Wajax Corporation

Thank you for attending Ray Jacks Corporation's 2025 Third Quarter Financial Results Webcast. During the presentation, all participants will be in listen-only mode. On today's webcast will be Iggy Domogalski, President and Chief Executive Officer, and Miss Tanya Cassadino, Chief Financial Officer. After the speaker's remarks, there will be a question and answer session. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session, and as a reminder, this conference is being recorded on October 4th, 2025. If at any time during this call you require immediate assistance, please press star zero for the operator. Please be advised that this webcast is being recorded, and 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 Cassadino.

Good afternoon, and thank you for participating in our third quarter results call. This afternoon, we will be following a webcast, which includes a summary presentation of Wage Access Q3 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, Tanya. To start, I will provide highlights on our third quarter before turning it back to Tanya for commentary on backlog inventory and the balance sheet. This slide provides an overview of Wajax. The corporation has 167 years of Canadian operating history and operates across 107 branches with a team of approximately 2,900 employees. During the quarter, our heavy equipment categories and revenue sources made up approximately 55% of our total revenue, while industrial parts and ERS generated approximately 45%. Turning to slide five. This slide provides an overview of our purpose and values. Wajax'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 to our shareholders, customers, suppliers, our people, and the communities we serve. 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 focused on executing against these priorities, as well as optimizing inventory, managing costs, and improving margins. Between our purpose and values and these priorities, management believes this will enable WageX to generate sustainable long-term value and capitalize on future opportunities. Turning to slide seven. Wage Act delivered steady performance in the third quarter of 2025, including gross profit margin growth, higher earnings, and improved leverage. Revenue of $483.1 million increased 2.1 million, or 0.4% in the quarter. The increase resulted primarily from higher mining sales in Western Canada and higher industrial parts in ERS and higher construction and forestry sales in Central Canada. These increases were offset partially by lower construction and forestry and industrial parts sales in Eastern Canada. Gross profit margin of 20.8% increased 160 basis points compared to the same period of 2024, increased 170 basis points from 19.1% in the second quarter of 2025, and increased 370 basis points from 17.1% in the fourth quarter of 2024. The year-over-year increase was driven primarily by higher margins realized of product supports, industrial parts, and ERS sales, given management's focus on margin improvement initiatives in these areas of the business. These increases were partially offset by reduced equipment margins due to increased market pressures. Selling and administrative expenses as a percentage of revenue remained flat at 14.7% in both the third quarter of 2025 and the same period of 2024. Selling and administrative expenses in the third quarter of 2025 decreased $0.1 million compared to the third quarter of 2024 due primarily to lower spending on personnel and travel and entertainment driven by ongoing cost initiatives offset partially by higher incentive accruals linked primarily to improved financial performance. Adjusted EBITDA of $44.8 million increased $7.4 million or 19.7% from the third quarter of 2024, noting the adjustments recorded on this chart. The increase in adjusted EBITDA resulted primarily from higher gross profit margins. Adjusted EBITDA margin of 9.3% in the third quarter of 2025 improved from 8.2% in the second quarter of 2025 and 7.8% in the first quarter of 2025. Net earnings of 75 cents per share, 68.6%, or 31 cents per share in the third quarter of 2024, noting the adjustments recorded on this chart. At the end of Q3, our TRIF rate was 0.83, a decrease of 9% from the third quarter of 2024. The third quarter TRIF rate was down 19% from the second quarter of 2025. Safety continues to be wage act's number one priority, and management is committed to continuously improving our safety programs to improve on this result. Thank everyone on our team for their ongoing dedication to workplace safety. Turning to slide eight. Revenue increase of 0.4% in the third quarter resulted from higher revenue in western and central regions, offset partially by lower revenue in eastern Canada. Western Canada sales of 210 million increased 0.3% in the quarter due primarily to higher mining equipment sales, including the delivery of a large mining shovel in the third quarter of 2025, with no such delivery in the third quarter of the prior year. This increase was partially offset by lower ERS revenue, and reduced equipment sales in the construction and forestry and material handling categories. Central Canada sales of $91 million increased 3.3% in the quarter due primarily to stronger industrial parts and ERS revenue and higher equipment sales in the construction, forestry, and power systems categories. These increases were partially offset by lower material handling equipment sales. Eastern Canada sales of $181 million decreased 0.7% in the quarter due primarily to lower equipment sales in the construction and forestry category and reduced industrial park sales. These decreases were partially offset by higher material handling equipment sales and DRS revenue. 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 131 million decreased 0.3 million or 0.3% compared to last year due to lower sales in construction and forestry and material handling, offset partially by higher mining sales in Western Canada, driven by the delivery of a large mining shovel in the third quarter, with no such delivery in the third quarter of the prior year. Product support sales of $123 million decreased 0.2 million or 0.1% compared to last year. 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 $136 million were flat to the prior year. ERS sales of approximately 85% increased 3 million or 3% due to higher sales in the central This slide summarizes the sales at the category level for heavy equipment and industrial parts and ERS. Heavy equipment categories decreased 0.4 million or 0.1% due to lower sales in construction and forestry and material handling. The delivery of a large number in the third quarter of 2025 with no such delivery in the third quarter of the prior year. Industrial parts and ERS categories increased 2.7 million or 0. driven by higher ERF sales in Central and Eastern Canada. I'll now throw it back over to Tanya for commentary on backlog inventory.

