Thank you, operator, and good morning, everyone. Thank you for joining us today to discuss the results of Toromont Industries Limited for the fourth quarter and full year of 2019.

Also, on the call with me is Scott Medhurst, President and Chief Executive Officer. Before we continue, I'd like to advise listeners that this presentation may contain forward-looking statements and information that are subject to certain risks, uncertainties and assumptions.

For a complete discussion of the factors, risks and uncertainties that may lead to actual results or events differing materially from those expected, refer to Toromont's press release and MD&A from yesterday, which is available on our website. We assume you've had an opportunity to review our press release and related financial information from yesterday, and as such, we'll focus on the key highlights.

Scott will begin with a few general remarks and some comments on our outlook, after which, I'll provide some highlights on the financial results. Then we'll be more than happy to answer your questions.

Scott?

Thank you, Paul, and good morning, everyone. On October 27th we passed the two-year mark of the acquisition of the Québec and Maritime operations, and we are very pleased with the progress to date and the benefits achieved.

Thanks to the team’s effort and execution are focused on measured and steady pace of integration has already delivered tangible improvements in operating results. The first two years included aggressive system, rental prime product and product support investments.

This helped lead to increased product support, revenues, combined with favourable market penetration. We now move to page two of the journey including the integration of a common operating platform at Toromont CAT after completing a successful round of services system integration.

We continue on the path to leverage strengths of the larger geographic footprint and standardized best practices and operational efficiencies across the organization, all while delivering quality and standards that our key stakeholders expect. Much work still remains on the integration, but we are well underway and continue to believe that this expansion presents opportunity for the long-term performance and success of our company.

With that being said, we delivered solid results in the fourth quarter and full year of 2019 on revenue growth and disciplined expense management. The equipment group recorded solid organic growth across its expanded territory on good market penetration into key sectors and strong product support and rental activity on the growing population.

In the Equipment Group, the core dealership business saw a significant growth in key performance metrics, largely reflective of a continued success in business integration and market penetration. As we discussed a little in the last quarterly call, the rental services business which challenged a fully absorbed the past two years significant rate of fleet expansion, expectedly leading to reduced profitability on higher depreciation and branch expansion costs.

The agricultural equipment business created a $4.9 million drag on operating income, as ongoing adverse market conditions led to a revaluation of inventory late in the year on top of weak equipment sales. CIMCO generated improved profitability year-over-year on improved project execution and inventory rate down recorded in the prior year that was not repeated.

Even with the headwinds, the strength of the equipment group in CIMCO led net earnings to increase 14% versus a year ago on a 5% increase in revenues. In the equipment group, investment in infrastructure projects and broader construction activity continue to present opportunities for equipment sales, product support and the rental businesses and the long-term outlook remains positive across most territories.

The parts and service business has realized significant growth in recent years driven by the larger installed base of equipment and provides opportunity for further growth, together with the increased stability and predictability in the variable business environment. Our shops and technicians remain busy, and we continue to hire and invest in infrastructure to address growing demand signals.

Developing technology, supporting remote diagnostics and telematics, is very exciting for us and also present opportunities for long-term growth. We continue to assess our rental footprint with a disciplined investment approach, which includes a balanced, diversified fleet and strategic go-to-market strategies to stabilize seasonality.

We are pleased with the results to date, recognizing it is an aging process which takes time to build the proper infrastructure and absorb these investments. In the mining sector, deliveries in the year were down against a strong year in 2018 with some of this attributed to uncertainties in the broader global economy.

Production however continues and we did see an uptick in the fourth quarter and entered 2020 with a solid backlog. The growing installed base of equipment is a good bellwether for future product support activity.

CIMCO’s project execution improved but markets remain competitive with a tight pricing environment. Product Support growth continues to bode well for long term success, reflecting its strong presence and solid reputation as a leader in the key markets it serves.

Booking activity levels were up over last year with higher backlogs entering 2020. Across all our businesses, the diversity of our regions and the market served extensive product support offerings and financial strength combined with a disciplined operating culture position us well for the long term.

Supported by a strong balance sheet, we remain well-positioned to continue to build shareholder value remaining cautiously optimistic about the significant potential which lies ahead. Considering the company's solid financial position and positive long-term outlook, I am pleased to announce that the board of directors yesterday approved a 14.8% increase in the quarterly dividend to $0.31 per share per quarter.

This marks the 31st consecutive year in which the company has increased dividends. Before turning the call over, I would like to remind everyone that on March 1st, 2020 we will begin to initiate an orderly transition handing the CFO reins over to Michael McMillan as announced on May 19, 2019.

Paul will remain throughout the year to assist as needed. Management and the board thank Paul for his dedicated service and contributions over the past 14 years.

So, for the last time, I will now turn the call over to Paul to take you through highlights of the financial results. Paul?

Thanks, Scott. Let's put some color on the operating results starting with the equipment group.

Revenues were up 7% in the quarter and 6% for the year. Total equipment sales were up 7% in the quarter and 2% for the year.

Sales in the construction markets increased 8% in the quarter and 9% for the year with good activity levels and market penetration in Québec and Ontario, offsetting lower deliveries into Atlantic Canada, which benefited from onetime project activities last year. In mining, sales were up 7% in the quarter, but down 19% for the year.

Our system sales were up 23% in the quarter and 1% for the year. Sales in the agricultural and material handling markets were down in both quarter and the year.

Rental revenues were up 1% the quarter, and 8% for the year. Light equipment rentals were up across all regions on good market penetration and the larger diversified rental fleet equipped to address market demand signals year round.

Heavy rentals were lower overall, however, Québec reported growth on a larger fleet and good project wins. RPO revenues were up 13% in the quarter and 27% for the year with a larger rental fleet.

Product support revenues grew 9% in the quarter and 10% for the year on a larger installed base of equipment in the field and good market activity across most segments. Gross profit margins decreased 120 basis points in the quarter and 14 basis points for the year, largely on competitive pricing pressures, softness in certain market segments and the lower rental fleet utilization stemming from the time required to fully absorb our significant recent investments.

The overall sales mix of product support revenues to total revenues had a favorable impact on margins in the quarter, and for the year. Selling and administrative expenses were largely in line with last year and lower as a percentage of revenues.

Allowance for doubtful accounts decreased in both periods on good collection activity. Compensation costs were up on increased headcount, annual increases and higher profit sharing, partially offset by a five million pension curtailment gain recorded in the first quarter of 2019.

Investments in information technology were higher as we roll out proprietary systems across the territory to align best practices and operational efficiencies. Operating income increased 2% in the quarter and 10% for the year.

Operating income as a percentage of revenues increased 50 basis points for the year, to 11.5%. Bookings decreased 2% in the quarter and 4% for the year.

For the quarter, only power systems and material handling lift truck orders were up, while on a year-to-date basis only construction orders increased. Backlogs, which can vary significantly from period-to-period were 20% lower at $272 million.

We expect most of this to be delivered through 2020. Now let's talk about CIMCO.

CIMCO's results in the fourth quarter of 2018 included a 6 million charge for inventory write down, which was not an item experienced this year. Over and above this results still improved on better project execution despite the lower revenues.

Package revenues were unchanged in the quarter, but down 12% for the year. In Canada, recreational sales were strong in the quarter and the year, while industrial sales were unchanged for the quarter, but lower for the year.

In the U.S. strong recreational sales more than offset lower industrial sales in both the quarter and the year.

Product support revenue continue to positively impact results. For the quarter, revenues were in line with the record set last year, and up 11% for the year with growth in both Canada and the U.S.

Gross profit margins excluding last year's write down increased 150 basis points in the quarter, and 190 basis points for the year on approved project execution, and a favorable sales mix of higher product support revenues to total revenues. Selling and administrative expenses increased in the quarter and the year, largely on higher compensation cost related to growing the technician base along with higher profit-sharing accruals.

Most other expense categories were unchanged or lower as expense management remains a critical to mitigating margin pressures broadly. Operating income marginal increase to 11.4% in the quarter, and 8.5% for the year, principally due to higher margins as a result of the broad-based improvements in execution.

Bookings in the quarter increased 20% with increases in both Canada and the U.S. For the year, bookings were up 5% with higher recreational orders offsetting lower industrial orders.

In Canada, both market segments were up, while in the U.S. higher recreational orders served to offset lower industrial orders.

Backlogs of $123 million were up $10 million or 9% versus last year and we expect most of this backlog to be delivered in 2020. On a consolidated basis, net earnings increased 7% and $19.5 million in the quarter, and 14% to $286.8 million for the year.

Basic earnings per share were up$0.06 to a $1.10 for the quarter, and up $0.42 to $3.52 for the year. Investments in non-cash working capital were up $154 million to $464 million versus a year ago, largely due to lower accounts payable resulting from the timing of payments for inventory purchases.

In light of transitional terms from suppliers, we strategically managed inventory levels for better positioning and penetration into the expanded territories which resulted in carrying higher accounts payable in 2018 relative to 2019. With these terms expected to end midyear to 2020, accounts payable will revert to more normal levels.

At December 31st, we maintained our very strong financial position with cash of $366 million and a strong balance sheet. Leverage as represented by the net debt-to-total capitalization ratio was 15% compared to 18% at this time last year.

We're also pleased to continue our long track record of delivering superior shareholder returns including the 14.8% increase in dividends announced today, and a 21.4% return on opening shareholders equity and a22.9% return on capital employed. That concludes our prepared remarks, and we will be pleased to take your questions.

Laurie?

Thanks very much, and good morning.

Good morning, Cherilyn.

As we look at the equipment Group's results for the year, a couple of things that we notice. It looks like new equipment demand improved in the second half of the year, while at the same time rental growth seems to slow in the second half, and product support really remained quite robust through the entire twelve months.

So just curious, when you look at that in totality, how would you say that market activity evolves over the course of 2019.

So in terms of the equipment sales, Cherilyn a couple of things going on in there. The Québec market was solid throughout the year, and came off a bit in the fourth quarter but it was very active, and I'm talking about overall industry numbers throughout the year, and we are pleased with our market presence throughout the year, and some solid execution on that front.

The actual Ontario Manitoba markets were down a bit, but we saw some uptick in the fourth quarter, but we attribute that to smaller sales and some snow business and then the Atlantic was down, but overall, we were very pleased with our market presence. So we had solid execution on that front.

And the other thing to take into account Cherilyn is whenever you do a year-over- year comparison, as you know we're not quarter-to-quarter guys, frankly we consistently say that. But as we look at year-over-year comparisons now breaking down into half, one half two, you have to take into account what was happening last year as well.

Right. So we had some really good uptick in Québec last year in the second half and especially in the fourth quarter with some good deliveries.

Okay.

But overall, Cherilyn, the activity we're pleased with our activity and presence throughout the -- throughout the entire eastern Canada territory. And, but there was a shift to smaller iron.

Okay. And so in terms of the anecdotal feedback that you're getting on customer backlogs and just customer confidence levels, can you make any comments in that regard?

Yes, like you know the backlog. There were some shifts in there regarding power last year in the fourth quarter that had an impact.

If you do a quarter-over-quarter comparison year-over-year. So, as we've always said, you get some lumpiness in there, due to the mining and the power, and then availability was good.

We had solid inventories to meet the demand signals last year, so that impacts your backlog as well. But as I said, some of the markets were softer and that is indicated in the bookings in some of the backlog.

Okay. And how are you thinking about net rental after 2020 after a couple of years of pretty strong investment.

Yes. So our utilization was down, but we expected this.

We've been very aggressive on the investments and it takes time. I'd say we're midway through the full cycle here before we get into the full disposition component of the model.

So, it has been -- it's a drag right now, but the revenues are up and we were very pleased in the fourth quarter both on the heavy and the lighter rental services business with the improvement in the revenues in Québec and Maritimes. So that was good, but still as we pointed out, there's heavy depreciation costs in there, and it takes time to absorb it over the full cycle of the model that we're building.

So if we just look at our light equipment rental fleets Cherilyn, this year we would have invested in 2019 we would have invested somewhere around a $100 million on a net basis, right, so net of dispositions. We certainly have put in the financial capital and it was important to do so as we rebalance the fleets basically to make sure that there was allied product that was there to basically fight against seasonality, cyclicality and turn this business into a real full rental services business As we move now and transition in the latter part of that year and moving to next year, we've got good processes in place.

The team did a great job of putting the system in place. There will be a lot more focus on people and processes and alignment and getting that stuff deployed, right?

So as I talked about in the third quarter call and talked about absorption, which is just the reality of if you invest financially, you've got to make sure that you can turn the stuff around in the shop with the people. And as we make the forays into new markets, recognize that, we can move the market as well at the same time.

So, I'd see that investment coming down a little bit from 100 million last year to 60 [ph], 65 maybe this year.

Okay. That's helpful.

I'll pass the call on to someone else. But before I do, Paul, I just wanted to wish you all very best on your next stage.

Thank you, Cherilyn.

Good morning.

Good morning, Jacob.

Just on the Ag equipment, the charge you talk, can you just talk about the magnitude and the nature of the charge in the fourth quarter. And then maybe comment on how you're feeling about your Ag used inventory position?

And is there a potential here for further write-downs?

So, as we look at it, it's hard to separate, Jake. I mean, what we're dealing with is an industry which has been down for a period of time.

And certainly, if you look at some of the public market competitors that are out there, you see that that challenge spreads across Western Canada. So we took a hard look at it.

Took a hard look at inventory positions. We certainly wrote some down.

We referred to a $4.9 million year-over-year drag. Some of that is due to those adjustments, probably a million or so.

There's other stuff that we just said, let's move it out to auctions and clean up the inventory. So that's somewhere $7 million or so.

And beyond that revenues were off, right, in that down industry. So that led to some declines in profitability overall as well.

So, it's a challenging market. It's been challenging to generate returns.

We've got good people. We've got good processes.

We've got a good business model. But it's just challenging at this point in time.

And what is your mix right now of Ag of overall equipment sales?

Mix in terms of what's the contribution of the Ag itself?

Yes.

It's like sub-$100 million basically, product support and everything -- very small.

Its reflective of the markets across Western Canada right now, Jacob. We were aggressive dealing with it.

But in this type of environment you never comfortable with your inventory.

And then, the other question I had was just on the construction markets. You know, seeing strong results in the quarter, but maybe talk a bit about the dynamics of between Ontario and Québec.

Look -- when we look at the Ontario non-res construction data, things appear to be improving. Would that be something you would echo?

What we've seen so far is and I look at it through on a full year basis, our Ontario market was softer. But it was the shift in the heavy construction.

What we saw was softer, larger equipment opportunities, okay. So you're heavy construction was down.

Whereas if you look at your general construction markets it was up slightly. So -- and I think that's reflective of some of the segments that you're referring to.

Québec was -- on a year-over-year basis it was up slightly three points, but again it was coming off a very solid year prior. So Québec was stronger.

So that's how it played out for four last year. It was a shift to smaller iron.

And how do you think 2020 shapes up?

I don't think this is an environment to speculate in right now.

Okay. Fair enough.

Paul, good luck in retirement.

Thank you, Jake. See you on the bay.

Hey, good morning, guys.

Good morning, Michael.

Just circling back on the rental. I wanted a little bit of a clarification on the softer margins.

Now understanding the model generates profits both fundamental and dispositions, I want to get a sense if the rental weakness had more to do with incurring of higher proportional depreciation or softening rental economics, i.e. lower rental rates or utilization?

The biggest factor is appreciation that we're dealing with, right? So, across all of our financial practices, Michael, we maintain a level of conservancy in terms of the selections that we have.

So, for example, when it comes into rental depreciation, we have simple straight-line depreciation. It's not utilization based.

It just if we put it on the fleet, it's there and it's through, right? So through a period of time in which you're getting that absorbed both internally into our processes and getting it into the marketplace and then observed from a demand basis depreciation gets up.

And if you look at it on a year-over-year basis, I think total appreciation at our light equipment business would've been up $8 million versus the prior year and almost $3 million basically on a quarter-to-quarter basis. So that's a factor that does come into play.

But the rental revenues, we were pleased with our activity in Québec. I mean, the rental services, Québec business on a rental revenue was up 27%.

So we're pleased with that activity. It's just as Paul stating the infrastructure cost, appreciation costs are a drag.

Okay. No, that's interesting.

And just from a historical perspective, I mean, rental rates or utilization rates aren't necessarily well off from where you've been trending at historically?

There was pressure there in the quarter. They were down slightly.

Okay.

The important thing to state, Michael, is our convection remains extremely strong. And the opportunity that's presented by our rental services business.

Okay. Perfect.

And just turning it over to gross margins in the quarter, I mean, understanding it was a tough comp. But anyway, you can break that 120 basis points down into -- I think you mentioned the evaluation of the Ag inventory.

But just in terms of equipment margins versus rental margins and where the pressure came from?

Yes. So the pressure as we talked about was in the rental and the Ag segment.

But it was also -- we had strong new equipment sales and with it being more weighted to smaller iron that had an impact as well. And so those are the factors and the bit of mix on the parts.

Okay. Perfect.

Thanks guys. And just before turning it over Paul, congratulations on a very successful career at Toromont.

Thank you, Michael.

Hi. Good morning, guys.

Good morning.

It seems to us that the outlook commentary was a bit more positive than what we've seen the last couple of quarters. Was this primarily due to less uncertainty around Ontario infrastructure projects?

Or were there other factors that we should be thinking about?

I think we were pretty consistent. And I'm not sure anything really changed in there.

Nothing intentional.

Okay. Fair enough.

I guess, Paul, how are you feeling about your inventory levels now. You might -- I might have missed this in your opening commentary.

But we saw a pretty significant draw down there in Q4. Just wondering if you feel there's more room to go?

Or you satisfied with where inventories are given the outlook in your business?

The drawdown that you would have seen would have been the normal seasonal trend, right, so you'd expect inventories to come down as you close off the year. And then the inventories would naturally increase now as we head into the spring months.

So I still think that the inventory levels are high. The management team is very focused on it, making sure that our order boards are adequate and support basically the requirements that are there.

But I think we have a little bit too much capital allocated. So, I would expect on a year-over-year basis it to come down.

Seasonally and consecutively, you will see that go up a bit as we move into the spring. That's normal buying veterans.

We remain focused in there right now on our inventory management, particularly some aging and things of that nature.

Okay. That's helpful.

As well as our RPO, our RPO was up about 8%, so we're focused on that area as well.

Okay. Thanks for that.

And maybe just to come back to the rental. The rental fleet was significantly larger this year, but Q4 revenues, I mean, up pretty modestly.

It seems like you're pointing to time utilization maybe a little bit less on rental rates. But just can you give us a sense for how much was maybe the overall demand environment versus some of these maybe internal efficiencies that you're going to be going after.

And should we expect this drag to kind of ease as we move through 2020. Will this last throughout most of next year?

So just to overall comment on the rental services strategy. I'd say, we're midway through before you really start to -- so we're two years in and we won't see that disposition coming through for a while.

But on the -- what we saw, again, Québec rental activity was good. We were pleased.

We saw some shift. It's tough sometimes when you get into the project work.

So there was a shift in project work on the heavy rental side for Ontario, Manitoba and that was down. So that was a decline in that environment.

Okay. Makes sense.

Paul, just thanks for all your help over the last couple of years and good luck in your next steps.

Thanks, Devin. Take care.

Good morning, guys.

Good morning, Ben.

Can you elaborate a little bit on what's happening both in the markets and with your strategy on the materials handling side? I think now you've sort of been in that business a couple of years and how has that evolved?

What do you see it going? How is it performed?

Sure. We're pleased with how we're performing in Québec.

And we did last year, Ben, it was a full deep dive and we made a lot of changes in there last year both structurally and how we go to market with our sales coverage. So we feel good we've addressed that.

We addressed and identified a lot of opportunities on the service and part side operationally. So I would say, we identified the areas that we really need to aggressively pursue now operationally as well as for Ontario market penetration.

So, I think we're structured right now. Still a way to go to prove this model out.

But Québec, we're pleased with. And so, we're we like where we're positioned but we've got to go execute.

So I'd say, we're still in relatively early innings at this point in time. So we've got the teams kind of aligned in there.

We're at the early stages of identifying the system requirements to enable those teams to better manage their business. And we're gaining and understanding as to what the opportunities are in there.

So of the different business components that we picked up in the acquisition 2017, I'd say it's probably the lag as to the focus on the integration. The other area we're focused on there is the rental side, Ben, that we believe strategically represents an opportunity and so we're just working through that the way we like to run that rental business.

Would you be prepared at this stage to give any indication, a range, ballpark figure as to what kind of capital requirements you have in mind for that business to get it to where you think it could be over time?

We're going to have our full rental assessment completed in first quarter 2020, and then we will have a real good assessment on what's required there for CapEx. We've got a general idea that we've carried.

But I think we're going to be completing this full assessment Q1.

Okay. I'll stay tuned.

Just on some of the comments on the competitive pressure maybe you can elaborate on that a little bit, what equipment class you're seeing that in. Is it really just as availability?

Just got a whole lot better and dealers have more inventory now? Or is there anything more to it than that?

I would say you know -- I always treat this as it's always competitive. And but strictly we saw far more activity in the smaller CCC, BCP products, and that's an awfully competitive environment in there.

But we performed well. We we're pleased with our performance.

But as you know, Ben, that's a very, very competitive environment and there with some of those segments and products.

Okay. Fair enough.

Paul, I would echo what everyone else has said. You've made our job easier over the years.

Thanks for that and best of luck in retirement.

Thank you, Ben.

Hi. Good morning, gentlemen.

Good morning, Max.

Good morning, Max.

Just a quick question if it's possible to have an update on sort of all the processes integration and eventual ERP harmonization. Just maybe any color on those internal things if its possible?

Yes. So, we were very pleased with how we integrated the rental services businesses.

That was a non-event which would we like when we go through these changes. So, we'll go through in orderly transition here with.

And it's not a major go live event across the entire enterprise. We'll do it piece-by-piece.

And so that's we're on plan.

Okay. That's helpful.

And then, Paul, maybe just a question for you. In terms of as you talked about some of the payment terms normalizing.

So, is it fair to say that we should again be modeling a negative non-cash working capital for 2020? Do you mind maybe just commenting there?

That's a very real possibility. I mean, we see basically being able to manage this within existing cash balances.

Right. And do you care to provide a bit of a ballpark or not at this point?

I really can't pin it down to that level at this point, Max.

Okay. All right.

Well, fair enough. And Paul obviously all the best.

Thank you, Max. Take care.

Thank you. Just a couple of quick follow-up for me.

Obviously, gold has continued to be strong and product support has remained quite robust for you. Any thoughts on whether new equipment demand in the gold sector could improve in 2020?

Well, we'll just go out what we saw in the fourth quarter. There were some activity in there in the fourth quarter.

But obviously, I'd say, in general it's a cautious environment right now. We're pleased, we're still weighted well to gold.

We look at our entire Eastern Canada portfolio now. But the fleets are active.

Production is going on. So we're encouraged with that component of opportunity in the product support side, but we'll see.

Okay. And then just on capital deployment, the balance sheet is really substantially delivered post the Hewitt acquisition.

I appreciate that payables are going to normalize over the course of 2020. But would you think about moving to the higher end of your dividend payout range or consider even increasing the high end of that range?

Well, we've certainly ticked up in the range with the increase that we've just announced yesterday, right. So -- and typically the range that we have would have us taking out about 40 [ph].

We continue to believe that that's right. And by 40, I mean, as a percentage of trailing EPS.

The most recent increase would take us up to 36. Obviously, we're mindful of continued investments that are required to successfully continue this integration.

So we're very pleased and we're confident and we're moving forward on that basis.

Thank you. That's all for me.

Thanks, Cherilyn.

Thank you, Laurie, and thanks everyone for your participation today. That concludes our call.

Have a great day.