Expanded Relationship with Hitachi, Continued Growth in Industrial Parts and Engineered Repair Services, Drive 8.3% Year-Over-Year Revenue Increase and 24.4% Increase in Adjusted Net Earnings(1)
Selected Highlights for the Third Quarter
- Third quarter revenue of
$509.7 million , up 8.3% over 2022; - Third quarter adjusted EBITDA of
$50.0 million , up 28.0% over 2022; - Third quarter adjusted net earnings of
$20.7 million , up 24.4% over 2022; and - Ended the quarter with record backlog of
$599.2 million , up$48.0 million fromJune 30, 2023 .(1)
"We continued to execute clearly against our core strategic priorities during the third quarter, and this drove strong financial performance," said
"We also continued to execute our industrial parts and engineered repair services growth strategy during the quarter, adding sought-after technical capabilities and expanding the services we offer to customers across the country. We acquired
(Dollars in millions, except per share data) | Three Months Ended | Nine Months Ended | ||||
2023 | 2022 | % change | 2023 | 2022 | % change | |
CONSOLIDATED RESULTS | ||||||
Revenue | 8.3 % | 13.4 % | ||||
Equipment sales | (8.0 %) | 5.2 % | ||||
Product support | 13.7 % | 12.3 % | ||||
Industrial parts | 19.4 % | 17.9 % | ||||
Engineered repair services (ERS) | 9.4 % | 23.5 % | ||||
Equipment rental | 7.7 % | 15.1 % | ||||
Net earnings | 30.1 % | 25.3 % | ||||
Basic earnings per share(2) | 29.6 % | 24.9 % | ||||
Adjusted net earnings(1)(3) | 24.4 % | 26.2 % | ||||
Adjusted basic earnings per share(1)(2)(3) | 23.8 % | 25.8 % | ||||
Adjusted EBITDA(1) | 28.0 % | 21.6 % |
Outlook
After the first nine months of 2023, Wajax continues to see solid fundamentals in many of the markets it serves - particularly mining, energy and construction - supported by relatively elevated key commodity prices and sustained customer budgeting for capital projects. The Corporation's record backlog also continues to support management's confidence as
The Corporation's core strategic priorities remain unchanged and
Dividend
The Corporation has declared a dividend of
Third Quarter Highlights
- Revenue in the third quarter of 2023 increased
$39.0 million , or 8.3%, to$509.7 million , from$470.8 million in the third quarter of 2022. Regionally:
- Revenue in western
Canada of$232.9 million increased 3.8% from the prior year due to strong industrial parts sales, material handling sales, and product support revenue in the mining category. These increases were offset partially by lower equipment sales in the construction and forestry, and mining categories.
- Revenue in western
- Revenue in central
Canada of$92.0 million increased 29.7% from the prior year due primarily to higher equipment sales in the material handling, and construction and forestry categories, as well as higher product support revenue in all categories, and strong industrial parts and ERS sales.
- Revenue in central
- Revenue in eastern
Canada of$184.8 million increased 5.3% from the prior year due primarily to higher industrial parts and ERS sales, offset partially by lower equipment sales in the power systems category.
- Revenue in eastern
- Gross profit margin of 22.2% in the third quarter of 2023 increased 180 basis points ("bps") compared with gross profit margin of 20.3% in the same period of 2022.(1) The increase was driven primarily by higher product support, equipment and ERS margins, as well as a higher proportion of industrial parts sales. These increases were offset partially by lower industrial parts margins.
- Selling and administrative expenses as a percentage of revenue decreased to 14.5% in the third quarter of 2023 from 14.7% in the third quarter of 2022, driven by the 8.3% increase in revenue.(1) Selling and administrative expenses in the third quarter of 2023 increased
$5.0 million compared with the third quarter of 2022 due primarily to higher personnel costs as the volume of business increased over the prior year.
- EBIT increased
$12.3 million , or 46.3%, to$39.0 million in the third quarter of 2023 versus$26.7 million in the same period of 2022. The year-over-year increase in EBIT resulted primarily from higher sales volumes and higher product support margins, offset partially by higher selling and administrative expenses.
