Good morning, ladies and gentlemen. Today is Friday, April the 28th, 2023. Welcome to the Toromont Industries Ltd. first quarter 2023 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 first quarter of 2023. Also on the call with me 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'd like to refer our listeners to slide two, which contains our advisory regarding forward-looking information and statements. After our prepared remarks, we'll be more than happy to answer questions. Let's get started. We can move to slide three and Scott will kick us off.
Thank you, Mike, and good morning, everyone. Last week, we announced that we have entered into an agreement for the sale of AgWest Ltd., a wholly owned subsidiary to Mechan International, part of the Zweegers Equipment Group, effective May 1st, 2023. Netherlands company has a long association with agricultural equipment, including the distribution of AGCO and CLAAS products worldwide. Mechan will operate the business under the AgWest brand, retaining the current leadership team and employees. They will continue to operate out of AgWest three main and three satellite locations in Manitoba, representing the current portfolio of leading agricultural equipment brands, including CLAAS and AGCO products. Mechan's global presence, deep agricultural knowledge, and solid distribution reputation offer a strategic fit with AgWest people, customers, and suppliers. AgWest has made great strides in operational excellence over the past number of years, all while dealing with a highly variable market dynamic.
We wish Mechan and the entire AgWest team continued success. Turning to page four of the package. We are pleased with the solid start to the year, buoyed in part by solid opening order backlog. The equipment group executed well, delivering on several large customer orders, as well as growing rental and product support results. CIMCO revenue improved in the quarter on project construction and higher product support activity across the organization. We remain committed to our operating disciplines, driving our aftermarket strategies and delivering customer solutions. During the first quarter, an excess property in Ontario within the equipment group was sold, resulting in a pre-tax gain of CAD 3.5 million, or CAD 3.1 million after tax, or approximately CAD 0.04 per share. Turning now to our financial results highlighted on slide five.
Results for the first quarter of 2023 were solid, reflecting good equipment deliveries against a healthy opening backlog and good execution and operating leverage. Higher revenue in both the equipment group and CIMCO, lower relative expenses, and higher interest income on cash balances all contributed to higher net earnings. Rental and product support revenue increased on good market activity, solid fleet utilization, and technician headcount. Equipment revenue increased as the inflow of inventory supply continued to improve. Package sales demonstrated improvement as previously delayed construction schedules advanced. Supply chain constraints and general macroeconomic factors such as inflation, higher interest rates, and a weakened Canadian dollar continued to challenge the business as well as disrupt historical seasonality and are expected to continue to do so for the near term.
Backlog remains healthy, but down 21% year-over-year at CAD 1.2 billion at the end of the first quarter, with a decrease in equipment group down 26% and an increase at CIMCO up 17%. Backlog is supportive and reflects progress on construction and delivery schedules, as well as improvement in general equipment flow throughout the supply chain. Bookings decreased 33% compared to the similar period last year. Equipment group bookings decreased against a tough comparable, which included several large orders last year. CIMCO bookings increased on solid demand for our products and services. On a consolidated basis, revenue increased 23% in the quarter in both groups, with the equipment group up 24% and CIMCO up 17%.
Equipment and package sales increased 33% in the quarter on good deliveries on several large customer orders, improved inflow of inventory, and the advancement on construction schedules. Product support and rental revenue increased 19% and 6% respectively in the quarter. Product support increased in stronger demand and technician availability with work in pro-progress levels remaining high, while rental revenue increased on a larger fleet. Operating income was up 48% in the quarter and was 12% of the revenue compared to 10% in the similar period last year, reflecting the higher revenue and lower relative expense ratio. Expense levels decreased 13% of revenue year-over-year, reflecting the higher revenue coupled with ongoing focus on expenses given the economic environment. Net earnings increased 61% or CAD 36.5 million in the quarter compared to last year.
