Earnings Call: Q1 2019

May 3, 2019

Earnings release

Good morning. Today is 05/03/2019. Welcome to the Toromont to announce the First 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, Valerie, and good morning, everyone. Thank you for joining us today to discuss the results of Toromont Industries Limited for the first 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 differing 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 an 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 highlights of the financial results. Then we'll be more than happy to answer your questions. Scott? Thank you, Paul, and good morning, everyone. We delivered good results in the first quarter through operational improvements in the Equipment Group as we continued to align disciplines and achieve efficiencies. Consolidated revenues increased 3% and translated to solid bottom line growth of 16% after adjusting for onetime curtailment gain as described in the financial statements. The growing proportion of product support and rental revenues contributed positively to this growth. In the Equipment Group, overall industry construction activity softened in the traditionally weak first quarter compared to stronger prior year deliveries in heavy and general construction. Despite the relatively slow start to the year in certain segments, we remain cautiously optimistic on the long term outlook for infrastructure projects and other construction activity in the territory. The parts and service business continues to provide a measure of stability and opportunity for further growth. Our shops and technicians remain busy, and we continue to hire to support demand levels. The increased investment in rental fleets also continues to present opportunities to grow and stabilize seasonality. In the mining sector, production continues at existing mine sites, which is good for future product support business along with potential for incremental equipment sales to support growth and expansion. CIMCO continued to be challenged with effective project execution in a competitive market. However, product support growth continues. Goods booking activity and backlog levels are positive signals for the remainder of the year. Across all of our businesses, the diversity of our geographical landscape and markets served, extensive product and service offerings, together with our financial strength and a disciplined operating culture, position us well for continued success. I will now turn the call over to Paul to take you through highlights of the financial results. Paul? Thanks, Scott. Let's put a little more color on the operating results, starting with the Equipment Group. Revenues were up 3% in the quarter on higher product support and rental revenues. Total new and used equipment sales were down 7%. Sales in the mining markets were down 47% against a tough prior year comparator, which included the large deliveries. Construction sales were softer, as Scott noted, but we did see good growth in Quebec, The Maritimes and Northern Ontario. Material handling and agricultural sales were also lower. Partially offsetting these decreases were strong electric and prime power activity in the Power Systems sector. Rental revenues were up 14% with increases across most segments. Demand signals were strong and we were adequately prepared with larger rebalanced fleets. Overall, the net rental fleet investment increased to $564,000,000 at the March. Product support revenues grew 10% on higher parts and service. Growth was good in construction Systems, but lower in Mining, which included a good rebuild activity last year. Gross profit margins increased 30 basis points in the quarter. Higher Product Support margins and a favorable sales mix served to offset the effects of a tight pricing environment, which dampened equipment and rental margins. Selling and administrative expenses in the quarter were net of a non recurring curtailment described in the notes. Adjusted expenses were relatively in line, but down 60 basis points as a percentage of revenues. Allowances for doubtful accounts and customer support costs were lower while compensation, IT and travel expenses were higher. Adjusted operating income was up 15% on the higher revenues emergence together with the lower expense ratio. As a percentage of revenues, this adjusted operating income translated to an 80 basis point increase in the quarter versus last year. Bookings decreased 21% in the quarter as higher construction orders were more than offset by decreases in other segments. Backlogs of $395,000,000 were 9% lower than this time last year. We expect substantially all of this backlog to be delivered this year. As you're aware, backlogs can vary significantly from period to period on large project activities, especially in mining and power, the timing of orders and deliveries and the availability of equipment from inventory and suppliers. Let's now turn to CIMCO. Revenues were up 4% in the quarter on a strong product support growth. Package revenues were down 11% with decreases in both market segments in Canada and The