Toromont Industries Stock

Good morning. Today is Wednesday, July 29, 2026. Welcome to the Toromont Industries Limited Second Quarter 2026 Results Conference Call. [Operator Instructions] Please be advised that this call is being recorded. [Operator Instructions]

Your host for today will be Mr. John Doolittle, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Very good. Thank you, Angeline. Good morning, everyone. Thank you for joining us today to discuss Toromont's results for the second quarter of 2026. Also on the call with me this morning is Mike McMillan, President and Chief Executive Officer. Mike 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 2, which contains our advisory regarding forward-looking statements and specified financial metrics. After our prepared remarks, we will be more than happy to answer questions. So let's get started and move to Slide 3, and over to you, Mike.

Great. Thank you, John. Good morning, everyone. Thanks for joining us this morning. We are pleased with our second quarter and first half performance. Revenue and earnings increased, reflecting solid execution across the business. The Equipment Group delivered growth in new and used equipment sales enclosures, rentals and product support. The Equipment Group's operating income was 47% higher in the second quarter as the higher revenue and improved gross profit margins were partially offset by higher expense levels.

AVL continued to expand production. During the quarter, we increased our ownership in AVL to 80% and acquired land in Canada to support future manufacturing growth. CIMCO's results were slightly lower in the quarter. Operating income decreased, largely reflecting the lower package revenue due to project timing, lower gross profit margins and higher expense levels and investments for future growth.

Let's turn to Slide 4 for some other financial highlights. Investment in the noncash working capital was comparable year-over-year. A net effect of higher inventory levels, higher accounts receivable balances and lower accounts payable balances due to equipment delivery timing.

We ended the first half of the year with ample liquidity, including $1.2 billion in cash and an additional $449 million available under our existing credit facilities. Our net debt to total capitalization ratio was negative 13%. Overall, our balance sheet is well positioned to support operations and navigate evolving economic and business conditions. As one would expect, we'll continue to apply operational and financial discipline as we support customer needs and evaluate future investment opportunities.

Toromont targets a return on equity of 18% over the business cycle. ROE for the second quarter was 17% all in, slightly below our target, however, improved from 16.9% at year-end 2025 and comparatively lower than 17.6% reported at the end of June 2025. The year-over-year difference reflects higher shareholders' equity, which more than offset increased comparative earnings.

We would also note that ROE was dampened by approximately 1.5% by the expenses as disclosed associated with the accelerated purchase of certain shares of AVL in the quarter. This increased our ownership to 80%, a decision that was made based on long-term expected returns.

Return on capital employed was 24.8%, slightly higher year-over-year, reflecting our increased net earnings. Finally, as announced yesterday, the Board of Directors approved a regular quarterly dividend of $0.56 per share payable on October 2, 2026.

John, I'll turn it back over to you for more detailed commentary on the results.

Great. Thanks, Mike. Let's turn to Slide 5 for a few additional comments on the consolidated results. On a consolidated basis, revenue increased 16% in the second quarter and increased 15% for the first half of the year. This growth was driven predominantly by the Equipment Group with higher power system revenue, including our enclosure business, along with higher mining equipment, rental and product support revenue. CIMCO has had a somewhat slower start to the year with lower package revenue on construction timing, offset by higher product support activity.

SG&A expenses increased for both the quarter and year-to-date period compared to the similar period last year with key changes related to the inclusion and growth of AVL, DSU mark-to-market adjustments and other increases reflecting investments in the growth of the business. Compensation costs, travel and training are examples.

Operating income increased 41% in the quarter and 42% through the first half, reflecting the higher revenue and improved gross profit margins, partially offset by the higher expense levels. As a percentage of revenue, operating income was 13.6% on a year-to-date basis compared to 11% last year.

AVL's operational capacity and execution continued to expand in the quarter. The revenues were $171 million versus Q2 '25, which was $57 million and year-to-date at $300 million versus the first half of '25, which is $79 million. Results in the second quarter of 2026 are net of purchase commitment expenses of $54.3 million versus $1.7 million for Q2 '25 and on a year-to-date basis were $68.2 million compared to 2025 of $2.8 million. As a reminder, this includes expenses related to the valuation of the company's commitment to purchase the remaining outstanding shares of AVL and represents the regular evaluation of the commitment based on actual and expected results. This also includes expenses related to dividends paid to noncontrolling interests.

Net earnings were largely unchanged in the quarter compared to last year and increased 9% or $18.4 million for the first 6 months of the year. As an indicator of our base business, we would note that net earnings, excluding the purchase commitment expenses increased 42% in both the quarter and the first half of the year compared to 2025. Basic earnings per share was $1.53 in the quarter, largely unchanged from last year's comparative and increased to $2.66 year-to-date.

Turning to the Equipment Group on Slide 6. Revenue increased 18% in the quarter and 16% for the year, reflecting higher power systems sales and higher mining deliveries along with increased rental and product support revenue. Equipment sales, including both new and used equipment were up in both the quarter and the first half of the year by 27% and 23%, respectively. New equipment sales increased 31% in the quarter and 25% for the year, led by higher mining deliveries and higher power systems markets, which include revenue of the acquired business, while the construction market were at levels comparable to the prior year. Used equipment sales increased 2% in the quarter and 9% year-to-date across most markets.

Looking at the market segments for the quarter. Total equipment revenue increased 72% in mining, power systems increased 43%. Construction was slightly lower, down 1% and material handling decreased 32%. Rental revenue was up 11% in both the quarter and year-to-date. While market conditions remain somewhat uncertain, revenue increased compared to the prior year, generally reflecting the larger fleet and improved activity levels in most areas.

For the quarter, the change in revenue was as follows: heavy equipment rentals were up 25%, light equipment rentals up 8%, power rentals up 18%, partially offset by a decrease in material handling, which was down 7%. The RPO fleet was $98.8 million versus $101.4 million a year ago, and rental revenue was up 19% for the quarter and down 3% for the year compared to similar periods last year. Product support revenue increased 8% in the quarter and 9% year-to-date, reflecting equipment utilization in our territory, along with higher technician workforce. Activity was generally higher across most markets and regions.

Looking at specific markets. For the quarter, change in revenue was as follows: Construction was down (sic) [ up ] 6%, mining up 18%, power systems down 1% and material handling up 4%. Gross profit margins increased 270 basis points in the quarter and increased 330 basis points year-to-date compared to last year. Equipment margins increased, reflecting the favorable sales mix within our equipment offerings. Rental margins increased on improved utilization. Product support margins decreased slightly, reflecting the nature of the work and sales mix. Sales mix was unfavorable in both periods, reflecting a lower proportion of product support revenue to total revenue in each period.

Selling and administrative expenses increased $20 million or 13% in the quarter and increased $48 million or 17% for the year. Higher expenses reflect the continuing investment in key strategic areas. Compensation costs were higher in both periods, reflecting staffing levels and regular salary increases, higher profit sharing accruals on the higher income and higher DSU mark-to-market expense on the higher share price.

Other expenses such as training, travel and occupancy costs have increased in light of sales levels and planned investment and inflation. As a percentage of revenue, selling and administrative expenses increased to 12.4% versus 12.3% last year. Operating income increased 47% for the quarter and increased 49% for the year, reflecting the higher revenue and improved gross profit margins, offset by the higher expenses.

Bookings increased 196% in the quarter, mainly reflecting higher power systems orders, including AVL, which includes a $1 billion order previously announced for delivery substantially in 2027. Mining markets are lumpy or cyclical due to the nature of the business and improved 11% on good orders. Construction orders were relatively unchanged compared to Q2 2025, reflecting normal demand dynamics.

Material handling orders were down 51% versus a strong comparable in the prior year. Backlog of $2.5 million (sic) [ $2.5 billion ] at June 2026, very solid, reflecting good new order intake throughout the quarter. Approximately 60% of the backlog is expected to be delivered over the next 12 months, but of course, is subject to timing differences depending upon vendor supply, customer activity and delivery schedules.

Let's turn now to CIMCO on Slide 7. Revenue was down 1% in the quarter, however, was up 1% for the first half of the year, largely reflecting project timing. Package revenue decreased 5% in the quarter with lower revenue in the recreational market, partially offset by an increase in the industrial market. Recreational activity decreased 50% with lower revenue in both Canada and the U.S. Industrial market revenue increased 32% with higher activity in both Canada and the U.S. For the first half of the year, package revenue was largely unchanged and reflected similar trends for the quarter.

Product support revenue increased 6% in the quarter and 1% on a year-to-date basis with higher market activity in Canada, offset by lower revenue in the U.S. in both periods. Activity levels continue to improve on good customer demand and the increased technician base.

Gross profit margins decreased 90 basis points in the quarter and decreased 120 basis points in the year versus similar periods last year. Package margins were lower on the nature and timing of projects in process. Product support margins were largely at levels similar to last year. Improving execution and efficiency continues to be a focus and a favorable sales mix with a higher proportion of product support revenue to total revenue increased margins.

Selling and administrative expenses increased $2 million or 10% in the quarter and $4 million or 12% for the first 6 months of the year. Compensation costs increased, reflecting staffing levels, annual salary increases and the mark-to-market on DSUs, largely offset by lower profit sharing accruals on the lower earnings.

Other expenditures such as travel and training expenses increased to support activity and staffing levels. As a percentage of revenue, selling and administrative expenses improved to 16.9% in the second quarter versus 15.2% in Q2 2025.

Operating income was down $3 million or 20% for the quarter and $7 million or 26% for the year, largely reflecting the lower revenue, gross margins and higher expense levels supporting growth. Operating income as a percentage of revenue decreased 290 basis points to 8.2% on a year-to-date basis compared to the similar period last year. Bookings were largely unchanged in the quarter and were 11% higher, up $16 million for the year. For the year, industrial orders were up 12% and recreational orders were also up 11%.

Generally, activity is continuing with good strategic capital investments. Backlog of $375 million was up 7% last year with higher backlog in the recreational -- 7% versus last year with higher backlog in the recreational market, up 14%, while the industrial market backlog remained relatively unchanged. Approximately 75% of the backlog is expected to be realized over the next 12 months. However, again, this is subject to construction schedules.

And with that, we can move to Slide 8, turn it back to Mike to highlight some key takeaways as we look forward to rounding out the year. Mike?

Thanks again, John. As we look ahead to the second half of 2026, our focus remains squarely on executing our strategic priorities. These begin with an unwavering commitment to safe, reliable and efficient operations, delivering consistently high levels of customer service and maintaining disciplined financial and operational rigor to support sustainable long-term growth.

Against this backdrop, we continue to monitor key external factors that could impact the business. Global trade negotiations are evolving and in particular, developments between the U.S. and Canada remain dynamic, requiring proactive mitigation plans, which we continue to refine as the situation evolves.

Foreign exchange volatility, particularly fluctuations in the Canadian dollar, is being actively managed through our hedging program, helping to mitigate earnings impacts while recognizing that broader economic conditions may still create headwinds. In addition, we are closely monitoring the overall macroeconomic trends.

Our backlog of $2.9 billion continues to grow nicely, and the equipment supply chain is well positioned to support customer requirements. Investment in our technician workforce remains a key strategic priority. By strengthening this critical capability, we are enhancing our aftermarket services, improving responsiveness and delivering greater long-term value to our customers across our product and service offerings.

From both an operational and financial standpoint, we benefit from a focused operating model, experienced leadership team, a disciplined culture and strong liquidity. This foundation enables us to manage near-term uncertainty effectively while continuing to advance our strategic growth priorities. Over the long term, our approach to creating shareholder value remains grounded in disciplined cost management, thoughtful strategic investment and consistent operational execution. We thank our team for their continued dedication and our stakeholders for their trust and support.

That concludes our prepared remarks. We'd now be pleased to take your questions. Angeline, over to you, please, to set up the first question.

[Operator Instructions] Your first question comes from Yuri Lynk with Canaccord Genuity.

Wondering if you can provide a bit more color on the $1 billion of AVL orders in terms of -- are those orders comprised of numerous customers and numerous projects? Or is it more concentrated? And how did it come together to book such a large number?

Yes. Thanks for the question, Yuri. I think maybe I'll give you a little color, and John can chip in as well. Yes, it's certainly a significant order. I would just say we didn't disclose customer-related detail. But I would say it's multiple locations across largely in the U.S. Eastern Seaboard would be the positioning there.

And so I think part of the positioning there is as we've ramped up in Charlotte and continue to track really nicely to plan and hitting our quality and delivery time scales, it's resulted in the opportunity for us between both our facilities, the Hamilton facility and the Charlotte facility to be able to secure that type of commitment from a customer perspective. And again, what I'd emphasize is as we booked and secured that order, it is largely to be executed and delivered in 2027 with both facilities.

Yes. The only thing I'd add, Mike, is we continue to support the CAT network with our deliveries. So most of it's in the U.S. supporting the CAT network.

Okay. But you can't share if it's one customer or more?

Yes. I mean it's multiple purchase orders within a larger purchase order.

Okay. How about the land purchase that I think you said was in the quarter? Is that lumped in with CapEx? And can you kind of break that number out for us?

Yes. I mean the land purchase in the quarter, so we're expanding our AVL operation. We purchased land north of Hamilton. It's approximately $20 million in terms of the land purchase, which is in the CapEx number. It is land, and so we'll need to do a build-out, Yuri, over the next while. So don't expect any production coming out of that facility until sometime mid-2027.

And rough numbers for the investment that's still to come?

We're working on the build-out right now in terms of how much it's going to cost. But maybe think about all in $75 million roughly.

$75 million, and that includes the $20 million for the land?

Correct.

Yes. Okay. And last one on this. Would the revenue capacity of that be similar to Hamilton?

Yes. So we would expect, as I said, so we bought the land. We've got to build a facility there. That's going to take us into 2027. And then I would expect when we're fully ramped that we'll add roughly 40% to 50% more capacity to the overall business, but that will be coming out of 2027.

The next question comes from Krista Friesen with CIBC.

Maybe just a clarification on that last one. The 40% to 50% capacity, that's relative to the capacity in Canada or that's also including what's in Charlotte?

It was meant to be both, Krista. It was meant to say it would add 40% to 50% capacity to the overall business. Just keep in mind the timing that I mentioned there.

Yes, that makes sense. And then maybe just shifting to the more traditional Equipment Group. Can you give us a bit of an update on what the construction outlook is looking like for the rest of the year? And just if you're starting to see more of these nation building projects start to flow through and when you expect to see an impact from that?

Yes, it's a great question. Thanks for that, Krista. I would say a couple of things. We are seeing a little better activity. And I think you see it in construction, you see it in our rental business, too, with better utilization on the larger fleet, and that's both heavy and light.

One of the areas that I would caution is the residential-related business still seems to be stalled for the most part, like when you think of infrastructure going into high density or residential, there's limited activity there. But we are seeing reasonable levels of activity around road construction, repaving and construction markets. And you mentioned the larger projects, they're very early stage.

And so I think some of the major projects announced federally require road access and a number of other things to start development, especially when you think of resource access in other areas. And so there is some engineering. There's some initial work being done there. But our view would be that, that's going to continue through into '28, where we are hopeful that we're going to see a stronger tailwind going into the new year.

Perfect. And then just the last one here on the CIMCO business. It sounds like there were just some timing issues in the quarter. How are you thinking about the remainder of the year and just the timing of orders coming through?

Yes. I think -- and sort of refer you to the backlog, too, Krista. It's -- our backlog is well positioned, and we mentioned a few comments about it. And we often talk about CIMCO as it's a bit of a lumpy business. And so we do have some large projects, for example, that take a little bit more time to recognize.

And so for the balance of the year, I would say we're feeling comfortable given the backlog and the fulfillment of that backlog that we noticed in disclosure. And so it's been a bit slower this first half just given the timing of some of those projects. Product support has been maybe one of the positive signals there. There's a little bit stronger results there, but I think pretty consistent with what we saw last year.

The next question comes from Cherilyn Radbourne with TD Cowen.

