Q2 2024 Wajax Corp Earnings Call
Sir Mr Stewart, Chief Financial Officer, and MS. Tina Cassidy, I'm, sorry, Tanya Cassidy and our VP corporate controller.
Speaker Change: Please be advised that this webcast is being recorded. Please note that this webcast contains forward looking statements actual future results may differ from expected results I'll now turn the call over to China Cassidy now. Please go ahead.
Tanya Cassidy: Thank you operator, good afternoon, and thank you for participating in our second quarter results call. This afternoon, we will be following a webcast, which includes a summary presentation of wage axis Q2, 2020 for our financial results. The presentation can be found on our website under investor relations events and presentations.
Tanya Cassidy: To begin I would like to draw your attention to our cautionary statement regarding forward looking information.
Tanya Cassidy: On slide two and the non-GAAP and other financial measures on slide three.
Tanya Cassidy: Please turn to slide four.
And at this point I'll turn the call over to AG.
Thank you very much Tanya I'll provide highlights on our second quarter before turning it over to Stu for commentary on backlog inventory on the balance sheet.
Stu: This slide provides an overview of <unk>. The corporation has 166 years of Canadian operating history and operates across 119 branches with a team of more than 3250 employees.
Stu: During the quarter, our heavy equipment categories and revenue sources made up approximately 59% of our total revenue, while industrial parts and Urs generated approximately 41%.
Turning to slide five.
Stu: When he provides an overview of our purpose and values <unk> purpose statement is empowering people to build a better tomorrow, which we strive to achieve by living our values and delivering an exceptional experience for our people customers suppliers and the communities. We serve by living our purpose and values will continue to build the people first company that has strong resilient and profitable.
Stu: Our purpose and values guide, our decision, making and allow us to execute on our strategic priorities.
Stu: Turning to slide six.
It provides an overview of our strategic priorities, which are refreshed and enhanced in 2023.
Stu: Management is completely focused on executing against these priorities between our purpose and values and these six priorities you have the foundation to continue growing our company for many years to come.
Turning to slide seven.
Stu: In the second quarter way, Jack saw higher gross profit margins, which helped offset the decline in revenue revenue of $568 3 million decreased $17 9 million in the quarter. The decrease resulted primarily from lower construction and forestry equipment sales in Western Canada, and Central Canada, and lower mining sales in Western Canada due primarily.
Stu: To the delivery of a large mining shovel in Q2 of 2023 with no such delivery in Q2 of 2020 for these.
Stu: These decreases were offset partially by higher equipment sales in the construction and forestry category and higher overall sales in the power systems category in Eastern Canada.
Stu: Gross profit margin of 29% increased 100 basis points compared to the same period of 2023, driven primarily by higher margins on <unk> sales and a higher proportion of and higher margins on product support sales.
Stu: Selling and administrative expenses as a percentage of revenue increased to 14, 4% in the second quarter of 2024 from 12, 8% in the second quarter of 2023, and selling and administrative expenses in the second quarter of 2024 increased $6 8 million or nine 1% compared to the second quarter of 2023, due primarily to higher <unk>.
Stu: First of all costs.
Stu: Adjusted EBITDA of $54 7 million decreased $2 5 million or four 3% from the second quarter of 2023, noting the adjustments recorded on this chart. The decrease resulted primarily from lower sales volumes and higher personnel expenses offset partially by an improved gross profit margin.
Stu: Adjusted net earnings of $1 <unk> per share decreased 16, 3% or <unk> 20 per share from the second quarter of 2023, noting the adjustments recorded on this chart.
Stu: At the end of Q2, the trip rate was 0.81, a decrease of 28% from the second quarter of 2023, the second quarter trip rate was up 50% from the first quarter of 2024.
Stu: Safety continues to be wage acts as the number one priority and management is committed to continuously improving our safety programs to improve on this result, we thank everyone on our team for their ongoing dedication to work place safety.
Stu: Turning to slide eight.
Stu: Revenue decrease of three 1% in the second quarter resulted from lower revenue in the western and central regions.
Stu: Western Canada sales of 240 million decreased 10, 8% in the quarter due primarily to lower construction and forestry equipment sales and lower mining equipment sales driven largely by the delivery of a large mining shovel in the second quarter of the prior year with no such delivery in the current year.
