WJX Wajax Corporation

TSX Symbol:  WJX

TORONTO, May 2, 2022 /CNW/ - Wajax Corporation ("Wajax" or the "Corporation") today announced its 2022 first quarter results.

In commenting on the Corporation's results, Iggy Domagalski, President and Chief Executive Officer, stated "During the first quarter, Wajax delivered strong revenue of $439.5 million, an increase of 14% year-over-year, and improved gross profit margins. Our leverage ratio further decreased to 1.24 times and we recorded record quarter end backlog of $540.1 million.⁽²⁾ We are pleased with these results and the continued strong performance of the business, and we look forward to engaging with shareholders at our upcoming annual meeting."

• Revenue in the first quarter of 2022 increased $52.4 million, or 13.5%, to $439.5 million, from $387.1 million in the first quarter of 2021. Regionally:
• • Revenue in western Canada of $207.0 million increased 32.7% over the prior year due primarily to engineered repair services ("ERS") and industrial parts strength attributable to strong sales from Tundra Process Solutions Ltd. ("Tundra") and robust bearings sales, as well as higher mining equipment sales, including one large mining shovel delivery, and higher product support revenue in the mining and construction and forestry categories.
  • Revenue in central Canada of $76.4 million decreased 5.8% over the prior year due primarily to lower construction and forestry equipment sales, offset partially by strength in industrial parts and power systems sales.
  • Revenue in eastern Canada of $156.1 million increased 4.1% over the prior year due primarily to higher bearings sales driving higher industrial parts revenue.
• During the quarter, the Corporation did not recognize any reimbursement of compensation expense from the Canada Emergency Wage Subsidy ("CEWS") program. During the same quarter last year, the Corporation qualified for the CEWS and recognized $6.3 million as a reimbursement of compensation expense with $2.8 million and $3.5 million, respectively, allocated to cost of sales and selling and administrative expenses in proportion to personnel costs recorded in those areas. Approximately $2.5 million of the first quarter 2021 subsidy was allocated to temporary supplemental compensation programs directed at the Corporation's frontline employees. The resultant net pre-tax contribution to earnings of the CEWS recovery in the first quarter of 2021 was approximately $3.8 million.
• Gross profit margin of 21.3% in the first quarter of 2022 increased 1.7% compared to gross profit margin of 19.6% in the same period of 2021. Excluding the CEWS recoveries in the first quarter of last year of $2.8 million, gross profit margin in the first quarter of 2022 increased 2.4% compared to the gross profit margin of 18.9% in the same period of 2021. The increase in margin was driven primarily by higher equipment margins, and a higher proportion of industrial parts and ERS sales compared to equipment sales.
• Selling and administrative expenses as a percentage of revenue increased to 15.3% in the first quarter of 2022 from 13.9% in the first quarter of 2021. Excluding the CEWS recoveries in the first quarter of last year of $3.5 million, selling and administrative expenses as a percentage of revenue increased from 14.8% in the first quarter last year to 15.3% in the first quarter of 2022. Selling and administrative expenses in the first quarter of 2022 increased $13.5 million compared to the first quarter of 2021 due mainly to the prior year $3.5 million recovery of personnel expenses from the CEWS program without a similar recovery in the current year, higher salary costs as the volume of business increased over the prior year, and additional selling and administrative expenses related to Tundra.
• EBIT increased $4.2 million, or 18.7%, to $26.4 million in the first quarter of 2022 versus $22.2 million in the same period of 2021.⁽²⁾ The year-over-year increase in EBIT is primarily attributable to higher volumes and margins, and a higher proportion of industrial parts and ERS sales compared to equipment sales. These increases were offset partially by higher selling and administrative expenses, and a prior year recovery of personnel expenses from the CEWS program without a similar recovery in the current year.