I don't want to turn this into the AVL call. So I'm going to restrict my AVL question to one. Just curious, as you commit more capital to this business, to what extent are you starting to build visibility for AVL beyond 2027? And what contractual protections do you have in these POs?

Yes. It's a good question, Cherilyn. I mean, I guess what we are seeing is we're seeing good demand by our customers. I mean having the PO that we talked about is a pretty long duration going out to the end of '27. And so we're anticipating a reasonable level of demand over the next several years, but we're careful in the sense that we need to earn that business and secure POs in replacement of what we fulfill here over the next 18 months.

The protections in there, I would say, again, there's a variety of customers, hyperscalers, colocators and regional players. And as John mentioned, we're working closely with the Caterpillar network. And so I would say we try to be pretty careful with some of those terms in those agreements. Our focus is really on quality and execution on our product line as well because these are -- really what we've seen so far is standby or backup power generation, which tends to be lower-hour but we need to make sure that we're consistently executing in terms of quality and the delivery of that product line. So I'd say the exposure, we have normal warranty periods and so forth, which the customer has accepted, and we also have a capability to help service if needed.

Yes. The other thing I'd just remind you, Cherilyn, is we're being very thoughtful about our expansion plans in terms of buying property in great locations like the new one we've just acquired north of Hamilton and in Charlotte. And at some point in the future, if there is a plateau, then we have great assets at our disposal there.

Okay. Great. And then you saw some healthy growth in product support this quarter, which was nice to see. Construction looked good and mining stepped up notably year-over-year. Can you give us some more color on what you're seeing there, including on rebuild activity?

Yes. Thanks for pointing that out. I mean we're quite happy with the growth that we saw in product support, like even in the Equipment Group, we're up 8% to 9% on a quarter year-to-date basis. A couple of things that we've been talking about the last couple of years. Part of it obviously is related to activity levels and our customers saying construction is starting to require more support with a little bit better activity.

Mining, we've talked about quite a bit in the past, and we've put some fleets into service over the last 2, 3, 4 years. And as those fleets build the hour requirement, we start to see a little stronger product support requirement there. And so we're starting to see a little bit of that.

And to your point on rebuilds, it is a focus area for us. I think given some of the economic uncertainty and some of the different dynamics in the marketplace, we've been working hard with our customers to give them that as an option and along with other -- along with used and RPO and so forth. But it's -- we've seen some pretty decent demand around the rebuild side of things. It is lumpy in the mining space, but maybe a little bit more consistent when you think of the construction network, right?

Yes. The other thing I'd mentioned on the rebuild side of things, Mike, is we have broken ground on the Quebec City facility, and that's going really well in terms of the build-out there. So we're excited about that development.

The next question comes from Devin Dodge with BMO Capital Markets.

Just wondering -- coming back to AVL, just wondering if you could talk about the decision to locate the new facility in Hamilton versus somewhere in the U.S., just given that most of the product, I think, is delivered south of the border.

Yes. Maybe to start -- thanks, Devin. Maybe to start on that. We -- I would say that we continue to evaluate both markets very carefully, right? I think it comes down to local jurisdiction, but also when you think of labor market supply, availability of real estate, the supply chain and the logistics and around the facility. And so that's a big consideration.

You might recall when we've described the Hamilton facility, it's a number of buildings where Charlotte is a fit-for-purpose building. It's a one large facility. And our new facility, which is just north of Hamilton into Burlington area that will be similar to Charlotte. And so we were looking at it from that perspective as well where we end up with a facility that's fit-for-purpose, constructed for very efficient operational flow.

And I think the other part is, although we're seeing the strongest demand in the U.S. and expect that to persist, over time. Over time, we're expecting to see demand in Canada also, albeit a more reasonable level compared to the U.S. And so it's good to have access. And because it's in Hamilton, we have the ability with port access and other things, too, which is an added benefit, right?

Yes. Makes sense. And just another quick one on AVL. Are you continuing to take orders for delivery in 2027?

Yes, we are. Yes.

Yes.

Okay. Maybe just switching gears here, but Toromont I think, in the final months of its 3-year business plan. What do you believe were the biggest accomplishments in Connect26? And then as you look forward, where do you expect the focal areas to be for the next business plan?

Yes. I would say, Devin, it's a great question. If you recall, we came into the 3-year -- current 3-year plan just coming out of COVID, and there was a strong desire to connect. The connect theme was around connecting with customers, reconnecting with customers, connecting with employees because of the dynamic from the pandemic and connecting digitally and so forth.

And I think our goal really broadly was to position the business for growth as we emerge out of that uncertainty. And I think, again, the trade dynamics and all the other things come into play, we didn't anticipate. But I think from that perspective, now the team has worked really well to put us in a good position across the businesses to make sure that we're ready as things start to improve from an activity level basis, we get a little more stability south of the border.

And I think the other piece is the discipline in the business. Our teams have done a nice job from a cost management perspective. We continue to hire technicians. And the digital side is a huge investment area as well. Caterpillar is putting a lot of resources into that space. We've built our team, strengthened our team in those areas. And I'd see that as something that's going to continue to gain a lot of traction and be one of the common themes going forward in our plans because of the analytics, the technology within the equipment and how we use all that capability to differentiate our service offering and help our customers lower their cost of operations. So long answer to your question, but I would say a lot of it is around positioning the business for sustained long-term growth, right? And that was the goal.

The next question comes from Steve Hansen with Raymond James.

First one is on AVL and just the pace of ramp in Charlotte or maybe across the network today. The ramp was quite quick in the period. When do you sort of expect to start to tap into sort of those capacities that you currently have [indiscernible],I guess, likely today?

Yes. I mean, Steve, we're really pleased with the ramp at Charlotte. And we would expect Charlotte to be at full capacity coming out of Q3, but they've done a really good job ramping up. Safety has been paramount, and that's been great and quality has been very good as well. So the team down there has just done an amazing job. And yes, it ramped very well in the second quarter, as you point out, will continue to ramp in the third quarter, and we'll be close to near capacity in the fourth quarter there.

That's helpful. And just on the margin front, some disclosure seems to have gone away on AVL in the period. Can you maybe just describe how margins are progressing relative to prior periods or give us some contextual context around how EBIT contribution might have looked in the period? Just trying to get a sense of what the contribution looks like relative to...

Yes. I mean the margin story has stayed basically the same, Steve. It's a very solid margin profile, and you can kind of work into that with the revenue growth and the bottom line impact on AVL after you back out the purchase expenses.

Okay. Helpful. And then just one last one quickly is just it does seem like the equipment market despite a few soft spots in Eastern Canada is slowly tightening or consistently tightening inventories appear to be coming down across the channel. I mean how do you feel about the margin profile and sort of in the core equipment business relative to even last year? Have you started to see points of improvement out there?

Yes. Steve, I would just say that it's a well-supplied market, right? Like we continue to see moderate improvements in activity. But I would say, broadly speaking, the equipment space is well supplied. And so that naturally brings in some strength and pressure on margins to a certain degree. I mean I think the team is working -- like as you know, we talk about the value proposition and we talk about it's not just the equipment margin side of things.

It's also the product support and availability and helping our customers with that entire value prop and lower cost of ownership. But I think as we look forward, the one area I'd say that is still very constrained is obviously the large engine market, partly driven off the data center demand and mining continues to be fairly strong. And so that's a constrained longer lead time market. But when you look at the GCI and BCP product lines in CCE, it's well supplied and will continue to be so, we believe.

Just last one. Do you have any intention to split out AVL at some point into its own segment?

We don't, Steve.

The next question comes from Jonathan Goldman with Scotiabank.

Maybe just a housekeeping one for you, John. Construction product support, did you say up 6% or down 6%? And the product support margins, did you say similar year-on-year?

Yes. It was up 6% actually, Jonathan. On the product support side, specific to construction in the quarter was up 6%. Mining was a little higher.

Okay. Perfect. I guess my next question then kind of more broadly on data centers. Do you guys anticipate an opportunity to participate in prime or backup power via refits?

Yes, that's a great question. I think what you're tapping into there is the constraints in the power grid and the lack of energy as they continue to build out data centers. And I think we would look at -- I would say there is some limited opportunity for refits. I think the ideal bridging strategy, if you will, to the grid would be with larger solar turbines and things like that. But there is some interest in prime power using primarily gas generators, right? So that's something we'll look at. But I would say that to date, what we've been focused on is the standby and backup power piece, and it's largely diesel.

Fair enough. And Mike, you alluded to technician headcount, but could you give us an update on what the growth has been so far this year and how you're thinking about maybe '27 as well?

Yes. It's a focus for us, Jonathan. Again, we've been strengthening our recruiting efforts, I would say. And part of that goes to where we see the business evolving and wanting to strengthen the product support side of our business. And so I would say it's always a constrained market. It's always a challenge to hire, but we've done a pretty nice job, and we'll continue to see growth in actual headcount.

And I would say it's also across the business. So we've talked a little bit about CIMCO, but the dealership on the rental side, we continue to look and continue to attract new talent and hire to make sure that we're offsetting natural retirements, but also continue to grow that capability over time. So we don't see that declining.

[Operator Instructions] The next question comes from Sabahat Khan with RBC Capital Markets.

I guess just following up on the earlier discussion around margins. I think you said margins are still solid in that business. I guess as the revenue is ramping up, it feels like there's a lot coming through in '27. Would it be fair to assume margins may be in line with what you've generated over the course of this year and last? Or is there maybe a big directional tilt up or down? Just want to make sure we're in the right ZIP code.

I don't see a big directional move up or down, Saba. I mean it's early days still, but that's our best view at the moment.

Yes. I think the one thing to keep in mind, I guess, as we think about it is just mix too, right? Like we saw in the quarter, a little better rental product support growth, which is nice to see as AVL continues to add to production. I mean they're doing very well. But we'll -- as John characterized the new facility and as we see that through '27, '28, just keep in mind as you model how you blend that margin through, the equipment segment, I think, will be well supplied as we talked about earlier. So...

Sorry. Maybe just digging in and maybe I didn't -- I was thinking maybe more specifically on the AVL, I guess, just because it's becoming a bigger part of the revenue mix. Will that maybe shift margins in one direction or the other, just given the ramp there?

No. Like I said, I don't anticipate in the existing production facility to see a major variation with AVL. What you will see as we get the new facility up and running, obviously, like we saw with Charlotte, we'll see some costs ahead of revenues. So you may see a bit of compression on that front. But overall, I wouldn't expect a major move up or down, Saba.

And then I guess just maybe implied in that, just with the margins, I guess, being relatively consistent going forward, are you finding good pricing power in that business given the demand environment in the AVL business?

In the AVL side?

Yes.

I mean I would say, again, it's one that we want to manage very carefully. Our focus is on really driving cost efficiencies and so forth because as you can imagine, as this segment evolves, there's been a period of constrained supply in engines and enclosure production and so forth. But I think there's a lot of capital going into that marketplace. And I think naturally, you're going to start to see other players in the market, you're going to see potentially some pressure on some pricing.

And so our goal is to be the top supplier, most consistent, high quality and also focused on auto-like manufacturing capabilities to drive efficiency in our production side of the business to help mitigate any pressures we see on the top end or in margin side, right?

Great. And then maybe just one last quick one, I guess, just on the concept of sort of constrained supply in this environment. How are you finding your sort of supply chain for that AVL business? I think maybe not as complicated as the engine supply chain, but given the big backlog, have you been able to lock in supply to make sure you can kind of deliver against that?

Yes. I would say we're reasonably comfortable with the supply elements, right? Like when you think about it. Certainly, A big factor is the engine supply, like you mentioned and continuing to see how availability of engines dictate production and so forth.

But we've been working pretty hard at making sure that our suppliers, whether it's fuel tanks or panels or what have you, we've also brought in -- within our Power and Energy Group, we've also brought in a capability to help put together switching and CAN boards and things like that, which we had in the Power and Energy Group.

So we've enhanced that capability, which also helps us to mitigate some of that supply chain requirement. So I would say, generally speaking, we're comfortable with where it's headed and given what we see in the backlog and so forth, comfortable with that positioning.

The next question comes from Cherilyn Radbourne with TD Cowen.

Just a couple of last follow-ups from me. Setting aside AVL for a second, could you talk about the trends that you're seeing in the broader power systems business?

Yes. Good question, Cherilyn. I think we are seeing, as you know, it's a little bit lumpy. Like when you think of the broader market, there's some discussion about the marine side, for example. And I think as some of those opportunities on the defense side open up, that could lead to some projects down the road. Those are certainly longer term.

I think when you look at the power side, we continue to see some opportunities around bridging strategies, right, bridge to grid and areas like that where there's constraints, partly related to data center, but other industrials looking to peak-shave and to do some things like that. And so it's a pretty diversified group, as you know. And I'd say we're cautiously optimistic with what we see there in terms of energy requirements for the longer term and some other opportunities around distributed power and so forth.

Great. And then it seemed to me that there was a shift in package revenue at CIMCO towards the industrial side versus recreational in the quarter, at least. And I didn't know if that was a trend or just sort of normal lumpiness in the business.

Yes. It's just normal lumpiness, Cherilyn. It ebbs and flows, as you know, quarter-by-quarter. And as Mike said, we had some larger projects in there and depending upon which segment it lands in, you'll see that lumpiness.

The next question comes from Steve Hansen with Raymond James.

Just a quick one. I'm just curious, in thinking about rule of thumb, is there a way to think about how many megawatts of power that $1 billion order would cover? Just trying to again frame the announcements we're seeing out there relative to your order flow and get a sense of what we should be thinking about what it covers.

Yes. That's a difficult one, Steve, in the sense that each of the locations have very different power requirements, right? Generally, what we do say is if you think of a large block like the 3516s they can generate about 2.75 megawatts per unit, right? And so some of the larger facilities can use upwards of 100 megawatts of power. And so -- but it's very difficult. I would say it's not -- I wouldn't translate that into that type of metric just because of the variation in the facilities and the power requirements.

At this point, there are no further questions. I will now transfer the conference over to Mr. John Doolittle. Please go ahead, sir.

Okay. Great. Thank you, Angeline. Thanks, everyone, for joining today. Thanks for the great questions. That concludes our call, and please be safe. Have a great day. Thank you.

Thank you. Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may now disconnect.

Good morning. Today is Wednesday, April 29, 2026. Welcome to the Toromont Industries Limited First Quarter 2026 Results Conference Call. Please be advised that this call is being recorded. [Operator Instructions] Your host for today will be Mr. John Doolittle, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Okay. Well, thank you, [Angeline]. [Foreign Language], everyone. Thank you for joining us today to discuss Toromont's results for the first quarter of 2026. Also, on the call with me this morning is Mike McMillan, President and Chief Executive Officer. We're in beautiful Montreal today. Mike 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 2, which contains our advisory regarding forward-looking information and statements. After our prepared remarks, we will be more than happy to answer questions. So, let's get started and move to Slide 3. And Mike, over to you.

Great. Thanks, John. Good morning, everyone, and thanks for joining us. Our team performed well in the quarter despite ongoing uncertainty in global trade markets. Both revenue and earnings increased, reflecting good execution across most areas of the business. The Equipment Group had healthy increases in both new and used equipment sales, along with solid activity in rentals and product support.

Our AVL enclosure business continued to increase production, supporting data center requirements, primarily in the Eastern U.S. region. Based upon operating performance and our view of market demand, we continue to consider opportunities to invest in the growth of our Power and Energy business. As such, effective today, we have increased our percentage of ownership of AVL to 80% by advancing the purchase of half of the shares that we did not currently own.

It is important to note that these shares were owned by a passive investor and do not impact the ownership or status of Vince DiCristofaro, President of AVL. Purchase price of the shares was $71 million, paid in cash, and will result in an expense of approximately $45 million to be recorded in the second quarter of 2026. The Equipment Group's operating income was 52% higher in the first quarter as the higher revenue and improved gross profit margins were partially offset by higher expense levels. CIMCO posted higher package revenue. However, profitability was lower mainly due to timing of projects and deferred product support activity. Growth in the package revenue was supported by a strong order backlog. Operating income decreased largely reflecting the lower gross profit margins and higher expense levels, partially offset by higher revenue.

