Toromont Industries Ltd. (TMTNY) Q3 FY2025 Earnings Call Transcript & Summary

Good morning. Today is Friday, October 31, 2025. Welcome to the Toromont Industries Limited Third Quarter 2025 Results Conference Call. Please be advised that this call is being recorded. [Operator Instructions] Your host for today will be Mr. John Doolittle, Executive Vice President and Chief Financial Officer. Please go ahead, Mr. Doolittle.

Okay. Thank you, Joelle. Good morning, everyone. Thank you for joining us today to discuss Toromont's results for the third quarter of 2025. Also on the call with me this morning is Mike McMillan, President and Chief Executive Officer. Mike and I will be referring to the presentation that is available on our website. In the start, I would like to refer our listeners to Slide 2, which contains our advisory regarding forward-looking information and statements. After our prepared remarks, we'll be more than happy to answer questions. So let's get started and move to Slide 3. And I'll pass it over to Mike.

Great. Thanks very much, John. Good morning, everyone, and thanks for joining us. Our team delivered solid results in the third quarter, executing effectively despite persistent macroeconomic and trade challenges. We remain focused on long-term success, continuing to invest in our people and capabilities to support our customers and drive sustainable growth. Net income rose aided by a property sale, while underlying earnings reflected gross related investments, lower net interest income and short-term noncash costs from the AVL acquisition. The Equipment Group executed well with solid activity in rentals, product support and used equipment deliveries in construction and mining. However, activity levels still reflect the economic environment, which continues to impact end-customer demand. As expected, mining deliveries were lower due to the segment's inherent variability. Revenue declined as revenue from the acquired business, along with higher rental and product support revenue was more than offset by lower new equipment sales, which was as expected in the Mining segment. Rental revenue rose driven by a larger fleet. Product support revenue increased due to higher parts and service volumes. Operating income in the third quarter included a pretax gain of $13.7 million on the sale of our property. Excluding this gain, operating income was 1% lower for the quarter, given a strong comparator which reflected market dynamics in play at that time, along with the higher expenses. CIMCO posted higher revenue and earnings driven by good demand and disciplined execution in both Canada and the U.S. Growth in the package -- in package revenue was supported by a strong order backlog, while product support activity continued to improve, aided by our growing technician workforce. Operating income increased on higher revenue and solid execution, partially offset by lower gross margins and an unfavorable sales mix, which is lower product support revenue to total revenue and higher expenses to support activity and growth in the segment. We continue to work closely with our new partners in AVL, focusing on this promising market. Production in Hamilton has ramped up since the acquisition supporting our healthy order backlog and demand. Hiring and development of production capacity continues. As noted in Q2, we acquired a facility in Charlotte, North Carolina to expand capacity and to better serve the Eastern U.S. market. This facility commenced the first phase of production during the third quarter of 2025 and will ramp up throughout 2026. While the business is performing well, the bottom line contribution on a year-to-date basis reduced EPS by approximately $0.02 per share related to various noncash related purchase price accounting items. Of course, more detail is available on our financial statements and disclosures. Let's turn to Slide 4, our key financial highlights. Investment in noncash working capital decreased 13% year-over-year largely on lower inventory levels, partially offset by higher accounts receivable and accounts payable balances due to equipment delivery timing. Accounts receivable increased mainly reflecting the addition of receivables from the recently acquired AVL operation. DSO increased by 1 day to 48 days. Our team continues to manage receivables aging and customer credit metrics effectively. Inventory levels declined partly due to executed deliveries against the order backlog, inventory management initiatives as well as lower work in process at CIMCO, reflecting project and service timing. We ended the quarter with ample liquidity, including $1 billion in cash, an additional $453 million available under existing credit facilities. During the quarter, we also completed the redemption of our 2025 debentures at par as previously announced. Our net debt to total capitalization ratio was negative 9%. Overall, our balance sheet remains well positioned to support operations and navigate the evolving economic and business conditions. We will continue to apply operational and financial discipline as we support customer needs and evaluate future investment opportunities. Toromont targets a return on equity of 18% over the business cycle. Return on equity was slightly below this at 17.5%, reflecting slightly lower earnings and higher shareholders' equity. Return on capital employed was 23.3%, also lower year-over-year, reflecting our increased capital investment. Finally, as announced yesterday, the Board of Directors approved a regular quarterly dividend of $0.52 per share payable on January 5, 2026, to shareholders of record at the close of business on December 5, 2025. John, back over to you for a more detailed commentary on the results.

