TSX Symbol: WJX

Expanded Relationship with Hitachi, Continued Growth in Industrial Parts and Engineered Repair Services, Drive 14.7% Year-Over-Year Revenue Increase and 37.7% Increase in Adjusted Net Earnings(1)

TORONTO, Aug. 10, 2023 /CNW/ - Wajax Corporation ("Wajax" or the "Corporation") today announced its 2023 second quarter results. All monetary amounts are in Canadian dollars unless otherwise noted.

Selected Highlights for the Second Quarter

• Second quarter revenue of $586.2 million, up 14.7% over 2022;
• Second quarter adjusted EBITDA of $57.2 million, up 26.6% over 2022;(1)
• Second quarter adjusted net earnings of $27.1 million, up 37.7% over 2022;(1) and
• Ended the quarter with backlog of $551.2 million, up $20.5 million from March 31, 2023.(1)

"Our strong financial performance in the second quarter was driven by clear execution against our core strategic priorities," said Iggy Domagalski, President and Chief Executive Officer. "Top line growth was supported by sustained customer demand across all regions, including continued positive momentum in central Canada. Solid year-over-year growth in equipment and product support sales was complemented by even greater strength in industrial parts and engineered repair services revenue, and improved operating leverage saw adjusted basic earnings per share grow 26.4% to $2.09 for the first half of the year. Our robust backlog, up $20.5 million sequentially from the first quarter, as well as solid fundamentals across many of our key markets, supports confidence in our prospects as we advance further into 2023 and beyond."(1)

"We continue to invest in working capital, most notably in inventory, to support customer orders and forecasted demand. We continue to believe that our strong financial results and balance sheet give us the flexibility to further invest in our expanded Hitachi relationship, additional organic initiatives and acquisition opportunities to help drive future growth. With respect to acquisitions and the growth of our industrial parts and engineered repair services businesses, subsequent to quarter end, we were very pleased to announce we have acquired Polyphase Engineered Controls, a specialized provider of custom electrical and instrumentation equipment that enhances our ability to undertake large scale time-critical integration projects."(1)

Outlook

After the first half of 2023, the Corporation continues to see solid fundamentals in many of the markets it serves - particularly mining, energy and construction - supported by relatively elevated key commodity prices and sustained customer budgeting for capital projects. The Corporation's strong backlog also continues to support management's confidence as Wajax advances into the second half of the year.(1) In addition to expected growth in its heavy equipment business, Wajax anticipates further strong demand in its less cyclical industrial parts and ERS businesses. For the balance of 2023, Wajax continues to expect challenges associated with supply chain volatility, although some improvements are anticipated. Higher interest rates, wage and price inflation, and a tight labour market are also expected to remain challenges, and management continues to monitor market dynamics and customer sentiment for signs of possible weakness.

The Corporation's core strategic priorities remain unchanged and Wajax is focused on continuing to invest in its people and their overall health and well-being, delivering exceptional customer value, organically growing its business, transacting on its robust acquisition pipeline, leveraging its enhanced relationship with Hitachi, prudently managing its balance sheet, deploying its ERP system, and entrenching sustainability into the business.

Dividend

The Corporation has declared a dividend of $0.33 per share for the third quarter of 2023, payable on October 3, 2023, to shareholders of record on September 15, 2023.