U. S. The decrease in Canada was mainly experienced in Ontario, which delivered record results in the first quarter of last year. Product support revenues increased 22% and were at record levels for the first quarter. Gross profit margins decreased five twenty basis points with pressures in both package and product support. Simcoe is experiencing some execution challenges, at least in part due to resources which haven't kept pace with its recent growth trajectory. This is adversely impacting margins on package sales. For Product Support, margins were in line with expectations, but down versus last year due to good project closeouts in Q1 of twenty eighteen. The growing proportion of Product Support revenues to total revenues continues to mitigate the impact of margin pressures. Selling and administrative expenses were down 5% in the quarter and were 160 basis points lower as a percentage of revenues, principally due to lower allowances for doubtful accounts on improved aging. Operating income decreased 68% in the quarter, largely reflecting the margin compression. Bookings were up 15% to $70,000,000 Recreational orders were higher in Canada and lower in The U. S, while industrial orders were higher in Canada and lower in The U. S. Higher in The U. S. And lower in Canada. Backlogs of $150,000,000 were down $7,000,000 or 4% from the record levels at the March. We expect substantially all of this backlog to be delivered this year. On a consolidated basis, net earnings increased 28% to $39,300,000 and basic EPS was up 27% or $0.10 to $0.48 per share. At March 31, our overall financial position remains strong. That concludes our prepared remarks and we'd be pleased to take your questions now. Valerie? Thank you. We will now take questions from the telephone lines. Thank you. Our first question is from Cherilyn Radbourne with TD Securities. Please go ahead. Thanks very much and good morning. Good morning, Charlie. So it's always a bit difficult to get a read on market conditions in the first quarter. And this year, we obviously had a very late spring. So I was just hoping you could make a few comments as to how you're reading the demand signals for the balance of the year. Well, we never like to use weather as an excuse, Cherilyn. But what we saw in the Q1 was softer industry activities, particularly in the heavy and general construction areas. Quebec held up actually fairly well when we look at it across our territories as did the Maritimes. It was mainly in the legacy territories where we saw this more dramatic change in the softening of activity. We're monitoring it closely and we'll see how it plays out. I think there was some caution from contractors waiting on some clarity. So we're just going to stay close to that. Okay. And then can you just elaborate on some of the efficiencies you're achieving, which contributed to higher product support margins for the quarter in the equipment group? Yes. We were actually pleased with the team's execution on the product support side, and we saw continual increase in revenue streams consistently across the entire enterprise on the equipment side. What we were really pleased with was the utilization of our labor. I mean, we saw some very strong increases in Quebec. I think Quebec labor was up 17%. That's a real shift, and I think it demonstrates the power of what the team is trying to accomplish here with utilizing resources. So that's coming along. Still a ways to go. And but we're we're we have a larger product support infrastructure to support some of these demand signals now. And so we're starting to execute, but this is work in progress. And then last one for me before I pass it over. The MD and A mentions both lower quoted margins and project execution as issues at CIMCO in terms of how the margins on package sales materialized. Can you just kind of indicate how much is attributable to each of those factors? We don't have the capability to bifurcate that for you here this morning, Cherilyn. But, I'd say on average, as we look at the quota margins, it's about 100 basis points we're basically looking at in terms of pressure that we're facing there. That's helpful. I will pass it over to somebody else. Thanks. Thank you. Thank you. Our next question is from Jacob Bout with CIBC. Please go ahead. Morning. Going back to the Simcoe, is any of the execution challenges due to the some of the troublesome projects that you had in the past? At a very immaterial level. Very immaterial level. Largely, those those are executed or in the final stages of execution. So that wouldn't be a a material impact. I mean, I I think broadly what we're what we're seeing is some pressure on technical staff and project engineers. And as a consequence, we've we've encountered those execution issues. We're we're getting back to to really focusing disciplines, breaking it down on even getting into our deal structure as well as how we're executing in the field. So we're breaking it into components and approaching it that way. Okay. And then you didn't break out QM results this morning. Maybe in common on the sales