Wajax Corporation

Thank you for attending Wajax Corporation's 2025 Second Quarter Financial Result Webcast. On today's webcast will be Mr. Iggy Domodowsky, President and Chief Executive Officer, Ms. Tanya Cassadino, 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 conference over to Tanya Cassadino. Please go ahead.

Thank you, Operator. Good afternoon, and thank you for participating in our second quarter results call. This afternoon, we will be following a webcast, which includes a summary presentation of Wage Access Q2 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 2, 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, Tanya. To start, I will provide highlights on our second quarter before turning it back to Tanya for commentary on backlog, inventory, and the balance sheet.

And this slide provides an overview of WAJAX.

The corporation has 167 years of Canadian operating history and operates across 110 branches with a team of approximately 2,900 employees. During the quarter, our head of equipment categories and revenue sources made up approximately 59% of our total revenue on industrial products, and ERS generated approximately 41%. Turning to slide five, this slide provides an overview of our purpose and values. Wade Jackson's purpose statement is empowering people, build a better tomorrow, which we strive to achieve by living our values and delivering an exceptional experience for our shareholders, customers, suppliers, our people, communities we serve. Our purpose and values guide our decision making and allow us to execute on our strategic priorities. Please turn to slide six. This slide provides an overview of our strategic priorities, which have been refined for 2025. Management is focused on executing against these priorities, as well as optimizing inventory, managing costs, and improving margins. To enter purpose and value in these priorities, management believes that this will enable wage acts to generate sustainable long-term value and capitalize on future opportunities. Turning to slide seven. In the second quarter, management focus on key strategic priorities resulted in strong cash flow and improved leverage due to inventory optimization and cost discipline, despite lower revenues and year-over-year margin compression. Revenue of $547.1 million decreased $21.2 million, or 3.7% in the quarter. The decrease resulted primarily from increased market pressures attributing to lower product support sales in all regions, lower industrial parts sales in western and eastern Canada, and lower equipment sales in eastern Canada, offset partially by higher mining sales in western Canada, including the delivery of a large mining shovel in the second quarter of 2025, with no such delivery in the second quarter of the prior year. Gross profit margin of 19.1% decreased 180 basis points compared to the same period of 2024. It remained flat sequentially versus the first quarter of 2025 and increased over 200 basis points from 17.1% in the fourth quarter of 2024. The year-over-year decrease was driven primarily by reduced margins realized on equipment, industrial parts, and ERS revenues, due to increased market pressures offset partially by higher product support margins given management's focus on margin improvement initiatives in this area of the business. Excluding the unrealized gains and losses on total return swaps in both periods, selling and administrative expenses as a percentage of revenue decreased to 13.8% in the second quarter of 2025 from 13.9% in the second quarter of 2024, primarily due to lower spending on personnel, travel and entertainment, and supplies and marketing, driven by ongoing cost savings initiatives. Adjusted EBITDA of $44.7 million decreased $10 million, or 18.3%, from the second quarter of 2024, noting the adjustments recorded on this chart. The decrease resulted primarily from lower gross profit margin and lower sales volume, offset primarily by cost savings initiatives. Adjusted EBITDA margin of 8.2% in the second quarter of 2025 improved from 7.8% in the first quarter of 2025 and 6.2% in the fourth quarter of 2024. Adjusted net earnings of $0.77 per share decreased 27.4% or $0.29 per share from the second quarter of 2024, noting the adjustments recorded on this chart. At the end of Q2, the TRIF rate was 1.02, an increase of 26% from the second quarter of 2024. The second quarter TRIF was down 22% from the first quarter of 2025. Safety continues to be Wayjax'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 eight. Revenue decrease of 3.7% in the second quarter resulted from lower revenue in central and eastern regions due to market conditions, offset partially by growth in Western Canada. Western Canada sales of $249 million increased 3.7% in the quarter due primarily to higher mining equipment sales, including the delivery of a large mining shovel in the second quarter of 2025, with no such delivery in the second quarter of the prior year. This increase was partially offset by reduced equipment and product support sales in the construction and forestry category. Central Canada sales of $95 million decreased 1.3% in the quarter due primarily to lower equipment and product support revenue in the material handling category. And Eastern Canada sales of $202 million decreased 12.5% in the quarter due primarily to lower equipment sales in the construction and forestry and power systems categories and reduced industrial parts and ERS sales.

Please turn to slide nine.

