Q2 2025 Toromont Industries Ltd Earnings Call

Lutie: Good morning. Today is Wednesday, July 30, 2025. Welcome to the Toromont Industries Ltd. second quarter 2025 results conference call. Please be advised that this call is being recorded, and all lines have been placed on mute to prevent any background noise. Your host for today will be Mr. John Doolittle, Executive Vice President and Chief Financial Officer. Please go ahead, Mr. Doolittle.

Good morning today is Wednesday, July 30 2025, welcome to the torment. Industries limited second quarter, 2025 results conference call. Please be advised that this call is being recorded and online have been placed on mute to prevent any background noise.

John Doolittle: Okay. Thank you, Lutie. Good morning, everyone. Thank you for joining us today to discuss Toromont's results for the second 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. To start, I would like to refer our listeners to slide two, which contains our advisory regarding forward-looking information and statements. After our prepared remarks, we'll be more than happy to answer questions. Let's get started and move to slide three. And Mike, over to you to start us off.

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

Okay, thank you, Ludy.

Mike Mcmillan: Great. Thanks very much, John. Good morning, everyone, and thanks for joining us. Our team delivered resilient second quarter results while continuing to navigate macroeconomic and international trade uncertainties. Our disciplined approach remains unchanged, and we continue to invest in our people and capabilities to support our customers today and for the future. Revenue increased overall, while net income was slightly lower, reflecting reduced interest income and short-term non-cash costs related to the ABL acquisition. The equipment group performed well with growth in rental and product support and new equipment deliveries in the construction and power segments. These were offset by lower deliveries in the mining segment, as expected, which tends to be more variable due to the nature of this segment. Revenue was stable as contributions from the acquired business and higher rental and product support volumes were balanced by lower anticipated mining equipment sales.

Good morning everyone, thank you for joining us today to discuss term months results for the second quarter of 2025. Also in 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 information and statements. After our prepared remarks. We'll be more than happy to answer questions and let's get started and move to slide 3 and mic over to you to start us off.

Great. Thanks very much, John. Good morning, everyone, and thanks for joining us.

Our team delivered resilient second-quarter results while continuing to navigate macroeconomic and international trade uncertainties.

Our discipline approach remains unchanged and we continue to invest in our people and capabilities to support our customers today and for the future.

Revenue increased overall. While net income was slightly, lower reflecting reduced interest income and short-term, non-cash costs related to the AVL acquisition.

The equipment group performed well with growth and Rental and product support, and new equipment, deliveries in the construction and power segments.

These were offset by lower deliveries in mining in the mining segment as expected, which tends to be more variable due to the nature of the segment.

Mike Mcmillan: Rental revenue rose driven by a larger fleet, while used equipment sales declined. Product support revenue increased due to higher parts and service volumes. Operating income declined year over year, mainly reflecting the addition of the acquired business expenses and lower interest income on cash balances. PIMCO posted higher revenue and earnings, reflecting healthy market demand and effective execution in both Canada and the US. Growth 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 rose on higher revenue and solid execution, partially offset by a less favorable sales mix and slightly higher expenses to support activity and growth. We continue to work closely with our new partners at ABL, focusing on this promising market. Production in Hamilton has ramped up since the acquisition, supporting a healthy order backlog and building demand.

Revenue with stable, as contributions from the acquired business, and higher rental and product support volumes were balanced by lower. Anticipated. Mining equipment sales re rental Revenue. Rose driven by a larger Fleet.

While used equipment sales declined, product support Revenue increase due to higher parts and service volumes.

Operating income income, declined year-over-year, mainly reflecting. The addition of the acquired business expenses and lower interest income on cash balances.

Simcoe posted higher revenue, and earnings reflecting healthy, market, demand and effective execution in both Canada and the US.

Growth 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 rose on higher revenue, and solid execution, partially offset by a less favorable sales, mix and slightly higher expenses to support activity and growth.

We continue to work closely with our new partners at AVL, focusing on this promising market.

Mike Mcmillan: Hiring is progressing at a quick pace. Revenues for the three and six-month periods ended June 30th, 2025, were 57 million and 79 million, respectively. While the business is performing well, the bottom line contribution on a year-to-date basis reduced EPS by approximately 4 cents per share related to various non-cash-related purchase price accounting items. There's more detail available in our financial statements as well. During the quarter, we acquired a facility in Charlotte, North Carolina, to expand production capacity and better serve the Eastern market in the US. We expect the initial phase of production to begin in the fourth quarter. Let's turn to slide four, our key financial highlights. Investment in non-cash working capital rose 4% year over year, with higher accounts receivable more than offset by lower inventory and accounts payable balances due to equipment delivery timing.

Production in Hamilton has ramped up since the acquisition, supporting a healthy order backlog and building demand.

Hiring is progressing at a quick Pace revenues for the 3 and 6-month periods end of June 30th 2025 or 57 million and 799 million respectively.

While the business is performing well, the bottom line contribution on a year-to-date basis reduced EPS by approximately 4 cents, per share related to various non-cash related, purchase price accounting items.

There's more detail available in our financial statements, as well.

During this quarter, we acquired a facility in Charlotte, North Carolina, to expand production capacity and better serve the Eastern Market in the U.S.

We expect the initial phase of production to begin in the fourth quarter.

Let's turn to slide 4.

Our key financial highlights.

Mike Mcmillan: Accounts receivable increased, reflecting higher revenue and the addition of ABL receivables. DSO rose by 1 day to 42 days. Our team continues to manage receivables aging and customer credit metrics effectively. Inventory levels declined, primarily due to the executed deliveries against order backlog, inventory reduction initiatives, and lower work-in-process at Simco, reflecting project and service timing. We ended the quarter with ample liquidity, including approximately 1 billion in cash and an additional 456 million available under existing credit facilities. After quarter end, we also completed the early redemption of our 2025 debentures at par, as previously announced. Our net debt-to-total capitalization ratio was negative 3%. Overall, our balance sheet remains well-positioned to support operations and navigate evolving economic and business conditions. We will continue to apply operational and financial discipline as we support customer needs and evaluate future investment opportunities.

Investment in non-cash working capital grew 4% year-over-year, with higher accounts receivable more than offset by lower inventory and accounts payable balances due to equipment delivery timing. Accounts receivable increased, reflecting higher revenue and the addition of AVL receivables. DSO rose by 1 day to 42 days. Our team continues to manage receivables aging and customer credit metrics effectively.

Inventory levels declined. Primarily due to the executed deliveries against order, backlog inventory reduction initiatives and lower work and process at Simcoe reflecting project and service timing.

We ended the quarter with ample liquidity, including approximately 1 billion in cash and an additional 456 billion available under existing credit facilities.

After quarter-end, we also completed the early redemption of our 2025 Dimensions at par, as previously announced.

Our net debt to Total capitalization ratio was -3%.

Mike Mcmillan: Toromont targets a return on equity of 18% over the business cycle. ROE was slightly below this at 17.6% in Q2. Returning return on capital employed was 23.1%, also lower year over year, reflecting increased capital investment and comparatively lower earnings. Finally, as announced yesterday, the board of directors approved a regular quarterly dividend of 52 cents per share, payable on October 3rd, 2025, to shareholders of record on September 5th, 2025. John, I'll turn it back over to you for more detailed commentary on the results.

Overall, our balance sheet remains well, positioned to support operations, and navigate, evolving Economic and Business conditions. We will continue to apply operational and financial discipline, as we support customer needs and evaluate the future investment opportunities.

Per month, targets a return on Equity of 18% over the business cycle.

Roe was slightly below this at 17.6% in Q2.

Returning return on Capital employed was 23.1%. Also lower year-over-year reflecting increased capital investment and comparatively lower earnings.

finally, as announced yesterday, the board of directors approved a regular quarterly quarterly dividend of 52 cents, per share payable on, October 3rd, 2025 to shareholders of record, on September 5th, 2025

John Doolittle: Okay. Thanks a lot, Mike. Let's turn to slide five for a few additional comments on the consolidated results. As Mike noted, profitability for the second quarter of 2025 was lower than the second quarter of 2024, as expected given the current economic environment, lower interest income, and ABL-related non-cash expenses. As uncertain market conditions persist and customer purchasing decisions remain cautious and activity is lower in some cases, the equipment group performed well on the top line with good equipment deliveries, including the acquired business and improving rental utilization. Construction and power systems market activity has been solid, partially offset by declines in mining, which is coming off a large capital investment cycle. Simco revenue increased on continuing strong demand for its products and services. Gross profit margins improved compared to the prior year on mixed good execution and improved efficiencies.

John, I'll turn it back over to you for more detailed commentary on the results. Okay, thanks a lot. Mike, let's turn to slide 5 for a few additional comments on the consolidated results. As Mike noted, profitability for the second quarter of 2025 was lower than the second quarter of 2024. As expected, given the current economic environment, lower interest income, and above all, related to non-cash expenses, uncertain market conditions persist and customer purchasing decisions.

Cautious.

John Doolittle: Expense levels reflect continued support for key operational focus areas. On a consolidated basis, operating income was down 4% compared to last year as the higher top line revenue and improved gross margins were offset by higher expenses. Net interest expense was significantly higher than the prior period, reflecting both higher interest expense as a result of the new debenture listing as well as lower interest income earned on cash on hand due to lower interest rates. Bookings for the second quarter increased 14% compared to 2024 and increased 1% on a year-to-date basis in both the equipment group and Simco in both periods. We saw good order intake in construction, power systems, and material handling offset by lower mining orders. Backlog remains healthy at 1.4 billion, up 1% year over year, with a slight decrease in the equipment group down 4% and an increase at Simco up 21%.