and margin performance that you saw in the quarter? Well, in terms of QM, I think we're very pleased with the progress. The product support was very strong on a consolidated basis, both with parts sales and labor, which certainly contributes favorably to margin. We also the activity levels were stronger in Quebec. And then on the rental side, we were extremely pleased with our full rental services model that we believe starting to take hold. I mean we had the team produced in Q1 rental revenue streams over 40%, which is terrific and demonstrates what the team did early last year was broadening those product lines to be able to participate much better over the twelve month period. So we were pleased we saw that. Now with that, of course, this is a newer fleet, a newer, broader fleet and it takes time to really get the full impact of the rental model from a profitability perspective. It needs to mature. We had to invest heavily in infrastructure to support it. So in actual fact, even though the revenue streams are a very pleasing highlight, there's pressure on the profitability because it takes time to mature. One comment I'd like to make, Vikram, if I can, is we certainly revamped the layout of the MD and A in the press release to focus now on our business segments versus QM versus legacy. We thought it was important over the course of the past year, just given that readers didn't have the opportunity to, see true comparators basically on a year over year basis to basically break it out as to what we're seeing in terms of true organic growth versus what we have picked up, as a consequence of that acquisition. So we've moved away from that as now Q1 is truly the first quarter where you've got a full comparator on a year over year basis. And the other factor that you have to recognize is as we've advanced in our stage of integration, we're basically losing identity to what was formerly just QM as we're recombining those elements with our individual business units like a battlefield and Tourmalcat and breaking it down into individual, business groups as well within So we're moving to the new format, and this will be the format going forward. Just to understand, though, if I heard you correctly, the softness that you're seeing is not in QM, it's in more in your legacy business? Well, there was some it's more so in the legacy in terms of the industry activity is what we're seeing. What we're seeing is more of the softness in Ontario versus softness in Quebec. So it's not a matter of any more of legacy versus QM. But certainly, as we look at those regions, we're certainly seeing those trends. Okay. Last question here. Net rental adds of $44,000,000 in the first quarter. How should we be thinking about this on a normalized run rate annually? Should look at it as being reasonably on par to up a tick from last year, basically. So last year, we had $155,000,000 or so in net rental additions, less additions, less proceeds on disposition. So I think that'll be up a little bit this year to 161 and 65, but that really depends upon market conditions and opportunities to basically seed those investments. Thank you very much. You're welcome. Thank you. Thank you. Our next question is from Michael Doumet with Scotiabank. Please go ahead. Hey, good morning, guys. Good morning, Michael. Hey, so maybe a tough question to answer. But in your opinion, did the weather have a material impact to Q1 results? Should we expect the cold winter conditions as well as maybe the flooding in Quebec to potentially soften Q2 results? I mean, I struggle to comment on weather. We operate in Canada, so Fair enough. I just think what we saw in there was softening of activity, and as Paul pointed out, particularly in Ontario. I mean, was it weather related? I can't comment on that. I think, again, some of the industries were waiting on some clarity going forward. So we're monitoring it closely. Okay. Fair enough. Maybe just flipping to Product Support. You've had pretty strong growth there in the last couple of quarters, generally outpacing equipment sales, outside of Quebec. To be fair, I mean Product Support has been quite impressive in the last several quarters. How should we think about the sustainability of the momentum there? And should we be considering an element of share growth as well? Well, from a strategic perspective, this is very much a focal area. We continue to break down our opportunities, and we're pleased with the execution. And I think what's really playing off is that it's demonstrating some of the strength of our expansion here that we're leveraging the resources and getting better productivity. I mean, you see that growth that the team executed in Quebec and Maritimes and that's being able to leverage some resources. And as well, we saw the nice growth in Ontario, Manitoba as well. So it's a good story across the enterprise and how the team is executing the product support business. We continue to hire. We continue to see demand signals. Our rebuild quoting again in the first quarter was quite strong. And the number of units that were