Scott J. Medhurst - President and CEO Paul R.

Jewer - EVP and CFO

Cherilyn Radbourne - TD Securities Michael Doumet - Scotiabank Jacob Bout - CIBC Ben Cherniavsky - Raymond James Devin Dodge - BMO Capital Markets Maxim Sytchev - National Bank

Thank you, Valery and good morning everyone. Thank you for joining us today to discuss the results of Toromont Industries for the first quarter of 2018.

Also on the call with me is Scott Medhurst, President and Chief Executive Officer. Before we continue, I’d like to advise listeners that this presentation may contain forward-looking statements and information that are subject to certain risks, uncertainties, and assumptions.

For a complete discussion of these factors, risks and uncertainties that may lead to actual results or events differing materially from those expected, refer to Toromont’s press release from yesterday, which is available on our website. We assume that you’ve had an opportunity to review our press release from yesterday, and as such, we’ll focus on key highlights.

Scott will begin with a few remarks, some comments, and our outlook, and an update on the integration after which I’ll review the operating group results and financial position. Then, we’ll be more than happy to answer your questions.

Scott?

Thank you Paul and good morning everyone. We are pleased with the results for our first quarter following the significant acquisition we completed late last year.

While maintaining a strong commitment to serve our customers we remained focused on the integration of our newly acquired businesses and are pleased with the progress achieved. Our equipment group team has achieved growth in revenues which together with the strong bookings, backlogs, and service work in process levels point to the increased activity level seen this year.

CIMCO continued to execute very well in Canada. Consolidated revenues were up 64% in the quarter reflecting 241 million generated at Toromont QM.

Revenues at our legacy businesses increased 6%. Net earnings were up 14% in the quarter to 30.8 million.

The legacy businesses reported strong year-over-year growth of 19% while contributions from QM were more than offset by the acquisition related interest expense and integration related costs. In the equipment group the expansion of our territories to include Quebec in Atlantic Canada is expected to be transformative to the long-term performance of our company.

Effective execution will be required to realize on the significant potential of a combined presence in key Canadian economic sectors. We're further encouraged by the long-term outlook for infrastructure spending across all territories from both the federal and provincial governments.

The parts and service business continues to be active and provides a measure of stability and opportunity for further growth. Our shops remain busy and we continue to hire technicians in anticipation of an increase in demand.

Increased activity in the mining space has translated to increase bookings in sales and we are cautiously optimistic that there is opportunity for continued growth. In the meantime production continues which is good for our product support business and consequently incremental equipment sales to support the growth and expansion.

On the integration front we continued to take a step wise approach and remain in the early stages of the process. To serve first step which started on day one and is ongoing was devoted to encouraging and supporting our 2100 new employees to remain focused on safety and effective execution.

Step two involved key leadership appointments leveraging the talent pools of both organizations to a point entirely from within and align our management structure to best serve our regional and vertical markets. As a result managers from both legacy Toromont and Toromont QM took our new responsibilities within the larger organization.

We continued to fine tune the go to market structure with the ultimate goal of ensuring senior leaders take a hands on ownership approach with a great deal of autonomy but also with full accountability for the outcomes achieved. It will take time to broadly embed Toromont's approach in the acquired operations but we are on our way.

Following this step integrating battlefield, the cat rental store across the new territory operating separately from the heavy equipment arm of the business took focus. This initiative is taking hold as we will gradually expand to a full rental service business that can operate effectively over all 12 months of the year.

Toromont material handling was also consolidated given the separate mandate. Step four was formulating mining and power systems division for the entire territory.

This will provide a consistent customer experience while providing the needed expertise and knowledge. Progress is being made on this front.

Step five was introducing the Toromont strategies and specific objectives to align the entire enterprise. The focus here remains on demonstrating to our customers that we are in fact stronger together by sharing best practices across all disciplines as a means of standardizing the systems, improving our execution, driving efficiency, and producing steady growth.