Okay. Thank you, Mike. Let's turn to Slide 5 for a few initial comments on the consolidated numbers. As Mike noted, profitability improved in the third quarter of 2025 compared to last year and compared to the first half of the year, benefiting from a $13.7 million pretax gain on the disposition of a property. Excluding this, operating income was $0.9 million or 1% from the similar quarter last year. Equipment Group revenues were lower as expected, with declines in Mining, which is coming off a comparatively strong period of capital investment, partially offset by revenues at the newly acquired business AVL. While uncertain market conditions persist, and customer purchasing decisions and activity are somewhat mixed, rental and product support revenues increased, CIMCO revenue increased on a continuing good demand for its products and services. On a consolidated basis, gross profit margins improved compared to prior year on good execution and better sales mix. Expense levels reflect continued support for key operational focus areas. Net interest expense was higher than the prior period, reflecting both higher interest expense as a result of higher borrowings as well as lower interest income earned on cash on hand due to lower interest rates. Bookings for the third quarter increased 47% compared to Q3 2024 and increased 13% on a year-to-date basis. We saw good order intake in construction and power systems, which includes a significant contribution from the acquired business, partially offset by lower mining orders. Backlog remains healthy at $1.3 billion, up 17% year-over-year with an increase in both the Equipment Group up 15%, and at CIMCO, up 24%. Backlog remains healthy and reflects deliveries in progress on construction schedules, good new booking activity and backlog related to the acquired business. On a consolidated basis, revenue decreased 2% in the third quarter with a decrease in the Equipment Group of 4%, largely driven by lower mining deliveries against a strong comparable and an increase of 22% at CIMCO on higher package and product support revenue. For the first 9 months of the year, revenue increased 2% as the Equipment Group revenue was comparable to last year, while CIMCO was up 15%. Excluding the property disposition gain in the acquired business, SG&A expenses increased 9% in the quarter, 3% year-to-date. Higher DSU mark-to-market adjustments increased expenses in both periods, accounting for approximately 30% of this increase. Compensation costs were higher year-over-year, reflective of regular salary increases, partially offset by lower profit sharing accruals on lower income. Salary headcount is largely unchanged year-over-year. Sales-related expenses increased year-over-year, reflecting continued investment in resources. All other expenses such as travel, training, occupancy and information technology costs have increased slightly on continued investment for future growth and inflationary effects. Expenses increased slightly to 12.6% of revenue compared to 12.1% last year on a year-to-date basis. Operating income increased 8% in the quarter and excluding the property gain, increased 1% compared to Q3 2024 as higher gross margins were partially offset by lower revenue and higher expenses. On a year-to-date basis, operating income was relatively unchanged. However, excluding the gain on property disposition, operating income decreased 3%, reflecting higher expenses, partially offset by the gross margin improvements. As a percentage of revenue, operating income was 12.1% on a year-to-date basis compared to 12.4% last year. Net interest expense increased $4 million in the quarter and $18 million on a year-to-date basis, reflecting interest expense from higher borrowings with the new senior debentures issued in March 2025 as well as the lower interest income earned on cash due to lower interest rates. Net earnings increased 7% or $9.7 million in the quarter compared to last year and decreased 3% or $10.8 million for the first 9 months of the year. Basic earnings per share $1.73 in the quarter and $4.18 year-to-date, reflecting the change in net earnings. Turning to the Equipment Group on Slide 8. Revenue declined 4% in the quarter as revenue from the acquired business, along with higher rental and product support revenue was more than offset by lower new product sales as expected in the Mining segment. For the first 9 months of the year, revenue was relatively unchanged. Equipment sales, including both new and used equipment were down in both the quarter and on a year-to-date basis by 12% and 2%, respectively. New equipment sales decreased 15% in the quarter, 2% year-to-date with decreases in mining against a strong comparable, partially offset by higher power systems markets, which include revenue in the acquired business. Used equipment sales increased 7% in the quarter, largely driven by improved activity in mining and construction markets and decreased 6% year-to-date. In most markets decreased predominantly led by the lower construction market, slightly offset by improved mining market activity. Looking at the market segments. Total equipment revenue decreased 4% in Construction and 60% in Mining, while Power Systems increased to 102% and Material Handling increased 6%. Rental revenue was up 5% in the quarter and was up 10% year-to-date. While market conditions remain relatively soft, revenues increased compared to the prior year, reflecting a larger fleet and improved utilization in certain areas. Revenue improved in most areas for the quarter as follows: heavy equipment rentals were up 24%, material handling up 26%, partially offset by a decrease in the light equipment rentals, down 2%, and power rentals down 20%. The RPO fleet was $104 million versus $81 million a year ago, and the rental revenue was up 73% per quarter and 60% year-to-date compared to similar periods last year. Product support revenue increased 4% in the quarter and 2% year-to-date with an increase in both parts and service. Activity was higher across most markets and regions, reflecting end-user demand and activity levels. Looking at specific markets for the quarter, change in revenue was as follows: Construction was up 11%; Mining down 3%; Power Systems up 1%; and Material Handling up 6%. Gross margins -- gross profit margins increased 250 basis points in the quarter compared to Q3 2024 and increased 20 basis points on a year-to-date basis. Equipment margins were up 110 basis points in the quarter, up 40 basis points year-to-date, reflecting market dynamics in play in both periods. Rental margins were relatively unchanged in the quarter, down 30 basis