Wajax Corporation

Thank you for attending Wajax Corporation's 2025 First Quarter Financial Results webcast. On today's webcast will be Mr. Iggy Domogalski, President and Chief Executive Officer. Ms. Tanya Casadino, 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 Tanya Casadino.

Thank you, operator. Good afternoon, and thank you for participating in our first quarter results call. This afternoon, we will be following a webcast, which includes a summary presentation of Wage Access Q1 2025 financial results. The presentation can be found on our website under Investor Relations, Events, and Presentations. To begin, I would like to draw your attention to our cautionary statement regarding forward-looking information on slide two, and non-GAAP and other financial measures on slide three. Please turn to slide four, and at this point, I'll turn the call over to Iggy.

Thank you, Tonya. To start, I will provide highlights of our first quarter before turning it back to Tonya for commentary on backlog, inventory, and the balance sheet. This slide provides an overview of wage acts. The corporation has 167 years of Canadian operating history and operates across 111 branches with a team of approximately 3,000 employees. During the quarter, our heavy equipment categories and revenue sources made up approximately 59% of our total revenue, while industrial parts and ERS generated approximately 41%. Turning to slide five. This slide provides an overview of our purpose and values. Wayjax's purpose statement is empowering people to build a better tomorrow. which we strive to achieve by living our values and delivering an exceptional experience for our people, customers, suppliers, and communities we serve. By living our purpose and values, we will continue to build a people-first company that is strong, resilient, and profitable. Our purpose and values guide our decision-making and allow us to execute on our strategic priorities. Turning to slide six, the slide provides an overview of our strategic priorities, which have been refined for 2025. Management is completely focused on executing against these priorities. Between our purpose and values and these six priorities, we have the foundation to continue growing our company for many years to come. Turning to slide seven. In the first quarter, WCAG saw higher revenues and improved cost efficiency, which were offset partially by lower gross profit margins. Revenue of $555 million increased 72.6 million, or 15.1% in the quarter. The increase resulted primarily from higher equipment sales in the construction and forestry category in all regions, driven largely by the competitive financing program introduced through Hitachi Construction Machinery America, which was effective March 1, 2024. And higher mining equipment sales in Western Canada, including the delivery of two large mining shovels in the first quarter of 2025, with no such deliveries in the first quarter of the prior year. Gross profit margin of 19.1% decreased 290 basis points compared to the same period of 2024, and increased 200 basis points sequentially from the fourth quarter of 2024. The year-over-year decrease was driven primarily by lower margins realized on equipment, industrial parts, and ERS revenue, as well as a higher proportion of equipment sales relative to industrial parts, ERS, and product support. The decreases were offset partially by higher product support margins. Selling and administrative expenses as a percentage of revenue decreased to 14.1% in the first quarter of 2025 from 16.7% in the first quarter of 2024 excluding the unrealized loss or gain on total return swaps in both periods. Excluding the $1.4 million unrealized loss on total return swaps, selling and administrative expenses in the first quarter of 2025 decreased $2.3 million compared to the first quarter of 2024, due primarily to lower spending on personnel, travel and entertainment, and supplies and marketing, driven largely by cost savings initiatives. Adjusted EBITDA of $43.2 million increased $2.5 million or 6.2% from the first quarter in 2024, noting the adjustments recorded on this chart. The increase resulted primarily from higher sales volumes and cost savings initiatives, offset partially by lower gross profit margins. Adjusted net earnings of $0.69 per share increased 15.7% or $0.10 per share from the first quarter of 2024, noting the adjustments recorded on this slide. At the end of Q1, the TRIF rate was 1.30%, an increase of 141% from the first quarter of 2024. The first quarter TRIF rate was up 38% from the fourth quarter of 2024. Safety continues to be Wajax's number one priority, and management is committed to continuously improving our safety programs to improve on the results. We thank everyone on our team for their ongoing dedication to workplace safety. Turning to slide eight. Revenue increase of 15.1% in the first quarter resulted from higher revenue in all regions. Western Canada sales of $264 million increased 20.4% in the quarter, due primarily to higher equipment sales in the construction and forestry category, driven largely by the competitive financing program introduced by HCMA, effective March 1, 2024, and higher mining equipment sales, including the delivery of two large mining shovels in the first quarter of 2025, with no such deliveries in the first quarter of the prior year. Central Canada sales of $100 million increased increased 10.3% in the quarter due primarily to higher equipment sales in the construction and forestry category, driven largely by the competitive financing program introduced by HCMA effective March 1, 2024. And Eastern Canada sales of $191 million increased 10.8% in the quarter due primarily to higher equipment sales in the construction and forestry category, driven largely by the competitive financing program introduced by HCMA effective March 1, 2024, and higher material handling equipment sales. These increases were partially offset by reduced industrial parts sales. Please turn to slide 9. An update on equipment and product support sales and year-over-year variances are shown on this page. Equipment sales of 171 million increased 73 million, or 74%, compared to last year, due primarily to higher construction and forestry sales in all regions, due largely to the competitive terms available under the Hitachi financing program, as well as higher mining sales in Western Canada, including the delivery of two large mining shovels in the first quarter of 2025, with no such deliveries in the first quarter of the prior year. Product support sales of $146 million increased 12 million, or 9% compared to last year, due primarily to higher construction and forestry and mining sales in Western Canada, higher power system sales in Eastern Canada, and higher material handling revenue in all regions. Please turn to slide 10. An update on industrial parts and ERS sales and year-over-year variances are shown on this page. Industrial parts sales of approximately $145 million decreased 10 million, or 7%, due primarily to lower sales in Western and Eastern Canada. ERS sales of approximately 82 million decreased 3 million, or 3%. Turning to slide 11. This 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 categories increased 86 million, or 35%, driven primarily by higher construction and forestry sales in all regions, due largely to the competitive financing program introduced by HCMA, effective March 1, 2024, and due to higher mining sales in Western Canada, including the delivery of two large mining shovels in the first quarter of 2025, with no such deliveries in the first quarter of the prior year. The industrial parts and services categories decreased 13 million, or 5%, driven by lower industrial parts sales in Western and Eastern Canada. I'll now turn the call over to Tanya for commentary on backlog, inventory, and the balance sheet.

