Mr. Iggy Domagalski reports

WAJAX ANNOUNCES 2023 SECOND QUARTER RESULTS

Wajax Corp. has released its 2023 second quarter results. All monetary amounts are in Canadian dollars unless otherwise noted.

Selected highlights for the second quarter

• Second quarter revenue of $586.2-million, up 14.7 per cent over 2022;
• Second quarter adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $57.2-million, up 26.6 per cent over 2022;
• Second quarter adjusted net earnings of $27.1-million, up 37.7 per cent over 2022;
• Ended the quarter with backlog of $551.2-million, up $20.5-million from March 31, 2023.

"Our strong financial performance in the second quarter was driven by clear execution against our core strategic priorities," said Iggy Domagalski, president and chief executive officer. "Top line growth was supported by sustained customer demand across all regions, including continued positive momentum in central Canada. Solid year-over-year growth in equipment and product support sales was complemented by even greater strength in industrial parts and engineered repair services revenue, and improved operating leverage saw adjusted basic earnings per share grow 26.4 per cent to $2.09 for the first half of the year. Our robust backlog, up $20.5-million sequentially from the first quarter, as well as solid fundamentals across many of our key markets, supports confidence in our prospects as we advance further into 2023 and beyond.

"We continue to invest in working capital, most notably in inventory, to support customer orders and forecasted demand. We continue to believe that our strong financial results and balance sheet give us the flexibility to further invest in our expanded Hitachi relationship, additional organic initiatives and acquisition opportunities to help drive future growth. With respect to acquisitions and the growth of our industrial parts and engineered repair services businesses, subsequent to quarter-end, we were very pleased to announce we have acquired Polyphase Engineered Controls, a specialized provider of custom electrical and instrumentation equipment that enhances our ability to undertake large-scale time-critical integration projects."

Outlook

After the first half of 2023, the corporation continues to see solid fundamentals in many of the markets it serves -- particularly mining, energy and construction -- supported by relatively elevated key commodity prices and sustained customer budgeting for capital projects. The corporation's strong backlog also continues to support management's confidence as Wajax advances into the second half of the year. In addition to expected growth in its heavy equipment business, Wajax anticipates further strong demand in its less cyclical industrial parts and ERS businesses. For the balance of 2023, Wajax continues to expect challenges associated with supply chain volatility, although some improvements are anticipated. Higher interest rates, wage and price inflation, and a tight labour market are also expected to remain challenges, and management continues to monitor market dynamics and customer sentiment for signs of possible weakness.

The corporation's core strategic priorities remain unchanged and Wajax is focused on continuing to invest in its people and their overall health and well-being, delivering exceptional customer value, organically growing its business, transacting on its robust acquisition pipeline, leveraging its enhanced relationship with Hitachi, prudently managing its balance sheet, deploying its ERP system and entrenching sustainability into the business.

Dividend

The corporation has declared a dividend of 33 cents per share for the third quarter of 2023, payable on Oct. 3, 2023, to shareholders of record on Sept. 15, 2023.