Thanks, Eddie. Please turn to slide 12. I comment on backlog and inventory. Our Q3 backlog of $506.5 million decreased $17.8 million compared to backlog of $524.3 million at Q2 and decreased $81.6 million on a year-over-year basis. The sequential decrease was due primarily to lower material handling and industrial parts orders and lower mining backlog, driven largely by the sale of a large mining shovel in the quarter, which was in backlog at June 30, 2025. These decreases were partially offset by higher construction and forestry and ERS orders. The year-over-year decrease was due primarily to lower material handling orders, and lower mining backlogs, driven largely by the sale of six large mining shovels since September 30th, 2024. These decreases were partially offset by higher EOS orders. Backlog at September 30th, 2025 included four large mining shovels. Inventory increased 3 million compared to Q2 of 2025. Ongoing inventory reduction initiatives have decreased inventory. by $144.4 million from peak levels at March 31st, 2024. Inventory decreased $118.4 million compared to Q3 2024. The year-over-year decline is mainly attributed to lower inventory in the construction and forestry and industrial products and U.S. categories. Management continues to focus on reducing and managing the corporation's inventory levels. with focus on optimizing inventory levels and mix while matching them with 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 18.5 million compared with cash flows used in operating activities of 36.6 million in the same quarter of the prior year. The increase in cash generated of $55.1 million was mainly attributable to higher earnings and higher accounts payable and accrued liabilities. Our Q3 leverage ratio improved to 2.28 times from 2.35 times in Q2 due to the 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 Q3. and management continues to work towards getting leverage back within its target range. Our available credit capacity at the end of Q3 was $215.6 million, which is sufficient to meet short-term normal course working capital and maintenance capital requirements and fund our plan strategic initiatives. We continue to focus on working capital efficiencies, which is a key component in managing our overall leverage targets. The Q3 working capital efficiency was 25.4%, a slight improvement in efficiency of 30 basis points from 25.7 at June 30th, 2025, due to lower trailing four-quarter average working capital and higher trailing 12-month revenue. Inventory turns of 2.3 times are slightly higher compared to Q2 of 2025 and half further improved since Q4 of 2024. Finally, the Board has approved our fourth quarter 2025 dividend of 35 cents per share, payable on January 6th, 2026, to shareholders of record on December 15th, 2025. Please turn to slide 14, and at this point, I'll turn the call back to Iggy.

