Good morning. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Decisive Dividend Corporation first quarter 2024 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. We remind you that today's remarks may include forward-looking statements and non-IFRS financial measures that are subject to important risks and uncertainties.
For more information on this risk and uncertainties, please see applicable sections of Decisive Dividend's news release, and MD&A, which are on their website and have been filed on SEDAR. I would now like to turn the conference over to Jeff Schellenberg, Chief Executive Officer, and Rick Torriero, Chief Financial Officer. Please go ahead.
Thank you, operator. Hello, and good morning, everyone. It's Jeff Schellenberg. I want to welcome everyone here to our Q1 2024 earnings conference call. 2024 has started off as a tale of two contrasts, as we've seen continued on-strategy acquisition activity, while demand took a step back due to challenging economic conditions and the impact of investments being made by our subsidiary leadership to build teams, strategies, and processes that support longer-term growth objectives. On today's call, I'd like to dig into these areas in my comments, with a focus on the steps we're taking to position the organization to pursue continued per share financial metric growth.
In terms of operating results, demand was the largest challenge for our group in Q1, as sales for Q1 2024 decreased 5% to CAD 29.4 million from CAD 30.9 million in Q1 2023. That being said, ongoing gross margin strength with a 223 basis point improvement in Q1 2024 gross margin percentage versus Q1 2023, highlights the strength of the portfolio of products manufactured and sold by Decisive subsidiaries, as well as the quality of the high-margin acquisitions completed by Decisive. I'm going to discuss highlights organized by each of the types of products we manufacture and include in the discussion some comments about internal investments we're making in our businesses to drive longer-term growth, which also informs our thoughts about the outlook for the businesses in our portfolio.
I'll start with industrial and machine products, which includes Northside, Capital I, Slimline evaporator product, and Hawk Machine Works. In Q1 2024, sales of industrial products represented the largest area of sales for Decisive's companies. Sales of industrial products were up 80% in Q1 2024, relative to Q1 2023, led by Northside, whose sales increased by 19% in Q1 2024, relative to Q1 2023, driven by demand for the commercial vehicle parts and components Northside manufactures for its customers. A long-term contract held by Northside in this area was extended to 2026 in Q4 2023. An operational efficiency enhancement, including the use of a manufacturing partner in a lower-cost jurisdiction to support production processes under this particular contract, has supported margin strength in this area of the business.
Northside's year-to-date order levels in 2024 are well ahead of 2023 levels, and the capacity enhancement Northside has experienced, along with the previously mentioned efficiency enhancements, has supported the timely conversion of these orders into sales, driving the growth in sales seen in Q1 2024. As mentioned in Q4, Northside has also entered into a new contract with a different commercial vehicle OEM to further diversify its customer base. There is significant investment in fixed assets being supported by this customer that Northside began to get set up in Q1 2024. Northside is expecting to be fully operational with this project by the start of Q4 2024, with some ancillary product sales beginning earlier. Capital I sales were significant supporters of the growth in industrial product revenue in Q1 2024 as well.
Though its sales were lower than pre-acquisition levels, Vernon Snidal, who joined Capital I as President in November 2023, has been focusing the organization on scaling its manufacturing capacity and distribution capabilities for its core, higher-margin, proprietary road construction and maintenance products. As a result, the declines from pre-acquisition levels came from a reduction in the lower margin, non-core machining and fabrication work previously completed by Capital I. Slimline evaporator product focuses on developing its larger scale evaporator for use in tailings ponds in the mining and oil and gas sectors, where there is a high degree of opportunity to provide solutions that address the wastewater management challenges faced by these businesses. Further opportunities for the larger scale evaporator are being pursued, and Slimline is positioning itself to work with a well-known university to provide research that helps quantify the benefits of its evaporative technology for its customers.