We've been through all of these steps as deeper operational analysis and all facets of the business which is ongoing. Over at CIMCO the sustained momentum reflects our strong market presence and solid reputation as a leader in these markets.

While much work lies ahead we are making inroads in expanding our U.S. presence.

Strong booking activity and record backlogs bode well for future prospects. Across our organization long-term projects support growth trends together with the diversity of markets in the new and significantly expanded territory, a strong management group, and solid financial underpinning provide substantial opportunities for continued success.

I will now turn the call over to Paul to take you through highlights of the financial results. Paul.

Thanks Scott, let's look at the operating results in more detail starting with the equipment group. Execution was good amidst challenges across the broader supply chain.

Toromont QM contributed 241.4 million in total revenues an 18% increase from revenues generated in the first quarter of 2017. For the legacy businesses revenues increased 3% with higher product support and rentals offsetting lower total equipment sales.

New equipment sales in the legacy businesses increased 15% with strong demand in the construction sector partially offset by decreases in power systems, mining, and Ag sales. Used equipment sales were down 36% due in part to challenges in sourcing used iron and a strategic decision to reduce dispositions of the rental fleet.

Total equipment sales at Toromont QM were 102.1 million, a 21% increases versus last year. Construction market sales accounted for more than half of the revenues.

Mining and power systems sales almost a third and lift trucks the remainder. Rental revenues in the legacy business increased 12%.

Growth in power and light equipment rentals continued and served to offset lower revenues from the heavy fleet and equipment on rent purchased with purchase options both of which benefited from significant activity in Newfoundland last year. At Toromont QM rental revenues of 18.6 million represented a 7% increase over last year approximately two thirds of which were generated from the life equipment fleet and lift trucks.

At the end of March 2018 our net investment in the rental fleet was 478.6 million. During the quarter we invested 27.9 million into our rental fleet net of dispositions which is 11.6 million higher than last year.

Product support revenues of the legacy businesses increased 7% in the quarter on good rebuild activity levels particularly mining. At Toromont QM product support revenues which represented half of its total revenues were up 17% in the quarter.

Gross profit margins increased 90 basis points in the quarter despite a dilutive effect from Toromont QM versus the legacy businesses. Selling and administrative expenses increased with the incremental expense at QM and integration related costs.

Excluding these the expense ratio was 10 basis points higher. Operating income increased 10.7 million in the quarter including a contribution of 5.7 million net of integration related costs from Toromont QM.

Operating income from the legacy businesses increased 14% in the quarter with operating income margin up 110 basis to 10.8%. Bookings of 370 million in the quarter reflected good activity levels across most sectors in both the legacy businesses and at Toromont QM.

Backlogs increased to $437 million including 184 million at Toromont QM most of which is delivered over the remainder of this year. Now turning to CIMCO.

CIMCO reported good results in the Canadian operations while U.S. results were softer.

Package revenues were up 53% in the quarter with growth of 66% in Canada and 11% in the U.S. Industrial activity increased in both Canada and the U.S.

while recreational activity was up only in Canada. Product support revenues were down 3% reflective of a decrease in Canada.

Margins decreased 430 basis points as higher product support margins were more than offset by lower package margins and an unfavorable sales mix of product support revenues to total. Package margins in the first quarter of last year benefited from good product close outs and favorable onetime adjustments not repeated.

Selling and administrative expenses were largely unchanged from last year. Operating income increased 21% on higher revenues and was 5.4% of revenues consistent with that reported last year at this time.

Bookings were down 5% against a tough prior comparative which included several large orders in the U.S. Backlogs of $157 million were at record levels for this time of year with most expected to be delivered over the remainder of this year.

As Scott pointed out earlier we're pleased with the first quarter results. Let's think about it this way, in our seasonally weakest market earnings at the legacy businesses were up 19% versus a year ago.

In our new QM businesses we generated net income this year which traditionally was not the result. This was offset by financing interest expenses and some integration costs.

