Q4 2023 Wajax Corp Earnings Call
So you use them, a golf ski President and Chief Executive Officer, Mr. Stuart Oldham, Chief Financial Officer, and MS. Tania Casino VP corporate controller. Please be advised that this webcast is being recorded.
Speaker Change: Note that this webcast contains forward looking statements actual future results may differ from expected results I'll now turn the call over to MS. Tania Kasai Dino. Thank you. Please go ahead.
Speaker Change: Thank you operator, good afternoon, and thank you for participating in our fourth quarter results call. This afternoon, we will be following a webcast, which includes a summary presentation of wage axis Q4, 2023 financial results. The presentation can be found on our website under investor relations events and presentations.
Speaker Change: Again, I would like to draw your attention to our cautionary statement regarding forward looking information on slide two and the non-GAAP and other financial measures on slide three.
Speaker Change: Please turn to slide four and at this point I will turn the call over to <unk>.
Speaker Change: Thank you Tanya.
Speaker Change: I will provide highlights on our fourth quarter before turning it over to Stuart for commentary on backlog inventory and the balance sheet.
Speaker Change: This slide provides an overview of <unk>. The corporation has 165 years of Canadian operating history and operates across 119 branches with a team of more than 3250 employees during the quarter, our heavy equipment categories and revenue sources made up approximately 56% of our total revenue, while industrial product and <unk> generated approximately.
<unk> <unk> 44 per cent.
Speaker Change: Turning to slide five.
Speaker Change: It provides an overview of our purpose and values. We Jackson'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 people customers suppliers and the communities we serve.
Speaker Change: Our purpose and values, we will continue to build the people first company that has strong resilient unprofitable.
Speaker Change: Our purpose and values guide, our decision, making and allow us to execute on our strategic priorities.
Speaker Change: Turning to slide six.
Speaker Change: Slide provides an overview of our strategic priorities, which are refreshed and enhance our in 2023.
Speaker Change: Management is completely focused on executing against these priorities in between our purpose and values and these six priorities. We have the foundation to continue growing our company for many years to come.
Speaker Change: Turning to slide seven.
Speaker Change: In the fourth quarter way Jack saw strong adjusted EBITDA performance revenue of $542 6 million increased $1 $3 million during the quarter. The increase resulted from higher construction and forestry sales in central and Eastern Canada, and higher <unk> sales in all regions offset partially by lower mining and construction and forestry equipment.
Speaker Change: Sales in Western Canada.
Gross profit margin of 21, 2% increased 310 basis points compared to the same period of 2022, due primarily to higher margins across all revenue types and a higher proportion of IRS and product support sales as compared to equipment sales.
Speaker Change: Selling and general selling and administrative expenses as a percent of revenue increased to 17, 1% in the fourth quarter of 2023 from 13, 2% in the fourth quarter of 2022, excluding the $5 $5 million loss on interest rate swaps and the $1 5 million facility closure restructuring and other really.
Speaker Change: Added costs, selling and administrative expenses as a percent of revenue was 15, 7% in the fourth quarter of 2023 selling.
Speaker Change: Selling and administrative expenses in the fourth quarter of 2023 increased $21 2 million or 29, 6% compared to the fourth quarter of 2022, due primarily to higher personnel cost as a volume of E. R. S and product support business increased over the prior year and unrealized loss of interest rate swaps of $5 5 million in the quarter.
Speaker Change: <unk> to a loss of less than 0.1 million in the same quarter of the prior year and a facility closure restructuring and other related costs of $1 9 million in the quarter without a comparable cost in the same quarter of the prior year.
Speaker Change: Adjusted EBITDA of $47 2 million increased $3 4 million or 12, 1% from the fourth quarter of 2022, noting the adjustments recorded on this chart. The increase resulted from higher selling and administrative expenses offset partially by higher margins and a higher proportion of urs and product support sales.