Central Canada sales of $97 million decreased six 4% in the quarter due primarily to lower equipment sales in the construction and forestry category and lower industrial parts sales.
Stu: In Eastern Canada sales of $231 million increased $8 3 million or eight 3% in the quarter due primarily to higher equipment sales in the construction and forestry category and higher overall sales in the power systems category, partially offset by lower industrial parts sales.
Stu: Please turn to slide nine.
An update on equipment and product support sales and year over year variances are shown on this page equipment sales of $180 million decreased $10 million or 5% compared to last year due primarily to lower construction and forestry equipment sales in western Canada, and lower mining equipment sales in Western Canada, driven by the previous.
Stu: As we mentioned large mining shovel.
Stu: The decreases were offset partially by higher construction and forestry sales in eastern Canada.
Stu: Please turn to slide 10.
Stu: An update on industrial parts, and <unk> sales and year over year variances are shown on this page industrial part sales of approximately $147 million decreased $8 million or 5%, primarily due to lower sales in central and eastern Canada, offset partially by higher sales in Western Canada.
Stu: Turning to slide 11.
Stu: This slide summarizes sales at a category level for our company's overall groupings of heavy equipment and industrial parts and services.
Stu: In the second quarter, the heavy equipment category decreased $6 million or 2% driven primarily by lower mining equipment sales in Western Canada and.
Stu: And the industrial parts and services categories, lower industrial part sales in central and Eastern Canada were partially offset by higher industrial part sales in Western Canada is less cyclical categories remain a core element of our broader growth strategy.
Steve: I will now turn the call over to Steve.
Steve: Thanks.
Steve: Please turn to slide 12 for my comments on backlog and inventory.
Steve: Our backlog of $544 9 million decreased $42 2 million or seven 2% compared to backlog of $587 1 million in Q1 and decreased $6 4 million or one 2% on a year over year basis.
Steve: The sequential decrease was due primarily to lower construction and forestry material handling and IRS orders.
Steve: The year over year decrease was due to lower construction and forestry material handling IRS and industrial parts offset partially by higher mining orders.
Steve: Inventory decreased $22 5 million compared to Q1, 2024, due primarily from lower equipment inventory and the construction and forestry category and lower parts inventory as management focused on reducing inventory levels.
Inventory increased $99 7 million compared to Q2 2023 due to increases in most categories.
Steve: Please turn to slide 13, where I will provide an update on cash flow leverage in working capital cash.
Cash flows generated from operating activities in the quarter of $35 8 million compared with cash flows used in operating activities of $6 million in the same quarter of last year. The increase in cash generated a $41 8 million was mainly attributable to decreases in inventory and trade and other receivables offset parse.
Steve: Italy by a decrease in accounts payable and accrued liabilities.
Steve: Our Q2 leverage ratio decreased to $2 one seven times from two two times in Q1 due to the lower debt level in the current period.
Steve: The corporation's leverage ratio is currently outside our target range of one five to two times at the end of Q2, primarily due to the investment in inventory during the year.
Steve: Our available credit capacity at the end of Q2 was $214 9 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.
Steve: We continue to focus on working capital efficiency, which is a key component in managing our overall leverage targets.
Steve: For Q2, working capital efficiency was 26, 5% an increase of 80 basis points from March.
Steve: 31, 2024 due to the higher trailing four quarter average working capital and the lower trailing 12 month revenue is.
Steve: Excluding the debentures, which are classified within current liabilities working capital efficiency was 27, 8% an increase of 150 basis points from March 31 2024.
Steve: Finally, the board has approved our third quarter 2024 dividend of 35 per share payable on October 2nd to shareholders of record on September 16, 2024.
Speaker Change: Please turn to slide 14, and at this point I will now turn it back to AG.
AG: Thank you Steve.
AG: Our outlook is summarized on slide 14.
AG: In the second quarter of 2020 for Wade Jaques delivered revenue of $568 3 million down three 1% from the second quarter of 2023, the year over year decrease in revenue was primarily due to the delivery of a large mining shovel in the second quarter of 2023 with no such delivery in 2024.
AG: Gross profit margin increased to 29% in the second quarter of 2024 versus 19, 9% in the second quarter of 2023, primarily due to a larger proportion of and higher margins on product support industrial parts and <unk> sales.