Thanks, Tonya. Our outlook is summarized on this slide. During the third quarter of 2025, wage acts delivered revenue of $483.1 million, up $2.1 million, 0.4% from the third quarter of 2024. The year-over-year increase in revenue was primarily driven by higher mining equipment sales included in the delivery of a mining shovel with no comparable delivery in the prior year. This was partially offset by lower equipment sales in the construction and forestry category in western and eastern Canada, reflecting increased market pressures in this category. Gross profit margins. 2.8% increased from 19.2% in the same quarter and increased by 170 points from 19% in the second quarter of 2025 and increased by 30 basis points from 17.1% in the fourth quarter of 2024. The improvement was driven primarily by higher margins realized crosses reflecting the progress in its management's margin improvement initiatives. These gains were partially offset by lower equipment and competitive market dynamics. Administrative expenses represented 14.7% of revenue prior year. Sequentially, expenses declined to 70.8% in the quarter of 2025 from 73.2 million in the second quarter of 2025. As of December 30th, 2020, the backlog stood at 506.5 million, a decline of 3.8 million or 3.4% compared to June 3rd of 2025. And the reduction was primarily due to lower material handling and industrial parts orders and the delivery of a large mining shovel during the quarter. Despite this decrease, backlog remains robust and includes four large mining shovels scheduled for delivery over the next six quarters. Inventory optimization remains key focus, with total inventory of 605.7 million at 2025, down 150 million from the peak. Supplemented inventory has been continued to support improved cash flow from a 15-point generated in the third quarter of 2020. Cash used will be $6.6 million in the prior year. The corporation's leverage will improve to 2.28 times from December 30, 2025, from 2.35 times at June 2025. This improvement reflects a need to focus on debt reduction, working capital optimization, and getting the corporation's leverage ratio back within its target range of 1.5 to 2 times. On October 24th, 2025, the corporation extended the maturity of its 500 million senior secured bank facility from October 1st, 2027 to October 24th, 2029. This extension enhances financial flexibility in support of Wajax's long-term strategic priorities. And looking ahead to the balance of 2025, Wajax continues to see strong customer demand in the mining and energy sectors, with the former supported by a robust equipment backlog. Broader end market environment remains challenging with macroeconomic softness and ongoing uncertainty related to Canada-U.S. trade dynamics. Also, on October 15th, 2025, Wajax announced that its board of directors and myself have jointly agreed to initiate a CEO succession process. As part of this planned transition, I'll continue to serve as president and CEO and a director of Wajax until the conclusion of the process and turn continuity into a seamless handover of responsibilities to my successor. Completion of the search process is expected in the first quarter of 2026. During this period, management will remain sharply focused on wage access, strategic priorities, and key operational areas of inventory optimization, cost management, and margin improvement. Management believes that continued execution of these priorities and key areas of focus supported by prudent capital allocation and a strong balance sheet will drive sustainable value creation over the long term. WageX remains well-positioned to benefit from its diverse market exposure, disciplined growth strategy, and focus on operational excellence. I will now turn it back to the operator and open the line for questions.

Okay. Thank you, ladies and gentlemen. We will now begin the question and answer. If you're using a speakerphone, please lift the headset before pressing any of your keys. One moment, please, for your first question. Your first question comes from Devin Dodge. company, BMO Capital Markets. Please go ahead.

Thank you. Good afternoon. I wanted to start with a question on gross margins. Looked pretty meaningful step up from where we were the last four quarters or so. And I think we recognize that there's a lot of factors that can go into or impact a consolidated gross margin. But just wondering if you could speak to the bigger components of that improvement. And I'm really just trying to get a sense for the sustainability of the Q3 gross margin performance as we look into Q4 in 2026?

Yeah. Hi, Devin. Thanks for the question. You know, I think we're pretty pleased with the results of our margin improvement this quarter. It was all margin improvement activities and not mixed. You know, we're seeing a return on our investment. We're committed and focused to pushing on our margin improvements. At the same time, you know, by next in the future in market dynamics, which are still pretty uncertain, but it's going in the right direction, and it's encouraging. In terms of where we started to see some success, I would say in the buckets of pricing, doing better with our freight, being better with our utilization, and also being tighter with our warranty.

Okay. Okay. Thanks for that. Okay. Look, I think the market of the commentary has been unchanged or relatively unchanged for much of 2025. But just wondering if there are parts of the business or end markets where you're feeling, you know, better now than, say, six to nine months ago.

Yeah.

