Toromont Industries Ltd. (TSX:TIH)

Earnings Call: Q3 2019

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Nov 5, 2019

morning. Today is Tuesday, 11/05/2019. Welcome to the Toromont to announce the Third Quarter twenty nineteen Results Conference Call. Please be advised that this call is being recorded. Your host for today will be Mr. Paul R. Jewer. Please go ahead, Mr. Jewer. Thank you, Laurie, and good morning, everyone. Thank you for joining us today to discuss the results of Touramont Industries Limited for the third quarter of twenty nineteen. Also on the call with me is Scott Medhurst, President and Chief Executive Officer. Before we continue, I'd like to advise listeners that this presentation may contain forward looking statements and information that are subject to certain risks, uncertainties and assumptions. For a complete discussion of the factors, risks and uncertainties that may lead to actual results or events different materially from those expected, refer to Toromont's press release and MD and A from yesterday, which is available on our website. We assume you've had the opportunity to review our press release and related financial information, and as such, we'll focus on key highlights. Scott will begin with a few general remarks and some comments on our outlook, after which I'll provide some highlights on the financial results. Then we'll be more than happy to answer your questions. Scott? Thank you, Paul, and good morning, everyone. Last week marked the two year anniversary of the acquisition of the Quebec and Maritime operations, and we are pleased with the progress to date. The new Eastern Canada Equipment Team came together during this period execute a complex and demanding integration, while maintaining focus on business deliverables, including Battlefield's transition to a common system platform this past June. We thank the entire team for their level of commitment and contributions. We continue on the path to leverage the strengths of the larger geographic footprint and standardize best practices across the organization, all while delivering uncompromising quality and standards that our key stakeholders expect. Much work still remains on the integration, but we are well underway and continue to believe that this expansion presents a great opportunity for the long term performance and success of our company. Our financial results for the quarter reflect solid execution and a disciplined expense management. This increasing proportion of product support and rental revenues to total revenues across the enterprise continues to contribute positively to higher earnings. Consolidated revenues increased 8% in the quarter and 5% year to date with growth in most revenue streams in the Equipment Group and on product support revenues at Cemco. Net earnings were up 16% in the quarter and 15% year to date after adjusting for a nonrecurring gain recorded in the first quarter of this year. In the Equipment Group, investment in infrastructure projects and broader construction activity continue to present opportunities, although market activity has softened on a year over year basis. The parts and service business has realized significant growth in recent years, driven by the larger installed base of equipment and provides opportunity for further growth together with increased stability and predictability in a variable business environment. Our shops and technicians remain busy and we continue to hire investment infrastructure to address growing demand signals. Developing technology supporting remote diagnostics and telematics is very exciting for us and also present opportunities for long term growth. We continue to assess our rental footprint with a disciplined investment approach, which includes a balanced diversified fleet and strategic go to market strategies to stabilize seasonality. We are pleased with the results to date. This recognizing it takes time to absorb the recent investments and build the proper infrastructure. We are very cognizant of the return curve and stand by our analogy of the orchard versus the wheat field. In the mining sector, activity has been slower to date versus a strong year in 2018, which included large deliveries. Production however continues at existing mine sites and is generating meaningful product support opportunities with the potential for incremental equipment sales to facilitate mine expansion. CIMCO's project execution continued to improve in the quarter, but markets remain competitive with tight operating environments. Strong product support growth continued to bode well for the long term success. Booking activity and backlog levels were good and in line with expectations. Across all our businesses, the diversity of our regions, the markets served, extensive product support and service offerings and financial strength combined with a disciplined operating culture position us well for the long term. I will now turn the call over to Paul to take you through highlights of the financial results. Paul? Thanks, Scott. Let's put some color on the operating results, starting with the Equipment Group. Revenues were up 10% in the quarter and 5% year to date. New equipment sales rebounded following a slow start to the first half of the year with good sales in the construction and agriculture markets, offsetting softer mining and power system sales. Used equipment sales were up on higher fleet