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Good morning. Today is Wednesday, February 15, 2023. Welcome to the Toromont Industries Limited Full-year and Fourth Quarter 2022 Results Conference Call. Please be advised that this call is being recorded and all lines have been placed on mute to prevent any background noise.
Your host for today will be Mr. Michael McMillan, Executive Vice President and Chief Financial Officer. Please go ahead, Mr. McMillan.
Great. Thank you, Michelle. Good morning, everyone. Thank you for joining us today to discuss Toromont’s results for the fourth quarter and full-year 2022. On the call with me this morning is Scott Medhurst, President and Chief Executive Officer. Scott and I will be referring to the presentation that is available on our website.
To start, I would like to refer our listeners to Slide 2, which contains our advisory regarding forward-looking information and statements. After our prepared remarks, we will be more than happy to answer questions.
Let’s get started. We can move to Slide 3, and Scott will start us off.
Thank you, Mike, and good morning, everyone. Team delivered solid operating and financial performance in the fourth quarter and throughout the year, ending in a strong position. We continue to monitor supply and other uncertain market and economic variables.
The Equipment Group continued to execute well, delivering strong rental and product support results, while optimizing equipment and parts sales. Supply chain challenges persisted, albeit some product lines have shown recent improvement.
Fiscal revenue improved in the quarter on project construction and higher product support activity. Across our organization, our team remains committed to the disciplined execution of our operational model, adapting to changes in the business environment, while remaining focused on executing our customer deliverables.
The fourth quarter of 2022, a Quebec property was sold, resulting in a pretax gain of 17.7 million, 15.4 million after tax or approximately $0.19 per share. This facility was previously a Battlefield branch acquired in the 2017 QM acquisition.
The disposition is an example of how our Battlefield Equipment Rental team continues to execute our QM rental integration and operational excellence footprint focused on generating operating efficiencies and improve customer deliverables.
2022 has had its share of challenges. However, over the last couple of years, we have made some key organizational changes, which has enabled our team to manage well through pandemic challenges and a variety of economic dynamics we have not seen for some time.
Our Toromont team has executed reasonably well, and although there is always room to cautiously - to continuously improve, I’m extremely proud of our team and how they are supporting our customers and building our business for the future.
Turning now to our financial results highlighted on Slide 4. Company ended the year with solid fourth quarter results on strong execution from our teams. Net earnings in the fourth quarter of 2022 included the aforementioned property disposition gain, higher revenue, and good expense control drove positive results in the equipment group. Resulted CIMCO were up modestly from the similar period last year with higher revenue partially offset by higher expenses resulting in a 3% improvement to operating income.
On a full-year basis for 2022, the company delivered strong bottom line results reflecting a favorable sales mix, higher rentals and product support revenue to total revenue, improve the gross margins and higher interest income. Rental and product support revenue increased on good market activity. Equipment revenue increased after a slow start to the year, mainly caused by delays in the product deliveries.
Supply chain constraints, and general macroeconomic factors such as inflation, high interest rates, and lingering pandemic concerns have challenged the business in 2022 as well as disrupted historical trends in seasonality patterns, and are expected to continue to do so for the near to midterm as we progress into 2023.
Backlog was healthy and relatively unchanged year-over-year at 1.3 billion at year end with an increase in the equipment - with a decrease in the equipment group down 4% and an increase at CIMCO up 23%.
Backlog is supportive and reflects strong order activity over the past year, coupled with tight but improving inflow of product. That said, ongoing supply constraints still persist for many product groups. On a consolidated basis, revenue increased 20% in the quarter and was up 9% 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. Although year-to-date revenue improved - revenue across the businesses continued to experience delays in deliveries and construction project schedules due to supply chain constraints throughout the year, which will continue into 2023.
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 high, while rental revenue increased on larger fleet and higher utilization.
Operating income was up 43% in a quarter and up 31% year-to-date on higher revenue, the gain on the property disposal, and improved gross margins in part due to a favorable sales mix with a higher percentage of rentals and product support revenue to total revenue.
Q4 expense levels decreased to 9.7% of revenue year-to-date reflecting the property disposition in 2022. Expense management continues to be an area of focus and discipline given the economic environment and earnings increased 51% in the quarter and 37% year-to-date versus 2021. Basic earnings per share was a $1.94 in the quarter and $5.52 for the year.
We are proud of our team as they remain committed to discipline execution of our diverse operational model, adapting to changes in the business environment, while remaining focused on executing the customer deliverables.
Activity remains sound with a healthy backlog level, supportive of future results. We continue to monitor specific product availability, inflationary and interest rate pressures and dynamics in the business, as the economic environment continues to evolve and change.
Technician hiring improved throughout the year remains a priority in order to support our aftermarket strategy and value-added product offerings to meet and exceed our client’s long-term needs.
