Decisive Dividend Corp

XTSX:DE

Earnings Call Transcript 2024-Q1

[Operator]

Good morning. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Decisive Dividend Corporation First Quarter 2024 Results Conference Call. [Operator Instructions]We remind that -- we remind you that today's remarks may include forward-looking statements and non-IFRS financial measures that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see applicable section of Decisive Dividend's news release and MD&A, which are on the website and have been filed on SEDAR.I would now like to turn the conference over to Jeff Schellenberg, Chief Executive Officer; and Rick Torriero, Chief Financial Officer. Please go ahead.

[Jeff Schellenberg, executive]

Thank you, operator. Hello, and good morning, everyone. It's Jeff Schellenberg. I want to welcome everyone here to our Q1 2024 Earnings Conference Call. 2024 has started off as a tale of 2 contracts as we've seen continued on-strategy acquisition activity, while demand took a step back due to challenging economic conditions and the impact of investments being made by our subsidiary leadership to build teams, strategies and processes that support longer-term growth objectives. On today's call, I'd like to dig into these areas in my comments with a focus on the steps we're taking to position the organization to pursue continued per share financial metric growth.In terms of operating results, demand was the largest challenge for our Group in Q1 as sales for Q1 2024 decreased 5% to $29.4 million from $30.9 million in Q1 2023. That being said, ongoing gross margin strength with a 223 basis point improvement in Q1 2024 gross margin percentage versus Q1 2023, highlights the strength of the portfolio of products manufactured and sold by Decisive's subsidiaries, as well as the quality of the high-margin acquisitions completed by Decisive. I'm going to discuss highlights organized by each of the types of products we manufacture and include in the discussion some comments about internal investments we're making in our businesses to drive longer-term growth, which also informs our thoughts about the outlook for the businesses in our portfolio.I'll start with Industrial and Machine products, which includes Northside Capital I, Slimline's Evaporator product and Hawk Machine Works. In Q1 2024, sales of Industrial products represented the largest area of sales for Decisive's companies. Sales of Industrial products were up 80% in Q1 2024 relative to Q1 2023, led by Northside, whose sales increased by 19% in Q1 2024 relative to Q1 2023, driven by demand for the commercial vehicle parts and components Northside manufactures for its customers. A long-term contract held by Northside in this area was extended to 2026 in Q4 2023 and operational efficiency enhancement, including the use of a manufacturing partner in a lower-cost jurisdiction to support production processes under this particular contract has supported the margin strength in this area of the business.Northside's year-to-date order levels in 2024 are well ahead of 2023 levels and the capacity enhancement Northside has experienced, along with the previously mentioned efficiency enhancements has supported the timely conversion of these orders into sales, driving the growth in sales seen in Q1 2024. As mentioned in Q4, Northside has also entered into a new contract with a different commercial vehicle OEM to further diversify its customer base. There is significant investment in fixed assets being supported by this customer. The Northside began to get set up in Q1 2024. The Northside is expecting to be fully operational with this project by the start of Q4 2024, with some ancillary product sales beginning earlier.Capital I sales were significant supporters of the growth in Industrial product revenue in Q1 2024 as well. Though its sales were lower than preacquisition levels, Vernon Snidal, who joined Capital I as President in November 2023, has been focusing the organization on scaling its manufacturing capacity and distribution capabilities for its core higher-margin proprietary road construction and maintenance products. As a result, the declines from pre-acquisition levels came from a reduction in the lower-margin noncore machining and fabrication work previously completed by Capital I.Slimline's evaporator product focuses on developing its larger scale evaporator for use in tailings spans in the mining and oil and gas sectors, where there's a high degree of opportunity to provide solutions that address the wastewater management challenges faced by these businesses. Further opportunities for the larger scale evaporator being pursued, and Slimline is positioning itself to work with a well-known university to provide research that helps quantify the benefits of its evaporative technology for its customers.Hawk's revenue from sale of its machine products was flat in Q1 2024 relative to Q1 2023. Hawk's leadership team was heavily involved in the acquisition process for APM in Q1 2024, but this work has bolstered Hawk's capacity and capabilities by adding different specialized machines to Hawk's fleets, supporting further customer diversification, which has been a major step in Hawk's evolution. Under Tim Stewart's tenure in the business. There is significant work to be done to improve the operational efficiency in this new facility, but Hawk is taking steps to address these challenges, which will also help support driving through its backlog as year-to-date orders are well ahead of 2023 levels.Shifting to hearth products, which is Blaze King and ACR. Sales of hearth products were down by 43% in Q1 2024 versus Q1 2023. Blaze King and ACR were up against a very challenging comparable period due to the much higher level of backlog each of Blaze King and ACR had in front of them entering Q1 2023, which was 90% higher in Q1 2023. Both Blaze King and ACR worked through