Toromont Industries Ltd.

Good morning. Today is Thursday, May 2, 2024. Welcome to the Torremont Industries LTD First Quarter 2024 Results Conference Call. Please be advised that this call is being recorded and all lines have been placed on mute to prevent any backer noise. Your host for today will be Mr. John Doolittle, Executive Vice President and Chief Financial Officer. Mr. Doolittle, please go ahead.

Okay, very good. Thank you, Ludi. Good morning, everyone. Thank you for joining us today to discuss Tormont's results for the first quarter of 2024. Also on the call with me this morning is Mike McMillan, President and CEO. 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, and let's get started and move to slide three, and Mike, I'll pass it off to you.

Great. Thanks very much, John. Good morning, everyone. Results for the first quarter of 2024 are reflective of the evolution toward more normalized supply and demand dynamics when compared to the market factors we experienced last year. Overall, we saw a decline in revenues year over year. However, activity levels remain solid, with healthy bookings and backlogs across the business. Historically, this period reflects seasonality in areas of our business, including construction. The equipment group delivered lower results in the first quarter of 2024 versus the similar period of last year, which was a strong comparator given specific customer deliveries and market dynamics in play at that time. Prime product delivery was lower, impacted by delays in customer deliveries while rental was also lower, mainly due to market and abnormal weather conditions. Product support reported good market activity, and we continue to increase technician headcount. Improving equipment availability, solid bookings in the quarter, and a healthy opening order backlog remain supportive for the future. Simcoe had a solid start to the year, driven by good execution in both Canada and the U.S., coupled with healthy activity levels. Product support activity continued to demonstrate growth, supported by larger technician workforce. Operating income increased on the higher revenue, improved gross margins, and favorable sales mix, with a higher proportion of product support revenue to total, partially offset by higher expenses. Across the organization, we continue to focus on our long-term investment objectives and remain committed to our operating disciplines, driving our aftermarket strategies in delivering customer solutions. On slide four, I'd like to touch on a few key financial highlights. Investment in non-cash working capital decreased 9% versus a year ago, mainly driven by higher deposits and customer billings against long-term contracts and order backlog. Accounts receivable decreased in light of slightly lower revenue levels, while DSO increased up four days compared with last year at 41 days overall. Our team continues to closely manage the aging of our receivables and monitor credit levels and metrics. Inventory levels are higher than the prior year, driven by a number of factors, including delivery timing, inflation, foreign exchange rates on US source supplies, improving availability through the supply chain and activity levels. We ended the first quarter with ample liquidity, including cash of $983 million, and an additional $461 million available to us on our existing credit facilities. Our net debt to total capitalization ratio was negative 14%. Overall, our balance sheet remains well positioned to support operating needs, and we are prepared to manage challenges related to the economic variables and business conditions. We will continue to exercise the operational and financial discipline one would expect as we evaluate investment opportunities that may develop over time. Torremont targets a return on equity of 18% over a business cycle. Return on equity was 22% compared to 24.9% for Q1 of 2023 and exceeds our five-year average of 20.8%. Return on capital employed was 29%, down from 32.4% for Q1 2023. Both of these metrics reflect our higher capital investment. And as announced yesterday, the Board of Directors approved the regular quarterly dividend of $0.48 per share, payable on July 5, 2024, to shareholders on record on June 7, 2024. John, I'll turn it back to you for some more detailed comments on our Q1 results.