The diversity of our geographic landscape and market served, extensive product and service offerings, technology investments and financial strength together with our disciplined operating culture continued to position us reasonably well.
Mike, I will turn it over to you for some more detailed comments on the Group results.
Thanks, Scott. Let’s start with the Equipment Group on Slide 5. Revenue was up 22% in the quarter and 10% year-to-date. Taken together, total new and used equipment sales were up 27% in the quarter and 4% for the year.
New equipment sales increased 32% in the quarter on good deliveries in the mining, power systems, material handling and agricultural markets, while ongoing inventory supply constraints continue to dampen deliveries in the construction market. Year-to-date new equipment sales increased 5%, reflecting the slow start to the year, again primarily due to supply chain dynamics.
Used equipment sales increased 8% in the quarter and 2% year-to-date, mainly due to lower rental fleet dispositions. Used equipment demand has been relatively strong, given product availability and economic conditions during the pandemic time frame.
In the quarter, total new and used equipment sales increased 275% in Mining, 27% in Power Systems, 38% in Material Handling and 24% in our Agricultural Market, while being lower in Construction markets by approximately 2%.
Rental revenue was up 10% in the quarter and 17% for the year, reflecting improved utilization on solid market activity. Growth was experienced in most areas for the year with the following increases. Light equipment rentals were up 17%, Heavy equipment rentals up 20%, Power rentals up 15% and Material Handling up 10%.
The RPO fleet or rental with a purchase option was at 44.7 million versus 46.1 million a year ago, reflecting the slightly lower demand and continuing to trend at below pre-pandemic levels. Product support revenue grew 19% in the quarter and 15% in the year, with increases in both parts and service revenue across all markets in most regions.
Looking at specific markets for the year, growth was as follows: Construction up 16%, Mining up 17%, Material Handling up 9%, Power Systems up 8% and Agricultural activity up 12%. Gross profit margins increased 10 basis points in the quarter and 180 basis points in the year, compared to 2021.
Rental margins have improved on the higher activity, which increases utilization. Product support margins have also improved with continued focus on efficiency as well as higher activity levels. Equipment margins continue to be competitive, but also reflects strong demand and tight supply.
Sales mix was a bit of a swing factor being favorable in the year and unfavorable in the quarter. This is mainly reflective of timing of equipment delivery, which impacts the proportion of rental and product support revenue relative to total revenue.
Selling and administrative expenses were down 9% in the quarter and were up 3% for the year. As Scott previously mentioned, during the quarter, our Quebec based property was disposed of leading to our pre-tax gain of 17.7 million.
Expenses in 2021 also included a five million charge for the settlement of defined benefit pension obligations for certain retirees. Excluding these two items, expenses increased 15% in the quarter and 7% year-over-year.
Compensation costs were higher in both a quarter and for the year reflecting staffing levels, regular salary increases and increased profit sharing accruals on the higher income, which was partially offset by the mark to market adjustment on DSU.
Other expenses such as training, travel and occupancy costs have increased in light of activity levels and inflationary effects. Bad debt expense increased 2.5 million in the quarter and 5.6 on a year-to-date basis, reflecting higher volume and an increase in age receivables. Selling and administrative expenses were lower at 11.7% as a percentage of revenue versus 12.5% last year.
Operating income increased 47% for the quarter and 33% year-to-date, mainly reflecting the higher revenue, gross margin improvements, and the property disposition gain partially offset by higher expenses.
Bookings decreased 34% in the quarter and 29% year-to-date. Construction bookings were down 60% in the quarter, reflecting a strong prior year comparable that included several large orders. Power systems bookings were also down 25% higher orders were received in mining up 45%, agriculture up 17% and material handling up 6%.
Backlog of 1.1 billion was 4% lower than last year reflecting improved equipment delivery from manufacturers in the latter part of the year. Approximately 90% of the backlog is expected to be delivered in 2023, but of course is subject to timing differences depending on vendor supply, customer activity, and delivery schedules.
Turning now to CIMCO on Slide 6. Revenue was up 7% in the quarter, but lower 3% on a full-year basis against the tough comparable last year. Supply chain dynamics and construction schedules have also dampened results in 2022.
Package revenue increased 2% in the quarter on the advancement of construction projects. However, also reflecting lower industrial and recreational activity in Canada. U.S. activity was higher in the quarter in both markets, however varies due to the smaller base.
For the year, package revenue was down 17% on lower industrial activity with several large industrial projects in the prior year making for the tough comparable. Recreational activity remained relatively unchanged.
Product support improved 14% in Q4 and 17% for the year with increases in both Canada and the U.S. Activity levels have improved slowly with the easing of the pandemic restrictions and reopening of recreational centers after the prolonged pandemic closure period.
