Good morning. Today is Tuesday, October 31st, 2023. Welcome to the Toromont Industries Limited Third 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. At this time, all lines are in a listen-only mode. Your host for today will be Mr. Mike McMillan, President and Chief Executive Officer. Please go ahead, Mr. McMillan.
Thank you, Ludy. Good morning, everyone. Thank you for joining us today to discuss Toromont's results for the third quarter of 2023. It's a privilege and an honor to be hosting this call today as President and CEO. Scott Medhurst, who officially retired effective October 15, continues to support us as an executive advisor. However, I would like to take this opportunity to congratulate Scott and thank him for his incredible contribution throughout his successful 35-year career with Toromont. His unwavering dedication, leadership, and support has been second to none. I look forward to continuing to work with Scott in this new capacity in the next few months, and we wish him all the best as he transitions toward his retirement. At the same time, I am delighted to officially welcome John Doolittle, Executive Vice President and Chief Financial Officer, to the Toromont team.
John is a seasoned CFO and a highly accomplished financial executive with over 30 years of experience in large global corporations across a broad range of industries. John officially joined Toromont on October 11th, 2023. Please join me in officially welcoming John to the team. John and I will be referring to the presentation that is available on our website. To start, I would like to refer our listeners to slide 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 and move to slide four. Please note that our discussion today will focus on continuing operations unless otherwise noted. We are pleased with the operating and financial performance through the first nine months of the year.
The Equipment Group executed well, delivering against the opening order backlog, in line with customer schedules and improvement in inventory flow, along with good growth in rental and product support activity, as well as continued focus on expense control. CIMCO revenue and bottom line improved in the quarter on good execution and higher product support activity. Across the organization, we continue to navigate through evolving economic conditions and remain committed to our operating disciplines, driving our aftermarket strategies and delivering solutions tailored to our customer requirements. Now, turning to our financial results highlighted on slide five. Results for the third quarter of 2023 reflected good execution on new equipment deliveries against order backlog and favorable operating leverage. Revenue increased 8% in the third quarter and 14% through the first nine months of the year, with increases in both the Equipment Group and CIMCO.
Rental and product support revenue increased on customer activity. Higher gross margins, along with lower relative expenses and higher interest income on cash balances, all contributed to higher net earnings versus Q3 of last year. Net earnings from continuing operations increased 21% in the quarter compared to last year, reflecting revenue growth, expense management, and higher interest income. Through the first nine months of the year, net earnings increased 29% from last year to CAD 375 million or CAD 4.56 per share, again, on a continuing ops basis. For the third quarter, bookings for the third quarter decreased 5% compared to last year and increased 5% on a year-to-date basis. The Equipment Group reported lower bookings during the quarter, and CIMCO reported increased bookings on good demand for our products. Year to date, both groups reported increased bookings.
Backlog remains healthy at CAD 1.2 billion, down slightly from last year, however, historically quite solid. Backlog is supportive and reflects good order intake, progress on construction and delivery schedules, as well as some improvement in equipment flow throughout the supply chain. General macroeconomic factors such as inflation, higher interest rates, and Canadian dollar movements continue to challenge the business environment, as well as disrupt historical seasonality and are expected to continue to do so for the near term. Looking forward, our team remains focused on executing customer deliverables and key strategies while adhering to our operational model with disciplined execution. We are mindful of the challenging economic environment and continue to work closely with our customers while monitoring key metrics and supply-demand dynamics. Managing discretionary spend is critical.
However, we continue to actively recruit technicians in order to support our aftermarket service strategies and value-added product offerings with the long term in mind. John, I'll turn it over to you for some more detailed comments on the group results.
Great. Thank you very much, Mike. Good morning, everyone. I'm absolutely delighted and honored to join the Toromont team. I've received a very warm welcome, and I'm extremely impressed by all of the folks that I've met so far. As well, I look forward to interacting with all of you in the coming months and quarters.... Let's start with the Equipment Group on Slide six. Revenue was up 7% in the quarter and up 13% year-to-date, with higher activity across all revenue streams. Taken together, total new and used equipment sales were up 7% in the quarter and 16% year-to-date. New equipment sales increased 5% in the quarter and 20% year-to-date across most market segments and regions, predominantly reflecting the delivery of equipment against order block backlog, improving equipment inflow, and support end customer demand.