Basic earnings per share was CAD 1.17 in the quarter, a 63% increase, both reflecting revenue growth, expense management, and higher interest income with cash on hand and current interest rates. As always, our team remains focused on executing customer deliverables while adhering to our operational model with a disciplined execution. We are mindful of the changing economic environment and continue to monitor key metrics in supply-demand dynamics. While focused on managing discretionary spend, we continue to invest in the technologies and digital platforms and recruit technicians to support our critical aftermarket strategy and value-add product offerings over the long term. Mike, I'll 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 six. Revenue was up 24% in the quarter, with higher activity across all revenue streams except used equipment sales. Taken together, new and used equipment sales were up 33% in the quarter. New equipment sales increased 48% in the quarter across all market segments and regions, predominantly reflecting the delivery of equipment against the solid opening order backlog, reflecting improved inventory supply and also customer delivery schedules. Used equipment sales decreased 10% in the quarter, with lower sales of used equipment partly offset by slightly higher fleet dispositions. In the quarter, total new and used equipment sales increased 3% in construction, 307% in mining, 26% in power systems, 42% in material handling, and 42% in our agricultural market.
Rental revenue was up 6% in the quarter, reflecting higher market activity, strong execution, and an expanded heavy and light equipment fleet. Growth was experienced in most areas for the quarter with the following increases: light equipment rentals up 9%, heavy equipment up 32%, and material handling up 21%, dampened somewhat by decreases in RPO revenue down 38% and power rentals down 8%. The RPO fleet was at CAD 43 million versus CAD 50.1 million a year ago, reflecting slightly lower demand and continuing to trend below pre-pandemic levels. Product support revenue grew 20% in the quarter, with increases in both parts up 22% and service up 14% across all markets and most regions.
Looking at specific markets for the year, growth was as follows: construction up 15%, mining up 29%, material handling up 17%, power systems up 15%, and agriculture activity up 5%. Gross profit margins decreased 20 basis points in the quarter compared to Q1 of 2022, with higher product support margins more than offset by lower margins in equipment and rental, coupled with an unfavorable sales mix, lower product support and rental revenue to total revenue. Equipment margins were down on a weaker Canadian dollar with the improving availability and new equipment from suppliers. Rental margins were down despite good fleet utilization, reflective of slightly higher acquisition, maintenance, and repair costs. Product support margins increased on continued focus on efficiency as well as higher activity levels. Selling and administrative expenses were up 7% in the quarter.
Compensation costs increased on higher headcount, annual salary increases, and higher profit sharing on the increased earnings, partially offset by the mark-to-market adjustment on DSUs. Certain expenses such as travel and training have increased compared to the prior year, with greater levels of in-person interaction and some inflationary effects. Allowance for doubtful accounts increased CAD 0.5 million on a larger balance of aged receivables. As a percentage of revenue, selling and administrative expenses were lower at 12.6% in the current period versus 14.6% in the similar period last year, reflecting the higher revenue. Operating income increased 44% for the quarter, mainly reflecting the higher revenue and the property disposition gain, as Scott mentioned earlier, partially offset by higher expenses.
Bookings decreased 35% in the quarter, reflecting in part a tough comparable with an extended period of strong activity following the pandemic slowdown, as well as several large customer orders. Backlog of CAD 1 billion remains at healthy levels, however, was 26% lower than last year, reflecting improving equipment delivery from manufacturers as well as planned deliveries against customer orders. Approximately 80% of this 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. Let's turn now to CIMCO on slide seven. Revenue was up 17% in the quarter with the advancement on construction schedules and increased product support activity. Package revenue increased 29% in the quarter. Industrial market revenue was up 37%, with higher activity in both Canada and the U.S. Recreational activity remained relatively unchanged.
Product support revenue improved 8% in the quarter, with increases in both Canada and the U.S. Activity levels continue to improve, reflective of market conditions and increased labor capacity. Gross profit margins were up 340 basis points in the quarter versus the comparable period last year. Package margins were up 380 basis points on improved execution and the nature of projects in process. Product support margins increased 50 basis points on improved execution on fixed rate contracts and higher market activity. The unfavorable sales mix reduced margins by 90 basis points, reflecting a lower proportion of product support revenue to total revenue. Selling and administrative expenses were up 12% in the quarter. Allowance for doubtful accounts increased CAD 1.1 million on a higher balance of age receivables.