And EPS was mildly diluted by the shares issued on acquisition. We are on our way with the business integration although there is still much work to be done.

As we've consistently said this is not an overnight endeavor, we are focused on the long run ways of growth. At March 31st our overall financial position remains strong.

We repaid 150 million against our credit facility and ended the quarter with cash of $171.2 million. Our net debt to total capitalization ratio was 33%.

That concludes our prepared remarks and we will be pleased to take your questions. Valery.

Thanks very much and good morning.

Good morning Cherilyn.

Wanted to hit first on a comment that you make in the MD&A saying that you feel the Q1 results reflect good execution and its challenges across the broader supply chain and clearly the ability to source used iron was one of those, maybe you can hit on some of the others?

Yeah, well again when we say we're pleased with the execution, you got to remember this integration is in full motion here and so I think the team did a solid job in a very active environment driving growth and continuous improvement because there is a lot of focus on the integration as well and changes with leadership positions. In terms of used equipment we're in a tighter environment to purchase but we are still purchasing but those numbers were down on a year-over-year.

And the other thing we're being attentive to Cherilyn is the retail demand signals and then relative to our supply right now. So there was some slippage with some orders being pushed out relative to deliveries.

And so we're being attentive and that's why our disposition of the rental fleets was down both at heavy rents as well as in the rental services business. It was almost down over $4 million from year-over-year comparison.

So there's some changes going on there that we're being very attentive to as we execute the opportunities.

And then in terms of the rental business it sounds like there were some sort of issues there in terms of a difficult prior year comparable on the heavy rent side and also an interruption of a major project during the winter months, maybe you can just address those issues?

Yeah, it's really -- it's a year-over-year tough comp there. The major project work was a little more active last year with our heavy rental fleet.

So that caused year-over-year downturn in the comparison. And the utilization was down on that heavy fleet.

The rental services was very good with improved rent utilization and rental revenues were actually up 15% on the legacy. So it's first quarter.

I think the weather might have played a bit, I hate using the weather as an excuse but when we see our propane sales significantly increase on the rental services that to me is a reflection of a little harder winter. And so some of the activity wasn’t that strong on some of the construction projects.

Well, I think we're all aware it's been a long winter, certainly it is in Canada. It struck me that that might have had an impact on the broader equipment group not just their rental business, would you agree with that?

You know again, I would say I think the weather played a bit of a factor but I don't like to use too many excuses. But that's a reality, the heavy rental was down on the rental.

And then last one for me before I pass it on, $1.7 million of pretax integration costs, can you give any other color on what that was?

It's a mixture between, there were some severance cost that we certainly encountered in the quarter, so that would be the majority of it Cherilyn, about $1 million in total. And then the balance of the mixture of one time professional services costs and some other elements to branding.

Okay, I will pass it off. Thank you.

You're welcome.

Yeah, hi, good morning guys, sorry about that.

Good morning Michael.

Good morning, so you mentioned that you didn't typically generate net income in Q1, I just want to clarify that I heard that right and you also previously commented on the enhanced seasonality of that particular business. So the question I mean is it fair to assume that margins remain relatively on trend, I just want to make sure that there isn't any sort of overreaction to Toromont QM's margins in the quarter?

I think everything is in line and broadly we tried to paint it as we see it, right. So, as I mentioned in the text of my speech here this morning and as we characterized in the actual MD&A itself in the press release, the legacy business the bottom line was it was up 19% year-over-year and we certainly we made a bit of money at QM and traditionally this is no criticism of the past organization in any way shape or form.

It's just size and scale and traditionally their first quarter wasn't profitable. So that wasn't visible I guess is as you folks had the opportunity to put your models together there is certainly creating some problems on that front.

That's what I was referencing when I mentioned enhanced seasonality in response to the question last quarter.

Okay, and it is fair to assume that the enhanced seasonality plays out the opposite way in stronger revenue quarters as we think of sort of margin expectation for the year?