Thanks, Ziggy. Please turn to slide 12 for my comments on backlog and inventory. Our Q1 backlog of 561.3 million decreased 3.2 million, compared to backlog of 564.4 million at Q4, and decreased 25.8 million on a year-over-year basis. The sequential decrease was due primarily to a lower number of mining units in backlog, driven by the sale of two large mining shovels in the quarter, one of which was in backlog at December 31, 2024, offset partially by higher construction and forestry orders. The year-over-year decrease was due primarily to lower material handling, ERS and industrial parts orders, offset partially by higher construction and forestry and mining orders. Backlog at March 31, 2025 includes six large mining shovels. Inventory decreased $15.2 million compared to Q4 of 2024, due primarily to lower inventory in most categories, driven largely by the corporation's focus on managing inventory levels. Inventory at March 31st, 2025 included one additional large mining shovel compared to December 31st, 2024. Management continues to focus on reducing and managing the corporation's inventory levels with the focus on optimizing inventory levels and mix while matching them with business volumes and maintaining fill rates at appropriate levels. Ongoing inventory reduction initiatives have decreased inventory by 91.5 million from peak levels at March 31st, 2024. Inventory decreased 91.5 million compared to Q1 of 2024 due primarily from lower equipment inventory in the construction and forestry and material handling categories, lower rental option equipment, and lower industrial parts in ERS inventory. Please turn to slide 13 where I'll provide an update on cash flow, leverage, and working capital. Cash flows generated from operating activities in the current quarter of 31.4 million compared with cash flows used in operating activities of $7.3 million in the same quarter of the prior year. The increase in cash generated of $38.7 million was mainly attributable to a decrease in inventory and income taxes received in the current quarter compared to income taxes paid in the same quarter of the prior year. This increase was offset partially by an increase in accounts payable and accrued liabilities and an increase in accounts receivable. Our Q1 leverage ratio decreased to 2.53 times from 2.61 times in Q4 due to lower debt levels driven largely by cash generated from operating activities during the quarter and higher trailing 12-month pro forma adjusted EBITDA. The corporation's leverage ratio is currently outside our target range of 1.5 to 2 times at the end of Q1, primarily due to debt accumulated from investments in working capital and acquisitions over recent years. management is working towards getting leverage back within its target range. Our available credit capacity at the end of Q1 was $171.1 million, which is sufficient to meet short-term normal course working capital and maintenance capital requirements and fund our planned 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 25.5%, an improvement of 50 basis points from December 31, 2024, due to higher trailing 12-month revenue. On January 15, 2025, Wajax announced the repayment in full of the $57 million in principal amount owed under its 6% senior unsecured debentures due January 15, 2025, along with accrued interest up to but excluding the maturity date. The corporation's existing bank credit facility was used to complete the repayment. Finally, the Board has approved a second quarter 2025 dividend of $0.35 per share payable on July 3rd, 2025, to shareholders of record on June 16th, 2025. Please turn to slide 14, and at this point, I will turn the call back to Iggy.