The increased technician base continues to support activity levels. Gross profit margins were down 70 basis points in the quarter versus the comparable period last year as lower package and product support margins more than offset the favorable sales mix.
On a year-to-date basis, gross profit margins increased 180 basis points versus last year, good project execution and a favorable sales mix offset inflationary factors and supply chain constraints.
Selling and administrative expenses were up 7% in the quarter and 5% in the year. Bad debt expense decreased two million in the quarter and 1.1 million for the year reflected - reflecting focused collection activities.
Travel and training expenses increased to support activity and staffing levels. Expenses in the fourth quarter of 2021 were also comparatively lower, which reflected non-recurring accrual adjustments following the implementation of the new payroll and HRIS system last year.
Occupancy cost increased in 2022 as a result of the relocation of the Canadian head office to Burlington, along with other related branch changes. As a percentage of revenue, selling and administrative expenses were unchanged at 15.9%. Expenditure control measures on discretionary spend remain a key focus area for the CIMCO team.
Operating income was up 3% for the quarter, reflecting higher revenue dampened by lower gross margins and higher selling and administrative expenses. Operating income was up 6% year-to-date reflecting a favorable sales mix and improved gross margins.
Bookings decreased 19% in the quarter on lower orders in both Canada and U.S. however, timing of decisions by customers and receipt of orders can vary from period-to-period. On a full-year basis, bookings were up 10% at just over 200 million with a 3% increase in Canada and a 31% increase in the U.S. Both markets were higher with industrial bookings up 10% and recreational orders up 9%.
Backlog of 198.4 million was 23% higher versus last year, both recreational, industrial backlog increased in part reflecting recent order activity and the deferral delay of construction schedules resulting from supply chain constraints.
Substantially, all the backlog is expected to be realized in revenue in 2023. However, again, this is subject to construction schedules and potential changes stemming from the supply chain dynamics.
On Slide 7, we would like to touch on a few key financial highlights. Investment in non-cash working capital increased 55% versus a year ago, mainly driven by higher accounts receivable and inventory levels reflective of higher activity levels.
Clearly, we are still not experiencing normal seasonal trends. As one would expect, however, our operating teams are keenly focused on allocating capital effectively and proactively managing working capital to respond to customer requirements, evolving market conditions, activity levels, and delivery timing.
Accounts receivable continue to receive focus and while DSO increased up six days compared to last year, we are closely managing the aging of our receivables. Inventory levels are higher than prior year, driven by a number of factors, including a strong backlog, delivery timing, work in progress completion driven mainly by parts availability, coupled with strong demand and inflation.
We ended the year with ample liquidity including cash of 928 million and additional 471 million available to us under existing credit facilities. Our net debt to total capitalization ratio was negative 14%.
Under our NCIB program, the company purchased and canceled 473,100 common shares for approximately 48.5 million for the year, which supports good capital hygiene by mitigating option exercise dilution.
Overall, our balance sheet remains well positioned to support operational needs and we are prepared to manage challenges related to the economic variables we are all experiencing. We continue to exercise the operational financial discipline when would expect as we evaluate investment opportunities that may develop within this dynamic environment.
Toromont targets return on equity of 18% over a business cycle. Return on equity improved to 23.5% compared to 19.6% for 2021 and exceeds our five year average of 19.8%. Return on capital employed was 32.3% up from 26.6% last year. The improvement in both of these metrics reflect improved earnings and continued capital discipline.
And finally, as announced yesterday, the Board of Directors increased the quarterly dividend by 10.3% to $0.43 per share. Toromont has paid dividends every year since 1968 and this is our 34th 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 with some key takeaways, as we look forward into 2023. We expect the business environment to remain uncertain with a number of macro and industry factors at play. While industry activity levels have improved as pandemic restrictions have eased in most markets, dynamics of the global supply chain, inflationary pressures, customer credit risk, higher interest rates and other global factors are exerting pressures that overshadow normal seasonality and patterns. We continue to proactively monitor developments closely and we are prepared to respond appropriately.
As one would expect, we continue to focus on our three key priorities, leveraging our learnings and focusing on protecting and building our business for the future. Our backlog levels are supportive, but subject to global supply challenges, and related delivery schedules.
Technician hiring also remains a top priority to support our aftermarket and value-added product and service offerings to meet and exceed client needs and build our team for the future. Operationally and financially, we are well-positioned to effectively support our customer requirements and evaluate market opportunities, leveraging our operating disciplines and culture.
It has been another year of perseverance through unique and challenging conditions and we appreciate our entire team’s exceptional effort and commitment to continue to support our customers, during this unique and challenging time. Thanks also to our valued customers, supply partners and shareholders for their continued support.
