support mix, as you touched on, I think, is the other factor to keep in mind the mix of product support will also affect our gross profit in terms of that ratio of the total revenue. So keep that in mind, too, as we go through quarters again, 1 quarter, we always tend to look at it longer term because some -- there can be some lumpiness when you think of even on the CIMCO side, mining side and so forth.

[Unknown Analyst]

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

[Mike McMillan, executive]

Yes. A couple of things there. I would say you're right. We have come off a couple of years with availability of higher investment. And so when you look at our disclosure around CapEx, you'll see 2 things, actually. You see higher investment this year, and you'll also start to see a higher level of disposal, which is in our used, you'll see some rollouts, and we do disclose rental proceeds and so forth from disposals. And so you'll see that ticking up a little bit as we turn over the older fleet and replace it with new and higher acquisition costs. I think, again, we don't provide a lot of guidance certainly. But we -- I think John would concur as we look at our investment profile, the rental business on its own the Quebec and Maritimes market, which we're still investing in and building market share there and our presence in particular in that market. But we're always looking at different opportunities and different product lines to complement our allied fleet. And so we were -- we would say that generally speaking, what you're seeing in the financials for '23, we would be pretty consistent for the next year or 2.

[John Doolittle, executive]

Yes, I agree.

[Operator]

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

[Michael Doumet, analyst]

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

[Mike McMillan, executive]

Yes, a couple of thoughts there to share with you, Michael. I mean, #1, as you know, we tend to manage our cost structure and very consistently through the cycle. And so I would say a couple of things. We own about 86% of our real estate. And so when you look at our cost structure, it's relatively fixed in that sense. And so you don't see our numbers moving due to moving in and out of leased properties. We like to own our properties. So that's a fixed -- our occupancy and maintenance costs are pretty fixed. I think what you also see in there is intentional hiring and so forth. So when we're adding to our team, we're looking at the long-term requirements and not over or under reacting. So that's a pretty consistent approach as well. I think the discretionary spend areas when you look at travel, entertainment and so forth, we've learned -- as we've always said, we've learned quite a bit through the pandemic. We are very actively going out and meeting with customers. However, we're trying to leverage what we've learned using different means like electronically to touch customers and just also just trying to meet customers and how they prefer to interact. And so that's helped us as well balance a little bit of the spend even with inflationary factors when you consider travel and fuel and so forth. And so I wouldn't say there's anything in particular you should just expect us to continue to aggressively manage our discretionary spend but also make sure that we're providing the appropriate support.

[Michael Doumet, analyst]

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

[Mike McMillan, executive]

Yes. I think you had a couple of interesting items there, Michael. I would say it's hard to gauge when you think of customers destocking. Like I guess what we did see early in the pandemic is in some areas, it's like the paper and normally where everybody is just trying to protect the business and stock up where they think they need to. And so with availability, we certainly have -- we have seen some of that activity. Again, it's not something of great visibility to. But as we have monitored our parts flow, we start to see the requirements normalizing to a certain degree. And so I think that will flow a little bit. There's more confidence in the supply chain and gone are the days I think, at this point where we're scrambling for even just filters and other things. So that should -- I would say we saw a few bumps last year just as the supply chain improved and the parts volume ebbed and flowed. And I think the other piece, though, really importantly is when you look at like we've talked a little bit about construction activity. And so as that's moderated and you mentioned coming off some pretty active and tough comps. I think that will start to show some normalization on the product support side as well.

[Operator]

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

[Steven Hansen, analyst]

Just a quick one to follow up on John's earlier question. You described the construction activity picking up late into the period. Has that been something that's continued into January and February?

[Mike McMillan, executive]

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

[John Doolittle, executive]

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

[Steven Hansen, analyst]

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

[Mike McMillan, executive]

Yes. I think it's probably more of a quarterly phenomenon. I think, again, a little bit less activity in construction. However, we are seeing some good results in other areas. I think the other thing to keep in mind is just the broader economic factors. When you think of interest rates, inflation, timing of projects, customers are going to rent depending on the seasonality as well. We've seen, for example, we're all aware of the weather patterns and things like that. And so as you can imagine, we're not renting a lot of heating maybe this week and going into next, we'll start to see more of that. But heating propane would be a little bit lower. Having said that, we'll -- the ground is a little easier to work with. And so there'll be other opportunities there, too. So it's really a function of, let's say, the broader macro piece, but also what we're seeing here in terms of weather patterns and just generally, activity levels in construction as everybody monitors the economic factors, interest rates and so forth.

[Operator]

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

[Sabahat Khan, analyst]

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

[Mike McMillan, executive]

Yes. Thanks, Saba. I think broadly, if you step back, I would say, on one hand, where you have a pretty diversified customer base, right? We're blessed with the GTA Montreal's major markets and across the entire space, whether it's road construction, residential, sir, water a number of various aggregates and support. So on one hand, one of the things we've mentioned in the past is we did see and everybody is aware of some of the residential activity has sort of tapered off of we but having said that, in some of the markets we serve, immigration policy in Ontario and different things has been pretty strong, I think, affordable housing, the lack of affordable housing does mean over the long term that one would anticipate there's going to be some good investment there because that's a challenge that we all face. So our customers are there to provide infrastructure in behind some of those opportunities. But again, as we look, we tend to look at that as a longer-term tailwind. And so maybe those are just some thoughts to plant. I think at this point, we're coming off some pretty strong activities in comps. And I think patiently, we're investing for that longer-term view.