Look broadly we have -- there's substantial differences we pointed out at multiple points between our accounting and the legacy accounting. Roughly just to provide some visibility to it, if you look at over the course of the last three years the profitability profile on average and this is lumpy and changes, it would be in minus 10% in their first quarter, 25% in their second quarter, 40% in the third quarter, and then 45% in their fourth quarter.

So like I said that doesn't lock down, it's not guidance but at least it is helpful in understanding the financial information that was presented to you previously in the business acquisition report. Is that helpful.

That's very helpful, I would just about to say that's appreciated. So, maybe just flipping to second question, I mean Toromont QM's SG&A came to about 20% of revenues.

It's a level above the legacy Toromont business. Again some of it is probably attributable to enhanced seasonality but given that you've highlighted the Toromont QM as a revenue story much more than a cost story, should we think of just margin expansion largely driven by operational leverages as you get to be more efficient, more you essentially leverage the cost base to generate additional revenues?

Essentially we are extremely focused as we've been consistently articulating. We're extremely focused on growing this business.

This is not a synergy story which is why we are reticent to want to share some of your targets which we do not have internally. We will grow this business for all of us, for our shareholders, for employees, for key stakeholders including Caterpillar and that's where our focus lies.

So certainly seasonality would be a component of that number. And we'll see how this unfolds going forward.

Maybe just a little more color there, what we are focused on here is continuous improvement and little fun on growth in the operational efficiencies. And we've already started to see that.

I mean we are very pleased with our Quebec on the product support side and we already started leveraging the enterprise there to drive some higher growth there. It is through labor utilization and some other resources.

So, that's what we're focused on is continuous improvement and again we demonstrated that with the Quebec with 17% on the product support side. So, that's encouraging.

Yes, definitely. Thanks to the color and the clarification guys.

You are welcome.

Good morning.

Good morning to you.

So Caterpillar reports earlier this week lots of focus on shrinking margins, price increases, maybe talk about your ability to pass on these price increases and maybe talk a bit about what your competitors are doing?

So this is not unusual. I mean we've all been in this game a long time and what we focus on as a company is working closely with Caterpillar to provide the value propositions to win the business and that's where I think we always go about it and that's a combination of our services, our products, and the strength of our infrastructure and how we present that to our customers to make a difference.

And so that's how we handle the situations, have done it that way for a long time. The competitive environment we have commented on before is still there.

We still have some moving parts with tier three, tier four. But again where we want to be with this expansion and we're pleased that Caterpillar blessed us on this front and we think we can compete more effectively once we get all the moving parts in place here.

Can you talk about any changes in supply chain logistics?

There we have felt a bit of slippage due to some orders being moved out with certain product families and that's why we are monitoring it closely and very focused on the retail side. And so that's why we're not -- we didn't dispose off some of the units out of those rental fleets in the first quarter where we monitor retail availability.

Last question just on the backlog, so you gave us a breakdown of the equipment group between the construction power system and mining, maybe just talk a bit about where you saw the improvement, majority of the improvement either quarter-on-quarter or year-on-year?

On the backlog with legacy we saw real improvement in the mining sector particularly on new, it was up about 87% and tractors up 58%. So we're -- and even CIMCO we are really encouraged with our backlog there was up 14%.

So that was encouraging as we go forward.

I will leave it there, thank you.

Thank you.

Good morning guys. I know you mentioned a few times already but I'm still trying to understand the comments around less disposal in the rental fleet, can you just clarify what was driving that decision, are you saying that the tight supply chain to purchase allows you or intended you to keep more fleet in rental just stronger there or what was the thinking there?

Yeah, so what we did was because of some slippage on some product coming in we felt we would move some of the units over to the availability for the retail activity which was increasing in the quarter. And so we kept the iron in the heavy and rental services fleets rather than willing to do sometimes disposing of in the quarter.

So that was the tactical move that took place.

So because the rental channel was strong?

