TSX Symbol: WJX

Revenue Decreases 6.5% While Increased Backlog and New Hitachi Construction Machinery Americas Financing Program Supports Continued Momentum in Near Term

TORONTO, May 1, 2024 /CNW/ - Wajax Corporation ("Wajax" or the "Corporation") today announced its 2024 first quarter results. All monetary amounts are in Canadian dollars unless otherwise noted.

Selected Highlights for the First Quarter

• First quarter revenue of $482.3 million and adjusted basic earnings per share of $0.59;
• First quarter gross profit margin of 22.0%, up from 20.4% in 2023, due to a higher proportion of, and higher margins on, product support, industrial parts and engineered repair services ("ERS") sales;
• First quarter adjusted EBITDA margin of 8.4%, up from 8.3% in 2023;
• Backlog at March 31, 2024 of $587.1 million increased $33.1 million, or 6.0%, compared to December 31, 2023 backlog of $554.0 million, due primarily to higher construction and forestry orders; and
• Effective March 1, 2024, Hitachi Construction Machinery Americas Inc. ("HCMA") introduced a new financing program with competitive rates that will benefit Wajax customers and is expected to result in stronger equipment sales in the near term.(1)

"In the first quarter of 2024, Wajax delivered revenue of $482.3 million, down $33.7 million, or 6.5%, from the first quarter of 2023. This year over year decrease was primarily due to a decline in construction and forestry equipment sales in western and eastern Canada," said Iggy Domagalski, President and Chief Executive Officer. "Given our increased backlog of $587.1 million as at March 31, 2024, and the new HCMA financing program available March 1, 2024, stronger equipment sales are expected in the near term, and inventory is expected to decline over the next two quarters."(1)

He continued, "The recently completed $100.0 million increase in credit limit under our senior secured credit facility provides us with additional flexibility as we continue to invest in future organic growth and our robust pipeline of potential acquisitions. We continue to monitor end markets and customer purchasing patterns, while being prudent with costs and maintaining focus on the execution of our strategic priorities."

Outlook

Wajax continues to see solid fundamentals in many of the markets it serves – particularly in mining and energy, supported by relatively elevated commodity prices and sustained customer budgeting for capital projects.

Effective March 1, 2024, HCMA introduced a new financing program with competitive rates that will benefit Wajax's customers and is expected to result in stronger equipment sales in the near term. The majority of recent increases in short-term equipment rental arrangements are also expected to convert to equipment sales within six to twelve months, and as at March 31, 2024, Wajax had $54.2 million of equipment inventory related to such arrangements.

As at March 31, 2024, the Corporation's inventory of $747.4 million increased by $116.4 million sequentially from December 31, 2023. This was primarily due to lower equipment sales in the first quarter of 2024, as well as management's determination to accept early delivery of certain equipment inventory in exchange for more favourable payment terms. Given the Corporation's increased backlog and the new HCMA financing program, inventory is expected to decline over the next two quarters.

On January 11, 2024, the Corporation amended its senior secured credit facility to increase the facility limit from $400.0 million to $500.0 million. The increase provides the Corporation with additional flexibility as management continues to invest in future organic growth and the Corporation's robust pipeline of potential acquisitions. The Corporation's $57.0 million in senior unsecured debentures mature on January 15, 2025, and management is evaluating options to repay or refinance such debentures.

Management continues to monitor end markets and customer purchasing patterns, while being prudent with costs, and continuing to focus on the execution of its six strategic priorities for 2024: continuing to build a "people first" company; growing Wajax's existing business with a focus on parts, service and margin improvement; unlocking the potential of Wajax's enhanced direct relationship with Hitachi; acquiring industrial parts and ERS businesses; improving cost structure and processes; and continuing Wajax's enterprise resource planning ("ERP") system rollout and additional technology improvements. For more information regarding these priorities, please see Wajax's Management's Discussion and Analysis for the quarter ended March 31, 2024, and annual report for the year ended December 31, 2023.