Speaker Change: Adjusted net earnings of 83 per share were unchanged from the fourth quarter of 2022, noting the adjustments recorded on this chart.
Speaker Change: At the end of Q4, the trip rate was 1.01, an increase of 20% from the fourth quarter of 2020 to the fourth quarter drift rate was down 3% from the third quarter of 2023 safety continues to be way Jack is number one priority and management is committed to continuously improving our safety programs to improve on this result, we thank everyone on our team.
Speaker Change: For their ongoing dedication to workplace safety.
Speaker Change: Turning to slide eight.
Speaker Change: Revenue increased <unk>, 2% in the fourth quarter resulted from growth in the central and eastern regions Western Canada sales of $236 million decreased 16% in the quarter, mainly due to the timing of mining equipment sales as well as lower equipment sales in the construction and forestry category offset partially by strong <unk> sales.
Canada sales of $105 million increased 21, 3% in the quarter due primarily to strong <unk> sales higher equipment sales in the construction and forestry category and higher product support revenue across all categories Eastern Canada sales of $202 million increased 15% in the quarter due primarily to higher equipment and product support sales.
Speaker Change: And the construction and forestry category and strong industrial parts, an ear of sales.
Speaker Change: Please turn to slide nine and.
Speaker Change: An update on equipment and product support sales and year over year variances are shown on this page equipment sales of $158 million decreased $44 million or 22% compared to last year, due primarily to lower mining and construction and forestry sales in western Canada, offset partially by higher construction and forestry sales in central and Eastern Canada.
Speaker Change: <unk> support sales of $133 million increased $15 million or 12% due primarily to higher mining revenue in western Canada, and higher construction and forestry revenue sales in eastern Canada.
Speaker Change: Please turn to slide 10.
Speaker Change: An update on industrial parts, and <unk> sales and year over year variances are shown on this page industrial sales of approximately $136 million decreased $2 million or 1% due to lower sales in western Canada, offset partially by higher sales in eastern Canada.
Speaker Change: Sales of 140 of $104 million increased $31 million or 43% due to higher sales in all regions, particularly in Western Canada.
Speaker Change: Turning to slide 11.
Speaker Change: This slide summarizes sales at a category level for our company's overall groupings of heavy equipment and industrial parts and services in the fourth quarter, the heavy equipment categories decreased $28 million or 8% driven primarily by lower mining sales in western Canada, offset partially by higher construction and forestry sales in central and Eastern Canada.
In the fourth quarter of 2022, the corporation sold several several large mining shovels, resulting in particularly strong revenue in the quarter.
Speaker Change: Total growth in industrial parts and services categories of approximately $29 million or 14% was driven by an increase in <unk> across all regions. We continue to see growth in these less cyclical categories and they remain a core element of our broader growth strategy I will now turn the call over to Stuart.
Speaker Change: Yes.
Speaker Change: Thanks.
Speaker Change: Please turn to slide 12 for my comments on backlog and inventory.
Our backlog of $554 million decreased $45 3 million or seven 6% compared to backlog of $599 2 million in Q3.
Speaker Change: And increased $85 2 million or 18, 2% on a year over year basis the.
Speaker Change: The sequential decrease was due to the lower construction enforce reorders the year over year increase was due to higher mining material handling and the IRS orders offset partially by lower construction and forestry orders overall, our strong backlog reflects continued momentum in our heavy equipment industrial parts and.
Speaker Change: E R S categories.
Speaker Change: Inventory decreased $28 million compared to Q3, 2023, due primarily to lower equipment inventory and the construction and forestry category due to timing of inventory purchases inventory.
Speaker Change: Inventory increased $168 8 million compared to Q4 2022 due to increases in most categories. As a result of strong sales activity.
Speaker Change: Please turn to slide 13.
Speaker Change: Where I'll provide an update on cash flow leverage in working capital.
Speaker Change: Cash flow from operating activities.