Rental channel was strong at rental services. We had increased utilization there both in our light and heavy fleets in the rental services business.

And just with some of these products availability we thought you know what let's just hold on here because we're anticipating some good rental activity and similar story on the heavy rents.

Okay, thank you. And when you guys look at your rental platform in Quebec and some of your ambitions there being I mean as you built out that platform in Ontario you had done some acquisitions over the years albeit more tuck in.

But is that an approach you may consider in the Quebec market to build out your platform?

That certainly could be complementary.

And could you give us just a quick update on the Ag markets, what you saw there in the first quarter?

You know it's early but we were pleased with our combined activity in bookings in there in the first quarter. So that was encouraging for us in terms of the activity.

You know I think we'll have a much better read on the industry activity here in the second quarter that's when you really get a read on the Ag side.

Just finally, it's a routine question from me for you guys but just given your focus on CIMCO in the U.S. can you just speak to how that's progressing, it sounded like Canada was the performer there.

I think yet you lapped self comp on the U.S. but is there -- how is your progress there unfolding?

We're progressing in our quoting activity which we're keeping a close eye on a quarter-by-quarter basis. It was slightly up from last year in the quarter.

What we were disappointed with in there was the execution side of the business. We had some bumps in there on execution, some estimating, and so we're getting into the root cause there quickly and addressing that.

Okay, thanks a lot.

Thanks Ben.

Hey, good morning guys. So even highlighting that lead times from Cat have been kind of extending out, just wondering have you see this stabilized, just wondering if we are going to see this again in Q2 and is there any way or how should we be thinking about how much revenue that you would have expected to get in new equipment revenue in Q1 that maybe got pushed out into Q2?

Part of that was also due to some customers not being in a sense of urgency I think because of weather as well that caused some of the slippage and backlog. But, this was product by product and our inventory levels are up, that's where we are comfortable there on that front.

And we are working closely with Caterpillar here. There was some slippage that pushed some orders out and that's why we're being attentive to the demand signals coming on the retail side and just monitoring that.

And we're trying to be very attentive to acquiring good use there in as well which is a bit tighter. So we got some great people in our organization that are monitoring things closely and keeping an eye open for good used iron as well.

Okay, so have you seen that slippage that kind of stabilized or -- I am just trying to get a sense whether this maybe, we maybe talking about the next quarter as well?

I will just stick with the quarter. We saw some slippage in the quarter and we're working closely with Caterpillar on that front going forward.

Okay, and then to switch to Toromont QM, I know you guys highlighted the seasonality which is really helpful, just wondering if there's any other costs or any other margin impacts that impacted this business in Q1 that may not recur in the balance of the year. I think previously you talked about amortization related to the backlog, just any color there would be helpful?

There is certainly some element. There's a variety of puts and takes and we are dealing with that, and there are variety of costs that we would have incurred.

There's a variety of elements where we recognize some savings versus the previous organization. Amortization of backlog wasn't a big factor, probably about $500,000 or $600,000 in the quarter.

So little bit about to come, probably another 1.5 million or so of the backlog from that was --. So that's it.

It is relatively straight forward. We are focused on the operations, we are very focused on denigrating the businesses and we're excited about the opportunities we have in front of us.

Okay, and maybe last one from me, the MD&A mentioned that there was some favorable transition terms from suppliers that impacted your accounts payable, just can you provide a bit of color there to what -- help us understand what that means?

Yeah, essentially just as we work through the transition from a variety of suppliers we just look at some extensions to trade terms or other variable terms that are available and that helped us in the quarter.

Okay, okay, thank you very much.

Dev, you are welcome.

Hi, good morning. Paul just wanted to clarify the comment that you made about the retail signals, are you seeing it sort of further strengthening or are you talking about slippage on that front and just how you position sort of the rest of the business according to that?

In the first quarter Max we saw some uptick in three activity typically on that construction site so that's what we're referencing there. Okay, on the new sales.