points year-to-date on the higher cost of fleet additions. Product support margins increased 30 basis points in the quarter, down 10 basis points year-to-date, reflecting the nature of the work and sales mix. Sales mix was favorable for both the quarter and on a year-to-date basis, reflecting a higher proportion of product support revenue to total revenue in each period, increasing margins 110 basis points and 20 basis points, respectively. Excluding the gain on the property disposition and the acquired business in 2025, selling and administrative expenses increased $11 million or 8% in the quarter and $10 million or 3% for the first 9 months of 2025. Higher DSU mark-to-market adjustments increase expenses in both periods, again, accounting for approximately 30% of the increase. Compensation costs were higher in both periods, reflecting regular salary increases, partially offset by lower profit sharing accruals on lower income. Other expenses such as training, travel and occupancy costs had increased in the light of sales levels, planned investment and inflation. As a percentage of revenue, selling and administrative expenses increased to 12.3% in the first 9 months of the year compared to 11.7% in the similar period last year. Operating income increased 7% for the quarter and decreased 2% for the first 9 months of the year. Excluding the property gain, operating income decreased $2 million or 1% in the quarter and decreased 5% year-to-date, reflecting lower activity levels and higher expenses. The acquired business continues to increase production; however, it did not contribute meaningful to operating income given the expenses arising from purchase price accounting, including such items as amortization of intangibles in the setup of our new U.S. facility. Bookings increased 49% in the quarter. Construction markets were marginally higher with bookings up 2%, reflecting more normalized supply dynamics. Our systems, which includes the acquired business saw strong order activity of 388% with good demand for our products. Mining markets are lumpy or cyclical due to the nature of the business and were down 43% as expected from the third quarter last year which was a strong comparable. Backlog of $923 million at the end of September remains at healthy levels. Backlog includes approximately $278 million at AVL, which has a delivery schedule over the next 2 years. Excluding this, backlog was 20% lower compared to the same time last year, reflecting good deliveries against customer orders over the last 12 months, along with good new order intake over the same period. Approximately 80% of the backlog is expected to be delivered over the next 12 months. But of course, this is subject to the timing differences depending upon vendor supply, customer activity and delivery schedules. When you consider the impact of AVL on our results, please keep in mind that the bulk of the purchase price amortization is related to acquired backlog. We expect this backlog to be substantially shipped by the first quarter of 2026. However, it is important to recognize that we own 60% of the business and any dividends paid to minority shareholders will be treated as expenses when paid. We expect dividends to begin in 2026 related to 2025 performance. Also, keep in mind the production ramp-up in Charlotte that Mike noted in his remarks. Let's turn to CIMCO on Slide 7. Revenue was up 22% in the quarter and 15% for the first 9 months of the year. Package revenue increased 28% in the quarter and 23% year-to-date with good execution on equipment delivery and progress on customer schedules. Recreational activity increased 67% with higher revenue in both Canada and the U.S. Industrial market revenue decreased 18% with lower activity in Canada against a strong comparable and higher activity in the U. S. Product support revenue increased 14% in the quarter and 7% on a year-to-date basis with higher market activity in Canada in both periods. Activity in the U.S. was relatively unchanged in the quarter but were up year-to-date with a stronger start to the year. Activity levels continue to improve on good customer demand and the increased technician base. Gross profit margins decreased 70 basis points in the quarter and increased 20 basis points on a year-to-date basis versus the respective comparable periods. Package margins reflect good execution and the nature of projects in process for both periods, driving a 60 basis point increase year-to-date. Product support margins decreased 50 basis points in the quarter and 10 basis points year-to-date. Improving execution and efficiency continues to be a focus. An unfavorable sales mix with a lower proportion of product support revenue to total revenue dampened margins in both periods, resulting in a 20 basis points and 30 basis point reduction in gross margin, respectively. Selling and administrative expenses increased $3 million or 18% in the quarter and $5 million or 10% for the first 9 months of the year. Compensation costs increase reflects staffing levels, annual salary increases and higher profit sharing accruals and higher earnings. Other expenditures such as travel and training expenses increased the support activity and staffing level. As a percentage of revenue, selling and administrative expenses improved to 14.8% in the first 9 months of the year versus 15.6% in the comparative period last year. Operating income was up $3 million or 19% for the quarter and $9 million or 25% for the first 9 months of the year, largely reflecting higher revenue, partially offset by the unfavorable sales mix, lower gross margins to higher expenses. Operating income as a percentage of revenue increased 100 basis points to 11.4% on a year-to-date basis compared to the similar period last year. Bookings increased 35% or $20 million in the quarter and were 13% higher, up $25 million on a year-to-date basis. Industrial orders were up 24%, while recreational orders were down 8%. Generally, activity is continuing with a good strategic capital investments. However, the current economic uncertainty has delayed some customer buying decisions. Backlog of $341 million was 24% higher versus last year, with higher backlog in both recreational and industrial markets. Backlog in the U.S. was solid, up 46% from this time last year, and backlog in Canada was up 13%. Approximately 75% of the backlog is expected to be realized over the next 12 months. However, again, this is subject to construction schedules. And with that, we can move to Slide 8, turn again to Mike to highlight some of the key takeaways as we look forward to rounding out the year. Back to you, Mike.