And activities is lower. In some cases, the equipment group performed well on the top line with good equipment, deliveries including the acquired business and improving rental utilization, construction and Power Systems. Market activity has been solid, partially offset by declines in mining, which is coming off a large capital investment cycle. Simcoe Revenue increased on continuing strong demand for its products and services gross profit margins, improved compared to the prior year on mixed good, execution and improved efficiencies expense levels. Reflect continued. Support for key operational, Focus areas on a Consolidated basis. Operating income was down 4%,

Compared to last year as the higher Topline revenue and improved gross. Margins were offset by higher expenses. That interest expense was significantly higher than the prior period, reflecting both higher interest expense, as a result of a new debenture listing as well as lower interest income earned on cash on hand due to the lower interest rates.

John Doolittle: Backlog is supportive of our plans and reflects deliveries and progress in construction schedules, good new booking activity, and backlog related to the acquired business. On a consolidated basis, revenue increased 1% in the second quarter, with the equipment group remaining unchanged and an increase of 13% at Simco. For the first half of the year, revenue increased 4%, with the equipment group up 3% and Simco up 11%. Expenses increased 11% in the quarter, reflecting the acquisition, including related amortization expenses. Excluding ABL, expenses were up slightly at 3%. Compensation costs were marginally higher year over year, reflective of regular salary increases, partially offset by lower profit sharing accruals on the lower income. Salaried headcount is largely unchanged year over year. Sales-related expenses increased year over year, reflecting continued investment in resources.

Increase 14% compared to 2024 and increase 1% on a year-to-date basis. In both the equipment group and Simcoe in both periods. We saw good order in intake and construction Power Systems and material, handling offset by lower mining orders backlog, remains healthy at 1.4 billion up. 1% year-over-year with a slight decrease in the equipment group down 4% and an increase in Simcoe up. 21%, backlog is supportive of our plans and reflects deliveries and progress in construction. Schedules, good, new booking activity and backlog related to the acquired business.

on a Consolidated basis Revenue increase 1% in the second quarter with the equipment group remaining unchanged in an increase of 13% at Simcoe for the first half of the Year Revenue, increased 4% with the Inc, equipment group up 3%,

And Simcoe up 11%.

Expenses increased by 11% in the quarter, reflecting the acquisition including related amortization expenses. Excluding AVL expenses, costs were up slightly at 3%. Compensation costs were marginally higher year-over-year, reflective of regular salary increases, partially offset by lower profit sharing due to the lower income.

John Doolittle: All other expenses such as travel, training, occupancy, and information technology costs have increased slightly on continued investment for future growth and inflationary effects. Allowance for debt hold accounts decreased 2.9 million compared to the similar period last year on improvements in certain exposures and good collections. Higher DSU marked the market adjustments increased expenses 2.8 million as a result of the higher relative share price in the current period. On a year-to-date basis, expenses increased 18.2 million, or 6% compared to a similar period last year. ABL expenditure added 16.9 million, including expenses related to the acquisition accounting. Excluding ABL, selling and administrative expenses increased just 1.3 million compared to the same period last year on a good focus on cost controls. The expenses for the first half of 2025 represent similar trends as noted for the second quarter.

Salaried headcount has largely remained 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 due to continued investment for future growth and inflationary effects.

Allowance for doubtful accounts decreased by $2.9 million compared to the similar period last year, due to improvements in certain exposures and good collections in the higher DSU market. Additionally, market adjustments increased expenses by $2.8 million as a result of the higher relative share price in the current period.

John Doolittle: Expenses increased slightly to 12.7% of revenue compared to 12.4% last year. Operating income decreased 4% in the quarter as the higher revenue and improved gross margins were more than offset by the higher expense levels. On a year-to-date basis, operating income was down 5% as the higher revenue was offset by lower gross margins and higher expense levels. As the percentage of revenue, operating income was 10.9% on a year-to-date basis compared to 12% last year. Net interest expense was up 8.7 million in the quarter and 13.7 million in the first half, reflecting interest expense on the recent debenture issue, as well as lower interest income on lower interest rates. Net earnings decreased 8%, or 11 million, in the quarter compared to last year and decreased 9%, or 20.5 million for the first half of the year.

About a year to date basis expenses increased 18.2 million or 6 months 6% compared to similar period. Last year, AVL expenditure added 16.9 million, including expenses related to the acquisition accounting, excluding AVL selling and administrative expenses. Increased just 1.3 million compared to the same period last year on a good focus on cost. Controls the expenses, for the first half of 2025 resent represents similar Trends as noted for the second quarter expenses, increased slightly to 12.7% of Revenue compared to 12.4% last year.

Operating income decreased 4% of the quarter as the higher revenue and improved gross. Margins were more than offset by the higher expense levels on a. Year-to-date basis, operating income was down 5% as the higher Revenue was offset by lower gross margins and higher expense levels as the percentage of Revenue operating income was 10.9% on a year-to-date basis compared to 12% last year.

That interest expense was up 8.7 million in the quarter and 13.7 million in the first half reflecting interest expense on the recent recent de deventure issue, as well as lower interest income on lower interest rates.

John Doolittle: Basic earnings per share was $1.53 in the quarter and $2.45 year to date, reflecting the change in net earnings. Turning to the equipment group on slide six, revenue was relatively unchanged in the quarter as revenues from the acquired company were largely offset by lower mining sales as expected and up 3% for the first half of the year. Equipment sales, including both new and used equipment, were down 5% in the quarter and up 3% year to date. New equipment sales decreased 5% in the quarter with decreases in mining against a strong comparable, partially offset by higher power system markets, which include revenue at the acquired business. On a year-to-date basis, new equipment sales increased 3% with increases in construction and power system markets, partially offset by decreases in mining as expected due to the mining investment cycle.

Net earnings decreased by 8% or $11 million in the quarter. Compared to last year, it decreased by 9% or $20.5 million for the first half of the year.

Basic earnings per share was 1.53 in the quarter and 2.45 cents here today. Reflecting the change in net earnings returning to the equipment group on slide 6. Revenue is relatively unchanged in the quarter as revenues from the required company. Were largely offset by lower mining sales as expected. And up 3%, for the first half of the Year equipment sales, including both new and used equipment were down 5% in the quarter and up 3% year to date new equipment, sales decreased 5% in the quarter with decreases in mining, against a strong comparable, partially offset by higher higher power system, uh, markets, which include Revenue at the inquired business on a year-to date basis, new equipment sales increased 3% with increases in consumer,

John Doolittle: Used equipment sales decreased 6% in the quarter and was down 12% year to date, predominantly in the construction market with lower rental fleet dispositions on fleet management decisions and lower sales of used equipment from trades and purchases, reflecting supply and demand dynamics. In the quarter, total equipment revenue increased 1% in construction, 40% in material handling, 73% in power, while mining was down 54%. Rental revenue was up 15% in the quarter and 13% year to date. While market conditions remain choppy, 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: light equipment rentals were up 13%, heavy equipment rentals up 18%, material handling up 29%, offset by a decrease in power rentals down 10%.

Construction and power system markets, partially offset, by decreases in mining as expected due to the mining investment cycle.

Used equipment sales decreased 6% in the quarter and were down 12% year to date, predominantly in the construction market, with lower rental fleet dispositions due to fleet management decisions. These lower sales reflect reduced equipment from trades and purchases, which are influenced by supply and demand dynamics.

In the quarter, total equipment revenue increased 1%, and construction increased 40%. Material handling was up 73% in power, while mining was down 54%.

John Doolittle: The RPO fleet was 101.4 million versus 64.1 million a year ago, and rental revenue was up 54% for the quarter and 52% year to date compared to similar periods last year. Product support revenue increased 4% in the quarter and 1% 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, as well as a higher technician workforce. Looking at specific markets for the quarter, change in revenue was as follows: construction was down 2%, mining up 7%, power up 18%, and material handling down 9%. Gross profit margins increased 40 basis points in the quarter compared to Q2 2024 and decreased 90 basis points on a year-to-date basis. Equipment margins were up 40 basis points in the quarter, relatively unchanged year to date, reflecting market dynamics play in both periods.

offset like you decrease, in power rentals down, 10%

The RPO fleet was 101.4 million versus 64.1 million a year ago. In rental revenue, we saw an increase of 54% for the quarter and 52% year-to-date compared to the similar periods last year.

Product support Revenue increased 4% in the quarter and 1% 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. As well as the higher technician Workforce looking at specific markets for the quarter change in Revenue was as follows construction was down, 2% mining up 7%. Power up, 18% and material handling down 9%

John Doolittle: Rental margins were down 50 basis points in the quarter and down 40 basis points year to date on a higher cost of fleet additions. Product support margins decreased 10 basis points in the quarter, down 30 basis points year to date, reflecting the nature of the work and sales mix. Sales mix was favorable in the quarter and unfavorable year to date, reflecting the relative proportion of product support revenue to the total in each period. Selling and administrative expenses were up 12% in the quarter, 6% year to date compared to the same period last year. The acquisition of ABL increased expenses 12.9 million, which is inclusive of non-cash expenses related to purchase price accounting items. Compensation costs were higher in both periods, reflecting staffing levels and regular salary increases, partially offset by lower profit sharing accruals on the lower income.

Gross profit margins increased 40 basis points in the quarter compared to Q2 2024 and decreased 90 basis points on a year-to-year basis. The equipment margins were up 40 basis points in the quarter, relatively unchanged year-to-date, reflecting market dynamics at play in both periods. Rental margins were down 50 basis points in the quarter and down 40 basis points year-to-date, primarily due to higher costs of fleet additions.

Product support margins decrease, 10 basis points in the quarter, down 30, uh, basis points here today reflecting the nature of the work and sales, mix sales. Mix was favorable in the quarter and unfavorable here to date reflecting the relative proportion of product support Revenue to the total in each period.

Filling it in, it straight of expenses were up 12% in the quarter and 6% year to date compared to the same period last year. The acquisition of AVL increased expenses by $12.9 million, which is inclusive of non-cash expenses related to purchase price accounting items.