dispositions as sourcing good used iron remained challenging. As a result, total new and used equipment sales were up 14% in the quarter, but were unchanged as a percentage year to date. Construction sales increased 30% in the quarter and 8% year to date. Activity levels and good market penetration was good in Quebec, while road activity ramped up in Ontario and Manitoba in the quarter. In mining, sales were down 32% in the quarter and 29% year to date, partially reflecting a tough prior year comparator, which included large deliveries. Power Systems sales were down 11% in the quarter and 10% year to date, largely reflecting deferrals in customer construction schedules and limited availability of certain models. Agriculture sales increased 31% in the quarter, but were down 4% year to date. Material handling sales were down 3% in the quarter and 11% year to date. Rental revenues were up three percent in the quarter and 10% year to date. Battlefield reported good growth in most regions with Quebec accounting for approximately half of their increase in the quarter and 60% on a year to date basis. Heavy rentals were down in the quarter and year to date with only Quebec reporting growth on a larger fleet. Power rentals increased in Quebec and Atlantic Canada, but were offset by lower activity in Ontario in both the quarter and year to date. RPO revenues were up 17% in the quarter and 33% year to date, with the fleet growing $17,000,000 to $96,000,000 versus this time last year. Product support revenues grew 9% in the quarter and 10% year to date on growth in both parts and service in most markets. Gross profit margins decreased 110 basis points in the quarter and 10 basis points year to date, largely on lower equipment rentals and product support margins. The sales mix of product support revenues to total revenues dampened margins in the quarter, but had a favorable impact year to date. Selling and administrative expenses in the first quarter included a nonrecurring gain, which I will exclude and not reference for the remainder of the year to date remarks. For the quarter and year to date, expenses were relatively unchanged as a percentage, which translated to lower expense to sales ratios. Operating income increased 12% in both the quarter and year to date. As a percentage of revenues, operating income increased 10 basis points in the quarter and 60 basis points year to date. Bookings increased 4% in the quarter, but were down 5% year to date. Construction activity levels have been healthy throughout the three quarters and served to offset softness in other segments, although we did see higher mining and material handling orders come through in the quarter. Backlogs of $325,000,000 were 11% lower than this time last year, 75% of which we expect to be delivered over the remainder of this year. Now let's turn to CIMCO. Revenues were down 6% in the quarter and 3% year to date. Package revenues decreased 18% in the quarter and 16% year to date. In Canada and The U. S, lower industrial sales more than offset increases in recreational activity in both quarter and year to date. Product support revenues were up 13% in the quarter and 16% year to date with growth in both Canada and The U. S. Gross profit margins increased five thirty basis points in the quarter and 190 basis points year to date on significantly improved project execution in the third quarter versus the cost overruns on one U. S. Project in 2018. A favorable sales mix of product support revenues to total revenues also lifted margins. Selling and administrative expenses were relatively unchanged as a percentage of both the quarter and year to date, but were up 70 basis points and 50 basis points respectively as a percentage of revenues. Operating income increased 62% in the quarter and 21% year to date on the higher gross profit margins. Bookings in the quarter increased 34% with higher Canadian orders offsetting lower U. S. Orders. Year to date bookings were up 1% with increases in both Canada and The U. S. Backlogs of $129,000,000 were up $3,000,000 or 2% and we expect approximately half to be realized as revenue over the remainder of the year. On a consolidated basis, net earnings increased 16% to $79,700,000 in the quarter and 15% to 192,700,000.0 Basic EPS was up $0.14 to $0.98 for the quarter and up $0.31 to $2.37 year to date. Investments in non cash working capital were up $98,000,000 to $476,000,000 versus a year ago, largely as a result of strategically increasing inventory levels given improved availability and aggressive positioning for better penetration of the expanded markets and in light of transitional terms from suppliers. We expect to return to more normal levels as these terms end midyear twenty twenty. As of September 30, we maintained our very strong financial position with cash of $226,000,000 and a strong balance sheet. Leverage as a percentage as represented by the net debt to total capitalization ratio was 22% compared to 25% at this time last year. We're also pleased to continue our long track record of superior shareholder returns delivering increased dividends, a 21.9% trailing twelve month return on opening shareholders' equity and a 22.9% trailing twelve month pretax return on capital employed. That concludes our prepared remarks and we'll be pleased to take your questions. Laurie? Thank you. We will now take questions from the telephone lines. Lines. And the first