Thank you, Tonya. Our outlook is summarized on slide number 14. In the first quarter of 2025, Wajax delivered revenue of $555 million, up $72.6 million, or 15.1% from the first quarter of 2024. The year-over-year increase in revenue is primarily due to higher equipment sales in the construction and forestry category across all regions and higher mining equipment sales, including the delivery of two large mining shovels in the quarter. Gross profit margin decreased to 19.1% in the first quarter of 2025 versus 22% in the first quarter of 2024 and increased sequentially from 17.1% in the fourth quarter of 2024. The decrease in margin was driven primarily by lower margins realized on equipment, industrial parts, and ERS revenues. Excluding the unrealized losses and gains on total return swaps in both periods, selling and administrative expenses as a percentage of revenue decreased to 14.1% in the quarter from 16.7% in the same period of 2024. In response to increased competitive and market pressures, management continues to be focused on several cost-saving and margin improvement initiatives. Looking ahead to the balance of 2025, we continue to see strong customer demand in the mining and energy sectors, with the former supported by robust backlogging. Headwinds are expected to persist, with broader market conditions remaining soft and continued uncertainty surrounding tariffs and counter-tariffs on Canada-U.S. trade, and management is closely monitoring changes to tariff policies. Amid this backdrop, management remains focused on advancing the corporation's six strategic priorities, which will continue to position the business for future success, and as additional focus areas, management is continuing to execute initiatives to reduce inventory, lower costs, and improve margins. I will now turn it back to the operator and open the line for questions.

Thank you, ladies and gentlemen.

We'll now begin the question and answer session. Should you have a question, please press star followed by one in your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you're a speakerphone, please lift the handset before pressing any keys. First question comes from the line of Devin Dodge with BMO Capital Markets. Please go ahead.

Thanks. Good afternoon.

Hey, Devin. Hey. On gross margins, they improved pretty meaningfully in Q1 on a sequential basis, despite both quarters having some large mining shovels flowing through the P&L. Just wondering if you could speak to the puts and takes that impacted gross margins relative to Q4, and if you think You know, the gross margin performance in Q1 was more reflective of what we should see for the rest of the year.

Thanks, Devin. Good question. You know, we saw some good improvements in product support margins, largely driven by internal margin initiatives. And we have been working pretty hard inside the company on a number of margin and pricing improvements. So I think we're just starting to see some of those coming to fruition, which is great to see.

Okay, good to hear.

Okay, so inventories, good to see continued progress in bringing them lower in what is typically a seasonal build-up period. I also believe you mentioned there was an additional mining shovel sitting in inventory, so it seemed like the drawdown was actually even a little bit better. But just based on your outlook, do you expect to continue on that pace of inventory reduction of around $25 million a quarter? And is this primarily about drawing down inventories to realign with expected demand, or are there more structural improvements being made to improve efficiency and inventory velocity?

Yeah, I would say the answer is both. So over the last year, we brought inventory down $91 million, and as you mentioned in the last quarter, it was a little bit more just because of the change in mining shovels. So it has been coming down about $25 million a quarter, not exactly $25 million a quarter, but that's a reasonable run rate, and we still plan to continue Moving ahead, we think that's a good pace. It's never exactly that number, but we think that's a good pace for a little while to continue to bring back our inventory into line with our current business volumes. We also are working hard behind the scenes on a number of inventory improvements from ordering better, managing our turns better, and now that we have our ERP rolled out to 90% of our company, we're trying to use that a little bit better to manage inventory. Yeah, I think it's really both. We're still bringing it down, and we are making improvements in how we manage things. And keep in mind, our largest piece of inventory is Hitachi. And it's been three years since we've been dealing with Hitachi Direct, and so we're just figuring out how to do that better.

Okay, got it. Okay. And then just one last one, sticking with the Hitachi product. Just any update on the evaluation of expanding into ultra-class mining trucks with Hitachi?

No meaningful update at this time, Devin. Okay. Got it. Thank you. I'll turn it over.

Your next question comes from Patrick Sullivan with TD Cohen. Please go ahead.

Good afternoon. Thank you for taking my questions. Hi, Patrick. The IPERF, we're both down slightly. I know we've had a few abnormal years here in terms of supply chain and demand and things like that. But I guess, are we getting back to a point where you would start to see more typical seasonality in businesses like this? And I'm kind of thinking that maybe you see a bit of an uptick in the spring and the fall around turnaround activity. Is that something that could take shape?

