Wajax Corporation

Thank you for attending Wajax Corporation 2023 Second 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 future results may differ from expected results. I will now turn the call over to Iggy Domogalski.

Thank you, Operator. Good afternoon, and thank you for participating in our second quarter call. This afternoon, we will be following a webcast, which includes a summary presentation of Wajax's Q2 2023 financial results. The presentation can be found on our website under Investor Relations, Events and Presentations. I'll provide you with a general update, and we'll 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 our 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 58% of our total revenue, while industrial products and ERS generated approximately 42%. Turning to slide five. In the second quarter, Wajak saw strong performance across key financial metrics. Revenue of $586.2 million was up $75 million, or approximately 15% in the quarter. The increase in revenue resulted from increased industrial parts, product support and ERS sales in all regions and higher equipment sales in Western and Central Canada. EBIT of 45.3 million was up 11.2 million or approximately 33% 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 19.9% decreased 20 basis points compared to the same period of 2022 due to 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 percent of revenue decreased to 12.2% in the second quarter of 2023 from 13.4% in the second quarter of 2022. Selling and administrative expenses in the second quarter of 2023 increased $2.9 million, or 4.2%, compared to the second quarter of 2022, due primarily to higher personnel costs as the volume of business increased over the prior year. Adjusted net earnings of $1.26 per share were up approximately 37% or 34 cents in the quarter, noting the adjustments recorded on this chart. At the end of Q2, the TRIF rate was 1.12, an increase of 7% from the second quarter of 2022. The second quarter TRIF was down 4% from the first quarter of 2023. 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 15% in the second quarter resulted from growth in all regions. Western Canada sales of 269 million increased 19% in the quarter, mainly due to strong mining equipment sales, including the delivery of a large mining shovel higher ERS and industrial parts sales, and higher product support revenue in all categories. Central Canada sales of $123 million increased 23% in the quarter 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. Eastern Canada sales of $214 million increased 6% in the quarter due primarily to strength in the industrial parts and ERS categories, offset partially by lower equipment sales in the power systems category. 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 $190 million increased $18 million, or 11% compared to last year, due primarily to strong mining sales in western Canada, including the delivery of a large mining shovel and higher material handling and construction and forestry revenue in central Canada, offset partially by lower power system sales in eastern Canada. Product support sales of $141 million increased $18 million, or 15%, due primarily to higher mining and construction and forestry revenue in western Canada and higher power systems revenue in all regions. 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 $155 million increased $21 million, or 16%, due to higher sales in all regions, particularly in eastern Canada. ERS sales of 89 million increased 16 million, or 22%, due to higher sales in all regions, particularly in western Canada. Turning to slide 9, the slide summarizes sales at a category level for our company's overall groupings of heavy equipment and industrial parts and services. In the second quarter, heavy equipment group increased 38 million, or 13%, driven by higher sales in all categories except power systems. The increase in the mining category included the delivery of a large mining shuttle. Total growth in industrial parts and services categories of approximately 37 million, or 18%, 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 Q2 backlog of 551.2 million increased 20.5 million or 3.9% compared to backlog of 530.8 million at the end of Q1 and increased 16.4 million or 3.1% on a year-over-year basis. Sequential increase was due to higher material handling and ERS orders offset partially by lower construction and forestry orders. The year-over-year increase was due to higher ERS and material handling orders offset partially by lower construction and forestry and power systems orders. Overall, our strong backlog reflects continued momentum in our heavy equipment, industrial parts, and ERS businesses. Inventory increased $40.7 million compared to Q1 2023 due primarily to higher equipment inventory in the construction and forestry and material handling categories and increased overall parts purchasing due to strong sales activities. Inventory increased $211.1 million compared to Q2 2022 due to increases in most categories as a result of strong sales activity. The overall increase in inventory was driven by continued investment in parts and equipment to support customer orders and demand. Inventory returns remain at acceptable levels. Please turn to slide 11 where I'll provide an update on cash flow, leverage, and working capital. Cash used in operating activities in the quarter of $6 million decreased $40 million from cash generated from operating activities and $34 million in Q2 2022, mainly due to the increase in inventory during the quarter mentioned on the previous slide. Our leverage ratio increased slightly to 1.67 times from 1.74 times in Q1 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 1.2 times at the end of Q2. Our available credit capacity at the end of Q2 was $198.6 million, which is sufficient to meet our short-term normal course working capital and maintenance requirements and fund our acquisition program and plan strategic initiatives. We continue to focus on working capital efficiency, which is a key component in managing our overall leverage targets. The Q2 working capital efficiency was 18.9%, an increase of 140 basis points from March 31, 2023, due to the higher trailing four-quarter average working capital. Finally, the board has approved our third quarter 2023 dividend of 33 cents per share, payable on October 3, 2023, to shareholders of record on September 15, 2023. Please turn to slide 12. And at this point, I'll now turn it back to Iggy.