John Doolittle: Other expenses such as training, travel, and occupancy have increased in light of sales levels, planned investments, and inflation. As a percentage of revenues, selling and administrative expenses increased 12.4% to 12.4% in the first half of the year versus 12% in a similar period last year. Operating income decreased 7% for the quarter and 8% for the first half of the year, reflecting lower activity levels, margin pressures, and higher expenses. The acquired business continues to increase production, however, did not contribute meaningfully to operating income given expenses arising from purchase price accounting, including such item as amortization of intangibles. Bookings increased 5% in the quarter. Construction markets were higher with bookings up 17%, reflecting more normalized supply dynamics. Power systems, which includes the acquired business, saw strong order activity up 133% on good demand for our products. Material handling order intake was 49% higher in the quarter.

Compensation costs were higher in both periods, reflecting staffing levels and regular salary increases, partially offset by lower profit sharing across the lower income. Other expenses, such as training, travel, and occupancy, have increased in light of sales, so I will plan investments.

As a percentage of revenues selling and administrative expenses, increase 12.4% to 12.4% of the first half of the Year versus 12% in a similar period last year.

Operating income decreased 7% for the quarter and 8% for the first half of the year, reflecting lower activity levels, margin pressures, and higher expenses. The acquired business continues to increase production; however, it did not contribute meaningfully.

To operating income given expenses arriving arising from purchase price accounting, including such out in as advertising of intangibles.

John Doolittle: In mining markets, which were lumpy or cyclical due to the nature of the business, were down 51% as expected from the second quarter last year, which was a strong comparable. Backlog of a billion at June 30th remains at healthy levels. Backlog includes approximately 246 million from ABL, which has a delivery schedule over the next two years. Excluding this, backlog was 28% 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 70% of the backlog is expected to be delivered over the next 12 months. The core assists is subject to timing differences depending upon vendor supply, customer activity, and delivery schedules. So, turning to Simco, revenue is up 13% in the quarter and 11% for the first half of the year.

Bookings. Increased 5% in the quarter construction markets were higher with bookings up, 17% reflecting more normalized Supply, Dynamics, Power Systems which includes the required business. So strong order activity up 133% on a good demand for our products Material, Handling order intake was 49% higher in the quarter and Mining markets, which are lumpy or cyclical due to the nature of the business were down 51%, that's expected.

The second quarter last year, which was a strong comparable.

John Doolittle: Package revenue increased 22% in the quarter and 20% year to date with good execution on equipment delivery and progress on customer schedules. Recreational activity increased 84% with higher revenue in both Canada and the US, and the industrial market revenue is down slightly at 5% with lower activity in Canada against a strong comparable and higher activity in the US. Product support revenue increased 1% in the quarter and 3% on a year-to-date basis with higher market activity in Canada in both periods. Activity in the US was down in the quarter, however, 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 increased 60 basis points in the quarter and 70 basis points on a year-to-date basis versus the comparable periods, respectively.

Backlog of a billion at June 30th remained to healthy levels. Backlog includes approximately 246 million from evl, which has a delivery schedule over the next 2 years. Excluding this backlog was 28% 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, 70% of the backline is expected to be delivered over the next 12 months before. The course, this is subject to time and differences, depending upon vendor Supply, customer activity and delivery schedules. So turning to Simcoe revenue is up 13% of the quarter and 11% for the first half of the Year package Revenue. Increased 22% in a quarter and 20% year to date with good execution, on equipment, delivery and progress on customer's schedules recreational activity. Increased 84% with higher Revenue in both Canada and the US and the industrial Market revenues down slightly at 5% with lower activity in Canada against a strong.

Comparable and higher activity in the US product support Revenue, increased 1% in the quarter and 3% on a year-to-date basis with higher Market activity in both in Canada, in both periods activity in the US was down in the quarter over up year to date with a stronger. Start to the year activity levels. Continue continue to improve on, good customer demand in the increased technician base.

John Doolittle: Package margins improved on good operational execution and the nature of projects and process for both periods, driving a 60 basis point increase in the quarter, 90 basis point increase year to date. Product support margins increased 50 basis points in the quarter and 20 basis points year to date on improved execution, and efficiency continues to be a focus of theirs. An unfavorable sales mix with a lower proportion of product support revenue to total revenue dampened margins in both periods, resulting in 50 basis point and 40 basis point reduction in gross margin, respectively. Selling and administrative expenses increased 2% in the quarter and 5% for the first half of 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 increased as work activity and staffing levels.

Wholesale unfavorable sales mix with a lower proportion of product support, Revenue to total revenue, dampened, margins of both periods. Resulting in 50 basis point and 40 basis, point reduction, gross margin respectively.

John Doolittle: As a percentage of revenue, selling and administrative expenses increased at 15.2% in the first half of the year versus 16.2% in a similar period last year. Operating income was up 4.4 million, or 36% for the quarter, and 6.1 million, or 30% for the first half of the year, largely reflecting a higher revenue and improved gross margins. Operating income as a percentage of revenue increased 160 basis points to 11.1% on a year-to-date basis compared to the similar period last year. Bookings increased 185% or 60.4 million in the quarter, or 4% higher at 5 million on a year-to-date basis. Industrial orders were up 53.4 million on stronger bookings represented by several large projects in Canada, slightly offset by weaker activity in the US. Recreational orders were up 27% with stronger orders in the US and lower activity in Canada.

Going into administrative expenses, increased 2% in the quarter and 5% for the first half of the year. Compensation costs increased, reflecting staffing levels, annual salary increases, and higher profit sharing across on the higher earnings. Other expenditures such as travel and training increased due to work activity and staffing levels. As a percentage of revenue, selling and administrative expenses increased to 15.2% in the first half of the year, compared to 16.2% in the similar period last year. Operating income was up $4.4 million, or 36%, for the quarter and $6.1 million, or 30%, for the first half of the year, largely reflecting the higher revenue and improved gross margins. Operating income as a percentage of revenue increased 160 basis points to 11.1% on a year-to-date basis compared to the similar period last year. Bookings increased 185%, or $60.4 million, in the quarter, with a 4% increase of $5 million on a year-to-date basis. Industrial orders were up $53.4 million.

John Doolittle: Generally, activity is continuing with good strategic capital investment levels. However, the current economic uncertainty has delayed customer buying decisions. Backlog of 351 million was 21% higher versus last year, with higher backlog in both recreational and industrial markets. Backlog in the US was strong, up 46% from this time last year, and backlog in Canada was up 10%. Approximately 70% 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 eight. Turn it back to Mike to highlight some key takeaways as we look forward to Q3 and beyond. Thank you, Mike.

No stronger bookings represented by several large projects in Canada, slightly offset by weaker activity. In the U.S., recreational orders were up 27%, with stronger orders in the U.S. and lower activity in Canada. Generally, activity is continuing with good strategic capital investment levels. However, the current economic uncertainty is delaying customer buying decisions.

Mike Mcmillan: Thanks again, John. We remain focused on our key priorities: ensuring safe and efficient operations, supporting our customers with excellence, and applying the discipline and rigor that underpin our long-term growth strategy. We continue to anticipate that the business environment will be shaped by several evolving factors. Ongoing trade negotiations between Canada and the US are contributing to uncertainty. Our team is actively engaged and has developed a comprehensive action plan to manage potential impacts as the situation continues to evolve. Foreign exchange volatility, particularly the variability of the Canadian dollar, is being closely monitored, given that a significant portion of our equipment and parts are sourced in US dollars. Hedging strategies remain in place to help mitigate bottom line exposure to currency fluctuations through broader economic impacts, though broader economic impacts may present additional challenges. Macroeconomic conditions, including inflation and interest rates, are being tracked closely.

Backlog at 351 million was 21% higher versus last year with higher backlog in both recreational and Industrial markets. Back in the US was strong up 46% from this time last year in backlog, in Canada. It was up 10%, approximately 70% in 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 Q3 and Beyond thank you. Mike great. Thanks again John.

We remain focused on our key priorities, ensuring safe and efficient operations, and supporting our customers with excellence in applying the discipline and rigor that underpin our long-term growth strategy. We continue to anticipate that the business environment will be shaped by several evolving factors.

Ongoing trade negotiations, between Canada. And the US are contributing to uncertainty. Our team is actively engaged and has developed a comprehensive action plan to manage potential impacts as the situation continues to evolve.

Foreign exchange volatility, particularly the variability of the Canadian dollar, is being closely monitored given that a significant portion of our equipment and parts are sourced in US dollars. Hedging strategies remain in place to help mitigate bottom line exposure to currency fluctuations through broader economic impacts. Though broader economic impacts may present additional challenges.

Mike Mcmillan: Our backlog remains healthy, and the equipment supply chain is well-positioned to meet customer needs. We continue to invest in our technician workforce, a critical long-term initiative that supports our aftermarket services and enhances the value we deliver through our product and service offerings. From both an operational and financial standpoint, we are well-positioned. With ample liquidity, strong leadership, a disciplined culture, and focused operating models, we are prepared to navigate near-term challenges while building for the future. We are actively monitoring key performance indicators, supply dynamics, and global trade developments. As always, our long-term commitment to growth and returns is anchored in maintaining cost discipline while investing in capacity and capabilities to deliver exceptional service to our customers. We sincerely appreciate the dedication of our entire team in supporting our customers and creating value for our stakeholders. That concludes our prepared remarks.

Macroeconomic conditions, including inflation and interest rates are being tracked closely.

Our backlog remains healthy. And the equipment supply chain is well, positioned to meet customer needs, we continue to invest in our technician, Workforce, our critical long-term initiatives that supports our aftermarket services and enhances the value. We deliver through our product and service offerings.

From both an operational and financial standpoint. We are well, positioned with ample liquidity, strong leadership a disciplined culture and focused operating models. We are prepared to navigate near-term challenges while building for the future.

We are actively monitoring key, performance indicators, supply, Dynamics and global trade developments. As always, our long-term commitment to growth and returns Is Anchored in maintaining cost discipline while investing in capacity and capabilities to deliver exceptional service to our customers.

we sincerely appreciate the dedication of our entire team in supporting our customers and creating value for our stakeholders

Mike Mcmillan: We'd now be pleased to take your questions over to you, Lutie, to set up the first call. Questions, please. Thank you.

