Wajax Corporation

Thank you for attending Lajax Corporation's 2023 Third Quarter Financial Results Webcast. On today's webcast will be Mr. Iggy Domogalski, President and Chief Executive Officer, and Mr. Stuart Ault, 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 very much, Jennifer. Good afternoon, and thank you for participating in our third quarter call. This afternoon, we will be following a webcast, which includes a summary presentation of Wajax's Q3 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 2 and the non-GAAP and other financial measures on slide 3. Turning to slide 4, this slide provides an overview of WAJAX. The corporation has 165 years of Canadian operating history, operates across 124 branches with a team of over 3,100 employees, including more than 1,100 skilled technicians. During the quarter, our heavy equipment categories and revenue sources made up approximately 53% of our total revenue, while industrial products and ERS generated approximately 47%. Moving to slide five. In the third quarter, Wajak saw strong performance across key financial metrics, Revenue of $509.7 million was up $39 million or approximately 8% in the quarter. The increase in revenue resulted from increased industrial parts sales in all regions, higher product support sales in Western and Central Canada, and higher ERS sales in Eastern Canada. EBIT of $39 million was up $12.3 million or approximately 46% in the quarter. The improved EBIT resulted primarily from higher sales volumes and higher product support margins, offset partially by higher selling and administrative expenses. Gross profit margin of 22.2% increased 180 basis points compared to the same period of 2022 due to higher product support, equipment, and ERS margins, as well as a higher proportion of industrial parts sales. These increases were offset partially by lower industrial parts margins. Selling and administrative expenses as a percentage of revenue decreased to 14.5% in the third quarter of 2023 from 14.7% in the third quarter of 2022. Selling and administrative expenses in the third quarter of 2023 increased $5 million or 7.2% compared to the third quarter of 2022 due primarily to higher personnel costs as the volume of business increased over the period. Adjusted net earnings of 96 cents per share were up approximately 24% or 18 cents in the quarter, noting the adjustments recorded on this chart. End of Q3, the TRIF rate was 1.04, an increase of 11% from the third quarter of 2022. Third quarter TRIF was down 7% from the second quarter of 2023. Safety continues to be Wajax's number one priority, and management is committed to continuously improving our safety programs to improve this result. Thank everyone on our team for their ongoing dedication to workplace safety. Turning to slide six, revenue increase of 8% in the third quarter resulted from growth in all regions. Western Canada sales of $233 million increased 4% in the quarter, mainly due to strong industrial parts sales, material handling sales, and product support revenue in the mining category. These increases were offset partially by lower equipment sales in the construction and forestry and mining categories. Central Canada sales of $92 million increased 30% in the quarter, due primarily to higher equipment sales in the material handling and construction and forestry categories, as well as higher product support revenue in all categories and strong industrial parts and ERS sales. Eastern Canada sales of 185 million increased 5% in the quarter, primarily to higher industrial parts and ERS sales, 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 126 million decreased 11 million, or 8%, last year, due primarily to lower construction and forestry sales and mining sales in Western Canada, offset partially by higher material handling sales in all regions. Product support sales of 135 million increased to 16 million, or 14%, due primarily to higher mining sales in Western Canada and higher power systems revenue in all regions. Please turn to slide eight. An update on industrial parts and ERS sales and year-over-year variances are shown on this page. Industrial parts sales of approximately 161 million increased 26 million, or 19%, due to higher sales in all regions, particularly in western and eastern Canada. CRS sales of 77 million increased 7 million, or 9%, due to higher sales in eastern Canada. Moving to slide nine. This slide summarizes sales at a category level for our company's overall groupings of heavy equipment and industrial parts and services. In the third quarter, heavy equipment categories increased 6 million, or 2%, driven by higher sales in all categories except construction and forestry. And total growth in industrial parts and services categories of approximately 33 million, or 16%, 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. A backlog of 599.2 million increased 48 million, or 8.7%, compared to the backlog of 551.2 million at the end of Q2, and increased 40.5 million, or 7.2%, on a year-over-year basis. The sequential increase was due to higher mining orders, offset partially by lower ERS and industrial parts orders. Year-over-year increase was due to higher mining, ERS, and material handling orders offset partially by lower construction and forestry, industrial parts, and power systems orders. Overall, our strong backlog reflects continued momentum in our heavy equipment, industrial parts, and ERS businesses. Inventory increased 33.9 million compared to Q2 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 activity. Inventory increased 212.3 million compared to Q3 2022 due to increase in most categories as a result of strong sales activity. The overall increase in inventory is driven by continued investment in parts and equipment to support customer orders and demand. 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 62 million increased 58.6 million from cash used in operating activities of 3.4 million in Q3 2022, mainly due to a decrease in accounts payable and accrued liabilities during the quarter, driven largely by timing and inventory payments. Our leverage ratio increased to 2.16 times from 1.76 times in Q2 due to the higher debt level in the current period, driven largely by the corporation's investment in inventory, timing on repayment of accounts payable and accrued liabilities, and cash paid for business acquisitions in the quarter. The corporation's leverage ratio is currently above our target range of 1.2 to 2 times at the end of Q3, primarily due to sizable investment in inventory during the year and the acquisitions of Polyphase and Beta in the third quarter of 2023. Our available credit capacity at the end of Q3 was 90 million, which is sufficient to meet short-term normal course working capital and maintenance capital 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 Q3 working capital efficiency was 21.4%, an increase of 250 basis points from June 2023, due to the higher trailing four quarter average working capital. Finally, the board has approved our fourth quarter 2023 dividend of 33 cents per share payable on January 3rd, 2024 to shareholders of record on December 15th, 2023. Please turn to slide 12. And at this point, I'll turn it back to you.