That concludes our prepared remarks. At this time, we will be pleased to take questions. Michelle, back to you to set up the first call, please.
Thank you, sir. [Operator Instructions] Your first question will come from Jacob Bout at CIBC. Please go ahead.
Good morning. Just a question here on Equipment backlog. This is the third quarter that we are seeing quarterly sequential declines. And just wondering how this translates into how we should be thinking about 2023. Is the expectation here that new equipment sales could be somewhat softer versus 2022, but still higher than 2021 and 2020?
Yes. Thanks for the question, Jacob. I think in context, a couple of things to consider there. It is down sequentially. One of the benchmarks that we tend to look at and that we did mentioned in our commentary that, the economic factors and pandemic sort of path that we have been through has really overwritten normal seasonality.
And so, the backlog and the orders coming in Q4 backlog is at strong level, certainly probably three times what normally would be seasonally, which is a function of all the factors I mentioned.
I think when you look at what we would normally see seasonally in order input pre pandemic like 2019, it is down a little bit. And so that is a good context as well, and it just demonstrates that we are in different conditions at this moment.
I think, and if you look at some of the commentary, some of the disclosure we provide in terms of the composition, you will see constructions down. But we are seeing, reasonable order flows in the mining sector, in agriculture, in material handling and so forth.
And so, I wouldn’t speculate on how that is going to transpire throughout the course of the year, but I think it is supportive as we enter into 2023 at this stage.
And then maybe just to my second question here, just on the rental market, it looks like there was good growth in the quarter, but RPO was down substantially and trending below pre pandemic levels and just wondering why?
Yes, Jacob, in terms of the rental, the rental activity remains very strong. We are really pleased with how our teams both on the light, the heavy and the power and material handling have executed.
We allocated fairly significant capital in there last year, and so we are pleased with the market performance on the rental particularly, we are starting to get the traction that would, that our team’s been working on in Quebec Maritime, we saw some nice growth in there with our change and go to market strategy. So, that was a pause on the rental one.
In regards to the RPO, I mean, the RPO portfolio is slightly down again, you are at historically low levels when you compared pre-pandemic. It is a reflection of, I think, availability, customer shifts in the buying patterns. We have been operating in a bit of a unique environment, and so it sort of is what it is in terms of the market, but it is just reflection of buying patterns really.
And are you seeing any difference between how Battlefield is performing versus your heavy rent?
Both are performing recently well, we are pleased. You saw the rental numbers for the quarter and the full-year or rental equipment group was up 10%. And utilization, I mean, the light rental, the utilization we gained 2% was fairly significant and the utilization and in the marketplace.
We, again, we - I think the teams have executed relative to capital allocation and really pleased along, still ways to go, pleased with how we have shifted with our Quebec and Maritime go to market approach and started to execute better in that environment.
Thank you.
Thank you.
Your next question comes from Michael Doumet of Scotiabank. Please go ahead.
Hey good morning Scott an Mike. Obviously, fantastic quarter and a fantastic year. I wanted to focus on the gross margin improvement that is up probably about 220 basis points versus 2019. I think the equipment group is even higher, and I think we are all trying to parse out how much of this expansion is driven by the improvements in the business, which you guys are really good at. And then the favorable market conditions, that may have played out on the margin front for 2022. I mean, any way you can break that down for us, maybe at a high level, maybe just comment on some of the - where some of the largest gains came from in terms of gross margins?
Well, maybe just to start, Michael, as you look at our gross margins. I think a couple of underlying factors, certainly like we continue to see as strong, like, although on a year-over-year basis used equipment still remains a very strong contributor to our equipment sales.
We are starting to see a little better traction on new equipment and deliveries, but we are seeing, we are continuing to see strong results in terms of the used equipment segment, given the tightness of the market, no surprise there.
I think, when you look at the mix of the business as well product support, we are seeing good growth there, year-over-year - both in our CIMCO business and our equipment group. And so the mix contributes to that. And I think, we have been able to manage the pricing, and so forth throughout the year and so forth.
And I think, we just touched on rental as an example. And when you look at rental, I mean the utilization rates, the way the team is executed, and the contribution there has been quite strong as well. And so, I think, those factors all contribute to a stronger gross margin.
I think, we are getting - we continue to see some operating leverage too, we are seeing inflationary factors creeping into certain areas. But I would say that the team is doing a very good job at managing discretionary areas, right?
I will provide a little more color in there. I mean, we were - the team did areas notably good job in there on the execution. We call it operational excellence strategy. We had improvement in our material handling business. We had some improvement in Ag. It is the sum of all parts really, and we had some - we were fortunate some areas, but giving a little more color unused. I mean, you have got rental disposition is down.