- The Corporation generated net earnings of
$23.4 million , or$1.09 per share, in the third quarter of 2023 versus$18.0 million , or$0.84 per share, in the same period of 2022. The Corporation generated adjusted net earnings of$20.7 million , or$0.96 per share, in the third quarter of 2023 versus$16.7 million , or$0.78 per share, in the same period of 2022. Adjusted net earnings in the third quarter of 2023 excludes non-cash gains on mark to market of derivative instruments of$2.5 million after-tax, or$0.12 per share (2022 – gains of$1.3 million , or$0.06 per share), and a gain recorded on the sale of properties of$0.1 million after tax, or less than$0.01 per share (2022 - nil).(1)
- Adjusted EBITDA margin increased to 9.8% in the third quarter of 2023 from 8.3% in the third quarter of 2022.(1)
- The Corporation's backlog at
September 30, 2023 of$599.2 million increased$48.0 million , or 8.7%, compared withJune 30, 2023 backlog of$551.2 million due primarily to higher mining orders, offset partially by lower ERS and industrial parts orders. The Corporation's backlog atSeptember 30, 2023 of$599.2 million increased$40.5 million , or 7.2%, compared toSeptember 30, 2022 due to higher mining, ERS and material handling orders, offset partially by lower construction and forestry, industrial parts, and power systems orders.(1)
- Working capital of
$591.4 million atSeptember 30, 2023 increased$110.8 million fromJune 30, 2023 due primarily to higher inventory and lower accounts payable and accrued liabilities. Working capital efficiency was 21.4%, an increase of 250 bps fromJune 30, 2023 , due to the higher trailing four quarter average working capital.(1)
- Cash flows used in operating activities amounted to
$62.0 million in the third quarter of 2023, compared with cash flows used in operating activities of$3.4 million in the same quarter of the previous year. The decrease in cash flows generated from operating activities of$58.6 million was mainly attributable to a decrease in accounts payable and accrued liabilities of$69.4 million during the quarter driven largely by timing of inventory payments, compared to an increase of$41.7 million in the same quarter of the prior year. This decrease in cash generated was offset partially by a decrease in trade and other receivables of$2.7 million during the quarter compared to an increase of$36.2 million in the prior year, and by an increase in net earnings excluding items not affecting cash flow of$11.2 million .
- The Corporation's leverage ratio increased to 2.16 times at
September 30, 2023 , compared with 1.76 times atJune 30, 2023 . The increase in leverage ratio was due to the higher debt level in the current period, driven largely by the Corporation's investment in inventory, timing on repayment of accounts payable and accrued liabilities, and cash paid for business acquisitions in the quarter. The Corporation's senior secured leverage ratio was 1.82 times atSeptember 30, 2023 , compared with 1.38 times atJune 30, 2023 .(1)
- On
July 4, 2023 , the Corporation acquired all of the issued and outstanding shares of Polyphase Engineered Controls (1977) Ltd. ("Polyphase"). The shares of Polyphase were acquired for an estimated aggregate purchase price of approximately$26.9 million , subject to normal post-closing adjustments and the results of a three-year performance-based earnout. Polyphase's trailing twelve-month revenue at the time of acquisition was approximately$25.8 million .
- On
September 1, 2023 , the Corporation acquired all of the issued and outstanding shares ofBeta Fluid Power Ltd. andBeta Industrial Ltd. (together, "Beta") for an estimated aggregate purchase price of approximately$8.5 million , subject to normal post-closing adjustments and the results of a three-year performance-based earnout. Beta's trailing twelve-month revenue at the time of acquisition was approximately$16.7 million .
- On
November 6, 2023 ,Wajax announced the retirement ofSteve Deck , Chief Operating Officer, and Senior Vice President, Heavy Equipment, to be effectiveJanuary 1, 2024 . Since joining the Corporation in 2014 to lead its industrial components business,Mr. Deck has held a number of senior executive roles and played a significant role in executing the "One Wajax" strategy, building the vision forWajax's industrial parts and ERS business, and developingWajax's relationship with Hitachi. Succession planning remains underway, and additional information will be provided in due course.Mr. Deck will remain active in his role until his retirement date, and will support the orderly transition of his responsibilities.