going through rebuild doubled again in Ontario and Quebec. So these are favorable numbers we're seeing so far. Fair enough. And maybe the Quebec versus Ontario trend in the quarter where Quebec outperformed on product support. Is that something that we could reasonably see for some time? You have to execute. We were again, the team did a nice job. There's opportunity in there, both construction and mining, but you've got to go prove our value proposition, and that's what we're trying to do. And the team was able to do that in Q1. Okay. And maybe one last before I turn it over. Any way you can set a cadence expectations in terms of margin improvement at CIMCO? Okay. It'd be preliminary at this point in time to do that, Michael. And obviously, we need to focus on our disciplines there and make sure that we've got the resources put in place to support the growth levels. Okay, fair enough. Thanks guys. Thank you. Thank you. Thank you. Our next question is from Yuri Lynk with Canaccord Genuity. Please go ahead. Hey, good morning guys. Good morning. Morning. Maybe I'll go at the construction equipment activity a different way. I thought it was interesting that you had the softness, but your bookings in the quarter were actually up 5%. So can you talk about some of the forward looking indicators in construction specifically quoting in addition to the bookings and where you kind of saw that strength? Well, careful with the word strength. It was the industry activity was softer, particularly in the general construction. It was softer actually on the larger iron as well in terms of the activity and the quoting activity. The smaller products were holding up a little better. So it's traditionally a softer quarter. I mean, you have to keep things in perspective. But it came off and we're just trying to understand a few things and we're monitoring it closely. I wouldn't wanna speculate right now in terms of what it looks like because it came off and we'll see how things develop. The other thing that was continues to be very lumpy is you see the mining, right? We were fortunate Q1 last year with some good deliveries in mining both in Quebec and Ontario. And now we always say mining is very lumpy. Well, it's amplified now, right, with the size of our mining group, but tough to repeat some of those deliveries quarter after quarter. That's just the reality of it. Okay. Thanks for that. Just shifting to the rental strategy and maybe an update on some of the rates you're seeing, both time utilization and financial, how that's been how those have been trending over the last couple of quarters? They were favorable. And again, nice improvement, particularly in our QM on the utilize. So we increased the size of the fleets, broadened them, and we got some nice uptick in some of the utilization factors that we monitor closely. So that so that was a positive. Overall, I mean, we saw a nice some rental in improvement in heavy rents as well as well as power on an enterprise wide basis. So So that's good. And we'll to continue to execute in there. Okay. I'll squeeze the last one in for Paul. Can you just remind us on the your ERP strategy going forward given you're running a mix of SAP and legacy systems right now? So as we said from the outset, when we announced the acquisition, we felt that we would take the time and would take probably about eighteen months to consider what the appropriate actions would be as we roll forward. So I'm relatively pleased with where we are today. So Battlefield was first out of the gate. They should be implementing their systems starting at the beginning of next month. So that's the target on that front. So we're quite pleased at the opportunities that are presented by it. We're in the final stages of looking at the larger cap business, and, we believe we're well positioned to start to roll out our Tormach proprietary systems across the whole piece. So that'll be done gradually and we're really excited about the opportunity to let us on. At Tarmaw material handling, we're at earlier stages, and, we basically have a sense of direction as to where we wanna go, but we're currently in the planning stage. And and Battlefield went on to your legacy system or Battlefield is about to go on our legacy systems. Okay. Okay. That's great. Thanks, guys. Excellent. Thank you. Thank you. Our next question is from Derek Spronck with RBC. Please go ahead. Hi. Good morning. Thank you for taking my questions. Good morning, Derek. You mentioned on the equipment group a tighter or a tight pricing environment. Was that due to competitive pressures or competitors, you know, utilizing pricing? Or or was it more of a softer demand situation or or some combination of both? It's a combination of all those factors you listed. You know, when you get into some softer markets, the competitive environment tightens. We still are dealing with some tier three carryover, so that causes some pressures in there that hopefully will eventually wash itself out. So so it's a combination of a lot of factors in there that we saw in q one. And how do you how do you