Used equipment sales increased 16% in the quarter, but were down 3% year-to-date. Used equipment sales from trades and purchases have been lower in the current year, as supply and demand dynamics shifted. Used equipment sales also include rental fleet dispositions, which have increased in the current year after a period of constraint, reflecting fleet management decisions around an aging fleet, as well as availability. In the quarter, total new and used equipment sales increased in construction markets, up 13%, and material handling, up 53%. This was partly offset by a 5% decrease in mining and a 6% decrease in power systems. Rental revenue was up 11% 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 were up 6%, heavy equipment rentals up 11%, power, power rentals up 31%, and material handling slightly up 1%. Product support revenue grew 7% in the quarter, with increases in both parts and service. All markets and most regions were higher in the quarter, construction up 3%, mining up 7%, power systems up 22%, and material handling was up 7%. Gross margin increased 40 basis points in the quarter compared to Q3 2022, largely reflecting higher new equipment margins of 130 basis points, offset by lower rental margins, down 40 basis points, and lower product support margins, down 60 basis points. Selling and administrative expenses increased 3% in the quarter on a 7% increase in revenue.
Compensation costs increased with higher headcount, annual salary increases, and higher profit sharing on the increased earnings. 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 decreased CAD 0.8 million on approved aging. As a percentage of revenue, selling and administrative expenses improved to 11.9% year-to-date, compared to 12.7% for the same period last year. Operating income increased 13% for the quarter, reflecting the higher revenue and gross margins, partially offset by the higher expenses. Bookings decreased 10% in the quarter after a strong start to the year. Construction work order activity was lower after significant activity last year, coupled with the caution given the current uncertain business and economic factors, are overriding normal seasonality.
Through the first nine months of 2023, bookings were 4% higher than the similar period last year. Backlog was CAD 1 billion at the end of September, reflecting improving equipment availability for manufacturers, as well as planned deliveries against customer orders. Now to CIMCO on Slide seven. Revenue was up 15% in the quarter, reflecting the advancement on construction schedules against a strong order backlog and improved execution, coupled with increased product support activity. Package revenue increased 2% in the quarter, with recreational market revenue up, partially offset by lower industrial market revenue. Revenues in the U.S. were higher, while revenues in Canada were lower. Year-to-date package revenue was up 15% compared to prior year on strong industrial revenue, partially offset by lower recreational revenue. Revenues were higher in both Canada and the U.S.
Product support revenue improved 29% in the quarter, with increases in both Canada and the U.S. Activity levels continued to improve, reflective of market conditions and increased labor capacity. Gross profit margins increased 500 basis points in the quarter versus a comparable period last year. Package margins improved on good execution and the nature of projects in process. Product support margins increased on improved execution and a higher volume of activity, and sales mix was favorable in both periods, with a higher proportion of product support revenue to total revenue. Selling and administrative expenses were up 16% in the quarter. Compensation costs increased due to an increase in headcount, annual salary increases, and higher profit sharing accruals with a higher earnings level. 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 15.8% through the first nine months of 2023, versus 16.5% in a similar period last year. Operating income was double that of last year, at CAD 6.3 million for the quarter, reflecting improved gross margins and higher revenue. Bookings increased 18% in the quarter. Industrial orders increased 20% compared to last year, with an increase in Canada offset by lower U.S. orders on tough comparables from last year. Recreational bookings were up 14%, higher in the U.S., slightly offset by weaker bookings in Canada. Backlog of CAD 245 million was 21% higher versus last year, with an increase in both markets reflecting continued good order intake and some deferral or delay in construction schedules, mainly resulting from supply chain constraints.