Conference Call Details
About
Founded in 1858, Wajax (TSX: WJX) is one of
The Corporation's goal is to be
Notes:
(1) | "Adjusted net earnings", "Adjusted basic earnings per share", "Adjusted EBITDA", "Adjusted EBITDA margin", "Backlog", "Leverage ratio", "Senior secured leverage ratio", "Working capital", "Working capital efficiency", "Gross profit margin", and "Selling and administrative expenses as a percentage of revenue" do not have standardized meanings prescribed by generally accepted accounting principles ("GAAP"). See the Non-GAAP and Other Financial Measures section later in this press release. | |
(2) | Weighted average shares, net of shares held in trust, outstanding for calculation of basic and diluted earnings per share for the three months ended | |
Weighted average shares, net of shares held in trust, outstanding for calculation of basic and diluted earnings per share for the nine months ended | ||
(3) | Net earnings excluding the following: | |
a. | after-tax gain recorded on the sale of properties of | |
b. | after-tax gain recorded on the sale of properties of | |
c. | after-tax non-cash gains on mark to market of derivative instruments of | |
d. | after-tax non-cash gains on mark to market of derivative instruments of |
Non-GAAP and Other Financial Measures
The press release contains certain non-GAAP and other financial 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. The Corporation's management believes that:
(i) | these measures are commonly reported and widely used by investors and management; |
(ii) | the non-GAAP measures are commonly used as an indicator of a company's cash operating performance, profitability and ability to raise and service debt; |
(iii) | "Adjusted net earnings", "Adjusted basic earnings per share" and "Adjusted diluted earnings per share" provide indications of the results by the Corporation's principal business activities prior to recognizing non-recurring costs (recoveries) and non-cash losses (gains) on mark to market of derivative instruments. These adjustments to net earnings and basic and diluted earnings per share allow the Corporation's management to consistently compare periods by removing infrequent charges incurred outside of the Corporation's principal business activities and the impact of unrealized losses (gains) resulting from fluctuations in interest rates and the Corporation's share price; |
(iv) | "Adjusted EBITDA" provides an indication of the results by the Corporation's principal business activities prior to recognizing non-recurring costs (recoveries) and non-cash losses (gains) on mark to market of derivative instruments. These adjustments to net earnings allow the Corporation's management to consistently compare periods by removing infrequent charges incurred outside of the Corporation's principal business activities, the impact of unrealized losses (gains) resulting from fluctuations in interest rates and the Corporation's share price, the impact of fluctuations in finance costs related to the Corporation's capital structure, the impact of tax rates, and the impact of depreciation and amortization of long-term assets; and |
(v) | "Pro-forma adjusted EBITDA" provides the same utility as Adjusted EBITDA described above, however pursuant to the terms of the bank credit facility, is adjusted for the EBITDA of business acquisitions made during the period as if they were made at the beginning of the trailing 12-month period, and for the deduction of payments of lease liabilities. Pro-forma adjusted EBITDA is used in calculating the Leverage ratio and Senior secured leverage ratio. |
Non-GAAP financial measures are identified and defined below: | |
Funded net debt | Funded net debt includes bank indebtedness, debentures and total long-term debt, net of cash. Funded net debt is relevant in calculating the Corporation's funded net debt to total capital, which is a non-GAAP ratio commonly used as an indicator of a company's ability to raise and service debt. |
Debt | Debt is funded net debt plus letters of credit. Debt is relevant in calculating the Corporation's leverage ratio, which is a non-GAAP ratio commonly used as an indicator of a company's ability to raise and service debt. |
Total capital | Total capital is shareholders' equity plus funded net debt. |
EBITDA | Net earnings (loss) before finance costs, income tax expense, depreciation and amortization. |