AVL's operational capacity and execution continued to expand in the quarter. Revenues were $129 million versus Q1 of 2025, which was $22.1 million. And the business' full contribution to basic EPS was $0.19 per share versus breakeven in Q1 2025. Results in the first quarter of 2026 are net of purchase commitment expenses of approximately $13.9 million, including a dividend that was paid to minority shareholders related to earnings and distributable cash position for fiscal 2025. Investment in non-cash working capital decreased 4% year-over-year. The net effect of lower inventory levels, higher accounts receivable balances and lower accounts payable balances due to equipment delivery timing. Accounts receivable increased largely, reflecting a 13% increase in revenue in the quarter, offset by good collection activity. DSO decreased by three days to 40 days.

Our team continues to do a good job managing receivables aging and customer credit metrics. Inventory levels declined primarily due to executed deliveries against good order backlog from year-end inventory management initiatives, slightly offset by CIMCO's higher work in process levels, reflecting timing of project construction and product support schedules. We ended the first quarter with ample liquidity, including $1.2 billion in cash and an additional $452 million available under existing credit facilities. Our net debt to total capitalization ratio was negative 12%. Overall, our balance sheet is well positioned to support operations and navigate evolving economic business conditions. As one would expect, we continue to apply operational and financial discipline as we support customer needs and evaluate future investment opportunities. Toromont targets a return on equity of 18% over the business cycle.

ROE for the first quarter was 17.3%, slightly below our target, however, improved from 16.9% at year-end 2025 and comparatively lower than 18.5% reported at the end of March 2025. The year-over-year difference reflects higher shareholders' equity, which more than offset the increase in comparative earnings. Return on capital employed was 24.4%, slightly higher year-over-year, reflecting our increased net earnings. Finally, as announced yesterday, the Board of Directors approved a regular quarterly dividend of $0.56 per share payable on July 2, 2026, to shareholders of record at the close of business on June 5, 2026. John, back over to you for more detailed commentary on the results.

Okay. Thank you, Mike. Let's turn to Slide 5 for a few additional comments on the consolidated numbers. On a consolidated basis, revenue increased 13% in the first quarter with an increase in the Equipment Group of 14% due to higher revenue across all revenue streams, resulting from strong execution against order backlog in our growing enclosure business and an increase of 3% at CIMCO and higher package revenue, offset by lower product support activity. SG&A expenses for the quarter increased 21% compared to similar period last year. The key changes related to the inclusion of AVL and DSU mark-to-market adjustments and other increases reflecting investments in the growth of the business, for example, in compensation, travel and training. Provision for expected credit losses increased compared to the similar period last year, reflecting certain exposures. Mark-to-market adjustments on DSUs increased as a result of the higher share price.

And for the year, expenses increased to 14.2% of revenue compared to 13.2% last year. Operating income increased 44% in the quarter as higher revenue and gross profit margins were partially offset by higher expenses. As a percentage of revenue, operating income was 11.6% on a year-to-date basis compared to 9.1% last year. We passed the first full year of operations of AVL. The dividend was paid to shareholders, reflective of earnings and the cash position in 2025. Under IFRS rules, the dividend paid to minority shareholders, which amounted to $12 million is treated as an expense. Net earnings increased 25% or $18.3 million in the quarter compared to last year. Basic earnings per share, $1.14 in the quarter. Bookings for the first quarter increased 44% compared to Q1 2025.

Equipment Group bookings increased mainly reflecting higher power systems orders, including AVL and mining. CIMCO bookings increased 34% with higher orders in both markets and regions reflected in continued activity. Booking activity can be lumpy, resulting in variability quarter-over-quarter, reflecting market-related factors and customer buying patterns. Backlog is strong at $1.7 billion, up 30% year-over-year with an increase in both the Equipment Group of 40% and CIMCO up 4% compared to 2025, reflecting good demand for our products, including at the acquired business. Turning to the Equipment Group on Slide 6. Revenue increased 14% on the quarter on solid equipment deliveries led by the significant growth in power systems, along with improved rental and product support revenue on good customer activity levels.

Construction market revenue was up 2%, with mining down 32% due to the lumpy nature of the business. Equipment sales, including both new and used equipment were up 18% in the quarter across most of our market segments and regions. New equipment sales increased 18% in the quarter with increases in the construction, power systems and material handling markets, offset by a decrease in mining due to the timing of delivery schedules. Used equipment sales increased 21% in the quarter with higher activity in the construction and mining markets, slightly offset by lower material handling market activity. Rental revenue was up 11% in the quarter, generally reflecting the larger fleet and improved activity across all markets and regions.

Revenue improved in most areas for the quarter is as follows: heavy equipment rentals up 38%, light equipment rentals up 8%, power rentals up 52% and material handling largely unchanged. The RPO fleet was $89.1 million versus $101 million a year ago, and rental revenue was down accordingly. Product support revenue increased 10% in the quarter with an increase in both parts and service. Activity was higher across all markets and regions, reflecting end-user demand and activity levels. Looking at specific markets for the quarter, change in revenue was as follows: Construction up 4%, mining up 17%, power systems up 10% and material handling up 8%. Gross profit margins increased 400 basis points in the quarter. Equipment margins were up 370 basis points, reflecting the favorable sales mix within our equipment offerings.

Rental margins were up 60 basis points on improved utilization. Product support margins were up 10 basis points on good execution. Sales mix was unfavorable, down 40 basis points in the year, reflecting a lower proportion of product support revenue to total revenue. Selling and administrative expenses increased $27.9 million or 22% in the quarter. Key changes again were AVL, the mark-to-market adjustments on DSUs and investments in the growth of the business. As a percentage of revenue, selling and administrative expenses increased to 13.7% versus 12.8% last year. Operating income increased 52% for the quarter, reflecting the higher revenue and increased and improved gross profit margins, offset by the higher expenses. Bookings increased 45% in the quarter.

The majority of the increase was led by the power systems orders, including enclosures, which saw strong order activity, up 231% on good demand for our products and supported by expanded capacity. Mining markets are lumpy due to the nature of the business and were up 96%. Construction markets were lower with bookings down 1%, reflecting normal demand dynamics. Backlog of $1.4 billion on March 31 remains at healthy levels, reflecting good new order intake throughout the quarter. Approximately 90% of this backlog is expected to be delivered over the next 12 months. But of course, that is subject to timing differences depending upon vendor supply, customer activity and delivery schedules. Now let's turn to CIMCO on Slide 7. Revenue was up 3% in the quarter.

Package revenue increased 10% in the quarter with an increase in activity in both the recreational and industrial markets, reflecting good execution on equipment delivery and progress on customer schedules. Recreational activity increased 27% in the quarter with higher revenue in the U.S., offset by slightly lower revenue in Canada. Industrial market revenue decreased 4% in the quarter with higher activity in Canada and marginally lower activity in the U.S. Product support revenue decreased 3% in the quarter on lower activity in the U.S., which more than offset higher activity levels in Canada. Activity levels reflect customer demand and the timing of purchase decisions and work performance. Gross profit margins decreased 180 basis points in the quarter versus the same period last year.

Package margins decreased 230 basis points on the nature and timing of the projects in process. Product support margins increased by 60 basis points on the nature of activity. An unfavorable sales mix with a lower proportion of product support to total revenue dampened margins by 10 basis points. Selling and administrative expenses increased $2 million or 14% in the quarter. Compensation cost increases, as higher costs reflecting staff levels and annual salary increases were largely offset by lower profit-sharing accruals on the lower earnings. Other expenditures such as travel, training and occupancy expenses were higher in support of activity and staffing levels. Provision for credit losses increased on lower recoveries in the current period compared to the same period last year.

As a percentage of revenue, selling and administrative expenses increased to 19.8% in the quarter versus 17.8% in the first quarter of last year. Operating income was down $3 million or 36% for the quarter, reflecting the lower profit -- lower gross profit margins and higher expense levels, partially offset by the higher revenue. Operating income as a percentage of revenue decreased to 6.2% for the quarter compared to the similar period last year. Bookings increased 34% or $16 million in the quarter in both markets and regions. Industrial orders were up 51% and recreational orders were up 24%. Generally positive activity continues with good strategic capital investment levels. Order bookings can reflect the timing of end-user schedules and the timing of buying decisions.

Backlog is $360 million, up 4% versus last year, with higher backlog in the industrial markets up 7%, while the recreational market backlog remained relatively unchanged. Approximately 75% of the backlog is expected to be realized over the next 12 months. However, again, this is subject to construction schedule. With that, we can move to Slide 8. I turn it back to Mike to highlight some key takeaways as we look forward to the next few quarters. Mike?

Great. Thanks again, John. As we look ahead to the second quarter of 2026, our focus remains squarely on executing our strategic priorities, and these begin with an unwavering commitment to safe, reliable and efficient operations, delivering consistently high levels of customer service and maintaining disciplined financial and operational rigor to support sustainable long-term growth. Against this backdrop, we continue to monitor key external factors that could impact the business. Global trade negotiations are evolving and in particular, developments between the U.S. and Canada remain dynamic, requiring proactive mitigation plans, which we will continue to adjust as the situation evolves. Foreign exchange volatility, particularly fluctuations in the Canadian dollar is being actively managed through our hedging program, helping to mitigate earnings impacts while recognizing that broader economic conditions may still create headwinds. In addition, we are closely monitoring overall macroeconomic trends.

Our backlog of $1.7 billion continues to grow nicely, and the equipment supply chain is well positioned to support customer requirements. Investment in our technician workforce remains a key strategic priority. By strengthening this critical capability, we are enhancing our aftermarket services, improving responsiveness and delivering greater long-term value to our customers across our product and service offerings. From both an operational and financial standpoint, we benefit from a focused operating model, experienced leadership team, a disciplined culture and strong liquidity.

This foundation enables us to manage near-term uncertainty effectively while continuing to advance our strategic growth priorities. Over the long term, our approach to creating shareholder value remains grounded in disciplined cost management, thoughtful strategic investment and consistent operational execution. We thank our team for their continued dedication and our stakeholders for their trust and support. That concludes our prepared remarks. We now would be pleased to take your questions. Angeline, please over to you for the first caller. Thank you.

[Operator Instructions]

Your first question comes from Steve Hansen with Raymond James.

Are you able to speak to a little more directly the margin profile at AVL in the quarter and how you expect that to trend going forward here, particularly as you've got the ramp-up in capacity going on, but you've also got some very strong bookings out there? I'm just trying to get a focus in on how that business actually performed in the quarter.

Yes. I mean the business performed very well, Steve. Charlotte got up and running faster than we thought it might. And Hamilton, as we said, is running at full capacity and margins are picking up in Charlotte compared to where we were in the fourth quarter of last year. And so, we would expect Charlotte to continue to increase production and margins to level off there. So, it was a very good quarter for AVL.

If I could maybe ask it another way, is it fair to say that because of the ramp-up, there was some sort of dilution on the margin in the quarter related to that? I'm trying to -- it looks like the margins declined quarter-over-quarter. So, I'm just trying to understand where that pressure might have come from.

I don't think it has declined quarter-over-quarter.

Yes, there'd be a little bit of startup costs and other things last year, although the teams managed execution really well, Steve.

Okay. Maybe it's just a suggestion, it feels like we're spending like an hour to 2 hours every time trying to understand how this business is performing. I think it would be helpful if we get some direct clarity on that in the MD&A. It would be helpful. Just as a separate point, can you just -- and maybe just, I guess, still related, what portion of the backlog is specific to AVL now? I didn't see that in the disclosures this time.

Yes. If you look at our -- I guess, our disclosures, Steve, what we have broken out is power systems specifically, right? And so, when you look at trended information, I think we quoted about 56% of the backlog is related to the Power Systems Group. A good portion of that, of course, if you look at historical trends on power systems, there will be some lumpiness to it. But I mean, that will give you a sense of the magnitude when you do comparisons there.

Yes, Steve, I'll just remind you, we've given you revenues. We've given you bottom line contribution, and we've given you the charges on dividends and purchase commitments. So hopefully, you can back into the margins that way.

Okay. Helpful. We follow up offline. And just maybe lastly, just the mining orders did seem to tick up in the period, which is a good indication. Is there anything specific to that, whether it's sort of existing fleet owners, new projects that might be coming to fruition? Just any color around sort of that activity picking up would be helpful.

Yes. I think it's really a bit of a blend, Steve. We often talk about mining as not really cyclical but lumpy, right? And so, when we think about mining, they're less frequent but larger order input when we see the backlog developing there and then longer lead times, of course, with that nature of equipment. And so, I would just tell you, it's a bit of a mix. There's certainly a number of projects that we're looking at longer term that were announced federally and so forth that give us some indication of some new greenfields, but that's still a ways out. And so I would say it's just a broad mix. There are a number of additions to fleets that we're looking at in replacement in that number.

The next question comes from Devin Dodge with BMO Capital Markets.

Do you expect there to be much or any impact from the Section 232 tariffs on your business overall? Particularly interested in your thoughts on AVL just given the shipments out of Hamilton.

Yes. I mean based on everything we know today, Devin, we don't expect 232 tariffs to have a material impact on the AVL shipments out of Hamilton.

Okay. Got it. And then in your outlook commentary, it was mentioned that you're considering opportunities to invest in the growth of data center-related businesses. Just wondering if you can provide a bit more color on the options being explored. I'm just trying to get a sense if the options are more weighted towards organic expansion, such as additional AVL capacity or expanding the product offering there or if it's more M&A and adding an entire new line of business?

Just maybe just to start on that, Devin. I think it would probably be more of the former. When you sit back and think about where we've invested so far, we continue to work on increasing production in Charlotte. And I think within our existing operations, driving productivity and so forth. And so, investment can take a few forms, but it would be primarily in organic in nature and developing some of the capability through our Power and Energy Group as well to support the supply chain. And so it could be, for example, just warehousing and helping support the productive capacity of each of our 2 facilities that we have today and then evaluating opportunities for growth, but it would be more organic versus an M&A approach.

The next question comes from Patrick Sullivan with TD Cowen.

First one is -- so rental revenue and product support revenue both up, and I think as mentioned across all markets and regions. I think we've known mining has been fairly solid for a while now. So, I was just wondering if you could really unpack what you're seeing in construction infrastructure areas.

Yes. No, that's a great question, Patrick. I think as you see, we saw some decent growth year-over-year in new used rental and product support, as you mentioned. And so, what we are seeing, and you can sort of look at the backlog as well, you can see some small growth in that area. I would say that the team did a really nice job in construction this quarter. And especially when you reflect on the quarter, the weather profile and so forth. And when you think of the seasonality in our business, we generally have a little bit of a slower quarter in Q1. It was pretty cold, a lot of moisture, and that does tend to slow some of the construction activity.

But we saw a nice pickup at the end of the quarter. And I think we're continue to monitoring it carefully. Activity levels in construction are still moderated a little bit given the uncertainty in the market. We're not seeing as much activity in infrastructure as we've seen historically, but I think there are a number of tabled projects and a number of tailwinds or indications that we're going to see some activity over the next couple of years. And so, our team is focused on positioning the business for growth in that area and making sure that we're able to respond to customer requirements as they initiate projects. And they respond to some of the government actions that are underway as far as investment and supporting infrastructure development.

Okay. Great. That's super helpful. I guess the next one here would be, I think you recently discussed some of the capital investment priorities outside of AVL for the year, I believe like Ontario distribution center, some expansion of your capacity in Quebec and maybe a camp up in Northern Newfoundland. I guess can you update us on the status of those, if there's anything else I'm missing there in the plans for the year?

Yes. You've caught several of them, Patrick. Things are going well at the distribution center. Bradford is fully up and running. We have broken ground in our new Toronto branch/head office, and that's going well. Yes. So, I think I mentioned on the last call that we would expect to invest $400 million, $450 million in the business in CapEx through the year, which is above what we did last year, maybe a bit more on real estate as a result of some of these things, but they're progressing well.

Yes. Just maybe just to add to that, too, Patrick. I think we have mentioned in the past that we're also building a new branch in the eastern part of the GTA around Brooklin, which, again, is looking to serve growth in that marketplace as a new location. We have talked also historically a little bit about after Bradford, we looked at Quebec City, and we are starting an expansion for remanufacturing to serve the Eastern Seaboard in the Northern Labrador and Quebec region. So those are 2 investments as well that John has earmarked some capital for.

Open the wallet, so to speak.

The next question comes from Sabahat Khan with RBC Capital Markets.

Just I guess, maybe bringing some of the commentary around AVL together. When you initially acquired the business, we're sort of $30 million to $50 million run rate at one facility, it looks like about $130 million of revenue this quarter. Maybe just bringing together all the commentary on the outlook and the ramp-up of the facility. Is there any perspective on what the sort of the combined run rate quarterly or any broad metric can share for us could be by the end of the year for that platform as we think about how to model that business?

Yes. I mean, Sabahat, so as I said, we're running about 100% capacity in Hamilton, plus or minus a couple of units. As of the fourth quarter, we delivered a handful of units out of Charlotte, but production really increased in the first quarter. So, leaving the first quarter, we're probably slightly less than 50% capacity per quarter coming out of Charlotte. And we would expect Charlotte to double the capacity by the end of the year, maybe sooner, but that's kind of the track we're on.

Great. And then I guess to your comment earlier on the 232 tariffs, I guess, should we assume that any pricing, whether it's on the equipment side from your OEM and sort of any sort of -- I think you noted nothing on the AVL side. Should we assume that anything on the equipment side is largely in the quarter and probably not a material consideration for us as we move forward? Or is evolution in the 232 even on the OEM side, something to think about?

No. As I said, we've looked at the 232 and I don't think it will have a material impact. Now having said that, none of us know what's going to happen day-to-day in the tariff situation. And as we talked about last year, we're doing everything we can to make sure we're prepared for that. But on 232 specifically, we don't see it having a material impact.

Great. And then just last quick one. I think you alluded to this earlier on the M&A side, but the commentary on looking for more opportunities in power, is that really just doubling down on AVL? Or is there other potential avenues to get exposed to the power space or invest in that space somehow beyond the silo that you're in already?

Yes. I think a couple of things there, Sabahat. I think, for example, we know that the data center development in, say, Canada is lagging the U.S. by a year or 2. And so I think as we think about the Power and Energy segment, including AVL and our existing business where we do backup power and prime power generation, we continue to look at opportunities there from the Power and Energy side as well in Canada and are working with customers developing a schedule and time line and a bit of a pipeline, if you will, just to think about what the opportunity may be and then how would we invest to satisfy some of that if we can earn our way into those opportunities.

And so I'd say it's a combination of things, continue to evaluate how we productively increase capacity with our existing footprint, but then also looking at opportunities as some of these other projects within even the Canadian market develop. So, we'll be looking at both.

The next question comes from Yuri Lynk with Canaccord Genuity.

Maybe John wants to take this one. Just on the AVL dividend to noncontrolling -- is that -- is a one-and-done payment in Q1? Or is there anything left to be paid in the balance of the year?

Yes. A couple of things to think about there, Yuri. So, the dividend that we paid in Q1 reflected the financial performance, leaving aside the amortization, so the cash performance of the business in 2025. And it also reflected the cash needs of a growing business. So, we looked at both of those things. Paid a $30 million dividend, $12 million of which went to minority shareholders, and that's the expense you saw in the quarter. Now going forward, we own 60% of the business. We now own 80%. So, any dividend that we pay will be kind of half what it was going to minority shareholders in terms of the percentage. So, we'll look at that on a quarterly basis. The board of AVL will look at that on a quarterly basis. And we may or may not end up paying interim dividends depending upon the performance and cash needs of the business.

Okay. So, the -- going forward because the $12 million was for the entire year of 2025, right, looking at that?

Correct. That's correct.

And you're saying going forward, you might pay dividends based on, say, the prior quarter? -- performance?

Well, I mean, we'll have a look at the performance and cash needs of the business. And the board of AVL, which is Mike and I and Vince, will make a decision on what's best for all of the shareholders in terms of those dividends. And it will reflect, again, the performance of the business, the ongoing performance of the business and the cash needs. And so there may be some interim dividends. We may wait until the end of the year. We'll just have to wait and see.

Okay. But Q2 is going to have a $45 million purchase expense, and that will be a separate line item in the P&L.

That will be a separate line item in the P&L, the purchase commitment expense, and that is the difference between the liability that we set up when we initially bought the business. So, recall that we bought 60%, and we were obligated to buy the other 40%. So, we've accelerated the purchase of that 20%. We paid $71 million for it, and we had $26 million in the liability on the balance sheet. So that's the $45 million that will expense in Q2.

And is there some -- does that reduce your taxable income or no?

No.

Last one, I just want to make sure I understand the revenue capacity of AVL. I mean if we look at Q4, call it, $100 million of revenue from AVL. Was Charlotte a major contributor or a contributor at all to that number? I'm just trying to get a clean starting point and then.

Charlotte contributed very little in the fourth quarter. And Charlotte got up and running in the first quarter. And so that by the end of the first quarter, they get slightly less than 50% of their capacity. So, as I said, we're 100% running in Hamilton, and we expect to be doubling that capacity in Charlotte over the course of 2026.

Okay. I can get to that number.

The next question comes from Jonathan Goldman with Scotiabank.

Kind of a different perspective here. Could you talk about the competitive dynamics in the industry? Maybe if you've seen any competitive response? I'm interested if any of your competitors have brought on additional capacity as well. And I think, Mike, a few calls ago, you talked about potentially margins coming up down over time with any sort of technological adoption curve. Have you seen that now? Or what's the best guess on when we might see margins taper in this business?

Yes. Thanks for the question, Jonathan. I think you blanked a little bit at the beginning there, but I think I got the essence of your question. I think in this space, as you know, we're -- we sort of have a conservative outlook on in some parts of the business. I think it's only reasonable to expect with all the capital going into the data center business, it's attracting a lot of attention that others are getting into the enclosure and packaging business. And so that's why we made those comments. I think at some point down the road, we anticipate that there will be better supply, more normalization. But also, I think on the cost side, we'll be working hard at optimizing our operation and managing costs, but material costs have been inflating over the last couple of years when you think of aluminum panels and steel fuel tanks and the trade dynamics.

So, there are a number of factors that I think will go into the margin equation. And -- but I think just given historical trends with technology like this where you tend to see at some point a normalization or a more balanced supply-demand dynamic. And so that's what we would anticipate. It's very difficult though, to put a number or timeframe or quantify that for you at this stage.

Do you have a sense on how short the industry is on capacity, even if you want to talk about it directionally, in terms of the enclosure business?

Yes. Again, that's a very difficult one to peg. Demand certainly seems to be quite strong, and it's really difficult. I would say, from our perspective, what we're trying to do is work with our key customers, ensure that we're making sure we're hitting our delivery schedules. We provide the quality products that they need and reliable distribution supply and time frames and so forth. And I would just say that it's -- at this point, it continues to be one of the constraints in the supply chain, but difficult to say beyond that in terms of overall market demand and so forth.

Okay. Fair enough. And then another one, I guess, is on CIMCO. Is there any progress or update on whether or not the technology could be specced into data centers?

Yes. A couple of things I would say there. I mean, I think, again, that's evolving as well. And we've often said that you need to get involved in the data center cooling aspect early in the cycle, especially with some of the -- like I think the hyperscalers, for example, have specced in a number of partners to provide cooling. And I think there's an opportunity there for CIMCO with our technologies but it would likely be more in the second tier and others, right?

Also in Canada, as we evaluate the opportunities in Canada, there is certainly an opportunity there. But again, it's -- when you -- it's changing in terms of the energy requirements, the cooling requirements and especially as -- and when I talk technology, it's like the thermal aspects of the chips and so forth. So, there's a number of things there that we continue to evaluate and look for opportunities to be able to demonstrate CIMCO's capability. But I would say the largest opportunity at this stage is probably more in the Canadian marketplace.

Okay. And maybe if I can just squeeze one more in. We talked a lot, I think, on the call about AVL capacity. It looks like there'll be a nameplate capacity on both facilities by the end of the year. Is there an opportunity to increase capacity further at those 2 facilities, whether it's increasing throughput with productivity initiatives, adding on a second kind of warehouse facility, adding a second line?

Yes. I mean, Jonathan, we really like what we're seeing from that business, and we like the progress that we're making in Charlotte. We're constantly looking at opportunities organically to increase production in both Hamilton and Charlotte. And we're monitoring demand very carefully and thinking about whether or not it makes sense to add capacity at some point. But right now, we don't have anything to -- any news on that. But certainly, we're pleased with the performance of the business.

The next question comes from Steve Hansen with Raymond James.

Can you just remind us how the purchase price is determined for the incremental 20% that you just acquired? It strikes me that $71 million for the 20% stake seems like a pretty reasonable price. I'm just trying to think about how that plays into the residual 20% still out there.

Yes. I mean the $71 million, Steve, is simply a negotiated number. We agreed on a purchase price when we bought the business. We agreed to buy out the shareholders, the 40% over the course of five years. And so, there was a price that was set then and the business has performed and it was a negotiated settlement with the shareholder. And it doesn't have any impact on Vince, the remaining shareholder.

I'm just trying to understand, I guess, is it on based on a multiple of EBITDA, multiple of trailing earnings or some sort of like how do you conclude that negotiation? Or what's the basis of the negotiation?

Well, the buyout itself was based -- is based on an EBITDA multiple. And so that was the basis for setting it up originally. And then the second part of that was a negotiated settlement.

I'm sorry, go ahead.

I was just going to say, are there any more questions or?

We actually have one raised hands again with Yuri Lynk with Canaccord Genuity.

Opportunity with the enclosure business?

Yuri, sorry, you cut out -- we missed virtually all of that question. sorry.

Okay. Can you hear me now?

Yes.

Okay. Just wondering if there's any aftermarket opportunity with the enclosure business.

Yes. A couple of things there. I would say, Yuri, is, as you know, these are -- generally, they're standby power. And so, they don't put a lot of hours on these units in the near term. But I would say when you think of the enclosure side of -- in the packaging, I mean, there's moving parts, there's doors, there's preventative maintenance and so forth. And I think longer term; there certainly would be an opportunity. And I think the question will be, do the operators handle some of that preventative maintenance themselves? In many cases, the local Caterpillar dealer would do preventative maintenance on the engines or the power plants themselves.

But we would -- that's something that we're evaluating as well in terms of service and aftermarket just on preventative maintenance around the packaging and the components of the enclosure. But it will be some time before I think that requirement develops.

We have another one. We have Krista Friesen with CIBC.

Just wondering if you can speak to what's the length of time between a customer placing an order at AVL and delivery? And how has that evolved over the last year?

Yes. Thanks, Krista. I think, I mean, it's -- there's a number of factors there. I would say, depending a lot of it is dictated by the customer location and their build schedule and when they need delivery of that power plant. And so, as they've confirmed the build schedule, say, in a location, then we look at the logistics and the order may come in. And so it does vary a little bit. Some of those schedules do change also based on the ability of the construction activity and the scheduling there. But I would say we're looking out -- if you look at our numbers, we're looking out at least 12 months.

There are some that could lag a little beyond that at times. And generally, part of the factor there, too, is our customers' access to the power plant. And so, making sure that we have engines available and then the scheduling of that. So, we can respond fairly quickly. Like John said, we're at a pretty good level of capacity -- productive capacity today. However, I would say when you think about it, we would be looking out 12 to 24 months depending on the schedule and the customer requirement.

There are no more questions at this time. I will pass back to Mr. Doolittle for any closing remarks. Please go ahead.

Okay. Thank you for hosting Angeline and to everyone for your participation. And before concluding the call, I'd like to remind listeners that our AGM will be held today at 10:00 a.m. Eastern. It's an in-person event being held at the company's offices in Pointe-Claire, Quebec, located at 5001 Trans-Canada Highway Pointe-Claire. And for those unable to attend in person, a recording of the meeting will be available through a link on our website. And that concludes our call. Thanks a lot for joining. Please be safe, and have a great day.

Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning. Today is Wednesday, February 11, 2026. Welcome to the Toromont Industries Limited 2025 Fourth Quarter and Full Year Results Conference Call. Please be advised that this call is being recorded. [Operator Instructions] Your host for today will be Mr. John Doolittle, Executive Vice President and Chief Financial Officer. Please go ahead, Mr. Doolittle.

Thank you very much, [ Ludy. ] Good morning, everyone. Thank you for joining us today to discuss Toromont's results for the fourth quarter and full year of 2025. Also on the call with me this morning is Mike McMillan, President and Chief Executive Officer. Mike and I will be referring to the presentation that is available on our website. And to start, I would like to refer our listeners to Slide 2, which contains our advisory regarding forward-looking information and statements. After our prepared remarks, we will be more than happy to answer questions. So let's get started and move to Slide 3. Over to you, Mike.

Great. Thanks very much, John. Good morning, everyone, and thanks for joining us this morning. Our team delivered solid results in the fourth quarter, closing out the year on a positive note despite persistent macroeconomic and trade uncertainty. We remain focused on long-term performance, continue to invest in our people and capabilities to support our customers and drive sustainable growth over the long-term cycle. Earnings improved over the course of the year, although full year earnings showed a modest decline due to factors such as investment in growth-related initiatives, lower net interest income and short-term noncash costs from the AVL acquisition, which John will expand upon shortly.

The Equipment Group executed well with solid activity in rentals, product support and new equipment deliveries. However, activity levels still reflect the economic environment, which continues to impact end customer demand. As expected, mining deliveries were lower due to the segment's inherent variability. However, we saw good order intake in Q4. Revenue increased with the inclusion of the acquired business, along with higher rental, product support revenue and higher total equipment sales. Rental revenue rose supported by a larger fleet and product support revenue also increased due to higher parts and service volumes. Operating income was 3% higher in the fourth quarter as the higher revenue and gross profit margins were partly offset by the higher expense levels.

CIMCO posted higher revenue and earnings, driven by good demand and disciplined execution in both Canada and the U.S. Growth in package revenue was supported by a stronger order backlog, while product support activity continued to improve, aided by our growing technician workforce. Operating income increased largely reflecting the higher revenue and solid execution, which more than offset higher expenses to support activity and growth. We continue to work closely with our new partners at AVL, focusing on this promising market. Production at AVL has been expanding since the date of acquisition and continues to build their healthy order backlog and new order demand. Hiring and development of production capacity continues. As noted in Q2, we acquired a facility in Charlotte, North Carolina to expand production capacity and better serve the Eastern U.S. market.

This facility commenced the first phase of production during the third quarter of 2025 and will ramp up throughout 2026. Revenue for the fourth quarter and full year of 2025 were $97.7 million and $254.7 million, respectively. As part of the accounting for the acquisition, the company recognized intangible assets related to order backlog and customer relationships, both of which are amortized over time. Certain other noncash expenses are recorded as a result of the acquisition accounting related to the commitment for purchase of the remaining shares of AVL.

Noncash expenses recognized for these items amounted to $33.4 million and $90.4 million, respectively, on a pretax basis for the fourth quarter and full year. Net income for AVL after consideration of amortization of intangibles recognized at acquisition was approximately negative $0.01 per share and a contribution of $0.01 per share for the fourth quarter and full year of 2025, respectively. Investment in noncash -- let's turn to Slide 4, and we'll highlight some of our key financial metrics. Investment in noncash working capital decreased 11% year-over-year, a net effect of lower inventory levels, higher accounts receivable balances and lower accounts payable balances due to equipment delivery timing.

Accounts receivable increased primarily reflecting higher trailing revenues and receivables from AVL, offset by good collection activity. DSO decreased by 1 day to 39 days. Our team continues to manage receivables aging and customer credit metrics effectively. Inventory levels declined primarily due to executed deliveries against order backlog, inventory management initiatives, slightly offset by CIMCO's higher work-in-process inventory levels, which reflects the timing of project construction and product support schedules. We ended the year with ample liquidity, including $1.3 billion in cash and an additional $453 million available under our existing credit facilities. Our net debt to total capitalization ratio was negative 19%.