Yeah, Patrick, I think that's a good way to think about it. You know, we've had some scaling back in that business. It's just the market outlook is still generally soft in industrials. A lot of customers who are exposed to tariffs in any way are, you know, they've hit the pause button on the capital portion of our IP and ERS spend. The maintenance spend is still continuing on, but in light of, you know, impact to their business and to their revenues, they're pausing. And some of the costs have been going up too. And so our customers, they're price sensitive. They're always price sensitive. So they're shopping it around a little bit more, and then that's adding time to the buying process as well. So it feels like we're getting back a little bit to normal in terms of seasonality, but the market is still a bit soft.

OK, got it great. Thank you for the Hitachi financing program was was highlighted as a big driver of new equipment sales that would have been in place for the prior three full quarters. So I guess was was there a bit of an onboarding or like ramp up period where you you kind of really got it clicking right now?

I wouldn't say so. I mean, I mean there was an onboarding and ramp up period, but it happened pretty quick. So if you recall. We were a little bit late to the game on the 0% financing programs, and then it was put into place March 1, and so I want to say the ramp-up was a month or two. But beyond that, there hasn't been any really meaningful change in the programs. I think our teams just did a great job this quarter.

Okay, great. If I could do one more. So I guess two shovels were delivered this quarter. I think typically you kind of gave the cadence of about one per quarter. for the year, does that change your views on deliveries for the rest of the year?

Hi, Patrick. No, it doesn't change our view.

We still expect three to be delivered for the balance of the year, one per quarter, and then we do have two in 2026 and one in 2027, as previously stated. The second one that we called out this quarter was actually on RPO, so just a conversion.

Great. Thank you. That's all. Again, if you have any questions, please press star 1 on your touch-tone phone.

Next question comes from Jonathan Goldman with Scotiabank. Please go ahead.

Hi, team. Thanks for taking my questions. Really nice results on the top line. Good afternoon, guys. So really nice results on the top line, but it does seem to contrast with some of the peer results and commentary from OEMs about uncertainty and customers pulling back on spending. I mean, your own outlook seems largely unchanged, and I note that headwinds are expected to persist with broader market conditions remaining soft and continued uncertainty. It doesn't seem like that was the case in the quarter, so I'm just trying to parse out the puts and takes there.

Yeah, so I guess maybe just going through, maybe I'll talk about it in terms of market segments and then our business segments. So in terms of market segments, we're still seeing things pretty strong in mining, pretty strong in energy. I think there's a few question marks around energy. OPEC's ramping up production. There's continued threats and challenges with the U.S., so I think that's a negative thing. But we've got a new government elected, so there's a little bit less uncertainty there now. Our prime minister is meeting with the U.S. president today, and energy is, I think, certainly on the agenda. And there is talk of energy corridors and some positivity around energy in Canada. So I think our oil and gas customers are uncertain, but we haven't seen any real pauses there. So that's still a business segment that's doing pretty well for us. Forestry is doing okay, but industrials are down a bit, and construction had a reasonable quarter for us. I think a couple things that happened this quarter that were quite good for us is we just had a strong quarter for construction. Hitachi remains aggressive in going after customers with us and their financing programs, so that was good, and I think our teams did a great job there. And we had two mining shovels ship in the quarter, which that's always a nice bonus. IP and ERS, while they're down year over year, quarter over quarter, they're up a little bit, which was also good to see. And then product support, we were pretty happy with that one. We're up 9% year over year. We're up quarter over quarter the last two quarters. So we're starting to see some some positive momentum there. So we're, we're, we're happy with where product support is going.

That's good color. Maybe if I can just maybe put a finer point on it. I mean, typically Q1 is a seasonally weaker quarter. I'm just wondering if there's any unique dynamics in Q1, any pull forward, you know, typically Q1 is less than 25% of sales and even less of EBITDA. Are you expecting this year to follow typical seasonal patterns or how should we think about the cadence of earnings growth for the balance of the year?

Yeah, we thought Q1 was pretty good in terms of top line. We do expect... Maybe I'll say that we don't see anything that would disrupt the typical seasonality that we would see in a year. So Q2 for us is typically a good quarter for construction just because it's spring and people are getting all their gear ready and there's turnaround. So... We would expect that revenue would be reasonable in Q2, but we're not expecting an exceptionally great quarter or great year based on anything that's going on in the economy. There's nothing to point to that.

That's understandable. And if I could squeeze one more in, do you have a timeline to be leveraging within the target range?

Not one that we have disclosed, no.

Okay, fair enough. Thanks for taking my question. Thanks, Jonathan. Again, if you have any question, please press star 1 on your touchtone phone. There are no further questions. Please continue.

Thank you, operator. Thank you, everyone, for joining today, and thank you for your continued interest in Wajax. Have a wonderful afternoon.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.