On Slide 8, I'd like to touch on a few financial highlights. Investment in non-cash working capital increased 32% versus a year ago, mainly driven by higher inventory levels. Inventory levels are higher from the prior year, driven by a number of factors, including strong backlog, delivery timing, variability in the supply chain for both equipment and parts, coupled with foreign exchange and inflation. Accounts receivable continues to be an area of focus, and while DSO increased slightly, we are actively closely managing the aging of our receivables and credit metrics. We ended the first quarter with ample liquidity, including cash of CAD 807 million, an additional CAD 460 million available to us under existing credit facilities. Our net debt to cap ratio was at -7%. Our NCIB program was renewed during the quarter.
Year to date, we have purchased and canceled 238,000 common shares for CAD 25 million. These purchases are reflective of good capital hygiene, intended to help mitigate option exercise dilution. Overall, our balance sheet remains well positioned to support operational needs, and we're prepared to manage challenges ahead related to the economic variables and business conditions. We will continue to exercise the operational financial discipline one would expect as we evaluate investment opportunities that may develop over time. Toromont targets a return on equity of 18% over a business cycle. ROE improved to 24.3% compared to 21.5% for Q3 2022, and exceeds our 5-year average of 20.7%. Return on capital employed was 31.5%, up from 30.4% for Q3 2022.
An improvement in both of these metrics reflect improved earnings and continued capital discipline. Finally, as announced yesterday, pardon me, the board of directors approved the regular quarterly dividend of CAD 0.43 per share, payable on January fourth, 2024, to shareholders on record on December eighth, 2023. On slide nine, we conclude with some key takeaways as we look forward to the last quarter of the year. We expect the business environment to be influenced by a number of factors that are in play, some of which include geopolitical developments, the evolving dynamics of the global supply chain, improving availability, inflationary and macroeconomic trends, and managing customer credit risk, along with growth opportunities, all of which can overshadow normal seasonality and customer buying patterns. We continue to proactively monitor developments closely and take actions that we believe are appropriate.
As one would expect, we consistently focus on key priority areas, including safe operational execution, serving and supporting our customer requirements, and our disciplined approach to capital allocation as we focus on building our business for the long term. Our backlog remains well-positioned. However, as noted, care must be taken to monitor customer buying patterns and preferences. In terms of technician hiring, we continue to actively recruit, and this remains an essential focus to support growth in our aftermarket and value-added product and service offerings. Operationally and financially, we are well positioned with ample liquidity in our strong leadership teams, 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 to all of you, also to our valued customers, supply partners, and shareholders for their continued support.
That concludes our prepared remarks, and at this time, we'll be pleased to take questions. Ludy, I'll turn it back to you, and if you could provide us with the questions, please.
Thank you. And, ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number 1 on your telephone keypad. You will hear a 3-tone prompt acknowledging your request, and your questions will be polled in the order they are received. And should you wish to decline the polling process, please press the star followed by the number 2. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for the first question. And your first question comes from the line of Cherilyn Radbourne from TD Securities. Your line is open.
Thanks very much, and good morning.
Good morning.
Congratulations to both of you on your new roles and our best wishes to Scott as he retires following a very impressive career at Toromont.
That's great. Thank you, Cherilyn.
In terms of the quarter, it sounds like construction customers are acting a bit more cautiously as it relates to CapEx. But on the other hand, you indicated that activity levels in product support and rental were healthy across all markets, including construction. So just curious what you make about that on an overall basis?
Yeah, it's a great question, Cherilyn. Thanks, thanks for your well wishes as well. Yeah, a couple things. I think, you know, again, the tone is pretty cautious, I think, just given the macroeconomic factors, right? And normally, as you know, we would see in Q4, a lot of times we'd have some conversions on RPOs. We'd have capital decisions by customers, depending on their, you know, financial position and so forth. And so, you know, I think what we're seeing is, you know, a little bit better availability of equipment gives our customers a little bit of time to think through their timing decisions as they wrap up their year-end, and they make, they make their decisions on how they see things, and their requirements as they go into Q4.
And so I would say it still feels very cautious, I think, given, you know, some of the questions around interest rates and so forth. On the other hand, we are seeing, you know, as a result of pretty strong activity over the last several quarters, you know, the product support business, and other parts of our business, including rental, continue to perform reasonably well. So it's a bit of a mix, and that's why we're cautious with our comments around overriding normal seasonality as we go into Q4. And as you know, we don't provide much in the way of guidance, but our backlog certainly also shows that it's fairly supportive as we go into the next year.