Second Quarter Highlights

• Revenue in the second quarter of 2023 increased $75.0 million, or 14.7%, to $586.2 million, from $511.2 million in the second quarter of 2022. Regionally:
• Revenue in western Canada of $269.4 million increased 19.2% from the prior year due to strong mining equipment sales, including the delivery of a large mining shovel, higher engineered repair services ("ERS") and industrial parts sales, and higher product support revenue in all categories.
• Revenue in central Canada of $103.2 million increased 23.5% from the prior year due primarily to higher equipment sales in the material handling, and construction and forestry categories, as well as strength in the industrial parts and ERS categories.
• Revenue in eastern Canada of $213.7 million increased 5.9% from the prior year due primarily to strength in the industrial parts and ERS categories, offset partially by lower equipment sales in the power systems category.
• Gross profit margin of 19.9% in the second quarter of 2023 decreased 20 basis points ("bps") compared to gross profit margin of 20.1% in the same period of 2022.(1) The decrease was driven primarily by lower product support and industrial parts margins, offset partially by higher equipment and ERS margins, and a higher proportion of ERS sales.
• Selling and administrative expenses as a percentage of revenue decreased to 12.2% in the second quarter of 2023 from 13.4% in the second quarter of 2022, driven by the 14.7% increase in revenue.(1) Selling and administrative expenses in the second quarter of 2023 increased $2.9 million compared to the second quarter of 2022 due primarily to higher personnel costs as the volume of business increased over the prior year.
• EBIT increased $11.2 million, or 32.9%, to $45.3 million in the second quarter of 2023 versus $34.1 million in the same period of 2022. The year-over-year increase in EBIT resulted primarily from higher sales volumes, offset partially by lower product support margins and higher selling and administrative expenses.
• The Corporation generated net earnings of $29.0 million, or $1.35 per share, in the second quarter of 2023 versus $21.7 million, or $1.01 per share, in the same period of 2022. The Corporation generated adjusted net earnings of $27.1 million, or $1.26 per share, in the second quarter of 2023 versus $19.7 million, or $0.92 per share, in the same period of 2022. Adjusted net earnings in the second quarter of 2023 excludes non-cash gains on mark to market of derivative instruments of $1.9 million after-tax, or $0.09 per share (2022 – gains of $2.0 million, or $0.10 per share).(1)
• Adjusted EBITDA margin increased to 9.8% in the second quarter of 2023 from 8.8% in the second quarter of 2022.(1)
• The Corporation's backlog at June 30, 2023 of $551.2 million increased $20.5 million, or 3.9%, compared to March 31, 2023 backlog of $530.8 million due primarily to higher material handling and ERS orders, offset partially by lower construction and forestry orders. The Corporation's backlog at June 30, 2023 of $551.2 million increased $16.4 million, or 3.1%, compared to June 30, 2022 due to higher ERS and material handling orders, offset partially by lower construction and forestry, and power systems orders.(1)
• Working capital of $480.6 million at June 30, 2023 increased $55.4 million from March 31, 2023 due primarily to higher inventory. Working capital efficiency was 18.9%, an increase of 140 bps from March 31, 2023, due to the higher trailing four quarter average working capital.(1)
• Cash flows used in operating activities amounted to $6.0 million in the second quarter of 2023, compared to cash flows generated from operating activities of $34.0 million in the same quarter of the previous year. The decrease in cash generated from operating activities of $40.0 million was mainly attributable to an increase in inventory of $40.7 million during the quarter compared to an increase of $4.6 million in the prior year.
• The Corporation's leverage ratio increased to 1.76 times at June 30, 2023, compared to 1.74 times at March 31, 2023. The increase in leverage ratio was due to the higher debt level in the current period, driven largely by the Corporation's investment in inventory. The Corporation's senior secured leverage ratio was 1.38 times at June 30, 2023, compared to 1.33 times at March 31, 2023.(1)
• Effective June 23, 2023, André Dubé was appointed to the role of Senior Vice President, Industrial Parts and ERS. Mr. Dubé has 24 years of experience at Wajax, first joining in 1999 as a strategic sourcing specialist. Since then, he has held increasingly senior roles, including Vice President, Key Accounts, and Vice President, End Market Mining. Most recently, he was serving as Regional Vice President, Ontario and Quebec.
• As noted above, subsequent to quarter end, on July 4, 2023, the Corporation's wholly-owned subsidiary, Tundra Process Solutions, Ltd. ("Tundra"), acquired all of the issued and outstanding shares of Polyphase Engineered Controls (1977) Ltd. ("Polyphase") for cash consideration of approximately $17.8 million, plus a three-year performance-based earnout. The purchase price is subject to normal post-closing net working capital adjustments and the result of the three-year performance-based earnout. As of the acquisition date, Polyphase had trailing twelve-month revenue of approximately $26.0 million. For additional information regarding the Polyphase acquisition, please see the Corporation's press release dated July 4, 2023.

Conference Call Details

Wajax will webcast its Second Quarter Financial Results Conference Call. You are invited to listen to the live webcast on Friday, August 11, 2023 at 2:00 p.m. EDT. To access the webcast, please visit our website wajax.com, under "Investor Relations", "Events and Presentations", "Q2 2023 Financial Results" and click on the "Webcast" link. An archive of the webcast will be available following the live presentation.