Second quarter highlights

• Revenue in the second quarter of 2023 increased $75.0-million, or 14.7 per cent, to $586.2-million, from $511.2-million in the second quarter of 2022. Regionally:
  • Revenue in Western Canada of $269.4-million increased 19.2 per cent from the prior year due to strong mining equipment sales, including the delivery of a large mining shovel, higher engineered repair services (ERS) and industrial parts sales, and higher product support revenue in all categories.
  • Revenue in central Canada of $103.2-million increased 23.5 per cent from the prior year due primarily to higher equipment sales in the material handling, and construction and forestry categories, as well as strength in the industrial parts and ERS categories.
  • Revenue in Eastern Canada of $213.7-million increased 5.9 per cent from the prior year due primarily to strength in the industrial parts and ERS categories, offset partially by lower equipment sales in the power systems category.
• Gross profit margin of 19.9 per cent in the second quarter of 2023 decreased 20 basis points (bps) compared with gross profit margin of 20.1 per cent in the same period of 2022. The decrease was driven primarily by lower product support and industrial parts margins, offset partially by higher equipment and ERS margins, and a higher proportion of ERS sales.
• Selling and administrative expenses as a percentage of revenue decreased to 12.2 per cent in the second quarter of 2023 from 13.4 per cent in the second quarter of 2022, driven by the 14.7 per cent increase in revenue. Selling and administrative expenses in the second quarter of 2023 increased $2.9-million compared with the second quarter of 2022 due primarily to higher personnel costs as the volume of business increased over the prior year.
• EBIT increased $11.2-million, or 32.9 per cent, to $45.3-million in the second quarter of 2023 versus $34.1-million in the same period of 2022. The year-over-year increase in EBIT resulted primarily from higher sales volumes, offset partially by lower product support margins and higher selling and administrative expenses.
• The corporation generated net earnings of $29.0-million, or $1.35 per share, in the second quarter of 2023 versus $21.7-million, or $1.01 per share, in the same period of 2022. The corporation generated adjusted net earnings of $27.1-million, or $1.26 per share, in the second quarter of 2023 versus $19.7-million, or 92 cents per share, in the same period of 2022. Adjusted net earnings in the second quarter of 2023 excludes non-cash gains on mark-to-market of derivative instruments of $1.9-million after tax, or nine cents per share (2022 -- gains of $2.0-million, or 10 cents per share).
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) margin increased to 9.8 per cent in the second quarter of 2023 from 8.8 per cent in the second quarter of 2022.
• The corporation's backlog at June 30, 2023, of $551.2-million increased $20.5-million, or 3.9 per cent, compared with March 31, 2023, backlog of $530.8-million due primarily to higher material handling and ERS orders, offset partially by lower construction and forestry orders. The corporation's backlog at June 30, 2023, of $551.2-million increased $16.4-million, or 3.1 per cent, compared with June 30, 2022, due to higher ERS and material handling orders, offset partially by lower construction and forestry, and power systems orders.
• Working capital of $480.6-million at June 30, 2023, increased $55.4-million from March 31, 2023, due primarily to higher inventory. Working capital efficiency was 18.9 per cent, an increase of 140 bps from March 31, 2023, due to the higher trailing four quarter average working capital.
• Cash flows used in operating activities amounted to $6.0-million in the second quarter of 2023, compared with cash flows generated from operating activities of $34.0-million in the same quarter of the previous year. The decrease in cash generated from operating activities of $40.0-million was mainly attributable to an increase in inventory of $40.7-million during the quarter compared with an increase of $4.6-million in the prior year.
• The corporation's leverage ratio increased to 1.76 times at June 30, 2023, compared with 1.74 times at March 31, 2023. The increase in leverage ratio was due to the higher debt level in the current period, driven largely by the corporation's investment in inventory. The corporation's senior secured leverage ratio was 1.38 times at June 30, 2023, compared with 1.33 times at March 31, 2023.
• Effective June 23, 2023, Andre Dube was appointed to the role of senior vice-president, industrial parts. and ERS. Mr. Dube has 24 years of experience at Wajax, first joining in 1999 as a strategic sourcing specialist. Since then, he has held increasingly senior roles, including vice-president, key accounts, and vice-president, end market mining. Most recently, he was serving as regional vice-president, Ontario and Quebec.
• As noted herein, subsequent to quarter-end, on July 4, 2023, the corporation's wholly owned subsidiary, Tundra Process Solutions Ltd., acquired all of the issued and outstanding shares of Polyphase Engineered Controls (1977) Ltd. for cash consideration of approximately $17.8-million, plus a three-year performance-based earnout. The purchase price is subject to normal postclosing net working capital adjustments and the result of the three-year performance-based earnout. As of the acquisition date, Polyphase had trailing-12-month revenue of approximately $26.0-million. For additional information regarding the Polyphase acquisition, please see the corporation's press release dated July 4, 2023.

Conference call details

Wajax will webcast its second quarter financial results conference call. You are invited to listen to the live webcast on Friday, Aug. 11, 2023, at 2 p.m. ET. To access the webcast, please visit the company's website under investor relations, events and presentations, Q2 2023 financial results, and click on the webcast link. An archive of the webcast will be available following the live presentation.

About Wajax Corp.

Founded in 1858, Wajax is one of Canada's longest-standing and most diversified industrial products and services providers. The corporation operates an integrated distribution system providing sales, parts and services to a broad range of customers in diverse sectors of the Canadian economy, including construction, forestry, mining, industrial and commercial, oil sands, transportation, metal processing, government and utilities, and oil and gas.

The corporation's goal is to be Canada's leading industrial product and service provider, distinguished through its three core capabilities: sales force excellence, the breadth and efficiency of repair and maintenance operations, and the ability to work closely with existing and new vendor partners to constantly expand its product offering to customers. The corporation believes that achieving excellence in these three areas will position it to create value for its customers, employees, vendors and shareholders.

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