Okay. Thank you, Mike. Let's turn to slide five for a few additional comments on the consolidated numbers. As Mike noted, results in the first quarter of 24 were lower than the first quarter of 23, as expected, given market dynamics in play at that time. Lower revenue, lower gross margins, and higher expenses were partially offset by the higher interest income and cash balances. Solid opening order backlog and good order bookings during the quarter are supportive. Bookings increased 62% compared to a similar period last year. Equipment group bookings increased on several large orders in mining and construction. Simcoe bookings increased on solid demand for our products and services. Backlog remains healthy at 1.4 billion, up 24% year over year. with an increase in both the equipment group, up 15%, and at Simcoe, up 62%. Backlog is supportive and reflecting good order intake, some deferrals or delays in construction and customer delivery schedules, and supported by improving equipment inflow through the supply chain. On a consolidated basis, revenue decreased 3% in the quarter, with the equipment group down 3% and Simcoe up 3%. Expense levels increased to 14% of revenue year over year, reflecting the higher staffing levels and activity, as well as inflationary pressures. Operating income decreased 17% in the quarter and was 10.5% of revenue compared to 12.2% in the similar period last year. Net earnings decreased 13%, or $12.2 million in the quarter compared to last year. And basic EPS was $102 in the quarter, tracking the decrease in net earnings, both reflecting the lower revenue, higher relative expense levels, and higher interest income. Turning to the equipment group on slide six, revenue was down 3% in the quarter. Equipment sales, including both new and used equipment, were down 10% in the quarter across most market segments. New equipment sales decreased 11% in the quarter against a stronger comparative in 2023, in part reflecting delays in customer deliveries. Used equipment sales decreased 6% in the quarter on lower sales from trades and purchases reflecting shifting supply and demand dynamics. Used equipment sales also include rental fleet dispositions, which have increased, reflecting fleet management decisions, as well as availability and the cost of new equipment. In the quarter, total equipment revenue decreased 4% in construction, 34% in mining, 20% in material handling, and increased 34% in power systems. Rental revenue was down 3% in the quarter. Most markets and regions were lower, reflecting competitive market conditions and unfavorable weather conditions. Revenue was lower in most areas for the quarter with the following decreases. Light equipment rentals were down 6%, heavy equipment rentals were down 13%, material handling down 8%, which was partially offset by an increase in power rentals, which were up 9%. Our RPO fleet was $70 million versus $39 million a year ago, and rental revenue was up 50% compared to last year on that. Product support revenue grew 3% in the quarter, with increases in both parts and service across most markets and regions on good end-user customer demand and a higher technician base. Looking at specific markets for the quarter, change in revenue was as follows. Construction was up 3%, mining up 4%, power systems up 3%, and material handling down 5%. Gross margins decreased 100 basis points in the quarter compared to 23%, Equipment margins increased slightly, up 10 basis points on sales mix. Rental margins were down 130 basis points on lower fleet utilization, higher recent acquisition costs, in part due to a weaker Canadian dollar, and higher maintenance and repair costs. Product support margins decreased 60 basis points on generally higher costs. Sales mix with a higher proportion of product support revenues to total increased margin by 80 basis points. In SG&A, Expenses were up 6% in the quarter. Compensation costs were higher year over year, reflecting staffing levels, regular salary increases partially offset by lower profit-sharing accruals on the lower income. Other expenses, such as training, travel, and occupancy, have increased in light of activity levels and inflationary pressures. As a percentage of revenue, selling and administrative expenses were higher at 13.8% in the period versus 12.6% in a similar period last year. Operating income decreased 20% for the quarter, mainly reflecting the lower revenue, lower gross margins, and higher relative expenses. Bookings increased 51% in the quarter. Mining bookings were up significantly on several large orders received in the quarter. Construction bookings were also healthy, up 40%. These were partially offset by lower orders in power, down 35%, and material handling down 42%. Backlog of $1.1 billion remains at healthy levels. up 15% versus last year, reflecting good new bookings and some delivery delays on customer orders. Approximately 85% of the backlog is expected to be delivered over the next 12 months, but of course is subject to timing differences depending on vendor supply, customer activity, and delivery schedules. Now turning to Simcoe on slide 7, revenue was up 3% in the quarter. Package revenue decreased 7% in the quarter, mainly due to delays in equipment delivery and customer schedules. of large industrial projects, partially offset by an increase in the recreational market. Industrial market revenue was down 24% with lower activity in both Canada and the U.S., while recreational activity increased 85% up in both Canada and the U.S. Product support revenue improved 11% in the quarter with increases in both Canada and the U.S. Activity levels continued to improve reflective of market conditions and increased labor capacity. Gross margins increased 450 basis points in the quarter versus a comparable period last year. Package margins were up 270 basis points on good execution and the nature of the projects in process. And product support margins increased 120 basis points on improved execution and higher market activity. A favorable sales mix increased margins by 60 basis points, reflecting a higher proportion of product support revenue to total revenue. On selling and administrative expenses were up 10% in the quarter, allowance for adult full accounts decreased $1.6 million, reflecting focused efforts on collections and an improvement of age receivable balances. Compensation costs increased, reflecting staffing levels, annual salary increases, and higher profit sharing accruals on the higher earnings. Other expenditures, such as travel and training expenses, increased to support activity and staffing levels. And as a percentage of revenue, Selling and administrative expenses increased to 17.9% in the period versus 16.7% in the similar period last year, in part driven by higher revenue. Expenditure control measures on discretionary spend remain a key focus area for the Simcoe team. Operating income was up $3 million, or 61% for the quarter, reflecting improved gross margins and higher revenue. Operating income as a percentage of revenue increased 330 basis points, to 8.9% compared to the first quarter of last year. Bookings increased 156%, or $62.9 million in the quarter. Industrial orders were up 194%. Recreational orders were up 119%, with higher orders in both Canada and the U.S. Backlog of $323 million was 62% higher than last year, largely driven by an increase of 114%. in the industry market, a 17% increase in the recreational market with increases in both Canada and the U.S., and approximately 80% of the backlog is expected to be realized over the next 12 months. However, again, this is subject to construction schedules and potential changes stemming from supply chain dynamics. And with that, we can move to slide eight. I'll hand it back to Mike to highlight some key takeaways as we look forward to Q2 and the balance of the year.