Hawk's revenue from sale of its machine products was flat in Q1 2024, relative to Q1 2023. Hawk's leadership team was heavily involved in the acquisition process for APM in Q1 2024, but this work has bolstered Hawk's capacity and capabilities by adding different specialized machines to Hawk's fleets, supporting further customer diversification, which has been a major step in Hawk's evolution under Tim Stewart's tenure in the business. There is significant work to be done to improve the operational efficiency in this new facility, but is taking steps to address these challenges, which will also help support driving through its backlog as year-to-date orders are well ahead of 2023 levels. Shifting to hearth products, which is Blaze King and ACR. Sales of hearth products were down by 43% in Q1 2024, versus Q1 2023.
Blaze King and ACR were up against a very challenging comparable period due to the much higher level of backlog each of Blaze King and ACR had in front of them entering Q1, 2023, which was 90% higher in Q1, 2023. Both Blaze King and ACR worked through these backlogs very effectively in 2023, which drove very strong 2023 results, but having done so, we saw a return to more traditional seasonal patterns in this business, a pattern that was not evident in this industry during the last few years. Reduced backlogs are obviously of benefit to consumers as unit availability, and as a result, shorter lead times, means consumers have product available to purchase and walk out of dealer stores with.
However, traffic levels in dealer showrooms have been slower as lower home heating costs, driven by a reduction in the cost of alternatives such as natural gas, as well as warm weather through the territories both Blaze King and ACR are operating, reduced demand for this product and, as a result, order levels. Further, shifts in the regulatory environment, including changes to testing measures that Blaze King's highly efficient products already comply with, have driven some competitors to heavily discount inventory, which, in addition to the ongoing high interest rates and recessionary economic pressure in the U.K., driving lower spending levels, all came together to result in the Q1 sales decline seen for Blaze King and ACR.
In terms of order activity, through most of the quarter, order levels were ahead of order levels seen during Q1 2023, but we saw these levels tail off towards the very end of the quarter to now trail 2023 order levels. As for how Blaze King and ACR are responding to these challenges, as discussed in the outlook in our MD&A, the companies are in pursuit of regulatory approval for a new product design that utilizes Blaze King's long-term, long- burn, sorry, combustion technology, styled and sized for the U.K. and European market, leveraging ACR's design capabilities and local market knowledge, which also could be sold in the North American market, supported by the extensive dealer networks both businesses have in their respective markets.
In addition to the introduction of this disruptive product, both companies are pursuing other new product designs to broaden the range of products they offer, as well as market segments the products are sold into. In the meantime, a focus for both businesses is on positioning the businesses to be ready for a shift in demand, which could occur as the companies hit the heating season in Q3, 2024. Both companies have been planning production levels to ensure appropriate inventory levels are in place for this season. Blaze King has also taken steps to optimize the size of the organization in response to lower levels of demand, and further steps are being taken to stimulate dealer showroom traffic during the non-peak season we are currently in to spur demand as well. Next, we'll talk about the wear parts products, which come from Unicast, Procore, Micon, and Techbelt.
Wear parts revenue was down 18% in Q1 2024, driven mainly by a decline in Unicast sales. The construction sector, especially in the U.S., is demonstrating strength in early 2024, though less so in Canada, especially in non-residential activity, where the completion of a number of large-scale projects has caused activity to tail off while mining activity is strong. Competitive challenges for Unicast, particularly with respect to lead times, resulted in lower sales in Q1 2024 relative to Q1 2023. To address some of these challenges, Unicast will be moving into an expanded facility in Q3 2024, that will improve operational efficiency and allow Unicast to carry more inventory of key products to reduce lead times, which will provide an important advantage in a competitive marketplace.
While demand levels were down in Q1 2024, margin-enhancing initiatives undertaken by Unicast have meant that margins have continued to improve. Significant work has been done to boost Unicast's online distribution capabilities, which continue to support sales. Micon and Procore sales contributed meaningfully to wear parts products revenue in Q1 2024, and revenue was consistent with pre-acquisition averages. The focus for Micon and Procore is on expanding capacity, including with respect to operational oversight and management, to meet shorter lead time orders, which has seen them miss order opportunities due to lack of immediately available inventory. In addition, as capacity is built, there are material opportunities to expand the markets into which Micon and Procore's products are sold, including through cross-selling among complementary customer bases and geographies in this segment.
