Wajax Corporation

Thank you for attending Wajax Corporation 2023 First Quarter Financial Results Webcast. On today's webcast will be Mr. Iggy Domogalski, President and Chief Executive Officer, and Mr. Stuart Auld, Chief Financial Officer. Please be advised that this webcast is being recorded. Please note that this webcast contains forward-looking statements. Actual results may differ from expected results. I will now turn the call over to Iggy Domogalski.

Good afternoon and thank you for participating in our first quarter call. This afternoon we will be following a webcast which includes a summary presentation of Wajax's Q1 2023 financial results. This presentation can be found on our website under investor relations and events and presentations. I will provide you with the general update and will then turn it over to Stu for comments on backlog, inventory, cash, and the balance sheet. To begin, I would like to draw your attention to the cautionary statement regarding forward-looking information on slide two, and the non-GAAP and other financial measures on slide three. Turning to slide four, this slide provides an overview of Wajax. The corporation has 165 years of Canadian operating history, operates across 121 branches with a team of over 3,000 employees, including more than 1,100 skilled technicians. During the quarter, our heavy equipment categories and revenue sources made up approximately 54% of our total revenue, while industrial products and ERS generated approximately 46%. Turning to slide five. In the first quarter, Wajak saw significant improvement in key financial metrics and TRIF. Revenue of $516.1 million was up $76.5 million, or approximately 17% in the quarter. The increase in revenue resulted from higher construction, material handling and industrial parts sales in all regions and increased ERS sales in western and eastern Canada. EBIT of $28.6 million was up $2.2 million or approximately 8% in the quarter. The improved EBIT resulted from higher sales volumes, offset partially by lower product support margins and higher selling and administrative expenses. Gross profit margin of 20.4% decreased 90 basis points compared to the same period of 2022 due to lower product support margins and a lower proportion of product support revenue. This was offset partially by higher equipment margins and a higher proportion of ERS revenue. Selling and administrative expenses as a percentage of revenue decreased to 14.9% in the first quarter of 2023 from 15.3% in the first quarter of 2022. Selling and administrative expenses in the first quarter of 2023 increased $9.7 million or 14.4% compared to the first quarter of 2022 due primarily to higher personnel costs as the volume of business increased over the prior year and a $0.9 million unrealized loss on interest rate swaps during the quarter as compared to $2.1 million unrealized gain on interest rate swaps in the prior year. Adjusted net earnings of $0.83 per share was up approximately 13% or $0.10 in the quarter, noting the adjustments recorded on this chart. At the end of Q1, the TRIF rate was 1.17, a decrease of 18% from the first quarter of 2022. Safety continues to be Wajax's number one priority, and management is committed to continuously improving our safety programs to improve on this result. We thank everyone on our team for their ongoing dedication to workplace safety. Turning to slide six. Revenue increase of 17% in the first quarter resulted from growth in all regions. Western Canada sales of 238 million increased 15% in the quarter, mainly due to strength in the ERS and industrial parts categories, as well as higher construction and forestry equipment sales, offset partially by lower mining equipment sales. Central Canada sales of 87 million increased 14% in the quarter, due primarily to strength in industrial parts sales and higher material handling equipment sales. Eastern Canada sales of $191 million increased 22% in the quarter due to strength in the industrial parts and ERS categories and higher equipment sales in the construction and forestry and material handling categories. Please turn to slide 7. An update on equipment and product support sales and year-over-year variances are shown on this page. Equipment sales of $132 million increased $15 million, or 13% compared to last year, due mainly to strong construction and forestry sales in Western Canada and higher material handling sales in Eastern Canada, offset partially by lower mining sales in Western Canada. Product support sales of 135 million increased 10 million, or 8%, due primarily to higher power systems and material handling revenues in all regions and higher mining revenue in Eastern Canada. Please turn to slide 8. An update on industrial parts and ERS sales and year-over-year variances are shown on this page. Industrial parts sales of approximately 153 million increased 24 million, or 19%, due mainly to higher sales in all regions, particularly in eastern Canada. ERS sales of 85 million increased 25 million, or 39%, due to strong sales in western and eastern Canada. Turning to slide nine, the slide summarizes sales at a category level for our company's overall groupings of heavy equipment and industrial parts and services. In the first quarter, the heavy equipment group increased 27 million, or 11%, driven by higher sales in all categories except mining. The increase in the construction and forestry category was due primarily to higher equipment sales of Hitachi construction excavators. Total growth in industrial parts and services categories of approximately 49 million, or 26%, was driven by increases in both industrial parts and ERS. We continue to see growth in these less cyclical categories and they remain a core element of our broader growth strategy. I will now turn the call over to Stu.

Thanks Iggy. Please turn to slide 10 for my comments on backlog and inventory. Our Q1 backlog of $530.8 million increased $62 million or 13.2% compared to backlog of $468.8 million at Q4. and decreased 9.3 million or 1.7% on a year over year basis. The sequential increase was due to higher orders in all categories, but most notably in the mining, material handling, ERS and construction and forestry categories. The year over year decrease was due to lower construction and forestry, mining and power systems orders offset partially by higher ERS, industrial parts and material handling orders. Overall, strong and relatively stable on a year over year basis, Backlog reflects continued momentum in our heavy equipment, industrial parts and ERS businesses. Inventory increased $122.2 million compared to Q4 2022, due primarily from higher construction and forestry equipment inventory, and increased overall parts purchasing due to strong sales activity, as well as the receipt of a large mining shovel during the quarter. Inventory increased $175.3 million compared to Q1 2022 due to increases in most categories as a result of strong sales activity. Please turn to slide 11 where I will provide an update on cash flow, leverage, and working capital. Cash used in operating activities in the quarter of $69.6 million decreased $89 million from a cash generated from operating activities of $19.4 million in Q1 2022 mainly due to an increase in cash used in non-cash operating working capital, primarily as a result of an increase in inventory and higher income taxes paid related to 2022. Our Q1 leverage ratio increased to 1.74 times from 1.13 times in Q4 due to the higher debt level in the current period driven largely by the corporation's investment in inventory. The corporation's leverage ratio is currently within our target range of 1.5 to 2 times at the end of Q1. Our available credit capacity on NIF Q1 was $236.2 million, which is sufficient to meet short-term normal course working capital and maintenance capital requirements, our acquisition program, and strategic initiatives. We continue to focus on working capital efficiency, which is a key component in managing our overall leverage targets. The Q1 working capital efficiency was 17.4%, an increase of 70 basis points from December 31, 2022, due to the higher trailing four-quarter average working capital. Please turn to slide 10, and at this point, I'll now turn it back to Iggy.