Thanks, John. As most listening today would be familiar, we consistently focus on key priority areas, including safe operational execution, serving and supporting our customer requirements, and our disciplined focus on building our business for the future. We recently began operating our new 143,000 square foot remanufacturing center in Bradford, Ontario. This 70 million facility will enhance our capacity and efficiency as we contribute to the circular economy. In addition, this facility features advanced environmental and contamination controls, including an energy efficient Simcoe heat pump and a robotic soda cleaning system. The plant can employ up to 160 technicians, with the majority transferring from other facilities. Our backlog levels remain healthy and bookings in the quarter improved. We continue to hire technicians to support our operations, including our Bradford facility, and this remains an essential focus for our aftermarket and value-added product and service offerings. Operationally and financially, we remain well-positioned with ample liquidity and our strong leadership team's disciplined culture and focused operating models. Our team remains committed to disciplined execution with our decentralized and empowered operating model, adapting to changes in the business environment while remaining focused on executing customer deliverables. We continue to monitor key metrics and supply dynamics. As noted, our long-term focus on growth and returns means that we remain committed to our operating financial disciplines to manage our cost structure while we invest in the capacity and capabilities to provide exceptional service to our customers today and in the future. Additional efforts continue to focus on managing our discretionary spend. With our solid backorder and balance sheet, we are well-positioned and will continue to support the business through thoughtful capital deployment. We appreciate our entire team's effort and commitment to support our customers and deliver value for our stakeholders. Thanks also to our valued customers, supply partners, and shareholders for their continued support. That concludes our prepared remarks, and at this time, we'll be pleased to take questions. Lumi, over to you to set up the first call, please.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star followed by one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the pulling process, please press star followed by two. And if you're using a speakerphone, please lift your handset before pressing any key. One moment for your first question. Your first question comes from Sherilyn Radborn with TD Cowan. Please go ahead.

Thanks very much and good morning. So the year seems to have gotten off to a bit of a slow start in the equipment group for various reasons, but product support was pretty robust and you saw some notable booking strength. So I'm curious what you make of all of that taken together and how your teams are positioned tactically.

Yeah, thanks for the question, Sherilyn. Yeah, I think those are great observations. I think, you know, if you compare to Q1 of last year, you know, we had, again, we can't forget, we had a number of different dynamics affecting timing of availability and supply, where this year, I think, and through the course of the last year, we did signal and we did speak to improving availability, which is one component. You know, I think we continued to see, in Q4, we had a pretty strong finish. And, you know, I think that combined, when you think about you know, return to more normalized availability, supply, seasonality also plays a factor. We're also in an environment, I think, where, you know, interest rates remain high, and our customers are managing the timing of delivery, the timing of their projects, and so forth. And so I think that's really what you're seeing there is, you know, a little bit of patience in the marketplace, as we've been talking about for several quarters. And, you know, and I think when it comes to product support, you mentioned again, We're seeing some good growth. You look at construction, I think John mentioned it was up 3%, mining's up 4%, and so forth. So we are seeing some decent activity there. And I think that's just in preparation for the summer season and what we think may be, I wouldn't say it's completely normal, but it's certainly feeling more normalized than we've seen for several years.

And is there any further color you can give on the customer and equipment delivery delays that you saw across both routes in the quarter? Like, is that weather-driven? Is that supplier-driven? Or is that customers, as you indicated, you know, just being a bit cautious and trying to pace their deliveries?

Yeah, I think it's, you know, maybe to start, John can weigh in, too. I think it's more the latter, Sherilyn, when you think about it's just really – You know, we're in a supply environment today where there's more availability, and so that allows our customers to plan their cash flow accordingly. I mean, we mentioned weather a little bit here, and I would just say, look, we operate in Canada, and we have variability. And so we tend to not look at those factors as significantly, although they can shift things around, but we don't measure cycles right in months or quarters. So, you know, I think it's really more about the business environment A little bit of patience, as I mentioned earlier. You mentioned our backlog and our bookings were pretty strong in the quarter, and that bodes well, I think, as we continue to proceed through the year. It's less about, I would say, you know, supply this year versus last year, certainly. More about timing and just managing cash flow.

Okay, that's great. And then last one from me. On the bookings and backlog strengths at Simcoe, how much of that work would you say relates to customers looking to improve the energy efficiency or greenhouse gas profile of their operations?

You know, I would say – we didn't break it out, Sherilyn, but I would say we're certainly getting more interest in – you know, I think natural refrigerants and also energy efficiency, which translates into reduction of GHG emissions and so forth. And so, you know, we later on today, we'll during the annual meeting, we'll talk a little bit about Simcoe's Thermal Force One platform and how that is starting to get quite a bit of interest. And so I would say it's, you know, I wouldn't say it's early days, but I think as plants are modernized, we're moving to natural refrigerants, far more efficient plants and so forth, and so it's starting to take shape in that form. But, you know, again, I think it's the product support side, again, is maintenance. The packages and so forth are split between industrial, recreational, and so forth. And if it's a new installer replacement, certainly we're seeing the gains in that side, but we haven't broken that up.

Yeah, I would just say, Sharon, we're really pleased with the results of Simcoe in the quarter, kind of across the board there, and And we're also really proud and pleased of the progress they're making on GHG in general. And as Mike said, we didn't break it out in terms of the backlog, but they're making great steps. Thermal One is one component of that for sure in our GHG plants.

Thank you for the time. I'll pass it on.

Thanks, everyone.

Your next question comes from Jacob Belk with CIBC. Please go ahead.

Good morning.

Morning, Jacob.

Yeah, I wanted to go back to the comments you made about more normalized supply and demand dynamics. What does this mean for margins? Because when we take a look at the year-on-year performance, new equipment was down, product support was up, but yet margins were down almost to 200 basis points. So is this kind of the new dynamic we're looking at here going forward?

You know, maybe just to start on that, Jacob, we've been talking a little bit over the last several quarters, probably the course of the last year, that we think with more normalized supply, you know, we're going to see some mix shift. And we always try to direct everybody back to, I guess a couple things I would say, back to the factors that affect margin, right? And so, you know, new and used, we've seen some pretty strong margin in that area. that was really because of constrained supply. As that normalizes, we expect that that would come back to more normalized levels, so to speak. But also, I think when you think of mixed, we're seeing a shift between new and used, for example, more targeted used, where when we were constrained, we had a higher mix of used product, and a little bit of margin benefit can be realized there. I think the other piece there, obviously, though, is the rental side of things. And so when we look at our blended margin, know rental was down the number of factors for that i think part of it is related to you know just higher equipment acquisition costs last year we invested significantly in both heavy and light fleets that brings our costs up a little bit and does tighten margin now we continue to invest and we're really committed to that market and happy with how it's performing but we you know our utilization obviously comes off a little bit with a larger fleet that's a higher cost base and i think you know, combine that with a little bit of, you know, the timing to get things ready, that plays a factor. And I think the last piece I would mention is on product support. You know, we're seeing some decent activity across the business on the product support side. And as that mix increases, then we saw a little bit of a pickup there. But overall, I think, you know, we have to look at the factors affecting that and the availability on the new and used equipment, certainly a significant portion of our sales and margins.

Okay, and then maybe just on the customer delays that you saw, how much of those sales are lost or pushed out into the second quarter?

Yeah, I think, you know, again, we manage our, call it our lost deals and so forth, and we wouldn't say that that's a significant factor in many cases. It's really more about customer behavior and timing. right, and cash flow management from that perspective. And so, you know, you see our backlog, you see the bookings that we saw in the quarter, and, you know, and we also signaled that, you know, over 80% of that should be realized throughout the course of the year. A couple things I would also note, though, when you think of backlog, you know, our mining orders we often talk about are lumpy. Even the sales mix on mining is lumpy, and so we have to remember that that's, you know, when it comes to equipment, it's dictated by the delivery schedule for that mine and that development. You know, I think also on the power side, generally what we're seeing is, you know, longer lead times just given the demand for large-bore engines and so forth. When you think of, you know, across North America and probably globally for CAT, you know, large-bore engines and data centers and so forth are driving, you know, stronger demand, which creates longer lead times. And so that can go beyond the end of the year if we're looking at certain classes of engines. in that timeframe.

Thank you. Thanks, Jake.

Your next question comes from Yuri Link with Canaccord Genuity. Please go ahead.

Good morning, guys. Hello, Yuri. Can you just give us a bit more color on the Bradford facility as it ramps up? I'm thinking about two things. First, in the initial couple of months as you ramp it up, would there be additional costs? associated with that as you're probably operating a bunch of facilities simultaneously for perhaps a few months there. And then more broadly, does this make you more efficient? Does it increase your capacity? Just trying to think about it in the long term.

Yeah, it's a great question. Thanks for that, Yuri. So I think just to start, certainly And as a matter of fact, we've just started the transition into that facility this week, and so we do have some activity there. And to your point, you know, we mentioned that we would hire upwards of 160 techs. I would say, you know, we're in around 100 at the moment in transition from other locations and product. And so there is a little bit of cost in the quarter between facilities, but the capacity, if you think of the headcount, and even just naturally the product flow throughout that facility where we're going, for example – from, say, three facilities and, say, for example, between two buildings that are very close together, the efficiency that we'll see just in terms of a fit-for-purpose facility or modernized equipment, even just the cleaning facilities and so forth, will be far more efficient. We expect to see that start to take hold as we transition throughout the quarter. Now, it will take us several quarters to move product and operations into that facility, but I'm pretty excited about that. I think, you know, capacity-wise, it's 143,000 square feet. You know, the facilities that we have today are probably in the 80 to 90 range, and so that does give us a little bit more from that regard as well.

Yeah, I would just add here the bulk of the costs have already been incurred in terms of getting that facility up and running. And there may be some transitionary costs as we move workforce, et cetera, but it will be minimal. And, of course, we own all of our facilities, so there's no kind of duplication in leasing costs or that sort of thing.

Okay. That's helpful. Yeah. Maybe just on the rental side, a few things. I'm wondering if you could help me out with CapEx expectations for the year in terms of fleet additions and then – Maybe a bit more color on there was a line in the MD&A talking about more competitive market conditions. Just what exactly you're seeing on the rental side of the business.

Maybe just a couple of quick comments and we can tag team that. I think from a CapEx perspective, I think what you'll see is pretty good pace relative to last year when you look at overall CapEx in both heavy and light. I think as we look at the year and the activity levels, we'll monitor that carefully. But, you know, I would say we continue to invest at a pace similar to the prior year and so forth. And so, you know, depending on the composition, keep in mind also last year we also saw, you know, better availability on certain units and an ability to change and dispose of units. We saw disposals increase last year as we were able to replace the fleet with better availability. And so you'll see a little bit of that. I think, you know, when it comes to, you know, the marketplace itself, Everybody in this space has better availability of equipment, higher cost. And naturally, I think what we're going to see is, you know, we're going to have to compete in that marketplace. We're prepared to do that and happy to. And so, you know, I think that's really the essence of that comment is just everybody has available equipment. We're competing for the dollar out there on the rental side. But we are seeing some good activity. not entirely rental related, but the RPO fleet is probably worth note too. And you see that, you know, our customers also were starting, you know, we saw the RPO fleet was about 70 million in Q1, you know, and compared to last year at the same time, it was 39. And so we're seeing a little bit better appetite for that particular type of financing vehicle.

Yeah. I mean, just a couple of things to add on that year. I mean, I think we were asked that question last quarter or the quarter before, and we said we, Our plan was to continue acquiring in the rental space on the same pace this year as last year, and nothing in the first quarter changes that were committed to the rental market. We look through the cycle. One quarter doesn't determine our plan. Maybe we change the mix a little bit as we go, Mike, in terms of used versus new in the rental fleet, but we'll manage that a little bit as we go. So anyway, that's where we're at, Gary.

Okay. And the other portion of your capex just on PP&E, I think it was like over $110 million last year. Where would you ballpark that?

Yeah, I think keep in mind the Bradford facility is a big part of that. Now, really a lot of it is driven, I guess, by a couple of things. It would be when you think of the modernization of our fleets, our service truck fleets and so forth. And again, it comes back to sort of the availability and replacement of that fleet over time. But it was certainly higher. Like we talked about Bradford, for example, being from a facility perspective, but a $70 million investment spread between last year. A large portion of that was incurred last year, but we do have some in the first half of the year and probably into Q2 as we finalize that transition. So you'll see that come off directionally. And it'll be based on, you know, from that perspective going forward, it'll be based on a facility-by-facility ratio. network development plan, both for the dealership, for a rental business, and so forth. And so that'll, you know, we'll give you a little more color as we go forward as we think about expansion or, you know, markets that we want to have a presence in.

Thanks, guys. Thank you. Thank you.

Your next question comes from Michael Dowman with Scotiabank. Please go ahead.

Hey, good morning, guys. Good morning, Michael. Good morning. I apologize, but another rental question here. Just thinking about certainly the softness in Q1 was quite a bit, but if I think for the balance of the year, is it fair to think that maybe the seasonally busier quarters would help ease some of that market-led margin variability? And did you guys see maybe a little bit of a seasonal uptick into Q2?

Yeah, as you know, thanks for the question, Michael. As you know, we try not to provide or we certainly don't provide guidance for the year, but when we talk about normal seasonality and you look back into Q1, you know, we generally would see a little bit less activity in the rental space, right, especially if you look at battlefields or you look at landscapers, you look at certain areas. You know, that business benefits from, you know, heating, propane sales, snow removal, in Q1, and so depending on what we see there in terms of markets and weather. But as we get into Q2, then we start to see other activities pick up. And so with availability, I think that's what we anticipate, that we're going to see a little bit more seasonality in terms of the types of equipment being rented and activity levels as we see the warmer months.

Okay, that makes sense. Thanks, Mike. And look, maybe I want to revisit the M&A thinking here. You know, you have a net cash position. You guys are too good for us to assume that that will just get bigger. You know, how are you thinking about, you know, or maybe how would you qualify M&A opportunities today? And is there a point where you guys would decide you've got enough cash or increasing, you know, the return of capital, call it a special or, you know, maybe more buyback would make more sense for you guys?

Well, hey, Michael, we're pretty proud of the balance sheet that we have. It gives us lots of flexibility to manage economic activity. As we've talked about before, our priorities in terms of using that cash are, one, we've got a lot of organic growth opportunities. We talked about rental, Simcoe. We talked about growing in the U.S. We've increased the dividend, as you know, every year for 35 years. That's important to us. We've got a buyback program. We bought back $25 million worth of shares in the third quarter. And we are active in looking at M&A opportunities as well. And so, you know, those are really the priorities for our cash balance.

Yeah. Yeah, I would just say, like on that basis too, Michael, when we think of capital allocation, again, it's really business case oriented, right? If we see an opportunity to even tuck in our service offering that we think is really going to provide the return expectations, then we're going to certainly pursue that and so forth. But as John said, I think our priorities, our capital allocation thinking hasn't changed. We'll be patient but aggressive on the operations.

Yeah. Perfect. Clear. Thanks, guys. Thanks a lot, Michael.

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

Yeah. Good morning, guys. Thanks for the time. Hi, Steve. As it relates to the product support, I think you referenced gross margins slipping 60 basis points year-over-year on some additional cost. Is that something that you can make up through the balance of the year, or how do you sort of see the margin profile evolving on the product support side as you bring in all these new techs?

Yeah, I think you sort of touched on that there, Steve. I think a couple things. We're going to see ebbs and flows there. Again, a couple things. We've seen, depending on the mix of parts versus service, I think also the We talked about, you know, we continue to hire technicians. There's, you know, I think we have over 550 apprentices. We're training our teams. We're trying to build capacity, you know, a little bit of investment there for Bradford. And so, you know, I think, again, I think longer term we're very, very comfortable with the product support margin outlook and the investment levels that we want to get to to provide that service. And so, again, I wouldn't We wouldn't get too focused on the quarter in that sense, but our goal is to optimize the use of all of our resources and deliver the quality support that we need to.

Okay, that's great. That's helpful. And just to follow up, I don't want to beat the horse on rental too hard here, but just wanted to circle back. Is there a way to think about the pressures as it relates to seasonality with the winter being super warm relative to the competitive aspect of I'm trying to get a sense for how the utilization profile is expected to evolve as the season changes, and then secondarily, how the margin profile evolves with that utilization.