... Okay, that's helpful. And then on the supply chain, I was hoping you could give us a bit more color on how that's functioning now, particularly as it relates to large machines and large engines, and how that's influencing how you're continuing to manage around any remaining constraints?
Yeah, it's a great question. It is. So broadly speaking, we would say that, you know, the supply chain continues to improve. You know, there are certain units that we've been talking a little bit about, you know, around excavators and so forth, that the supply is improving. We're still constrained to a certain degree on certain, let's say, consistent with the past larger units when you look at. And even in the, like, when you think of certain models of sort of the medium-sized equipment or small wheel loaders and so forth. And so, you know, I think as we go forward, we continue to work really closely with our customers just to try to make sure that we understand the delivery schedules and the build slots. You mentioned large engines.
I mean, large engines still have extended time frames. And so, you know, as we navigate and we see supply improving each month or each quarter, you know, we continue to just work with our customers in terms of helping them understand the time frames and as they work through the winter months and so forth. So a bit of a long answer to your question here, but I would say, you know, there are some areas and parts that are still a little bit challenged. You know, certain units, as I mentioned, still have fairly tight supply or extended time frames, but we certainly see that improving as we get into next year.
That's my cue. Thank you for the time.
Great. Thanks, Cherilyn.
Your next question comes from the line of Devin Dodge from BMO Capital Markets. Please proceed with your question.
All right, thanks. Good morning, guys.
Good morning, Devin.
Good morning.
It seems like peak new equipment demand may be behind us, but are you able to give us a sense as to where the machine population in your territory sits now versus, you know, a couple of years ago?
Yeah, it's a, I think it's a. Thanks for the question there, Devin. I... You know, I think we have to be careful on that particular position, just given where we've come from and I think where we're headed, you know. And I think a couple of things I'd mention, though, just to give you a little bit of directional thinking. You know, overall, you know, as we mentioned, you look at our sales in the last quarter or two, you know, we're, we're quite happy with new sales. It's improving and so forth. But the mix, I think it's important to think about the mix of the product that we've also put into the field, and, and also the rollouts on the rental side. And so there are a number of dynamics that I think would be quite different than pre-pandemic.
So for example, you know, the team has worked really hard in the mining side and earned their way into a number of greenfield opportunities, and that's been positive for us. So we'll see. You know, our mix is a little stronger on some of the, the larger gear. I think when you look at, you know, our past with used was quite strong when we were in more constrained environment, and so that's starting to, you know, change a little bit. But we also see with availability, some of the rollouts coming in to the market, from our rental business, right? As we replace, the, the rental fleets and so forth.
So again, you know, I'd say the population has moved around a fair bit, but it's. I would say I wouldn't want to mislead you in terms of what that mix looks like in that overall population until things stabilize and we get a better idea of what our annual run rates are going to be.
Okay. Thanks a lot. That's a good color. Okay, I'm going to switch over to the rental business. So you've generated, you know, pretty solid revenue growth in rental services, but we have noticed that it's lagged the growth in the original equipment cost of the fleet, at least for the last couple of quarters. Just, can you give us a sense, is this primarily related to mix? And can you just talk more broadly about the utilization trends that you're seeing across your rental platforms?
Yeah, it's a great question. I think what we're seeing there is a number of factors contribute to our rental business. So you know, generally speaking, when we talked in the Equipment Group, you know, we're up on a quarter-over-quarter basis and stuff. I think it's about 11% in the quarter and 8% year to date. Now, part of that is driven by, as availability of equipment, and we've been able to start to replace the fleet. You know, we're replacing the fleet with a higher acquisition cost, right? And then rolling out some of the other old aged units. And so, you know, what I would say is we have a larger fleet in terms of number of units. We have a higher cost fleet.
You know, utilization is a little bit lower in a sense, just driven off of the fact that we have a larger number of units out there and so forth. I think the other piece that's important too is the labor side of the market. You know, we continue to hire techs, and it's a constrained market, and that can affect our business a little bit at times, just in terms of how we get our rental units back and ready to rent and so forth. But generally speaking, I wouldn't say any of that's surprising. It's natural, given where we've been. As we look forward, we expect to continue to drive the utilization, improve some of our turnarounds.
As we look at the economy, where things go, you know, I think we're quite happy with where we're positioned on the rental side.
Okay, thanks a lot. I'll turn it over.
Great. Thanks, Devin.
Your next question comes from the line of Michael Doumet from Scotiabank. Your line is open.
Hey, good morning, Mike, and welcome, John.
Thank you, Michael.
Good morning.
Just to clarify one earlier question on the cautioning for demand in construction equipment. It sounds like, you know, better availability, higher rates, and there's some uncertainty. But I just wanted to make sure that there wasn't any slowdown-
...As far as the end market activity, you know, something that you'd probably be able to see with, you know, tracking of the machine hours. So just wanted to clarify, you know, what the end market activity was.
Yeah, I think a couple things to mention there, Michael. I think, you know, what and I think we're all aware of what you hear in the marketplace today around residential construction and infrastructure, right? So, you know, I would say a couple things. You know, our business is pretty well diversified when you think of our end markets, right? Whether it's in mining, construction, you know, infrastructure, and so forth. So residential and our customers putting in, you know, sewer, water, and things like that is effectively where we'd see a little bit of softness in that marketplace.
I think as a tailwind to that, of course, you know, in one of our primary markets here in the GTA and in Canada in general, you know, the immigration policy, the labor shortage, is also driving a need for affordable housing. And so, you know, I think as we look through into the longer term, we're, you know, we're certainly comfortable with both the diversified nature of our business, but also that sort of tailwind and demand for housing, as, you know, the economic variables and factors work their way through. So, that, you know, that's where we would see a little bit of softness, is probably more on the residential, timing of projects in the, perhaps in the near term.
But when we look at some of the larger commitments and other infrastructure projects and so forth, it seems reasonably solid at this stage.
Thanks for that, Mike. And then on the equipment margins, that was up quite noticeably in the quarter, and I would have thought that given the improved availability, it might have had the, or would have had the opposite effect. So I'm just wondering if you can explain, you know, the bump in the equipment margins in the quarter.
Yeah, a couple, a couple things. I mean, part of it is driven by fulfilling the backlog and some of the lead times. So new equipment, you know, new equipment, as we disclosed in our financials, the new equipment component. When I think of gross profit overall, you know, we're up about, I think it was about 40 basis points. But, you know, new equipment being, you know, contributing to that. But, you know, where we saw some tightness in overall margin was in, say, rental was a little tighter, partly because, as I mentioned earlier on the call, the acquisition costs and rates and so forth, so a higher base. Product support as well. You know, you're seeing, we're seeing a little bit there. It's really, it's really driven off parts pricing and things like that.
But not overly material. Net, net, we're up, right, 40 basis points on the quarter. It is really, I think of it as broadly mixed when you think of parts, rental and new equipment. Then, of course, used, you know, we're seeing in the used segment itself, we're seeing a couple factors there. One would be, you know, targeted purchasing of used and trades and so forth, but also the rollout of some of our rental fleet does tend to go through that channel as well. So there's a bit of a, there's a bit of a factor there as well.
Perfect. Thanks, Mike.
Okay, no problem.
Your next question comes from the line of Yuri Lynk from Canaccord Genuity. Your line is open.
Good morning, guys.
Morning.
Good morning.
Yeah, just want to follow up on the seasonality question. You're talking about some changes there in the pattern. Is that—Just want to confirm, is that mostly confined to RPO conversions that normally occur in Q4? Or, it sounds like you're also hinting at some delayed purchasing decisions. And as a follow-on to that, are you seeing any other seasonality changes in, say, product support or the rental business as a whole?