Overall, our balance sheet is well positioned to support operations and navigate evolving economic and business conditions. We will continue to apply our operational and financial discipline as we support customer needs and evaluate future investment opportunities. We purchased and canceled 337,500 common shares for $40.1 million in the year under our NCIB program. Our purchases are intended to practice good capital hygiene and to mitigate option exercise dilution. Toromont targets a return on equity of 18% over the business cycle. ROE was below this at 16.9%, reflecting slightly lower earnings and higher shareholders' equity. Return on capital employed was 23.4%, also lower year-over-year, reflecting our increased capital investment. It is worth noting that noncash charges related to the AVL's backlog amortization, which will be effectively completed during the first half of 2026 impact these important metrics.

Finally, as announced yesterday, the Board of Directors approved the increase of the quarterly dividend by $0.04 per share or 7.7% to $0.56 per share or $2.24 per share annual. Toromont has paid dividends every year since 1968, and this is the 37th consecutive year of dividend increases. We continue to be proud of this track record and our disciplined approach to capital allocation. The next dividend will be payable on April 2, 2026, to shareholders of record at the close of business March 6, 2026.

John, I'll turn it back over to you for more detailed commentary on the results.

Okay. Thank you, Mike. Let's turn to Slide 5 for a few additional comments. On a consolidated basis, higher revenue was generated with both the Equipment Group and CIMCO. Equipment Group revenue increased with new equipment deliveries and execution against order backlog and project schedules coupled with the revenue of the newly acquired business AVL. Rental revenue improved during the latter half of the year, although utilization levels remained lower than prior year. Product support revenue increased in both parts and service on improving customer activity and focused execution. CIMCO revenue increased on continuing strong demand for its product and services. Gross profit margins improved compared to the prior year on improved efficiency and better sales mix.

Operating income was up 2% compared to last year, reflecting the higher revenue, improved gross profit margins, partially offset by the higher expense levels. Excluding the property disposition pretax capital gain of $13.7 million in Q3, operating income was relatively flat compared to prior year. Expense levels reflect continued support for key operational focus areas. Net interest income was significantly lower for the year, reflecting both higher interest expense as a result of higher borrowings as well as lower interest income earned due to lower interest rates. Bookings for the fourth quarter increased 47% compared to the fourth quarter of 2024 with higher bookings in the Equipment Group, including a significant contribution from the acquired business and strong mining activity, offset by lower bookings at CIMCO.

Backlog is strong at $1.5 billion, up 46% year-over-year with an increase in the Equipment Group of 68%, while CIMCO was comparable to 2024. On a consolidated basis, revenue increased 9% in the fourth quarter with an increase in the Equipment Group of 9% due to revenue from the acquired business along with higher product support revenue and an increase of 10% at CIMCO on higher package and product support revenue in both Canada and the U.S. For the year, revenue increased 4% with the Equipment Group up 3% and CIMCO up 14% compared to 2024. Excluding the property disposition gain in the acquired business, SG&A expenses increased 10% in the quarter and 5% in the year. Higher expenses reflect the continued investment in key strategic areas. Higher DSU mark-to-market adjustments increased expenses in both periods due to the higher share price.

Compensation costs were largely unchanged from the prior year as regular salary increases and higher staffing levels were largely offset by lower profit sharing accruals. Sales-related expenses increased year-over-year, reflecting continued investment in resources. All other expenses such as travel, training, occupancy and information technology costs have increased slightly on continued investment for future growth and inflationary effects. For the year, expenses increased to 12.3% of revenue compared to 11.8% last year. Operating income increased 3% in the quarter, reflecting the higher revenue, partially offset by the higher expense levels given higher activity.

On a year-to-date basis, operating income increased 2% as higher revenue and improved gross profit margins were partially offset by the higher expenses. As a percentage of revenue, operating income was 13.1% on a year-to-date basis compared to 13.3% last year. Net interest income increased $1 million in the quarter due to higher interest earned on the higher excess cash balance. For the year, net interest expense increased $17 million, reflecting interest expense on higher borrowings with the new senior debentures issued in March 2025. In connection with the acquisition of AVL in early 2025, the company made a commitment to purchase the remaining 40% of the shares at various dates through 2031. Revaluation of this purchase commitment liability resulted in a $7.9 million expense for the year, and you will see that as a separate line item on our P&L. Net earnings increased 1% or $0.9 million in the quarter compared to last year and decreased 2% or $9.9 million for the year. Basic earnings per share was $1.93 in the quarter and $6.11 for the year.

Turning to the Equipment Group on Slide 6. Revenue increased 9% in the quarter and 3% for the year as higher construction and power systems markets, including the acquired business, along with higher rental and product support revenue were largely offset by lower mining revenue against a strong comparable. Equipment sales, including both new and used equipment were up in both quarter and full year by 9% and 1%, respectively. New equipment sales increased 10% in the quarter and 1% for the year with decreases in mining against a strong comparable, partially offset by higher power systems markets, which include revenue of the acquired business. Used equipment sales increased 4% in the quarter, mainly on improved dispositions in the construction market and decreased 4% year-to-date in most markets, the decrease prominently led by a lower construction market, slightly offset by improved mining market activity.

Looking at the market segments for the quarter. Total equipment revenue decreased 39% in mining, while Power Systems increased 131%, Construction increased 1% and material handling increased 12%. Rental revenue was up 5% in the quarter and was up 9% year-to-date. While market conditions remain somewhat challenging, revenue increased compared to the prior year, reflecting a larger fleet and improved activity levels in certain areas. Revenue improved in most areas for the quarter as follows: Heavy equipment rentals were up 15%, light equipment up 5%, material handling up 7%, partially offset by a decrease in power rentals down 11%. The RPO fleet was $92.5 million versus $97.9 million a year ago, and rental revenue was up 5% for the quarter and 40% for the year compared to the similar periods last year.

Product support revenue increased 9% in the quarter and 4% year-to-date, with an increase in both parts and service. Activity was higher across most markets and regions, reflecting end-user demand and activity levels. Gross profit margins increased 10 basis points in the quarter compared to the fourth quarter of 2024 and increased 30 basis points on a full year basis. Equipment margins were up 50 basis points in the quarter, up 50 basis points for the year, reflecting market dynamics and the nature of equipment sold. Rental margins were down 10 basis points in the quarter, down 20 basis points for the year on higher recent fleet acquisitions and higher maintenance and repair costs. Product support margins decreased 30 basis points in the quarter and 10 for the year. Sales mix was favorable, up 10 basis points in the year, reflecting a higher proportion of product support revenue to total revenue.

Excluding the gain on property disposition and the acquired business in 2025, selling and administrative expenses increased $11.3 million or 9% in the quarter and $21.5 million or 4% for the year. Higher expenses reflected continuing investment in key strategic areas. Higher DSU mark-to-market adjustments increased expenses in both periods. Compensation costs were higher in both periods, reflecting staffing levels and regular salary increases, more than offset by lower profit sharing accruals on the lower income. Other expenses such as training, travel and occupancy costs have increased in light of sales levels, planned investment and inflation. As a percentage of revenue, selling and administrative expenses increased to 12.1% versus 11.5% last year. Operating income increased 3% for the quarter and was relatively unchanged for the year.

Excluding the property disposition gain, operating income decreased 2% for the year, reflecting the higher revenue and improved gross profit margins more than offset by the higher expenses. Acquired business continues to increase production, however, did not contribute meaningfully to operating income given expenses arising from purchase price accounting, including items such as amortization of intangibles and the setup of a new U.S. facility. Bookings increased 71% in the quarter, led by strong order intake in Power Systems and the mining sector. For the quarter, construction markets were up 9%, reflecting more normalized customer demand. Power Systems, which includes the acquired business saw strong order activity, up 195% on good demand for our products. Mining markets are lumpy or cyclical due to the nature of the business and improved up 324% on good orders in the quarter.

Material handling orders were down 14% versus a strong comparable last year. Backlog sits at $1.2 billion, remains at healthy levels. Backlog includes approximately $428 million at AVL. And excluding this backlog -- excluding this, the backlog was up 7% compared to the same time last year, reflecting good new order intake throughout the year. Approximately 90% of the backlog is expected to be delivered over the next 12 months. But of course, this is subject to timing differences depending upon vendor supply, customer activity and delivery schedules. When you consider the impact of AVL on our results, please keep in mind that the bulk of the purchase price amortization is related to acquired backlog.

A substantial portion of this backlog was shipped in 2025 with a small remainder expected to be delivered in the first quarter of 2026. And you refer to Note 11 in the financial statements for a breakout of this. As well, it is important to recognize that we own 60% of the business and any dividends paid to minority shareholders will be treated as expenses when paid. We expect dividends to begin in 2026 with amounts reflective of both trailing earnings, excluding the impact of amortization and the cash flow needs of a rapidly expanding business.

Turning now to CIMCO on Slide 7. Revenue was up 10% in the quarter and 14% for the year. Package revenue increased 4% in the quarter and 18% year-to-date, led by strong recreational market activity, reflecting good execution on equipment delivery and progress on customer schedules, slightly offset by a decrease in the industrial market. Recreational activity increased 51% in the year with higher revenue in both Canada and the U.S. in both periods. Industrial market revenue decreased 3% in the year with lower activity in Canada against a strong comparable and higher activity in the U.S. in both periods. Product support revenue increased 17% in the quarter and 9% on a year-to-date basis with higher market activity in Canada in both periods. Activity in the U.S. was down 11% in the quarter and down 1% year-to-date with a stronger start to the year. Activity levels continue to improve on good customer demand and the increased technician base.

Gross margins were unchanged in the quarter and increased 10 basis points in the year versus similar periods last year. Package margins reflect good execution in the nature of the projects in process for both periods, driving a 20 basis point increase for the quarter and 50 basis point increase for the year. Product support margins decreased 50 basis points in the quarter and 20 basis points for the year. Improving execution and efficiency continues to be a focus. A favorable sales mix with a higher proportion of product support revenue to total increased margin 30 basis points in the quarter and an unfavorable sales mix of 20 basis points reduced gross profit for the year.

Selling and administrative expenses increased $2 million or 12% in the quarter and $7 million or 10% for the year. Compensation costs increased, reflecting staffing levels, annual salary increases and higher profit sharing accruals on the higher earnings. Other expenditures such as travel and training expenses increased to support activity and staffing levels. As a percentage of revenue, selling and administrative expenses improved to 14.3% in 2025 versus 14.8% in 2024. Operating income was up $2 million or 9% for the quarter and $11 million or 20% for the year, largely reflecting the higher revenue and improved gross margins, partially offset by higher expense levels supporting growth.

Operating income as a percentage of revenue increased 60 basis points to 12.2% on a year-to-date basis compared to the similar period last year. Bookings decreased 45% or $56 million in the quarter and were 11% lower against a strong comparator. For the year, industrial orders were down 9% and recreational orders down 14%. Generally, activity is continuing with good strategic capital investment levels. However, the current economic uncertainty has delayed some customer buying decisions. Backlog of $343 million was relatively unchanged versus last year as higher backlog in the industrial markets up 2% were offset by lower recreational markets down 2%. Approximately 75% of this backlog is expected to be realized over the next 12 months. However, again, this is subject to construction schedules.

And with that, we can move to Slide 8. turn again to Mike to highlight some key takeaways as we look forward to the year ahead.

Great. Thanks again, John. As we look forward to the first quarter of 2026, our focus remains firmly on executing our strategic priorities, namely maintaining safe and efficient operations, delivering exceptional customer service and applying disciplined financial and operational rigor to support long-term growth. With that in mind, we continue to monitor several external factors that may influence the business environment. Trade negotiations between U.S. and Canada remain fluid. We have implemented a proactive mitigation plan and continue to refine such plans as the situation evolves in order to manage potential impacts.

Foreign exchange volatility, particularly fluctuations in the Canadian dollar is being actively managed primarily through our hedging program. While this helps to protect our bottom line, broader economic effects may still be present. Macroeconomic conditions, including inflation and interest rates are being closely tracked. Our backlog of $1.5 billion in the equipment supply chain is well positioned to support our customer requirements as well. The AVL acquisition continues to track to our production plan. Though near-term earnings contributions remain modest due to noncash purchase accounting adjustments and the dividends, as John noted earlier. We continue to invest in our technician workforce, a key enabler of our aftermarket growth strategy. This critical initiative strengthens our aftermarket services capability and enhances the value we deliver to our customers through our product and service offerings.

From both an operational and financial standpoint, we have a focused operating model, talented leadership team, disciplined culture and ample liquidity, which helps equip us to navigate near-term uncertainty while pursuing strategic growth opportunities. Our long-term commitment to shareholder value remains anchored in cost discipline, strategic investment and operational excellence.

We thank our team for their continued dedication and our stakeholders for their trust and support.

That concludes our prepared remarks. We'd now be pleased to take your questions. Ludy, back over to you, please, to set up the first call.

[Operator Instructions]

With that, our first question comes from the line of Devin Dodge with BMO Capital Markets.

I wanted to start with a question on -- I guess it's on the AVL business. But look, we've seen CAD is increasingly seeing opportunities for really large data centers. That's both for prime and backup power. I mean they saw multiple orders for gensets for sites more than a gigawatt of power. Just are these opportunities for AVL? Or are these gensets likely to be deployed in larger enclosure buildings versus the typical AVL offering?

Yes. Thanks, Devin, for the question. Let me just start with that, and John can provide some color as well. I would say, at this stage, our focus is really on the standby power and ramping up production to support the data centers in motion today. Not to say that we aren't looking at the gas. Like I think from your perspective, what you're talking about is the shortage in energy in the segment, right? And so as we've heard, certainly, there's a shortage of energy to support data centers, and they're looking at different opportunities to bridge until they get into the grid and also just operating as a prime power solution while they continue to build out and address the demand in the data center side of things.

And so I would say, broadly speaking, we certainly can provide enclosures. Some of these power plants, certainly, the gas solutions are larger, a little heavier, but many of them do require a similar type enclosure and so forth. And so at this stage, I would just say it's a bit early in that regard. That's something that we'll probably evaluate as we get further down the path of executing our plan and ramping up production in Charlotte.

Okay. Makes sense. And then maybe just sticking with AVL. I was just wondering if you could provide an update on the ramp-up at the Charlotte facility and how quickly that could get to full production. And just wondering if there's any plans to expand the AVL network beyond Charlotte, either at existing facilities or just expanding the overall network?

Yes. Just on Charlotte, Devin, I think Mike called that out in his remarks. We're making good progress in Charlotte. The building is basically kitted out. We're hiring folks. There is some limited production going on right now, and we would expect that to continue to grow throughout 2026. And I commented last quarter, I think, on margins following that growth in production.

Mike, did you want to talk about.

Yes. Just let me -- your second part of your question there, Devin, on further expansion. I mean I think the first thing we want to do is ramp up production, both Hamilton and here. Hamilton is at a pretty good state at the moment. I think there is also some opportunity when you think about operating efficiently in, say, the Charlotte facility, shift scheduling, adding a little bit more assembly and manufacturing space, that type of thing. So we'll evaluate that first before we would go further with another opportunity in another location.

And the next question comes from the line of Maxim Sytchev with National Bank Financial.

If we switch gears, if we can, to the kind of the core Equipment group, can you maybe talk about the inflection in the backlog year-on-year? And what's driving that specifically in terms of end markets, et cetera?

Yes. Just so I'm clear, Max, just you're focused on more traditional equipment group as far as the backlog?

Yes. Yes, please.

Yes. I think as we've talked about probably over the course of the last year or so, availability of equipment has improved quite significantly in the industry and bundle that with a little bit softer demand and activity levels in Canada with some of the other factors at play. I would just say that what we are seeing, again, strong levels of bookings, strong -- our backlog continues to be at a relatively high level, even if you back out the power and energy side of things relative to -- we always look back at, say, 2019 and where we would normally be with strong availability. And so I'd say it's an interesting dynamic. I'd say we're still trying to help our customers with solutions, whether it's new equipment, which has strong availability, but also as we look at inflationary effects over the last several years, the right solutions for them in terms of used rebuilds, rentals and so forth.