Great. Thanks again, John. So as John mentioned, as we round out the year, our focus remains firmly on executing our strategic priorities, namely maintaining safe and efficient operations, delivering exceptional customer service and applying disciplined and financial and operational rigor to support our long-term growth. With that in mind, we continue to monitor several external factors that may influence the business environment. Trade negotiations between the U.S. and Canada remain fluid. We have implemented a proactive mitigation plan and continue to refine such plans as the situation evolves in order to manage potential impacts. Foreign exchange volatility, particularly fluctuations in the Canadian dollar is being actively managed primarily through our hedging program. While this helps protect our bottom line, broader economic effects may still present challenges. Macroeconomic conditions, including inflation and interest rates are being closely tracked. As John mentioned, our backlog of $1.3 billion and the equipment supply chain is well positioned to support customer requirements. The AVL acquisition continues to track to our production plan though near-term earnings contributions remain modest due to noncash purchase accounting adjustments, as noted earlier. We continue to invest in our technician workforce, a key enabler of our aftermarket growth strategy. This critical initiative strengthens our aftermarket services capability and enhances the value we deliver to our customers through our product and service offerings. From both an operational and financial standpoint, we have a focused operating model, talented leadership team, disciplined culture and ample liquidity, which equipped us well to navigate near-term uncertainty while pursuing strategic growth opportunities. Our long-term commitment to shareholder value remains anchored in cost discipline, strategic investment and operational excellence. 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. Joelle, over to you, please, to set up the first call.

[Operator Instructions] Your first question comes from Yuri Lynk with Canaccord Genuity.

A couple of questions on AVL, if you'll allow me. Really good sequential growth in revenue. Wondering after a couple of quarters of ownership here if you're willing and able to kind of put a revenue number on what the Hamilton facility is able to do on an annual basis with the capacity expansion in place?

Yes. Thanks for the call, Yuri. Maybe I'll start with that. But what I would suggest you is it does fall in under our Equipment Group, of course, within the Power segment. And probably the best indication that we had directed to is the disclosure we provide in terms of backlog, and that will be a good indication at this stage. As John mentioned, we are providing some clarity around the earnings performance and some of the noncash adjustments as we work our way through that. But I think at this point, that's what we've included in our disclosure.

Okay. And that's, I guess, what you're saying there, the backlog is -- you're viewing that as a 12-month -- kind of be executed over 12 months?

Yes. I think in my remarks, I think we said the backlog -- existing backlog will flow at over 2 years, Yuri.

Yes. I mean, keep in mind as well, a little bit of that is going to be dictated by construction schedules for the underlying data centers and delivery. But I think the 2-year mark would be the furthest extent.

Okay. And can you share how the ramp-up of the Charlotte facility is going, particularly your ability to staff that facility?

Yes. No, a great question. So we're quite happy with progress there. Again, we acquired that facility in Q2, and we do have some limited production starting on 1 line, there's 3 lines. And as I mentioned in my comments, we expect that to ramp up throughout the course of 2026. Hiring to date has been pretty -- has been tracking at least to plan. And so we've had good responsiveness. And we do have a great team down there. By the way, we have set up a team managing the facility and also local recruiting and HR management. And so it's been progressing nicely.

Your next question comes from Krista Friesen with CIBC.

I was just wondering if you could provide a little bit more color on what you're hearing from some of your customers in the Construction segment in particular, especially given the number of announcements this year and the budget announcement coming up next week?

Yes, that's a great question, Krista. I think we're all anxious to hear the announcements that are due next week prior to the great cup apparently. And so looking forward to that and also the sequence and timing. So from a customer perspective, I mean, I think longer term, I think we all feel that there's reasonable tailwinds and lots of interest in investment in infrastructure and so forth. I think part of what we're waiting for, though, is beyond the provincial indications is something more concrete coming out of the federal side of the government, and I think just the funding and how they're going to match that progress. So stay tuned for that. I mean I think cautious optimism is there, but I think the timing and sequence of when shovels will be in the ground and so forth, that's the question for most.

And maybe just further to market sentiment. I appreciate it's still a relatively uncertain environment. But let's say, relative to the spring, are you finding that there's a bit more confidence or certainty in some of your customers or still kind of up in the air?

Yes. I think if you think about it -- and maybe I'll start and John can speak a bit on -- we tend to think of it by segment a little bit. Like if you look at say, the Mining segment, for example, right now, we do see continued interest in investment. Of course, the activity is dictated by mine development schedules and so forth that we do see with gold prices and things that there still seems to be a fair bit of activity, longer cycle, of course, but some good sentiment there. I think construction, when you separate it between, say, typical construction activity versus residential, that's probably where we see -- we still tend to see softness on the residential side and the infrastructure supporting that residential development. And so that would probably be the area where we see the most uncertainty. However, we are seeing some small projects in road construction, a few things like that you typically would see.

Yes. I agree, Mike. It really varies by segment, some regional impact as well, Krista.

Your next question comes from Cherilyn Radbourne with TD Cowen.

This is actually Patrick on for Cherilyn. I was just wondering, we saw, I guess, mid-single-digit product support growth year-over-year. But to what extent do you have visibility on an upcoming inflection in that product support based on the fact that you had some very, very strong deliveries over the last 2 years.

Yes, great question, Patrick. Thanks for that. I think as you mentioned, I mean, we're starting to see a little bit better activity levels. We're up about 4%, I think, say, in the Equipment Group. And although we saw very strong product support on the CIMCO side, I think it was overcast a little bit by package growth, which outpaced it. So both the areas we're seeing some positive year-over-year performance. I think you sort of touch on an important point. We've seen some -- the team has done a really nice job delivering new equipment with availability improvement over the last, say, 18 to 24 months, getting the hours and the activity levels because we have seen a little softer activity environment, getting those hours on those machines and then seeing parts consumption product support requirements beyond preventative maintenance is certainly what we're watching for. And I think that will all come. As we see improved activity over the next, say, 12 to 24 months, we should start to see a little bit stronger product support on the equipment side. However, it does take time, right, for the equipment to get the hour zone that we expect. The other piece of that, of course, is on the mining side, where we've had some nice deliveries, and it does take -- like we've said, John and I, it could take 2 to 3 years before some of that new equipment gets to a point where product support requirements are beyond preventative maintenance.

Okay. Great. And then I guess on data center stuff. So much of a discussion of potential future data center activity has been focused on Western Canada so far. But given the time lines to build these things, and then I think we're starting to hear that timelines on power system gensets maybe starting to extend as well again. Can you discuss if there's just any early discussion you're hearing in Eastern Canada given timelines, it could be 2, 3, 4 years out?

Yes. I think it's difficult to speculate, Patrick. One of the constraints, obviously, on the data center side is availability of energy to support these facilities because they do consume a lot of energy. And so I would say that there are some discussions. I think your time frame is probably pretty accurate in terms of what it takes to construct and we would certainly participate as best we can from the backup power generation. There may be the opportunity for some prime power. But yet to be determined, right, in Eastern Canada.

Yes. I mean the other thing I would add, Pat, is a lot of discussion over the last several weeks about data privacy and containing some data in Canada. And so I think that it maybe will spark an interest as well across the country in terms of data center build-outs over time.

Your next question comes from Devin Dodge with BMO Capital Markets.

Maybe just picking up on the last question. With the size of data centers continuing to increase, we've seen lead times for gensets kind of extend out. Have you seen interest from developers to transition away from reciprocating engines for backup power to higher power units such as turbines?

Yes. Thanks, Devin, for the question. Good question. I mean, I guess, that is sort of the constraint that we mentioned earlier is I would say it's early days, especially in our markets before we can really comment on that. I think, ideally, it's great connection and clean power coming out of hydroelectric sources would be the ideal situation in our marketplace, right? I do think there are business cases that are being contemplated for interim solutions to bridge, right, while that development takes place over time. But I'd say it's a bit speculative right now to say it's going to go too far in that direction. But one that we certainly are monitoring carefully.

Okay. Makes sense. Maybe just a question on AVL. Look, big sequential improvement in revenue. I think you touched on some things already here. But just wondering if this -- the Q3 revenue, does that reflect the full contributions from the recent expansion in Hamilton? Or is there more to go? And is it fair to assume that the initial contributions from the facility in Charlotte were pretty minimal in Q3?

Yes. We're running at close to capacity in Hamilton. Maybe some additional on closures, but not many. So we're running pretty close to capacity there. In Charlotte, we're really just getting up and running. As Mike said, we've been successful in hiring. There are some costs to get the facility up and running. So the contribution from Charlotte in the quarter was minimal, if any.

Or ramp-up costs.

[Operator Instructions] Your next question comes from Steve Hansen with Raymond James.

Just out of curiosity, are you taking orders or bookings at this point for the new facility? Like or any of that you suggest over 2 years, the current backlog stretches. But have you started to take on those new orders for the Southern facility?

Yes. Thanks for the question, Steve. Yes, I would say as we continue to ramp up production there, again, part of that is dictated by the schedule and the hiring that we mentioned earlier and so forth. But we are seeing some interest in demand. And as we mentioned in our comments, it's really that facility is intended to help support demand in the Eastern seaboard of the U.S., and we are starting to pick up some orders, and you'll see that reflected somewhat in our backlog. We don't break it out, obviously, but between the two facilities, and we can supply that market by both facilities out of Hamilton and Charlotte. However, we're starting to see some good interest there given the proximity.

Okay. Helpful. And just maybe a point of clarification or just you provided some good disclosure in the footnotes that in the MD&A. But frankly, it's still a little bit difficult to understand what your pretax margins are on AVL. Can you just comment on where those stand roughly? And we can still see the noncash expense that you outlined and the revenue you outlined, just a little bit murky between the net income piece and the operating line. I mean it looks like these margins are quite healthy. And then maybe once you comment on that, just sort of how you think about the durability of that? I think last quarter, you referenced a lot of the tightness in issues, allowing you to overrun a little bit. How should we think about the trajectory of those margins over time?

Steve, thanks for the comment on the disclosure. If you go to Page 3 on the business combination section, we laid it out, I think, pretty clearly, we give you the revenues for the quarter, we give you the amortization cost for the quarter and we give you the net income for the quarter. And so I think you can back into the margins, and I think your conclusion is correct in terms of the margins are good. And we'll continue to monitor that as we expand the Charlotte facility, and we'll see how that goes over the course of the time, I'm not going to call out where margins are going. But you're right in your assumption right now.

Okay. Helpful. I would just suggest maybe a table every quarter would be helpful just for everyone, so it's perfectly laid out if possible. Secondarily, just on a separate topic, could you just maybe comment on the backlog side a little bit. Again, the influence of AVL is obviously showing really strongly given how great that business has been performing. Just curious on the mining backlog if you're surprised at all. I know it's been -- I know it's a lumpy business, but I'm also surprised that there hasn't been some uptick in mining a little bit. Is there any visibility on the mining business improving here from early discussions and a lot of the conversations around Northern development and things. Have you seen any sort of early stage or advanced talks on that front?

Yes. Thanks, Steve. I think -- so just on the mining side, I think, again, as we mentioned -- and you touched on it here in your comment in your question, it is very cyclical and lumpy given the mine development schedules. And so on one hand, I would say, especially in precious metals like gold, we're seeing continued investments, some expansion, some opportunities and some other commodities. However, given the development cycle, the investment cycle and so forth, they are lumpy. And so we're not surprised by the backlog. We anticipated that. We had, over the last 18 to 24 months some really strong equipment deliveries over time. And I guess all I would say is, look, our team is fully engaged in looking to earn their way into opportunities as they develop over the next several years. We are hearing certainly in the Ontario market, say, for example, some interest in developing some of the rare earth areas and things like that in Northern Ontario. And again, that's up to our team to participate in those opportunities and to earn our way into them. And so it'd be difficult to forecast what we're seeing there, but nice to see that there is some investment interest and I think the silver lining based on the trade discussions that we're hearing about every day.

Your next question comes from Jonathan Goldman with Scotiabank.

This is actually Carol on for Jonathan Goldman. So on AVL, particularly the new facility, how should we think about the level of OpEx required to support growth?

Yes. I mean we're -- as we talked about from a capacity point of view, we're really just building the employee base right now. We said that it's going to ramp over the course of time. So as you're ramping up the business, you would expect that OpEx would be heavy compared to revenue at the beginning, and then it will work its way out. So that's the way I would kind of model that is a little heavier on OpEx at the beginning. And then as we ramp up sales, it will come back to normal levels.

Yes. And I think the only other thing I think worthy of mentioning there is, it's an owned facility. And I think we mentioned we've put about 60 into it. And so as we continue to ramp that up, that's the way you should be thinking about that facility from a fixed investment perspective.

Okay. And another phenomenal quarter for CIMCO with double-digit growth. Can you talk about what's supporting growth, whether it's demand outside of your core end markets? And how should we think about the sustainability of current growth rates?

Yes. It's a great question. Thanks for the question. I mean if you look at our numbers on the quarter, again, the team has done a nice job over the last 12 to 18 months and continue to show sequential growth. I think as we always mentioned, the package side is a bit lumpy just due to the nature of that part of the business, right? So the industrial side of things, construction schedules. And even on the recreational side as we do conversions to CO2 or ammonia, that side of the business can have ebbs and flows based on construction and the seasonality in our marketplace. If you look at our backlog, again, we saw some good bookings in the quarter and on a year-to-date basis, CIMCO is sitting at about $341 million, which again is a very strong number for the business, especially when you compare to historical trending and so forth. And so all that to say, what we are seeing is we certainly see ebbs and flows between Canada and the U.S. We also see it between commercial, industrial side and recreational. And I think, generally speaking, what we saw in the quarter and in the performance year-to-date is some good activity across each of the segments that we serve.

Your next question comes from Maxim Sytchev with National Bank Capital Markets.

I was wondering if it's possible to get a bit of a comment in relation to the Equipment Group's overall pricing trends. I think Caterpillar was a bit more -- provided bit more important commentary on their call. Just wondering what you're seeing in the marketplace right now?

Yes. Maybe just to start on that, and John can probably give you a little color on the margin side. But I would say, again, first of all, I would say we wouldn't comment on Caterpillar in their results in the sense that they're much more diversified geographically and by a number of end markets. When we look at our particular marketplace, on the equipment side, we talked a little bit in our commentary about a bit of a movement between equipment sales, excluding mining, we're down a little bit on new but up unused. We're seeing a bit of a shift. We're quite pleased with the performance of the team in the sense that when we monitor market share and activity levels in our markets, they are down, especially in the heavier construction side, but our market share and things have done well. And so the team has done a really nice job executing there. Availability, as you know, Max, is really strong in the marketplace, whether you're looking at GCI product or the mid-tier BCP or CCE, it's very strong. So I think at the end of the day, we're adapting to our market conditions and trying to make sure that when we work with our customers, whether it's a rental, a newer or used equipment, whatever the requirement is we're there to support them, and we're very competitively positioned to help support the move in the longer term. So I can't really give you much more color than that, but...

Yes. Just on margins, I mean, we've talked about margins on new and used kind of coming back to more normal levels over the last little while stabilizing. We have a good mix this quarter in terms of the equipment that we shipped in terms of construction and power, a little lots on the mining side as we talked about. Rental utilizations were up a little bit, which was good news. And then product support as a percentage of the total was up. And so those all contributed to the mix issue. And as Mike talked about, our hope and plan is that product support continues to grow as the equipment that we have shipped over the last couple of years needs parts and service.

Sure. And I guess do you maybe just touch a little bit on to the RPO, I mean that seems to be moving in the right direction as well?

Yes. The RPO, I'd say it's probably back to where it was in prior years before we had supply issues, Max. I think we got $101 million right now. It really is used as a cash management tool by our customers where they don't have capital, particularly in time, so it's a financing cash management issue, and we expect most, if not all, of that to convert as it usually does to sales over the course of normally 12 months.

Okay. That's great. And one last clarification. Like free cash flow was very strong in Q3. Should we assume kind of the typical seasonality for Q4? Was there anything unusual when it pertains to this particular quarter? Or how should we think on a prospective basis?

Yes, cash flow -- operating cash flow was very good in the quarter, some $250 million or close to $250 million. And the inventory levels were up over the last couple of quarters, and the team did a really good job managing inventory levels this quarter. So that was a big contributor to it as well. So really pleased with the balance sheet management in the quarter and the cash flow.

Right. But I guess for Q4, should we assume kind of like a typical seasonality that we see? Or is there anything unusual we should be mindful?

Yes. I wouldn't think there's anything unusual there, Max. Like you say, I think we're sort of seeing more moderation, more normalization there. The question we always see is depending on how Q4 goes, year-end buys, we do have, obviously, equipment. We have a snow season ahead of us. But we don't -- we wouldn't predict anything unusual.

Your next question comes from Steve Hansen with Raymond James.

Just a clarification. Is there a reason the dividend hasn't been started to pay to the minority shareholders on AVL? Just, John, you referenced the starting point in first quarter, I was just curious.

Sorry, is the question on the dividend on AVL, Steve. Yes. So we're in the first year of the acquisition. And we'll have to see, of course, how the first year earnings turn out, what cash flow looks like, which cash balance looks like and then the Board will meet. We have an obligation to meet as a Board and determine how much of a dividend we should pay out based on the full year performance of AVL. So that's why it's a 2026 related issue.

And it will be a quarterly regular -- or will it be lumpy year, how should we think about it?

Yes, I have to come back to you on that one as well. Again, the Board will meet and determine how we're going to pay out that dividend, whether it's a onetime or over the quarter. So I'll come back to keep you posted for sure.

Okay. Helpful. And then just one last one, if I may, is just around the margin profile for the Equipment Group. We actually saw a nice uptick in the period. I assume part of that's mix. There's some of the disclosures suggest equipment side also had some benefit. I mean are you starting to see some stabilization in the competitive environment out there? We saw such a large swing in supply side opportunity over the last couple of years that's created some pressure, of course. But I mean, how are you thinking about the margin profile for new equipment packages going out today versus even a year ago?

Yes. Maybe just to start on that, Steve. I would say it's -- again, it's -- there's availability in the marketplace is certainly much stronger and has been persistent throughout the year. And so I think part of it is, as John mentioned earlier, when you look at the mix of sales, especially if you're just looking at the quarter, but on a year-to-date basis, you'll see the product support has started to come into play. Rental has improved a little bit. And then the equipment, we're seeing movements, especially on the mining side. Keep that in mind because as we see deliveries in mining, again, they're generally slightly lower margin but larger dollars and so forth. And so there's even mix within the new segment. And as we talk about the backlog and fulfilling that backlog, I think you're going to see some ebbs and flows there. But I would say it's certainly a well-supported market in terms of availability broadly.

There are no further questions at this time. I will now turn the call over to John Doolittle for closing remarks.

Okay. Thank you very much, Joelle, for helping us out today. Thanks for joining us, everyone, and for some great questions as usual. And that concludes our call. Please be safe. Go Blue Jays. Have a great day.

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