find that balance between competing on price and and and market share? How do you look at that? I mean That that's I mean, that's not a new phenomenon. We've been, you know, we've been in this a while, and that's what you face. And so that's why you focus on your total value proposition and bringing a making a difference for a customer to help them succeed, and that's what we focus on with strong infrastructure on parts and service, getting into the assessments of how we break down these value propositions to customer, and that's what we do. And then we have to go win and execute. With with the increase in in product support and and service and the rental, does that put less pressure on you to push new new iron into the field or at this point in the cycle? No. What that what what that does is it brings a measure of stability. But listen, we're very focused on our market penetration. Okay. And on the construction side, was there any particular subsector that saw more softness than others? Like, know, was it more residential construction versus infrastructure or or any any, you know, color around the sub subsector? And then, you know, you you mentioned that they were looking for clarity. What sort of clarity would that be? Is it just general underlying demand trends or or specific project RFPs? Well, they you know, again, traditionally softer quarter. So but, you know, when you what we saw was general and heavy. And when you break down general and heavy, you're into you're into site development, you're into road construction. So so these are some of the areas that that showed some some softness. And in terms of, I think contractors are looking for clarity on some infrastructure projects. I mean, we saw some uptick in RPO levels as well, and that also can represent some caution out there when you shift some of the business to RPO in Q1. So we're monitoring things. There is softness, and we were working to gain greater clarity in there with our customers and the market. Okay. I appreciate that. And maybe one one one more for myself before I turn it over, and and I'm I'm assuming you've you've probably have gotten this question many times over the years. But, you know, what is the benefit of having Simco as part of your overall business? And would you ever consider spinning it spinning it out? Simcoe is brings a model that we understand. It's large capital goods, design engineering component with a very strong product support factor in it. You can see we I mean, the team produced over 20% growth on product support, been eight consecutive years of product support growth. We understand that business. We like it. It's not capital intense. So it complements our businesses quite well. Are there any other product segments outside of your current core portfolio that might be attractive to you in the future? Right now, we're focused on what we have, basically. Right? So we're only nineteen months post the largest acquisition in our history, and we're quite focused on the opportunities that presented to us as we continue the integration and achieving efficiencies and operating disciplines across that new business unit. Okay. Thank you very much. You're welcome. Thank you. Our next question is from Devin Dodge with BMO Capital Markets. Please go ahead. Thanks. Good morning, guys. Good morning. So the gain on the sale of rental dispositions as a percentage of book value, the equipment came in a fair bit lower in Q1 twenty nineteen. Just wondering if this reflects some pressure on used equipment pricing or if this is indicative of holding on to rental assets, longer than usual or if this is just a blip and there really isn't anything to look into it. Just any color would be appreciated. Well, there's pressure in used sales right now. And I think that reflects some of the softening. And you had I mean, when you see a dramatic shift in our mining numbers as well, I mean, used sales were down almost 50%. So that causes some shift in there. I mean, it's nothing unusual we've seen before. I'm not sure that did I answer your question properly there, Devin? Yeah. Yeah. So I guess, is this a trend that we should be expecting to continue? Like if we see that if there is pressure on used equipment pricing, should we expect that to kind of carry over into the balance of 2019? You know what, again, we're trying to get a read here right now because there softness in the industry. So I think it's traditionally softer time of the year, but too early to speculate. Devin, never take a trend out of one quarter. We always say that, right? So and Q1 is traditionally the weakest quarter. So if you get small variability, it can cause larger variances if you look at on a year over year basis. So I wouldn't get excited about anything that focused on there. Okay. Got it. Okay. At its Investor Day yesterday, Cat was highlighting the opportunity to further develop the services that augment the equipment offering. I think the scope here is pretty broad. I mean it covers everything from aftermarket parts and service to technology solutions. But can you just talk