Money and energy continue to be, you know, pretty resilient more than most. I think just generally what we're seeing out there is just continued caution from our customers. They're being very disciplined with their spending. We've talked about it a few times. The whole portion of our ERS business has really, really subsided over the last number of quarters as companies are doing only really what they need to do. And I think Even more recently, we're starting to get even tighter on the maintenance, repair, and operation portion of their spend as well. So they're just – customers are being tight, projects are being delayed, and they're being very cautious. And then specific sectors that are affected, automotive, we have small exposure to automotive in our industrial parts business. We're seeing a bit there. Sales. with the targeted tariffs on steel and a lot of slowdowns and shutdowns. So we feel... And then forestry too. Across the country that we've seen, so those are a little bit slower and that ultimately impacts the upstream equipment. I think most of the pain in forestry is probably over. So we hope to see that on the way out. So yeah, that's a... a view on how we're viewing some of those markets. But for sure, mining and energy are the ones that seem to be remaining resilient, at least for the products and services that we offer.

Okay. Thanks for that. I'll turn it over. Okay. Thanks, Evan.

Okay. Our next question comes from Patrick Sullivan from TD Cohen. Go ahead.

Hey, Patrick. Thank you. Good afternoon, everyone. I think just more on the margin stuff. So I think the rough guidance around SG&A as a percentage revenue in the past has been about a 14.5% to 15.5% on a full-year basis, and knowing that there can be some volatility in that quarter-to-quarter. But the company's been near the low end of that or below that mark for about six quarters now. I guess as the company determined it's comfortable operating and a little bit leaner, in that respect?

Hello. Yeah, I think we continue to be quite satisfied with what we're doing from a cost optimization perspective and where we are operating. Obviously, the SGA percentage is a function of revenue. For a year, we are comfortable within that range. We're down on a year-to-date basis. And feel that that lower end of the range feels right at this point in time, again, depending on volumes.

Okay, understood. Thank you. And then I guess more on kind of the IPERS business. Would you say you're kind of operating at baseline levels right now and customers are just still waiting for that clarity? I guess if they're – Are those businesses staffed if there were to be kind of an inflection and a return to demand? Would you be comfortable taking on more work in that area? Yeah, good question. I mean, it feels like our customers have pulled back about as much as they can, and especially the ones that are affected in the named tariffs. They're spending as little as possible. And eventually you can't do that forever. So it does feel to us that generally we're at the kind of the least amount of spending that those existing customers can do with us. And so when that does turn around, which inevitably it has to because people need to maintain the facility in a more meaningful way, then we feel that we're appropriately staffed to be able to take on that volume. Very great. Thanks. I'll get back in. Thank you. Thanks, Patrick.

Our next question comes from Jonathan Goldman from Scotiabank. Please go ahead.

Hey, good afternoon. Hey, Jonathan. Hey, Jonathan. Good afternoon, guys. Nice results. Maybe just digging into a couple housekeeping items to start. Could you remind us if there's any seasonality to margins, particularly in the product support, industrial parts, and ERS businesses?

No, I wouldn't say that there's seasonality and margins. There's a bit of seasonality and volume for our various categories, which is, you know, each category has its own annual cycle, but not with margins.

Okay, understood. And then the outlook, you provided some comments earlier. You talked about still strong demand in energy and mining and disclosures, but maybe you can talk about what you're seeing particularly in construction markets And if you could parse out maybe by region if there's any differences there and if there's any differences between residential, non-res, or infrastructure construction spending.

Yeah, so we... Our business focuses more on kind of industrial level. We don't do a whole lot of... And those markets are... They're cautious. I think... as in our IP and ERS business, customers are just delaying spend if they can. And so we're seeing that across the board. We're also seeing, you know, pretty strong competition. It feels like we're back to pre-COVID levels. Everyone's got, you know, lots that are full of inventory and are competing pretty hard to get the business because they don't want their equipment to go stale. So, yeah, it's – It's a challenging market out there. All the manufacturers, including our big manufacturer, Hitachio, stuff with quite attractive financing programs. So we work with Hitachio on that, and we feel pretty good about that. And, yeah, there isn't any specific regional commentary that I can give that would add any more color there.

Okay. I appreciate that. Maybe one more from me. On the working capital, how should we take the most level of investment? I guess, to the balance of the year as we go into 26. I guess, specifically, is there more work to be done there in terms of efficiencies? And what sort of kind of level of working capital efficiency do you think you could get to longer term?