these backlogs very effectively in 2023, which drove very strong 2023 results. But having done so, we saw a return to more traditional seasonal patterns in this business. A pattern that was not evident in this industry during the last few years.Reduced backlogs are obviously a benefit to consumers as unit availability, and as a result, shorter lead times means consumers have product available to purchase and walk out of dealer [ stores with ] however, traffic levels in dealer showrooms have been slower as lower home heating costs driven by a reduction in the cost of alternatives such as natural gas as well as warm weather through the territories, both Blaze King and ACR are operating reduced demand for this product and as a result order levels.Further shifts in the regulatory environment, including changes to testing measures that Blaze King's highly efficient products already comply with, have driven some competitors to heavily discount inventory, which in addition to the ongoing high interest rates and recessionary economic pressure in the U.K., driving lower spending levels, all came together to result in the Q1 sales decline seen for Blaze King and ACR.In terms of order activity through most of the quarter, order levels were ahead of order levels seen during Q1 2023, though we saw these levels tail off towards the very end of the quarter to now trail 2023 order levels. As for how Blaze King and ACR are responding to these challenges, as discussed in the outlook in our MD&A, the companies are in pursuit of regulatory approval for a new product design that utilizes Blaze King's long term -- long burn, sorry, combustion technology, styled and sized for the U.K. and European market, leveraging ACR's design capabilities and local market knowledge, which also could be sold in the North American markets supported by the extensive dealer networks both businesses have in their respective markets.In addition to the introduction of this disruptive product, both companies are pursuing other new product designs to broaden the range of products they offer as well as market segments the products are sold into. In the meantime, our focus for both businesses is on positioning the businesses to be ready for a shift in demand, which could occur as the companies hit the heating season in Q3 2024. Both companies have been planning production levels to ensure appropriate inventory levels are in place for this season.Blaze King has also taken steps to optimize the size of the organization in response to lower levels of demand, and further steps are being taken to stimulate dealer showroom traffic during the nonpeak season we are currently in to spur demand as well.Next we'll talk about the wear parts products, which come from Unicast, Procore, Micon and Techbelt. Wear parts revenue was down 18% in Q1 2024, driven mainly by a decline in Unicast sales. The construction sector, especially in the U.S., is demonstrating strength in early 2024, though less so in Canada, especially in nonresidential activity where the completion of a number of large scale products has caused activity to tail-off while mining activity is strong. Competitive challenges for Unicast, particularly with respect to leadx, resulted in lower sales in Q1 2024 relative to Q1 2023.To address some of these challenges, Unicast will be moving into an expanded facility in Q3 2024 that will improve operational efficiency and allow Unicast to carry more inventory of key products to reduce lead times, which will provide an important advantage in a competitive marketplace. While demand levels were down in Q1 2024, margin enhancing initiatives undertaken by Unicast have meant that margins have continued to improve. Significant work has been done to boost Unicast's online distribution capabilities, which continue to support sales.Micon and Procore sales contributed meaningfully to wear parts products revenue in Q1 2024, and revenue was consistent with preacquisition averages. The focus for Micon and Procore is on expanding capacity, including with respect to operational oversight and management, to meet shorter lead time orders, which has seen them miss order opportunities due to lack of immediately available inventory. In addition, as capacity is built, there are material opportunities to expand the markets into which Micon and Procore's products are sold, including through cross-selling amongst complementary customer bases and geographies in this segment.In terms of Agriculture products, sales were up 83% year-over-year, driven by the addition of IHT in July 2023. Though Slimline sprayers sales were down year-over-year, significant work has been completed to expand and train the network of dealers. Slimline distributes its Turbo-Mist product through. This includes customer trial and demonstration activity, which are demonstrating the clear differentiating advantages the Turbo-Mist product offers relative to competitors products with respect to fuel, chemical and labor efficiency. Slimline is focused on targeting the larger enterprise farms supported by dealer networks in the regions these farmers are located in, to boost sales order size. And so comparative demonstration activity has been focused on these types of farmers.IHT is taking a similar approach and its heating mat product trials in the works that are underway with farms representing over 4 million sows, which represents a significant portion of the North American pork market. Sales activities at IHT were lower than preacquisition averages as a result of its facility move and customers electing to delay capital projects in light of soft pork market prices and higher input costs impacting profitability. The pork industry is emerging from this challenging period and seeing strengthening prices, which IHT is expected to benefit from. With its active ongoing trial activity and differentiated product offering, which