Toromont Industries Ltd. – Third Quarter 2026 Results - DEFI TECHNOLOGIES INC

Financial Performance:

• Q3 2026 revenue increased 26% to $1.65 billion; year-to-date revenue rose 18%.
• Gross profit margins expanded 240 basis points to 29.1%; operating income surged 46% in the quarter.
• Net earnings increased 37% quarter-over-quarter; basic EPS reached $2.35, up 36% year-over-year.
• Year-to-date operating income as a percentage of revenue was 14.8%, compared to 12.3% in the prior year.
• Return on equity (ROE) was 17.8% (target 18%); Return on capital employed (ROCE) was 26.7%.
• Cash position stood at $1.2 billion with $445 million available via credit facilities; net debt-to-total capitalization was negative 12%.
• Dividends were set at $0.56 per share, payable January 5, 2027.
• Working capital increased to support higher activity levels, with disciplined inventory and collection management.

Guidance and Future Outlook:

• Backlog ended the quarter at $2.9 billion (up from $1.3 billion a year ago), providing visibility through 2027.
• Approximately 70% of the Equipment Group backlog and 65% of Simcoe's backlog are expected to be delivered over the next 12 months.
• AVL facility expansion: Charlotte production capacity matched Hamilton by Q3 2026, with incremental improvements expected; Waterdown facility to ramp in Q3 2027.
• Management anticipates strong demand for power systems and enclosures extending into 2028-2029, driven by data center and infrastructure projects.
• Outlook remains positive despite fluid global trade negotiations, inflation, and interest rate environments.
• Expect inventory levels to remain elevated and consistent to support growth and factory optimization.

Business Segments and Product Lines:

• Equipment Group: Revenue up 26% in Q3; new equipment sales up 49%, used equipment down 4%. Mining revenue surged 55%, Power Systems up 108%, Construction up 11%.
• Rental: Revenue up 12% in Q3, driven by a larger fleet and higher utilization; Heavy equipment rentals up 40%.
• Product Support: Revenue up 14% in Q3, benefiting from higher fleet utilization and an expanded technician workforce.
• Simcoe: Revenue up 23% in Q3 after a slow start; package revenue up 33% (Recreational +21%, Industrial +61%).
• AVL: Q3 revenue $218 million (vs. $78 million prior year); purchase commitment expenses were $14.3 million for the quarter.
• Bookings: Total bookings increased 50% in Q3 to $892 million; Equipment Group bookings up 59%, Simcoe bookings down in the quarter but up 3% year-to-date.

Market and Competitive Landscape:

• Mining and construction markets are showing improved activity, particularly in power systems and heavy equipment rentals.
• Data center development and energy transition are driving demand for enclosures and standby power systems.
• Competition in the enclosure space is increasing, but the company maintains a focus on quality, design, and on-time delivery.
• Eastern Canada market for power systems is lagging behind U.S. and Western Canada demand.
• The "Ring of Fire" mining project is in early development stages; immediate impact expected to focus on access roads and infrastructure.
• Residential and commercial construction in southwestern Ontario remain slower due to economic uncertainty.

Risks and Challenges:

• Global trade negotiations (specifically Canada-U.S. relations) remain fluid, posing economic uncertainty.
• Inflationary pressures on commodity prices (steel, parts) may impact product support margins.
• Equipment supply chain constraints, particularly engine availability (Caterpillar), may limit production ramp-up.
• Construction and mining projects are cyclical and "lumpy," leading to potential booking volatility.
• Eastern Canada market performance continues to lag behind other regions.

Management Commentary and Tone:

• Tone is confident and disciplined, emphasizing strong execution, margin improvement, and financial flexibility.
• Management highlighted successful ramp-up of AVL Charlotte facility and continued investment in technician workforce as strategic priorities.
• Confidence expressed in the backlog visibility and ability to navigate economic headwinds.
• Acknowledgment of the "lumpy" nature of the mining market but excitement regarding long-term government infrastructure commitments.

Analyst Questions and Answers:

• Product Support Margins: Management cited the nature of specific work mixes and inflationary parts costs as reasons for slight margin compression, expecting variability but not a major trend change.
• AVL Capacity: Charlotte ramp-up exceeded expectations (approx. $200M+ quarterly run rate reached); Waterdown to open Q3 2027.
• Construction Drivers: Growth is broad-based across infrastructure and paving; residential segment remains the slowest to recover.
• Rental Fleet Investment: Heavy equipment rental utilization led improvements; investment pace expected to remain strong in 2027.
• Simcoe & Tax Policy: Positive impact expected from "Mega Deduction" and "Build Canada" initiatives on cash flow, though accounting tax rates remain unchanged.
• AVL Competition: Increased options in the data center enclosure market, but company maintains differentiation via quality and delivery reliability.
• Ring of Fire: Initial focus on infrastructure/access; long-term mining production involvement expected over a decade, not immediate years.
• Caterpillar Dealership: Management views the recent Cat dealership situation as unique with little known about future moves; Torremont prioritizes organic growth.
• Technician Hiring: Continued aggressive recruitment to support growing product support demand and customer lifecycle needs.

Other Key Points:

• AVL declared and paid a $15.7 million dividend in Q3; a subsequent Q4 dividend approval implies an $18.6 million expense in Q4 2026.
• Purchase commitment expenses for AVL (related to buying remaining shares and non-controlling interests) totaled $82.5 million year-to-date.
• Management reiterated a 3-2-5 year lag for new equipment deliveries to fully impact product support revenue through major component replacement cycles.
• The company maintains a negative net debt position, providing ample liquidity for future growth and investment.