question is from Jacob Bout from CIBC. Please go ahead. Good morning. Good morning, So equipment backlog down quarter on quarter year on year and from what we're seeing the lowest level since you added Hewitt. Is this just lower mining activity? Or is there something structural we should be thinking about? Yes. There's many variables impacting that right now. One, obviously, is the availability has improved on a year over year comparison. Our inventory levels are up. We went into the year. When we started you start ordering in Q4 for the current year. And at that time, we were still operating in a tighter availability market, and we wanted to be aggressive continuing with our market penetration strategies. And then we've seen market softening throughout the year, particularly in the third quarter. So that's a combination of availability impact to your backlog. And the big factors of backlog usually are the mining and the power systems business. And that's been a bit softer over the years. So those are the variables that are really impacting things. Okay. But construction markets, I think you saw some quite some nice growth there up 30%. Yes. We're one of the highlights for the quarter was the construction team and the execution and the penetration of the markets. The markets were softer. We saw heavy construction down about 13% year to date. So but we're getting good market penetration. So that was very favorable outcome for the team with the execution of our strategies in that area. And on those construction sales numbers, what was the growth in Ontario versus Quebec? No, we had good growth throughout, but Quebec in particular, we saw some great strides being made in the Quebec markets. And how are you feeling about the Ontario market right now? I know last quarter you were commenting on some weakness, but it sounds like in Softer. It's softer. Road activity still is better? It's a little better in there, but it's a softer market overall on a year over year comparison. But again, the team is executing with the opportunities that are being presented. Okay. I'll leave it there. Thank you. Thank you. Thank you. The next question is from Cherilyn Radbourne from TD Securities. Please go ahead. Thanks very much and good morning. Good morning. Hi, Cherilyn. I could just pick up on some of Jacob's questions to start and ask if you could give us a bit more detail in terms of industry sales trends in the quarter and year to date. Well, we're on a year to date and when I I'll talk more the smaller iron is it's only down slightly. It's in the these other markets, the mining, heavy construction. And so you've got some declines going on in there a year over year around the 13%. Overall, with the larger iron, you're down about 7% on a year to date. So it's softer markets, but there's the smaller iron is holding up. But we're pleased with how the team is executing and delivering those value propositions in the market. And then on the rental side, we were a little surprised to see the growth rate decelerate to 3% in the quarter versus 15% in the first half of the year. Maybe you can just give us a bit more color on that. Yes. Heavy rental was down in the quarter. What that there was a again, it's mainly in the Ontario market because we had some large projects that the rental group was able to capitalize on last year and that wasn't repeated this year. Okay. And is there any change to your planned net rental CapEx for the year? I think you've been talking about 170,000,000 to 180,000,000 I think it will be a bit light at this point in time and we've had heavier dispositions. The numbers we always quote are on a net basis, Sherwood. So I think we're probably maxed out at about the 135 or where we are year to date. That's where we are year to date. What's going on there? We've got some very good growth going on in Quebec, but we're continuing to build the infrastructure, right, to execute, and that's an area focus right now. And then I did want to also touch on the rental fleet dispositions, because I think you were holding back on those last year. So should I interpret that, that your rental fleet dispositions are starting to normalize based on better supplier availability of new equipment? Yes, that's one of the factors. You're absolutely right. Last year, we had to hold on a little longer than we wanted to. And this year, we're trying to come into and get into a normal state in there with the disposition relative to the uploads. Okay, great. Thank you. I'll pass it off. Thank you. Thank you. The next question is from Michael Doumet from Scotiabank. Please go ahead. Hey, good morning guys. Good morning. Good morning, Michael. I just wanted to talk about the product support. So parts growth exceeded service growth, I think for the second consecutive quarter. I'm just wondering whether there's anything driving a trend here and whether it's possible that demand for service is exceeding ability to hire technicians or if this is Tormont gaining share in parts? We continue to be very focused on that opportunity on the product support and parts in particular. That's a key benchmark for us, we are improving. The team is doing a nice job in there. The other thing that we continue to see nice trends on is these rebuilds. We're up about 18% in there on the unit rebuilds, which is continues to be good trends. And that can those are some large components being integrated