An update on equipment and product support sales and year-over-year variances are shown on this page. Equipment sales of $177 million decreased $4 million, or 2%, compared to last year due to lower sales in most categories, but most notably in construction and forestry, offset partially by higher mining sales in western Canada driven by the delivery of a large mining shovel in the second quarter with no such delivery in the second quarter of the prior year. Product support sales of $133 million decreased $11 million, or 8% compared to last year, due primarily to lower construction and forestry and power system sales in western Canada, lower mining sales in eastern Canada, and lower material handling revenue in central Canada. 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 141 million decreased 6 million or 4% due primarily to lower sales in Western and Eastern Canada driven by softer market conditions. ERS sales of approximately 84 million decreased 1 million or 1%. Turning to slide 11. 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, The heavy equipment categories decreased 14 million, or 4%, due to lower sales in most categories, but most notably in construction and forestry, offset partially by higher mining sales in western Canada, including the delivery of a large mining shovel in the second quarter of 2025, with no such delivery in the second quarter of the prior year. The industrial parts and services categories decreased 7 million, or 3%, driven by lower industrial parts sales and ERS sales in western Canada and eastern Canada.

I'll now turn it over to Tanya for commentary on backlog, inventory, and the balance sheet. Thank you, Iggy.

Please turn to slide 12 for my comments on backlog and inventory. Our Q2 backlog of 524.3 million decreased 37 million compared to backlog of 561.3 million at Q1 and decreased 20.6 million on a year-over-year basis. A sequential decrease was due primarily to lower construction and forestry orders and lower mining backlogs, driven largely by the sale of a large mining shovel in the quarter, which was in backlog as of March 31, 2025. These decreases were partially offset by higher ERS orders. The year-over-year decrease was due primarily to lower material handling and industrial parts orders. This was partially offset by higher construction and forestry and mining orders. Backlog at June 30, 2025 includes five large mining shovels. Inventory decreased, 56 million compared to Q1 of 2025, due primarily to lower inventory in most categories, driven largely by the corporation's continued focus on optimizing inventory levels. Ongoing inventory reduction initiatives have decreased inventory by 147.5 million from peak levels at March 31, 2024. Inventory decreased $122.3 million compared to Q2 2024. The year-over-year decline is mainly attributed to lower equipment inventory in construction and forestry and material handling categories, lower rental option equipment, industrial parts, and ERS inventory. Management continues to focus on reducing and managing the corporation's inventory levels and mix while matching them to business volumes and maintaining fill rates at appropriate levels. 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 $67.4 million compared with cash flows generated from operating activities of $35.8 million in the same quarter of the prior year. The increase in cash generated of $31.5 million was mainly attributable to a decrease in inventory as the corporation continues to optimize inventory levels during the quarter and a decrease in trade and other receivables. Our Q2 leverage ratio improved to 2.35 times from 2.53 times in Q1 due to lower debt levels driven largely by cash generated from operating activities during the quarter. The corporation's leverage ratio is currently outside our target range of 1.5 to 2 times at the end of Q2, primarily due to debt accumulated from investments in working capital and acquisitions over recent years, management remains committed to getting leverage back within its target range. Our available credit capacity at the end of Q2 of $220.2 million, which is sufficient to meet short-term normal course working capital and maintenance capital requirements and fund our planned strategic initiatives. We continue focused on working capital efficiencies, which is a key component of managing our overall leverage targets. The Q2 working capital efficiency was 25.7, a slight decline in efficiency of 20 basis points from 25.5 at March 31, 2025, due to lower 12-month trailing revenue. Inventory turns of 2.2 times are flat to Q1 2025, but have improved from 2.2 times or two turns since Q4 of 2024. Finally, the Board has approved our third quarter 2025 dividend of $0.35 per share, payable on October 2, 2025, to shareholders of record on September 15, 2025. Please turn to slide 14, and at this point, I'll turn the call back to Iggy.

