Q1 2025 Wajax Corp Earnings Call
Speaker Change: Thank you for attending Leigh Jack's Corporations 2025 First Quarter Financial Results Web
Iggy Domagalski: On today's webcast will be Mr. Igid Domagalski, President and Chief Executive Officer, Ms. Tania Casadinho, Chief Financial Officer,
Speaker Change: Please be advised that this webcast is being recorded. Please note that this webcast contains forward looking, actual future results may differ from expected results.
I will not turn the call over to Tania Casadinho.
Speaker Change: Thank you, Operator. Good afternoon, and thank you for participating in our first quarter results call. This afternoon, we will be following a webcast, which includes a summary presentation of Wajax's Q1 2025 financial results. The presentation can be found on our website under investor relations, events, and presentations.
Speaker Change: To begin, I would like to draw your attention to our cautionary statement regarding forward looking information on slide 2 and the non-GAAP and other financial measures on slide 3.
Iggy Domagalski: Please turn to slide four, and at this point I'll turn the call over to EG.
Iggy Domagalski: Thank you, Tania. To start, I will provide highlights of our first quarter before turning it back to Tania for commentary on backlog and inventory in the balance sheet.
The slide provides an overview of Wajax [inaudible]
Iggy Domagalski: The Corporation of the 167 years of Canadian operating history and operates across 111 branches with a team of approximately 3,000 employees. During the quarter, our heavy equipment categories and revenue sources made up approximately 59% of our total revenue, while industrial parts and the R.S. generated approximately 41%.
Turning to slide five [inaudible]
Iggy Domagalski: The slide provides an overview of our purpose and values. Wajax'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 for our people, customers, suppliers, and communities we serve.
Iggy Domagalski: By living our purpose and values, we will continue to build people first company that is strong, resilient and profitable. Our purpose and values guide our decision making and allow us to execute on our strategic priorities.
Drink Slide 7 [inaudible]
Iggy Domagalski: In the first quarter, Wajax hired revenues and improved cost efficiency, which were offset partially by lower gross profit margins.
Iggy Domagalski: Revenue of 555 million increased 72.6 million or 15.1% in the quarter.
Iggy Domagalski: The increase resulted primarily from higher equipment sales in the construction and forestry category in all regions, driven largely by the competitive financing program introduced through Hitachi Construction Machinery America, which was effective March 1, 2024.
Iggy Domagalski: and Higher Mining Equipment Sales in Western Canada, including the delivery of two large mining shovels in the first quarter of 2025 with no such deliveries in the first quarter of the prior year.
Iggy Domagalski: Gross profit margin of 19.1% decreased, 290 basis points compared to the same period of 2024 and increased 200 basis points sequentially from the 4th quarter of 2024.
Iggy Domagalski: The year-over-year decrease was driven primarily by lower margins realized on equipment industrial parts in the ERS revenue as well as a higher proportion of equipment sales relative to industrial parts ERS and product support. The decreases were offset partially by higher product support margins.
Iggy Domagalski: Selling an administrative expenses as a percentage of revenue decreased to 14.1% in the first quarter of 2025, from 16.7% in the first quarter of 2024, excluding the unrealized loss or gain on total return swaps in both periods.
Iggy Domagalski: Selling an administrative expenses in the first quarter of 2025 decreased 2.3 million compared to the first quarter of 2024 due primarily to lower spending on personnel, travel and entertainment and supplies and marketing driven largely by cost savings initiatives.
Iggy Domagalski: Adjusted EBITDA of 43.2 million, increased 2.5 million or 6.2 percent from the first quarter in 2024, noting the adjustments recorded on this chart. The increase resulted primarily from higher sales volumes and cost savings initiatives offset partially by lower gross profit margins.
Iggy Domagalski: Adjusted net earnings of 69 cents per share increased 15.7% or 10 cents per share from the first quarter of 2024, noting the adjustments recorded on this slide.
Iggy Domagalski: At the end of Q1, the trip rate was 1.30, an increase of 141 percent from the first quarter of 2024.
Iggy Domagalski: The first quarter-triff rate was up 38% from the fourth quarter of 2024. Safety continues to be Wajax's number one priority and management is committed to continuously improving our safety programs to improve on the results. We thank everyone on our team for their ongoing dedication to workplace safety.
Turning to slide 8 [inaudible]
Iggy Domagalski: Revenue increased 15.1% in the first quarter resulted from higher revenue in all regions.
Iggy Domagalski: Western Canada sales of 264 million increased 20.4% in the quarter due primarily to higher equipment sales in the construction and forestry category, driven largely by the competitive financing program introduced by HCMA, effective March 1, 2024, and higher mining equipment sales, including the delivery of two large mining shovels in the first quarter of 2025, with no such deliveries in the first quarter of the prior year.