That concludes our prepared remarks. We are now pleased to take your questions.

Lutie: Thank you. And ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press the star followed by the number one on your telephone keypad. If you're using a speaker phone, please pick up your headset before pressing any keys. To withdraw your question, please press the star followed by the number two. With that, our first question comes from the line of Devin Dodge with BMO Capital Markets. Please go ahead.

Over to you, Ludy to set up the first call question, please. Thank you.

Thank you. And ladies and gentlemen, we will now begin the question and answer session to ask a question. You may press star followed by the number 1 on your telephone keypad. If you're using a speaker-phone, please pick up your handset before pressing any keys to withdraw your question. Please. Press star. Followed by the number 2.

Devin Dodge: Yeah, thanks. Good morning. I wanted to start with a question on ABL. It seems like the business is performing, you know, really well. I believe you mentioned revenue in the quarter was around 57 million. Just wondering if you could provide some context on how that compared to the year-ago period before it was acquired by Toromont. And then secondly, that new facility in Charlotte, just can you speak to how much capacity that will add and how quickly that could ramp up?

With that, our first question comes from the line of Devon Dodge with PMO Capital Markets. Please go ahead.

Venue.

Uh, in the quarter was around 57 million. Just wondering if you could provide some context on how that compared to the year ago period before it was acquired by Toronto. And then

Mike Mcmillan: Yeah, thanks. Thanks for the question, Devin. Yeah, you're right. In terms of the quarter and the year-to-date number was 79. You know, I would say, again, we're trying to provide you a little bit of color on that. It is, keep in mind, the business is ramping production. We haven't disclosed the prior period because the ownership took effect at the end of January. However, yeah, you can consider that that is a pretty significant increase in production. And so, you know, we're adding to production capacity, and that's all been driven through the Hamilton facility, as I mentioned. Like, we won't be in production in our Charlotte location until later in the fourth quarter.

Secondly, that new facility in Charlotte, just can you speak to how much capacity that will add and how quickly that could ramp up?

Yeah, thanks. Uh, thanks for the question, Devin. Yeah, you're right. In terms of the, uh, the quarter and the year-to-date number is $79. You know, I would say, um,

John Doolittle: Yeah, let me just add there, Devin, a couple comments. We're really pleased with the way the team executed in the quarter. We had solid top line growth. We had positive cash earnings that were offset by this intangible accounting. And we've broken out the purchase price accounting in the MD&A, so you can see how we did that. And you know, the bulk of that is related to the acquisition of backlog. And most of that will flush out during 2025, but there may be some that trickle into 2026. So that's kind of the accounting on ABL.

Again, uh, we're trying to provide you a little bit of color on that it is keep in mind. The business is ramping production. We haven't disclosed the prior period, uh, because the ownership took effect at the end of January. However, yeah, you can consider that that is a pretty significant increase in production. Um, and so, you know, we're adding to production capacity and that's all been driven through the Hamilton facility. As I mentioned, like we won't be, uh, in production in in um, in our Charlotte location until later in the fourth quarter.

Yeah, let let let me just add their Devin, uh, a couple couple comments. Uh, we're really pleased with the way, the team executed, uh, in the quarter. Um, we had solved the Topline growth.

Mike Mcmillan: Yeah. And you mentioned just directionally, again, we don't provide guidance, as you know. I think the best indication is the backlog that you see. We reported 246 million in backlog. And you know, that again, that is related to the Canadian operation at this point in time until we see production pick up in the US over, you know, sort of a phased approach. So that'll give you some direction.

John Doolittle: Thanks, Devin.

We had positive cash earnings that were offset by this, um, intangible accounting. And we've broken out the, uh, the purchase price accounting in the MD&A. So you can see how we did that. Um, and you know, the bulk of that is related to, um, the acquisition of backlog, um, and most of that will flush out during 2025, but there may be some that trickle into 2026. So that's kind of the, uh, the accounting on AVL. Yeah, and you mentioned just directionally again, we don't provide guidance, as you know. I think the best indication is the backlog that you see. We reported $246 million in backlog, um, and you know that again is related to the Canadian operation at this point in time until we see production pick up in the U.S. over, you know, sort of a phased approach. So that'll give you some direction.

Devin Dodge: Yeah, that's great, great context there. Okay. And then maybe just a second question for me. We've seen reports about a strike at your facility in Bradford. Just wondering if you could provide some context for how disruptive this has been to your remanufacturing network and maybe comment on your ability to minimize the impact to your customers.

Mike Mcmillan: Yeah, thanks. Thanks again, Devin. Yeah, again, we want to be very respectful of the process that we're going through. However, I would say, you know, as always, we, you know, as you know, we have a number of operations, and we certainly want to make sure that, you know, it's seamless for our customers. And so we've done what we can to make sure that we've minimized the impact in the near term. And so, you know, it's, again, it's still fairly recent, about a month in duration so far, and we're hopeful that we'll get back to operations quickly.

Thanks Evan. Yeah, that's great. Great context there. Okay, and then, um, maybe just a second question for me. Uh, we've seen reports about, um, a strike at your facility in Bradford. Just wondering if you could provide some context for how disruptive this has been to your remanufacturing network and maybe comment on your ability to minimize the impact to your customers.

Yeah, thanks. Thanks again, have a nice. Yeah, again, we want to be very respectful of the process that we're going through. Uh however I would say you know as always we you know we as you know we have a number of operations and we certainly want to make sure that um you know, it's seamless for our customers. And so we've done what we can to make sure that we've minimized the impact in the near term. Um and so, you know it's again it's still fairly recent about a month in duration so far and and we're hopeful that we'll uh, get back to operations quickly.

Devin Dodge: Okay, great. I'll turn it over. Thank you.

Mike Mcmillan: Great. Thank you.

Okay, great. I'll turn it over. Thank you.

Great. Thank you.

Lutie: Our next question comes from the line of Cherilyn Radborn with TD Cowan. Please go ahead.

your next question comes from the line of Cheryl and radbourne with TD Cowen, please go ahead

Cherilyn Radbourne: Thanks very much, and good morning.

John Doolittle: Good morning. Cherilyn.

Cherilyn Radbourne: I wanted to touch a little bit on the broader data center opportunity and, you know, what, if any, progress you've made to present a more coordinated offering to that market, including the engine, the enclosure, and possibly also Simco's cooling technology.

Thank you very much and good morning. Good morning. Good morning show.

Wanted to touch a little bit on the broader uh data center opportunity. And you know what, if any progress you've made to present a more coordinated offering to that market, including the engine, the enclosure and possibly also simco's cooling technology.

Mike Mcmillan: Yeah, maybe just to start on that, Cherilyn. I appreciate the question. You know, I think largely our focus at the moment has been around the ABL business. And as you can imagine, you know, the engines, basically what we're doing is, for example, is receiving an engine from one of our Caterpillar relationships where they're looking for the packaging to be done by our business, and then we bring it back and help commission that at the location that it's being developed. And so that's been the extent of it. You know, there is some activity in Canada, but I would say the majority of the activity is certainly in the US at present in terms of that type of support. You know, we continue to look at opportunities with Simco in terms of the cooling aspect of data centers.

Yeah, maybe just to start on that chair and, um, appreciate the question. You know, I think largely our focus at the moment has been around the abl business and as you can imagine, um, you know, the the engines, um, basically what we're doing is in in, for example, is receiving an engine from 1 of our

Mike Mcmillan: However, that's we haven't seen a lot of activity there at present. You know, we've certainly been working our way into those opportunities. But keep in mind, a lot of these data centers are moving at a rapid pace and, you know, getting designed into that solution is also a challenge and so forth. So, you know, I would say yet to be determined, but certainly an opportunity we're looking forward to over time.

Caterpillar, uh, relationships, uh, where they're looking for, uh, the packaging to be done by our business. And then we bring it back and help commission that at the location that it's being developed. Um, and so that's been the extent of it. You know, there is some activity in Canada, but I would say the majority of the activity is certainly in the U.S. at present in terms of that type of support. You know, we continue to look at opportunities with Simcoe, uh, in terms of the cooling aspect, uh, of data centers. However, um, that that's we haven't seen a lot of activity there at present. You know, we've been working our way into those opportunities, but keep in mind, a lot of these data centers are moving at a rapid pace. And, you know, getting designed into that solution is also a challenge, uh, and so forth. So, you know, I would say yet to be determined, but, uh, certainly an opportunity we're looking forward to over time.

Cherilyn Radbourne: Okay. That's helpful. And then in terms of the strength that you're seeing in RPO demand in the equipment group, what do you think that signals in terms of customer confidence and customer activity levels?

Strength that you're seeing in RPO demand in the equipment group; what do you think that signals in terms of customer confidence and customer activity levels?

Mike Mcmillan: Yeah, it's a really good question, Cherilyn. You know, I think right now, as we all know, the market activity is somewhat subdued. There's uncertainty with trade activity and investment. You know, it certainly feels like both federally, provincially, especially in Ontario and Quebec, there's good support for infrastructure development and resource development over time. And yet, I think with the uncertainty between, you know, on the trade dynamic and so forth, I think, you know, that's continuing to be evident in the activity levels that we see in our key markets. I think the RPO, as you mentioned, you know, we're in sort of the peak construction cycle up here.

Mike Mcmillan: And, you know, I think it's we always think of RPO as a great solution for customers to give them flexibility, allow them to peak shave, and manage cash flow as they continue to settle on some of their investments and projects and secure projects. And so nice to see it picking up. Again, it tends to be, as you know, more of a sort of a financing vehicle, and we tend to see some conversions. And we haven't seen this level of RPO activity probably for about three years. And so nice to see that coming back. But really, given the activity levels, you know, it's not uncommon for us to see a higher level of rental broadly. But that's obviously based on, you know, the activity in the marketplace, so.

