Toromont Industries Ltd.

Good morning. Today is Wednesday, July 29, 2026. Welcome to the Tournament Industries Ltd. Second Quarter 2026 Results Conference Call. Please be advised that the call is being recorded and all lines have been played 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 joining us today to discuss Harmont's results for the second quarter of 2026. Also on the call with me this morning is Mike McMillan, President and Chief Executive Officer. Mike and I will be referring to the presentation that is available on our website. To start, I'd like to refer our listeners to slide two, which contain our advisory regarding forward-looking statements and specified financial metrics. After our prepared remarks,

We are pleased with our second quarter and first half performance. Revenue and earnings increased, reflecting solid execution across the business. The equipment group delivered growth in new and used equipment sales, enclosures, rentals, and product support. The equipment group's operating income was 47% higher in the second quarter as the higher revenue and improved gross profit margins were partially offset by higher expense levels. AVL continued to expand production. During the quarter, we increased our ownership in AVL to 80% and acquired land in Canada to support future manufacturing growth. PIMCO's results were slightly lower in the quarter. Operating income decreased, largely reflecting the lower package revenue due to project timing, lower gross profit margins, and higher expense levels and investments for future growth. Let's turn to slide 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. We ended the first half of the year with ample liquidity, including $1.2 billion in cash and an additional $449 million available under our existing credit facilities. Our net debt to total capitalization ratio was negative 13%. Overall, our balance sheet is well positioned to support operations and navigate evolving economic and business conditions. As one would expect, we'll continue to apply operational and financial discipline as we support customer needs and evaluate future investment opportunities. Farmont targets a return on equity of 18% over the business cycle. ROE for the second quarter was 17% all in, slightly below our target, however improved from 16.9% at year end 2025 and comparatively lower than 17.6 reported at the end of June 2025. The year-over-year difference reflects higher shareholders' equity, which more than offset increased comparative earnings. We would also note that ROE was dampened by approximately 1.5% by the expenses as disclosed associated with the accelerated purchase of certain shares of AVL in the quarter. This increased our ownership to 80%, a decision that was made based on long-term expected returns. Return on capital employed was 24.8%, slightly higher year-over-year, reflecting our increased net earnings. Finally, as announced yesterday, the Board of Directors approved a regular quarterly dividend of $0.56 per share, payable on October 2, 2026. John, I'll turn it back over to you for more detailed commentary on the results.

Great. Thanks, Mike. Let's turn to slide 5 for a few additional comments on the consolidated results. My consolidated basis revenue increased 16% in the second quarter and increased 15% for the first half of the year. This growth was driven predominantly by the equipment group with higher power system revenue, including our enclosure business, along with higher mining equipment, rental, and product support revenue. Zinco has had a somewhat slower start to the year with lower package revenue on construction timing, offset by higher product support activity. SG&A expenses increased For both the quarter and year-to-date period compared to the December period last year, with key changes related to the inclusion and growth of ABL, ESU mark-to-market adjustments, and other increases reflecting investments in the growth of the business. Compensation costs, travel, and training are examples. Operating income increased 41% in the quarter and 42% through the first half, reflecting higher revenue and improved gross profit margins, partially offset by the higher expense levels. As a percentage of revenue, operating income was 13.6% on a year-to-date basis compared to 11% last year. AVL's operational capacity and execution continue to expand in the quarter. The revenues were $171 million versus the Q2 2025, which was $57 million, and year-to-date at $300 million versus the first half of 2025, which was $79 million. Results in the second quarter of 2026. and on a year-to-date basis were $68.2 million compared to 2025 at $2.8 million. As a reminder, this includes expenses related to the valuation of the company's commitment to purchase the remaining outstanding shares of AVL and represents the regular evaluation of the commitment based on actual and expected results. This also includes expenses related to dividends paid to non-controlling interests. Net earnings were largely unchanged in the quarter Thank you for joining us. Turning to the equipment group on slide six, revenue increased 18% in the quarter and 16% for the year, reflecting higher power system sales and higher mining deliveries, along with increased rental and product support revenue. Equipment sales, including both new and used equipment, were up in both the quarter and the first half of the year by 27% and 23% respectively. New equipment sales increased 31% in the quarter and 25% for the year, led by higher mining deliveries and Michael Cuddy. Rental revenue was up 11% in both the quarter and year to date. While market conditions remain somewhat uncertain, revenue increased compared to the prior year, generally reflecting the larger fleet and improved activity levels in most areas. For the quarter, change in revenue was as follows. Heavy equipment rentals were up 25%, light equipment rentals up 8%, power rentals up 18%, partially offset by a decrease in material handling, handling which was down 7%. The RPO fleet was $98.8 million versus $101.4 million a year ago and rental revenue was up 19% for the quarter and down 3% for the year compared to similar periods last year. Product support revenue increased 8% in the quarter and 9% year to date, reflecting equipment utilization in our territory along with higher technician workforce. Activity was generally higher across most markets and regions. Looking at specific markets, For the quarter, change in revenue was as follows. Construction was down 6%, mining up 18%, power systems down 1%, and material handling up 4%. Gross profit margins increased 270 basis points in the quarter and increased 330 basis points year-to-date compared to last year. Equipment margins increased, reflecting the favorable sales mix within our equipment offerings. Rental margins increased on improved utilization. Product support margins decreased slightly, reflecting the nature of the work and sales mix. Sales mix was unfavorable in both periods, reflecting a lower proportion of product support revenue to total revenue in each period. Selling and administrative expenses increased 20 million or 13% in the quarter and increased 48 million or 17% for the year. Higher expenses reflect the continuing investment in key strategic areas. Compensation costs were higher in both periods, reflecting staffing levels and regular salary increases. Higher profit sharing accruals on the higher income and higher DSU market to market expense and a higher share price. Other expenses such as training, travel and occupancy costs have increased in light of sales levels and planned investment in inflation. As a percentage of revenue, selling and administrative expenses increased to 12.4% versus 12.3% last year. Operating income increased 47% for the quarter and increased 49% for the year, reflecting a higher revenue and improved gross profit margins Offset by the Higher Expenses Bookings increased 196% in the quarter, mainly reflecting higher power systems orders, including ABL, which includes a $1 billion order previously announced for delivery substantially in 2027. Mining markets are lumpy or cyclical due to the nature of the business and improved 11% on good orders. Construction orders were relatively unchanged compared to Q2 2025. Reflecting normal demand dynamics. Material handling orders were down 51% versus a strong comparable in the prior year. Backlog of $2.5 million at June 2026, very solid, reflecting good new order intake throughout the quarter. Approximately 60% of the backlog is expected to be delivered over the next 12 months, but of course is subject to timing differences depending upon vendor supply, customer activity, and delivery schedules. Let's turn now to Simcoe on slide 7. Revenue was down 1% in the quarter, however, it was up 1% for the first half of the year, largely reflecting project timing. Package revenue decreased 5% in the quarter, with lower revenue in the recreational market, partially offset by an increase in the industrial market. Recreational activity decreased 50%, with lower revenue in both Canada and the U.S. Industrial market revenue increased 32%, with higher activity in both Canada and the U.S. For the first half of the year, package revenue was largely unchanged and reflected similar trends for the quarter. Product support revenue increased 6% in the quarter and 1% on a year-to-date basis with higher market activity in Canada offset by lower revenue in the U.S. in both periods. Activity levels continued to improve on good customer demand and the increased technician base. Gross profit margins decreased 90 basis points in the quarter and decreased 100 basis points Thank you for joining us. Compensation costs increased, reflecting staffing levels, annual salary increases, and the mark-to-market on DSUs, largely offset by lower profit-sharing accruals on the lower earnings. Other expenditures, such as travel and training expenses, increased to support activity and staffing levels. As a percentage of revenue, selling and administrative expenses improved to 16.9% in the second quarter versus 15.2% in Q2 2025. Operating income was down 3 million or 20% for the quarter and 7 million or 26% for the year, largely reflecting the lower revenue, gross margins, and higher expense levels supporting growth. Operating income as a percentage of revenue decreased 290 basis points to 8.2% on a year-to-date basis compared to the similar period last year. Bookings were largely unchanged in the quarter and were 11% higher, up 16 million for the year. For the year, industrial orders were up 12%, and recreational hoarders were also up 11%. Generally, activity is continuing with good strategic capital investments. Backlog of $375 million was up 7% last year, with higher backlog in the recreational market up 14%, while the industrial market backlog remained relatively unchanged. Approximately 75% of the backlog is expected to be realized over the next 12 months. However, again, this is subject to construction schedules. With that, we can move to slide 8. Turn it back to Mike to highlight some key takeaways as we look forward to rounding out the year. Mike? Thanks again, John.

As we look ahead to the second half of 2026, our focus remains squarely on executing our strategic priorities. These begin with Thank you for joining us today. Thank you for joining us. 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 Thank you for joining us today. 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 1 on your touchtone phone. You will hear a prompt that your hand has been raised and acknowledged. Your questions will be polled 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 Chanukra Januti. Please go ahead.

Good morning, guys. Good morning, Yuri.

Good morning, guys.

I'm 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 how did it come together to book such a large number?

Yeah, thanks for the question. 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 Thank you for having me.

Yeah, the only thing I have, Mike, is we continue to support the CAT network with our deliveries. Most of it's in the U.S., supporting CAT. Yeah. Okay.

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

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

Okay. How about the landmark? The land purchase that I think you said was in the corridor, is that lumped in with CAPEX and can you kind of break that number out for us?

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

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

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

And that includes the 20 for the land?

Correct.

And last one on this, would the revenue capacity of that be similar to Hamilton?

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

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

Thank you.

Thank you. The next question comes from Christa. Reeveson with CIBC. Please go ahead.

Hi, 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 what's in Charlotte?

It was meant to be both, Krista. It would add 40 to 50% capacity to the overall business.

Okay, perfect.

Thank you. Just keep in mind the timing that I mentioned there.

Yes, that makes sense. And then maybe just shifting to the more traditional equipment group, can you give us a bit of an update on what the construction outlook is? What is it 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. One of the areas that I would caution is the residential-related business still seems to be stalled for the most part. When you think of infrastructure going into high-density or residential, there's limited activity there, but we are seeing reasonable levels of activity around road construction, repaving, and construction markets. You mentioned the larger projects. They're very early stage. I think some of the major projects announced federally require Road Access, and a number of other things to start development, especially when you think of resource access in other areas. And so there is some engineering, there's some initial work being done there, but our view would be that that's going to continue through into 2028 where we're hopeful that we're going to see a stronger tailwind going into the new year.

Perfect. Thank you. And then Just a 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? Thank you.

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

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

Thank you.

Thank you. The next question comes from Terrylene Bradbury with PD Calling. Please go ahead.

Good morning. I don't want to turn this into the ADL call, so I'm going to restrict my ADL question to one. Just curious, As you commit more capital for 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 up to the end of 2027. We're anticipating a reasonable level of demand over the next several years, but we're careful in the sense that we need to earn that business and secure POs in replacement of what we fulfilled here over the next 18 months. 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. 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. 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, Sherilyn, is we're being very thoughtful about our expansion plans in terms of buying property in great locations, like the new one we've just acquired north of Hamilton and in Charlotte. And, you know, At some point in the future, if there is a plateau, then we have great assets at our disposal there.

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

Yeah, thanks for pointing that out. I mean, we're quite happy with the growth that we saw in product support, like even in the equipment group, we're up 8% to 9% on a quarter-year-to-day basis. You know, a couple 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 is 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 recently, Over the last two, three, four years, and as those fleets build the hour requirement, we start to see a little stronger product support requirement there. And so we're starting to see a little bit of that. And to your point on rebuilds, you know, that 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 option. 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 well in terms of the build out there. So we're excited about that development.

Thank you.

That's my two.

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

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 just start. Thanks, Devin.

Maybe just start on that.

You know, I would say that we continue to evaluate both markets very carefully, right? I think it comes down to, you know, 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 described the Hamilton facility, you know, 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. 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, Over time, we're expecting to see demand in Canada also, albeit a more reasonable level compared to the U.S. And so it's good to have access. And because it's in Hamilton, we have the ability with port access and other things too, which is an added benefit.

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

Yes, we are. Yeah.

Okay. Maybe just switching gears here, but 12 months, I think in the final months of its three-year business plan, what do you believe were the biggest accomplishments in Connect26? And as you look forward, where do you expect the focal areas to be for the next business plan?