into that process. So that's a bit of a shift, too. And you get some swings in there with these rebuilds and component demands in the mining sector. So those are the variables in play. But we're pleased with the product support growth. And just as it relates to labor, do you feel like you've got enough technicians given some of the labor markets We continue to increase our headcounts in technicians. Again, we're satisfied with the uptick there. And we've to make sure we're training is another key focus with the inflow of the apprentices. So I think we're doing a decent job in there. And like our service numbers are up and when you look at our revenue labor hours, we're pleased with that. So I think we're satisfied with what's going in there and it continues to be an area that we need to execute. Okay, great. And then just turning to Simcoe, just another good quarter. Could you discuss whether the execution challenges of recent quarters are fully behind and whether some of those growing pains have maybe changed your operating philosophy or growth expectations for that business going forward? So we are pleased with the second quarter in a row where there was improvement in the execution. We're I don't think we should get too far ahead of ourselves. We're pleased. We're progressing. We've addressed a lot of areas. We continue to focus on areas like project coordination estimating. That's improving. Obviously, the execution, the interface with our supply chain. So there's good progress and we will continue to focus on those areas. And that's but we're satisfied with the progress so far. All right. Thank you, guys. Thank you. The next question is from Yuri Lynk from Canaccord Genuity. Please go ahead. Can you talk about the return profile of your heavy and power rental fleet compared to this time last year when you were really in investment mode and compared to where you ultimately want to get those returns? Well, we're still in investment mode and but the utilization came off a bit. But part of that is the denominator with these uploads. And so that puts a little pressure. But long term, we feel we're doing the right thing. I mean, we're expanding here in the rental services as well, same thing. And it's getting that infrastructure investment to meet those uploads. But we're satisfied with the progress and realize that there's a bit of a drag in there right now. But that's how you build this model for the long term. We're very focused, Yuri, we're very focused on the long term with this thing, right? And I now have overused the orchard and wheat field analogy, but it is apt. One of the things that we certainly find and continue to find, as Scott said, we're in investment mode. And what that means is as we ramp up the fleets, we have to be focused on the ability for both the company and the markets to absorb these fleets. We're making meaningful investments. And obviously, you have to have the people and infrastructure and processes in place to make sure that, that gets absorbed. And we increase the amount of capital that's allocated into a specific market, and that has to be absorbed. So I think we just find that normal at this point in time as we ramp this up. Right. But Paul, how think do about making those investments when based on the MD and A and your comments on the call, it looked like activity softened in the third quarter and I understand the long term But just this is a capital intensive part of the business that is tougher much tougher to manage when the demand is not there as you know. Yes and no. As it relates into our ability to manage this, and we certainly as we saw a downturn in 02/2009, which is not the circumstance that we're currently we certainly manage fleets at that point in time by stretching age. So you have an ability basically to manage that fleet over time, certainly not on a dime change, but certainly over time. It relates into what we've seen so far, we've seen some decent performance in rental fleets. And largely what we're finding is this absorption factor is the key element that we're dealing with. And just to give you a basic stats in terms of tossing it out. At Battlefield, in the quarter, rental revenues were up 11%, but depreciation charges were up 20%, right? So as you ramp these things up, we simply have our depreciation on a straight line basis. And those are one of the elements that get reflected in this absorption comment that I'm referring to. Just a little more color there. One of the things we're really focused on here, as Paul said, we're getting in the summary is this revenue growth, which is excellent. And it reflects the long term investment here in the demands in the market. But we have to improve our turnarounds. When they come off rent, we've to get quick turnarounds. So it's building that infrastructure with this inflow that's going on. It takes time. So we're satisfied with how we're progressing there. Okay. That's it for me guys. Thanks. Thanks, Yuri. Thank you. The next question is from Derek Spronck from RBC. Please go ahead. Hey, good morning. Thank you for taking my questions. Good morning, Derek. Hey, guys. Just wanted to get a overall sense of how you're feeling about general market trends heading into 2020. So it's a cautious environment. You saw our RPO is up about 25% on a year over year basis. So that we're pleased that we're capturing that opportunity. We'll see how that plays