WAJAX ANNOUNCES 2024 THIRD QUARTER RESULTS AND CHIEF FINANCIAL OFFICER SUCCESSION

TSX Symbol:  WJX

Equipment Sales and Mining Backlog Increase, Costs Decrease as Market Conditions Drive Overall Year-Over-Year Revenue Decline

TORONTO, November 4, 2024 /CNW/ - Wajax Corporation ("Wajax" or the "Corporation") today announced its 2024 third quarter results, as well as the planned retirement of its Chief Financial Officer. All monetary amounts are in Canadian dollars unless otherwise noted.

Selected Highlights for the Third Quarter

Third quarter revenue of $481.0 million and adjusted basic earnings per share of $0.44, down from $509.7 million and $0.96, respectively, in the same quarter of the prior year, reflecting softer than anticipated market conditions;

Third quarter gross profit margin of 19.2%, down from 22.2% in the same quarter of 2023, due primarily to a higher proportion of equipment sales relative to product support, industrial parts, and engineered repair services ("ERS") sales. In addition, increased competitive and market pressures resulted in lower margins realized on product support and industrial parts sales, offset partially by higher margins on ERS sales;

Third quarter adjusted EBITDA margin of 7.8%, down from 9.8% in the same quarter of the prior year, due to lower sales volume and a lower gross profit margin, offset partially by lower selling and administrative expenses; and

Backlog of $588.1 million at September 30, 2024, up $43.3 million, or 7.9%, from June 30, 2024.(1)

"Equipment sales in the quarter increased 4.5% over the prior year, despite the delivery of a large mining shovel in the third quarter of 2023 which did not recur this year," said Iggy Domagalski, President and Chief Executive Officer. "Softer than anticipated market conditions, resulting from reduced customer demand, together with increased competitive pressure, contributed to lower product support and industrial parts revenue and margins."

He continued, "Our backlog at September 30, 2024 increased $43.3 million compared to the second quarter of 2024, due primarily to higher construction and forestry and mining orders; this backlog includes seven large mining shovels, which we expect to be delivered over the next seven quarters. Our inventory has decreased $27.9 million from March 31, 2024 as we continue to focus on managing and reducing inventory levels; at the end of the quarter, we had one large mining shovel in inventory which is expected to be delivered in the fourth quarter of 2024. Cost saving initiatives implemented during the quarter helped to reduce selling and administrative expenses by $10.8 million compared to the second quarter of 2024 and $5.0 million compared to the third quarter of 2023, and we are actively pursuing further cost reduction measures. Leverage is expected to improve with our cost and inventory reduction initiatives, and as we seek further improvements to operating efficiency."

(dollars in millions, except per share data)

Three Months EndedSeptember 30

Nine Months EndedSeptember 30

2024

2023

% change

2024

2023

% change

CONSOLIDATED RESULTS

Revenue

$481.0

$509.7

(5.6) %

$1,531.7

$1,612.0

(5.0) %

Equipment sales

$131.7

$126.0

4.5 %

$410.2

$448.6

(8.6) %

Product support

$123.1

$135.1

(8.9) %

$402.3

$410.4

(2.0) %

Industrial parts

$136.4

$160.9

(15.3) %

$438.4

$469.1

(6.5) %

Engineered repair services (ERS)

$78.1

$76.7

1.9 %

$247.4

$250.6

(1.3) %

Equipment rental

$11.8

$11.1

6.1 %

$33.4

$33.2

0.6 %

Net earnings

$6.4

$23.4

(72.6) %

$41.8

$69.9

(40.2) %

Basic earnings per share(2)

$0.29

$1.09

(72.9) %

$1.92

$3.25

(40.8) %

Adjusted net earnings(1)(3)

$9.6

$20.7

(53.7) %

$45.4

$65.7

(30.9) %

Adjusted basic earnings per share(1)(2)(3)

$0.44

$0.96

(54.2) %

$2.09

$3.06

(31.6) %

Adjusted EBIT(1)

$21.6

$35.4

(39.1) %

$86.5

$107.2

(19.3) %

Adjusted EBITDA(1)

$37.4

$50.0

(25.3) %

$132.8

$150.2

(11.6) %

Adjusted EBIT margin(1)

4.5 %

7.0 %

(35.5) %

5.6 %

6.7 %

(15.1) %

Adjusted EBITDA margin(1)

7.8 %

9.8 %

(20.8) %

8.7 %

9.3 %

(6.9) %

CFO Succession

Wajax also today announced the planned retirement of Stuart Auld, Chief Financial Officer, to be effective March 4, 2025. Mr. Auld first joined Wajax in 2014 as Senior Vice President, Information Systems, before being appointed Senior Vice President, Human Resources and Information Systems in 2017. He was appointed Chief Financial Officer in 2019. Prior to joining Wajax, Mr. Auld served for over 25 years in senior executive roles at Canadian Tire, Zellers and Hudson's Bay.