Adjusted net earnings (loss) | Net earnings (loss) before any gains/losses recorded on the sale of properties, restructuring and other related costs, non-cash gains/losses on mark to market of derivative instruments, and acquisition-related transaction costs. |
Adjusted basic earnings (loss) per share and adjusted diluted earnings (loss) per share | Basic and diluted earnings (loss) per share before any gains/losses recorded on the sale of properties, restructuring and other related costs, non-cash gains/losses on mark to market of derivative instruments, and acquisition-related transaction costs. |
Adjusted EBIT | EBIT before any gains/losses recorded on the sale of properties, restructuring and other related costs, non-cash gains/losses on mark to market of derivative instruments, and acquisition-related transaction costs. |
Adjusted EBITDA | EBITDA before any gains/losses recorded on the sale of properties, restructuring and other related costs, non-cash gains/losses on mark to market of derivative instruments, and acquisition-related transaction costs. |
Pro-forma adjusted EBITDA | Defined as adjusted EBITDA adjusted for the EBITDA of business acquisitions made during the period as if they were made at the beginning of the trailing 12-month period pursuant to the terms of the bank credit facility and the deduction of payments of lease liabilities. Pro-forma adjusted EBITDA is used in calculating the Leverage ratio and Senior secured leverage ratio. |
Working capital | Defined as current assets less current liabilities, as presented in the condensed consolidated interim statements of financial position. |
Other working capital amounts | Defined as working capital less trade and other receivables and inventory plus accounts payable and accrued liabilities, as presented in the condensed consolidated interim statements of financial position. |
Non-GAAP ratios are identified and defined below: | |
EBITDA margin | Defined as EBITDA (defined above) divided by revenue, as presented in the condensed consolidated interim statements of earnings. |
Adjusted EBITDA margin | Defined as adjusted EBITDA (defined above) divided by revenue, as presented in the condensed consolidated interim statements of earnings. |
Leverage ratio | The leverage ratio is defined as debt (defined above) at the end of a particular quarter divided by trailing 12-month pro-forma adjusted EBITDA (defined above). The Corporation's objective is to maintain this ratio between 1.5 times and 2.0 times. |
Senior secured leverage ratio | The senior secured leverage ratio is defined as debt (defined above) excluding debentures at the end of a particular quarter divided by trailing 12-month pro-forma adjusted EBITDA (defined above). |
Funded net debt to total capital | Defined as funded net debt (defined above) divided by total capital (defined above). |
Working capital efficiency | Defined as trailing four-quarter average working capital (defined above) as a percentage of the trailing 12-month revenue. |
Supplementary financial measures are identified and defined below: | |
EBIT margin | Defined as EBIT divided by revenue, as presented in the condensed consolidated interim statements of earnings. |
Backlog | Backlog is a management measure which includes the total sales value of customer purchase commitments for future delivery or commissioning of equipment, parts and related services, including ERS projects. There is no directly comparable GAAP financial measure for Backlog. |
Gross profit margin | Defined as gross profit divided by revenue, as presented in the condensed consolidated interim statements of earnings. |
Selling and administrative expenses as a percentage of revenue | Defined as selling and administrative expenses divided by revenue, as presented in the condensed consolidated interim statements of earnings. |
Reconciliation of the Corporation's net earnings to adjusted net earnings, adjusted basic earnings per share and adjusted diluted earnings per share is as follows:
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
Net earnings | $ 23.4 | $ 18.0 | $ 69.9 | $ 55.8 |
Gain recorded on the sale of properties, after-tax | (0.1) | — | (0.1) | — |
Non-cash gains on mark to market of derivative instruments, after-tax | (2.5) | (1.3) | (4.1) | (3.7) |
Adjusted net earnings | $ 20.7 | $ 16.7 | $ 65.7 | $ 52.0 |
Adjusted basic earnings per share(1) | $ 0.96 | $ 0.78 | $ 3.06 | $ 2.43 |
Adjusted diluted earnings per share(1) | $ 0.93 | $ 0.75 | $ 2.96 | $ 2.34 |
(1) | For the three months ended |
For the nine months ended |