About Wajax Corporation

Founded in 1858, Wajax (TSX: WJX) is one of Canada's longest-standing and most diversified industrial products and services providers. The Corporation operates an integrated distribution system providing sales, parts and services to a broad range of customers in diverse sectors of the Canadian economy, including: construction, forestry, mining, industrial and commercial, oil sands, transportation, metal processing, government and utilities, and oil and gas.

The Corporation's goal is to be Canada's leading industrial products and services provider, distinguished through its three core capabilities: sales force excellence, the breadth and efficiency of repair and maintenance operations, and the ability to work closely with existing and new vendor partners to constantly expand its product offering to customers. The Corporation believes that achieving excellence in these three areas will position it to create value for its customers, employees, vendors and shareholders.

Notes:

Non-GAAP and Other Financial Measures

The press release contains certain non-GAAP and other financial measures that do not have a standardized meaning prescribed by GAAP. Therefore, these financial measures may not be comparable to similar measures presented by other issuers. Investors are cautioned that these measures should not be construed as an alternative to net earnings or to cash flow from operating, investing, and financing activities determined in accordance with GAAP as indicators of the Corporation's performance. The Corporation's management believes that:

Non-GAAP financial measures are identified and defined below:

Non-GAAP ratios are identified and defined below:

Supplementary financial measures are identified and defined below:

Reconciliation of the Corporation's net earnings to adjusted net earnings, adjusted basic earnings per share and adjusted diluted earnings per share is as follows:

Reconciliation of the Corporation's EBIT to EBITDA, Adjusted EBIT, Adjusted EBITDA and Pro-forma adjusted EBITDA is as follows:

Calculation of the Corporation's funded net debt, debt, leverage ratio and senior secured leverage ratio is as follows:

Calculation of total capital and funded net debt to total capital is as follows:

Calculation of the Corporation's working capital and other working capital amounts is as follows:

Cautionary Statement Regarding Forward-Looking Information

This news release contains certain forward-looking statements and forward-looking information, as defined in applicable securities laws (collectively, "forward-looking statements"). These forward-looking statements relate to future events or the Corporation's future performance. All statements other than statements of historical fact are forward-looking statements. Often, but not always, forward looking statements can be identified by the use of words such as "plans", "anticipates", "intends", "predicts", "expects", "is expected", "scheduled", "believes", "estimates", "projects" or "forecasts", or variations of, or the negatives of, such words and phrases or state that certain actions, events or results "may", "could", "would", "should", "might" or "will" be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors beyond the Corporation's ability to predict or control which may cause actual results, performance and achievements to differ materially from those anticipated or implied in such forward-looking statements. To the extent any forward-looking information in this news release constitutes future-oriented financial information or financial outlook within the meaning of applicable securities law, such information is being provided to demonstrate the potential of the Corporation and readers are cautioned that this information may not be appropriate for any other purpose. There can be no assurance that any forward-looking statement will materialize. Accordingly, readers should not place undue reliance on forward-looking statements. The forward-looking statements in this news release are made as of the date of this news release, reflect management's current beliefs and are based on information currently available to management. Although management believes that the expectations represented in such forward-looking statements are reasonable, there is no assurance that such expectations will prove to be correct. Specifically, this news release includes forward looking statements regarding, among other things: our belief that our robust backlog, as well as solid fundamentals across many of our key markets, supports management's confidence in our prospects as we advance further into 2023 and beyond; our continued belief that the Corporation's strong financial results and balance sheet give us the flexibility to further invest in our expanded Hitachi relationship, additional organic initiatives and acquisition opportunities to help drive future growth; our outlook after the first half of 2023, including our view that solid fundamentals persist in many of the markets Wajax serves – particularly mining, energy and construction, and that our strong backlog also continues to support our confidence as Wajax advances into the second half of the year; our expectation that Wajax's heavy equipment business will grow in 2023, and anticipated further strong demand in Wajax's less cyclical industrial parts and ERS businesses; our continued expectation that, for the balance of 2023, we will experience challenges associated with supply chain volatility, although some improvements are anticipated; our expectation that higher interest rates, inflation, and a tight labour market will also remain challenges, and our continued monitoring of market dynamics and customer sentiment for signs of possible weakness; our core strategic priorities, including our continued focus on investing in Wajax's people and their overall health and well-being, delivering exceptional customer value, organically growing our business, transacting on our robust acquisition pipeline, leveraging our enhanced relationship with Hitachi, prudently managing our balance sheet, deploying our ERP system, and entrenching sustainability into our business; our objective of managing our leverage ratio within a range of 1.5 – 2.0 times; and our goal of being Canada's leading industrial products and services provider, distinguished by our sales force excellence, the breadth and efficiency of our repair and maintenance operations, and our ability to work closely with existing and new vendor partners to constantly expand our product offering to customers, together with our belief that achieving excellence in these three areas will position us to create value for our customers, employees, vendors and shareholders. These statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, assumptions regarding: the absence of significant negative changes to general business and economic conditions; limited negative fluctuations in the supply and demand for, and the level and volatility of prices for, oil, natural gas and other commodities; the stability of financial market conditions, including interest rates; the ability of Hitachi and Wajax to develop and execute successful sales, marketing and other plans related to the expanded direct distribution relationship which took effect on March 1, 2022; our continued ability to execute our One Wajax strategy, including our ability to execute on our organic growth priorities, complete and effectively integrate acquisitions, such as Polyphase, and successfully implement new information technology platforms, systems and software, such as our ERP system; the receding effects of the COVID-19 pandemic and actions taken by governments, public authorities, suppliers and customers in response to the COVID-19 virus and its variants; the future financial performance of the Corporation; limited fluctuations in our costs; the level of market competition; our continued ability to attract and retain skilled staff; our continued ability to procure quality products and inventory; and our ongoing maintenance of strong relationships with suppliers, employees and customers. The foregoing list of assumptions is not exhaustive. Factors that may cause actual results to vary materially include, but are not limited to: a continued or prolonged deterioration in general business and economic conditions, including as a result of new COVID-19 variants or armed conflicts between nations; supply chain disruptions and shortages related to or arising from the impacts of COVID-19 or armed conflicts between nations; fluctuations in financial market conditions, including interest rates; the impacts of new COVID-19 variants, including the duration and severity of travel, business and other restrictions imposed by governments and public authorities in response to such variants; actions taken by our suppliers and customers in relation to new COVID-19 variants, including slowing, reducing or halting operations; the inability of Hitachi and Wajax to develop and execute successful sales, marketing and other plans related to the expanded direct distribution relationship which took effect on March 1, 2022; negative fluctuations in the supply and demand for, and the level of prices for, oil, natural gas and other commodities; a continued or prolonged decrease in the price of oil or natural gas; the level of demand for, and prices of, the products and services we offer; a decrease in levels of customer confidence and spending; decreased market acceptance of the products we offer; the termination of distribution or original equipment manufacturer agreements; unanticipated operational difficulties (including failure of plant, equipment or processes to operate in accordance with specifications or expectations, cost escalation, our inability to reduce costs in response to slow-downs in market activity, unavailability of quality products or inventory, supply disruptions (including those caused by or related to new COVID-19 variants), job action and unanticipated events related to health, safety and environmental matters); our inability to attract and retain skilled staff and our inability to maintain strong relationships with our suppliers, employees and customers. The foregoing list of factors is not exhaustive. Further information concerning the risks and uncertainties associated with these forward-looking statements and the Corporation's business may be found in our MD&A for the year-ended December 31, 2022 (the "2022 MD&A"), which has been filed under the Corporation's profile on SEDAR at www.sedar.com, under the heading "Risk Management and Uncertainties". The forward-looking statements contained in this MD&A are expressly qualified in their entirety by this cautionary statement. The Corporation does not undertake any obligation to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise unless so required by applicable securities laws.

Readers are cautioned that the risks described in the 2022 MD&A are not the only risks that could impact the Corporation. Risks and uncertainties not currently known to the Corporation, or currently deemed to be immaterial, may have a material effect on the Corporation's business, financial condition or results of operations.

Additional information, including Wajax's Annual Report, is available on SEDAR at www.sedar.com.

SOURCE Wajax Corporation

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