Wajax Corporation

Thank you for attending Wayjack's Corporation 2021 Second Quarter Results Webcast. On today's webcast will be Mark Foote, Wayjack's President and Chief Executive Officer, and Mr. Stuart Old, 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 Mr. Mark Foote. Mr. Foote, please go ahead.

Thanks very much, and good afternoon, everyone. Thanks for joining us in our call today. This afternoon, we'll be following a webcast, which includes a summary presentation of our second quarter 2021 financial results. You can find the presentation on our website under Investor Relations, Events and Presentations. I'll provide you with some general commentary, and then I'll turn the call over to Stu for comments on backlog inventory, cash, and the balance sheet. And to begin with, I'd like to draw your attention to our cautionary statement regarding forward-looking information on slides two and three. And additionally, non-GAAP and additional GAAP measures are summarized in slides 19 through 21 for your reference. If you turn to slide four. Wage access consistently adhered to four objectives in response to the pandemic. First, to protect the health, safety, and well-being of our employees. Second, to continue to provide strong service to our customers. Third, to protect the financial health of our company. And finally, and consistent with our strategy, growing our company as conditions continue to improve. Our decisions in the second quarter and going forward will be made according to these objectives. And a summary of our actions is included in the MD&A and news release that was issued on August the 5th. We turn to slide five. Revenue of $446 million was up $89 million, or approximately 25% in the quarter. The increase in revenue resulted from increases in the sales of equipment, product support, industrial parts, and ERS, including the effect of the addition of Tundra. Excluding Tundra, total sales increased approximately 15%. And also excluding Tundra, total revenue in the second quarter of 2021 was comparable to pre-pandemic levels of the second quarter of 2019. EBIT of $30.1 million was up $10.1 million or approximately 50% in the quarter. EBIT benefited from year-over-year increases in revenue, stronger relative margins, and the effective management of costs. With respect to the 19.9% gross profit margin rate, Margins were clearly stronger than the second quarter of last year and were also improved over the first quarter slightly. Cost control continued to be excellent in the second quarter. Adjusted net earnings of 77 cents was up 29 cents or approximately 60% in the quarter, noting the adjustments that are recorded on the chart. And at the end of the second quarter, the year-to-date TRIF rate of 1.67 declined 33% as business volumes increased. We want to thank everyone on our team for their ongoing dedication to workplace safety. The entire Wajax team is committed to lowering the uncharacteristic increase in injury count we experienced to this point in the year. Our team understands the most important priority in our company is that everyone goes home safe at the end of every shift. Joining slide six, the company qualified for $2.1 million in wage subsidies in the quarter. and allocated the gross amounts of 0.9 million and 1.2 million to cost of sales and SG&A respectively. It is important to note that the net positive effect of the subsidies in the second quarter was not material, approximately two cents a share, due to the allocation of one and a half million of the funds received to future employee compensation programs. Turning to slide seven. The revenue increase of 25% in the second quarter resulted from growth in all regions. Central Canada sales of $80 million increased 8% in the quarter, due primarily to strengthened forestry, industrial parts, and ERS. Eastern Canada sales of $170 million increased 12% in the quarter, due to strengthened construction of forestry, industrial parts, and ERS, that more than offset reductions in mining that was related to a large shovel delivery in the second quarter of last year. In Western Canada, sales of $195 million increased 49% in the quarter due to volume from tundra and organic growth in industrial parts, construction, and mining, which included improved product support in the oil sands. Excluding tundra, growth in Western Canada was approximately 20%. WageX continues to expect oil sands-related activity to strengthen as the year progresses. We turn to slide 8. An update on equipment and product support sales and year-over-year variances is shown on this page. Equipment sales of $141 million increased 5 million, or 3%. Strength in construction, forestry, and engines and transmissions offset lower sales in mining, material handling, and power generation. The effect of supply issues and project timing affected equipment sales in the quarter. Lower mining equipment sales resulted from the large shovel deliveries in the second quarter of last year. Customer activity related to quoting for mining is currently strong. Product support sales of $113 million increased 22 million, or 25%, due to strength in all regions. Eastern Canada increased 29%, Central improved 10%, and Western Canada increased 29%, including stronger oil sands-related volumes. Turn to slide 9. An update on industrial parts and ERS sales and year-over-year variances are shown on this page. Industrial parts sales of approximately 114 million increased 33 million or 40%. Excluding tundra, organic growth in industrial parts was strong at 20% in the quarter. ERS sales of 68 million increased 29 million or 72% due primarily to the inclusion of tundra. Excluding tundra, organic growth in ERS was 19% in the quarter. And turning to slide 10, this slide summarizes sales at a category level for the quarter and year to date for our company's overall groupings of heavy equipment and industrial parts and services. And in the second quarter, total growth in heavy equipment categories of 28 million or 12% was driven primarily by continued strength in construction and forestry. And total growth in industrial parts and services categories of approximately 61 million or 50% was driven by the inclusion of Tundra, and by organic increases in both industrial parts and ERS. Excluding Tundra, total industrial parts and services revenue increased 20%. Let me turn the call over to Stu.