AG: During the quarter, we rolled out our new ERP system to a further 57 industrial parts and the IRS branches some of which are co locations with this we now have a total of 99 branch locations operating on our new ERP system, representing approximately 90% of 2023 annual revenue, we continue to see solid fundamentals in certain.
AG: Of the markets that we serve particularly in mining and energy, but have observed reduced activity in industrial and forestry.
AG: Management is continuing to monitor end markets and customer purchasing patterns, while being prudent with costs and maintaining focus on the execution of our six strategic priorities for 2024, which were set out on slide six management continues to evaluate options to repay or refinance corporation's $57 million and secured and senior unsecured debentures, which are maturing.
Speaker Change: On January 15th 2025, Thank you very much and I'll now turn it back to the operator and open the line for questions.
Thank you ladies and gentlemen, we will now begin the question and answer session. So do you have a question. Please press the star followed by the one on your Touchtone phone you will hear today, Tom Pam technology ever Quest.
Speaker Change: You are using a speaker phone please lift the handset before pressing any case.
Speaker Change: Next question comes from Devin Dodge at BMO capital markets. Please go ahead.
Speaker Change: Thanks, Good afternoon guys.
Speaker Change: Hey, Devin.
Look industrial park.
Speaker Change: And he RF demand will soften in Q2, it's nothing that we've seen from others as well.
Speaker Change: Yes.
Speaker Change: That's in your opening comments, but just wondering if there are specific reasons or end markets that are driving this or do you feel it's more broad based.
Speaker Change: Where we're seeing it a little bit more is industrials and forestry, specifically pulp and paper for us.
Speaker Change: So we're seeing a bit of softness there.
Speaker Change: And a small part of our decrease this quarter was the rollout of our ERP, usually it takes us about a quarter to really get fully back up to speed and it was rolled out mid quarter.
Speaker Change: Okay. Okay.
Speaker Change: Has the demand trend continued into early Q3, and just wondering if there any indicators.
You think whats suggests there could be a turning point coming or should we be expecting kind of a similar revenue profile in the second half.
We're not expecting too many changes.
Speaker Change: Okay.
Speaker Change: And then if you.
Speaker Change: If you back out.
Speaker Change: The two acquisitions you did.
Speaker Change: In 2023, so like polyphase and data.
Speaker Change: Do you have a sense for what the organic or same store organic revenue growth decline would be in the <unk> Industrial Park.
Speaker Change: Yes, that's not a number that we would disclose devin.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Maybe just switching over equipment inventories.
Speaker Change: Some improvement in Q2 and bring that down, but it's still above.
Early 2024 levels.
Speaker Change: Just wondering if we should be expecting the sell down of inventories to be maybe a bit more gradual compared to that I think it was mentioned of two quarters.
Speaker Change: Back in May and just maybe just could you speak to the quality or age of inventory currently in the system.
Speaker Change: Yes, we feel good about the quality of the inventory that we have and minutes all good sellable equipment in our yards.
We do definitely expect it to come down over the next two quarters.
Speaker Change: We would hope to see a significant decline.
Speaker Change: Okay. Thanks, I'll get back in the queue.
Speaker Change: Thank you. Your next question comes from Michael <unk> from TD Securities. Please go ahead.
Thank you good afternoon.
Speaker Change: Hey, Mike.
Hi.
Speaker Change: I guess my first question would be if I look at the the description of what you saw in the various regions you had sales down in both Western Canada, and Central Canada, but saw some growth in eastern Canada.
Speaker Change: I know there is the dynamic at least in Western Canada with respect to the lack of a large shovel this quarter versus the prior year, but can you maybe just talk about what youre seeing that may be different in the different regions.
Speaker Change: Again, we did see some strength in eastern Canada.
Speaker Change: Yeah.
Speaker Change: To be honest, Mike I don't think Theres any specific thing to call out when we talk about the various end markets mining continues to be strong so east.
Speaker Change: Eastern Canada base metals, Western Canada Oilsands coal.
Speaker Change: Those markets are still looking pretty strong and quoting activity remains strong.
Speaker Change: History is as mentioned is a it is.
Speaker Change: Still soft and it has been for a few years and and industrials has started to soften up a little bit, which which impacts our our IP and <unk> business.
Wouldn't say that it's really specific to any region.
Speaker Change: But yes.
Speaker Change: Yes, I think thats.