Yeah, I would say, Devin, it's a great question. You know, If you recall, we came into the current three-year plan just coming out of COVID and there was a strong desire to connect. The connect theme was around connecting with customers, reconnecting with customers, connecting with employees because of the dynamic from the pandemic, and connecting digitally and so forth. And I think our goal really broadly was to position the business for growth as we emerge out of that uncertainty. And I think, you know, again, the trade dynamics and all the other things come into play we didn't anticipate. But, you know, I think from that perspective, the team has worked really well to put us in a good position across the businesses to make sure that, you know, we're ready as things start to improve from an activity level basis. We get a little more stability south of the border. and I think the other piece is the discipline in the business. Our teams have done a nice job from a cost management perspective. We continue to hire technicians and the digital side is a huge investment area as well. Caterpillar is putting a lot of resources into that space. We've built our team, strengthened our team in those areas and I see that as something that's going to continue to gain a lot of traction and be one of the common themes going forward in our plans because the Thanks for that. I'll turn it over.

Thanks for your time today.

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

Hello. Good afternoon, guys. Thanks for the time. The first one is on ADL 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 capacity limits we currently have at Charlotte or at Hill State, I guess, likely 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 quality has been very good as well. So the team down there has just done an amazing job. And, yeah, it ramped very well in the second quarter, as you point out. We'll continue to ramp in the third quarter. And, you know, we'll be close to near capacity in the fourth quarter there.

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

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

Okay, helpful. And just one last one quickly. It's just, it does seem like the equipment market, in spite of these soft spots in Eastern Canada, is slowly tightening or consistently tightening, and employees are clearly coming down across the channel. I mean, how do you feel about the margin profile in 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 well. As you know, we talk 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 next question comes from Jonathan Goldman with the Scotiabank. Please go ahead.

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

Yeah, it was up six, actually, Jonathan. On the product support side, specific construction in the quarter was up 6%. Yeah, mine was a little higher. Excellent. Yeah.

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 receipts?

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 receipts. I think the ideal Bridging strategy, if you will, to the grid would be with larger solar turbines and things like that. But there is some interest in prime power using primarily gas generators, right? So that's something we'll look at, but I would say that to date what we've been focused on is the standby and backup power piece, and it's largely diesel.

Fair enough. And Mike, you alluded to technician headcount, but 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. Again, we've been strengthening our recruiting efforts, I would say, and part of that goes to where we see the business evolving and wanting to strengthen the product support side of our business. And so I would say 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 and 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 and 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 call. I'll get back to you.

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, you know, 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.

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

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

Sorry, maybe I'm just digging in. I was thinking maybe more specifically on the ABL, 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 rampage?

Like I said, I don't anticipate in the existing production facilities to see a major variation with ABL. What you will see as we get the new facility up and running, obviously, like we saw with Charlotte, we'll see some costs ahead of revenues. So you may see a bit of compression on that front. But overall, I wouldn't expect a major move up or down.

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 ABL business?

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

Great. And then maybe just one last quick one, I guess, just on the concept of sort of constrained supply in this environment. How are you finding your sort of supply chain for that AVL business? I think, you know, maybe not as complicated as the engine supply chain, but given the big backlog, have you been able to lock in supply to make sure you can kind of deliver against that? 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 we've been working pretty hard at making sure that our suppliers, whether it's fuel tanks or panels or what have you, we've also brought in, within our power and energy group, we've also brought in 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. which also helps us to mitigate some of that supply chain requirement. So I would say generally speaking we're comfortable with where it's headed and given what we see in the backlog and so forth, comfortable with that positioning.

Great. Thanks very much for the call. I appreciate it.

Great. Thanks. Thanks.

Thank you. The next question comes from Charlene Radboy with Titty 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 system business?

Yeah, good question, Sherilyn. I think, you know, we are seeing, as you know, it's a little bit lumpy. Like when you think of the broader market, you know, there's some discussion about the marine side, for example, and Thank you for joining us. I'd say we're cautiously optimistic with what we see there in terms of energy requirements for the longer term and some other opportunities around distributed power and so forth.

Great. And then it seemed to me that there was a shift in package revenue at 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 adds some flows, as you know, quarter by quarter, and as Mike said, it's a larger project in there, and depending upon which segment it lands in, you'll see that lumpiness.

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

Thanks.

Thank you, Cheryl.

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

Thanks for following up. 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 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 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 and so, but it's very difficult. I would say it's not, I wouldn't translate that into that type of metric just because of the variation in the facilities and the power requirements.

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 joining today. Thanks for the great questions. This concludes our call, and please be safe. Have a great day. Thank you.

Thank you. Ladies and gentlemen, this is the end of today's call. Thank you for participating. You may now disconnect.