Compensation costs increased due to an increase in headcount, annual salary increases, and higher profit-sharing accruals on the higher earnings. Other expenditures, such as travel and training expenses, increased to support activity and staffing levels. As a percentage of revenue, selling and administrative expenses were lower at 16.7% in the current period versus 17.3% in the similar period last year, in part driven by higher revenue. Expenditure control measures on discretionary spend remain a key focus for the CIMCO team. Operating income was up CAD 3.7 million or 320% for the quarter, reflecting improved gross margins and higher revenue. Bookings increased 1% in the quarter. Recreational orders were up 23%, with higher orders in the U.S. being slightly offset by weaker orders in Canada.
Industrial orders were down 14%, mainly on weaker orders in Canada, partially offset by increased U.S. orders. Backlog of CAD 199.1 million was 17% higher versus last year. Recreational backlog was up in both Canada and the U.S., reflecting good order intake last year in some deferral or delay in construction schedules resulting from supply chain constraints. Industrial backlog was marginally down, with a decrease in Canada being slightly offset by an increase in the U.S. Approximately 85% of this backlog is expected to be realized as revenue in 2023. However, again, this is subject to construction schedules and potential supply chain constraints. On slide eight, I'd like to touch on a few key financial highlights. Investment in non-cash working capital increased 67% versus a year ago, mainly driven by higher accounts receivable and inventory levels reflective of higher activity levels.
As one would expect, however, our operating teams are continuing to exercise discipline while focusing on customer requirements, market conditions, activity levels, and supply chain dynamics. Accounts receivable continue to receive focus, and while DSO decreased, down three days compared with last year at 37 days, we are closely managing the aging of our receivables and credit metrics. Inventory levels are higher than prior year, driven by a number of factors, including a strong backlog, delivery timing, improving availability through the supply chain for both equipment and parts, higher activity levels with completion with parts availability, coupled with solid demand and inflation. We ended the first quarter with ample liquidity, including cash of CAD 675 million, an additional CAD 470 million available to us under our existing credit facilities. Our net debt to total capitalization ratio was a - 1%.
Overall, our balance sheet remains well positioned to support operational needs. We're prepared to manage challenges related to the economic variables and business conditions. We'll continue to exercise the operational and financial discipline one would expect as we evaluate investment opportunities that may develop over time. Toromont targets return on equity of 18% over a business cycle. Return on equity improved to 24.9% compared to 19.7% for Q1 of 2022, and exceeds our five-year average of 20.7%. Return on capital employed was 32.4%, up from 27.4% for Q1 of 2022. Improvement in both of these metrics reflect improved earnings and continued capital discipline.
Finally, as announced yesterday, the board of directors approved the regular quarterly dividend of CAD 0.43 per share, payable on July 5th, 2023 to shareholders on record on June 9th, 2023. On slide nine, we conclude with some key takeaways as we look forward to Q2. We expect the business environment to gradually improve. However, a number of factors are in play, some of which include the evolving dynamics of the global supply chain and improving availability, inflationary and macroeconomic trends, and managing customer credit risk along with growth opportunities, all of which can overshadow normal seasonality and buying patterns. We continue to proactively monitor developments closely, and we're prepared to take action appropriately. As one would expect, we consistently focus on key priority areas, including safe operational execution, serving and supporting our customer requirements, and our disciplined focus on building our business for the future.
Our backlog levels remain well-positioned as bookings are shifting toward pre-pandemic levels. Care must be taken to monitor customer buying patterns and preferences. In terms of technician hiring, we made progress in 2022. This remains an essential focus to support our growth in our aftermarket and value-added product and service offerings. Operationally and financially, we're well-positioned with ample liquidity and our strong leadership team's disciplined culture and focused operating models. We appreciate our entire team's effort and commitment to continue to support our customers and deliver value for our stakeholders. Thanks also to our valued customers, supply partners, and shareholders for their continued support. That concludes our prepared remarks. At this time, we'll be pleased to take questions. Michelle, over to you to set up the first call, please.