• The Corporation generated net earnings of $16.1 million, or $0.75 per share, in the first quarter of 2022 versus $12.5 million, or $0.59 per share, in the same period of 2021. The Corporation generated adjusted net earnings of $15.7 million, or $0.73 per share, in the first quarter of 2022 versus $12.4 million, or $0.59 per share, in the same period of 2021.⁽²⁾
• Adjusted EBITDA margin decreased to 8.9% in the first quarter of 2022 from 9.0% in the same period of 2021.⁽²⁾ Excluding the CEWS recoveries in the first quarter of last year of $6.3 million, adjusted EBITDA margin increased to 8.9% in the first quarter of 2022 from 7.4% in 2021.⁽²⁾
• The Corporation's backlog at March 31, 2022 of $540.1 million increased $115.8 million, or 27.3%, compared to December 31, 2021 due to higher orders in most categories, most notably the construction and forestry category and the ERS and industrial parts categories.⁽²⁾ Compared to March 31, 2021, backlog increased $263.6 million, or 95.3%, due to higher orders in most categories, most notably the construction and forestry, material handling, power systems and the ERS and industrial parts categories.⁽²⁾
• Inventory increased $20.4 million in the first quarter of 2022 to $409.1 million at March 31, 2022 due primarily to higher equipment inventory in the construction and forestry category and higher mining rental equipment and parts inventory, offset partially by lower mining equipment inventory.
• Working capital of $319.7 million at March 31, 2022 increased $6.2 million from December 31, 2021 due to higher inventory, higher trade and other receivables and higher contract assets, offset partially by higher accounts payable and higher contract liabilities.⁽²⁾ Trailing four-quarter average working capital as a percentage of the trailing 12-month sales was 19.2%, a decrease of 1.3% from December 31, 2021, due to the combination of the lower four-quarter average working capital and the higher trailing 12-month sales.⁽²⁾
• Cash flows generated from operating activities amounted to $19.4 million in the first quarter of 2022, compared to cash flows generated from operating activities of $77.2 million in the same quarter of the previous year. The decrease in cash generated from operating activities of $57.8 million was mainly attributable to a decrease in cash generated from changes in non-cash operating working capital of $62.0 million. This was due primarily to higher accounts receivable as a result of higher sales activity in the quarter compared to the previous quarter, as well as higher equipment inventory levels and an increase in rental equipment additions of $3.6 million, offset partially by an increase in net earnings excluding items not affecting cash flow of $4.6 million, and a decrease in income taxes paid of $3.1 million.
• The Corporation's leverage ratio decreased to 1.24 times at March 31, 2022, compared to 1.29 times at December 31, 2021.⁽²⁾ The decrease in the leverage ratio was due to the lower debt level in the current period and a higher trailing twelve months EBITDA.⁽¹⁾ The Corporation's senior secured leverage ratio was 0.78 times at March 31, 2022, compared to 0.82 times at December 31, 2021.⁽²⁾
• On January 31, 2022, the Corporation announced the acquisition of the net operating assets of Thunder Bay, Ontario-based Process Flow Systems Ltd. ("Process Flow"). The assets of Process Flow were acquired in exchange for cash consideration of approximately $4.0 million, plus a three-year performance-based earnout of up to $0.7 million in the aggregate, payable in cash. Process Flow's trailing twelve-month revenue from the time of acquisition was $6.5 million.
• Effective March 1, 2022, Wajax and Hitachi Construction Machinery Loaders America Inc. ("Hitachi") expanded their Canadian direct distribution relationship to include construction excavators, mining equipment and related aftermarket parts. Prior to this, and since 2001, these products had been supplied to Wajax via a third-party joint venture partner to Hitachi Construction Machinery ("HCM"). HCM and its joint venture partner dissolved their partnership effective February 28, 2022.