Iggy Domagalski: Central Canada sales of 100 million increased 10.3% in the quarter due primarily to higher equipment sales in the construction and forestry category, driven largely by the competitive financing program introduced by HCMA, Effective March 1, 2024.
Iggy Domagalski: and Eastern Canada sales of $191 million increased 10.8% in the quarter due primarily to higher equipment sales in the construction and forestry category, driven largely by the competitive financing program introduced by HCMA Effective March 1, 2024 and higher material handling equipment sales. These increases were partially offset by reduced industrial parts sales.
Please turn to slide nine.
Iggy Domagalski: An update on equipment and product support sales and your over-year variances are shown on this page.
Iggy Domagalski: Equipment Sales of $171 million, increased $73 million, or 74% compared to last year, due primarily to higher construction and forestry sales in all regions, due largely to the competitive terms available under the Hitachi financing program as well as higher mining sales in Western Canada, including the delivery of two large mining shovels in the first quarter of 2025, with no such deliveries in the first quarter of the prior year.
Iggy Domagalski: Products support sales of 146 million increased 12 million or 9% compared to last year due primarily to higher construction and forestry and mining sales in Western Canada, higher power systems sales in eastern Canada and higher material handling revenue in all regions.
Please turn to slide 10.
Iggy Domagalski: An update on industrial parts in ERS sales and year over year variances are shown on this page. Industrial part sales of approximately 145 million decreased 10 million or 7 percent due primarily to lower sales in Western and Eastern Canada. ERS sales of approximately 82 million decreased 3 million or 3 percent.
Turning to slide 11 [inaudible]
Iggy Domagalski: Despite some rises, sales at a category level for our company's overall groupings of heavy equipment and industrial parts and services.
Iggy Domagalski: In the first quarter, the heavy equipment categories increased 86 million or 35 percent, driven primarily by higher construction and forestry sales in all regions due largely to the competitive financing program introduced by HCMA, effective March 1, 2024, and due to higher mining sales in Western Canada, including the delivery of two large mining shovels in the first quarter of 2025, with no such deliveries in the first quarter of the prior year.
Iggy Domagalski: The Industrial Parts and Services Categories decreased 13 million or 5% driven by lower industrial part sales in Western and Eastern Canada. I'll now turn the call over to Tania for commentary on backlog, inventory and the balance sheet.
Tania: Thanks, Ziggy. Please turn to slide 12 for my comments on backlog and inventory.
Tania: The sequential decrease was due primarily to a lower number of mining units and backlogs driven by the sale of two large mining shovels in the quarter, one of which was in backlog at December 31, 2024, offset partially by higher construction forestry orders.
Backlog at March 31st, 2025, includes six large mining shovels.
Tania: Inventory decreased 15.2 million compared to Q4 of 2024 due primarily to lower inventory and most categories driven largely by the corporation's focus on managing inventory levels.
Tania: Inventory at March 31, 2025, include one additional large mining shovel, compared to December 31, 2024.
Tania: Management continues to focus on reducing and managing the corporation's inventory levels with the focus on optimizing inventory levels and mix while matching, matching them with business volumes and maintaining still rates at appropriate levels.
Tania: Ongoing Inventory Reduction Initiates, Initiatives, has decreased inventory by 91.5 million from peak levels at March 31, 2024.
Tania: Inventory Decreased, 91.5 million compared to Q1 of 2024, do primarily from lower equipment inventory in the construction and forestry and material handling categories, lower rental option equipment and lower industrial parts in ERS Inventory.
Tania: Please turn to slide 13, where I'll provide an update on cash flow, leverage, and working capital.
Tania: Cash Flow, Cash Flow is generated from operating activities in the current quarter of 31.4 million.
Tania: Compared with cash flows used in operating activities of 7.3 million in the same quarter of the prior year.
Tania: The increase in cash generated of 38.7 million was mainly attributable to a decrease in inventory and income taxes received in the current quarter compared to income taxes paid in the same quarter of the prior year.
Tania: This increase was offset partially by an increase in accounts payable and accrued liabilities and an increase in accounts receivable.
Tania: Our Q1 leverage ratio decreased to 2.53 times from 2.61 times in Q4 due to lower debt levels driven largely by cash generated from operating activities during the quarter and higher trailing 12-month pro-forma adjusted EBITDA.
Tania: The corporation's leverage ratio is currently outside our target range of one and a half to two times.
Tania: At the end of Q1, primarily due to debt accumulated from investments in working capital and acquisitions over recent years management is working towards getting leveraged back within its target range [inaudible]
Tania: Our available credit capacity at the end of Q1 was 171.1 million, which is sufficient to meet shorter normal course working capital and maintenance capital requirements and fund our plan strategic initiatives.
Tania: We continue to focus on working capital efficiency, which is a key component in managing or overall leverage targets. The key one working capital efficiency was 25.5% and improvement of 50 basis points from December 31st, 2024, due to higher trailing 12 month revenue.
Tania: On January 15, 2025, Wajax announced the repayment in full of the 57 million in principal amount owed under its 6% senior unsecured debentures due January 15, 2025, along with the crude interest up to, but excluding the maturity date.
Tania: the Corporation's existing bank credit facility was used to complete the repayment.
Tania: Finally, the board has approved a second quarter 2025 dividend of $0.35 per share, Paypal on July 3, 2025 to shareholders of record on June 16, 2025. Please turn to slide 14, and at this point I will turn it back to, turn to call back to Aggie.
Iggy Domagalski: Thank you, Johnia. Our outlook is summarized on flight number 14.
Speaker Change: In the first quarter of 2025, Wajax delivered revenue, a 555 million, up 72.6 million, or 15.1% from the first quarter of 2024. The year-over-year increase in revenue is primarily due to higher equipment sales in the construction and forestry category across all regions and higher mining equipment sales, including the delivery of two large mining shovels in the quarter.
Speaker Change: Gross profit margin decrease to 19.1% in the first quarter of 2025 versus 22% in the first quarter of 2024 and increased sequentially from 17.1% in the fourth quarter of 2024. The decrease in margin was driven primarily by lower margins, realized on equipment, industrial parts, and ERS revenue.
Speaker Change: excluding the unrealized losses and gains on total return swaps in both periods, selling an administrative expenses as a percentage of revenue decreased to 14.1% in the quarter from 16.7% in the same period of 2024.
Speaker Change: In response to increased competitive and market pressures, management continues to be focused on several cost saving and margin improvement initiatives Looking ahead to the balance of 2025, we continue to see strong customer demand in the mining and energy sectors, but the former supported by robust backlog [inaudible]
Speaker Change: Headwinds are expected to persist with broader market conditions remaining soft and continued uncertainty surrounding tariffs and counter-terrorists on Canada U.S. trade and management as closely monitoring changes to tariff policies.
Speaker Change: I'm in this backdrop management that remains focused on advancing the corporation's six strategic priorities, which we...
Which will continue to position the business for future success
Speaker Change: Thank you, ladies and gentlemen, we're going to begin the question and session. Should you have a question, please, best start off by wanting to touch
Ulyra Pomp, but your hand has been raised.
Speaker Change: Should you wish to decline from the polling process, please spare a star followed by the two. If you're a speaker phone, please lift the hazard before pressing any keys.
Speaker Change: First question comes from the line of Devin Dodge with BMO Capital Markets. Please go ahead.
Thanks. Good afternoon.
Hey Devin
Speaker Change: Hey, on gross margins, they improved pretty meaningfully in Q1 on a sequential basis. Despite, you know, both quarters having some large mining shovels flown through the P&L, just wondering if you could speak to the puts and takes that impacted gross margins relative to Q4, and if you think, you know, the gross margin performance in Q1 was more reflective of what we should see for the rest of the year.
Speaker Change: Thanks, Devin, good question. We saw some good improvements in product support margins, largely driven by internal margin initiatives. And we have been working pretty hard inside the company on a number of margin and pricing improvements. So I think we're just starting to see some of those coming to fruition, which is great to see.
Okay, good, good to hear. Okay, so inventories.
Speaker Change: Good to see continued progress in bringing them lower in what is typically a seasonal buildup period.
Speaker Change: I also believe you mentioned there was an additional mining shovel sitting in a inventory so it seemed like the drawdown was actually even a little bit better but it's pretty standard look you expect to continue.
Speaker Change: on that pace of inventory reduction of around $25 million a quarter. And is this primarily about drawing down inventory to realign with expected demand, or are there more structural improvements being made to improve efficiency and inventory velocity?
Yeah, I would say the answer is both.
Speaker Change: Ordering better, managing our turns better, and now that we have our ERP rolled out to 90% of our company, we're trying to use that a little bit better to manage inventory.
Speaker Change: So yeah, I think it's really both. We're still bringing it down and we are making improvements in how we manage things. And keep in mind our largest piece of inventory is Hitachi. And it's been three years since we've been dealing with Hitachi Direct and so we're just...
Figuring out how to do that better.
Speaker Change: Okay, got it. Okay. And then just one last one, I was sticking with the Tachy theme. There just any update on the evaluation of expanding into ultra-class mining trucks with Tachy?
No meaningful updates of this time, Devin.
Okay, got it. Thank you. I'll turn it over.
Speaker Change: Your next question comes from Patrick Sullivan with TD Cohen, please go ahead.
Sarah Grapner, please take the big questions.