Thank you, sir.
Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. If your question has been answered and you would like to withdraw from the queue, please press star followed by the number two. If you are using a speakerphone, please lift your handset before pressing any keys. One moment please while we compile the roster. Your first question will come from Yuri Lynk at Canaccord Genuity. Please go ahead.
Morning, guys. Mike, congratulations on the new role.
Great. Thank you, Yuri. Good morning.
Morning. Scott, you're not finished quite yet, so I'm gonna start with you. Can you share with us what role Mike's strengths in M&A and operations in the U.S. and internationally played a role in his selection as CEO? I'm asking the question because, you know, Toromont's facing a pretty highly consolidated, I'd say, home market for Cat dealers. Maybe this is signaling that the next move is likely to be outside of the country or even the continent. Any color on the selection process there?
That's quite a question, Yuri. Thank you. I'll give you some color. I think we want to speak to the board here and the committee. I think this outcome and, you know, I think this is very positive for our company. The board put a lot of work into this, a lot of thought, a very orderly process, both from the committee and the board, very extensive. I'm just delighted. Mike's scholarship is incredible here with our company, which I think is important. He's been with us now over three years, and he understands Toromont, okay? That was, I think, a key part of how the board was assessing things. He's been involved with everything. He's been my partner side by side.
Toromont is about a team and the leadership collectively. I think Mike understands our business philosophies, and I think the board was very focused on. I know they were. They were very focused on a lot of fundamentals, both from an M&A operational perspective, and a lot of thought went into that selection. I think the board, you can be assured that board's due diligence was very strong. I'll leave it at that.
Okay. Mike, a quick one for you, and I'll hop off here. Just on the gross margin, I mean, the mix of product support and rental was much less favorable in Q1 versus the prior year's quarter. Gross margins were actually up a tick. What's the offset there and how sustainable do you think that might be?
I think a couple of factors we highlighted there, Yuri. As you look at the mix of sales, I think both within, call it, new and used equipment sales and the mix between product support and equipment, as you mentioned. You know, product support was up nicely in the quarter overall. We are seeing with availability, for example, we did see lower used equipment sales in the quarter. Still a fairly strong pace given what we're comparing to and what we've seen over the last couple of years. So, you know, one would expect that, and I think we've talked about this in the several quarters ago, as availability improves, you know, we're gonna continue to see, probably a little bit more pressure on margin at times. You know, rental...
For example, when you look at our rental business, we're replacing the fleet with new higher cost units as availability is there. We're uploading into our fleet. You know, repair and maintenance costs are a little bit higher at the moment. Utilization and things are still performing very well. It's a bit of a balance, right? As you think of the effects and the inflationary effects as they flow through the business, then you couple that with availability. Those would be the main factors.
Okay. I'll hop off, guys. Thanks.
Thanks, Yuri.
Your next question will come from Jacob Bout at CIBC. Please go ahead.
Good morning. Mike, congratulations on the appointment as CEO.
Great. Thank you, Jacob. Good morning.
First question is just on bookings and backlog. I know this can be lumpy quarter to quarter, but I know the MD&A for the equipment group, you're calling out the uncertain economic environment, leading to cautious investing behaviors, you know, across industries. I think this is the first quarter that you've made these comments specifically. What does this say about the remainder of this year and into next year? Are you seeing areas with more cautiousness than others, say, in buildings or, you know, commercial, residential or how does that work?
