Toromont Industries Ltd

TSX:TIH

Earnings Call Transcript 2024-Q1

[Operator]

Good morning. Today is Thursday, May 2, 2024. Welcome to the Toromont Industries Ltd. First Quarter 2024 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. Mr. Doolittle. please go ahead.

[John Doolittle, executive]

Okay. Very good. Thank you, Ludy. Good morning, everyone. Thank you for joining us today to discuss Toromont'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 2, 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 3. And, Mike, I'll pass it off to you.

[Michael Stanley McMillan, executive]

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 remained supportive for the future.CIMCO 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 and delivering customer solutions.On Slide 4, 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 4 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 U.S. sourced 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.Toromont 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 5-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 back to you for some more detailed comments on our Q1 results.

[John Doolittle, executive]

Okay. Thank you, Mike.Let's turn to Slide 5 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. CIMCO 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 CIMCO, 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 CIMCO 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 $1.02 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 6. 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 shipping 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 the 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 CIMCO 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 U.S. Activity levels continue to improve, reflective of market conditions and increased labor capacity. Gross margins increased 450 basis points in the quarter versus the 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.Selling and administrative expenses were up 10% in the quarter. Allowance for doubtful accounts decreased $1.6 million, reflecting focused efforts on collections and an improvement of aged 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 CIMCO 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%, and 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 industrial 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 8. I'll hand it back to Mike to highlight some key takeaways as we look forward to Q2 and the balance of the year.

[Michael Stanley McMillan, executive]

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 CIMCO 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 teams 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 back order 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. Ludy, over to you to set up the first call, please.

[Operator]

[Operator Instructions] Your first question comes from Cherilyn Radbourne with TD Cowen.

[Cherilyn Radbourne, analyst]

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 bookings strength. So, I'm curious what you make of all of that taken together and how your teams are positioned tactically?

[Michael Stanley McMillan, executive]

Yes. Thanks for the question, Cherilyn. Yes, I think those are great observations. I think if you compare to Q1 of last year, 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. I think we continue to see -- in Q4, we had a pretty strong finish. And I think that combined -- when you think about a return to more normalized availability, supply seasonality also plays a factor.We're also in an environment, I think, where 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 a little bit of patience in the marketplace as we've been talking about for several quarters. 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 is 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.

[Cherilyn Radbourne, analyst]

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

[Michael Stanley McMillan, executive]

Yes. I think it's -- maybe to start, John can weigh in, too. I think it's more of the latter, Cherilyn, when you think about -- it's just really -- 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, I think it's more -- it's really more about the business environment, 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, supply this year versus last year, certainly, more about timing and just managing cash flow.

[Cherilyn Radbourne, analyst]

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

[Michael Stanley McMillan, executive]

I would say -- we didn't break it out, Cherilyn, but I would say we're certainly getting more interest in, I think, natural refrigerants and also energy efficiency, which translates into reduction of GHG emissions and so forth. And so we -- later on today, we'll -- during the Annual Meeting, we'll talk a little bit about CIMCO Thermal Force One platform and how that is starting to get quite a bit of interest.And so I would say, it's -- 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 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 out.

[John Doolittle, executive]

Yes. I would just say, Cherilyn, we're really pleased with the results of CIMCO in the quarter kind of across the board there. And we're also really proud and pleased with 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.

[Operator]

Your next question comes from Jacob Bout with CIBC.

[Jacob Bout, analyst]

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

[Michael Stanley McMillan, executive]

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, we're going to see some mix shift. And we always try to direct everybody back to -- I guess, a couple of things, I would say, back to the factors that affect margin, right? And so 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 mix, 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, rental was down. There are number of factors for that. I think part of it is related to just higher equipment acquisition costs. Last year we invested significantly in both heavy and light fleet that brings our cost 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 our utilization, obviously, comes off a little bit with a larger fleet that's a higher cost base. And I think combine that with a little bit of the timing to get things ready, that plays a factor.And I think the last piece I would mention is on product support. 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 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 margin.

[Jacob Bout, analyst]

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?

[Michael Stanley McMillan, executive]

Yes. I think, 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 see our backlog, you see the bookings that we saw in the quarter. And we also signaled that over 80% of that should be realized throughout the course of the year. There are couple of things I would also note, though.When you think of backlog, 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 -- when it comes to equipment, it's dictated by the delivery schedule for that mine and that development. I think also on the power side, generally, what we're seeing is longer lead times, just given the demand for large core engines and so forth, when you think of across North America and probably globally for Cat. Large bore engines and data centers and so forth are driving 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.

[Operator]

Your next question comes from Yuri Lynk with Canaccord Genuity.

[Yuri Lynk, analyst]

Can you just give us a bit more color on the Bradford facility as it ramps up? I'm thinking about 2 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.

[Michael Stanley McMillan, executive]

Yes. It's a great question. Thanks for that, Yuri. I think -- 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, we mentioned that we would hire upwards of 160 techs. I would say, 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, 3 facilities and say, for example, between 2 buildings that are very close together, the efficiency that we'll see just in terms of a fit-for-purpose facility, more 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 capacity-wise, it's 143,000 square feet. 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.

[John Doolittle, executive]

Yes. 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.

[Yuri Lynk, analyst]

Okay. That's helpful. Maybe just on the rental side, a few things. 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?

[Michael Stanley McMillan, executive]

Yes. 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 I would say we continue to invest at a pace similar to the prior year and so forth and so depending on the composition. Keep in mind also last year, we also saw a better availability on certain units and an ability to change and dispose of units. We saw disposals increased 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 when it comes to the marketplace itself, everybody in the space has better availability of equipment, higher cost. And naturally, I think what we're going to see is, is we're going to have to compete in that marketplace. We're prepared to do that and happy to. And so 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. The other piece, which is not entirely rental related, but the RPO fleet is probably worth note, too. When you see that our customers also were starting, we saw the RPO fleet was about $70 million in Q1 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 view.

[John Doolittle, executive]

Yes. I mean, just a couple of things to add on that, Yuri, I mean. I think we were asked that question last quarter or the quarter before. And we said 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 changed 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, Yuri.

[Yuri Lynk, analyst]

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?

[Michael Stanley McMillan, executive]

Yes. I think keep in mind, the Bradford facility is a big part of that. It's 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 fleet, our service truck fleets and so forth. And again, it comes back to sort of 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, about 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 just -- and it will be based on -- from that perspective going forward, it will be based on a facility-by-facility network development plan, both for the dealership, for rental business and so forth. And so that will -- we'll give you a little more color as we go forward as we think about expansion or markets that we want to have a presence in.

[Operator]

Your next question comes from Michael Doumet with Scotiabank.

[Michael Doumet, analyst]

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 margin variability? And did you guys see maybe a little bit of a seasonal uptick into Q2?

[Michael Stanley McMillan, executive]

Yes. 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 you think of -- when we talk about normal seasonality and you look back into Q1, we generally would see a little bit less activity in the rental space, right, especially if you look at Battlefield and if look at landscapers, you look at certain areas. That business benefits from 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, right, as we see the warmer months.

[Michael Doumet, analyst]

Okay. That makes sense. And look, maybe I wanted to revisit the M&A thinking here. You have a net cash position. You guys are too good for us to assume that, that won't just get bigger. How are you thinking about -- 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 the return of capital, call it, a special or maybe more buyback would make more sense for you guys?

[John Doolittle, executive]

Michael, we're pretty proud of the balance sheet that we have, 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. CIMCO, 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 those are really the priorities for our cash balance.

[Michael Stanley McMillan, executive]

Yes, 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 or even tuck-in or service offering that we think is 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 for capital allocation thinking hasn't changed. We'll be patient but aggressive on the operations.

[Operator]

Your next question comes from Steve Hansen with Raymond James.

[Steven Hansen, analyst]

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?

[Michael Stanley McMillan, executive]

Yes. I think -- and you sort of touched on it there, Steve, I think a couple of things. We're going to see ebbs and flows there. Again, we -- a couple of things. We've seen, depending on the mix of parts versus service, I think also, we talked about -- we continue to hire technicians. There's -- I think we have over 550 apprentices. We're training our teams. We're trying to build capacity, a little bit of investment there for Bradford. And so 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 get too focused on the quarter in that sense. But our goal is to optimize the use of all of our resources, right, and deliver the quality support that we need to.

[Steven Hansen, analyst]

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? I'm trying to get a sense for how the margin -- I guess, 2 things, how the utilization profile is expected to evolve as the season changes? And then secondarily, how the margin profile evolves with that utilization.

[Michael Stanley McMillan, executive]

Yes. 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, like, again, weather, 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, 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 the other factors are our ability to execute and return product, 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 I think also that helps us drive better utilization and financial utilization. So there's 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, yes, that's something we would expect. But I think it's the other factors too, we have to weigh in, in terms of the fleet itself and then our team that we're building to support.

[Operator]

Your next question comes from Sabahat Khan with RBC.

[John Vincent, analyst]

This is John on for Saba. 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?

[Michael Stanley McMillan, executive]

Yes. Thanks, John. A couple of 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 and 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.I would say, we, naturally, we have over 2,000 technicians, say, in the Toromont Cat business and we continue to hire. We have natural retirements with a population of that size. And so on any given quarter, we continue to be hiring 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 that's directionally where we go. We don't see that declining for some time as well.

[John Vincent, analyst]

Okay. Got it. And then I understand you typically don't provide too much in the way of forward-looking guidance, but 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? 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.

[Michael Stanley McMillan, executive]

Maybe just to start on that, John. I think, again, you're right that we don't provide guidance. I think what we can tell you is what we've seen. We're pretty happy with what we've seen in terms of the bookings in both, frankly, and the CIMCO business is very strong. The backlog there is highest level I've seen. And so nice to see that appetite and that activity in that business. I think we -- again, we saw some strong bookings in Q1 for the Toromont 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. And just 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.

[Operator]

[Operator Instructions] Your next question comes from Maxim Sytchev with National Bank Financial.

[Maxim Sytchev, analyst]

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

[Michael Stanley McMillan, executive]

Yes. Thanks, Max. I think between John and I, I think we watch this pretty carefully. But I would say, 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. 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, right?And so those projects will ebb and flow, but we anticipate there will be a continued focus on affordable housing, some infrastructure and road projects and so forth. I think outside of that, I mean, we also monitor, say, the commodity markets pretty carefully because of our customers on the mining side. They're at a pretty reasonable cycle, fairly strong cycle, and we monitor those areas as well for our business. So all that to say, 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 would add.

[John Doolittle, executive]

I don't think I would. It's a good summary.

[Maxim Sytchev, analyst]

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

[Michael Stanley McMillan, executive]

Yes. 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 we do see -- over the last couple of years, we've seen on the precious side. 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, again, we monitor it carefully. 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 I would say we're conservative and cautious in terms of how we're thinking about that, but we're prepared 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 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.

[Maxim Sytchev, analyst]

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

[Michael Stanley McMillan, executive]

Yes. I think a couple of things there, Max. We really like the business in the sense that 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 U.S. 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 U.S. that's executing very nicely in both the industrial or if you think of grocery in 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 efficient, more practical applications, heat recovery. You mentioned data centers, and I think that's an area that's evolving over time. We continue to look at those opportunities, both from our power business 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.

[Operator]

Your next question comes from Davis Baynton with BMO Capital Markets.

[Davis Baynton, analyst]

This is Davis on for Devin Dodge. 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 puts and takes of normalization?

[Michael Stanley McMillan, executive]

Yes. I think -- Davis, I think, again, we tend to look at the quarter activity and speak to that. We really don't provide forward-looking guidance. I think part of this is just monitoring each of the markets that we play in and 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 -- we work 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.

[Operator]

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

[John Doolittle, executive]

Okay. Thank you, Ludy. 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 10:00 a.m. Eastern. It's a virtual meeting only, and the details are available on our website at toromont.com. This concludes our call. And once again, thank you. Have a safe and great day.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.