is more energy efficient than its competitors.IHT is focused on working with clients to support the conversion of trials to sales, allowing them to experience the benefit of very significant energy savings across its facilities with measurable benefit to animal welfare by using IHT's mats. In addition, IHT is advancing in the commercialization of its cooling mat technology with customer trials being underway. With the benefit of data from its University-backed research study conducted on this product that demonstrates the significant benefits of reduced heat stress and overall animal welfare resulting from the use of the cooling mat technology.Finally, with respect to merchandising products, Q1 2024 sales declined by 23% in our marketing impact compared to Q1 2023. This was largely driven from the ongoing leadership transition which was completed at the end of Q1 2024 with the hiring of Marc Gosselin as President of Marketing Impact on March 4, 2024. Even while working through the challenges of a leadership transition, the team at Marketing Impact has positioned the organization well, with year-to-date order levels being ahead of comparable 2023 -- of the comparable 2023 year-to-date period.The initial focus of the team under Marc's tenure is driving higher levels of efficiency in the manufacturing and design processes for both the merchandising and custom display elements of the business, which will position the business with the increased capacity required to drive sales growth in the organization, all of which supports the margins of the organization. With a set of products and merchandising that focus on labor efficiency and inventory management, including security products, as well as the ability to offer unique high-quality, high-volume, permanent displays. The ability to enhance efficiency and add additional capacity will position Marketing Impact well for the remainder of 2024.I've gone through this list in a level of detail as it's important to illustrate some specifics about how each business is addressing the different challenges and opportunities they're seeing. We do not have a group of businesses who are standing still in the face of some of the demand challenges we're seeing. Rather, we're proactively taking steps to pursue new markets and customers; develop new products to bring to market; validate and quantify data-backed differentiators with third parties to support sales of our products; conducting product trials to demonstrate these differentiators; expanding facilities and investing in efficiency enhancement, including automation to support market share enhancing activities while also working to manage the size of the organizations in our portfolio in a way that manages costs in a period of lower demand that still ensures we have the resources to meet and grow the demand for the differentiated products our subsidiaries manufacture.As mentioned in my comments in Q4 2024, this is not an overnight process. While quarter-by-quarter performance is of importance to investors, the market and ourselves, our critical focus needs to be on ensuring we're building the business block-by-block for long term sustainable benefit because of the nature of our buy, build and hold strategies. This means our shareholders are rewarded by the fact that we will pursue methodical and deliberate growth and improvement in each business we acquire and hold for the long term with a focus on increasing our profitability and cash flows to support growth in our per share financial metrics that can be continually harvested over our permanent hold period, which results in value enhancement and our ability to increase our per share dividend.We have seen the significant positive impacts that the right leaders at a subsidiary can have on the results of that subsidiary, especially as teams, strategies and processes are upgraded to support longer term growth objectives in the business. However, while these changes are taking effect, as we can see in our Q1 2024 results, these subsidiaries have experienced more challenged short-term results, which is part of the process of positioning these businesses for longer term success. Quality of the leaders being brought in to run subsidiary businesses and head office personnel to provide support to these businesses along with the steps these leaders are taking at each of the subsidiaries to pursue margin and market share enhancing activities gives Decisive management confidence that each of Decisive portfolio businesses is being positioned for long term success in a manner that will continue to support per share financial metric enhancement and growing in sustainable dividends.The results of this are extremely beneficial and we've had first-hand experience in the benefits of this approach as demonstrated by the Northside story. Northside experienced some very significant challenges through 2020 and 2021, which resulted in a significant shift in approach to upgrading the team, strategies and processes led by Mark Burleigh, the President of Northside. While during this period the business experienced short term struggles, the benefits to our shareholders of their success, which has positioned that business to grow both sales and profitability the way it has are very material. We are committed to continue to communicate with our shareholders about developments in these areas in the future as the story of success of these activities unfold.I'll now shift to on-strategy acquisition activity. The M&A opportunity continues to be extremely strong for Decisive with many near-term opportunities servicing, including as a result of recent changes to capital gains inclusion rates announced as part of the federal government budget. Thus far in 2024, we have completed 2 on-strategy acquisitions:The first, the acquisition of Alberta Production Machining located in Edmonton, announced on March 14, '24, which