out, what the conversion rates are going to be. But I think it also reflects there's some caution out there with our customers. Any particular markets or segments that you're feeling more optimistic or less optimistic? Let me frame it a different way here. We're really pleased after two years with the progress we've made and mining markets have been down and we're still able to generate growth. And I think that's reflective of the expanded territories and the diversity that we have in there. And so we're pretty pleased with that. But it's helping through some softness, right, which is the power of this new operating world we're in. There's been a little bit of fairly volatile shift between new sales and rental growth. Is that just general quarterly variance? Or is there anything from a trend perspective that we should be thinking about there? I mean the core factor that you're looking at in terms of new equipment sales on a year over year basis would be the impact of mining sales year over year largely, right? So that would certainly be curtailing it a little bit. So I wouldn't look at it as anything more than typical quarterly lumpiness. Okay. And the you mentioned pricing pressure just on the gross margins. Is that just competitor pressures competitors trying to under price or where is that comment stemming from? It's a tight operating environment, but that's it's not something we haven't seen before. And you've also got some drag in there with the rental uploads that are going on as Paul outlined. And so those are key areas impacting some of the margins and some of the mix in there as well in the product support revenue streams. Okay. And maybe just one more for myself. The SG and A costs as a percent of revenue came in nicely. It looked like there was a couple of nonrecurring or less recurring items. How should we think about SG and A costs kind of going forward here? Well, really wouldn't be nonrecurring items. I mean, there are always puts and takes that we're dealing with in terms of the quarter. We would have drawn attention to those elements. But I'd largely look at our SG and A cost trends as being largely related to inflationary growth basically at this point in time. One of the largest components that we have is compensation. And as an underlying factor, I mean that continues to track inflation basically. Okay. All right. Thanks a lot guys. Thank you. Thank you. Thank you. The next question is from Ben Cherniavsky from Raymond James. Please go ahead. Good morning, guys. Most of my questions have been asked already. If I could not to get too granular, but if I could ask you maybe just to comment on the ag side. Pretty significant growth. I know it's a small business, so you're sort of lost small numbers on that. But even year to date, down 4%, that's pretty good in the context of what we're seeing in the ag markets generally. What's happening there for you guys? It's a tough market, Ben. We were fortunate. What happened was we had some slippage into the quarter, particularly on our combine sales. So the team, think, did a decent job capturing some of the market penetration. And we had probably you're going to get those pre books. So we were pretty solid with the pre books coming into the year. And so the team executed in there. But it is a tough operating environment. You've heard it throughout Western Canada and it's consistent in our area of Manitoba. But we're satisfied with those deliveries in the quarter, but it is a challenging environment. Are these aren't these challenging environments in some ways what you guys thrive on? Like does this present opportunities to try to grow the business and acquire some of the operators out there who might be struggling? And if you're not doing that, what does that say about your long term commitment? Like how just to ask it another way, I think you're into this experiment four or five years, maybe longer now, I've lost track. But how satisfied have you been with the business in general and your willingness to grow it? We're still very well, the markets are off significantly in there in the ag segment in Manitoba. But we still have a ways to go in there on the operational side. I'd say last year we made some progress. And now the it's just a troubling environment. What's going on with many outside variables impacting it as we're hearing about weekly. But we're still focused on the operational side and we're pleased with the market share, particularly with our combines. We've done the team has done a nice job in there and we'll continue to focus on that. It's continue to perform and we'll see where we go with it. But you're not prepared at this point to expand it in any material way? We're focused on proving the thesis before we look at any expansion opportunities. Yes. Okay. And like I said, a few questions have been asked already, but if I could just maybe try to get you to elaborate a little more on CIMCO because there's huge margin variability year over year and even just over the last few quarters. And I respect you don't want to do too much handholding with respect to margins, but we have to put something in our models. And what can we expect? Like this was a record number. Was there anything unusual in the quarter that produced this kind of a margin? Or have you made some changes that might make these kind of numbers, give or take, some basis points sustainable over the next few quarters