On May 2, 2022, the Corporation declared a dividend of $0.25 per share for the second quarter of 2022 payable on July 5, 2022 to shareholders of record on June 15, 2022.

Commenting further on the Corporation's results, President and Chief Executive Officer Iggy Domagalski stated, "Building on 2021's record revenue and strong earnings performance, Wajax had a solid start to 2022. Combined with the Corporation's strengthened balance sheet and expanded product and service offerings, we continue to believe that Wajax is ideally positioned to continue to grow in 2022 and beyond."

Regarding Wajax's outlook for the year, Mr. Domagalski stated, "As we move further into 2022, Wajax continues to see sound fundamentals in many of its key markets, bolstered by improving commodity prices and increased capital spending. This positive view of the market remains counterbalanced by the unpredictable COVID-19 pandemic and related supply chain issues, which Wajax expects will be a factor throughout the year ahead, particularly in its heavy equipment business. Wajax continues to manage these challenges through frequent dialogue with key suppliers and customers, pre-ordering new equipment, and utilizing repairs and rebuilds to extend the service life of equipment."

Mr. Domagalski continued, "Despite these ongoing challenges, the Corporation's improved balance sheet and record quarter end backlog of $540.1 million continues to show momentum in the business.⁽²⁾ To maintain this momentum and increase shareholder value, Wajax plans to continue its focus on the following priorities: investing in its people and their safety, delivering exceptional customer experiences, organically growing its business, building its acquisition pipeline, supporting its closer relationship with Hitachi, prudently managing its balance sheet, deploying its ERP and remote diagnostic systems, and building sustainability into the business."

Mr. Domagalski concluded, "Looking ahead, Wajax believes its strong balance sheet, ability to generate cash flow, and abundant growth opportunities will allow its business to grow meaningfully over the long term."

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.

Wajax will webcast its First Quarter Financial Results Conference Call. You are invited to listen to the live webcast on Tuesday, May 3, 2022 at 2:00 p.m. ET. To access the webcast, please visit our website wajax.com, under "Investor Relations", "Events and Presentations", "Q1 2022 Financial Results" and click on the "Webcast" link.

The press release contains certain non-GAAP and additional GAAP 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.

Non-GAAP financial measures are identified and defined below:

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

Reconciliation of the Corporation's net earnings to EBT, EBIT, EBITDA, 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:

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 solid start to 2022, combined with our strengthened balance sheet and expanded product and service offerings, positions us ideally to grow in 2022 and beyond; our view that, as we move further into 2022, we are continuing to see sound fundamentals in many of our key markets, bolstered by improving commodity prices and increased capital spending, and that this positive view of the market remains counterbalanced by the unpredictable COVID-19 pandemic and related supply chain issues; our expectation that supply chain issues will be a factor throughout the year ahead, particularly in our heavy equipment business, and our plans to continue to manage these challenges through frequent dialogue with key suppliers and customers, pre-ordering new equipment, and utilizing repairs and rebuilds to extend the service life of equipment; our belief that our improved balance sheet and record quarter-end backlog shows momentum in our business; our plans to maintain such momentum and increase shareholder value by focusing on the following priorities: investing in our people and their safety, delivering exceptional customer experiences, organically growing our business, building our acquisition pipeline, supporting our closer relationship with Hitachi, prudently managing our balance sheet, deploying our ERP and remote diagnostic systems, and building sustainability into our business; our belief that our strong balance sheet, ability to generate cash flow and abundant growth opportunities will allow our business to grow meaningfully over the long-term; our objective of maintaining a leverage ratio between 1.5 and 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, our ability to successfully manage our business through the COVID-19 pandemic and actions taken by governments, public authorities, suppliers and customers in response to the novel coronavirus and its variants; 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; general business and economic conditions; the supply and demand for, and the level and volatility of prices for, oil, natural gas and other commodities; financial market conditions, including interest rates; our ability to execute our One Wajax strategy, including our ability to execute on our organic growth priorities, complete and effectively integrate acquisitions, and successfully implement new information technology platforms, systems and software, such as our new ERP system; the future financial performance of the Corporation; our costs; market competition; our ability to attract and retain skilled staff; our ability to procure quality products and inventory; and our ongoing relations 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, the geographic spread and ultimate impact of the COVID-19 virus and its variants, and the duration of the coronavirus pandemic; the duration and severity of travel, business and other restrictions imposed by governments and public authorities in response to COVID-19, as well as other measures that may be taken by such authorities; actions taken by our suppliers and customers in relation to the COVID-19 pandemic, including slowing, reducing or halting operations; supply chain disruptions and shortages related to or arising from the impacts of COVID-19; the inability of Hitachi and Wajax to develop and execute successful sales, marketing and other plans related to their expanded direct distribution relationship; a continued or prolonged deterioration in general business and economic conditions (including as a result of the COVID-19 pandemic or armed conflicts); volatility 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; fluctuations in financial market conditions, including interest rates; the level of demand for, and prices of, the products and services we offer; levels of customer confidence and spending; market acceptance of the products we offer; 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 disruptions caused by the COVID-19 pandemic), job action and unanticipated events related to health, safety and environmental matters); our ability to attract and retain skilled staff and our ability to maintain our relationships with 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 Annual Information Form for the year ended December 31, 2021 (the "AIF"), in our annual MD&A for financial risks, and in our most recent quarterly MD&A, all of which have been filed on SEDAR. 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 AIF, and in our annual and quarterly MD&A, are not the only risks that could impact the Corporation. We cannot accurately predict the full impact that COVID-19 will have on our business, results of operations, financial condition or the demand for our products and services due to the uncertainties related to the spread of the virus and its variants. 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