Yeah. No, great, great question, Yuri. I think a couple components you break down there. I would say, starting with the RPO, if you look at our RPO level right now, it was about CAD 55 million in the Equipment Group, which, you know, if you roll back historically, as you mentioned, we tend to see conversions in Q4, but we usually enter Q4 at a higher level, right? So we're maybe two-thirds of the value we would have seen pre-pandemic. And so, you know, I do think, you know, from a customer perspective, you know, they're evaluating, you know, their Q4 decisions still given the higher cost of borrowing, their options that they have ahead of them, like an RPO and what their pipelines look like.
So I think that's where we see some caution going into Q4, in a sense. On the rental side, again, rental business has been pretty solid in terms of activity level. As I mentioned earlier, we, you know, have a slightly higher cost base with new equipment and so forth as we're changing that fleet over, and I think that's a natural thing. But we do, you know, feel, I think both on the product support side being up and the rental side of the business, activity levels are still fairly, fairly, solid and so comfortable with where that's positioned.
Okay. And since this is, I think the first call for you two gentlemen as a team, maybe I'll just ask, you know, strategic priorities for this management team going forward over the next, well, over the-- You're gonna talk about the long term, so what are those priorities? If you could just give us an update on how you see it.
Sure. Why don't I start, and then we could-
Yeah.
We can get John's impression here a few weeks in. How about that?
Okay, all right.
You know, I, fundamentally, I would just say strategically, we don't see a big shift there. I think given where we are, you know, we have the team focused on the controllables, managing all aspects of our business.... and just working closely with our customers. We've got some, some good activity in the mining segment. You can see in our order backlog, we still, you know, as we look at most of our businesses, you know, some decent positions in the backlog. CIMCO as well, you know, we often don't bring CIMCO into the equation too much, but CIMCO had-- has had a couple of nice quarters year-to-date, good performance, and a solid backlog.
And so, you know, our—I'd say our first priority, again, is organic support for the business, like executing on what we have ahead of us, driving our opportunities from an organic perspective. You know, and I think our debt's in good position and so forth. Technician hiring, as I mentioned earlier, is also a big part of what we're trying to do, and think long term, continue to make sure that we have, you know, growth in that area so we can increase our product support. And we have a number of investments underway as we... You know, Bradford, for example, with the remanufacturing facility, due to come online in Q2 next year. A lot of, a lot of work being done within that organization, too, to just prepare for that opportunity. So maybe I'll hand it to John to give-
Yeah.
-some observations.
No, thanks, Mike. I'll just give you my perspective, which I think is very consistent with what Mike just described in terms of capital allocation, thoughts on capital allocation strategy. I mean, the company has been an absolutely great steward of capital. I commend the company for that. We're lucky to have a lot of flexibility. As Mike pointed out, the balance sheet is very strong. Debt ratios are very good. And I always think first about feeding the business organically, as our first priority as well. As you know, we've renewed our NCIB program. We've got a great history on dividends. And of course, over the course of time, we'll look at inorganic opportunities, but we'll be disciplined, methodical, and careful as we do that to make sure that they're a good fit for the organization.
Are those opportunities limited to dealerships, or are you looking at potentially a third business line?
You know, I would say we always-- we're always careful when we think about those opportunities, right, Yuri? I think, for example, I mean, I think there's a number of things that we can even small tuck-ins to complement our service offering. So anything that is like the dealership side of things, as we've said in the past, you know, we want to be well-positioned, we want to be a top performer, and if an opportunity comes, we'll evaluate that carefully and with discipline. And, we want to make sure we can make a difference in whatever we look at. Outside of that, which you don't necessarily have control over outside of how you execute and operate your business, you know, we look at complementary...
Like, if we do look at, say, scope and scale, I would be very careful to say anything that's considered new scope would be complementary. And so when we look at new business opportunities, it would be adding a broader product value, you know, customer value prop for our business, expanding our product support offer, that type of thing, or a line of equipment that doesn't conflict with what we offer today, but is attractive to our customers and maybe opens us up to a broader set of customers. Again, that would be very disciplined, pretty intentional when we think about that outside of a completely different line of business, which frankly, you know, is outside of our sweet spot, right, in what we do.