Thanks. Yeah, and again, I think, John, I would both emphasize the factors affecting when you think of rental and rental margins and so forth. And again, I would go back to, again, whether, although we mentioned it, I think we're in Canada, we're going to see variability, and that's just a fact of where we operate. and so forth. And so outside of that, you know, I think I would take that off the table. When we look at that part of our business, we've invested, as we mentioned, we have slightly higher acquisition costs as we modernize the fleet and replace the fleet. And we've been doing that for the year. You've seen a bit of that. I think, you know, the other factors are our ability to execute and return product, you know, our fleets to ready more efficiently. We continue to focus on driving operational efficiencies. The other piece of that, of course, that feeds into it is labor availability. And as we continue to hire trained staff, it's still a fairly tight labor market in certain areas. And so, you know, I think also that helps us drive, you know, better utilization and financial utilization. So there is naturally some seasonality. We're starting to see a little bit more what we may have maybe even go back to pre-COVID timeframes. And you'd say, yeah, that's something we would expect. But I think it's the other factors, too, we have to weigh in in terms of, you know, the fleet itself and then our team that we're building to support.

Appreciate the time, guys. Thanks. Thanks, Steve. Thanks, Steve.

Your next question comes from Sabahat Khan with RBC. Please go ahead.

Hi, good morning. This is John on for Sabah. Maybe just a high-level question on technician headcount here quickly. Given it sounds like You're taking some headcount from other facilities and moving them to the new Bradford facility. Can you maybe just expand on what your technician headcount target might be and how far away we are from that? Are we like 10% below, 15% below where you'd like to be?

Yeah, thanks, John. A couple things. Again, directionally, what I think we would tell you is, in terms of Bradford, we've been planning this facility for a couple of years. in working with folks. We've been hiring in that market area as well. And so keep in mind that some of the folks we've hired from that region have been working, say, at our other facilities and now are able to start to operate out of the Bradford location. So there's a real mix in terms of our ability to hire, but we're seeing some good interest in that market to hire technicians, which is terrific. You know, I would say, you know, we naturally, we have we have over 2,000 technicians, say, in the tournament cat business, and we continue to hire. We have natural retirements with a population of that size. And so, you know, on any given quarter, you know, we continue to be hiring, you know, upwards of 80 to 100 in a quarter, depending on what the need is for the business and the replacement or the transition for retirements and so forth. And so, you know, that's directionally where we go. We don't see that declining for some time as well.

Okay, got it. I understand you typically don't provide too much in the way of forward-looking guidance, but I'm just wondering, this was a strong quarter for bookings. Can you give any indication of how bookings have trended through Q2 so far, and maybe what you're hearing from customers? I understand that they're managing cash flows given the availability a bit better, but what type of end demand are they preparing for? What type of market are they preparing for? Anything you can offer there would be great, thanks.

Maybe just to start on that, John, I think, again, you're right, we don't provide guidance. I think, you know, what we can tell you is what we've seen, you know, we're pretty happy with what we've seen in terms of the bookings in both, frankly, in the Simcoe business is very strong. You know, the backlog there is highest level I've seen. And so nice to see that appetite and that activity in that business. I think, you know, again, we saw some strong bookings in Q1 for the tournament cat business as well. But we wouldn't speculate or I think directionally we wouldn't provide you with anything on Q2. I think it's really about the environment. There is some patience, I think, on the construction side. We have seen a little bit. We had a really strong year last year, and I think we also have to remember the factors we were dealing with a year ago relative to what we're seeing today in terms of business activity and timing of delivery. And so those are big factors that we play into.

Great. Thanks very much.

Ladies and gentlemen, as a reminder, if you do have any questions, please press star one. Your next question comes from Max in SideCheck with National Bank Financial. Please go ahead.

Hi, good morning, gentlemen.

Hey, good morning, Max.

Mike, I was wondering if you don't mind, I mean, we've spoken about this in the past, but your thoughts maybe around the budgets in Ontario and Quebec when it comes to infrastructure and Just, yeah, maybe any reads that you have, especially over what's called the medium term that some person takes there.

Thanks. Yeah, thanks, Max. I think, you know, between John and I, I think we watch this pretty carefully, but I would say, you know, on one hand, we've always, I think, been fortunate in the sense that provincially, federally, there's been some pretty strong commitments to infrastructure spend over the next decade, say, for example, and I know it's going to ebb and flow and we have election years to consider, but I think In behind that, in our particular markets, we've seen strong immigration. We've seen a lack of affordable housing and infrastructure to support that. We certainly see that as a positive over the long term. Those projects will ebb and flow, but we anticipate there'll be continued focus on affordable housing, some infrastructure and road projects and so forth. You know, outside of that, I mean, we also monitor, say, the commodity markets pretty carefully because of our customers on the mining side. You know, they're at a pretty reasonable cycle, fairly strong cycle, and, you know, we monitor those areas as well for our business. So all that to say, you know, labor supply, immigration, affordable housing, infrastructure, we anticipate there'll be a few puts and takes there, but I don't know, John, if there's anything else you'd add. I don't have anything to add, Mike, I think.

Yeah. It's a good summary.

Okay. And Mike, because you did mention, you know, mining, I was wondering if you're seeing increased level of activity right now on the precious metal side of things, obviously, given where the commodity pricing is.

Thanks. Yeah, you know, Max, I guess part of it is, as we all know, these are long duration projects with lots of engineering and investment going in upfront. And, you know, we do see over the last couple of years, we've seen on the precious side and You know, our customers have been expanding and developing existing sites and some new ones and so forth, and we've been able to participate in their requirements there, and that's been very positive. And so, you know, again, we monitor it carefully. You know, we also are watching our base metal customers and that very carefully as well because those commodities move around quite a bit. electrification is always an undertone. And, you know, I would say we're conservative and cautious in terms of how we're thinking about that. But we're prepared, you know, to support our customers in those markets remotely and have the technicians and parts availability and aftermarket support they need. So generally, I would say, you know, it's been positive if you look at historic commodity pricing, but certainly something we watch carefully as we go forward and we monitor investment going in as well.

That makes sense. And maybe just one last one, if I may. You know, increased talk around sort of Simcoe, natural refrigerants, and things like that. There's, you know, maybe some optionality in the data center side of things. Just curious if you don't mind maybe expanding a little bit on that topic.

Thanks. Yeah, I think a couple things there, Max. Like, we really like the business in the sense that it It's really less about refrigeration, more about thermal heating and cooling. We talked a little bit earlier on the call about some of the products that they have, like Thermal Force One, the natural refrigerants. And I think you're seeing that in some of the backlog. Actually, and it was pretty well balanced. Canada and US saw some strong commercial, like industrial and recreational bookings. We have also opened up a small facility in South Carolina. And I think the team, we have a great team down in the US that's executing very nicely in both the industrial or if you think of grocery and other areas, they're doing a nice job down there. And so we're excited about it. We like the technologies the team has, the commitment to natural refrigerants, and I think the appetite for reducing GHG and stronger efficiency more practical applications, heat recovery. You mentioned data centers, and I think that's an area that's evolving over time. You know, we continue to look at those opportunities both from our power business, you know, for backup power generation, standby power, as well as temperature control. And so I think those will be areas that we'll hear a little bit more about over time.

Okay, excellent. That's it for me. Thanks so much. Thanks so much.

Thanks, Max.

Your next question comes from Davis Broughton with BMO Capital Markets. Please go ahead.

Hi, this is Davis on for Devin Dodge. Thanks for taking my question. So you've touched on this a bit, just a quick one for me, but could you please expand on what you're seeing in the underlying demand and how we can think about that with the normalizing supply dynamics? So equipment orders were up over 50% year over year. So maybe just some color as to how to frame that positive underlying demand trend with the puts and takes of normalization.

Yeah, I think, you know, Davis, I think, again, you know, we tend to look at the quarter activity and speak to that. We really don't provide forward-looking guidance. You know, I think part of this is just monitoring each of the markets that we play in, the projects that are there. I mentioned earlier some of the factors to think about, and so when you think about demand, I would refer you to longer-term trends when we think of immigration, affordable housing, infrastructure, commitments by federal, provincial governments. Those are things that certainly play in when you think specifically to construction. Mining is project by project, and again, we continue to work and try to work. We're really hard to earn our way into those opportunities, and those will be... a little more lumpy based on the requirements of our customers and the timing of their development.

Okay, thanks. I'll turn it over. Thanks.

There are no further questions at this time. Please proceed.

Okay, thank you. Ludi, thanks, everyone, for joining the call today. We really appreciate it. And before concluding the call, I'd like to remind listeners that our AGM will be held today at 10 a.m. Eastern. It's a virtual meeting only, and the details are available on our website at tormont.com. This concludes our call. Once again, thank you. Have a safe and great day.

Ladies and gentlemen, this concludes your conference call.