Reconciliation of the Corporation's EBIT to EBITDA, Adjusted EBIT, Adjusted EBITDA and Pro-forma adjusted EBITDA is as follows:
Three months ended | Nine months ended | Twelve months ended | |||||
|
|
|
|
|
|
| |
EBIT | $ 39.0 | $ 26.7 | $ 112.9 | $ 87.1 | $ 139.6 | $ 127.3 | $ 113.9 |
Depreciation and amortization | 14.6 | 14.2 | 43.0 | 41.4 | 57.1 | 56.7 | 55.5 |
EBITDA | $ 53.6 | $ 40.8 | $ 155.9 | $ 128.5 | $ 196.7 | $ 184.0 | $ 169.3 |
EBIT | $ 39.0 | $ 26.7 | $ 112.9 | $ 87.1 | $ 139.6 | $ 127.3 | $ 113.9 |
Gain recorded on the sale of properties | (0.1) | — | (0.1) | — | (0.1) | — | — |
Non-cash gains on mark to market of derivative instruments(1) | (3.4) | (1.7) | (5.6) | (5.0) | (4.1) | (2.3) | (3.5) |
Adjusted EBIT | $ 35.4 | $ 25.0 | $ 107.2 | $ 82.2 | $ 135.4 | $ 125.0 | $ 110.4 |
Depreciation and amortization | 14.6 | 14.2 | 43.0 | 41.4 | 57.1 | 56.7 | 55.5 |
Adjusted EBITDA | $ 50.0 | $ 39.1 | $ 150.2 | $ 123.6 | $ 192.6 | $ 181.6 | $ 165.9 |
Payment of lease liabilities(2) | (32.0) | (33.7) | (32.0) | ||||
Polyphase acquisition pro-forma EBITDA(3) | 4.9 | — | — | ||||
Beta acquisition pro-forma EBITDA(3) | 2.0 | — | — | ||||
Pro-forma adjusted EBITDA | $ 167.4 | $ 147.9 | $ 133.9 |
(1) | Non-cash losses (gains) on mark to market of non-hedged derivative instruments. |
(2) | Effective with the reporting period beginning on |
(3) | Pro-forma EBITDA for business acquisitions made during the period as if they were made at the beginning of the trailing 12-month period pursuant to the terms of the bank credit facility, for the purpose of calculating the leverage ratio. |
Calculation of the Corporation's funded net debt, debt, leverage ratio and senior secured leverage ratio is as follows:
|
|
| |
Bank indebtedness | $ (3.9) | $ 4.4 | $ 5.2 |
Debentures | 56.2 | 56.0 | 55.8 |
Long-term debt | 304.7 | 195.9 | 83.6 |
Funded net debt | $ 356.9 | $ 256.4 | $ 144.6 |
Letters of credit | 4.4 | 4.4 | 6.2 |
Debt | $ 361.3 | $ 260.8 | $ 150.8 |
Pro-forma adjusted EBITDA(1) | $ 167.4 | $ 147.9 | $ 133.9 |
Leverage ratio(2) | 2.16 | 1.76 | 1.13 |
Senior secured leverage ratio(3) | 1.82 | 1.38 | 0.71 |
(1) | For the twelve months ended |
(2) | Calculation uses debt divided by the trailing four-quarter Pro-forma adjusted EBITDA. This leverage ratio is calculated for purposes of monitoring the Corporation's objective target leverage ratio of between 1.5 times and 2.0 times, and is different from the leverage ratio calculated under the Corporation's bank credit facility agreement. |
(3) | Calculation uses debt excluding debentures divided by the trailing four-quarter Pro-forma adjusted EBITDA. While the calculation contains some differences from the leverage ratio calculated under the Corporation's bank credit facility agreement, the resulting leverage ratio under the bank credit facility agreement is not significantly different. |
Calculation of total capital and funded net debt to total capital is as follows:
|
|
| |
Shareholders' equity | $ 494.2 | $ 475.9 | $ 449.8 |
Funded net debt | 356.9 | 256.4 | 144.6 |
Total capital | $ 851.1 | $ 732.3 | $ 594.4 |
Funded net debt to total capital | 41.9 % | 35.0 % | 24.3 % |
Calculation of the Corporation's working capital and other working capital amounts is as follows:
|
|
| |
Total current assets | $ 1,092.3 | $ 1,042.9 | $ 860.1 |
Total current liabilities | 500.9 | 562.2 | 514.1 |
Working capital | $ 591.4 | $ 480.6 | $ 346.0 |
Trade and other receivables | (313.9) | (308.4) | (307.1) |
Inventory | (659.0) | (625.1) | (462.2) |
Accounts payable and accrued liabilities | 428.2 | 487.3 | 423.8 |
Other working capital amounts | $ 46.7 | $ 34.4 | $ 0.7 |
Cautionary Statement Regarding Forward-Looking Information
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 record backlog, as well as solid fundamentals across many of our key markets, supports confidence in our prospects as we advance into the fourth quarter and beyond; our belief that our strong financial results and balance sheet give us the flexibility to continue to invest in our expanded Hitachi relationship, additional organic initiatives and acquisition opportunities to help drive future growth; our outlook after nine months of 2023, including our continued view that solid fundamentals persist in many of the markets
Readers are cautioned that the risks described in the 2022 MD&A are not the only risks that could impact the Corporation. 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
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