Speaker Change: I think I would leave it at that.
Speaker Change: Yes fair enough I mean, I guess one of the reasons I was wondering is because I think the strength in eastern Canada was attributed to higher equipment sales and construction and forestry.
Speaker Change: Which is not what you saw in the other regions. So I guess it was a little bit curious about the fact that it was a source of growth in eastern Canada.
Speaker Change: Presenting for that or not but that was kind of where I was coming from.
Speaker Change: Yes.
Speaker Change: There would be anything specific that we would call out Mike.
When we talk about equipment, we did have a pretty good rebound from Q1 Q1, we were pretty slow on equipment sales and equipment sales were up 84% in the second quarter versus Q1.
Speaker Change: And a lot of that a good chunk of that was due to the new financing program that Hitachi launched which has been received very well by our customers as expected and so some customers were quicker to jump on that than others.
Speaker Change: Okay Fair enough and then specifically I guess on the on the new financing program, if I'm not mistaken I think that became available at the beginning of March.
Speaker Change: Yeah.
Speaker Change: Is there still an incremental benefit.
Speaker Change: Or additional benefit that could be realized as a result of having that as we look to the third quarter results.
Speaker Change: Relative to the second quarter or the fact that you had that in place at the beginning of March meant that kind of Q2 was.
Speaker Change: The full benefit of that was realized in Q2.
Speaker Change: I would say that most of the benefit was realized in Q2.
Speaker Change: <unk> introduced in March March 1st So it takes a few weeks for the salespeople to really get that out to the customers and then once they place the orders it can take between one and three weeks for us to get a machine to the customer. So there is.
Speaker Change: Well I would say the first few weeks of the second quarter, probably didn't have the full benefit of it but after that it was it's baked in there so I would say the.
Speaker Change: Rental from Q3 to Q2 would not be that large.
Speaker Change: Just on specifically on the financing program.
Speaker Change: Okay. That's helpful.
Speaker Change: Gross margin was quite strong on a year over year basis up 100 basis points.
Speaker Change: How should we think about.
Gross margin here in the second half of the year and the sustainability of this kind of level.
Speaker Change: I would characterize it as stable I think.
Speaker Change: Over the past year, we've been working really hard on a number of margin improvement activities in our company and some of those are starting to bear fruit, which is excellent and.
Speaker Change: You really saw it come through and product support any arris, which is where we've been doing a lot of that focus.
Speaker Change: Okay, and then I know you were asked about inventory.
Speaker Change: Coming down further earlier, but if we think about changes in noncash working capital as a whole.
Speaker Change: Can you talk about where you would expect that to.
Speaker Change: Or how we should we expect that to trend over the next couple of quarters here.
Speaker Change: So I think Mike he commented that we.
Speaker Change: We believe we'll continue to see and are working towards further reduction in inventory.
Speaker Change: I call it more gradual as we go into the third and fourth quarter.
Speaker Change: But we'd like to see it continue to come down.
Speaker Change: Okay.
Speaker Change: And then with respect to the.
Speaker Change: ERP.
Speaker Change: And then now being rolled out.
Speaker Change: Two and a greater number of locations can you talk about what benefit that may provide for you.
Speaker Change: I mean, I don't know if they begin to be realized in the second half, but maybe looking out even a little further.
Speaker Change: Sort of benefits that you guys will get from from having this in place.
Yes, so I think we've talked before about.
Speaker Change: We put this in place we didn't sort of justify it based on kind of long term efficiencies.
Speaker Change: Hum.
Speaker Change: We did it primarily because of the aged infrastructure.
Speaker Change: And obviously wanted to.
Speaker Change: Of one system in place for all of our locations. So we're pretty much there and now what we are seeing not immediately but.
I would expect over time, we will see efficiencies.
Speaker Change: Yes.
Speaker Change: A year from now two years from now.
Speaker Change: As we start to.
Speaker Change: Followed standard processes.
Speaker Change: Hello standard procedures.
Speaker Change: Take advantage of I think I've given an example before of.
Speaker Change: Location, where I might share a location, but I have to warehouse people working and probably only need one if we're on one system.
Speaker Change: And also advantages of using things like mobile field service, where it's not paper based anymore. So I can close off might work orders quicker and.