[Sabahat Khan, analyst]

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

[Mike McMillan, executive]

Yes, a couple of things there, I think. And you hit a couple of key points there, I think, Saba. When you look at availability, if you roll back 18 months, team was really active in the used market as we are today. I mean -- but it was a different approach in the sense that we're buying packages because of the shortages, and we're working with customers, customer might need a new unit if we can get it. If that's not available in the time frame they require we were actively looking for used. We had a good consignment business as well and so forth in rebuilds. And so when you think about that and how it's changed, availability is improving, that gives our customers some different options. And so maybe purchase activity is a little bit lower, but we're coming off some pretty strong used comps. And so all that to say, it's -- the use is a little bit down, new is up, and we continue to target products and the alternatives our customers are looking for as well as the rebuild business and our remanufacturing facility and Brad come on middle to latter part of Q2. We'll continue to build that facility as well to make sure that we have the options we need for our customers. So a long answer to your question, but I think the mix there is reasonable at the moment. I think you have to keep in mind our historic trends and also just when you think of the requirements for our customers, what's ideal for them, right, depending on their utilization and whether it's a new used product that they're looking for.

[Sabahat Khan, analyst]

Great. And then maybe just one to we've probably discussed a while ago, but I think your comments around investment in Quebec and Maritimes, -- is that just sort of -- is that tied to some of the kind of the last bit of integration there on Hewett? Is there anything major that you wanted to get done there before the pandemic kind of [indiscernible]. Maybe just a quick update on maybe just the status of kind of the additional kind of Quebec maritime territories and where we stand today?

[Mike McMillan, executive]

Yes. No, I would say, generally, the team has done a nice job and you mentioned the pandemic, it did pause some of the activity there for a period. We still feel that there's good opportunity there, like we're -- we've made some management changes there, which is starting to bear some fruit, which we think is great. We have invested heavily in that marketplace. We'll continue to do that in the sense that market penetration, we still feel there's a great opportunity. I think just broadly, utilization rates, the team has done a nice job improving operational execution in Quebec and the Maritimes, but we still feel that there's opportunity there to improve that aspect of our business. And so I would say the investment and the focus continues as one of the opportunities within the rental side. I think the other piece for us, too, is just continuing across the rental business to look at complementary products that we can offer our customers that we don't today or by market and region, we're always evaluating the demand locally with our decentralized model and just trying to make sure that we have the products and services available for that unique marketplace. So we still feel quite positive that over the long term, there's some good opportunity in -- across the metal market, but in particular, in Quebec and Maritimes, we still have some opportunity there just to penetrate the market more deeply.

[Operator]

[Operator Instructions] We have our next question coming from the line of Maxim Sytchev from National Bank Financial.

[Maxim Sytchev, analyst]

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

[Mike McMillan, executive]

Yes. It's a good question, Max. I guess part of it is I wouldn't speculate certainly a longer-term investment cycle. John and I had heard that there's quite a bit of investment going in to support expanded infrastructure over the next decade. And so I think broadly speaking, that's an opportunity that our teams will have to work hard to earn their way into. So infrastructure investment, I think also, if that also results in some access into some of the resource industry side of things, I mean, that could be positive, but longer-term duration there.

[John Doolittle, executive]

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

[Mike McMillan, executive]

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

[John Doolittle, executive]

Yes.

[Maxim Sytchev, analyst]

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

[Mike McMillan, executive]

Yes. No, I think certainly, digital in our business in general is a focus, both for our OEMs, including Caterpillar and ourselves. In terms of I think the pandemic has forced a lot of folks to adopt technology in a different way. It's given us an opportunity to interface with customers electronically. If you look at what we've been doing, we've talked a little bit about parts online and things like that, which were a great opportunity for us to continue to make it easier for our customers to do business with us. Of course, we have the infrastructure and behind it with our branch network. I think we have some other applications for used and in online to auction and so forth. And so that's sort of the go-to-market strategies. I think in addition to that, just broadly with technology, it continues to advance in the equipment itself and provide our customers with more efficiency on their fleets, whether you're talking about the autonomous equipment we have up with [indiscernible] or you think about even just using analytics in a way that we can reach out to customers and be more proactive on product support. I think a number of areas there to help drive different segments of our business, with its product support or even just like you say, just how we reach our customer more effectively and just make it easier for them to do business. Rentals another piece, too, that we with our applications and so forth, we continue to advance to a degree. And again, it's to support how we go to market and how we ideally, we're going to be easy to do business with in the rental side, for example, and easier for customers to locate equipment, secure or extend and do other things like that as well.

[Operator]

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

[John Doolittle, executive]

Yes. Okay. Thank you, Laura. Just wanted to thank everybody for joining us this morning. Thank you for the great questions for listening, and I appreciate your interest in our results. So Mike, thank you, and thanks to everybody on the call.

[Mike McMillan, executive]

That's great, everybody. Have a great day, and please be safe.

[Operator]

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