Thanks, Tonya. Our outlook is summarized here on slide 14. During the second quarter of 2025, Wajax delivered revenue of $547.1 million, down $21.2 million, or 3.7% from the second quarter of 2024. The year-over-year decrease in revenue was due primarily to lower equipment sales in the construction and forestry categories across all regions, too largely to increase market pressures. This was partially offset by higher mining equipment sales, including the delivery of one large mining shovel with no such delivery in the second quarter of 2024. Gross profit margin of 19.1% decreased from 20.9% in the same period of 2024, remained flat versus the first quarter of 2025, and increased by 200 basis points from 17.1% in the fourth quarter of 2024. The year-over-year margin compression was primarily driven by lower realized margins across equipment, industrial parts, and ERS revenue. This was partially offset by stronger product support performance, given management's focus on margin improvement initiatives in this area of the business. Selling and administrative expenses, excluding unrealized gains and losses on total return swaps, decreased to 13.8% of revenue in the second quarter of 2025 from 13.9% in the same period of 2024. This improvement reflects ongoing discipline in cost control and operational efficiency. As of June 30, 2025, corporations backlog stood at $524.3 million, a decline of $37 million, or 6.6%, compared to March 31, 2025. This reduction was driven by lower construction and forestry orders and a decrease in mining backlog following the sale of a large mining shovel during the quarter. Despite the decline, backlog remains robust and includes five large mining shovels scheduled for delivery over the next seven quarters. Inventory optimization continued throughout the quarter, resulting in total inventory of 602.5 million as of June 30, 2025, a reduction of 56 million from the first quarter of 2025, and a reduction of $147.5 million from the peak in March 2024. This ongoing discipline in inventory management drove a significant improvement in cash flow from operations, which increased to $67.4 million in the second quarter, compared with $35.8 million in the same period last year. Corporations' leverage ratio improved to 2.35 times at June 30, 2025, from 2.53 times at March 31, 2025, This progress reflects the corporation's ongoing focus on reducing debt and optimizing working capital. Looking ahead to the second half of 2025, GreenJax continues to see strong customer demand in the mining and energy sectors, with the former supported by robust equipment backlog. The broader end-market environment remains challenging, with macroeconomic softness and ongoing uncertainty related to Canada-U.S. tariff dynamics. In this environment, management remains sharply focused on optimizing inventory, managing costs, and improving margins. Management believes that strong performance in these areas of focus, supported by prudent capital allocation and a solid balance sheet, will enable wage acts to generate sustainable long-term value and capitalize on future opportunities. I'll now turn it back to the operator and open the line for questions.

Thank you, sir. Ladies and gentlemen, if you do have any questions at this time, please press star followed by 1 on your touch-tone phone. You will then hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press star followed by two. And if you're using your speakerphone, please lift the hands up first before pressing any keys. Please go ahead and press star one now if you do have any questions. And your first question will be from Devin Dodge at BMO Capital Markets. Please go ahead, Devin.

Yes, thank you. Good afternoon, guys. Hey, Devin.

We saw that ERS revenues improved sequentially. It was mentioned that order intake was higher in Q2. Do you get a sense that customers are, at least on the margin, more willing to invest in some discretionary projects, or does the pickup in orders more reflect just the timing of maintenance-type activities?

I would say generally it's maintenance-type activities. Most of our industrial products and ERS customers are – still have a pretty big pause on any capital projects. And we're hopeful that some clarity around tariffs will allow them to release those purse strings. But at the moment, most of the spend is MRO related.

Okay. Okay. And how's that quarter intake momentum in ERS? Is that carried over into early Q3? You know, I think when we look at ERS,

You know, year over year for the quarter, it was down 1%. If you look at the first six months versus the same six-month period the last year, it's down 2%. So it's pretty flat. We haven't seen, and kind of going past Q2, we haven't seen any really material changes in customer activity this summer really in any of our categories.

Okay. Okay. Fair enough. Okay.

I believe cash flows this quarter, I think it actually was a record Q2 performance for the business. So congrats for that. Just wondering if we should be expecting working capital to continue to be a source of funds in the second half of the year, or should it be more, let's say, neutral?

I think for AR and AP, that's always moving around. And, you know, inventory has been a pretty large driver of our improved cash flow, along with decent earnings. And I would say that we're quite pleased with our progress on inventory. In the last five quarters, we've brought inventory down $147 million, which is something that I think our team is proud of. We still think there's some opportunities to continue to improve on our inventory, but

We're pretty happy with the big list that we've already done.

Yeah, it's obviously been a big focus for you and the team here. Lots of progress there. How do you ensure you don't draw down inventory too much where it could start to constrain revenue opportunities?

Yeah, I think as we look forward, there's really good opportunity for us to optimize inventory and improve our turns. And that's through just a number of internal initiatives from where we place inventory to how we utilize our distribution centers.

But, yeah, we feel pretty confident that our inventory reduction activities have not impacted sales materially. Okay. Thanks for that. I'll turn it over. Thanks, Devin.

Next question will be from Patrick Sullivan at TD Cowan. Please go ahead, Patrick.

Thank you. Good afternoon. Thanks for taking my questions. I think the one thing I was curious about was, so I guess equipment sales were down slightly. That's with the benefit of a large mining shovel going out. That didn't occur a year ago. I'm wondering with that inventory coming down, equipment sales being this flat, how much of the decrease is in price versus volume? if there's anything you can share there. Do you sell a lot of equipment, but is that lower priced than it would have been a year ago, and that's kind of a bit of a gap?