Speaker Change: Patrick. The IPERFs were both down slightly. We've had a few admirable years here in terms of
Speaker Change: Supply Chain and Demand and things like that. But I guess are we getting back to a point where you would you would start to see more typical seeinality in businesses like this and I'm kind of thinking that maybe you see that it went upkick in the spring in the fall around turn around activity. Is that something that could could take shape?
You know, we've...
Speaker Change: We've had some scaling back in that business. It's just the market outlook is still generally softened in industrials. A lot of customers who are exposed to tariffs in any way, they've hit the pause button on the capital portion of our IP and ERS spend. The maintenance spend is still continuing on, but in light of no.
Impact to their business.
Speaker Change: and to their revenues, they're pausing and some of the costs have been going up too. And so our customers are, they're price sensitive, they're always price sensitive. So they're chopping it around a little bit more and then that's adding time to the buying
Speaker Change: It feels like we're getting back a little bit to normal, but in terms of seasonality, but the market is still a bit soft.
Speaker Change: I wouldn't say so. I mean, there was an onboarding and ramp up period but it happened pretty quick, so if you recall.
Speaker Change: We were a little bit late to the game on the 0% financing programs and then it was put into place March 1 and if I want to say the ramp up was a month or two but beyond that there hasn't been any really meaningful change in the programs I think our teams just did a great job this quarter.
Speaker Change: Okay, great. If I could do one more, so I guess two shovels delivered this quarter. I think typically you kind of gave the cadence of about one per quarter for the year. I guess does that change your views on deliveries for the rest of the year.
Speaker Change: Hi, Patrick. No, it doesn't change our view. We still expect to be, sorry, three to be delivered for the balance of the year, one per quarter, and then we do have two in 2026 and one in 2027 as previously stated. The second one that we called out this quarter was actually on RPO, so just a conversion.
Great. Thank you.
Jonathan Goldman: Next question comes from Jonathan Goldman with Scotiabank, let's go ahead.
Jonathan Goldman: Hi, team. Thanks for taking my questions. Really nice results on the top line. Good afternoon, guys. So really nice results on the top line, but it does seem to contrast with some of the pure resulting commentary from all we have about uncertainty and customers pulling back on spending. I mean, your own outlook seems largely unchanged and I know the headwins are expected to persist with broader market conditions remaining soft and continued uncertainty.
Yeah, so I guess maybe just going through...
Jonathan Goldman: I'm going to talk about it in terms of market segments and then our business segments.
So in terms of market segments
Jonathan Goldman: We're still seeing things pretty strong and mining, pretty strong and energy. I think there are a few question marks around energy.
You know, threats and challenges with the US. That's so it.
Jonathan Goldman: So I think that's at the negative, but we've got a new government elected so there's a little bit less uncertainty there now and our Prime Minister is meeting with US President today and
Jonathan Goldman: Energy, I think certainly on the agenda and there is talk of energy corridors and some positivity around energy in Canada so there's, I think our oil and gas customers are uncertain but we haven't seen any real pauses there source.
Jonathan Goldman: That's still a business segment that's doing pretty well for us. Forestry is doing okay, but industrials are down a bit and construction had a reasonable quarter for us.
Jonathan Goldman: I think a couple of things that happened in this quarter that were quite good for us is we just had a strong quarter for construction.
Jonathan Goldman: Hitachi remains aggressive in going after customers with us and their financing program so that was good and I think our teams did a great job there and we had two mining shovels shipped in the quarter which that's always a nice bonus.
Jonathan Goldman: IP and ERS while they're down year over year, quarter over quarter. They're up a little bit which was also good to see. And then products support, we were pretty happy with that when we're up 9% year over year, we're up quarter over quarter the last two quarters.
Jonathan Goldman: So we're starting to see some positive momentum there, so we're happy with our product support is going.
Speaker Change: That's good color maybe if I can just maybe put a finer point on it.
Speaker Change: of EBITDA. Are you expecting this year to follow typical seasonal patterns or how should we think about the cadence of earnings growth through the balance of the year? [inaudible]
Speaker Change: Yeah, we thought Q1 was pretty good in terms of top line. We do expect...
Speaker Change: Maybe I'll say that we don't see anything that would disrupt the typical seasonality that we would see any year.
Speaker Change: So Q2 for us is typically a good quarter for construction just because it's spring and people are getting all their gear ready and turn around so we would expect that revenue would be reasonable in Q2.
Speaker Change: But we're not expecting an exceptionally great quarter or great year based on anything that's going on in the economy. There's nothing to point to that.
That's understandable. And if I could squeeze one more in, do you have a timeline to be leveraging within the target range?
Um, not one that we have disclosed, you know.
<expletive> Serna, thanks for taking my questions.
Thanks, Jonathan.
There are no further questions. Please continue.
Speaker Change: Thank you, operator. Thank you, everyone, for joining today and thank you for your continued interest in Wajax. Have a wonderful afternoon.