Thanks, Mark. Please turn to slide 11 for my comments on backlog. Our Q2 backlog increased 40.3 million, or 15% sequentially from the previous quarter, and increased 91.6% 91.6 million or 41% on a year-over-year basis. The sequential increase was driven primarily by higher orders in most categories, partially offset by lower mining orders. The year-over-year increase relates to higher orders in construction and forestry, material handling and power system categories, and higher orders in the industrial parts and ERS categories, with the addition of tundra's backlog. These increases were partially offset by lower mining orders. Overall backlog reflects improved momentum and increasing mix to higher relative margins in backlog due to increasing mix of industrial parts and services backlog, including Tundra. Please turn to slide 12 for an update on our current inventory levels. Inventory, including net consignment, decreased $13.3 million compared to Q1 2020, 2021 due primarily to a decrease in net consignment inventory of $11.1 million. Inventory including net consignment decreased $106.6 million compared to Q2 2020 as a result of lower equipment inventory in most categories, partially offset by higher parts inventory due primarily to the acquisition of Tundra. Net consignment inventory decreased $69.3 million compared to Q2 2020. We continue to work with major suppliers with a focus on construction, forestry and material handling equipment to attempt to secure additional inventory to meet customer demand in the second half of 2021. Please turn to slide 13 where I'll provide an update on cash flow and leverage. Cash flow from operating activities in the current quarter have decreased 40.6 million from Q1 2021 due primarily to a decrease in cash generated from changes in non-cash operating working capital offset, partially by higher net earnings. Our Q2 leverage ratio decreased compared to Q1 from 2.04 times to 1.73 times, due primarily to the lower debt level in the current period. Cash flow results in the current quarter were positive, which contributed to a material reduction in debt and has allowed total leverage to be within the target range of one point five to two times at the end of Q2. Our available credit capacity at the end of Q2 was $286 million, which is sufficient to meet the short-term normal course working capital and maintenance capital requirements and certain strategic investments. Please turn to slide 14, where I'll provide an update on financial position. We continue to focus on working capital efficiency, which is a key component in managing our overall leverage targets. The improvement in inventory returns from Q1 2020 is due to high trailing 12-month average sales and lower average inventory levels. As previously disclosed, we continue to evaluate ways to unlock cash from the business and as such have completed a market value assessment of our real estate. In the second quarter, we entered into a sale and leaseback transaction for one of our own properties for proceeds net of transaction costs of $8.5 million. Further opportunities to sell redundant real estate as well as sale and lease back opportunities have been identified and are being pursued in 2021. Proceeds from any real estate sales will be used primarily to repay debt. The earnings impact from any sale and lease back transaction is not expected to be material as any gains are expected to be approximately offset by the incremental lease costs over the term of the lease. Finally, The board has approved our third quarter dividend of 25 cents per share payable on October 5th, 2021 to shareholders of record on September 15th, 2021. Please turn to slide 15 at this point. I'll hand the call back to Mark to provide a brief update on our 2021 financial outlook and concluding remarks.