Speaker Change:
Speaker Change: In the quarter of $48 5 million increased $29 4 million from cash generated from operating activities of $19 1 million in Q4 2022, mainly due to an increase decrease in accounts receivable and inventory.
Speaker Change: Our Q4 leverage ratio decreased to 198 times from two six times in Q3 due to the lower debt level in the current period, driven largely by cash generated from operating activities during the quarter.
Speaker Change: The corporation's leverage ratio is currently within our range of one five to two times at the end of Q4.
Speaker Change: Our available credit capacity at the end of Q4 was $126 6 million, which is sufficient to meet short term normal course, working capital and maintenance capital requirements and fund our acquisition program and planned strategic initiatives.
Speaker Change: On January 11, 2024, we amended our senior secured credit facility, increasing the facility limit from $400 million to $500 million the.
Speaker Change: The increased facility size will provide us with the flexibility to continue to invest our expanded attach your relationship additional organic initiatives and acquisition opportunities to help drive future growth.
Speaker Change: We continue to focus on working capital efficiency, which is a key component in managing our overall leverage targets. The Q4 working capital efficiency was 23, 9% an increase of 250 basis points from September 32023, due to the higher trailing four quarter average working capital.
Finally on March four 2020 for the Corporation announced a 6% increase in its quarterly dividend a dividend of <unk>, 35% 35 per share was declared for the first quarter of 2024 payable on April <unk> 2024 to shareholders of record on March 15th 2020 for the dividend.
<unk> increase reflects the boards and managements collective belief in our strategic vision.
Speaker Change: Please turn to slide 14 at this point I will turn it back to 8%.
Thanks to our 2020 for outlook are summarized on slide 14 in 2023 wage act celebrated its 165th anniversary delivered record revenue of $2 $105 4 million.
Speaker Change: A $2 154 billion up nine 8% from 2022 and adjusted basic earnings per share grew 19, 1% to $3 88 per share.
Speaker Change: Gross profit margin was 29% in 2023 versus 19, 9% in 2022 due to improved product mix and margin improvement initiatives, resulting in an adjusted EBITA margin of nine 2% in 2023 versus eight 5% in 2020 to move.
Speaker Change: Moving into 2024, we continued to see solid fundamentals in many of the markets, we serve particularly mining energy and construction supported by relatively elevated key commodity prices and sustained customer budgeting for capital projects.
Speaker Change: Started 2024 with a strong backlog of $554 million up 18, 2% from the end of last year, which supports management confidence in the near term. In addition to expected growth in our heavy equipment business over the long term. We continue to anticipate further demand in our less cyclical industrial parts and <unk> businesses challenges associated with higher interest.
Speaker Change: Rates wage.
Speaker Change: And price inflation in a tight labor market are expected to persist management continues to monitor market dynamics and customer sentiment for signs of possible weakness and for 2020 for management will be focused on executing its six strategic priorities, which were set out earlier on slide six.
Speaker Change: I'll now turn it back over to the operator and open the line for questions.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your telephone keypad.
Speaker Change: Jewish to cancel your request please press star followed by that too.
Speaker Change: New speaker phone please lift the handset before.
Speaker Change: Amy.
Speaker Change: One moment. Please for your first question.
And your first question comes from the line of Michael <unk> from Scotiabank. Please go ahead.
Speaker Change: Hey, good afternoon guys.
Speaker Change: Hey, Michael.
Okay.
There were a few moving parts in the quarter, which are not 100% sure on how to square away as read through is for 'twenty score. So maybe to start it did look like IP and Drs traveled in some of the <unk>.
Speaker Change: Opposite direction in Q4.
Speaker Change: And maybe just if you can kind of get into what drove some of that divergence there and how I should think about the go forward for for those two lines of businesses.
Michael: Yes, thanks for the question Michael.
Michael: For <unk>, it's better to think of them together.
Michael: Sometimes theres a little bit of revenue that spills over from one into the together.