or into next year? So Ben, it's again, highly focused on the execution, the project coordination and the estimating and the interface with our suppliers. That two quarters in a row, good progress. Obviously, we want a sustainable outcome here. And so that's where the focus is. The other thing that was impactful is we're very pleased again with the product support growth. Even in The U. S, the product support growth in The U. S. Was very strong. It was up around 40% for the quarter. So good trends in there. We're hiring technicians. We're seeing good labor demands in there. So those are good signals. But on the project side, we continue to be focused on the execution and to build that sustainable model. And that product support has been that's a deliberate strategy too, right? That's the result of the focused effort absolutely. To grow Just to go back to add to the comments, Ben. I mean there's nothing unusual in the 2019 related to project closeouts or anything of that nature, but certainly destroy our attention back to Q3 of twenty eighteen. We had the $2,300,000 charge basically that was closed in the end of year last year related to one project, right? So if you're just comparing year over year, obviously, that's a significant factor. Yes, it was an easy comp. But sometimes you have some closeouts and things like Absolutely. Yes, okay. And if I could sneak in one more, again, sort of along the lines of what's been asked already with respect to the competition, but or the competitive pressures. But if you look at it another way, the last few years, Caterpillar has been reporting very material growth from price realization. I think the last quarter was not as material, but over the last few years, it's been a big contributor to their performance. And is it correct to assume that that by and large, I know they do some stuff OEM direct, by and large that those are price increases they're passing on to the dealers. And how do you guys manage that when the market as competitive as it's been? And how material has that been? Because you don't really disclose gross margins on just segmented by equipment group, but how material has that been as a challenge for you in the current environment? Well, Ben, I think it's there hasn't been anything totally unusual. We've been in this business a long time. And we work closely with Caterpillar on our value propositions, and they've been a good partner for us to help execute. We're seeing some decent market penetration. We're pleased we don't want to get ahead of ourselves there. But we're pleased with our alignment with Caterpillar and how we're executing in the market on prime product sales and parts sales. So I can't comment on how they're what's driving that for Caterpillar. They're a global company. I just we just focus on our area and our value propositions to our customers. But I think we're satisfied so far. Can you elaborate a little bit on the value proposition on what you're like what is the pitch that you give to a customer that makes him consider the cat product even at the premium and maybe at times an increasing premium on the competition? I don't want to we're very careful here with our competitors. Focused on the building blocks of the model to deliver the product support investments are very important for us. And that's what we're trying to continue. You're seeing that. I think we're talking about that openly. That's a key area strategically for us, and that's where we try and really make a difference for our customers on that side. And that's what we've been building up in Quebec and Maritimes and focus on there. And then the same thing on the rental business, looking at the fundamentals and making sure we can deliver for those customers. So cost of ownership, uptime, all those Uptime, availability, operating costs, all those variables. And they differ relative to some of the applications that you're operating in. Okay. Thanks guys. Thank you. Thanks Ben. Thanks Ben. Thank you. The next question is from Maxim Sytchev from National Bank Financial. Please go ahead. Hi, good morning gentlemen. Good morning. Hi, Max. I'm just again, not trying to beat the dead horse there, but in terms of kind of the overall macro commentary, it seems to be a bit softer, but at the same time you guys are hiring technicians. You talked about demand signals being pretty positive in some of the markets. So is it much more of a market share penetration dynamic right now that you see an opportunity? How should we just think about that somewhat contradictory dynamic between industry and hiring? Yes. So good question, Max. Let me clarify that. So when we're talking about softening, we're talking about the new unit industry deliveries in the territories we're operating in, okay? And then when we shift over to the product support side, we continue to get good demand signals in there, plus when we we're much better at quantifying our market opportunities in there. And that's why we're saying we're hiring technicians, revenue generating positions to strategically execute our plans. So that's what's going on there. Right. Okay. I just wanted to clarify this. Then can you maybe talk about at all about the demand signals on mining? What you're seeing in both Ontario and Quebec? Maybe if you can delve into those two geographies, please? Product support continues to be solid in there. So that's good. The mines are producing. I think it's a cautious environment in terms of purchasing a prime product. There is opportunities, but it's a very cautious environment. But there's opportunities. We have to win those opportunities and prove And our value here, you're talking about both on the new equipment side and product support, obviously? Yes, on the new side, yes. On the new side, okay. And then maybe just one last question for Paul, if I may. You made a reference to you had an agreement with suppliers ending by mid-twenty twenty. Can you maybe talk a little bit in terms of how that could potentially impact the non cash working capital inventory, sort of all these things so that we can prepare ourselves psychologically for that? Where does this money any impact? Sorry. So this goes back to something that has built up over the course of the past couple of years from the transaction time frame. And we'll as we say in the report, we'll start to unwind in the middle of next year and unwind through the balance of next year. Without getting specific into the specific numbers related to it, I mean you can certainly in your modeling, Yuri, Max, you'd certainly see that inventories and payables would have a different trajectory basically. So you could get some estimation on that front, but we'll see a slow unwinding as we go through the back half of last year. And we're certainly in a position to deal with that. Right. And do you can you maybe comment on materiality at all? Or how do you feel about that? It will be managed within the context of our current operating environment and operating lines. Okay. Okay, that's very helpful. Thank you very much. That's it for me. Thank you, Max. Thank you. The next question is from Devin Dodge from BMO Capital Markets. Please go ahead. Hey, good morning, guys. Good morning. Good morning, Devin. Just wondering what we should be expecting for maybe net rental CapEx for the balance of 2019. And I know it's still early, but how should we be thinking about rental CapEx in 2020? So for 2019, basically, I'd expect that we're pretty much stable at this point in time. So we've had about a net of $135,000,000 so far. So we'll have some more dispositions and we'll have some more investments. But in total, we'll probably be somewhere around that number. We're just kicking into our planning process at this point in time, Devin. So as we look into next year, starting point would be reasonably consistent with those numbers for next year. But we'll have to see and fine tune that as we hear from our management teams. Okay. Yes, that makes sense. Okay. And maybe just a broader question, but you're about twenty four months from closing the Hewitt deal. You've had a lot of successes, demonstrated a lot of progress in rolling that business your business model, integrating Hewitt into your legacy operations. Just looking ahead, what do you see as the biggest remaining opportunities maybe over the next twelve months and then maybe over the medium to longer term? So yes, we're pleased with how the team has come together and how we've executed some of these the first two years of the plans. Next phase, we've we talked about Battlefield. It was really a non event with that ERP integration. So that's how we like it. We still have another move to make on that front on the Caterpillar business that we operate in. So that will be instrumental in helping us execute. We're very focused on the next phase with more disciplines in the operating side, more asset management focus. That's coming to forefront. We've got our model in there with our branch managers and we're starting to move forward with those initiatives and help train our managers on that front. So still ways to go, but so far pleased with the integration and some of the outcomes. Okay, that's great. Thank you. Thank you. Thank you. The next question is from Cherilyn Radbourne from TD Securities. Please go ahead. Thank you. Just a couple of quick follow ups from me. Just in terms of Ontario, I guess what we were hearing anecdotally in the first half of the year anyway is that there was some uncertainty related to the transition to a new provincial government. Is that still the primary driver? Or were there kind of other market developments during Q3? When you break up the segments, I mean mining is down, the heavy construction is down and overall we saw softness in the quarter. But I think there's a lot of variables in there. It's not just attributable to one thing, Cherilyn. I mean there's still activity levels out there. I don't when you look at it on a historical basis, but it's it just softened on a year over year. And I think it's just a cautious environment. Okay. And then in terms of the rollout of your IT system Sheryl, when I say that, the great thing is that our Quebec industry numbers were pretty well flat. So that's good, right? Right. And just last one for me. As it relates to the rollout of your IT systems on the rental side into the acquired territory, any sort of early data points on how that may be impacting the execution in the rental business? No, if anything, that's giving us better visibility to run the business. When we say nonevent, it went as planned. We're very pleased with that. A lot of heavy lifting in there with some of our people, and we applaud them their efforts and the execution. But this is just giving us better visibility.

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