was the week before our Q4 2024 conference call. It was a smaller tuck-in acquisition by Hawk Machine Works, which enhances existing capabilities to deliver additional machining service to its existing and new clients, further diversifying its revenue base. Tim Stewart, the President of Hawk, is overseeing both Hawk locations in Linden, Alberta and now Edmonton, and as mentioned earlier, he is in the process of working through the integration of APM in a way that aligns the systems, processes and culture of Hawk in both locations.The second, the acquisition of Techbelt Limited, announced on April 10, 2024, added another manufacturer of consumable wear part products to our portfolio of wear part businesses. These wear part types of businesses, which manufactures specialty value-add components that wear out and have to be replaced, are a terrific fit for our dividend paying model. And again aligned very closely with our objective to pursue business acquisitions in areas that align with the types of businesses we already have invested in. Simon Sparkes, who along with his mother Margaret and his father Allan, was one of the 3 vendors of the business, will continue to run the business, providing stability for, at a minimum the next 3 years of our ownership of Techbelt.In this case, the key synergistic growth opportunity for Techbelt as it becomes part of our portfolio is the opportunity to distribute the parts Techbelt manufactures, namely PTFE conveyor belts, PTFE tapes and PTFE materials, to its customers in North America. The facilities, warehousing and logistics capabilities we already have in place in our existing businesses located in Canada and the U.S. will be supportive of this, as Techbelt had already begun selling its products into North America prior to the acquisition as a result of the work it had done to build its online lead in order generating capabilities.We funded both of these acquisitions through our expanded credit facility and as mentioned in our MD&A, upon receipt of outstanding in the money warrant options,expected in the next 12 months before their respective [ expiries ]. Decisive's cumulative acquisition funding mix for the 13 acquisitions it has completed to-date will be 47% debt and 53% equity.So what does all of this mean for our future outlook? We've taken the time today to talk about each subsidiary and the activities each of our businesses are undertaking to drive demand and increase capacity, supporting market share enhancement while pursuing operational efficiencies to continue to support margins. Even as demand has been challenged, our gross profit percentages have remained strong as a result of these margin enhancing activities, along with the quality of the margins of the acquisitions we have completed. The new companies we acquired in 2024 have a similar high margin profile and as a result we expect them to further support margin levels.While our subsidiaries are currently seeing softer demand for their products and we are expecting a more historically typical quiet Q2 due to the seasonality of some of our businesses, including our hearth and machine products businesses, they are actively pursuing opportunities to bolster demand, enhance market share and position the businesses to respond to demand generated as economic conditions improve or the businesses enter stronger seasonal periods. For example, we're beginning to see a pickup in trial conversion activity at IHT, including sales to some its existing enterprise clients in new geographies, which could be an important driver of the activity in the remainder of 2024.There are some tailwinds in other industries we operate in as well, including the Industrial space, which could support demand at our subsidiaries. At the same time, and important to highlight, given the size of the hearth industry businesses in our portfolio, we expect a more historically typical quiet Q2 due to the seasonality of that business leading into what is the start of the heating season in Q3 and Q4.On the acquisition front, as mentioned previously, the number of acquisition opportunities we are seeing that fit within the profile of our current portfolio of businesses continues to be robust and we remain well positioned with respect to available capacity under our credit facility to fund acquisitions. Operational performance along with execution on acquisition activities, including working to reduce the timeline between acquisition and the realignment of the organization into accelerated growth mode, is a critical focus as we know how important all of this is to our cost of capital.As for our dividend and payout ratio, we have seen an increase to 66% on a trailing 12-month basis, up from 54% at year-end 2023. This shift illustrates the importance of the deliberate approach we have taken with respect to decisions to change dividend levels. While we have substantially increased the dividend over the last 5 quarters, each of the shifts was from a position of strength with the payout ratio at the low end of target levels. This measured approach positioned us to maintain a growing and sustainable dividend, a key characteristic of a dividend [ aristocrat ] being one of which is a key objective of the organization.The additional cash flow streams from Techbelt further support this, and we assure you that we sensitize subsidiary performance as part of any dividend discussion to support these ends. While we are working through a number of challenges, we remain encouraged about the steps our subsidiary leadership are taking to position the businesses for improved performance, as well as a strong and growing backlog of acquisition opportunities, especially within our focus areas of the industries we are already operating in.With that, I now open up the call for questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Russell Stanley from Beacon Securities.