We haven't seen huge decreases in price, so there's any discounting that we've seen in the business is not material enough to drive decreases in the volume. So I would just say that Q2 was generally lower on equipment sales.

And that's really the answer, was just a slower equipment sales quarter.

Okay, no problem. Understood. And then I guess gross margins kind of stabilized quarter over quarter. Do you think that they've kind of found a bit of a normalization point with respect to equipment IT and ERS? And then Can they edge up from here? Is there more that can be captured on the product support side?

Yeah, so a few comments on the gross profit margins. We've been working hard to improve the margins. Q4 was a low point for us at 17%, and we have improved about 200 basis points since then. We've seen quite meaningful progress in our service operations margins, which is great, something our team is proud of. And we continue to have a lot of margin improvement initiatives that we think will pay off in the rest of the year and beyond that. All that said, there could be some of that partially offset by the mix in the second half of the year, especially given that we have two or maybe three shovels delivering in the second half of 2025.

Okay, great.

Appreciate that and a little bit of insight on the shovel delivery potential. And then I guess the other thing, another margin-related one, I guess the SCNA has a percentage of revenue is 13.8% on an adjusted basis. I mean, the guidance, kind of non-guidance, I think in recent history has been 14.5% to 15.5% of revenue on an annual basis. So I guess Have you guys kind of moved the goalposts a bit lower in terms of what you think you can kind of comfortably operate at on the expense side, or are you kind of happy with where margins are right now?

Hi, Patrick. I'll take that one. We are generally pleased with – well, we're generally pleased with the progress we've made to date. We've been managing our costs quite well, and that included a number of headcount reductions, which we believe are now generally complete. We are continuing to focus on opportunities around costs, but we do feel that it's at a probably sustainable level at this point, given the volume. So that would probably be a good range, or the year-to-date percentage relative to revenue would probably be a good range for now.

Okay, great. Thanks, Altair. Back. Thank you.

Once again, ladies and gentlemen, if you have any questions, please press star followed by one. And your next question is from Jonathan Goldman at Scotiabank. Please go ahead.

Hi, good afternoon, team. Thanks for taking my question.

Hey, Jonathan.

So just a little bit of softness on the product support and the industrial part. So if you can maybe discuss some of the dynamics there, and obviously you go through it in the disclosures and you've talked about it in the prepared remarks. But just how should we think about the outlook for product support industrial parts for the balance of the year? And if you could specifically focus on the construction and markets, what you're seeing, did things get worse in the quarter, stay the same? And how do you view that evolving through the balance of the year?

Sure. So a few pieces there. Maybe I'll just touch on the construction piece first. You know, as noted, equipment sales were down a little bit year over year for the quarter. We also had a pretty strong comp in Q2 of 2024. That's one thing to keep in mind. Generally, we haven't seen too big of a change in customer behaviors other than just pausing because they don't know what's happening with the tariffs. That's what we're seeing in our markets. When we look at product support for the quarter, We were down about 8% over the previous year. Eastern Canada was slower, and also the parts business component of our product support business was a little bit slower. But I think if you look at the product support business, for the first six months of the year versus the same six-month period last year, we're pretty flat. So even our product support business can be a little bit lumpy on occasion, and we think that's what's happened here. So compared to last year, we think it's pretty flat. And then when we're talking about our IP and ERS customers, we're just seeing our customers shopping around a little bit more. So everyone's had to sharpen their pencil a little bit. Their capital spend is down, so it's mostly on maintenance. And if you look around at our competitors, the ones who post publicly and the ones that don't, where we have some insights, we're seeing that most of them are down, too.

Interesting. Thanks for the color. And, again, this was brought up before, the nice cash generation in the quarter, the unwind of inventory, leverage is coming down. But how are you thinking about a timeline to getting back within the target range?

Hi, Jonathan.

Yes, we're quite pleased with the progress that we've been making over the last couple of quarters and seeing that progressively come down. We continue to be committed to getting that leverage back within the target range and operating within it. We haven't disclosed the timeline, but I'll just leave it at that.

Okay, fair enough. Thanks for taking my questions. Thank you. Thank you.

And at this time, I would like to turn the call back over to our speakers.

Thank you, operator, and thanks to all our callers for your continued interest in wage acts. Have a great day.

Thank you, sir. Ladies and gentlemen, this does conclude our conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines.