Toromont Industries Ltd./ADR (TMTNY) Q2 2026 Earnings Call Transcript

Good morning. Today is Wednesday, July 29, 2026. Welcome to the Tournament Industries Limited Second Quarter 2026 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, sir.

Very good. Thank you, Angeline. Good morning, everyone. Thank you for your results for this. Also on the call with me this morning is Mike McMillan, President and Chief Executive Officer. Mike and I will be referring to our prepared remarks.

Thank you, John. Good morning, everyone. Thanks for joining us this morning. We are pleased with our second quarter in revenue and earning solid execution across the business. The equipment group delivered growth in new and used equipment sales, enclosures, rentals, and product support. The equipment group's operating income was 47% higher in the second quarter as the higher revenue and improved gross profit margins were partially offset by higher expense levels. AVL continued to expand production. During the quarter, we increased our ownership in AVL to 80% and acquired land in Canada to support future manufacturing growth. Operating income decreased, largely reflecting the lower package revenue due to project timing, lower gross profit margins, and higher expense levels, and investments for future growth. Let's turn to slide four for some other financial highlights. Investment in the non-cash working capital was comparable year over year. A net effect of higher inventory levels, higher accounts receivable balances, and lower accounts payable balances due to equipment delivery timing. half the year with ample liquidity, including $1.2 billion in cash and an additional $449 million available under our existing credit facilities. Our net debt-to-total capitalization ratio was negative 13%. Overall, our balance sheet is well-positioned to support operations and navigate evolving economic and business conditions. As one would expect, we'll continue to apply operational and financial discipline as we support customer needs and evaluate future investment opportunities. Vermont targets a return on equity of 18% over the business cycle. ROE for the second quarter was 17% all in, slightly below our target, however improved from 16.9% at year-end 2025 and comparatively lower than 17.6% reported at the end of June 2025. The year-over-year difference reflects higher shareholder's equity, which more than offset increased comparative earnings. We would also note that ROE was dampened by approximately 1.5% by the expenses as disclosed associated with the accelerated purchase of certain shares of AVL in the quarter. This increased our ownership to 80%, a decision that was made based on long-term expected returns. Return on capital employed was 24.8%, slightly higher year-over-year, reflecting our increased net earnings. Announced yesterday, the Board of Directors approved a regular quarterly dividend of 56 cents per share, payable on October 2, 2026. John, I'll turn it back over to you for a more detailed commentary on the results.

Let's turn to slide five for a few. A consolidated basis revenue is 15%, prominently by the equipment group with higher powers, along with higher mining equipment, production timing, with key changes related to the issue of mark-to-market adjustments. Operating income increased 41% in the quarter, reflecting higher revenue and improved gross profit margins, partially offset by the higher. Percentage of revenue operating income was 13.6%. Partially unchanged in the creator of our base business, we would note that net earnings on slide 6, with higher market activity in Canada, offset by lower revenue, largely offset by the backlog.

AFA 2026, our focus remains squarely on executing our strategic priorities. These begin with an unwavering commitment to safe, reliable, and efficient operations, delivering consistently high levels of customer service, and maintaining disciplined financial and operational rigor to support sustainable long-term growth. Against this backdrop, we continue to monitor key external factors that could impact the business. Global trade negotiations are evolving, and in particular, developments between the U.S. and Canada remain dynamic, requiring proactive mitigation plans, which we continue to refine as the situation evolves. Foreign exchange volatility, particularly fluctuations in the Canadian dollar, is being actively managed through our hedging program, helping to mitigate earnings impacts while recognizing that broader economic conditions may still create headwinds. In addition, we are closely monitoring the overall macroeconomic trends. Our backlog of $2.9 billion continues to grow nicely and the equipment supply chain is well positioned to support customer requirements. Investment in our technician workforce remains a key strategic priority. By strengthening this critical capability, we are enhancing our aftermarket services, improving responsiveness and delivering greater long-term value to our customers across our product and service offerings. From both an operational and financial standpoint, we benefit from a focused operating model, experienced leadership team, a disciplined culture, and strong liquidity. This foundation enables us to manage near-term uncertainty effectively while continuing to advance our strategic growth priorities. Creating shareholder value remains grounded in disciplined cost management, thoughtful strategic investment, and consistent operational execution. We thank our team for their continued dedication and our stakeholders for their trust and support. That concludes our prepared remarks. We'd now be pleased to take your questions. Angelina, over to you, please, to set up the first question.

Thank you. Ladies and gentlemen, we will now conduct a question and answer session. If you have a question, please press the star key followed by one on your touch-tone phone. You will hear a prompt that your hand has been raised and acknowledged. your questions will be pulled in the order they are received if you would like to decline from the polling process please press the pound key please ensure you lift the handset if you are using a speakerphone before pressing any keys one moment please for your first question your first question comes from Yuri link with countercard genuity please go ahead good morning guys Morning, Yuri.

Morning, Yuri.

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

Thanks for the question, Yuri. I think maybe I'll give you a little color and John can chip in as well. Yeah, it's certainly a significant order. I would just say we didn't disclose customer-related detail, but I would say, you know, it's multiple locations across, you know, largely in the U.S. eastern seaboard would be the positioning there. And so, you know, I think part of the positioning there is as we've ramped up in Charlotte and, you know, continue to track really nicely the plan and, you know, hitting our quality and delivery timescales, it's resulted in the opportunity for us between both our facilities, the Hamilton facility and the Charlotte facility, to be able to secure that type of commitment from a customer perspective. And, you know, again, what I'd emphasize is as we booked and secured that order, it is largely to be executed and delivered in 2027 with both facilities.

Yeah, the only thing I'd add, Mike, is we continue to support the CAT network.

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

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

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

AVL operation, we purchased land north of Hamilton. It's approximately $20 million, CapEx number. It is land, and so we'll need to do a build-out URI over the next while and coming out of that facility until sometime mid-2027.

Numbers for the investment that's still to come?

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

And that includes the $20 million for the land? And last one on this, would the revenue capacity of that be similar to Hamilton?

That's going to take us into 2027, and then I would expect...

That's helpful. I better turn it over there.

Thank you. The next question comes from Krista Riven with CIBC. Please go ahead.

Thanks for taking my question. Maybe just a clarification on that last one, the 40% to 50% capacity, that's relative to the capacity in Canada or that's also including um what's in Charlotte it was meant to be both Chris okay perfect thank you just keep it keep in mind the timing that I yes that makes sense um and then maybe just shifting uh shifting to the more traditional uh equipment group can you give us a bit of an update on what the construction outlook is looking like for the rest of the year and just if you're starting to see more of these nation-building projects start to flow through and when you expect to see an impact from that?

Yeah, that's a great question. Thanks for that, Krista. You know, I would say, you know, a couple of things. We are seeing a little better activity, and I think you see it in construction. You see it in our rental business, too, with better utilization on the larger fleet, and that's both heavy and light. You know, one of the areas that I would caution is the residential-related business still seems to be stalled for the most part. Like when you think of infrastructure going into high-density or residential, you know, there's limited activity there. But we are seeing reasonable levels of activity around road construction, repaving, and construction markets. And you mentioned the larger projects. You know, they're very early stage. And so, you know, I think some of the major projects announced federally require, you know, road access and a number of other things to start development, especially when you think of resource access in other areas. And so there is some engineering, there's some initial work being done there. But, you know, our view would be that, you know, that's going to continue through into 28 where we're hopeful that we're going to see a stronger till when going into the new year.

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

Yeah, I think, and sort of refer you to the backlog too, Krista. It's, you know, our backlog is well positioned and we mentioned a few comments about it. And we often talk about Simcoe as, you know, it's a bit of a lumpy business. And so we do have some larger projects, for example, that take a little bit more time to recognize. And so for the balance of the year, I would say, you know, we're feeling comfortable given the backlog and the fulfillment of that backlog that we noticed in disclosure. And so it's been a bit slower this first half, just given the timing of some of those projects. Product support has been maybe one of the positive signals there. There's a little bit stronger results there. But, you know, I think pretty consistent with what we saw last year.

Okay, perfect. I'll turn back in the queue.

Thank you. The next question comes from Charalene Radvoord with TD Cohen. Please go ahead.

Good morning. Good morning.

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

Yeah, it's a good question, Sherilyn. I mean, I guess what we are seeing is, you know, we're seeing good demand by our customers. I mean, having the PO that we talked about is a pretty long duration going out to the end of 2027. And so, you know, we're anticipating a reasonable level of demand over the next several years. But, you know, we're careful in the sense that, you know, we need to earn that business and secure, you know, POs in replacement of what we fulfill here over the next 18 months. You know, the protections in there, I would say, again, there's a variety of customers, hyperscalers, co-locators, and regional players. And as John mentioned, we're working closely with Caterpillar Network. And so I would say, you know, we try to be pretty careful with some of those terms and those agreements. You know, our focus is really on quality and execution on our product line as well, because these are really what we've seen so far is standby or backup power generation, which tends to be lower hour, but we need to make sure that we're consistently executing in terms of quality and the delivery of that product line. So, you know, I'd say that the exposure, you know, we have normal warranty periods and so forth, which the customer has accepted. And, you know, we also have the capability to help service if needed.

Yeah, the other thing I'd just remind you, Sherlone, is we're being very thoughtful. Property in great locations, like the new one we've just in, in Charlotte. And, you know, at some point in the future, if there is a plateau, then we have great hours.

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

I mean, we're quite happy with the growth that we saw in product support, like even in the equipment group, we're up 8% to 9% on a quarter year-to-date basis. You know, a couple of things that we've been talking about the last couple of years, part of it obviously is related to activity levels and our customers say in construction starting to require more support with a little bit better activity. Mining we've talked about quite a bit in the past and, you know, we've put some fleets into service over the last two, three, four years. And as those build the hour requirement, we start to see a little stronger product support requirement there. And so we're starting to see a little bit of that. And to your point on rebuilds, you know, it is a focus area for us. I think given some of the economic uncertainty and some of the different dynamics in the marketplace, you know, we've been working hard with our customers to give them that as an auction. And, you know, along with other, you know, along with used and RPO and so forth. But we've seen some pretty decent demand around the rebuild side of things. It is lumpy in the mining space, but maybe a little bit more consistent when you think of the construction network, right?

Yeah, the other thing I mentioned on the rebuild side of things, Mike, is we have broken ground on the Quebec City facility, and that's going really...

Thank you. That's my two.

Great. Thanks, Ellen.

Thank you. The next question comes from Devin Dodge with BMO Capital Markets. Please go ahead.

Yeah, thanks. Good morning, guys.

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

Yeah, maybe to start on that. You know, I would say that we continue to evaluate both markets very carefully, right? I think it comes down to local jurisdiction, but also when you think of labor market supply, availability of real estate, the supply chain and the logistics in and around the facility, and so that's a big consideration. You might recall when we've described the Hamilton facility, it's a number of buildings where Charlotte is a fit-for-purpose building. You know, it's a one large facility, and our new facility, which is just north of Hamilton into Burlington area, will be similar to Charlotte. And so we were looking at it from that perspective as well, where we end up with a facility that's fit for purpose, constructed for, you know, very efficient operational flow. So, and I think the other part is, you know, although we're seeing the strongest demand in the U.S. and expect that to persist over time, you know, over time we're expecting to see demand in Canada also, albeit a more reasonable level compared to the U.S. And so, it's good to have access and because it's in Hamilton, you know, we have the ability with port access and other things too, which is an added benefit.

Yeah, makes sense. Thanks for that. Another quick one on AVL. Are you continuing to take orders for delivery in 2027?

Yeah.

Maybe just switching gears here, but, you know, Tormont's, I think in the final months of its three-year business plan, what do you believe were the biggest accomplishments in Connect 26?

And then as you look forward, where do you expect the focal areas to be for the next business plan? yeah it's a plan just coming out of COVID and you know the connect theme was around you know connecting with customers reconnecting with customers connecting with employees because of the dynamic from the pandemic and connecting digitally and so forth and I think you know our goal really broadly was uncertainty and I think you know again the trade dynamics and all the other things coming but you know I think from that perspective the team has worked really well to put us in a good position across the activity level basis. We get a little more stability south of the border. And, you know, and I think the other piece is the discipline in the business. You know, our teams have done a nice job from a cost management perspective. We continue to hire technicians. And, you know, the digital side is a huge investment area as well. Caterpillar is putting a lot of resources into that space. We've, you know, built our team, strengthened our team in those areas. And I'd see that as something that's going to continue to gain a lot of traction and be, you know, one of the common themes going forward in our plans because the, you know, the analytics, the technology within the equipment and how we use all that capability to differentiate, you know, our service offering and help our customers lower the cost of operation. So, long answer to your question, but, you know, I would say, you know, a lot of it is around positioning the business for sustained long-term growth, right? And that was the goal.

Okay, thanks for that.

Thank you. The next question comes from Steve Hansen with Raymond James. Please go ahead.

Oh, good afternoon, guys. Thanks for the time. The first one is on AVL and just the pace of ramp in Charlotte or maybe across the network today. The ramp was quite quick in the period. When do you sort of expect to start to tap into sort of those capacities on which we currently have for all of our adult sites, I guess, collectively today?

Yeah, I mean, Steve, we're really pleased with the ramp at Charlotte. And, you know, we would expect Charlotte to be at full capacity coming out of Q3. But they've done a really good job ramping up. Safety has been paramount, and that's been great. And the team down there is just an amazing job. And, yeah, it ramped very well in the second quarter, as you point out.

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

Yeah, I mean, the margin story has stayed basically the same, Steve. It's very soft, and you can kind of work into that with...

And just one last one quickly. It's just, it does seem like the equipment market, despite a few soft spots in eastern Canada, is slowly tightening or consistently tightening. Inventories appear to be coming down across the channel. I mean, how do you feel about the margin profile and sort of in the core equipment business relative to even last year? Are you starting to see points of improvement out there?

Yeah, you know, Steve, I would just say that, you know, it's a well-supplied market, right? Like we continue to see moderate improvements in activity, but I would say, you know, broadly speaking, the equipment space is well-supplied. And so that naturally brings in, you know, some strength and pressure on margins to a certain degree. I mean, I think the team is working, like as you know, we talked about the value proposition and we talk about, you know, it's not just the equipment margin side of things, it's also the product support and availability and helping our customers with that entire value prop and lower cost of ownership. But, you know, I think as we look forward, the one area I'd say that is still very constrained is obviously the large engine market, partly driven off the data center demand, you know, and mining continues to be fairly strong. And so that's a constrained longer lead time market. But when you look at the GCI and BCP product lines and CC, it's well-supplied and will continue to be, so we believe.

Okay, thanks. Just a last one. Do you have any intention to split ODBL at some point into its own segment?

We don't.

Okay, we'll see you then. Thank you.

The next question comes from Jonathan Goldman with the Scotia Band. Please go ahead.

Hey, good morning, guys, and thanks for taking my questions. Good morning, Jonathan. Morning, guys. Maybe just a housekeeping one for you, John. Construction product support, did you say up six or down six? And the product support margin, did you say similar year-on-year?

Order was up 6%, yeah. Mining was a little higher.

Okay, perfect. I guess my next question then kind of more broadly on data centers, do you guys anticipate an opportunity to participate in prime or backup power via re-sips?

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

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

Yeah, it's a focus for us, Jonathan. And, you know, again, we've been strengthening our recruiting efforts, I would say. And, you know, part of that goes to where we see the business evolving and wanting to strengthen the product support side of our business. And so I would say, you know, it's always a constrained market. It's always a challenge to hire, but we've done a pretty nice job and we'll continue to see growth in actual headcount. And I would say it's also across the business. So we've talked a little bit about Simcoe, but, you know, the dealership on the rental side, we continue to look and continue to attract new talent and hire to make sure that we're offsetting natural retirements, but also continue to grow that capability over time. So, we don't see that declining.

Okay. Thanks for the color. I'll get back in queue.

Thanks, John.

Thank you. Once again, if you would like to ask a question, please press 1.

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

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

One thing to keep in mind, I guess, as we think about it, is just mixed too, right? you know like we saw in the quarter a little better rental uh product support growth which is nice to see you know as as avl continues to add to production i mean they're doing very well but well as john characterized the new facility and as we see that through 27 28 you know just keep in mind as you model um how you blend that margin through the equipment uh segment i think will be well supplied as we talked about earlier so yeah sorry yeah maybe yeah just digging in

I was thinking maybe more specifically on the AVL, I guess, just because it's becoming a bigger part of the revenue mix. Will that maybe shift margins in one direction or the other, just given the ramp there?

In what you will.

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

In the AVL side? I mean, I would say one that we want to manage very carefully, our focus is on really driving cost efficiencies and so forth because, as you can imagine, as this segment evolves, there's been a period of constrained supply in engines and enclosure production and so forth. But I think there's a lot of capital going into that marketplace, and I think naturally you're going to start to see other players in the market. You're going to see potentially some pressure on some pricing, And so our goal is, you know, to be the top supplier, most consistent, high quality, and also focused on, you know, auto-like manufacturing capabilities to drive efficiency in our production side of the business to help mitigate any pressures we see on the top end or in margins. side right so great and then maybe just one last quick one i guess just on the content uh the concept of sort of constrained supply in this environment um how are you finding your sort of supply chain for that avl business i think you know maybe not as complicated as the engine supply chain but given the the big backlog have you able have you been able to lock in supply to make sure you can kind of deliver um against that thanks yeah i would say we're reasonably comfortable with the supply elements, right? Like when you think about it, certainly a big factor is the engine supply, like you mentioned, and continue to see how availability of engines dictate production and so forth. But, you know, we've been working pretty hard at making sure that our suppliers, you know, whether it's fuel tanks or panels or what have you, we've also brought in, within our power and energy group, we've also brought in the capability to help put together switching and CAM boards and things like that, which we had in the Power and Energy Group, so we've enhanced that capability, which also helps us to, you know, mitigate some of that supply chain requirement. So I would say generally speaking, we're comfortable with where it's headed and given what we see in the backlog and so forth, comfortable with that positioning.

Great. Thanks very much for the color. Appreciate it.

Great. Thanks, Adam. Thanks, Adam.

Thank you. The next question comes from Charlene Radborg with Titi Cohen. Please go ahead.

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

Good question, Charlene. I think we are seeing, as you know, it's a little bit lumpy. When you think of the broader market, there's some discussion about the marine side, for example. And, you know, I think as some of those opportunities on the defense side open up, that could lead to some projects down the road. Those are certainly longer term. You know, I think when you look at the power side, we continue to see some opportunities around bridging strategies, right, bridge to grid and areas like that where there's constraints, partly related to data center, but other industrials looking to peak shave and to do some things like that. And so it's a pretty diversified group, as you know, and, you know, I'd say we're cautiously optimistic with what we see there in terms of energy requirements for the longer term and, you know, some other opportunities around distributed power and so forth. Great.

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

Yeah, it's just normal lumpiness, Cheryl. And it ebbs and flows, as you know, quarter by quarter. And as Mike said, it's a larger projects in there. And depending upon which segment it lands in, you'll see.

Thank you. That's all from me. Thank you.

Next question comes from Steve Hansen with Raymond James. Please go ahead.

Thanks for following. Just a quick one. I'm just curious in thinking about rules of thumb, is there a way to think about how many megawatts of power that billion-dollar order would cover?

Just trying to, again, frame the announcements we're seeing out there relative to your order flow and get a sense of what we should be thinking about and what it covers next. yeah that's a that's a difficult one steve in the sense that each of the locations have very different power requirements right you know generally what we do say is you know if you think of a a large block like the 3516s you know they can generate about two and three quarter megawatts per unit right and so you know some of the larger facilities can use upwards of 100 megawatts of power, but it's very difficult. I would say it's not, I wouldn't translate that into that type of metric just because of the variation in the facilities and the power requirements.

Thank you.

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

Okay, great. Thank you, Angeline. Thanks everyone for the great questions. Concludes our call, and please be safe. Have a great day. Thank you.

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