In terms of agriculture products, sales were up 83% year-over-year, driven by the addition of IHT in July 2023. The Slimline sprayers sales were down year-over-year. Significant work has been completed to expand and train the network of dealers Slimline distributes its Turbo-Mist product through. This includes customer trial and demonstration activity, which are demonstrating the clear differentiating advantages the Turbo-Mist product offers relative to competitors' products with respect to fuel, chemical, and labor efficiency.
Slimline is focused on targeting the larger enterprise farmers, supported by dealer networks in the regions these farmers are located in, to boost sales order size, and so comparative demonstration activity has been focused on these types of farmers. IHT is taking a similar approach, and its heating mat product trials in the works are underway, with farms representing over 4 million sows, which represents a significant portion of the North American pork market. Sales activities at IHT were lower than pre-acquisition averages as a result of its facility move and customers electing to delay capital projects in light of soft pork market prices and higher input costs impacting profitability. The pork industry is emerging from this challenging period and seeing strengthening prices, which IHT is expected to benefit from, with its active ongoing trial activity and differentiated product offering, which is more energy efficient than its competitors.
IHT is focused on working with clients to support the conversion of trials to sales, allowing them to experience the benefit of very significant energy savings across its facilities, with measurable benefit to animal welfare by using IHT's mats. In addition, IHT is advancing in the commercialization of its cooling mat technology, with customer trials being underway, with the benefit of data from its university-backed research study conducted on this product that demonstrates the significant benefits of reduced heat stress and overall animal welfare resulting from the use of the cooling mat technology. Finally, with respect to merchandising products, Q1 2024 sales declined by 23% in our Marketing Impact compared to Q1 2023.
This was largely driven from the ongoing leadership transition, which was completed at the end of Q1 2024, with the hiring of Marc Gosselin as President of Marketing Impact on March 4th, 2024. Even while working through the challenges of a leadership transition, the team at Marketing Impact has positioned the organization well, with year-to-date order levels being ahead of comparable 2023—of the comparable 2023 year-to-date period. The initial focus of the team under Marc's tenure is driving higher levels of efficiency in the manufacturing and design processes for both the merchandising and custom display elements of the business, which will position the business with the increased capacity required to drive sales growth in the organization, all of which supports the margins of the organization.
With a set of products and merchandising that focus on labor efficiency and inventory management, including security products, as well as the ability to offer unique, high quality, high volume, permanent displays, the ability to enhance efficiency and add additional capacity will position Marketing Impact well for the remainder of 2024. I've gone through this in a level of detail, as it's important to illustrate some specifics about how each business is addressing the different challenges and opportunities they're seeing. We do not have a group of businesses who are standing still in the face of some of the demand challenges we're seeing.
Rather, we're proactively taking steps to pursue new markets and customers, develop new products to bring to market, validate and quantify data-backed differentiators with third parties to support sales of our products, conducting product trials to demonstrate these differentiators, expanding facilities and investing in efficiency enhancement, including automation, to support market share enhancing activities, while also working to manage the size of the organizations in our portfolio in a way that manages costs in a period of lower demand that still ensures we have the resources to meet and grow the demand for the differentiated products our subsidiaries manufacture. As mentioned in my comments in Q4 2024, this is not an overnight process. While quarter-by-quarter performance is of importance to investors, the market, and ourselves, our critical focus needs to be on ensuring we're building the business block by block for long-term, sustainable benefit.
Because of the nature of our buy, build, and hold strategies, this means our shareholders are rewarded by the fact that we will pursue methodical and deliberate growth and improvement in each business we acquire and hold for the long term, with a focus on increasing our profitability and cash flows to support growth in our per share financial metrics that can be continually harvested over our permanent hold period, which results in value enhancement in our ability to increase our per- share dividend. We have seen the significant positive impacts that the right leaders at a subsidiary can have on the results of that subsidiary, especially as teams, strategies, and processes are upgraded to support longer term growth objectives in the business.
However, while these changes are taking effect, as we can see in our Q1 2024 results, these subsidiaries have experienced more challenged short-term results, which is part of the process of positioning these businesses for longer term success. Quality of the leaders being brought in to run subsidiary businesses and head office personnel to provide support to these businesses, along with the steps these leaders are taking at each of the subsidiaries to pursue margin and market share enhancing activities, gives Decisive management confidence that each of Decisive portfolio businesses is being positioned for long-term success in a manner that will continue to support per share financial metric enhancement and growing its sustainable dividends. The results of this are extremely beneficial, and we've had firsthand experience in the benefits of this approach, as demonstrated by the Northside story.
Northside experienced some very significant challenges through 2020 and 2021, which resulted in a significant shift in approach to operating the team, strategies, and processes led by Mark Burleigh, the President of Northside. While during this period, the business experienced short-term struggles, the benefits to our shareholders of their success, which has positioned that business to grow both sales and profitability the way it has, are very material. We are committed to continue to communicate with our shareholders about developments in these areas in the future as the story of success of these activities unfold. We'll now shift to on-strategy acquisition activity. The M&A opportunity continues to be extremely strong for Decisive, with many near-term opportunities surfacing, including as a result of recent changes to capital gains inclusion rates announced as part of the federal government budget.
Thus far, in 2024, we have completed two on-strategy acquisitions. The first, the acquisition of Alberta Production Machining, located in Edmonton, announced on March 14, 2024, which was a week before our Q4 2024 conference, conference call, was a smaller tuck-in acquisition by Hawk Machine Works, which enhanced its existing capabilities to deliver additional machining service to its existing and new clients, further diversifying its revenue base. Tim Stewart, the President of Hawk, is overseeing both Hawk locations in Linden, Alberta, and now Edmonton, and as mentioned earlier, is in the process of working through the integration of APM in a way that aligns the systems, processes, and culture of Hawk in both locations. The second, the acquisition of Techbelt Limited, announced on April 10th, 2024, added another manufacturer of consumable wear part products to our portfolio of wear part businesses.
These wear part types of businesses, which manufacture specialty value-add components that wear out and have to be replaced, are a terrific fit for our dividend-paying model, and again, align very closely with our objective to pursue business acquisitions in areas that align with the types of businesses we already have invested in. Simon Sparks, who, along with his mother, Margaret, and his father, Alan, was one of the three vendors of the business, will continue to run the business, providing stability for, at a minimum, the next three years of our ownership of Techb elt. In this case, the key synergistic growth opportunity for Techb elt as it becomes part of our portfolio, is the opportunity to distribute the parts Techb elt manufactures, namely PTFE conveyor belts, PTFE tapes, and PTFE materials, to its customers in North America.
The facilities, warehousing, and logistics capabilities we already have in place in our existing businesses, located in Canada and the U.S., will be supportive of this as Techbelt had already begun selling its products into North America prior to the acquisition as a result of the work it had done to build its online lead in order-generating capabilities. We funded both of these acquisitions through our expanded credit facility, and as mentioned in our MD&A, upon receipt of outstanding in-the-money warrant options expected in the next 12 months before their respective expiries, Decisive's cumulative acquisition funding mix for the 13 acquisitions it has completed to date will be 47% debt and 53% equity. So what does all this mean for our future outlook?
We've taken the time today to talk about each subsidiary and the activities each of our businesses are undertaking to drive demand and increase capacity, supporting market share enhancement, while pursuing operational efficiencies to continue to support margins. Even as demand has been challenged, our gross profit percentages have remained strong as a result of these margin enhancing activities, along with the quality of the margins of the acquisitions we have completed. The new companies we acquired in 2024 have a similar high margin profile, and as a result, we expect them to further support margin levels.
While our subsidiaries are currently seeing softer demand for their products, and we are expecting a more historically typical quiet Q2 due to the seasonality of some of our businesses, including our hearth and machine products businesses, they are actively pursuing opportunities to bolster demand, enhance market share, and position the businesses to respond to demand generated as economic conditions improve or the businesses enter stronger seasonal periods. For example, we're beginning to see a pickup in trial conversion activity at IHT, including sales to some of its existing enterprise clients in new geographies, which could be an important driver of the activity in remainder of 2024. There are some other tailwinds in other industries we operate in as well, including the industrial space, which could support demand at our subsidiaries.
At the same time, and important to highlight, given the size of the hearth industry businesses in our portfolio, we expect a more historically typical quiet Q2 due to the seasonality of that business, leading into what is the start of the heating season in Q3 and Q4. On the acquisition front, as mentioned previously, the number of acquisition opportunities we are seeing that fit within the profile of our current portfolio of businesses continues to be robust, and we remain well positioned with respect to available capacity under our credit facility to fund acquisitions. Operational performance, along with execution on acquisition activities, including working to reduce the timeline between acquisition and the realignment of the organization into accelerated growth mode, is a critical focus as we know how important all of this is to our cost of capital.
As for our dividend and payout ratio, we have seen it increase to 66% on the trailing 12-month basis, up from 54% at year-end 2023. This shift illustrates the importance of the deliberate approach we have taken with respect to decisions to change dividend levels. While we have substantially increased the dividend over the last five quarters, each of the shifts was from a position of strength with the payout ratio at the low end of target levels. This measured approach positioned us to maintain a growing and sustainable dividend, a key characteristic of a dividend aristocrat, being one of which is a key objective of the organization. The additional cash flow streams from Techbelt further support this, and we assure you that we sensitize subsidiary performance as part of any dividend discussion to support these ends.
While we are working through a number of challenges, we remain encouraged about the steps our subsidiary leadership are taking to position the businesses for improved performance, as well as a strong and growing backlog of acquisition opportunities, especially within our focus areas of the industries we are already operating in. With that, I now open up the call for questions.
Thank you. Ladies and gentlemen, we will now conduct a question and answer session. If you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. If you would like to cancel your request, please press star, two. Please ensure you lift the handset if you're using a speakerphone before pressing any keys. One moment please, for your first question. Your first question comes from the line of Russell Stanley from Beacon Securities. Your line is now open.
Good morning, and thank you for taking my question, and thanks for the discussion around the subsidiary level efforts there. I'm wondering, you know, relative to your macro look of seven to eight weeks ago, I'm wondering if you can talk to how the expectations and how the headwinds have evolved. It certainly sounds like hearth products saw a tough March, but I'd love to hear what else has changed in your outlook relative to your comments on the call back in March. Thanks.
Yeah, I think, you know, I think what we've seen, Russ, and appreciate the question, is some macro headwinds for sure. I think, you know, and that impacts a few different areas of the portfolio. You know, we mentioned specifically what we've seen with respect to order levels at IHT, as an example, which is one of our larger subsidiaries as well. But we're seeing some of that impact across the group. You know, I think we can point to some of those, you know, some of that macro backdrop with respect to ongoing higher interest rates and concerns of the consumer around making expenditures, that has impacted the group more broadly.
I think, you know, obviously, given the size of the hearth industry businesses and their impact on the overall portfolio, that's been most prominently seen there. But I think that's something we can generally point to across the group. I think the other element that we point to is the time it takes to effect change, right? I think what we're seeing, and we've tried to articulate this year, is that the steps we're taking are important steps.
We believe the right steps in the subsidiaries to position them for the future, but it takes time for the teams to execute on them, including kind of you know, educating some of the marketplace and the purchasers of those products around some of the messaging that has come out of some of the work we've done to really understand the differentiators of those products. And so, you know, I think as time passes, you know, we believe each of these areas is temporary. You know, we're working through these things. We're you know, kind of building the slate of you know, communications, understanding of these different elements to position the business well for the future.
I really think as the macro backdrop evolves, and we're able to leverage off the work that we're doing now to position these businesses, that will drive our future success.
That's great, color. Thanks for that. And maybe moving on to the M&A strategy. I'm wondering if macro-sensitive targets now look particularly attractive or even unattractive, but just on a valuation basis, given the headwinds out there, are valuations on some of those more macro-sensitive targets becoming even more attractive? I know your strategy doesn't turn on a dime, nor should it, but I'm wondering if you've reprioritized the pipeline at all, given what you're seeing out there.
Yeah. You know, it's a good question, Russ. You know, I wouldn't say we've reprioritized the pipeline. I think what we're seeing is that the wave of opportunities just continues to flow in. There's... And I think there's consistency with respect to, you know, our approach, obviously, with respect to value, but how meaningful our overall model with respect to our buy, build and hold approach is to the particular types of vendors that our overall model appeals to. You know, I don't think... I think there's a tremendous amount of stability in how we communicate with these targets about who we are and what we stand for.
They're absolutely, you know, not, you know, the value sensitivity of these buyers is absolutely focused on, you know, a fair valuation for the business. But they prioritize these long-term sustainable benefits of being owned by a buy and hold business, that will focus on preserving and then building on their legacy, than it is about maximizing every last penny they take out of the business. So that remains completely consistent. I think what we're really focused on as we continue to scale and add businesses, is to buy, you know, buy businesses in similar industries that we have already invested in.
You see that in Techbelt, which as another wear part business, you know, adds some diversified exposure in the form of access to more food and beverage type of customers, but carries a lot of the same characteristics as our other wear parts businesses, which we think, again, is a tremendous fit for our overall dividend-paying business model. You know, this is very clearly an area we wanna continue to invest in, and think we're obviously with the availability of our financial capacity to buy businesses, is we're in a really good position to be able to do. So, you know, I think that trend continues. I think, you know, the operational challenges to me are a bit of a blip on the radar.
This is a period of time where we're going through some of these challenges. We're working through them. I believe we absolutely have the team of individuals in our organization who have the desire, understanding, and capability to drive our agenda forward, to reposition our businesses for long-term success, and they're in the process of executing around that.
That's helpful color. Thanks very much. I'll get back in the queue.
Thanks, Russ.
Thanks, Russ.
Your next question comes from the line of Steve Hansen from Raymond James. Your line is now open.
Yeah, thanks, guys. Thanks for the time. Jeff, this is maybe perhaps a naive question, but just, just as it relates to the hearth business, how much of it is driven by repair and reno versus sort of new builds activity in the housing space?
Yeah, we're much more focused around the reno market versus the new build. We've—you know, and then that's consistent with our distribution channels, which really focus on, you know, the dealer networks across, well, both North America and U.K. and Europe, who, you know, that consumers walk into and walk out of the store with a stove in their hands type of thing. So that's very different. But, you know, I think one of the products that—I think that illustrates a bit of an opportunity for us, right? With respect to accessing a different channel, which is more in terms of working with, you know, architects or home builders to get our product sourced through that channel.
There's some, you know, I think, product development elements that we're working on, that put us in a position to access a slightly different channel like that. So there is absolutely an opportunity there.
Okay, that's helpful. And just as you're looking at some of the challenges that you're facing, there's a few different considerations. Like, do you have a sense for some of the duration that you're facing? I'll maybe focus on the hearth side first. Just trying to get a sense for, you know, the cadence for the balance of the year. I think you already described 2Q as being a softer seasonal period anyway, so we can, we can take for that. But as we think into the back half of the year, you know, should we-- do you think there's prospects for recovery? I mean, how do you think about that back half on some of these key sort of sore points right now?
Yeah, yeah. I mean, hearth, yeah, you know, Q3 and Q4 are really important, right? That's gonna be the key heating season. And so what will impact that? Well, things like weather will absolutely impact that. If we have a very, you know, a late or a warm season across these markets, whether that be in the U.K. or Europe or North America, that will temper the pace of purchasing for sure. The weather absolutely has an impact on this business. And the other thing that will impact it is the cost of alternative heating products. You know, if price of natural gas remains low, that'll temper, you know, outcomes for that business as well.
I mean, I think that's why we're taking the approach to ensure that we're continuing to develop our product base, to expand it, to address different customers, but also different needs of the customers we have. And so, you know, I think that's what makes us really excited about, you know, the longer term, the longer burn combustion technology usage in a product targeting the U.K. and European markets. And we're excited about some of the timelines and progress that we're seeing with respect to getting it into the market.
I think that's just gonna continue to be important, and that is to build, you know, our products that really focused around our differentiators, that position us very uniquely, especially in the U.K. and European market, where there really is no competitive product like this.
Okay, very helpful. Back to you. Thanks.
Thanks, Steve.
Once again, as a reminder, if you have a question, please press star one on your telephone keypad. Your next question comes from the line of Mike Stevens from Echelon Wealth Partners.
Yeah. Hi, good morning, guys, and thanks for taking a couple questions here. Just following up on what you said there, Jeff, on some of the drivers of, you know, demand in the hearth vertical. Are you able to kind of parse out, you know, nat gas prices, temperature, the consumer, obviously, kind of where those rank and how much they, w e should look to see how much they have an effect on future quarters? And then just a quick follow-up on that, the competitive environment, you mentioned some of the pricing pressure from competitors. You know, is it fair to think that there's some market share losses in the quarter along with the results? And do you guys feel pressure to lower prices as well?
Yeah, I'll take those both in order. You know, I wouldn't say that we have. I mean, I think what my comment on your first question would be that, you know, it is highly correlated to energy prices. For sure, the results of the hearth business are definitely have a strong correlation to energy prices. You know, I don't have a straight line kind of formula that defines that, but I think that's absolutely part of it.
I think, I mean, the other element is obviously the strength of the consumer and, you know, positive economic news generally, you know, whether that be lowering interest rates or whatever, absolutely will have an impact on that business as people think about, you know, investing in their homes and renovating their homes for sure. I mean, I think the benefit of this product that has insulated it from maybe some more of the COVID boom leading into a post-COVID slippage is the fact that, you know, the products that we manufacture in that space are highly energy efficient and one of the few products available that are eligible for a tax credit under the Inflation Reduction Act.
You know, we're one of just under 10% of the products available in the U.S. where you can get a $2,000 tax credit for purchasing a Blaze King product. And that, that's a material differentiator and something that has absolutely supported and continues to support sales of that product because that extends till 2032 under the Inflation Reduction Act. So that's, you know... I think that those factors are present, which drive that. But yeah, and you know, the consumer sentiment and obviously, like I said, weather and energy prices will have an impact on that business for sure.
With respect to competitive pressures, you know, what I think is a lot of our, you know, competitors are feeling some of the same effects that we are, and so some have, you know, taken steps to more aggressively price their products for sure. I think what we're really focused on is, you know, how do we actually differentiate ourselves outside of just being the lowest priced product, right? Like, do we have a commoditized set of products? I would say, you know, not so. I think we can point to... And that's part of our diligence process when we acquire these businesses, is to look at what are the specific differentiators this product has that allow us to support price.
You know, you can see it in our gross margins, however. We've done a really good job of even in a period of lower demand, boosting gross margins, like we mentioned as part of the call. So is there room for us to take on some level of call it promotional type of activity, to drive some additional demand for our product? Yeah, absolutely. I think our subs have done a great job putting themselves in a decisive position to be able to make those types of decisions. So yeah, that would be, you know, kind of a lever they could consider as part of their decision-making process.
But, you know, I think, again, you know, we have a group of products that, that are different than the competitive products that people wanna buy for their features, more than they, they have just for being the, you know, the lowest priced product. And in terms of the market share comment, Mike, I, I think, you know, you have to look at the regulatory challenges that some of our competitors are facing that, that Blaze King isn't, are one of the reasons they're looking at discounting, because there'll be a point in time in the future where they can't sell these products. So that, again, gives us confidence that this is more of a blip than a long-term shift.
Okay. No, that's, that's really helpful. Thank you. Just a last one. More broadly and more toward your enterprise customers, a theme seems to be delaying CapEx projects and spend, given the uncertainties. Do you have a sense yet for whether that bounce back will be, you know, more gradual or, you know, is there pent-up demand, where it could be relatively quick back to historical levels?
That's specific. Is that specific to a vertical, Mike?
It seems like a number of your verticals, whether it's IHT or Unicast, there's just a, you know, pause in capital spend. So just wondering whether you think-
Yeah
... that, with time, you know, obviously dependent on, on the macro picture, that could be a relatively quick, snapback versus something more gradual.