Yeah. Let me start with that, Jacob, and I'm sure Scott can provide some color as well. You know, I think, I think a tone of caution is warranted when you think of, you know, the buildup of our backlog still at a very strong level. We touch on buying patterns. We talk about overriding normal seasonality, and I think we wanna be careful. If you look at our overall backlog today for Q1, it, you know, it's quite comparable, when you look at the booking level in the quarter compared to, say, pre-pandemic, which frankly, Q1 of 2020 was, you know, a couple weeks of the pandemic was taking hold. It's a good comparator. It's at a reasonable level relative to, call it, pre-pandemic levels.
What we've seen when you look at the buying patterns, the behaviors of our customer, you know, activity levels are fairly strong still as we look at the year and we're going into a busy season. You know, I would still say the macroeconomic factors like inflation, customers locking in price, availability, are still overriding normal seasonality. I think a tone of caution is there. We're not gonna get back to normal seasonality in a quarter, so to speak. We've seen it tapering a little bit. You know, I think that's one key area as well.
I'll put a little more color on there, Jacob. As Mike said, you've got interest rate changes, you've got inflation, and you've got, from what we've seen so far, and you've got some historically strong numbers relative to... You know, this quarter by quarter, we continue to say it's difficult to extract things. I think you got to look at it over the long term with all these fluctuations and variables in play. The industry activities were still solid, right? If you look at the overall, it was just, it was just slightly down. Where we're focusing on what we saw was some softening in the larger iron. Again, it can shift 'cause you're coming off strengths, right?
On the, on the overall, as Mike said, on a pre-pandemic, there's still solid activities going on. You know, we're just gonna continue to monitor things. Some availability is improving. We'll see how that all plays out.
Appreciate the color. Maybe just a second question. You know, as you think about the first quarter, is there any evidence of pull-forward effect, you know, buying ahead of price increases?
We've been dealing with price increases now for a while, so I can't specifically say there's any trend developing there. That's been ongoing.
Yeah. I think that, I think even in with that regard, we've spoken about that a little bit in the past too, right, Jacob? When you think of, you know, rising interest rates, we knew there were inflationary effects and price increases all through last year, you know, and that's carried forward to a degree, right? Now the question is how that moderates over time and what we see going forward, right? I think that's a reflection of our overall backlog at this point in time as well.
Okay. Thank you.
Great. Thanks, Jacob.
Your next question will come from Cherilyn Radbourne at TD Cowen. Please go ahead.
Thanks very much. Good morning. Congratulations, Mike, on your appointment.
Thanks, Cherilyn. Good morning.
Notwithstanding some very strong deliveries in the quarter, the inventory balance is still quite elevated. I appreciate that inflation is part of that. I was hoping you could comment on how much of that inventory is committed and whether that's different from what would be normal at this time of year.
Yeah, that's a great question, Cherilyn. I think, like you say, if you look at our numbers, you know, we've invested in receivables with activity. The inventory is the primary driver of working capital investment in the quarter. You know, we commented a little bit, it's split pretty evenly with parts and equipment. You know, I think as you look at availability, as availability is improved or improving through the quarter, we wanna be careful there because it's not all units that are available, but there are improvements occurring in certain areas. You know, we are seeing that availability, and the investment level reflects that. There's still some constraints. We still are waiting on certain parts. You see our WIP is still slightly elevated. That's a contributing factor as well.
You know, when we look at what's committed, we don't disclose a lot about that, but I would say over half of that is committed when we think of... I would maybe position that more towards the equipment group and the Toromont Cat business. We monitor that very carefully on a quarterly basis. We do have some units for sale in certain categories, but that'll give you a bit of characterization there.
I'll add a little more. You know, this, you know, you put your orders in, right, Cherilyn? As Mike said, a portion is committed. Because it's been so tight, you know, we're trying to really be proactive with the data we're getting on the, particularly on that aftermarket. Yeah, parts increased fairly significantly, and part of that is due to our scheduling and our repairs and trying to get those components. Some of those components are still tight, so you take what you can get, and we're not in a normal flow of orders still, okay, in terms of our disciplines and need is. There's a bit of fluctuation in there, but this is what we're focused on is the aged, right? That's where you gotta be.