Speaker Change: Turn that into a receivable much quicker than I would if it was paper. So I don't think youll see much this year, Mike, but I think we will start to see some stuff next year.
Speaker Change: And I don't have a quantification right now.
Speaker Change: Okay fair enough. Thank you.
Speaker Change: And then just lastly, when I think about the.
Inorganic growth opportunities.
Speaker Change: And then the tuck in acquisition strategy.
Speaker Change: Can you provide an update just a general update on what Youre seeing there right now the pipeline.
Speaker Change: And also I guess I'd be curious to know if with this softening that you've seen in industrial parts in.
Speaker Change: It sounds like maybe also urs like what what that means for the M&A landscape and the opportunity to continue to acquire.
Speaker Change: Yes.
Speaker Change: I would say the M&A pipeline continues to be quite full and we're working hard on trying to get deals across the line.
Speaker Change: And.
So we're back.
Speaker Change: That continues to be a pretty important part of our strategy in terms of the softness in the market I think it's company specific some companies are softer some aren't and all of that would obviously be considered and the price that we pay.
Speaker Change: But does that change the competitive dynamic or the willingness of differ.
Speaker Change: Different groups to.
Speaker Change: Look at a sale just curious if it's had any impact of that nature. Besides.
Speaker Change: The paper company.
Speaker Change: I would say it's too early to tell I mean, it's really only been one or two quarters of softness and.
Speaker Change: And the public company World, we really think about quarter to quarter, but in the private company World.
Speaker Change: Really thought of more year to year and so.
Speaker Change: It hasn't really.
Speaker Change: Made its way into those conversations yet.
Got it I'll leave it there thank you.
Speaker Change: Thanks, Mike.
Speaker Change: Thank you. The next question is a follow up from Devin Dodge at BMO. Please go ahead.
Speaker Change: Alright. Thanks.
Speaker Change: Just.
Speaker Change: Look section was talking about I think you mentioned in your remarks.
Speaker Change: Not calling maturity of our senior unsecured debenture.
Speaker Change: Can you just.
Speaker Change: Talk us through some of the options that you're thinking about it.
Speaker Change: Okay.
So.
Speaker Change: The.
Speaker Change: Our immediate option.
Speaker Change: Is that.
Speaker Change: We can basically pay it off with our line of credit so that would be one option, but we're looking at what else.
Speaker Change: It might exist out there as you probably know Devin the listed debenture market doesn't really exist anymore. So we'd have to look at potentially other vehicles. If we wanted to do something similar.
Speaker Change: Okay, Okay and then.
Speaker Change: <unk>.
Speaker Change: The favorite question here this timing of deliveries of mining shovels in the second half of the year and then what's currently in the backlog for 2025.
Speaker Change: Sure.
Speaker Change: If you look at our Q2 financials in the backlog, we have five mining shovels.
Speaker Change: But since the quarter closed.
Speaker Change: We landed a sale for another three mining shovels. So we now have eight.
Speaker Change: <unk> large mining shovels in the backlog, which is definitely the most in recent history.
Speaker Change: The timing for those deliveries as we will likely have three of them delivering in Q4.
Speaker Change: Then we have four of them delivering throughout next year and I would say that's fairly evenly throughout the year.
Speaker Change: I don't know if it will be exactly one per quarter, but that's a good estimate.
Speaker Change: And then we would have one delivering in.
Speaker Change: Early the following year.
Speaker Change: Okay. That's great. Thank you.
Speaker Change: Thanks, Kevin.
Speaker Change: Thank you there are no further questions Alexander I'm, sorry, we do have a follow up from Michael Chu Palm at TD. Please go ahead.
Speaker Change: Thanks, just yes, just actually a follow up on that last question sorry are these all exa, thousands AE or what what can.
Speaker Change: Can you help sort of explain in more detail what exactly the units are comprised of.
Speaker Change: Yes sure.
Speaker Change: Of those of the eight seven our exa thousands.
And on.
Speaker Change: Regular sales and one is our X 5600, which is currently out on our appeal and we expect it to convert in Q4 of this year.
Speaker Change: Thank you.
Speaker Change: Thank you we have no further questions that you may proceed.
Speaker Change: Thank you very much for tuning in and for your interest in <unk> have a great day.
Speaker Change: Ladies and gentlemen, this concludes the conference for today, we thank you for participating and we ask that you. Please disconnect your lines.