Yeah, it's it's a really good question Cheryl. And, you know, I think right now, as, as we all know, the market activity is somewhat subdued, there's uncertainty with trade activity, and investment. You know, certainly feels like both federally provincial, uh, especially in Ontario and Quebec. There's good support for infrastructure development and, and, uh, resource development over time. Uh, and yet I think with the uncertainty between, um, you know, on the trade Dynamic and and so forth. I think, you know, that's continuing to be evident in our, in, in the activity levels that we see in our key markets. I think the RPO, as you mentioned, you know, we're in in sort of the peak construction cycle up here. And, uh, you know, I think it's, we always think of RPO as a great solution for customers, that give them flexibility, uh, allow them to Peak shave and um, manage cash flow as they continue to settle on some of their Investments and projects and secure projects and so nice to see it picking up. Um,

Again it it tends to be as you know more of a sort of a financing vehicle and we tend to see some conversions and we haven't seen this level of RPO activity probably for about 3 years. And so nice to see that coming back. But really, um, given the activity levels, you know, it's not uncommon for us to see a higher level of rental, broadly. Um, but but that's obviously based on, uh, you know, the activity in the marketplace, so,

Cherilyn Radbourne: Great. Thank you for the detail. I'll pass it over to someone else.

Mike Mcmillan: Thanks, Cherilyn.

Great, thank you for the detail. I'll pass it over to someone else.

John Doolittle: Thanks, Cherilyn.

Thanks, thanks Cheryl.

Lutie: Next question comes from the line of Sabat Khan with RBC Capital. Please go ahead.

John Doolittle: Great. Thanks, and good morning. If we just dig a little bit into maybe what you're seeing on the mining front across your business, I guess, you know, as we observe some of the commodity prices running up here, just trying to understand, you know, when you see those commodity prices at those levels, is your backlog at this point sort of reflecting the volume and the scale of orders that might kind of go hand in hand with those? Just trying to understand how much more runway there might be in your backlog given this operating backdrop and if you see kind of more runway there. So any other details would help. Thanks.

Next question comes from the line of sabat. Khan, with RBC Capital, please go ahead.

Mike Mcmillan: Sure. Yeah, thanks, Seb. Maybe just to start on that. I think one of the things, and you touched on backlog, which is a great indication, we talked a little bit in our commentary about the fact that, you know, we had a pretty strong year last year in terms of equipment deliveries and some new mine opportunities. And as most know, we're well diversified in terms of the commodity space. And, you know, about, say, roughly 40% or half of our customers are in the precious metals space, mainly gold. But we do have a number that are in the iron ore range and in nickel and other commodities. And so, you know, I think the backdrop is, especially in the precious side, good support and investment going in. However, it is lumpy.

Great, thanks and good morning. Um, just let me just take a little bit into maybe what you're seeing on the mining. Front of cross, your business, I guess, you know, as we observe some of the commodity prices running up here, just trying to understand. You know, when you see those commodity prices, at those levels, is your backlog at this point, sort of reflecting the volume and the scale of orders you, that might kind of go hand in hand with those just trying to understand how much more Runway. There might be in your backlog given this, um, operating backdrop. And if you see kind of more Runway there, so any other details will help. Thanks

Mike Mcmillan: And if you look at our backlog, as you mentioned, you know, mining is about 16%, I think, of our backlog. And if you reflect back on last year, that's considerably lower. And that's just a reflection of each of the unique mining operations and their fleet requirements and so forth. And so we've had a number of deliveries there. And so we tend to see that over time. Like that, that'll be lumpier because of the investment cycle. And, you know, again, it's a lower number of opportunities, but larger value. And so that tends to be reflected in the backlog. And if you compare over the last several quarters or a couple of years, you'll see that that disclosure has varied a fairly significant amount.

Sure. Yeah, thanks s. I maybe just to start on that. Um, I think 1 of the things and you touch on backlog which is a great indication. We talked a little bit in our commentary about the fact that, you know, we, we had a, a, pretty strong year last year in terms of equipment deliveries and some of the new mine opportunities is most know, we're well Diversified, in terms of the commodity space of, you know, but say roughly, 40% or half of our customers are in the, in the precious metal space mainly gold. But we do have a number that are in the iron ore range and in a nickel another other Commodities and so you know I think the backdrop is especially in the precious side, a good support and investment going in. However it is Lumpy and if you look at our backlog, as you mentioned, um you know mining is about 16%, I think of our backlog. In in, if you reflect back on last year, that's considerably lower. And that's just a, a reflection of each of the unique mining operations, and their Fleet requirements and so forth. And so, we've had a number of deliveries there and so

We tend to see that.

John Doolittle: And then maybe just, thanks for that, maybe just continuing that, presumably with the higher commodity prices, maybe the hours you're tracking on the machines have probably trended higher. Sort of, you know, are you able to get visibility into kind of how those hours are trending and then maybe ensure you have the technicians in place for the subsequent product support that may come? And, you know, how do you feel about the level of staffing on that front? Thanks.

Uh, over time like that. That'll be lumpier uh, because of the investment cycle. And and uh, you know, again it's it's a lower number of opportunities, but larger value. And so that tends to be reflected in the backlog. And if you compare over the last several quarters, or a couple years, you'll see that that disclosure has varied uh, Fair, uh, fairly significant amount

Mike Mcmillan: Yeah, no, that's a great indication, especially in the mining side. You know, our customers tend to run their equipment fairly hard. You know, it's a 24-hour operation. And so we do work very closely with customers on the telematics. And a lot of information comes off the units that we can track, and we can do preventative maintenance and work with them. So, you know, in terms of our technician and capacity, I mean, we feel pretty comfortable with where we're at today. We continue to hire in this market. And, you know, especially specific to the mining locations, we have dedicated on-site staff. We also have others that fly in and fly out and provide flex capacity for customers. And so I would say, you know, our capacity is pretty solid at the moment.

And then maybe just thanks for that. Maybe just continuing that. Presumably with the higher commodity prices, maybe the hours, you're tracking on the machines are probably trended higher, sort of, you know, are you able to get visibility into kind of how those hours are trending and then maybe ensure you have the technicians in place for the subsequent product support that may come? And you know, how do you feel about the level of Staffing on that front? Thanks.

Yeah, no that's a great indication. I especially in the mining side, you know, um, our customers tend to run their equipment.

Mike Mcmillan: We continue, though, to look to increase our capability there and support our customers, especially as the deliveries I just mentioned a little while ago. As we get some hours and get utilization, we move beyond preventative maintenance to more component activity. You know, we want to be prepared to support our customers and make sure their productivity is where it should be.

Capacity is, uh, pretty solid at the moment. We continue, though, to look to increase our capability there and support our customers, especially as the deliveries, I just mentioned a little while ago, as we get some hours, we get utilization, we move beyond preventative maintenance to more component activity that we want to be prepared to support our customers and make sure their productivity is where it should be.

John Doolittle: And then if I could maybe just squeeze in one more, you know, a lot of headlines around infrastructure in Canada and things like that. Just wondering, you know, have you gotten any early indications or discussions picking up with your construction segment customers? I know that that segment is probably more just in time, maybe not as much on the advanced order side, but just curious what you're hearing from that customer base. Thanks very much.

Mike Mcmillan: Yeah, maybe just to start on that, you know, again, I'd sort of go reflect back on our comments earlier about the a little bit of uncertainty and the cautious tone in the marketplace. Certainly, there's good intentions around investment in infrastructure. However, we're not seeing as much activity as we'd like to see at this stage, partly just because of the trade negotiations and things like that that are ongoing. And so, you know, having said that, certainly what we are seeing is some projects are starting to develop, but they do take time to get the engineering and the bid processes in place before shovels hit the ground. And so, you know, I would say that we're cautiously optimistic for the longer term.

And then if I could maybe just squeeze in 1 more as you know, a lot of headlines around infrastructure in Canada and things like that. Just wondering, you know, have you gotten any early indications or discussions, picking up with your construction segment customers? I know that that segment is probably more just in time, maybe not as much on the advanced order side but just curious what you're hearing from that customer base. Thanks very much.

On our comments earlier about the, uh, a little bit of uncertainty in the cautious tone in the marketplace. I'm that's certainly

Um, there's good intentions around investment and infrastructure. However, we're we're not seeing as much activity, uh, as we like to see at this stage at partly, just because of the trade negotiations and things like that, that are ongoing. And so, you know, having said that, um, certainly what we are seeing is, um, some projects are starting to develop, but uh, they do take time to get the engineering and the bid processes in place before shovels at the ground. And so, you know, I would say that, uh,

For cautiously optimistic, for the longer term.

John Doolittle: Thanks very much.

Mike Mcmillan: Thank you.

Thanks very much.

Thank you.

Lutie: And your next question comes from the line of Uri Link with Canucker Community. Please go ahead.

And your next question comes from the line of Yuri link with canico genuity. Please go ahead

Yuri Lynk: Good morning, guys.

John Doolittle: Morning here.

Good morning, guys.

Yuri Lynk: I'll circle back on ABL here. The monthly revenue, if you want to look at it that way, increased about 70% Q1 to Q2. Just wondering if you can kind of narrow that range a bit for what we should expect in H2 for the revenue contribution from ABL.

Um, I'll Circle back on on AVL here. Um,

The the monthly Revenue. Um, if you want to look at it that way increased uh, about 70% q1 to Q2. Um, just wondering if you can kind of narrow that that range, a bit for what we should expect in in H2 uh for the revenue contribution from, from AVL

John Doolittle: Yeah, I mean, we had, I think, two months of revenue in the first quarter versus three months of revenue in the second quarter. The team is ramping up, as Mike said, production in Hamilton, increasing footprint there. And then, of course, we've got the new facility that we've purchased in South Carolina, which will ramp. You know, we've hired a number of employees there. We expect to start production in the fourth quarter. So we're on a growth pattern here without giving you the exact outlook, but we would expect it to continue to grow.