Michael: Depending on kind of the project and whether the revenue associated with the project is associated with service or product. So thinking about those moving together is I think a better way to look at it.
Speaker Change: Perfect. So just a mix thing and the other one I wanted to maybe get a better understanding borrowers SG&A, even if you exclude the onetime rescue flagged in your release and in the prepared remarks.
Speaker Change: <unk> hundred $85 million $10 million higher versus the previous quarter just.
Speaker Change: What drove the increase.
Speaker Change: I think looking at it quarter to quarter, two is a bit of a challenge and Michael the way that we look at it is really year over year and when you take out the noise of.
Speaker Change: The interest swap mark to market and the branch closure and you look at 2022 SG&A was $14 four and then you look at last year and it was 14 five.
Speaker Change: And so that's a level that we're that we're pretty comfortable with and so forth.
Speaker Change: Feel very comfortable with our 14 five to 15 and a half range that we stated.
Speaker Change: Okay. So just some lumpiness and maybe.
Speaker Change: And youre getting out of the weeds, a little bit for a larger picture question, just trying to get a sense for your.
Speaker Change: How do you feel about growth expectations for 2000 and for the outlook calls for solid fundamentals and I think most of your end markets.
Speaker Change: So how do you think for <unk> just in terms of the growth opportunity and where you think you might have.
Speaker Change: The opportunity for outsized growth.
Michael: Thanks for that question Michael.
I think there's a few areas that we that we remain excited about our.
Michael: Central Canada is one we've had great results, there quarter over quarter and year over year north of 20%.
Michael: And we've got high expectations for that region, our partnership with Hitachi continues to be strong and theyre offering that they offer to us and our end customers continues to get better, especially with with access in their product support. So we are we.
Michael: We see.
Michael: 10, plus years of wonderful growth opportunities with Hitachi and our IP and <unk> businesses are a little less cyclical so we feel.
Michael: We feel we feel quite good about those businesses and the end markets that we serve.
Michael: And then on the acquisition front, we're active.
Michael: We added a second person to the team and as we mentioned in our release here, we increased our credit line by another $100 million to be able to fund all of this growth.
Michael: So we're we're feeling pretty good about the upcoming year.
Speaker Change: Perfect. Thanks very much.
Michael: Thanks, Michael.
Speaker Change: Thank you and your next question comes from the line of Devin Dodge from BMO capital markets. Please go ahead.
Speaker Change: Hey, good afternoon.
Speaker Change: <unk>.
Speaker Change: Welcome to the call anyway.
Speaker Change: Good start with maybe picking up on that last question or part of it.
Speaker Change: With the Hitachi direct relationship, but is there a way to frame the progress being made on leveraging that relationship whether it's equipment.
Speaker Change: <unk> products support good share or some other metrics and where do you see the most opportunities in 2024.
Devin Dodge: Thanks, Thanks for the question Devin.
Devin Dodge: Yeah.
Devin Dodge: I would say that our relationship with Hitachi is is excellent and the promises that were made in that.
That had been made from Hitachi to us have been met and exceeded in many cases.
Devin Dodge: In terms of the opportunities that we really see.
Devin Dodge: Is the financing programs continuing to get better.
Devin Dodge: Which is great I mean, there was it was not so long ago, where there was no financing program at all from Hitachi and now and then we have one and it continues to get better.
Devin Dodge: I think there are opportunities in the parts business as you may recall in Q1 of 2023, there was a tornado that ripped through their parts warehouse and.
That really created a lot of problems with parts availability that has since been 95% fixed.
Devin Dodge: And then and then Hitachi.
Devin Dodge: <unk> commitment to the Americas is.
Devin Dodge: Is is really solid I mean, this is where they're placing some of their bets and they are publicly released materials. This is this is what they talk about and part of that is making sure that the equipment is available.
Devin Dodge: For for us to be able to sell so I think those are those are the three key areas that we think about but theres lots of other things that Hitachi works on behind the scenes as well.
Devin Dodge: Okay.
Devin Dodge: That would probably add would be.
If you look back at this we've only but benefits with Hitachi for 17 or 18 months.
Devin Dodge: We'll continue.
Devin Dodge: To think that it's still a startup.
Devin Dodge: But we hit all of our targets and just think that there is huge upside for us going forward is that you said on a multiple multitude of things, including the mining sector. So it's not just construction. We also have loaders and mining et cetera, and think that there's still opportunity there.
Speaker Change: Okay. Okay. Good color there thanks for that Okay and then.
Speaker Change: Back to the outlook.
Speaker Change: Might be reading too much into this but in the outlook section when discussing the growth outlook for the construction sector I think long term was inserted into the commentary.
Speaker Change: Versus what we've seen in prior quarters, just trying to understand does that infer that in the near term here there might be some softness in construction.
Speaker Change: Yes, I think.
Speaker Change: We're starting to see some customers delay purchases.
Speaker Change: Just due to the higher interest rate environment.
Speaker Change: And so we view it as a great long term business midterm business and in the short term.
Speaker Change: We think there is a few bumps which.
Speaker Change: From our end are offset by.
Speaker Change: Better financing programs and Hitachi is just aggressive desire to continue to grow market share.
Speaker Change: In the Americas, including Canada.
Speaker Change: Okay. Okay makes sense, Okay, and then maybe what was the last one.
What are your priorities for the last while and I think you highlighted in your earlier comments has been to turn <unk> into a people first.
Speaker Change: Just can you talk about the progress that you've made to date and the focal areas for 2024.
Speaker Change: Yeah, absolutely Devin.
Speaker Change: One of the first things. We did is we brought on a chief people officer, a year ago. I think we've made great progress on this front, one was developing our purpose and values and pushing those it throughout the organization and making sure that theyre being lived on the front lines.
Speaker Change: And in terms of the results that we're seeing we're seeing positive movement on our employee net promoter scores, we're seeing positive movement on attrition levels, which are which are which are going down and reducing our recruiting costs and costs related.
Speaker Change: Two.
Speaker Change: To attrition and we're starting to see more applicants parole as well. So we're just starting to see better quality people, they're sticking around longer and they are happier and more productive.
Speaker Change: But so we're happy with the progress we've made and we've still got a long way to go.
Speaker Change: Okay makes sense, thanks for that I'll turn it over.
Speaker Change: Thanks, Kevin.
Thank you once again should you have a question. Please press star one on your telephone keypad and your next question comes from the line of Michael to Paul.
Speaker Change: TD Securities. Please go ahead.
Speaker Change: Thank you good afternoon.
Speaker Change: Hey, Mike.
Speaker Change: Hi.
Speaker Change: Going back to the one of the earlier questions about the performance of IP and the IRS.
Speaker Change: Wondering I take your point about putting those together and looking at them.
Speaker Change: As it.
Speaker Change: As a group or in aggregate.
I'm wondering when we look year over year, and when we do that and we look year over year.
Speaker Change: There is some pretty good growth there, but wondering if you can kind of break that down you did a couple of them.
Speaker Change: Acquisitions in that area. During 2023 is it possible to talk about how much of that.
Speaker Change: The growth we saw in the fourth quarter on a year over year basis was organic versus the benefit of the acquisitions.
Speaker Change: Hey, Mike.
The majority of the growth would have been organic.
Speaker Change: Okay.
Speaker Change: And then regarding the.
Speaker Change: The outlook for 2024 I was wondering if you can comment on the competitive landscape or competitive dynamics as you head into 2024, particularly within the equipment space relative to.
Speaker Change: What you would've seen heading into last year in 2023.
Speaker Change: I think in the equipment space, we're starting to see our competitors have more.
Speaker Change: More equipment in the yard switch.
Speaker Change: It's pretty easy to notice if you drive around any city.