And so you tend to see that. But right now, I would say, given the demand strength, customers do have the opportunity to make their purchase decisions in line with what they're seeing in the project pipeline and some of the infrastructure we anticipate will materialize over time. So it's a little more patient than it has been, say, for the last little while.

Okay. No, that's fair enough. And then in terms of the margins on AVL, I know that John sort of alluded to this in the previous question, but how much of a drag was Charlotte ramp-up in the margin performance for AVL in Q4 from your perspective?

It wasn't a significant drag in the fourth quarter, Max. And all I was saying is we -- the expectation as we build out production is that, of course, costs kind of upfront before you get revenues. And so we would expect margins to build as revenue grows in Charlotte over the course of the year. But it wasn't much of a drag on the Q4 performance.

And your next question comes from the line of Cherilyn Radbourne with TD Cowen.

I wanted to key off a comment in regards to the bookings in the Equipment Group in the fourth quarter. You mentioned that construction orders were up 9%, reflecting more normalized customer demand. Can you sort of elaborate on that comment? Is that confidence driven, project driven? Any detail you can give there would be helpful.

Yes. I think, Cherilyn, it's a number of factors when you break it down. I think it's, like I mentioned earlier, availability and so forth. I think also, it's not unusual for us to see in Q4, depending on how customers -- their financial positions are and what they see for year-end buys and they can time it. This year, we certainly have better availability, so they can -- you'll see the booking activity was pretty strong in Q4, for example, right? And our execution on new sales was strong in the same period. And so there's certainly an element of that. I'd say I'd be careful on confidence in the market at the moment. I mean we are seeing a little bit of activity. But we're -- I think it's -- we're still waiting to see improved activity levels in infrastructure, sewer water, all the things that tend to drive a lot of the initial construction activity. And I think it really relates to the economic uncertainty in the marketplace and the work environment, right? So...

Okay. That's helpful. And in terms of the narrative around the potential for nation building infrastructure projects, how are you tracking that internally? And what are your thoughts at this point as to when that could start to positively impact the business?

Yes, it's a great question. I think a couple of things there that we certainly are keeping an eye on. Like I would say the tailwinds or the backdrop and you hear about it almost on a daily basis on the news is resource development. We often hear about Northern Ontario development opportunities. I think, of course, commodity pricing and everything is in a good position, including even iron ore and things like that at the moment. And so I'd say that definitely provides us with cautiously optimistic long-term outlook. I would say, in terms of timing, that's the big question.

Like we're watching carefully to see where mine developments are, but also infrastructure when you think of roadworks. And there's certainly like in our core markets like Ontario, you often hear about some of the road building and other things that are planned. I would say yet to be seen, though, in terms of material movement and some initial stage stuff is happening. But it'd be difficult to predict where we're going to be in '26. I think as we look longer term, '27 forward, I would say we'd be cautiously optimistic that we're going to start to see some good development in both of those areas.

John, anything you want to?

It's good Mike.

And your next question comes from the line of Sabahat Khan with RBC Capital Markets.

This is Arthur on for Sabahat. I want to start with the Equipment Group bookings. I know you called out mining orders as being reflective of normal lumpiness. But can you just give us a little more color on where the orders are coming from? And would you expect an increase in order activity over the coming quarters given where commodity prices are? And as a follow-up, can you also dig into the Power Systems growth between both AVL and the rest of the Equipment Group business?

Thanks Arthur. Maybe just to start out. On the bookings in the mining side, I think, as John mentioned, it is -- and I think I commented, it is lumpy here. It is a little bit more cyclical. And so we tend to see, as you know, lower frequency of orders, but usually larger in nature, unless it's replacements or supplementary ancillary equipment. So we are seeing -- I think given the commodity backdrop, we are seeing some good interest in mine development, and that would be in the gold sector, of course, but also in areas of nickel and other base metals and things like that. And so our goal, again, is to -- it's a very competitive space. There are some very capable players in the equipment space.

Our goal is to compete and win and earn our way into those projects. I mean we certainly are prepared to invest in terms of infrastructure, technician workforce and support throughout the cycle for our customers. And so that's one of the areas we try to add value, if you will. And so it's very difficult to predict the order flow, but I think we do see a reasonable pipeline of opportunities over the next several years, and these are long-duration projects, right? So just to give you a bit of color, I mean, it's hard to pin that stuff down, but I think the Canadian marketplace commodity backdrop provides good investment, which generally results in mine development and opportunity for our team to execute.

Yes. You mentioned -- sorry, Arthur, you mentioned also the Power Systems side and that sort of thing. I think certainly, you get some good color out of the AVL disclosure that John and I provide in the order backlog and so forth to give you a sense of where that's headed. Maybe John can talk a little bit about the timing on that backlog and so forth. But I'd say it's been driven by some of the Eastern U.S. market activity out of the AVL side. The Power and Energy Group here in Canada is doing a nice job in the number of projects. But I'd say the data center forecast in Canada is certainly lagging the U.S. activity. Like I think there is certainly some interest starting to develop. But I would say it's still early days here in the Canadian marketplace for that particular activity.

Yes. I'd just say on AVL, the backlog is about -- just over $425 million. And as I said, we would expect that to roll out over the course of 2025. And that accounts for the largest chunk of the growth in the Power System order bookings.

Got it. Maybe just a follow-up on that AVL backlog. So it sounds like duration is kind of normal course. But the growth in the backlog, is that largely reflective of the ramp-up in the Charlotte facility? Or is a lot of that also coming from the Hamilton facility as well?

It's a combination of both. It's a combination of both, just strong orders on both. And we decide based on capacity, where we're going to fulfill those orders. So they kind of come in centrally and then we decide where to place them.

Got it. And at this point in time, is that, I guess, backlog and kind of the revenue that you're seeing, is that largely reflective of kind of volume across the business? Or is there some element of pricing in there as well that we should be keeping in mind?

That's largely reflective of volume at this point.

And then last one for me on the revaluation of the commitment liability. Can you just remind us which KPIs this might be based on? And is there anything to keep in mind as it relates to potential future revaluations?

Yes. I mean as we talked about when we acquired AVL, we acquired 60% of the business and then the other 40% we're going to acquire over time through 2031. And that is -- that 40% is structured so that to the extent the business does better than we anticipated in the business case, then there'll be a higher multiple on a payout. And so the business is doing very well. So we took a look at the liability at the end of the year and revalue it upwards from $42 million to $50 million. And that's why that $7 million expense was booked in 2025, and you'll see that as a separate line item in the P&L. And we'll evaluate that on a regular basis as we move forward, track how the business is doing and estimate that liability, and you'll see that recognized, and we'll talk about it on the calls.

And your next question comes from the line of Krista Friesen with CIBC.

I was just wondering if you could speak to kind of where you're at in the mining cycle right now as we think about product support coming in relative to the orders delivered over the last couple of years and also acknowledging that I believe you called out decent bookings in the quarter for your mining business, too.

Yes. I would say we're sort of midway, like you mentioned, some of the larger fleets we've talked about over the last several quarters. And it does take 2 to 3 years to really get the equipment and the hours and utilization up to a point where we do more than just preventative maintenance and routine things. And so I'd say we're about, let's say, on average, halfway through that type of cycle before we start to see component replacement opportunities and so forth. The activity levels in the mining sector are pretty strong and the hours continue to build, but it does take some time. I think -- and again, as we mentioned earlier, when you look at the order book and how we're seeing things develop over time, we continue to be cautiously optimistic, but we're very mindful of the fact that every deal is unique, and we have to earn our way into those opportunities.

I think the one area I would I would notice, as we look at the sector over the long cycle, one of the areas we're also looking at is similar to one of our customers today is running autonomous solutions. And I think when it comes to technology and the evaluation of those offers, I think that's also another factor that may play into opportunities down the road. But again, these are -- these types of projects take time and the customer needs to get comfortable with the technology adoption and the benefits.

That's great color. And maybe just on the AVL acquisition, obviously, been quite successful and a lot of growth there. Are there other sort of adjacent areas like this that you're looking at in terms of M&A kind of in the near to medium term here?

I would say at this stage, Krista, we -- one of the reasons we really like the AVL acquisition, as we often talk about when it comes to M&A is complementary scope, if you will, that really fits well with, like, say, the engine business, the Power and Energy business. And so from that perspective, I would say we're very mindful of the space, the level of investment required, the capital going into the market, but also the supply chain. So when we look at that, I would say anything that we'd look at today would be around traditional parts of our business that would be complementary and broaden the service and product offer to our customer.

I think from an AVL perspective, again, it's helping to support the execution and delivery of the units that we need to provide and the supply chain. There's -- within these units, we have a number of components like plenums, exhaust SERs for scrubbing emissions and paneling and switchgear and so forth, which a lot of that we can do ourselves today through our Power and Energy group. And so that's where our focus would be, would be just to make sure that whatever we're looking at is a complementary part of the business that we have a much better understanding.

And your next question comes from the line of Steve Hansen with Raymond James.

John, I think you referenced the new dividend structure for AVL that's going to be coming up here. How do we think about modeling that? I understand your ownership stake, but I think you referenced it would be based on trailing earnings. Is there a catch-up to be had in the front quarters as we think about the trailing '25? Or how should we think about that sort of cadence of expense?

Yes. So Steve, the way I laid it out was that there will be dividends paid in 2026. I would expect it to be a dividend paid in the first quarter. And the way you should think about that is there are a couple of components. One is 2025 earnings before amortization as one input. Then the other input is, of course, we operate businesses on a call it stand-alone basis. And so AVL is in growth mode. And there are certain cash requirements that accompany that growth mode. And so we've got to take into account historical earnings plus cash needs going forward, and those things will factor into any dividend that we pay on AVL in the first quarter and as we move forward.

Okay. But it will be a quarterly regular rated dividend, I understand.

TBD, we're looking at 2025 results right now and focusing on that, and then we'll be evaluating it as we move through 2026.

Okay. Helpful. Just switching over to the core Equipment Group. I know, Mike, you referenced good availability out there in the market, but the margins do look to be continuing to soften here on, again, the ex-AVL business. Is that a pattern that we can expect to start stabilizing here as we look at sort of that core underlying? Or how do you think about the margin profile going forward?

Yes. I think, Steve, I think a couple of things to think about. We always talk about the factors affecting our margin. I think availability has been pretty strong over the last several quarters. And certainly, that plays in. But I think an important part for us is how you think about mix. And so when you think of, say, John's comments, we talked a little bit about decent new equipment deliveries. However, we didn't see a lot of mining deliveries. And again, usually mining is higher value, tighter margin just given the nature of the product. And so even within the New Equipment segment, I would say, think about the mix and what we're talking about there, used was not bad in the quarter. Like if you look at our used revenues was up 4% versus last year, I think, roughly.

And so that can give us a little bit to consider there and rental was improved, up 5%. And so those things, when you think of the overall balance and then the margins within those segments, that's really the right way to think about how we go forward. Availability, I think, is strong. And so you would expect the market to be competitive in terms of pricing and value. And so we don't -- I think the wildcard there would be continued tension between the trade dynamics here that we're talking about and if there are more tariffs that come into play, and that can affect commodities like steel and aluminum pricing and things like that. And that's one thing that we're very cognizant of and monitoring carefully.

Okay. Great. And just the last one for me. I know it's a bit nichey, but just is there anything to think about with the weather pattern we're expecting here, higher rental demand on snow removal? Is there anything that really plays from this sort of atypical weather event we're seeing through first quarter here?

Yes, it's a good question. So we have just come through a bit of a blast here in January. I would generally step back and say, look, we live in Canada, and we deal with the weather conditions, and we've had warm winters and cooler winters. And definitely, we see more snow removal activity, maybe a little bit more on the heating and things like that. But there's also a point where depending on temperature, we're not -- our customers are not using heaters, for example, the soaking ground when it's very cold, but they are using it in the intermediate sort of temperatures. And so all that to say, there's a subtle effect there, but I wouldn't say it's overly material. But certainly, you see the activity out there in the snow banks around our market anyway out here in Eastern Canada, which has been positive for us.

And your next question comes from the line of Yuri Lynk with Canaccord Genuity.

A question for John. I just want to make sure I'm modeling the noncash AVL expenses going forward, I'm referring to the $33 million in the quarter. You mentioned that the amortization portion of that to the backlog is pretty much will be exhausted in Q1. But just so I'm clear, that doesn't mean that, that $33 million goes to zero, right? There's another component in there related to the commitment to buy the remaining shares of AVL that's going to continue? And if so, can you help us kind of quantify what that might be?

Yes. A couple of things to think about there. So if you go to Page 33 of the financials, you'll see the way the intangibles were broken out for the AVL acquisition, and most of it was allocated to customer order backlog. So we bought backlog in January of 2025. And most of that has been sold has rolled through revenue. So you look at it, there was $76 million that was acquired, $75 million of that was amortized through the year. So there's a small piece that's left to be amortized in Q1. Customer relationships is the other piece of intangibles, and that amortizes over 5 years. So the first year was taken in 2025, and the rest of it will be amortized over the next 4 years.

And then your last part of the question is related to the 40% that we don't own. and we have an obligation to buy those shares over the course of the next number of years. And so we set up a liability when we bought that 40% based on everything we knew at the time. And we've got to have a look at that on a regular basis to say, are we tracking to that business plan? Is AVL doing better than we thought? And because it's based on an earnings multiple, it could go up and it could go down. So we have to revalue it. In this case, it went up a little bit, and that's why we booked the expense. So we'll track that, like I said, going forward. If you see any changes in that valuation number, we'll explain it.

Yes. And just on that purchase piece, too, Yuri, I think one of the things we mentioned in prior calls is we're looking to buy out that 40%. We actually have a schedule, like John says, the last 10% so it's in 10% blocks year-over-year and the last piece is expected to be purchased out in early 2031.

Does that help, Yuri?

Yes, that's helpful.

Thank you. And I'm showing no further questions at this time. I would like to turn it back to Mr. John Doolittle for closing remarks.

Okay, Ludy. Thanks a lot for hosting us today. Thank you, everyone, for joining for your questions. That concludes our call. Please be safe. Have a great day, everybody. Thank you.

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.

Good morning. Today is Friday, October 31, 2025. Welcome to the Toromont Industries Limited Third Quarter 2025 Results Conference Call. Please be advised that this call is being recorded. [Operator Instructions] Your host for today will be Mr. John Doolittle, Executive Vice President and Chief Financial Officer. Please go ahead, Mr. Doolittle.

Okay. Thank you, Joelle. Good morning, everyone. Thank you for joining us today to discuss Toromont's results for the third quarter of 2025. Also on the call with me this morning is Mike McMillan, President and Chief Executive Officer. Mike and I will be referring to the presentation that is available on our website. In the start, I would like to refer our listeners to Slide 2, which contains our advisory regarding forward-looking information and statements. After our prepared remarks, we'll be more than happy to answer questions. So let's get started and move to Slide 3. And I'll pass it over to Mike.

Great. Thanks very much, John. Good morning, everyone, and thanks for joining us. Our team delivered solid results in the third quarter, executing effectively despite persistent macroeconomic and trade challenges. We remain focused on long-term success, continuing to invest in our people and capabilities to support our customers and drive sustainable growth. Net income rose aided by a property sale, while underlying earnings reflected gross related investments, lower net interest income and short-term noncash costs from the AVL acquisition.

The Equipment Group executed well with solid activity in rentals, product support and used equipment deliveries in construction and mining. However, activity levels still reflect the economic environment, which continues to impact end-customer demand. As expected, mining deliveries were lower due to the segment's inherent variability. Revenue declined as revenue from the acquired business, along with higher rental and product support revenue was more than offset by lower new equipment sales, which was as expected in the Mining segment.

Rental revenue rose driven by a larger fleet. Product support revenue increased due to higher parts and service volumes. Operating income in the third quarter included a pretax gain of $13.7 million on the sale of our property. Excluding this gain, operating income was 1% lower for the quarter, given a strong comparator which reflected market dynamics in play at that time, along with the higher expenses.