Yeah, I mean you we had to think 2 months of uh 2 months of Revenue in the first quarter versus 3 months of Revenue in um, second quarter. The team is ramping up as Mike said, production in Hamilton, increasing footprint there. And then, of course, we've got the, the new facility uh, that we purchased in the South Carolina which will ramp um, you know, we've hired a number of employees there we, we expect to start production in the fourth quarter. So so we're on a, we're on a growth growth pattern here without giving you the exact, uh, Outlook. But uh, we would expect it to continue to grow.

Yuri Lynk: How does the revenue capacity in Charlotte compare to the existing facility?

How does the the revenue capacity in Charlotte compared to the, uh, the existing facility?

John Doolittle: I mean, when we get fully deployed, it'll about double the capacity in Hamilton.

I mean when when we get fully deployed it'll about double double the capacity in Hamilton.

Yuri Lynk: Okay. And is that a, was that plant already making enclosures, or it's more of a growth?

Okay.

Um,

and is is that a, a

Was that plant already making?

John Doolittle: No, no, it wasn't. It was a shell of a building fully built, and now we need to build it out to manufacture enclosures or assemble enclosures there. So that's why it's going to take a bit of time to ramp.

Enclosures or it's more of a no no it wasn't. It was a, it was a, a, a shell of a building fully built. And now we need to build it up to, uh, to manufacture and closers assemble enclosures there.

Yuri Lynk: And that will incur additional CapEx, I guess, beyond the purchase price of $6 million?

so that's why it's going to get, take a bit of time to ramp

John Doolittle: Yeah, Tom, it's not a big number, but there definitely will be some CapEx to get it up and running, which is kind of built into our overall CapEx plan.

Yuri Lynk: Okay. Last one. When you acquired ABL, you did mention that you expected it to be accretive. I think it's slightly negative a couple cents year to date, which is understandable on the non-cash intangibles amortization. Just wondering if, like, does that just, is that the number we should look at for accretion? Were you, is accretion expected in 25, or was that more of a 26 comment? Just any help on that would be appreciated.

And and that will that will incur, um, additional capex, I guess beyond the the purchase price of 6. Yeah. So, um, it's it's not, uh, not a big number but uh, they're definitely will be some capex to give it up and running, but just kind of built into our overall capex plan.

last 1, um,

When you acquired AVL you, you did mention that you, you expected it to be a creative. Um, I think it's slightly negative, I don't know a couple cents year to year to date which is understandable on the the non-cash.

John Doolittle: Yeah, I mean, I really think of the cash contribution for now. As I said, there's growth on the top line. They're positive from a cash earnings point of view. And I mentioned that, you know, the bulk of this amortization is related to the backlog we acquired, which will be amortized as we ship. And so, you know, I would expect a large part of that to amortize into the current year, depending upon production, with some trailing into next year. So that's kind of the way it will unfold.

Intangibles amortization just wondering if if like does that just is that the number we should look at for for accretion were you is accretion expected in 25? Or was that more of a 26 comment? Just any any help on that would be appreciated.

Yuri Lynk: Okay. Thanks, guys. I'll turn it over.

Yeah, I mean I I I really think as a cash contribution. Um, for now you're the as I said, the there's growth on the top line, there are positive from a cap, um, cash earnings point of view. And I mentioned that, uh, you know, the bulk of this amortization is related to the backlog. We acquired, which will be advertised as we ship. And so, um, you know, I would expect a large part of that to advertise into the current year depending upon production with some trailing into next year. So that's kind of the way it will will unfold.

Okay.

John Doolittle: Yeah.

Mike Mcmillan: Great. Thanks, Sherry.

Yeah, great. Thanks Sherry.

Lutie: This is from the line of Jonathan Goldman with Scotia Bank. Please go ahead.

From the line of Jonathan Goldman with Scotia Bank. Please go ahead.

Jonathan Goldman: On. Can you provide some color on the trends you're seeing in construction and whether you're seeing any differences in either the type of construction or the regions?

Um, can you provide some color on the trends you're seeing in construction, and whether you're seeing any differences in either the type of construction or the regions?

Mike Mcmillan: Yeah, I think it's been pretty consistent, Jonathan. I mean, we are certainly this time of year, you tend to see a little bit more. And what we are seeing is a lot of our customers are keeping their direct crews active in some areas. And so you're seeing a lot of resurfacing and things like that. What we're not seeing is on the residential side, like large construction bids, pre-sales, things like that. And that's been something we've been talking about, I think, for quite a few quarters now. And so, you know, I would say pretty consistent, let's say for, you know, some of the resurfacing and some of the common types of work that you would see in the summer months where they're doing paving projects and so forth, right?

Mike Mcmillan: Probably the best color we can give outside of, you know, outside of the residential side, we haven't seen anything change.

Yeah, I think it's been pretty consistent, Jonathan. I mean, we are certainly this time of year, you tend to see a little bit more. And what, what we are seeing is a lot of our customers are keeping, their, their direct Crews active in some areas and so you're seeing a lot of resurfacing and things like that. We're, we're not seeing is on the residential side, like large construction bits, pre-sales things like that and that's been something we've been talking about, I think, for quite a few quarters now. And, and so, you know, I would say pretty consistent a safe for, you know, some of the resurfacing and some of the common types of work that you would see in the summer months where they're, we're doing Paving projects and, and so forth, right? Um,

Probably the best car we can give outside of.

You know, outside of the residential side, we haven't seen anything change. So

Jonathan Goldman: Okay, that's helpful. And Mike, you mentioned continuing technician hiring, but could you give us an update and maybe level set us on where we are today in terms of headcount versus where we were a year ago?

Mike Mcmillan: Yeah, I would say, I mean, it's, we're up, we're up a little from this time last year, certainly. And we continue to have, like, as you know, you know, we, even just in the dealership itself, over 2,000 technicians and over 3,000 on a corporate basis. And so, you know, we continue to see a regular amount of, you know, retirement and that sort of thing and replacement. So, you know, I'd say our focus is really targeted at this point just to make sure that we're hiring technicians with the right skills in branches and regions that we see economic activity in, and we need to provide support. I mentioned mining earlier, making sure that we have the skilled trades supporting some of the new fleet implementations and things like that. So that's been our focus.

Okay, that's helpful and Mike you mentioned continuing technician hiring, but could you give us an update or maybe level set us on where we are today? In terms of headcount? Where we versus where we were a year ago?

Mike Mcmillan: You know, I'd say it's a lower pace than we would have been hiring at the last few years, but it's still, we're still continuing to invest in secure trades and build for the future. So, directionally, I mean, we will provide, again, annually, we tend to provide updated numbers in terms of the total technician workforce, and we'll certainly do that at the end of the year as well.

Yeah, I would say, I mean, it's we're up, we're up a little from this time, last year. Certainly we continue to have like as, you know, you know, we, uh, even just in the dealership itself, over 2000 technicians and over 3,000 on a on a corporate basis. And so, you know, we continue to see a regular amount of, you know, retirement and that sort of thing and replacement. So, you know, I'd say, uh, our focus is really targeted at this point just to make sure that we're hiring technicians with the right skills in in branches. And, and, and regions that we see uh, economic activity and and we need to provide support, I mentioned mining earlier and making sure that we have the skilled trades, supporting some of the new Fleet uh, implementations and things like that. So that's been our Focus. You know? I I'd say it's it's a lower Pace than we would have been hiring at the last few years, but it still, we're still continuing to invest, and, and secure trades and build for the future. So, um,

Jonathan Goldman: Okay, that makes sense. And maybe just one more housekeeping one from me. Of the 17 million of expenses from ABL in the quarter, how much of that was considered one time, whether acquisition-related or something else?

Directionally. I mean we we will provide again annually. We tend to provide updated numbers in terms of the total work technician Workforce and they'll certainly do that at the end of the year as well.

Okay, that makes sense. And maybe just one more housekeeping question for me. Um, of the $17 million of expenses from AVL in the quarter, how much of that was considered one-time, whether acquisition-related or something else?

John Doolittle: Well, the amortization itself, I've talked about that a couple of times. That would be one time in a sense that it will flush itself out over the next number of quarters. And the rest of it is ongoing expense to support the business.

Well, the amortization itself is, I've talked about that a couple of times that that would be 1 time in a sense that it will flush itself out over the next. Um, number of quarters and the rest of it is ongoing. Um,

Ongoing expense to support the business.

Jonathan Goldman: Okay, thanks. I'll get back with you.

Mike Mcmillan: Great, thanks, John.

Okay, thanks. I'll get back to you.

Great. Thanks. John.

Lutie: And your next question comes from the line of Steve Hansen with Raymond James. Please go ahead.

And your next question comes from the line of Steve Hansen with Raymond James, please go ahead.

Jonathan Goldman: Yeah, good morning, guys. Thanks for the time. In the equipment group, it was great to see product support move back into positive growth here. It looks like the sequential move was outsized, though, and I think you referenced product support, sorry, the power systems as being a key component of that. Is there anything in the numbers that are driving that big swing quarter over quarter? I think we're at probably 70 million in the period. Is there something that sort of counts as that shift from negative growth to positive growth that you call out?

Yeah, good morning guys, thank you for the time, um, in the equipment group, it was great to see products. Support moved back into positive growth here. Uh, it looks like the sequential move um, was outside though and I think you referenced

product support. Uh, sorry, the Power Systems is being a key component of that is, is there anything in that in the, in the numbers that are driving that big swing quarter over quarter? I think we're probably 70 million uh, in the period. Is that is there something that sort of counted for that shift from negative growth to Positive Growth that you call out?

Mike Mcmillan: Yeah, I think maybe Steve, again, it's, you know, I think what we've been seeing in the marketplace broadly is just a lower activity level, especially the first part of the year. So we are starting to see a little better take-up in terms of activity, parts, and service. In the past couple of quarters, we talked specific to labor. You know, labor was having marginal growth and parts were pretty flat. And so we're starting to see a little better consumption and, you know, with slightly higher activity levels and so forth. But it's really, it's more of a function of the activity in the marketplace. And the team has also done a very good job of working through our work in progress and, you know, I'm looking with customers in terms of what their unique needs are. Rental is consuming a little bit there, but not a lot.

Yeah, I think maybe Steve again. It's um, you know, I think what we've been seeing in the marketplace broadly is just a lower activity level, especially the first part of the year. So we are starting to see a little bit of take up in terms of activity parts and service. In the past couple of quarters, we talked specific to labor, you know, labor was

Having marginal growth in parts were pretty flat and so we're starting to see a little better consumption and you know, with slightly higher activity levels and so forth. But it's really uh it's more of a function of the activity in the marketplace and uh the team has also done a very good job of working through our work in progress. And um, you know, and working with customers in terms of what their unique needs are. Um, rentals consuming a little bit there but not a lot.

Jonathan Goldman: That's helpful. Thanks. And just on the margin profile here for equipment, I mean, how should we think about this? We've had a series of normalizing steps here, I think, in the equipment margin, I think seven quarters in a row now. Are we in the later innings? Do you think of that as we settle out here from the supply pendulum that's really moved in the last little bit? Like, where do we think we stand on margins?

John Doolittle: Yeah, I think on equipment margins, Steve, and I think we've mentioned this, maybe it was last quarter, that margins seem to have stabilized. Every quarter, they're going to fluctuate a little bit depending upon mix. But just on an overall basis, I think the margins on equipment have pretty much stabilized.

Moves in the last little bit. Like where do we think we stand on margins?

Yeah, I think on the equipment margin stat, I think we've mentioned this. Maybe it was last quarter that margin seemed to have stabilized. Every quarter, they're going to fluctuate a little bit depending upon mix.

Mike Mcmillan: Yeah, I think in the backdrop too, I think if you look at the supply of equipment supply chain, I mean, there's still readily available equipment in the marketplace broadly. And so, you know, I think, you know, there's probably still in certain areas, certain classes of equipment, especially on the smaller scale stuff, you know, great availability. And, you know, I think there's still some inventories to work through there over time, especially as activity levels improve and get to more normalized investment cycles. But, you know, I think that's the only thing I would direct you to as you look forward.

But just on an overall basis, I think the margins on equipment of pretty much stabilized. Yeah, I think the backdrop too. I think if you look at the uh, the supply of equipment supply chain, I mean there's still um literally available equipment in the marketplace broadly. And so, you know, I think, you know, there's probably still in certain areas, certain classes of equipment, especially on the smaller scale stuff, you know, great availability. And, you know, I think there's still some, some inventories to work through their over time, especially as activity levels improve. We get to more normalized investment Cycles but um,

You know, I think that's the only thing I would I would direct you to, as you look forward.

Jonathan Goldman: Great. And just to squeeze one last one, just on the ABL, I know you don't give us too, too much, but just from a margin perspective, how should we think about the average margin profile for ABL at the gross margin level? Is it accretive to margins in the equipment group, or how should we think about that?

Great, just to squeeze in one last question, just on the ABL. I know you don't give us too much detail, but just from a margin perspective, how should we think about the average margin profile for AVL at the growth margin level? Is it accretive to margins in the equipment group, or how should we think about that?

Mike Mcmillan: Yeah, I would say just to start on that, Steve, you know, I think it's, again, it's an assembly business. You can imagine the demand in the cycle, and it's going through an evolution to maturity, right? And so, you know, I'd say broadly, yes, it's certainly accretive. I think over time, you know, as capital continues to go into the data center space and the supply chains continue to adjust to the demand levels, we'll probably see some normalization, whatever that might look like, right? But certainly, given the productive capacity and the capability of the team there, we're really pleasantly surprised with how they're able to produce. And, you know, we would look at that and say it's an attractive opportunity for many reasons, but it should be accretive from a margin perspective and comparable to some of our power business.

Yeah, I would say just to start, I'm going to see if you know, I think it's again, it's an assembly business. Um, you can imagine the demand in in the cycle, um, and it's going through an evolution of maturity, right? And so, you know, I'd say broadly, yes, it's certainly a creative. Um, I think over time, you know, as capital continues to go into the data center space. And uh the supply chains continue to adjust to the demand levels. We'll probably see some normalization, whatever that might look like right. But, uh, but certainly uh, given the productive capacity and the capability of the team there. We're really, uh, pleasantly surprised with how they're able to produce.

And, um, you know, we would look at that and say it's an attractive opportunity for many reasons, but, um, it should be a creative.

Some uh, from a margin perspective and comparable to some of our power business.

Jonathan Goldman: Very helpful. Thank you.

Mike Mcmillan: Thank you.

Very helpful. Thank you.

Thank you.

Lutie: And once again, if you would like to ask a question, please press the star one on your telephone keypad. Your next question comes from the line of Krista Friesen with CIBC. Please go ahead.

And once again, if you would like to ask a question, please press star 1 on your telephone keypad,

Your next question comes from the line of Christopher Friesen with CIBC please. Go ahead.

Krista Friesen: Hi, thanks for taking my question. Maybe just on the mining side for product support, what are you thinking in terms of timing for the recent deliveries to transition from more preventative support to larger support projects?

Hi. Thanks for taking my question.

Um, maybe just on, on the mining side. Uh, for product support, what are you thinking? In terms of timing uh for the uh the recent deliveries to transition from more preventative, uh,

Mike Mcmillan: Yeah, that's a great question, Krista. I think, you know, it's, yeah, and I think you hit the nail on the head, really, when you think of, you know, fleet deliveries and so forth. The first, you know, couple of years generally are largely preventative maintenance type items until we get, you know, up to the component replacement sort of cycle. And, you know, that generally can take somewhere between two and three years of active deployment of the equipment. And so, you know, that's what we would look at from over the last couple of years. We'd start to see some of that activity, but it wouldn't be until probably the early part of next year.

Um, support to to larger support projects.

Yeah, it's a great question, Chris. I think you know, it's...

Yeah. And I think you hit the nail on the head, really? When you think of, you know, Fleet deliveries and so forth. So first, you know, couple of years generally are largely preventive maintenance, type items until we get, you know, up to the component replacement sort of cycle and you know that generally can take somewhere between 2 and 3 years of active deployment of the equipment. And so, you know, that's what we would look at uh, from over the last couple years. We'd start to see some of that activity, but it wouldn't be until probably early part of next year.

Krista Friesen: Okay, great. Thanks. And then maybe just product support more broadly. Are there any comments just in the other end markets that you operate in? Are there any that are kind of in a unique cycle like the mining industry is right now where you're just working on preventative maintenance?

Okay, great, thanks. And then maybe just, um, products, more more broadly? Uh, are there any comments? Um, just in in the other, uh, and markets that you operate in? Are there any that are kind of in a unique cycle? Like the mining industry is right now where you're just working on preventive maintenance.

Mike Mcmillan: Yeah, again, another good question because if you think back to where we were a couple of years ago where we had limited supply of equipment and availability, and you know, one of the areas certainly in construction that we would talk about periodically is the larger GCI products. So the larger shovels and the larger equipment, which tends to require more product support and parts consumption, right, versus the compact gear. And so, you know, I think over time we've seen equipment supply improve, especially as we entered into this year. And as some of that equipment, you see our new sales have increased year over year, and the team has done a really nice job of selling into the marketplace given what we're experiencing.

Mike Mcmillan: So again, it would be a longer cycle as we've sort of seen the return of availability, deployment of capital, and then that product support tail should kick in. You know, the hour requirements on that equipment are lower than, say, mining, but some of that equipment will take a year to two years to start to consume parts and increase product support.

Yeah, it's again another good question because I if you think back to where we were a couple of years ago where we had limited uh, supply of equipment and availability and you know, 1 of the areas certainly in construction, that we would uh, we talked about periodically is uh, the larger, um, GCI products. So the larger, shovels, and the larger equipment. Um, which tends to require more, uh, product support, and and parts consumption right versus the compact gear. And so, you know, I think over time we've seen um, equipment supply improve, especially as we entered into this year in as some of that equipment and you see our new sales have increased year-over-year and, and the team has done a really nice job of, um, of selling into the marketplace given what what we're experiencing. Um, so again, it would be

Parts and increase product support.

Krista Friesen: Okay. Thank you for the color. I'll pass the line.

John Doolittle: Yeah, just when we have a minute here to the next question, I got an email, an accounting question related to ABL. So just to be clear, if you go to page seven of our disclosure, you can see the business combination section, specifically ABL. So we're treating this from an accounting point of view as a business combination. We consolidate the revenue. We consolidate the earnings. There's no minority interest in this case because we have a commitment to purchase the remaining 40% of the shares. And so as we pay dividends in the future, they will be treated as an expense. But just to be clear on how the accounting for ABL works, you can read it in the disclosure.

Okay, thank you for the color. I'll pass the line.

Yeah. Just um, uh. Just what we have a minute here to the next question. I got. I got a, an

An accounting, question related to AVL. So just just to be clear.

If you go to, um, uh page 7, uh, of our disclosure, um, you can talk, you can see the business combination section specifically AVL. So, we're treating this from an accounting point of view, as a as a business combination, we consolidate the revenue, we consolidate the earnings. There's no money minority interest in this case because we have a commitment to purchase the remaining 40% of the shares. And so as we pay dividends in the future, they will be treated as an expense.

But just to be clear on how the accounting for AVL works, you can read it in the disclosure.

Mike Mcmillan: Okay.

Okay.

Lutie: And your next question comes from the line of Maxim Sychev with National Bank Financial. Please go ahead.

And your next question comes from the line at Maxim CES the National Bank Financial. Please go ahead.

Devin Dodge: Hi, good morning, gentlemen.

John Doolittle: Morning, ma'am.