Correct, okay, no that's helpful. And then question on the accounts receivables, there was almost a $43 million amount owing to the company's planned acquisition, what is that exactly Paul?

That was just simply the finalization of the adjustment to working capital which is a normal element of any transaction.

Okay, correct and then is it possible to get an update to how we should be thinking about your investment in rentals and CAPEX ex rentals for 2018 just directionally speaking if it's possible?

Yeah, absolutely. What we look at we traditionally share that with you.

So one of the things that we are most excited about is our opportunity to expand our rental footprint and certainly as you look at the rental services business and battlefield that's a significant opportunity for us. So last year we would have invested a net $70 million or so in the rental fleet, this year I think we will double that.

So we're looking at probably $140 million. Now all of this depends on our ability to execute and the ability to absorb that into the fleet.

But we do have quite an opportunity there. As we look at PPE I mean I think obviously with expanded enterprise last year we are net about $40 million.

This we will be a net about $50 million. And all of that obviously is subject to final execution and our final requirements.

The bottom line is we also have the flexibility to respond. So as we see opportunities presented we have the opportunity to respond with investment.

That's the benefit of a strong balance sheet. Max what we really yielded, we really need to increase and broaden our allied products in our new territory so we can operate effectively over the 12 month period.

That's a great opportunity for us and we got to structure the business properly to be able to execute.

Okay and correct me if I'm wrong, I believe last year you made a comment that deployment of rental capital into the QM territory is predicated on obviously how sort of all the systems up to snuff training all that stuff. So is this everything in place right and you feel comfortable deploying that much capital.

Probably the most advanced in this area of any of the integration efforts so we think that we'll have our systems in place later this summer and we will be rolling out battlefields legacy, footprint model and systems to the QM businesses. I think we're in a good position.

We have realigned the organization, we are well situated to seize the opportunity we just have to execute.

Right, can you maybe talk about sort of integration culture and things like that in terms of retention, any commentary there?

Yeah, we're being very attentive to the culture and that's why we're working very closely with our leadership team and they are doing a very good job integrating new business processes while also being attentive to our people. So overall we're quite pleased.

The technicians are really pleased and we're working on increasing our headcounts on the technician front. And so that's gone well is how we are integrating the technicians and responding to the demand signals there.

One of the things that's quite fortunate as we look at the acquisition probably didn't anticipate fully the power of it as we approach the acquisition is the power of the cat culture within both organizations and both organizations bled Cat yellow blood. And as a consequence there's a lot of familiarity between people, processes, practices, and let's focus on the customer.

So that's very meaningful and continues to stay.

Okay, were you able to transfer some of the excess capacity between the two locations for rebuild, some things like that. I was starting to see that already?

Yeah, we started to see that in the quarter leveraging some of the resources and that's why we were able to I think drive some increased product support business in a new territory and vice versa. We are seeing that, I mean we just got up and running with our renovated CRC platform in Montreal and that's going to be very positive for us overall for the entire enterprise.

And we're just working on how we leverage that capacity and improve things on that.

And maybe just last question for the rest of the year in terms of the used momentum and I understand it's a very fluid situation but any color you can provide there?

Yeah, I just think it's going to continue right now being a tight environment to purchase iron. We did purchase iron in the quarter that we think will be positioned well.

But it's a little more difficult to acquire good used iron right now. What was encouraging again was our rebuild quoting activity was up I think over 45% in the legacy business.

So that shows you that that still has legs in there. Now we've got to go win it and earn it but lots of activity on that front as well.

Okay, very helpful, thank you very much.

You are welcome Maxim.

Thank you Valery. Before concluding the call I would like to remind listeners that our Annual and Special Meeting of Shareholders will be held today at 10 AM in the Tuscanna [ph] Banquet Hall at the Hilton Garden.

We would be pleased to see you there. The meeting will also be available live via audio webcast which can be accessed at our website at toromont.com.

Thank you and that concludes our call for today. [Foreign Language].