The turnover
... you gotta be careful here. That's where we're monitoring closely. You know, good observation. That's an area we're monitoring closely, and you gotta have that pipeline discipline in there. We're not in a normal ordering process still, so.
Mm-hmm.
It I think, you know, what we saw in the quarter was improvement in some availability.
Yeah.
Still tightness in some areas as well.
One other quick comment on that too, Cherilyn, for context, is we are also, like in the parts side, we have invested a little bit just to support new customer opportunities. Like we look at some of the mining space and things like that. So there is some capital put aside there to invest and support, you know, mining activity and so forth. So that's a little bit of a factor. It's more the aforementioned factors that Scott mentioned and I did earlier.
Sure. I'm not sure how much you're gonna want to say in response to this next question, but, as you know, Caterpillar announced a novel agreement with a miner in your Quebec territory last week.
Involves providing access to equipment based on an hourly fee driven by usage. I was just hoping you could help us think about how the economics and the risks of that arrangement will be shared between Caterpillar and Toromont. Any comments would be helpful.
Well, these agreements are very collaborative and, you know, I think both parties assessed it from a risk. We're, as you know, historically, we try and operate discipline with customer maintenance and repair agreements. A lot of analysis goes into those and, you know, that's a developing area in there that Caterpillar is involved with, and we're pleased to be part of it.
Okay. That's all for me. Thank you.
Thanks, Cherilyn.
Your next question comes from Michael Doumet at Scotiabank. Please go ahead.
Hey, good morning, guys.
Good morning.
I'll say congrats to both of you, obviously for different reasons, but both very deserving. Mike, I think only 32 more years at Toromont to match Scott Medhurst's tenure. In all seriousness, obviously very excited to see what you can do with this business. First question on rental. You know, I think for several years, we waited for growth in QM to mature before, you know, looking for the inflection in profit from dispositions. Supply chains tightened up, and that pushed out the timeline a year or two. Ramping disposition, it does feel like it's right around the corner. I know you guys take a conservative approach in terms of accounting/depreciation.
I was wondering, you know, maybe if you can ballpark for us the market value of the rental fleet versus the book value, because the gain on the cash flow statement suggests it's almost 2x. I wonder, you know, is that correct? Then also maybe if you can speak about the pace of dispositions we can expect in 2023.
Maybe just to start with that one. You're right. When we look at QM, like we did mention last year that, you know, we're quite pleased with the utilization and the execution of the fleet. We still have room to go there. You know, I think, you know, We're at year five, and we generally say, you know, The Allied products, for example, have a different life cycle than, say, the Caterpillar products. You know, on average, you know, we do start to see some disposal and re-upload of equipment into the fleet at about year five. You know, I think, and you'll see if you look at our disposals that we disclose broadly, they're marginally up, right?
We're not disposing of a lot of equipment at this point. To your question about, you know, the full cycle margin, if you will, you know, it's pretty consistent over the last several quarters in that regard. Again, we still have quite a bit of work to do, I think, when it comes to executing in the Quebec and Maritime region and building the fleet and reinvesting. We put some decent capital into play there this year as well, quarter to date.
I'll add a little more there. Mike's right. I mean, there's improvements going on. In terms of that disposition, we're still not where we wanna be on that aging profile, okay? We're holding on because it's been tight, right? Over the last multiple quarters and years. We haven't been able to deal with those fleets like we like to. You're still not within your normal disposition scope because we're holding on. We saw it in the quarter, we saw some increased expenses because of the repair costs as a percentage of the revenue in areas we don't like because we just had to hold on. That we're working hard. The team's been doing very well to upload and prioritizing some of those uploads, particularly in the rental services area.
Certainly still not normal flow. In terms of Quebec, great improvement, but still, our go-to-market approach, particularly with some segments that we like to operate in, still needs work, but improving.