[Russell Stanley, analyst]

Thanks for the discussion around the subsidiary level efforts there. I'm wondering relative to your macro outlook of 7, 8 weeks ago. I'm wondering if you can talk to how the expectations and how the headwinds have evolved. It certainly sounds like hearth products saw a tough March, but I'd love to hear what else has changed in your outlook relative to your comments on the call back in March.

[Jeff Schellenberg, executive]

Yes. I think what we've seen, Russ, and appreciate the question, is some macro headwinds for sure, I think -- and that impacts a few different areas of the portfolio. We mentioned specifically what we've seen with respect to order levels at IHT as an example, which is one of our largest subsidiaries as well. But we're seeing some of that impact across the Group. I think we can point to some of those -- some of that macro backdrop with respect to ongoing higher interest rates and concerns of the consumer around making expenditures that has impacted the Group more broadly. I think, obviously, given the size of the hearth industry businesses and their impact on the overall portfolio, that's been most prominently seen there. But I think that's something we can generally point to across the Group.I think the other element that we point to is the time it takes to effect change, right? I think, what we're seeing and we tried to articulate this year, is that the steps we're taking are important steps, we believe the right steps in the subsidiaries to position them for the future, but it takes time for the teams to execute on them, including kind of educating some of the marketplace and the purchasers of those products around some of the messaging that has come out of some of the work we've done to really understand the differentiators of those products. And so, I think as those -- as time passes, we believe each of these areas is temporary. We're working through these things. We're kind of building the slate of communications understanding of these different elements to position the business well for the future. And I really think as the macro backdrop evolves, and we're able to leverage off the work that we're doing now to position these businesses that will drive our future success.

[Russell Stanley, analyst]

That's great color. And maybe moving on to the M&A strategy. I'm wondering if macro sensitive targets now look particularly attractive or even unattractive, but just on a valuation basis, given the headwinds out there, our valuations on some of those more macro sensitive targets becoming even more attractive. I know your strategy doesn't turn on a dime, nor should it. But I'm wondering if you've reprioritized the pipeline at all, given what you're seeing out there?

[Jeff Schellenberg, executive]

Yes. It's a good question, Russ. I wouldn't say we've reprioritized the pipeline. I think what we're seeing is that, that the wave of opportunities just continues to flow in. There is -- and I think there's consistency with respect to our approach, obviously with respect to value. But how meaningful our overall model with respect to our build and hold approach, is to the particular types of vendors that our overall model appeals to. I don't think -- I think there's a tremendous amount of stability in how we communicate with these targets about who we are and what we stand for. They're absolutely not -- the value sensitivity of these buyers is absolutely focused on a fair valuation for the business, but they prioritize these long-term sustainable benefits of being owned by a buy and hold business that will focus on preserving and then building on their legacy than it is about maximizing every last penny they take out of the business. So that remains completely consistent.I think what we're really focused on as we continue to scale and add businesses is to buy businesses in similar industries that we have already invested in. And you see that in Techbelt, which as another wear part business adds some diversified exposure in the form of access to more food and beverage type of customers, but carries a lot of the same characteristics as our other wear parts businesses, which we think again, is a tremendous fit for our overall dividend paying business model. This is very clearly an area we want to continue to invest in and think we're obviously, with the availability of our financial capacity to buy businesses, we're in a really good position to be able to do.So I think that trend continues. I think the operational challenges to me are a bit of a blip on the radar. This is a period of time where we're going through some of these challenges. We're working through them. I believe we actually absolutely have the team of individuals in our organization who have the desire, understanding and capability to drive our agenda forward to reposition our businesses for long term success, and they're in the process of executing around that.

[Operator]

Your next question comes from the line of Steve Hansen from Raymond James.

[Steven Hansen, analyst]

Yes. Jeff, this is maybe perhaps a naive question, but just relates to the hearth business, how much of it is driven by repair and rental versus sort of new build activity in the housing space?

[Jeff Schellenberg, executive]

Yes. We're much more focused around the rental market versus the new build. We -- then that's consistent with our distribution channels, which really focus on the dealer networks across both North America and U.K. and Europe, that consumers walk into and walk out of the store with the stove in their hands type of thing. So that's very different. But I think one of the products that -- I think that illustrates a bit of an opportunity for us with respect to accessing a different channel, which is more in terms of working with architects or homebuilders to get our product sourced through that channel.And there's some, I think, product development elements that we're working on that put us in a position to access a slightly different channel like that. So there is absolutely an opportunity there.

[Steven Hansen, analyst]

Okay. That's helpful. And just as you're looking at some of the challenges that you're facing, there's a few different subsidiaries. Do you have a sense for some of the duration that you're facing? I'll maybe focus on the hearth side first, just trying to get a sense for the cadence for the balance of the year. I think you already described 2Q is being a softer seasonal period anyway, so we can take for that. But as we think into the back half of the year, should we -- do you think there's prospects for recovery? I mean, how do we think about that back half on some of these key sort of sore points right now?

[Jeff Schellenberg, executive]

Yes, yes. I mean, hearth -- Q3 and Q4 are really important, right? That's going to be the key heating season. And so what will impact that? Well, things like weather will absolutely impact that. If we have [ a heat ] or a very warm season across these markets, whether that be in the U.K. or Europe or North America, that will [ temper ] the pace of purchasing for sure. Weather absolutely has an impact on this business. And the other thing that will impact it is the cost of alternative heating products. If price of natural gas remains low, that'll temper outcomes for that business as well.I mean, I think that's why we're taking the approach to ensure that we're continuing to develop our product base, to expand it, to address different customers, but also different needs of the customers we have. And so I think that's what makes us really excited about the longer term, the longer burn combustion technology usage in a product targeting the U.K. and European markets. And we're excited about some of the timelines and progress that we're seeing with respect to getting it into the market. And I think that's just going to be -- continue to be important in that is to build our products that really focused around our differentiators that position us very uniquely, especially in the U.K. and European market, where there really is no competitive product like this.