CIMCO posted higher revenue and earnings driven by good demand and disciplined execution in both Canada and the U.S. Growth in the package -- in package revenue was supported by a strong order backlog, while product support activity continued to improve, aided by our growing technician workforce. Operating income increased on higher revenue and solid execution, partially offset by lower gross margins and an unfavorable sales mix, which is lower product support revenue to total revenue and higher expenses to support activity and growth in the segment.

We continue to work closely with our new partners in AVL, focusing on this promising market. Production in Hamilton has ramped up since the acquisition supporting our healthy order backlog and demand. Hiring and development of production capacity continues.

As noted in Q2, we acquired a facility in Charlotte, North Carolina to expand capacity and to better serve the Eastern U.S. market. This facility commenced the first phase of production during the third quarter of 2025 and will ramp up throughout 2026. While the business is performing well, the bottom line contribution on a year-to-date basis reduced EPS by approximately $0.02 per share related to various noncash related purchase price accounting items. Of course, more detail is available on our financial statements and disclosures.

Let's turn to Slide 4, our key financial highlights. Investment in noncash working capital decreased 13% year-over-year largely on lower inventory levels, partially offset by higher accounts receivable and accounts payable balances due to equipment delivery timing. Accounts receivable increased mainly reflecting the addition of receivables from the recently acquired AVL operation. DSO increased by 1 day to 48 days. Our team continues to manage receivables aging and customer credit metrics effectively. Inventory levels declined partly due to executed deliveries against the order backlog, inventory management initiatives as well as lower work in process at CIMCO, reflecting project and service timing. We ended the quarter with ample liquidity, including $1 billion in cash, an additional $453 million available under existing credit facilities.

During the quarter, we also completed the redemption of our 2025 debentures at par as previously announced. Our net debt to total capitalization ratio was negative 9%. Overall, our balance sheet remains well positioned to support operations and navigate the evolving economic and business conditions. We will continue to apply operational and financial discipline as we support customer needs and evaluate future investment opportunities.

Toromont targets a return on equity of 18% over the business cycle. Return on equity was slightly below this at 17.5%, reflecting slightly lower earnings and higher shareholders' equity. Return on capital employed was 23.3%, also lower year-over-year, reflecting our increased capital investment. Finally, as announced yesterday, the Board of Directors approved a regular quarterly dividend of $0.52 per share payable on January 5, 2026, to shareholders of record at the close of business on December 5, 2025. John, back over to you for a more detailed commentary on the results.

Okay. Thank you, Mike. Let's turn to Slide 5 for a few initial comments on the consolidated numbers. As Mike noted, profitability improved in the third quarter of 2025 compared to last year and compared to the first half of the year, benefiting from a $13.7 million pretax gain on the disposition of a property. Excluding this, operating income was $0.9 million or 1% from the similar quarter last year. Equipment Group revenues were lower as expected, with declines in Mining, which is coming off a comparatively strong period of capital investment, partially offset by revenues at the newly acquired business AVL. While uncertain market conditions persist, and customer purchasing decisions and activity are somewhat mixed, rental and product support revenues increased, CIMCO revenue increased on a continuing good demand for its products and services.

On a consolidated basis, gross profit margins improved compared to prior year on good execution and better sales mix. Expense levels reflect continued support for key operational focus areas. Net interest expense was higher than the prior period, reflecting both higher interest expense as a result of higher borrowings as well as lower interest income earned on cash on hand due to lower interest rates. Bookings for the third quarter increased 47% compared to Q3 2024 and increased 13% on a year-to-date basis. We saw good order intake in construction and power systems, which includes a significant contribution from the acquired business, partially offset by lower mining orders.

Backlog remains healthy at $1.3 billion, up 17% year-over-year with an increase in both the Equipment Group up 15%, and at CIMCO, up 24%. Backlog remains healthy and reflects deliveries in progress on construction schedules, good new booking activity and backlog related to the acquired business.

On a consolidated basis, revenue decreased 2% in the third quarter with a decrease in the Equipment Group of 4%, largely driven by lower mining deliveries against a strong comparable and an increase of 22% at CIMCO on higher package and product support revenue. For the first 9 months of the year, revenue increased 2% as the Equipment Group revenue was comparable to last year, while CIMCO was up 15%.

Excluding the property disposition gain in the acquired business, SG&A expenses increased 9% in the quarter, 3% year-to-date. Higher DSU mark-to-market adjustments increased expenses in both periods, accounting for approximately 30% of this increase. Compensation costs were higher year-over-year, reflective of regular salary increases, partially offset by lower profit sharing accruals on lower income. Salary headcount is largely unchanged year-over-year. Sales-related expenses increased year-over-year, reflecting continued investment in resources. All other expenses such as travel, training, occupancy and information technology costs have increased slightly on continued investment for future growth and inflationary effects. Expenses increased slightly to 12.6% of revenue compared to 12.1% last year on a year-to-date basis.

Operating income increased 8% in the quarter and excluding the property gain, increased 1% compared to Q3 2024 as higher gross margins were partially offset by lower revenue and higher expenses. On a year-to-date basis, operating income was relatively unchanged. However, excluding the gain on property disposition, operating income decreased 3%, reflecting higher expenses, partially offset by the gross margin improvements. As a percentage of revenue, operating income was 12.1% on a year-to-date basis compared to 12.4% last year.

Net interest expense increased $4 million in the quarter and $18 million on a year-to-date basis, reflecting interest expense from higher borrowings with the new senior debentures issued in March 2025 as well as the lower interest income earned on cash due to lower interest rates. Net earnings increased 7% or $9.7 million in the quarter compared to last year and decreased 3% or $10.8 million for the first 9 months of the year. Basic earnings per share $1.73 in the quarter and $4.18 year-to-date, reflecting the change in net earnings.

Turning to the Equipment Group on Slide 8. Revenue declined 4% in the quarter as revenue from the acquired business, along with higher rental and product support revenue was more than offset by lower new product sales as expected in the Mining segment. For the first 9 months of the year, revenue was relatively unchanged. Equipment sales, including both new and used equipment were down in both the quarter and on a year-to-date basis by 12% and 2%, respectively. New equipment sales decreased 15% in the quarter, 2% year-to-date with decreases in mining against a strong comparable, partially offset by higher power systems markets, which include revenue in the acquired business. Used equipment sales increased 7% in the quarter, largely driven by improved activity in mining and construction markets and decreased 6% year-to-date. In most markets decreased predominantly led by the lower construction market, slightly offset by improved mining market activity.

Looking at the market segments. Total equipment revenue decreased 4% in Construction and 60% in Mining, while Power Systems increased to 102% and Material Handling increased 6%. Rental revenue was up 5% in the quarter and was up 10% year-to-date. While market conditions remain relatively soft, revenues increased compared to the prior year, reflecting a larger fleet and improved utilization in certain areas. Revenue improved in most areas for the quarter as follows: heavy equipment rentals were up 24%, material handling up 26%, partially offset by a decrease in the light equipment rentals, down 2%, and power rentals down 20%. The RPO fleet was $104 million versus $81 million a year ago, and the rental revenue was up 73% per quarter and 60% year-to-date compared to similar periods last year.

Product support revenue increased 4% in the quarter and 2% year-to-date with an increase in both parts and service. Activity was higher across most markets and regions, reflecting end-user demand and activity levels. Looking at specific markets for the quarter, change in revenue was as follows: Construction was up 11%; Mining down 3%; Power Systems up 1%; and Material Handling up 6%.

Gross margins -- gross profit margins increased 250 basis points in the quarter compared to Q3 2024 and increased 20 basis points on a year-to-date basis. Equipment margins were up 110 basis points in the quarter, up 40 basis points year-to-date, reflecting market dynamics in play in both periods. Rental margins were relatively unchanged in the quarter, down 30 basis points year-to-date on the higher cost of fleet additions. Product support margins increased 30 basis points in the quarter, down 10 basis points year-to-date, reflecting the nature of the work and sales mix. Sales mix was favorable for both the quarter and on a year-to-date basis, reflecting a higher proportion of product support revenue to total revenue in each period, increasing margins 110 basis points and 20 basis points, respectively.

Excluding the gain on the property disposition and the acquired business in 2025, selling and administrative expenses increased $11 million or 8% in the quarter and $10 million or 3% for the first 9 months of 2025. Higher DSU mark-to-market adjustments increase expenses in both periods, again, accounting for approximately 30% of the increase. Compensation costs were higher in both periods, reflecting regular salary increases, partially offset by lower profit sharing accruals on lower income. Other expenses such as training, travel and occupancy costs had increased in the light of sales levels, planned investment and inflation.

As a percentage of revenue, selling and administrative expenses increased to 12.3% in the first 9 months of the year compared to 11.7% in the similar period last year. Operating income increased 7% for the quarter and decreased 2% for the first 9 months of the year. Excluding the property gain, operating income decreased $2 million or 1% in the quarter and decreased 5% year-to-date, reflecting lower activity levels and higher expenses. The acquired business continues to increase production; however, it did not contribute meaningful to operating income given the expenses arising from purchase price accounting, including such items as amortization of intangibles in the setup of our new U.S. facility.

Bookings increased 49% in the quarter. Construction markets were marginally higher with bookings up 2%, reflecting more normalized supply dynamics. Our systems, which includes the acquired business saw strong order activity of 388% with good demand for our products. Mining markets are lumpy or cyclical due to the nature of the business and were down 43% as expected from the third quarter last year which was a strong comparable.

Backlog of $923 million at the end of September remains at healthy levels. Backlog includes approximately $278 million at AVL, which has a delivery schedule over the next 2 years. Excluding this, backlog was 20% lower compared to the same time last year, reflecting good deliveries against customer orders over the last 12 months, along with good new order intake over the same period. Approximately 80% of the backlog is expected to be delivered over the next 12 months. But of course, this is subject to the timing differences depending upon vendor supply, customer activity and delivery schedules.

When you consider the impact of AVL on our results, please keep in mind that the bulk of the purchase price amortization is related to acquired backlog. We expect this backlog to be substantially shipped by the first quarter of 2026. However, it is important to recognize that we own 60% of the business and any dividends paid to minority shareholders will be treated as expenses when paid. We expect dividends to begin in 2026 related to 2025 performance. Also, keep in mind the production ramp-up in Charlotte that Mike noted in his remarks.

Let's turn to CIMCO on Slide 7. Revenue was up 22% in the quarter and 15% for the first 9 months of the year. Package revenue increased 28% in the quarter and 23% year-to-date with good execution on equipment delivery and progress on customer schedules. Recreational activity increased 67% with higher revenue in both Canada and the U.S. Industrial market revenue decreased 18% with lower activity in Canada against a strong comparable and higher activity in the U.

S. Product support revenue increased 14% in the quarter and 7% on a year-to-date basis with higher market activity in Canada in both periods. Activity in the U.S. was relatively unchanged in the quarter but were up year-to-date with a stronger start to the year. Activity levels continue to improve on good customer demand and the increased technician base.

Gross profit margins decreased 70 basis points in the quarter and increased 20 basis points on a year-to-date basis versus the respective comparable periods. Package margins reflect good execution and the nature of projects in process for both periods, driving a 60 basis point increase year-to-date. Product support margins decreased 50 basis points in the quarter and 10 basis points year-to-date. Improving execution and efficiency continues to be a focus. An unfavorable sales mix with a lower proportion of product support revenue to total revenue dampened margins in both periods, resulting in a 20 basis points and 30 basis point reduction in gross margin, respectively.

Selling and administrative expenses increased $3 million or 18% in the quarter and $5 million or 10% for the first 9 months of the year. Compensation costs increase reflects staffing levels, annual salary increases and higher profit sharing accruals and higher earnings. Other expenditures such as travel and training expenses increased the support activity and staffing level. As a percentage of revenue, selling and administrative expenses improved to 14.8% in the first 9 months of the year versus 15.6% in the comparative period last year.

Operating income was up $3 million or 19% for the quarter and $9 million or 25% for the first 9 months of the year, largely reflecting higher revenue, partially offset by the unfavorable sales mix, lower gross margins to higher expenses. Operating income as a percentage of revenue increased 100 basis points to 11.4% on a year-to-date basis compared to the similar period last year. Bookings increased 35% or $20 million in the quarter and were 13% higher, up $25 million on a year-to-date basis. Industrial orders were up 24%, while recreational orders were down 8%.

Generally, activity is continuing with a good strategic capital investments. However, the current economic uncertainty has delayed some customer buying decisions. Backlog of $341 million was 24% higher versus last year, with higher backlog in both recreational and industrial markets. Backlog in the U.S. was solid, up 46% from this time last year, and backlog in Canada was up 13%. Approximately 75% of the backlog is expected to be realized over the next 12 months. However, again, this is subject to construction schedules.

And with that, we can move to Slide 8, turn again to Mike to highlight some of the key takeaways as we look forward to rounding out the year. Back to you, Mike.

Great. Thanks again, John. So as John mentioned, as we round out the year, our focus remains firmly on executing our strategic priorities, namely maintaining safe and efficient operations, delivering exceptional customer service and applying disciplined and financial and operational rigor to support our long-term growth. With that in mind, we continue to monitor several external factors that may influence the business environment. Trade negotiations between the U.S. and Canada remain fluid. We have implemented a proactive mitigation plan and continue to refine such plans as the situation evolves in order to manage potential impacts.

Foreign exchange volatility, particularly fluctuations in the Canadian dollar is being actively managed primarily through our hedging program. While this helps protect our bottom line, broader economic effects may still present challenges. Macroeconomic conditions, including inflation and interest rates are being closely tracked. As John mentioned, our backlog of $1.3 billion and the equipment supply chain is well positioned to support customer requirements. The AVL acquisition continues to track to our production plan though near-term earnings contributions remain modest due to noncash purchase accounting adjustments, as noted earlier.

We continue to invest in our technician workforce, a key enabler of our aftermarket growth strategy. This critical initiative strengthens our aftermarket services capability and enhances the value we deliver to our customers through our product and service offerings. From both an operational and financial standpoint, we have a focused operating model, talented leadership team, disciplined culture and ample liquidity, which equipped us well to navigate near-term uncertainty while pursuing strategic growth opportunities.

Our long-term commitment to shareholder value remains anchored in cost discipline, strategic investment and operational excellence. We thank our team for their continued dedication and our stakeholders for their trust and support. That concludes our prepared remarks. We'd now be pleased to take your questions. Joelle, over to you, please, to set up the first call.

[Operator Instructions] Your first question comes from Yuri Lynk with Canaccord Genuity.

A couple of questions on AVL, if you'll allow me. Really good sequential growth in revenue. Wondering after a couple of quarters of ownership here if you're willing and able to kind of put a revenue number on what the Hamilton facility is able to do on an annual basis with the capacity expansion in place?

Yes. Thanks for the call, Yuri. Maybe I'll start with that. But what I would suggest you is it does fall in under our Equipment Group, of course, within the Power segment. And probably the best indication that we had directed to is the disclosure we provide in terms of backlog, and that will be a good indication at this stage. As John mentioned, we are providing some clarity around the earnings performance and some of the noncash adjustments as we work our way through that. But I think at this point, that's what we've included in our disclosure.

Okay. And that's, I guess, what you're saying there, the backlog is -- you're viewing that as a 12-month -- kind of be executed over 12 months?

Yes. I think in my remarks, I think we said the backlog -- existing backlog will flow at over 2 years, Yuri.

Yes. I mean, keep in mind as well, a little bit of that is going to be dictated by construction schedules for the underlying data centers and delivery. But I think the 2-year mark would be the furthest extent.

Okay. And can you share how the ramp-up of the Charlotte facility is going, particularly your ability to staff that facility?

Yes. No, a great question. So we're quite happy with progress there. Again, we acquired that facility in Q2, and we do have some limited production starting on 1 line, there's 3 lines. And as I mentioned in my comments, we expect that to ramp up throughout the course of 2026. Hiring to date has been pretty -- has been tracking at least to plan. And so we've had good responsiveness. And we do have a great team down there. By the way, we have set up a team managing the facility and also local recruiting and HR management. And so it's been progressing nicely.

Your next question comes from Krista Friesen with CIBC.

I was just wondering if you could provide a little bit more color on what you're hearing from some of your customers in the Construction segment in particular, especially given the number of announcements this year and the budget announcement coming up next week?

Yes, that's a great question, Krista. I think we're all anxious to hear the announcements that are due next week prior to the great cup apparently. And so looking forward to that and also the sequence and timing. So from a customer perspective, I mean, I think longer term, I think we all feel that there's reasonable tailwinds and lots of interest in investment in infrastructure and so forth. I think part of what we're waiting for, though, is beyond the provincial indications is something more concrete coming out of the federal side of the government, and I think just the funding and how they're going to match that progress. So stay tuned for that. I mean I think cautious optimism is there, but I think the timing and sequence of when shovels will be in the ground and so forth, that's the question for most.

And maybe just further to market sentiment. I appreciate it's still a relatively uncertain environment. But let's say, relative to the spring, are you finding that there's a bit more confidence or certainty in some of your customers or still kind of up in the air?

Yes. I think if you think about it -- and maybe I'll start and John can speak a bit on -- we tend to think of it by segment a little bit. Like if you look at say, the Mining segment, for example, right now, we do see continued interest in investment. Of course, the activity is dictated by mine development schedules and so forth that we do see with gold prices and things that there still seems to be a fair bit of activity, longer cycle, of course, but some good sentiment there.

I think construction, when you separate it between, say, typical construction activity versus residential, that's probably where we see -- we still tend to see softness on the residential side and the infrastructure supporting that residential development. And so that would probably be the area where we see the most uncertainty. However, we are seeing some small projects in road construction, a few things like that you typically would see.

Yes. I agree, Mike. It really varies by segment, some regional impact as well, Krista.

Your next question comes from Cherilyn Radbourne with TD Cowen.

This is actually Patrick on for Cherilyn. I was just wondering, we saw, I guess, mid-single-digit product support growth year-over-year. But to what extent do you have visibility on an upcoming inflection in that product support based on the fact that you had some very, very strong deliveries over the last 2 years.

Yes, great question, Patrick. Thanks for that. I think as you mentioned, I mean, we're starting to see a little bit better activity levels. We're up about 4%, I think, say, in the Equipment Group. And although we saw very strong product support on the CIMCO side, I think it was overcast a little bit by package growth, which outpaced it.

So both the areas we're seeing some positive year-over-year performance. I think you sort of touch on an important point. We've seen some -- the team has done a really nice job delivering new equipment with availability improvement over the last, say, 18 to 24 months, getting the hours and the activity levels because we have seen a little softer activity environment, getting those hours on those machines and then seeing parts consumption product support requirements beyond preventative maintenance is certainly what we're watching for.

And I think that will all come. As we see improved activity over the next, say, 12 to 24 months, we should start to see a little bit stronger product support on the equipment side. However, it does take time, right, for the equipment to get the hour zone that we expect. The other piece of that, of course, is on the mining side, where we've had some nice deliveries, and it does take -- like we've said, John and I, it could take 2 to 3 years before some of that new equipment gets to a point where product support requirements are beyond preventative maintenance.

Okay. Great. And then I guess on data center stuff. So much of a discussion of potential future data center activity has been focused on Western Canada so far. But given the time lines to build these things, and then I think we're starting to hear that timelines on power system gensets maybe starting to extend as well again. Can you discuss if there's just any early discussion you're hearing in Eastern Canada given timelines, it could be 2, 3, 4 years out?

Yes. I think it's difficult to speculate, Patrick. One of the constraints, obviously, on the data center side is availability of energy to support these facilities because they do consume a lot of energy. And so I would say that there are some discussions. I think your time frame is probably pretty accurate in terms of what it takes to construct and we would certainly participate as best we can from the backup power generation. There may be the opportunity for some prime power. But yet to be determined, right, in Eastern Canada.

Yes. I mean the other thing I would add, Pat, is a lot of discussion over the last several weeks about data privacy and containing some data in Canada. And so I think that it maybe will spark an interest as well across the country in terms of data center build-outs over time.

Your next question comes from Devin Dodge with BMO Capital Markets.

Maybe just picking up on the last question. With the size of data centers continuing to increase, we've seen lead times for gensets kind of extend out. Have you seen interest from developers to transition away from reciprocating engines for backup power to higher power units such as turbines?

Yes. Thanks, Devin, for the question. Good question. I mean, I guess, that is sort of the constraint that we mentioned earlier is I would say it's early days, especially in our markets before we can really comment on that. I think, ideally, it's great connection and clean power coming out of hydroelectric sources would be the ideal situation in our marketplace, right? I do think there are business cases that are being contemplated for interim solutions to bridge, right, while that development takes place over time. But I'd say it's a bit speculative right now to say it's going to go too far in that direction. But one that we certainly are monitoring carefully.

Okay. Makes sense. Maybe just a question on AVL. Look, big sequential improvement in revenue. I think you touched on some things already here. But just wondering if this -- the Q3 revenue, does that reflect the full contributions from the recent expansion in Hamilton? Or is there more to go? And is it fair to assume that the initial contributions from the facility in Charlotte were pretty minimal in Q3?

Yes. We're running at close to capacity in Hamilton. Maybe some additional on closures, but not many. So we're running pretty close to capacity there. In Charlotte, we're really just getting up and running. As Mike said, we've been successful in hiring. There are some costs to get the facility up and running. So the contribution from Charlotte in the quarter was minimal, if any.

Or ramp-up costs.

[Operator Instructions] Your next question comes from Steve Hansen with Raymond James.

Just out of curiosity, are you taking orders or bookings at this point for the new facility? Like or any of that you suggest over 2 years, the current backlog stretches. But have you started to take on those new orders for the Southern facility?

Yes. Thanks for the question, Steve. Yes, I would say as we continue to ramp up production there, again, part of that is dictated by the schedule and the hiring that we mentioned earlier and so forth. But we are seeing some interest in demand. And as we mentioned in our comments, it's really that facility is intended to help support demand in the Eastern seaboard of the U.S., and we are starting to pick up some orders, and you'll see that reflected somewhat in our backlog. We don't break it out, obviously, but between the two facilities, and we can supply that market by both facilities out of Hamilton and Charlotte. However, we're starting to see some good interest there given the proximity.

Okay. Helpful. And just maybe a point of clarification or just you provided some good disclosure in the footnotes that in the MD&A. But frankly, it's still a little bit difficult to understand what your pretax margins are on AVL. Can you just comment on where those stand roughly? And we can still see the noncash expense that you outlined and the revenue you outlined, just a little bit murky between the net income piece and the operating line. I mean it looks like these margins are quite healthy. And then maybe once you comment on that, just sort of how you think about the durability of that? I think last quarter, you referenced a lot of the tightness in issues, allowing you to overrun a little bit. How should we think about the trajectory of those margins over time?

Steve, thanks for the comment on the disclosure. If you go to Page 3 on the business combination section, we laid it out, I think, pretty clearly, we give you the revenues for the quarter, we give you the amortization cost for the quarter and we give you the net income for the quarter. And so I think you can back into the margins, and I think your conclusion is correct in terms of the margins are good. And we'll continue to monitor that as we expand the Charlotte facility, and we'll see how that goes over the course of the time, I'm not going to call out where margins are going. But you're right in your assumption right now.

Okay. Helpful. I would just suggest maybe a table every quarter would be helpful just for everyone, so it's perfectly laid out if possible. Secondarily, just on a separate topic, could you just maybe comment on the backlog side a little bit. Again, the influence of AVL is obviously showing really strongly given how great that business has been performing. Just curious on the mining backlog if you're surprised at all. I know it's been -- I know it's a lumpy business, but I'm also surprised that there hasn't been some uptick in mining a little bit. Is there any visibility on the mining business improving here from early discussions and a lot of the conversations around Northern development and things. Have you seen any sort of early stage or advanced talks on that front?

Yes. Thanks, Steve. I think -- so just on the mining side, I think, again, as we mentioned -- and you touched on it here in your comment in your question, it is very cyclical and lumpy given the mine development schedules. And so on one hand, I would say, especially in precious metals like gold, we're seeing continued investments, some expansion, some opportunities and some other commodities. However, given the development cycle, the investment cycle and so forth, they are lumpy. And so we're not surprised by the backlog. We anticipated that. We had, over the last 18 to 24 months some really strong equipment deliveries over time.

And I guess all I would say is, look, our team is fully engaged in looking to earn their way into opportunities as they develop over the next several years. We are hearing certainly in the Ontario market, say, for example, some interest in developing some of the rare earth areas and things like that in Northern Ontario. And again, that's up to our team to participate in those opportunities and to earn our way into them. And so it'd be difficult to forecast what we're seeing there, but nice to see that there is some investment interest and I think the silver lining based on the trade discussions that we're hearing about every day.

Your next question comes from Jonathan Goldman with Scotiabank.

This is actually Carol on for Jonathan Goldman. So on AVL, particularly the new facility, how should we think about the level of OpEx required to support growth?

Yes. I mean we're -- as we talked about from a capacity point of view, we're really just building the employee base right now. We said that it's going to ramp over the course of time. So as you're ramping up the business, you would expect that OpEx would be heavy compared to revenue at the beginning, and then it will work its way out. So that's the way I would kind of model that is a little heavier on OpEx at the beginning. And then as we ramp up sales, it will come back to normal levels.

Yes. And I think the only other thing I think worthy of mentioning there is, it's an owned facility. And I think we mentioned we've put about 60 into it. And so as we continue to ramp that up, that's the way you should be thinking about that facility from a fixed investment perspective.

Okay. And another phenomenal quarter for CIMCO with double-digit growth. Can you talk about what's supporting growth, whether it's demand outside of your core end markets? And how should we think about the sustainability of current growth rates?

Yes. It's a great question. Thanks for the question. I mean if you look at our numbers on the quarter, again, the team has done a nice job over the last 12 to 18 months and continue to show sequential growth. I think as we always mentioned, the package side is a bit lumpy just due to the nature of that part of the business, right? So the industrial side of things, construction schedules. And even on the recreational side as we do conversions to CO2 or ammonia, that side of the business can have ebbs and flows based on construction and the seasonality in our marketplace.

If you look at our backlog, again, we saw some good bookings in the quarter and on a year-to-date basis, CIMCO is sitting at about $341 million, which again is a very strong number for the business, especially when you compare to historical trending and so forth. And so all that to say, what we are seeing is we certainly see ebbs and flows between Canada and the U.S. We also see it between commercial, industrial side and recreational. And I think, generally speaking, what we saw in the quarter and in the performance year-to-date is some good activity across each of the segments that we serve.

Your next question comes from Maxim Sytchev with National Bank Capital Markets.

I was wondering if it's possible to get a bit of a comment in relation to the Equipment Group's overall pricing trends. I think Caterpillar was a bit more -- provided bit more important commentary on their call. Just wondering what you're seeing in the marketplace right now?

Yes. Maybe just to start on that, and John can probably give you a little color on the margin side. But I would say, again, first of all, I would say we wouldn't comment on Caterpillar in their results in the sense that they're much more diversified geographically and by a number of end markets. When we look at our particular marketplace, on the equipment side, we talked a little bit in our commentary about a bit of a movement between equipment sales, excluding mining, we're down a little bit on new but up unused. We're seeing a bit of a shift.

We're quite pleased with the performance of the team in the sense that when we monitor market share and activity levels in our markets, they are down, especially in the heavier construction side, but our market share and things have done well. And so the team has done a really nice job executing there.

Availability, as you know, Max, is really strong in the marketplace, whether you're looking at GCI product or the mid-tier BCP or CCE, it's very strong. So I think at the end of the day, we're adapting to our market conditions and trying to make sure that when we work with our customers, whether it's a rental, a newer or used equipment, whatever the requirement is we're there to support them, and we're very competitively positioned to help support the move in the longer term. So I can't really give you much more color than that, but...

Yes. Just on margins, I mean, we've talked about margins on new and used kind of coming back to more normal levels over the last little while stabilizing. We have a good mix this quarter in terms of the equipment that we shipped in terms of construction and power, a little lots on the mining side as we talked about.

Rental utilizations were up a little bit, which was good news. And then product support as a percentage of the total was up. And so those all contributed to the mix issue. And as Mike talked about, our hope and plan is that product support continues to grow as the equipment that we have shipped over the last couple of years needs parts and service.

Sure. And I guess do you maybe just touch a little bit on to the RPO, I mean that seems to be moving in the right direction as well?

Yes. The RPO, I'd say it's probably back to where it was in prior years before we had supply issues, Max. I think we got $101 million right now. It really is used as a cash management tool by our customers where they don't have capital, particularly in time, so it's a financing cash management issue, and we expect most, if not all, of that to convert as it usually does to sales over the course of normally 12 months.

Okay. That's great. And one last clarification. Like free cash flow was very strong in Q3. Should we assume kind of the typical seasonality for Q4? Was there anything unusual when it pertains to this particular quarter? Or how should we think on a prospective basis?

Yes, cash flow -- operating cash flow was very good in the quarter, some $250 million or close to $250 million. And the inventory levels were up over the last couple of quarters, and the team did a really good job managing inventory levels this quarter. So that was a big contributor to it as well. So really pleased with the balance sheet management in the quarter and the cash flow.

Right. But I guess for Q4, should we assume kind of like a typical seasonality that we see? Or is there anything unusual we should be mindful?

Yes. I wouldn't think there's anything unusual there, Max. Like you say, I think we're sort of seeing more moderation, more normalization there. The question we always see is depending on how Q4 goes, year-end buys, we do have, obviously, equipment. We have a snow season ahead of us. But we don't -- we wouldn't predict anything unusual.

Your next question comes from Steve Hansen with Raymond James.

Just a clarification. Is there a reason the dividend hasn't been started to pay to the minority shareholders on AVL? Just, John, you referenced the starting point in first quarter, I was just curious.

Sorry, is the question on the dividend on AVL, Steve. Yes. So we're in the first year of the acquisition. And we'll have to see, of course, how the first year earnings turn out, what cash flow looks like, which cash balance looks like and then the Board will meet. We have an obligation to meet as a Board and determine how much of a dividend we should pay out based on the full year performance of AVL. So that's why it's a 2026 related issue.

And it will be a quarterly regular -- or will it be lumpy year, how should we think about it?

Yes, I have to come back to you on that one as well. Again, the Board will meet and determine how we're going to pay out that dividend, whether it's a onetime or over the quarter. So I'll come back to keep you posted for sure.

Okay. Helpful. And then just one last one, if I may, is just around the margin profile for the Equipment Group. We actually saw a nice uptick in the period. I assume part of that's mix. There's some of the disclosures suggest equipment side also had some benefit. I mean are you starting to see some stabilization in the competitive environment out there? We saw such a large swing in supply side opportunity over the last couple of years that's created some pressure, of course. But I mean, how are you thinking about the margin profile for new equipment packages going out today versus even a year ago?

Yes. Maybe just to start on that, Steve. I would say it's -- again, it's -- there's availability in the marketplace is certainly much stronger and has been persistent throughout the year. And so I think part of it is, as John mentioned earlier, when you look at the mix of sales, especially if you're just looking at the quarter, but on a year-to-date basis, you'll see the product support has started to come into play. Rental has improved a little bit. And then the equipment, we're seeing movements, especially on the mining side.

Keep that in mind because as we see deliveries in mining, again, they're generally slightly lower margin but larger dollars and so forth. And so there's even mix within the new segment. And as we talk about the backlog and fulfilling that backlog, I think you're going to see some ebbs and flows there. But I would say it's certainly a well-supported market in terms of availability broadly.

There are no further questions at this time. I will now turn the call over to John Doolittle for closing remarks.

Okay. Thank you very much, Joelle, for helping us out today. Thanks for joining us, everyone, and for some great questions as usual. And that concludes our call. Please be safe. Go Blue Jays. Have a great day.

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