Thanks for the color, guys.
Thanks. Thanks for the question.
Your next question comes from the line of Jacob Bout from CIBC. Your line is open.
Good morning.
Hey, good morning, Jacob.
Question on, CIMCO here. You know, strong margin recovery, seeing it build on in booking and backlog. Just maybe provide a little more detail on, you know, what you're seeing in the U.S. versus Canada. And then what the outlook is here for the foreseeable future for both those areas. Just maybe a bit of a, you know, compare and contrast.
A bit of color.
Yeah. No, thanks, thanks for that, [by the way]. As we've spoken about, Jacob, in the last few years, say, in the U.S., we've put a team in place, and we continue to refine that operating model. But, you know, I would say that the team is executing nicely on both sides of the border, frankly. You know, we put a lot of focus on the team, put in a new project management system. It's given us better visibility. The team has worked really hard on focusing on execution around projects and controls, and you can see it in the results. Like, they've done a really nice job there.
I think on both sides of the border, you know, we have a in the U.S., of course, we're a small portion of the market, and a few orders does tend to move their numbers around a bit, but the team is executing on a couple larger deals right now and doing a very nice job. So certainly, the opportunity is in the U.S. in many regards, as far as new organic growth opportunities in the commercial, industrial, and recreational space. So we're in Canada. It's similar in the sense we just have a higher market share, and the team continues to look at some of the product offers that we have as well. You know, we've talked in the past a little bit about CO2 and ammonia, getting away from synthetic refrigerants.
Team has a couple of nice. They've got some capabilities in some product lines that they've developed to help drive efficiency gains and heat recovery, and I think we're going to hear more of that as we go forward. But generally speaking, I would say, you know, the team is well positioned both sides of the border, and I think it's now it's about execution. And you can see it from the backlog. They're getting some decent traction at CAD 245 million there.
Do you feel like you've turned the corner in the U.S.?
You know, I think I would say the team's well-positioned. You know, I think the growth opportunity there is pretty attractive in that sense. Again, a very fragmented market in some regards. But you know, in terms of their project execution, the management team, leadership there, we set up a new facility in South Carolina, which is really just getting off the ground, which will be a good center for us to operate out of. And so, you know, turn the corner, I'm not sure, but I think. But I think well-positioned, right, to start to grow that business and leverage the management expertise we have there.
Okay. Maybe just going back to the, you know, the comments around the cautiousness in the, in the construction sector. You know, as you look across your various business groups, you know, how do you, how do you see this playing out? Maybe just talk specifically about, you know, Battlefield and, and what that—what weakness in residential construction would mean for that group.
Yeah, I think, again, we've actually... When you look at CapEx, for example, we've in both heavy and light fleets, but Battlefield, you know, it's split fairly evenly between the heavy and light categories. We've continued to invest and upgrade the fleet in the Battlefield side of things. I think the opportunity continues to be driving the Quebec and the Maritimes market. I mean, the team has done a nice job there, but we still have a ways to go to get to the utilization levels we like as we continue to invest in that fleet. And so I think there's a nice opportunity there to continue to increase our market share and grow that part of the business.
I think the rest of the business, again, we're looking at other locations, other opportunities and markets that we think we can add a location here and there like we have when you think of Mississauga or Collingwood and other facilities we've set up over the last little bit. So all that to say, you know, I think the team, the business is well positioned. The fleet is in good condition. We're starting to see the rollouts of the aged fleet as availability improves, and that's helpful as well. And I think the big, you know, one of the considerations, as I mentioned earlier, is again, just continuing to build our team, our technician team there, and helping to support our customer requirements.
But generally, if you see, you know, in an environment like this with some uncertainty and so forth, the rental business tends to do reasonably well. But by market, it can vary a fair bit, right?
Thank you.
Great. Thanks, Jacob.
There are no further questions at this time. I would like to turn it back to Mr. Doolittle for closing remarks.
Yeah, thank you, Ludy, and thanks to everyone for joining the call this morning. I thought it was a great call, and appreciate everybody's participation. And that concludes our call. Please be safe. Have a great day, everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.