Dividend

The Corporation has declared a dividend of $0.35 per share for the second quarter of 2024, payable on July 3, 2024, to shareholders of record on June 14, 2024.

First Quarter Highlights

• Revenue in the first quarter of 2024 decreased $33.7 million, or 6.5%, to $482.3 million, from $516.1 million in the first quarter of 2023. Regionally:
  • Revenue in western Canada of $219.7 million decreased 7.7% from the same period in the prior year due primarily to lower equipment sales in the construction and forestry category. This increase was offset partially by higher industrial parts sales.
  • Revenue in central Canada of $90.5 million increased 3.7% from the same period in the prior year due primarily to higher ERS sales.
  • Revenue in eastern Canada of $172.2 million decreased 9.8% from the same period in the prior year due primarily to lower equipment sales in the construction and forestry, and material handling categories.
• Gross profit margin of 22.0% in the first quarter of 2024 increased 150 basis points ("bps") compared with gross profit margin of 20.4% in the same period of 2023. The increase was driven primarily by a higher proportion of, and higher margins on, product support, industrial parts and ERS sales.(1)
• Selling and administrative expenses as a percentage of revenue increased to 16.4% in the first quarter of 2024 from 14.7% in the same period of 2023. Selling and administrative expenses in the first quarter of 2024 increased $3.3 million compared with the first quarter of 2023. This increase was due primarily to higher personnel costs.(1)
• EBIT decreased $2.8 million, or 9.5%, to $26.7 million in the first quarter of 2024 versus $29.5 million in the same period of 2023. The year-over-year decrease in EBIT resulted primarily from lower sales volumes and higher personnel expenses, offset partially by an improved gross profit margin. Adjusted EBIT decreased $3.4 million, or 11.8%, to $25.6 million in the first quarter of 2024 from $29.0 million in the first quarter of 2023, and adjusted EBIT margin decreased to 5.3% in the first quarter of 2024 from 5.6% in the same quarter of 2023.(1)
• The Corporation generated net earnings of $14.7 million, or $0.68 per share, in the first quarter of 2024 versus $17.5 million, or $0.81 per share, in the same period of 2023. The Corporation generated adjusted net earnings of $12.8 million, or $0.59 per share, in the first quarter of 2024 versus $17.8 million, or $0.83 per share, in the same period of 2023. Adjusted net earnings in the first quarter of 2024 excludes non-cash gains on mark to market of derivative instruments of $1.9 million after tax, or $0.09 per share (2023 – losses of $0.3 million, or $0.01 per share).(1)
• Adjusted EBITDA margin increased to 8.4% in the first quarter of 2024 from 8.3% in the first quarter of 2023.(1)
• Cash flows used in operating activities amounted to $7.3 million in the first quarter of 2024, compared with cash flows used in operating activities of $69.6 million in the same quarter of the previous year. The increase in cash generated of $62.2 million was mainly attributable to a decrease in contract assets of $16.3 million during the quarter compared to an increase of $7.0 million in the prior year, a decrease in trade and other receivables of $18.5 million during the quarter compared to a decrease of $5.0 million in the prior year, and income taxes paid of $10.0 million during the quarter compared to $27.0 million in the prior year.
• The Corporation's backlog at March 31, 2024 of $587.1 million increased $33.1 million, or 6.0%, compared to December 31, 2023 backlog of $554.0 million due primarily to higher construction and forestry orders. The Corporation's backlog at March 31, 2024 increased $56.4 million, or 10.6%, compared to March 31, 2023 backlog of $530.8 million due to higher mining and material handling orders, offset partially by lower construction and forestry, and industrial parts orders.(1)
• Working capital of $542.9 million at March 31, 2024 decreased $17.4 million from December 31, 2023 due primarily to higher accounts payable and accrued liabilities, lower trade and other receivables, lower contract assets, and the Corporation's unsecured subordinated debentures being classified within current liabilities in the current quarter versus non-current liabilities in the prior quarter. These decreases were offset partially by higher inventory. Working capital efficiency was 25.6%, an increase of 180 bps from December 31, 2023, due to the higher trailing four quarter average working capital and the lower trailing 12-month revenue. Excluding the debentures, working capital of $599.3 million at March 31, 2024 increased $39.1 million from December 31, 2023, and working capital efficiency was 26.3%, an increase of 240 bps from December 31, 2023.(1)
• The Corporation's leverage ratio increased to 2.20 times at March 31, 2024, compared to 1.98 times at December 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, and lower trailing 12-month pro-forma adjusted EBITDA. The Corporation's senior secured leverage ratio was 1.85 times at March 31, 2024, compared to 1.64 times at December 31, 2023.(1)
• Effective January 2, 2024, Wajax completed adjustments to its senior management structure following the retirement of Steve Deck, Chief Operating Officer and Senior Vice President, Heavy Equipment. Brian Deacon was appointed to the role of Senior Vice President, Category Management, and André Dubé to the role of Senior Vice President, Sales and Operations. Mr. Deacon first joined Wajax in 2011 after 14 years in the equipment industry, and has held increasingly senior roles at the Corporation, including Regional Branch Manager – Equipment, and Vice President, Service Operations. Most recently, he was serving as Regional Vice President, Western Canada. Mr. Dubé first joined Wajax in 1999 as a strategic sourcing specialist, and most recently, was serving as Senior Vice President, Industrial Part and ERS.
• On January 11, 2024, Wajax amended its senior secured credit facility to increase the facility limit from $400.0 million to $500.0 million. The facility is now composed of a $50.0 million non-revolving term facility and a $450.0 million revolving term facility. There was no change to the maturity date of the senior secured credit facility.
• On March 4, 2024, the Corporation announced a 6% increase in its quarterly dividend. A dividend of $0.35 per share was declared for the first quarter of 2024, paid on April 2, 2024, to shareholders of record on March 15, 2024.

Conference Call Details

Wajax will webcast its First Quarter Financial Results Conference Call. You are invited to listen to the live webcast on Thursday, May 2, 2024 at 2:00 p.m. EDT. To access the webcast, please visit our website wajax.com, under "Investor Relations", "Events and Presentations", "Q1 2024 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.

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 HCMA's new financing program introduced March 1, 2024 will benefit Wajax customers and result in stronger equipment sales in the near term; our expectation that stronger equipment sales will result in the near term given our increased 2024 first quarter backlog and the new HCMA financing program, and that our inventory will decline over the next two quarters; our expectation that the recently completed $100.0 million increase in credit limit under our senior secured credit facility will provide us with additional flexibility as we continue to invest in future organic growth and our robust pipeline of potential acquisitions; our intention to continue to monitor end markets and customer purchasing patterns, while being prudent with costs and maintaining focus on the execution of our strategic priorities; our belief that fundamentals remain solid in many of the markets we serve – particularly in mining and energy; our expectation that the majority of recent increases in short-term equipment rental arrangements will also convert to equipment sales within six to twelve months; our focus on six strategic priorities for 2024: continuing to build a "people first" company, growing Wajax's existing business with a focus on parts, service and margin improvement, unlocking the potential of Wajax's enhanced direct relationship with Hitachi, acquiring industrial parts and ERS businesses, improving cost structure and processes, and continuing Wajax's ERP system rollout and additional technology improvements. 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 strategic priorities, including our ability to execute on our organic growth priorities, complete and effectively integrate industrial parts and ERS acquisitions, and successfully implement new information technology platforms, systems and software, such as our ERP system; 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; 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 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; a decrease in levels of customer confidence and spending; supply chain disruptions and shortages; fluctuations in financial market conditions, including interest rates; the level of demand for, and prices of, the products and services we offer; 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, 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 Management's Discussion and Analysis for the year-ended December 31, 2023 (the "2023 MD&A"), which has been filed under the Corporation's profile on SEDAR+ at www.sedarplus.ca, under the heading "Risk Management and Uncertainties". The forward-looking statements contained in this news release 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 2023 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 under the Corporation's profile on SEDAR+ at www.sedarplus.ca.

SOURCE Wajax Corporation

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