about where you see the biggest opportunities in your business? Yes. So we're breaking down the product support opportunities. There's different areas you focus on in there. And then combined with our investments in technology complementing Caterpillar, those are where you become complement your infrastructure to execute the parts and service business, but also becoming more of a solution provider with data analytics that we're very focused on that with Caterpillar. Okay. Got it. Okay. And then maybe one last one for Paul. Your stock price was up, I think, about 30% in Q1. How much of a drag did that have on stock based comp in the quarter? I mean there's always puts and takes that we're dealing with, right? But we're dealing with 4,000,000 to $5,000,000 basically as to what the DSU mark to market is. You can pull that out. But again, I wouldn't get too focused. There's puts and takes that you're dealing with, there are other puts for that take. Understood. All right. Thanks, guys. Thank you. Thank you. Thank you. Our next question is from Ben Cherniavsky with Raymond James. Please go ahead. Good morning. Good morning, Ben. Could you maybe just elaborate a little bit on what you're seeing like strategically what you're or maybe what you're thinking about the Materials Handling Group? You've I know it's still early innings, but how do you see that evolving? And then maybe also a comment on ag, where you've been at it a little longer, but nothing new is, I don't to my knowledge, materialized in the last little while in terms of acquisitions or growth. So could you just peel the onion back a little bit there? Sure. I'll start with the material handling. So what we did strategically last year, material handling in our Quebec operations was sort of intertwined with Torment cap. So we worked hard last year to extract that and so it becomes a standalone and standalone throughout our territories, Manitoba, Ontario and Quebec and to really isolate it so we can manage it more effectively, we believe. So that is pretty well done. We're pleased with the progress that's being made in there, Ben, particularly on the sales side last year. There was some nice progress. Still a long ways to go, great opportunity, particularly in Ontario. Quebec is more advanced in terms of the market presence. And we're starting to leverage more on a consolidated basis with product support strategy. So and as Paul said, we've got to get that system platform sorted out as well. We're very pleased with the progress last year in material handling and the progress on the market penetration, but still a long ways to go. But the big extracting it out of Toromont Cat, so we think we can isolate them effectively and bring far more disciplines into the business model. Have the margins improved materially? Well, little bit. We've got you know, the key there is we've we've gotta do more work, particularly in Ontario on our support side, and and I think that'll that'll produce some favorable outcomes. I mean, you know, we're starting to learn a bit. We're broadening some lines in there as well with some larger material handling equipment. There's some real nice opportunities in there and we've got to set ourselves up in a position to execute, but pleased with progress particularly in 2018. In terms of ag, really proud of the team last year. They actually did a good job improving market penetration and revenue streams, improve the profitability, but still ways to go there. We are focused on executing our products support. The team's done a nice job embedding some good equipment populations, and now we've got to complement it and execute on the product support side. But in terms of acquisition, we're focused on what we have right now in that province. It's a big market in there, so that's what we're focused on. Okay. So steady as she goes in ag? Steady as well, I wouldn't say steady. We gotta continue to accelerate. Right. But your your strategy is not changing any any We're focused on Manitoba. Yeah. Yeah. Okay. And just in forestry, I know not a huge market for you, but there's been a few changes there. Cat dropping a couple products and then Wajax taking on extra products in Tigercat and Nortrax taking on some of the attache as well. So some of the shifting alignment of of distribution rights, does that have any impact on you at all? Is that do you see anything changing in that market? Well, there's been lots of change competitively, as you pointed out. That's kind of interesting, and we're absorbing that. What we're I mean, Kat made some strategic decisions last year. We're in discussions, I'll call it, to sort through our strategy and that's where we are. We're assessing it. We're in the game. We have complementary products in that forestry segment, and we remain focused on supporting our customers in the forestry area. How much would it represent of the dealership's business? Oh, what percentage? I don't have that off the top of my head. It's a small percentage, Ben. Pretty small. Percent? Yeah. A small. Okay. See, that can become a cyclical environment as well, right, on