Speaker Change: No.
Speaker Change: Bit more inventory available.
Speaker Change: That's that's really the main competitive dynamic that we're seeing.
Speaker Change: And then from our end.
Speaker Change: No, that's that's offset with our better financing programs and.
Speaker Change: And Hitachi.
Desire to continue to grow market share in the region.
Speaker Change: Okay.
Speaker Change: Apart from the financing.
Speaker Change: Graham what what are some of the leavers that Hitachi is relying on to try to drive the growth and meet the targets that they set for themselves.
Speaker Change: Sure.
Speaker Change: I think it's like any other dealer they rely on price they rely on financing they rely on the fact that.
Speaker Change: A lot of people really do think Hitachi is a better product Ah. Another technology is a it's just a superior machine and doing a better job at sales and marketing to make sure that that message is getting out to the customers.
Speaker Change: Yeah.
Speaker Change: Okay perfect. Thank you.
Speaker Change: You were asked earlier about SG&A as a percentage of revenues.
Speaker Change: About that a little bit I'm wondering can you comment on on an overall consolidated basis. When you look at your your margins.
We take EBIT margins. For example, you saw a nice improvement on a year over year basis really through each of the last three quarters of 2023.
Speaker Change: We look to 2024.
Speaker Change: Are you able to comment on the opportunity as it relates to margin improvement looking forward.
I think.
Speaker Change: When you look at 2023, we.
Speaker Change: We grew the more profitable areas of our business, which was which was wonderful and I think a big win for our team and they did a great job. So like your IP Mcgeary IRS, we grew product support and then.
Speaker Change: Those are the areas that we really want to continue to grow and if you look at our strategic priority and the second one is grow the base business with a focus on parts service and margin and that's exactly what we did.
Speaker Change: And then on the just general margin improvements, there's a pretty big focus inside of our company to.
Speaker Change: To continue to push margin improvements on the gross margin side.
Speaker Change: That's not just raising prices for customers I mean, that's the that's an easy way to lose market share. It is delivering more value to customers and making sure that they were that were delivering the value that we can charge a little bit more for and we do that throughout all of our businesses as well as continuing to review our costs continuing to consolidate branches, where it makes sense.
Speaker Change: And really watch our SG&A lines. So there is there's a pretty strong focus in our in our company on that and all of our comp plans are or dialed right in to make sure that we're focused on the bottom line.
Speaker Change: Perfect and then just lastly touched on it, albeit briefly just fee.
Speaker Change: The fact that one of the strategic priorities remains focus on acquisitions within the <unk> space I'm wondering if you're able to provide a little bit more detail as to what.
Speaker Change: The opportunity pipeline like.
Speaker Change: As you look forward here, it's still early in the year.
Speaker Change: Yeah. So.
Speaker Change: We did a couple of tuck ins this year, which was great and we have a pretty robust pipeline that we continue to work on on an ongoing basis and would hope that on an ongoing basis. We would have at least a couple every year that we could tuck in.
Speaker Change: Okay.
Alright Thats helpful. Thank you.
Speaker Change: Thanks, Mike something that nobody actually asked about which I'll just comment on is the number of mining shovels that seems to come up every time.
Speaker Change: And nobody asked about it so I'll just briefly.
Clarify that one just from a from a high level basis in 2022.
Speaker Change: We had five shovels and in 2023, we had two big shovel ship when we're looking at the quarters Q4 of 2023, we had none ship and.
Speaker Change: Then we've got four shovels in the backlog four of our largest shovels.
Speaker Change: Two are to ship in 2024, and two are to ship in 2025.
Speaker Change: Thank you there are no further questions at this time. Please proceed.
Speaker Change: Thank you very much for joining us on our call. We appreciate the time and we'll talk to you soon.
Speaker Change: Thank you ladies and gentlemen, this does conclude our conference for today. Thank you all for participating you may all disconnect.