Following a comprehensive succession planning process, Tania Casadinho, Vice President, Corporate Controller, has been appointed to succeed Mr. Auld as Chief Financial Officer effective March 4, 2025. Ms. Casadinho has more than 16 years' experience in finance and accounting, gained in the health services, nutrition and industrial sectors, and first joined Wajax in 2018. She is a Chartered Professional Accountant and Chartered Accountant, and holds a Bachelor of Administrative Studies, with Specialized Honours in Accounting, from York University. Ms. Casadinho and Mr. Auld will work closely over the coming months to facilitate a seamless transition.

"On behalf of the board and management team, I want to express my appreciation to Stuart for his exceptional contributions over the past decade," said Mr. Domagalski. "Among many things, Stuart played a key leadership role in unifying Wajax's operational structure, significantly growing our business and has most recently led the successful implementation of our new ERP system. He has also provided crucial advice and guidance to me since I joined Wajax in 2021, for which I am grateful. We all wish him the very best in his well-earned retirement."

Mr. Domagalski continued, "Since joining Wajax in 2018, Tania has been a strong leader, taking on progressively more responsibility and challenge. Among other things, she has significantly improved our budgeting and forecasting processes and introduced new analytical tools; she has also worked closely with senior leaders across the company and contributed greatly to our strategic planning process. Together, the board and I are confident Tania is the ideal person to maintain our disciplined approach to financial risk management, and we look forward to continuing to work with her in this new role as we pursue our strategic goals."

Outlook

Wajax continues to see strong customer demand in the mining and energy sectors, and reduced activity in industrial and forestry. Given softer than expected market conditions and year-to-date results, management has implemented a number of cost-saving initiatives and is actively pursuing further cost reduction measures.

Management is 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 ERP system rollout and additional technology improvements.

Management continues to evaluate options to repay or refinance the Corporation's $57.0 million in senior unsecured debentures maturing January 15, 2025.

Dividend

The Corporation has declared a dividend of $0.35 per share for the fourth quarter of 2024, payable on January 7, 2025, to shareholders of record on December 16, 2024.

Third Quarter Highlights

Revenue in the third quarter of 2024 decreased $28.7 million, or 5.6%, to $481.0 million, from $509.7 million in the third quarter of 2023. Regionally:

Revenue in western Canada of $209.7 million decreased 10.0% from the same period in the prior year due primarily to lower product support and industrial parts sales, as well as the delivery of a large mining shovel in the third quarter of the prior year with no such delivery in the current year. These decreases were partially offset by higher equipment sales in the construction and forestry category.

Revenue in central Canada of $88.5 million decreased 3.9% from the same period in the prior year due primarily to lower industrial parts sales.

Revenue in eastern Canada of $182.8 million decreased 1.1% from the same period in the prior year due primarily to lower industrial parts and ERS sales, partially offset by higher equipment sales in the construction and forestry category.

Gross profit margin of 19.2% in the third quarter of 2024 decreased 300 basis points ("bps") compared with gross profit margin of 22.2% in the same period of 2023. This decrease in margin was driven primarily by a higher proportion of equipment sales relative to product support, industrial parts, and ERS sales. In addition, increased competitive and market pressures resulted in lower margins realized on product support and industrial parts sales. These decreases were partially offset by higher margins on ERS sales.(1)

Selling and administrative expenses as a percentage of revenue decreased to 14.7% in the third quarter of 2024 from 14.9% in the same period of 2023. Selling and administrative expenses in the third quarter of 2024 decreased $5.0 million compared with the third quarter of 2023. This decrease was due primarily to lower personnel costs driven largely by cost saving initiatives implemented in the quarter.(1)

EBIT decreased $15.8 million, or 42.4%, to $21.4 million in the third quarter of 2024 versus $37.2 million in the same period of 2023. The year-over-year decrease in EBIT resulted primarily from lower sales volume and gross profit margin, offset partially by reduced selling and administrative expenses. Adjusted EBIT decreased $13.9 million, or 39.1%, to $21.6 million in the third quarter of 2024 from $35.4 million in the third quarter of 2023, and adjusted EBIT margin decreased to 4.5% in the third quarter of 2024 from 7.0% in the same quarter of 2023.(1)

Finance costs of $13.0 million in the third quarter of 2024 increased $7.5 million compared with the same quarter last year due primarily to higher interest rates and higher average borrowings under the bank credit facility, and an unrealized loss on interest rate swaps of $4.2 million in the quarter compared to a gain of $1.8 million in the same period of the prior year. Excluding the unrealized loss or gain on interest rate swaps in both periods, finance costs increased $1.5 million compared with the same quarter last year.

The Corporation generated net earnings of $6.4 million, or $0.29 per share, in the third quarter of 2024 versus $23.4 million, or $1.09 per share, in the same period of 2023. The Corporation generated adjusted net earnings of $9.6 million, or $0.44 per share, in the third quarter of 2024 versus $20.7 million, or $0.96 per share, in the same period of 2023. Adjusted net earnings in the third quarter of 2024 excludes non-cash losses on mark to market of derivative instruments of $3.2 million after tax, or $0.15 per share (2023, gains of $2.5 million after tax, or $0.12 per share). Adjusted net earnings for ...