[Operator]

Your next question comes from the line of Mike Stevens from Echelon Capital -- Echelon Wealth Partners.

[Mike Stevens, analyst]

A couple of questions here. Just following up on what you said there, Jeff, on some of the drivers of demand in the hearth vertical. Are you able to parse out nat gas prices, temperature, the consumer, obviously, kind of where those rank? And how much they -- we should look to see how much they have an effect on future quarters?And then just a quick follow up on that, the competitive environment. You mentioned some of the pricing pressure from competitors. Is it fair to think that there's some market share losses in the quarter along with the results? And do you guys feel pressure to lower prices as well?

[Jeff Schellenberg, executive]

Yes. I'll take those both in order. I wouldn't say that we have. I mean, I think what would -- my comment on your first question would be that it is highly correlated to energy prices. For sure, the results of the hearth business are definitely have a strong correlation to energy prices. I don't have a straight line kind of formula that defines that, but I think that's absolutely part of it. I think, the other element is obviously the strength of the consumer and positive economic news generally, whether that be lowering interest rates or whatever, it absolutely will have an impact on that business as people think about investing in their homes and renovating their homes, for sure.I mean, I think the benefit of this product that has insulated it from maybe some more of the COVID boom leading into a post-COVID slippage is the fact that the products that we manufacture in that space are highly energy-efficient and one of the few products available that are eligible for a tax credit under the Inflation Reduction Act. We're one of just under 10% of the products available in the U.S. where you can get a $2,000 tax credit for purchasing a Blaze King product. And that's a material differentiator, and something that has absolutely supported and continues to support sales of that product, because that extends into -- until 2032 under the Inflation Reduction Act. So that's -- I think that -- those factors are present which drive that. But yes, the consumer sentiment and obviously, like I said, weather and energy prices will have an impact on that business for sure.With respect to competitive pressures, what I think is a lot of our competitors are feeling some of the same effects that we are. And so some have taken steps to more aggressively price their products for sure. I think what we're really focused on is how do we actually differentiate ourselves outside of just being the lowest priced product, right? Like -- do we have a commoditized set of products? I would say, not so. I think we can point to. And that's part of our diligence process when we acquire these businesses, is to look at what are the specific differentiators this product has that allow us to support price.You can see it in our gross margins, however. We've done a really good job of even in a period of lower demand, boosting gross margins, like we mentioned as part of the call. So is there room for us to take on some level of, call it promotional type of activity to drive some additional demand for our product? Yes. Absolutely. I think our subs have done a great job putting themselves in a position to be able to make those types of decisions. So yes, that would be kind of a lever they could consider as part of their decision-making process. But I think again, we have a group of products that are different than the competitive products that people want to buy for their features more than they have just for being the lowest priced product.And in terms of the market share comment, Mike, I think you have to look at the regulatory challenges that some of our competitors are facing. That Blaze King isn't our -- one of the reasons they're looking at discounting, because there'll be a point in time in the future where they can't sell these products. So that again, gives us confidence that this is more of a blip than a long term shift.

[Mike Stevens, analyst]

Okay. No, that's really helpful. Just a last one, more broadly and more toward your enterprise customers, a theme seems to be delaying CapEx projects and spend. Given the uncertainties, do you have a sense yet for whether that bounce back will be more gradual? Or is there pent up demand where it could be relatively quick back to historical levels?

[Jeff Schellenberg, executive]

And that's specific -- is that specific to a vertical, Mike or?

[Mike Stevens, analyst]

It seems like a number of your verticals, whether it's IHT or Unicast, there's just a pause in capital spend. So just wondering whether you think that with time obviously dependent on the macro picture, that could be a relatively quick snapback versus something more gradual?