That's helpful color . Thanks. Maybe just switching topics here. You know, CIMCO, that business has had a couple of sideways years, you know, especially through the pandemic, you know, first obviously on the recreational side and then tougher comps on the industrial side. It looks like it's getting its growth mojo back. You know, I wonder, you know, how you think about that business, you know, maybe from a capital and people perspective, and if you think you can go a little bit more aggressive into growth mode here.
Well, you know, to start on that one, I think the team has done a really nice job, executing and putting in some improvements. You see it in the results, right? You see the equipment sales and so forth on a comparative basis. The product support business is doing well. So there's been quite a bit of work done last year. You mentioned the recreational segment, so that's starting to come back into play. We did make some comments about, you know, that's a little bit stronger than we've seen historically. The order input and so forth is good. We're still working our way through some of those deferrals and scheduling, right? Because a lot of times we're going into locations once it's constructed to put in the package and commission it.
You know, I think, I think, that's what you're seeing there. In terms of capital, last year, as you recall, we put in a fair bit of capital because we moved locations from our waterfront Toronto location to Burlington, and that was a fairly big capital investment. Going forward, we still would look at the business as a reasonably capital light, strong return business, you know, with growth in both markets, right? You know, we're looking at some areas in the U.S. and so forth, and quite happy with the management team, and they're hitting some stride there, but, a lot of work to do there.
I wouldn't mind adding a little more.
Yeah.
-if that's okay. I think you used the term mojo growth. Let's put a little more color, mojo growth. I'd like to think we're gonna grow in an orderly fashion. You saw some margin improvement in there, particularly on those package deals. That's what we wanna do, is grow orderly. Not. Like, growth is one thing, doing it with some discipline and execution efficiency for our customers, and proving that out, I think is important, and that's what we're focused on.
Yeah.
The team has done a nice job in there with a lot of heavy lifting.
Mm-hmm.
Assessing a lot of different parts of operational excellence from the product support side to the how we go to market with the packaged goods. Still a lot of lifting in there, but good to see some improvement and some growth. Careful with mojo growth versus-
One quarter.
Orderly. How's that? Okay.
Obviously great quarter, guys. Thanks for the answers.
Thank you.
Thanks, Michael.
Your next question comes from Maxim Sytchev at National Bank Financial. Please go ahead.
Hi. Good morning, gentlemen. Congrats on the transition for both of you.
Great. Thanks, Max. Good morning.
Thanks, Max.
Scott, maybe just the first question. Was wondering if you can provide a bit more color, in relation to the thought process around the AgWest divestiture. Thanks.
Yeah. Why don't I start that?
The new boss is gonna take that one.
Not yet. Not yet. You know, I think a couple things I would say about AgWest. Number one, you know, that business has done really well over the last couple of years. I mean, the team has executed incredibly well. Put a lot of focus on, like, operational excellence, the things that we, you know, that we find near and dear. The team has done well, and the markets have been pretty good. Having said that, scale for this business wasn't really possible for us, right? It has been limited to the Manitoba market. However, Mechan International that we mentioned as the buyer, operates in other markets and already has a very strong relationship, and they distribute through a number of markets in Europe.
They're a distributor for CLAAS and AGCO, and they were looking to invest in the North American market. You know, we just felt that this was a great solution for our customers, especially for our people and also for the suppliers. With that relationship, we felt it was a timely transaction for us.
Just, you know, when we looked at this and the roadmap we had out, and again, Mike, I wanna be clear here, it was improving thanks to our team's efforts. Just, you know, when you looked at what we felt we needed on the scale and scope strategically and how we were executing relative to that, it just made a whole lot of sense when this dialogue was initiated. That's basically it. I think it's a good decision for all stakeholders.
Yeah.
You know, as we monitor our capital as well.
I guess, like, there's no read-through for how we should be thinking about CIMCO, especially given your prior comments.
No.
Okay. Okay, perfect. Then, just a quick follow-up in terms of the used market and I guess what you're seeing there and given the fact that we saw a bit of a decline relative to new, was wondering if you can provide some more commentary there?