Very specific question, but I'll try to answer it as best as I can. I think from a working capital perspective, we continue to focus on our optimization efforts around inventories. Again, we have seen pretty significant declines from peak balances and do believe that we have some further room for optimization. And we'll continue to look at that. As a reminder, we do have different types of inventory that move at different speeds or turns, and we're looking through all various types and have targets for different types. So it's hard to quantify what that might look like, but we are continuing to look for optimization opportunities within inventories.

Okay, makes sense. Thanks for taking my question. Okay. Thanks, Jonathan.

And our final question comes from Maxim Sycha, National Bank Capital Markets. Please go ahead.

Hi, good afternoon. Hi, Edith. I was wondering if it's possible to get a bit more color around the mining shovels. I mean, obviously, you have a number of them in the inventory right now, but How should we think about maybe more of a sort of a medium-term replacement cycle? Do you think once you sort of deliver those, like is there a bit of a crest or is there a pipeline of opportunity that you think is still visible?

Thanks.

Sorry, I cannot really hear anything.

Oh, can you hear me now, Max?

Yeah, yeah, it's a bit better. Sorry, I'm not sure if it's me who's cutting out or, yeah, please go ahead. I apologize.

Okay, so I'll just comment on what we have in backlog first. So we've got four large shuffles in backlog right now. Two of them will be delivered in the fourth quarter of this year, and then one will be delivered in the first half of 2026. and another one to be delivered in 2027. So that's current backlog. I would say generally mining activity, quoting activity is very strong right now. We continue to call out mining as a bright spot. You know, commodity prices are good, especially gold. And so we're seeing a lot of activity. We're hoping to sell a whole bunch more shovels, but you never know until you actually get the order. But we do see... robust coating activity across oil sands, across gold, really across all commodities and all geographies in Canada.

Okay, that's super helpful. Because, I mean, the split right now for the four shovels, is it all oil sands or is it split between oil sands and gold?

The four in backlog would all be oil sands.

Okay, okay. So theoretically, given where gold is, yeah, there's definitely a bit more of an opportunity there. That makes sense. And then, you know, as I think the government will be rolling out its new budget, and there's some conversation around, you know, potential accelerated depreciation. Do you think that could be potentially the kicker for IP and ERS business in terms of providing a bit of an uplift? I mean, how material could that be from your perspective?

I mean, accounting policies is always a tricky one, and I don't know how much that will drive the business. I hope it gives it a little bit of a bump. But just in general, I haven't seen what it looks like yet, but there's a lot of commentary that there's going to be a lot of nation building, build Canada strong, those kind of words. And when Canada is building pipelines or large infrastructure or ports or ships, We tend to do well on those. So for pipelines, we have a whole suite of equipment from electrical and valves that plug right into those, and we usually do well when those happen. For infrastructure, you know, our excavators and wheel loaders tend to be used. When it's ports, we have a whole bunch of equipment that goes in there. And then when there's large ships being built, quite often we'll be the engine manufacturer or the distributor of the preferred engines. So if there's more of those types of projects happening, then we'd definitely be the benefactor of some of that work.

Okay. No, that makes a huge amount of sense. Thank you. And then maybe just last question. Obviously, I'm not sure if we're going to be able to speak on the next call depending on sort of, you know, the search. But do you mind providing a little bit of color in terms of what the board is looking for when it comes to the succession? And obviously, you know, all the best in future endeavors, whatever that may be.

Yeah, thanks very much, Max. So I think in a new CEO, where, you know, the board is looking for someone who will continue to accelerate growth and capitalize all the energy opportunities that are showing up in our country. And then I think they want somebody who will continue driving IP and ERS growth, continue our strategy of driving efficiency in our operating model. So those are some of the characteristics that I think they're looking for.

Okay. Okay, that's great. Thank you so much. That's it for me.

Okay. Thanks, Max.

If there are any further questions at this time, please press 1. It seems that there are no further questions at this time. I will now turn the call over to Iggy Domogalski. Please continue.

Thank you, operator. Thank you, everyone, for your attention, and thank you for your continued interest in wage acts. Have a great day.

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