Fairly significantly on the heavy and overall, on the full-year on the light. And that is because of the availability. Even though we have allocated a lot of capital in there, we have had to go outside our normal operating practices, because of the demand, which is good.
So when you get an increase there in utilization, that is reflective in the margin. But also, in the used, so you are used - we are pleased that the team shifted a few years-ago with some of our strategies unused opportunistic on the buying our used purchased strategy. I believe it has been a good story. And that is added up a bit on the margin a bit in terms of buying equipment, rebuilding equipment.
We have also really started to develop our offering or value proposition to customers on being an outlet for them on selling their equipment. That is up, you have got some big shifts there on a full-year basis about 56% plus improvement there on this used purchasing environment.
So, that is really solid execution, which all adds up to what you are talking about there. And our rebuilds, we had a - in the Q4 our rebuilds are up another 120%. This all starts to add up in terms of the aftermarket strategy, even though.
So, we are fortunate how the teams have executed there, but we never get ahead of ourselves. That is what we saw in the quarter of the full-year. There s some certainty in there, and we got to continues to execute and prove it out. And again, that Quebec and maritime rental model did improve. But we have to continue on that front as well. So, it is sort of the sum of all parts in there a bit.
Yes. That totally makes sense, and I appreciate the color guys. Maybe the second question on the construction piece, and I’m trying to square some of the movement from the construction end market as it relates to kind of your backlog and your revenue. So, you did comment that there was some slippage, but the products poor trend, it was strong, but did slow down sequentially. The bookings were a little bit softer.
On the construction side. And I’m assuming, like in the back of all our heads here, we are seeing higher rates and we are assuming that, that will eventually have an impact to the construction end-market. And maybe just to kind of comment on what you saw through the quarter and maybe what we could expect early in 2023 just in terms of construction market?
I’m not going to predict on 2023 with all the uncertainties and everything that I know how one would do that, but we won’t do that. But what we saw in the quarter, yes, there was slippage, okay, and that showed a bit in the backlog. Some of those availability constraints impacted our execution. And there was some softening in the industry activities, okay.
And so that is what we saw. But still reasonably and when you look at it historically, still reasonably solid numbers, but there was some softening in that C&I industry activity levels, which you are coming off some high, you are coming off some tough comps in there on that construction side. So that is what it is, that is what we saw in the quarter. We will see.
And there were some larger orders in Q4 of last year too, and particularly in that segment. So sometimes you see a little bit of lumpiness there. But I think it is more of the former discussion that is Scott mentioned.
And we are - I mean, I think right now with these market dynamics, we are really shifting to monitor and get the pulse from the frontline or our pipeline forecasting just to see. We have got to stay very close to that with some of the dynamics in play right now.
Perfect. Can’t blame me for asking about 2023, but thanks a lot for the details guys.
You are very welcome.
Thanks, Mike.
Your next question comes from Yuri Lynk at Canaccord Genuity. Please go ahead.
Good morning, gentlemen. I want to talk a little bit about your real estate footprint. The monetization opportunity that you had in the quarter, I mean, what made that piece of real estate available for sale? Do you have other opportunities like that? And can you provide an update on the new re-manufacturing facility that you have got planned in Ontario, maybe some - share with us maybe the budget and if that is going to allow for some growth or is it replacing the facility that is nearby?
I will talk to the property that Mike can take the re-manufacturing question. How is that? So this is - I will classify this as all part of our QM integration. We got slowed down on that integration, and I’m really pleased with the team. So this was on the rental services side.
And we examined that footprint. We have a model we like to operate within, which identifies with the market in terms of the footprint. We have worked hard particularly in Quebec on expanding that footprint with operational size and efficiencies and how we run with broader lines.
So the teams - but that is a bit of a journey in there. We said it would take time. And so this was in our plans. This was a very large facility for rental services that didn’t meet our scope and dynamics at how we go to market and where it was located.
So what the team was able to do was actually expand the footprint and we added a store in approximately where we needed to be. We redeployed our people into some other areas or other locations and to improve the throughput there and the customer deliverables. And I was delighted our people really identified with it. It was in a bit of a congested area, so that worked out well. And then we crystallized the value of the property.
Nothing more, nothing less and actually we have lowered some fixed operating costs in there. So that is - it was really, I think, well executed. We were slowed down a bit with the pandemic, but that is what we do. We are continuing to look at those operating efficiencies, our go-to-market strategy or approach to the market in QM, and so that is what it was.
And great way of relocating some capital. So, on the Bradford question that you had on Rayman, I think here it is, again, we mentioned, I think it was last quarter, we had sort of - we suggested that, we are looking at, we own the land there, and so we are looking at an investment of about up to $70 million.
It is progressing pretty well, I would say, we are still targeting mid 2024 to be in the building. And as far as capacity goes, as we look at that facility, I mean, it does provide us with great access off the 400 access to the Northern Territories.