Yeah. Thanks, Max. I'll take that one. you know, used remains a key strategic platform. The team did a great job last year executing, particularly on the new platform of consignment and purchasing. We've always been aggressive in purchasing, but last year in particular. you know, there, it's, you know, it's a tough comp again, but you saw where our inventory increased in used, and that's because we think we can execute in there strategically. What was really off was the trade. I think we were down over 15% there on the trade revenue side, reflecting some softer activities in there. Also the demo revenue's down. That's a reflection of, you know, we haven't been able to get the build on that demo inventory.
That demo inventory, that's lower hour as we classify it. That did build in this quarter on the inventory side, which I'm not afraid of that. That was down. The purchasing was only down slightly, I think about five. That, you know, that can be a timing thing. We're still really committed in that used from a strategic perspective, there was some softness in a few areas.
Okay. Okay, that's helpful. Thank you. Then maybe if you don't mind, I'd squeeze in one more just in terms of the rental market. I'm just curious if you can maybe identify some, you know, structural trends that we can think of, you know, when it comes to the ultimate, you know, penetration rate on rentals. Because, you know, when we look at Europe, I think, you know, way ahead on in terms of rentals there. I'm just trying to think what could be the ultimate upside in this market. Thanks.
Well, really what we look at there in terms of the ultimate is to, is to continue to grow our share in there and our participation levels, and that's why we're investing. I mean, the rental services, we've taken it up again on a unit basis, another 12% or so, on a quarter-over-quarter basis. We continue investing, and it's really 'cause we see this as a growing segment. As you know, Max, we're investing with a broad base of products. We continue to expand in there with the full route services. We just strategically moved out west with our industrial route services business. We're excited about that. Now we gotta continue to go execute, continue to gain a bigger share of what is appears to be with the data we see a growing market.
Super helpful. Thank you so much.
Great. Thanks, Max.
Ladies and gentlemen, once again, if you would like to ask a question, please press star one now. Your next question will come from Bryan Fast at Raymond James. Please go ahead.
Good morning, guys. First off, Mike, congratulations on the new role and Scott to you as well on the pending retirement.
Thank you, Bryan.
That's great. Thanks, Bryan.
I know you touched on margins broadly, but could you speak to the strength you saw specifically on product support margins from the equipment group and just maybe the durability of that trend?
Yeah, a couple things there. I think activity levels certainly are the leading indicator there. You know, and keep in mind, like we were up overall, you know, we talked about 20%, and it was pretty broad-based, right, across all different segments. That's a, that's a promising signal as well. We did see some... You know, part of that is parts costs and inflationary factors from last year. When we're talking about year-over-year, you know, there is that component as well, which has been greater than we would have seen in prior quarters. Wanna put it in the right perspective. Activity in general has been strong, and it's been pretty broad-based across, you know, each of the businesses and markets, so.
Thanks. Then just you saw another strong quarter for mining on deliveries here and understanding that this end market is lumpy in nature. Could you discuss maybe the overall trend you are seeing from the mining group and just the tone of customers?
Yeah. Part of those strong numbers were obviously due to the backlog and the great job the team had done executing some fairly significant RFQs, and they did a heck of a job in there. There is still activity in the mining sector that's going on. Of course, we never get ahead of ourselves 'cause you gotta earn that business with your value propositions. It's very competitive. That's what's going on there. We continue to work hard to earn the product support business on the annuity side.
Okay, that's it for me. Thanks for the color.
Thanks, Bryan.
There are no further questions. I will turn the conference back to Mr. McMillan for any closing remarks.
Great. Thanks again, Michelle, and to everyone for their participation today. Before concluding the call, I'd like to remind listeners that our annual meeting of shareholders will be held today at 10 A.M. Eastern. This is a virtual meeting only, and details are available on our website at toromont.com. That concludes our call. Please be safe and have a great day.
Ladies and gentlemen, this does conclude the conference call for this morning. We would like to thank you all for participating and ask you to please disconnect your lines.