Devin Dodge: Hey. I was wondering, is it possible to get any color in terms of how much of the current capacity of ABL is being exported to the US? Is it sort of the bulk of it? Just trying to gauge, I guess, how, you know, like localizing that manufacturing process can, you know, potentially even more significantly lift the revenue generation.

John Doolittle: Yeah, I mean, the vast majority of the current production maxes is sent to the US. As you know, the build-out there has been very, very significant compared to Canada. Hopefully, we see more build-out here in Canada. But the vast majority of their production is shipped to the US.

Okay. Um, I was wondering is it possible to get any color in terms of how much of the current capacity of AVL is being exported to the US is at sort of the bulk of it? Um, just trying to gauge. I guess how, you know, like localizing that manufacturing process can, you know, potentially even more significant lift, the revenue generation

Devin Dodge: Okay. Thank you for that. And then, Mike, maybe the sort of the comment you made around the cooling opportunity and sort of the need to get, you know, designed into it. What are your thoughts on sort of, you know, build versus buy strategy? And what do you think sort of is the right, I mean, first of all, like is there an opportunity to buy? What's the market looking from that perspective? Maybe just any color. Thank you.

Yeah. I mean, the vast majority of the current production Maxes of is sent to the US. Um, as you know, the build out there is has been, um, very, very significant compared to, to Canada. Hopefully, we see more build out here in Canada, but, uh, but the vast majority of their production shipped to the US

Mike Mcmillan: Yeah, as you know, Max, I mean, we're careful about talking about any potential acquisition side of things. I mean, I think, first of all, I would say our Simco team has got a considerable capability for cooling and especially industrial, commercial side of things, which could fit well. But it does take time to get designed in. And a lot of the data center side of things that we mentioned earlier, you know, they're standardized, and it does that. That's hence my comment about getting designed in. So we are looking for those opportunities. As far as purchasing or build versus buy, I mean, our preference, I think, in that space is likely to do more of the organic side of things versus inorganic.

Okay. Uh, thank you for that. Um, and then Mike, maybe the the sort of the the comments you made uh around the cooling opportunity and sort of the need to get, you know, designed into it. Uh what are your thoughts on? Sort of uh, you know, build versus buy strategy? And and what do you think, sort of this? The right. I mean trust like is there an opportunity to uh to to buy? Um, how was the market looking from that perspective and maybe just in any color? Thank you.

Yeah, as you know, Max, I mean, we're careful about talking about any potential acquisitions side of things. I mean, I think, first of all, I would say our sim code team has got a...

Considerable capability for cooling, and especially in industrial commercial side of things which, which could fit well, but it does take time to get designed in. And a lot of the data center side of things that we mentioned earlier, you know, um, their standardized in certain and it does that. That's hence my comment about getting designed in. So we are looking for those opportunities as far as as far as purchasing or build versus buy. I mean, our preference I think in that space is likely to, to do more

Mike Mcmillan: And I think the other piece to keep in mind is, you know, because of the growth and development in the data center side of things, a lot of businesses are trading at a premium. And there's a lot of future uncertainty around, you know, not only the technologies, but also even just on the cooling. There's liquid cooling. There's traditional cooling. So there's a number of probably innovations that are going to occur over time. And so I think we would be very cautious about a purchase in this space, right? We'd want to be very careful.

More of the organic side of things versus inorganic. Um, and I think the, the other piece to keep in mind is, you know, because of the growth and development in the data center side of things and a lot of businesses are trading at a premium and there's a lot of future uncertainty around, you know, not only the Technologies, but also even just on the cooling there's liquid cooling. There's traditional cooling. So there's a number of

Devin Dodge: Yeah, for sure. And I guess, again, just because you do the, you know, the backup right now, the enclosure, potential cooling, it just, when you go see the potential clients, you're still offering more than one solution versus, you know, even three, four years ago. So the probability of getting penetration there seems to be improving, but still sort of TBD in terms of getting there. Okay.

Probably innovations that are going to occur over time and so I think we would be very cautious about a purchase in this space, right? Okay, makes sense very carefully.

Yeah, for sure. And, and I guess again, just because you do the, you know, the the backup right now with the enclosure, uh, potentially cooling. It just when you go see the potential clients, uh, you still offering more than 1 solution versus, um, you know, even 3, 4 years ago. So the probability of

Mike Mcmillan: Thank you.

Getting penetration there seems to be improving, but, uh, still sort of TBD in terms of, uh, getting that, okay?

Devin Dodge: Okay. That's great. That's it for me. Thank you so much.

John Doolittle: Thanks, Max, Max.

Thank you. Um, okay, that’s great. That’s it for me. Thank you so much. Thanks very much.

Lutie: And your next question comes from the line of Steve Hansen with Raymond James. Please go ahead.

And your next question comes from the line of Steve Hansen with Raymond James, please go ahead.

Jonathan Goldman: Oh, yeah. Thanks for the follow-up. I just want to circle back on the ABL here just and push a bit, just since it seems to represent such an important piece of the business now. It's I think it's a quarter of the total backlog in the equipment space. Just, you know, how much of a sense do you have for capacity expansion for enclosures in the broader industry right now? It strikes me that if you can double capacity over 12 months or six months, I guess, by buying a facility and ramping it quickly, I mean, how much broader capacity expansion are we seeing for these enclosures? Like, should we expect this normalization cycle to be 12 months, 24 months? I know the demand for data centers feels unlimited, but capacity can also catch up quickly.

Oh, yeah, thanks for the follow. I just want to circle back on the EVL here and push a bit, just since it seems to represent such an important piece of the business now. So I think it's a quarter of the total backlog in the equipment space. Just, you know, how much of a sense do you have for capacity expansion for enclosures in the broader industry right now? It strikes me that if you can double capacity.

Jonathan Goldman: I just want to get a broader sense of your thoughts around the competitive landscape.

Center. Your thoughts are on the competitive landscape.

Mike Mcmillan: Yeah, I think maybe just to start on that, Steve. You know, as we mentioned, we've invested in a facility that's got about the same capacity as what we see in Hamilton, maybe slightly larger. But I would say we're, you know, we're cautious in that sense. Like, that'll give us a significant participation in the space for enclosures at this point. And I wouldn't get too far down the road. There is a lot of capital going into this marketplace. And I think as we get that facility up and running and the capacity and secure all the build slots, you know, you know, we would look at some other opportunities based on demand. But we would, you know, I would say we wouldn't want to get too far ahead of ourselves and oversees on future facilities.

I think maybe just to start on that Steve, um, you know, as we mentioned we've invested in a facility that's got about the same capacity as what we see in Hamilton, maybe slightly larger, but I would say we're you know, we're cautious in that sense like we're that'll give us a significant participation in the space for enclosures at this point and I wouldn't get too far down the road. There is

Mike Mcmillan: These two facilities will give us significant participation and should be able to support, you know, the Canadian market as it develops, and then also the customers that we already have in the US.

John Doolittle: Yeah, the other thing I would just add, just on the doubling of capacity, thanks, Steve, just be careful in terms of your models, right? So we've purchased the facility. We're kitting it out. We'll have some production starting possibly in the fourth quarter, first quarter, and it'll ramp. So we're not going to double as soon as this thing opens, right?

Mike Mcmillan: Okay. Phased approach.

John Doolittle: Yeah. Yeah, no, that's a fair point. And just one last one on that, if I may, is I think one of the initial value propositions of the initial transaction, which seems to be playing out nicely, was the ability to maybe leverage your existing CAT relationships and try and sell through them as well. Is that happening, or is this still more of a direct sale process from your in-house ABL guys?

People going into this Marketplace and I think as we get that facility up and running and the capacity and secure all the build slots, you know, you know, we would look at some other opportunities based on demand. But we would, uh, you know, I, I would say we wouldn't want to get too far ahead of ourselves and over our skis on a future facilities. These 2 facilities will give us significant participation and that should be able to support, you know, the Canadian Market as it develops and then also the customers that we already have in the US. Yeah. The other thing, I would just add just on the doubling in capacity thinks just be careful in terms of your models, right? So we've purchased the facility, we're kidding. It out how some production, starting possibly in the fourth quarter, first quarter and it will ramp. So we're not going to double as soon as this thing opens, right? Okay,

Mike Mcmillan: Yeah, no, you're exactly right there, Steve. I think, you know, certainly the CAT relationships, I mean, ABL does package for other equipment providers, but the majority would be through the CAT network in North America here. And that's where we would look to establish our presence. And that's hence the reason why I went to the Charlotte area for the Eastern Seaboard.

Phased approach. Yeah, yeah. Yeah. I know that's a very that's a fair point and just just 1 last 1 on that. If I may is, I think 1 of the initial value propositions of the initial transaction. Um, which seems to be playing out nicely is was the ability to maybe leverage your existing cat relationships and try and sell through them as well. Is, is that happening or is this still more of a direct uh, sale process from your your in-house AVL guys?

Yeah, no, you're exactly right there. Steve, I think um, you know, certainly the cat relationships. I mean we they AVL does package for other equipment providers, but the majority would be uh, through the cat Network in North America here. Um, and that's where we would look.

To establish our presence, and that's hence the reason why I went to the Charlotte area for the Eastern Seab.

Jonathan Goldman: Very good. That's it for me there. Thanks.

Mike Mcmillan: Great. Thank you.

John Doolittle: Thanks, Steve.

Lutie: And we have no further questions at this time. I would like to turn it back to Mr. John Doolittle for closing remarks.

Very good. That's it for me. Thanks. Great. Thank you. Thanks, Steve.

John Doolittle: Okay. Thank you, Luty, for hosting us today. Thanks to everyone for joining and the great questions. Concludes our call. Be safe for everyone. Try and stay cool and have a great day.

And we have no further questions at this time. I would like to turn it back to Mr. John, do a little for closing remarks.

Mike Mcmillan: Take care. Thank you.

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

Okay, thank you. Uh, Ludy for hosting us today. Thanks to everyone for for joining and the great questions. Includes our call be safe, everyone try and stay cool and have a great day. Take care. Thank you.

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