that forestry market factors. I think that's maybe around two below. You can recircle with Paul on that if you'd like. Just maybe at a high level, my last question. I wonder, like it's been a while since we've seen a a real recession and but I know you guys have lived through a few of them. What are some of your operating philosophies about how you might manage if if this is maybe the beginning of a downturn? What what do you guys typically do in those sorts of situations? Yes. We've been through a few. And the key there is, you know, managing your your assets as best you can as well as really buttoning in on your discretionary, some expense levels in there while being attentive to your customers. I mean, that's the key. And there's trough plans we try execute in there in different phases if things like that develop. But typically, think I'm right in saying you don't really hang on to your technicians and you'll sort of ride it out? Oh, yes. We've done that before because, I mean, we try to be very attentive to our skilled labor. As hard as it is at times with your productivity levels, when you come out of these, you can position yourself well. And we've been fortunate to the team has proved that they were able to do that historically. So those those are key because sometimes your product support holds up and you just got to hang on there and accept some of those productivity drags that develop from a cost perspective. Ben, just to answer your question, the forestry was just over 1% of revenue last year. There you go. Okay. Wow. Okay. Thanks. You're welcome. Thank you. Our next question is from Maxim Sytchev with National Bank Financial. Please go ahead. Good morning. Hey, Max. Good morning, Max. Gentlemen, I I think you you called out Ontario. I don't wanna say plateauing or don't remember the exact adjective you used a couple of quarters ago. Is that what we're seeing now? Is there anything structural? I mean, you provide any commentary in terms of I mean, like, obviously, we look at, you know, infra spending and so forth, which with the new government is is moving to the right a little bit. Is that just that, or is there something else going on in the market? Well, when you focus on those those heavy and and general construction segments, they are broken down. So there there was softness through throughout those areas. So part of it is infrastructure, site development. You know? So we're we're trying to get a read on it. There there hopefully, there's some more clarity coming in some of these areas. I I don't know if you can say peak. I don't like using that word. That's a I think that's dangerous to speculate at that level. So I think we're just in a very stage of just monitoring and seeing how things develop here in Ontario. And certainly when it goes back to the commentary, Maxim, I think I remember the commentary you referred to, it certainly wasn't plateauing or anything of that nature. I think it was in the context of a discussion on the relative growth rates and the opportunities within Quebec and Ontario. And we talked about, you know, the level of uptick in infrastructure investment spending was certainly more mature in Ontario, right, having been heavily invested for a long period of time and continued at good levels versus Quebec, had been underserved for a period of time and we're quite excited about the timing and opportunity that was represented by the increased investment level here. For sure. No. That that makes that makes a lot of sense. And then I I can you kind of directionally suggest if we're seeing the same sort of trends in Ontario that you experienced in q one kind of in q two? We we comment on q two when we report on q two. Okay. Fair enough. And then, last question is in terms of the noncash working capital. There was quite a bit of a drag in q one versus versus last year. And and and, Paul, can you maybe comment about how we should be thinking about this on a going forward basis? Basically, we did see an inventory build that we had in the first quarter of this year versus last year. Remember that it was pretty tight in terms of supply that we had last year. So we're certainly monitoring it. We'll look at total working capital. I wouldn't get too excited about a one quarter change on a year over year basis. It's important, Max, I think, when we look at that comparative inventory, this was our first full year of planning. We sort of inherited what we inherited last year on inventory levels in Q1 in particular. And order board. And the order boards. Correct. Okay. That's very helpful. Thank you very much. Okay. Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to you, Mr. Dror. Thank you, Valerie. Before concluding the call, I'd like to remind listeners that our Annual Meeting of Shareholders will be held today at ten a. M. At the Toromont CAT facility in PointClair, Quebec. The meeting will also be available live via audio webcast, which can be accessed at our website, toromont.com. Thank you, and that concludes our call for today. Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.