Yeah. Yeah. I mean, I think I'll talk about those specifically. I mean, I think IHT, you know, the product that they manufacture can save their customers up to 2/3 of their energy costs in a facility. There's also a fairly significant number of grant programs that are available either through rebates from electric companies or even larger kind of federal grant programs that can help offset the cost of those products for the farmer. And so, you know, I think the effort is focused on helping the customer access some of those things and helping motivate...
You know, which can help motivate them to move from, you know, convert from a trial process to a sale process. And yeah, I think, you know, we're seeing some real positives. I mentioned that in my comments about, you know, some of that, that trial activity, you know, beginning the conversion process. I think that has a lot to do with... Even though we can kind of help the farmer understand the ROI of this product and also, you know, have these kind of financing programs in place to help support the conversion decision, the reality is that people have a hard time spending money when they've been operating in the red for a while, and I think that's what the pork industry has faced.
You can just have a quick look at pork prices and to see how they've been strengthening over the past, the recent, past number of months, which is giving those farmers the confidence to begin to pull the trigger on some of these decisions. So I think there can be, you know, given the demonstrable difference, and that's not even with respect to animal welfare, and there's some really encouraging stats we're beginning to see about how this boosts, you know, or lowers mortality rates. And, you know, getting some data from our customers around that, that's very clearly demonstrate how this product not just saves them energy, but also it's beneficial for the animal.
That you know with veterinary-backed -- veterinarian-backed results that you know gives us a lot of confidence in this product as well. So I think yeah there's a chance that there's you know that's definitely an area that could move quickly move more quickly than some other areas. I mean I think you know with respect to Unicast or maybe our industrial products businesses generally you know what you see is some really positive leading indicators on industrial activity whether it be kind of engineering company results or equipment sales from the large equipment manufacturers you know all that type of stuff suggests. And even overall you know construction start activity in different even non-residential areas.
You know, you see some of these positive trends, all of which support, you know, the businesses that we have, which produce some of these wear parts that help maintain this equipment when it's used. And so, yeah, we see, you know, we see some of that. You know, obviously, people are competing very heavily right now in that space to position themselves to, you know, with the consumers. But we, you know, we see a wave of opportunity coming there that should, you know, that we should be in a good position to support with the products that we offer.
Okay, thanks for the detailed, color there. I'll pass the line. Cheers.
Thanks, Mike.
Your next question comes from the line of Robert Innes from iA Private Wealth. Your line is now open.
Good morning. Sorry I joined late. I was about 20 minutes late, so I don't know what you've covered. My question is just I'm wondering if the new capital gains tax provisions will affect how much you're gonna pay for future acquisitions, or if you have any comment on that?
Yeah, I think what it does kind of in the short term, Robert, is that it incents people to try to get transaction processes completed prior to the change in rules. You know, I think that's the biggest probably near-term impact of those changes will be just with respect to timing of people wanting to get processes completed. I mean, I think in the long term, you know, you know, for better or worse, I think you know, the business's value is based on you know, the earnings, you know, the consistency of earnings, growth potential, quality of the differentiating advantages of the product, et cetera, that drives so much of our decision-making process around what a business is worth.
So, you know, I wouldn't anticipate those rule changes, you know, materially impacting that. I think the near-term impact is with respect to the timing of processes.
I don't know if you've seen the joint Canadian Bar Association, CPA Canada submission. They've asked for a deemed disposition and a delay to the end of the year as possibilities, so that might help.
Yeah, I mean, I think this is obviously a big change for owners, entrepreneurs, with respect to the outcomes, their expected outcomes around what, you know, what they're taking off the table if they sell a business. And so, yeah, I imagine there will be pushback around these kind of changes.
Thanks. I'll have to listen to the replay for the rest of it, but thanks. I'll sign off. Thanks.
Thanks, Robert.
There are no further questions at this time. I will now turn the call back to Jeff Schellenberg. Please continue.
All right. I wanna thank everybody for participating in the call today. We look forward to providing you updates, further updates on our progress continuing into the next quarter and beyond. Thanks for participating.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.