I think access to employment as well. But operationally, really importantly, we have a number of facilities where this is going to provide us with better flow of material and product. And so, in flexibility and capacity, both in square footage, I think more modern facility.
So more efficiency just generally when you think of flow, but also, when you think of the operations conducted there, it’ll be more efficient and newer equipment and so forth. And then it allows us for capacity in terms of shift pattern management and things like that and so that is kind of where we stand for now.
We will provide some more updates as we progress through the year. We have done some initial site grading and so forth, and so we will be starting construction and we have done a bunch of tendering already, so we expect to be making great progress here this year.
So, it is all part of the, again, the sort of the east, the central Eastern Canada strategy for the aftermarket.
Maybe just my last question, you are pushing almost $300 million in net cash. Just wondering, on the acquisition side, I mean, would you consider adding to either the rental business or CIMCO via M&A?
We always keep our eyes and ears open, that is something that is, I will say, normal.
In terms of priority or --
Yes, I mean, we have got lots of operational focus right now, as you can see. But we certainly with market dynamics, you keep your eyes open and that is what we do. We have done that historically.
Okay, guys thanks. I will turn it over.
Your next question comes from Cherilyn Radbourne at TD Securities. Please go ahead.
Thanks very much and good morning. I was wondering if you could enlighten us a little bit about how you are thinking about net rental ads in 2023, just given improving equipment availability and an environment of some macro uncertainty where customers may pivot to rental over purchasing.
Sure. Yes, great question, Cherilyn. So maybe I will start on that. If you look at where we are last year, a team did a really terrific job of managing the rental fleets broadly, the light and the heavy. But if you think of Battlefield, for example, I mean utilization managing the fleet as well as the retail component given the tightness, especially in CCE.
And frankly, even the allied product was very tight. And so, we did add significantly to the capital in that sense. And I think as availability improves and we look at the economic conditions, which are pretty uncertain at the moment.
The team is prepared to invest in and add to that fleet. We have kind of held back, if we go back a couple years, especially in the Quebec Maritimes, we did taper back capital over the last two years, we have been incrementally increasing that. But again, trying to optimize, customer requirements and customer demand in that space.
And so, we are prepared to invest there as demand warrants. As we see market activity demand and in uncertain conditions, you might see that business performa little more consistently in that manner until customers can make decisions on capital investment.
So just put a little more color on there, [indiscernible] that, I mean, we have been balancing right with some of this type of supply, and particularly on the rental service, we did allocate more units over the last two years. We had to into the rental fleet. So, we were balancing that retail to rental site on the smaller equipment.
And we chose to really allocate more into that rental. I think, it was the right decision. The team executed - as we believe in this rental model. We are going to continue to try and continue to make a difference for our customers here. So we will be, as Mike said, allocating capital in there appropriately, and as aggressively as we think we can execute.
Great. That is helpful. I was wondering if you could also speak to the composition of your mining backlog. We are certainly reading a lot more about nickel activity in your territory, and I’m just curious whether that has started to show up in your bookings.
We have got more diversity in now relative to base and precious metals. I think, it is fairly balanced in there in the backlog. Certainly, as you pointed out there is some drivers of nickel, gold, iron ore, so says it is fairly balanced in there.
Okay. And then if I could sneak one last one in. It just strikes me that in coping with supply chain constraints, the equipment group has probably embedded some related shop process efficiencies that you will try to preserve as parts and prime product availability improved. And I was just hoping you could comment on that train of thought.
Well, that is something we always strive for is efficiency support area. I would say our efficiencies haven’t been where we want them. When we look at our ordering process relative to demand signals, I think, well that we have worked, actually we are better there good point in terms of - I think we are doing a better job analyzing our data, talking to our customers to get the repair schedules.
The problem has been, our ordering process hasn’t always lined up with those repair schedules. So you actually have created some inefficiencies in there just the way it is been working out. You see a bit, and our width is high, which is shows the demand, which is good.
But again, how we are scheduling those rebuilds we are, I think, we have improved our strategy there and our go-to-market approaches. So that is good lessons learned in there as you have pointed out. So there is a lot of dynamics in there.
So, I think we have improved in some areas reasonably well, but there is also we are still not where we want to be in terms of that data lining up on how we do our ordering process. Because sometimes we are just taking as we can get, even though it doesn’t line up from a timing perfectly or we are waiting. So there is how we have seen it so far.
Great. Thank you. I will pass it over to someone else.
Thank you.
Your next question comes from Devin Dodge at BMO Capital Markets. Please go ahead.