[Jeff Schellenberg, executive]

Yes, yes. I mean, I think I'll talk about those specifically. I mean, I think IHT the -- that product that they manufacturer can save their customers up to 2/3 of their energy costs in a facility. There's also a fairly significant number of grant programs that are available either through a -- rebates from electric companies, or even larger kind of federal grant programs that can help offset the cost of those products for the farmer. And so I think, the effort is focused on helping the customer access some of those things and helping motivate, which can help motivate them to move from -- convert from a trial process to a sale process.And, yes, I think we're seeing some real positives. I mentioned that in my comments about some of that trial activity, beginning the conversion process. I think that has a lot to do with, even though we can kind of help the farmer understand the ROI of this product and also have these kind of financing programs in place to help support the conversion decision, the reality is that people have a hard time spending money when they've been operating in the red for a while. And I think that's what the pork industry has faced. And you can just have a quick look at pork prices and to see how they've been strengthening over the past -- the recent past number of months, which is giving those farmers the confidence to begin to pull the trigger on some of these decisions.And so I think there can be, given the demonstrable difference, and that's not even with respect to animal welfare. And there's some really encouraging stats we're beginning to see about how this boosts or lowers mortality rates. And getting some data from our customers around that, that's very clearly demonstrate how this product not just saves them energy, but also is beneficial for the animal. With veterinary-backed -- veterinarian-backed results, that gives us a lot of confidence in this product as well. So I think, yes, there's a chance that there's -- that's definitely an area that could move more quickly than some other areas.I mean, I think with respect to Unicast or maybe our Industrial products businesses, generally, what you see is some really positive leading indicators on Industrial activity, whether it be kind of engineering company results or equipment sales from the large equipment manufacturers. All that type of stuff suggests and even overall construction start activity in different, even non-residential areas. You see some of these positive trends, all of which support the businesses that we have, which produce some of these wear parts that help maintain this equipment when it's used.And so, yes, we see some of that. Obviously, people are competing very heavily right now in that space to position themselves with the consumers. But we see a wave of opportunity coming there that should -- that we should be in a good position to support with the products that we offer.

[Operator]

Your next question comes from the line of Robert Innes from iA Private Wealth.

[Rob Innes, analyst]

Sorry I joined late. I was about 20 minutes late, so I don't know what you've covered. My question is just I'm wondering if the new capital gains, tax provisions will affect how much you're going to pay to -- for future acquisitions? Or if you have any comment on that?

[Jeff Schellenberg, executive]

Yes, I think what it does kind of in the short-term, Robert, is that it incents people to try to get transaction processes completed prior to the change in rules. I think, that's the biggest probably near-term impact of those changes will be just with respect to timing of people wanting to get processes completed. I mean, I think in the long-term, for better or worse, I think the business' value is based on the earnings, the consistency of earnings growth potential quality of the differentiating advantages of the product, et cetera, that drives so much of our decision-making process around what a business is worth. So I wouldn't anticipate those rule changes materially impacting that. I think the near-term impact is with respect to the timing of processes.

[Rob Innes, analyst]

I don't know if you've seen the joint Canada Bar Association/CPA Canada submission. They've asked for a deemed disposition and a delay to the end of the year as possibilities. So that might help.

[Jeff Schellenberg, executive]

Yes. I mean, I think this is obviously a big change for owners, entrepreneurs with respect to the outcomes, their expected outcomes around what they're taking off the table if they sell a business. And so, yes, I imagine there will be pushback around these kind of changes.

[Rob Innes, analyst]

I'll have to listen to the replay for the rest of it, but I'll sign off.

[Operator]

There are no further questions at this time. I will now turn the call back to Jeff Schellenberg. Please continue.

[Jeff Schellenberg, executive]

All right. I want to thank everybody for participating in the call today. We look forward to providing you updates -- further updates on our progress continuing into the next quarter and beyond. Thanks for participating.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.