Thanks, good morning guys. I wanted to come back to Michael’s question on gross margins. So look, if you put a side mix and look at the individual line of business within that Equipment Group. I think there has been some benefit from the tight market conditions. But do you think, you are in a position where you can retain the higher gross margins or should we expect some of - at least some of that benefit to fade overtime as availability improves for equipment and parts?
Yes. I think there is no question when you are in the tight supply. You get some outcomes there relative to market dynamics, marketplace pricing. And as we have said, the operating leverage has been favorable. And well we continue to work hard at that in terms of the lessons learned.
Now, that is something we have to continue to work at. But it is a very - you have to be in our view balanced because you still want to be attentive to your market. It is all about executing relative to the market, right, and what is your value proposition.
So we will continue to work hard at that. Certainly, as we know historically, these dynamics change. It is how you execute through the dynamics in the market and your value propositions. We will continue to do our best at that that is where we are. We were fortunate with some outcomes. There is no question. But we saw it.
Okay. That makes sense. Okay. And then I was going to ask about Ag West. We saw that product support, I think was pretty meaningfully in the second half of the year. It seems like a generally positive backdrop for the Ag sector. Can you give an update on the Ag West platform and your plans for this business over the next, call it, two to three years?
What we saw last year was favorable market dynamics in the Ag segment. Our teams executed reasonably well particularly with market penetration and with our combines and some of our tractor lines. Aftermarket, as you saw, we started to execute better in there.
And yes, I mean, it was favorable market dynamics in there that led to some favorable outcomes combined with some improvement in our operational operating efficiencies. Still a way to go in there, but some improvement that we were pleased with.
Sorry, Devin, the only other thing to mention, as Scott mentioned, like over the last couple of years, the team has done a really nice job managing inventories there. And that is positioned us well in terms of the aging and managing used and so forth.
They have done a really nice job. So we are starting to see some of those results and the backlog is very consistent with the other parts of our business, right? We have got some decent numbers there as we mentioned.
Yes. Do you think that business is at a point where we could start to invest in growth in a more meaningful way?
We are monitoring our business activities in there closely and we are pleased with some of the progress. I would say, we have improved with the market dynamics that we are presenting.
Okay. Makes sense. Thanks.
Your next question comes from Bryan Fast at Raymond James. Please go ahead.
Yes, thanks. Good morning. Just on mining, I mean, what led to the nearly threefold increase in mining equipment sales year-over-year? Was that just reflective of growth off a low base or is there something else that looked at that?
You are lumpy in there. And part of it is the rebuild activities. You get into those mining, you get into tough comps. So it was favorable. Our teams executed well in the aftermarket. And we have been fortunate in there over the last year and a half bit with how the team has executed some awards and through some RPO processes and so you are seeing some of that dynamics with the installed base. But mine is lumpy, right. But it was favorable and we are pleased with how the team executed.
Okay, thanks. And then have you seen an uptick in rebuild activity? I mean, just as equipment prices increase or take hold here.
Couple things in there. I really pleased with the execution of the strategy in the rebuild. Again, full-year we are on the heavy side, we are up over 80% on volume. These are some big shifts. I think those value propositions are really making sense for customers, particularly when you saw the dynamics in the market on the inflationary factors.
Also, I mean, customers are, I mean, we like to think that is a value proposition. With the way that iron is built, you are able to rebuild it. We think that is a differentiation for us, and we are starting to leverage it better with good data points on how to take that proposition to market.
So, I mean, we will, I mean, the team execute it well last year, and it is a key, aftermarket strategy and we will continue to do our best to deliver good value propositions to our customers in there. But that is what we saw last year. Good improvement. It is a good sustainability model as well.
Your next question comes from Maxim Sytchev of National Bank Financial.
I was wondering if it would be possible to get a bit of an update on the materials handling progress in that business.
Yes, so again, continuous improvement in there is the way I will frame it for the full-year and in the quarter. We really felt tight a avail on the new side there last year, so it improved a bit in the fourth quarter. But again, where we - I think we are going to acknowledge some operational excellence was in the rental side of the business.
We have invested capital in there over last two years in that rental. We believe in that rental model. And so the team started executing reasonably well in there with the products we were able to secure.
So, that was a real positive, and you are starting to see some of those positive outcomes due to rental as well as we saw improvement. Some of the part, the aftermarket sales, we still got a ways to go in there, Max.
We are not where we want to be on operational performance in there, particularly on the service side. We have improved with our technician head counts in there and our deliverables with customers, but it is some of those operating practices we still we need to do better in there as well.
But there, I would say overall continuous improvement in material handling. And as you know, we expanded the footprint with the OEM was - is I think recently pleased with us. So, we went out to Saskatchewan and so expanded that footprint a bit more.
And I mean, are you like - I don’t know, like a second, third inning of kind of improvements? Or how should we just think about it directionally?
I wouldn’t want to frame it in innings, I will frame it that we have a ways to go, but we are on a continuous improvement basis. We were satisfied with last year and still more work and strategically some more work in there as well on that.
Okay, thank you. And then just wanted to come back for a second to Ag West, I mean, is the scope to leverage that platform, and grow it from an M&A perspective down the line? What are maybe your thoughts there?
Well, right now, our focus is on proving on the operational side, it is been - that is a different segment. And I think as Mike pointed out, the team - we are got more discipline in there in terms of how we are managing the asset management.
And so, I think that showed there and that is where our focus is right now. Is really customer deliverables in there, and the operational excellence. Those are the key areas for us in Ag. That is where our focus is right now.
Makes sense. And maybe just one quick one, do you mind maybe comment in terms of pricing any push back from potential customers on Prime product? Maybe just any color on that, please.
Well. I think that is all relative to the - that is something we are going to - we are monitoring closely, right? When you get into these economic uncertainties, that is an ongoing pulse that we have to monitor closely relative to our value propositions and customer behaviors. So, what we saw in the quarter was the market dynamics were still reasonably good.
There was some softening. So that is an area, you can’t speculate on it. You just got to make sure you are staying focused on your value propositions relative to the market dynamics and the customer deliverables. So it is a delicate thing in there. And we are monitoring things closely, and that is why I wouldn’t want to predict outcomes right now.
Okay, super helpful. Thank you so much.
[Operator Instructions] Your next question will come from Sabahat Khan of RBC. Please go ahead.
Great, thanks and good morning. You made a comment earlier around some of the progress around the Quebec Maritime integration is still going on, obviously, delayed by the pandemic. Can you give some perspective on I think rentals is a big focus on kind of the improvement on that. So can you really talk about where you are on the journey towards rental margin improvement?
Do you still see a runway? Could that be, a driver of improvement going forward the next couple of years? Whether it is across your entire platform or even in the QM region or maybe any of the big bucketkind of final integration, things you still have left to do with that kind of QM here platform?
Yes. So I mean, we don’t want to get ahead of ourselves, but we - the team did execute favorably last year in terms of the execution of that strategy, and relative to the capital that we allocated in there, and our go-to-market approach, which was a real shift on the rental, both on the heavy power as well as the and particularly the rental services concept, that was a dramatic shift in there.
And we knew it would take time and we are still, I would say we are still not where we want to be, but we have got to continue to prove it out, so don’t want to get ahead of ourselves. We have got some more work to do in there. That disposition of that facility was part of it. So there is still more work to do there on many fronts.
And even in our service departments, we still have some work to do in there with our customer deliverables. So still some work, and we have got to prove it. But so far we are pleased with how things have been executed and particularly, how we are operating in the marketplace.
Okay. And then just wondering, I guess the product availability and supply call out in the outlook commentary, that it is still a bit uncertain. Can you maybe talk about whether there is just kind of the broad availability and that is just a comment on the state of the kind of environment, or is it, no maybe certain categories or certain products, maybe it is machines versus parts, et cetera, that might be a bit of an issue. Where might you be seeing some of the gaps relative to where your backlog might be in?
So some models in parts and components still very tight. Other areas, we started to see some improvement. So we are going to monitor it closely. These are things we - it is not like we haven’t seen this before. It is been here before, so you just continue to monitor closely with your customers and the demand signals and then with our OEM partners. There was some slight - there was some improvement with certain models, some components, but still some tightness in there as well.
Yes. I think you see that a little bit in our commentary too, Saba, on the inventory side, right? When you look at work in progress, for example, parts and certain parts, still some tightness there. And as Scott mentioned, the equipment side and parts are both improving, but there is still areas of focus that need to improve much further.
Okay. Great. And I just one quick one. I guess there is been some comedy from the OEMs and I think you called out on the last quarter just some softness in housing, but an infrastructure generally seems okay. Can we parse out maybe the construction market a little bit and how many infrastructure versus, urban development might be trending for you?
Well, there was some softening in the quarter and some construction activity. So we are going to monitor that closely. But overall, I think infrastructure. The signal we have like it is just - we will have a better signal here in the next little while, but you are only in the beginning of February.
But what we saw in the quarter was a bit of softening. But again, you are coming off some historically strong industry activities. So we are monitoring the infrastructure spend closely as well as the housing and some dynamics. So that is really just staying close to it.
Great. Thanks very much.
At this time, we have no further questions. So I will turn the conference back to Michael McMillan for any closing remarks.
Great. Thank you again, Michelle. Thanks to everyone for your participation today. That concludes our call. Please be safe and have a great day.
Ladies and gentlemen, this does indeed conclude your conference call for this morning. We would like to thank you all for participating and ask you to please disconnect your lines.