TSX Symbol: WJX
Expanded Relationship with Hitachi, Continued Growth in Industrial Parts and Engineered Repair Services, Drive 14.7% Year-Over-Year Revenue Increase and 37.7% Increase in Adjusted Net Earnings(1)
Selected Highlights for the Second Quarter
- Second quarter revenue of
$586.2 million , up 14.7% over 2022; - Second quarter adjusted EBITDA of
$57.2 million , up 26.6% over 2022;(1) - Second quarter adjusted net earnings of
$27.1 million , up 37.7% over 2022;(1) and - Ended the quarter with backlog of
$551.2 million , up$20.5 million fromMarch 31, 2023 .(1)
"Our strong financial performance in the second quarter was driven by clear execution against our core strategic priorities," said
"We continue to invest in working capital, most notably in inventory, to support customer orders and forecasted demand. We continue to believe that our strong financial results and balance sheet give us the flexibility to further invest in our expanded Hitachi relationship, additional organic initiatives and acquisition opportunities to help drive future growth. With respect to acquisitions and the growth of our industrial parts and engineered repair services businesses, subsequent to quarter end, we were very pleased to announce we have acquired Polyphase Engineered Controls, a specialized provider of custom electrical and instrumentation equipment that enhances our ability to undertake large scale time-critical integration projects."(1)
(Dollars in millions, except per share data) | Three Months Ended | Six Months Ended | ||||
2023 | 2022 | % change | 2023 | 2022 | % change | |
CONSOLIDATED RESULTS | ||||||
Revenue | 14.7 % | 15.9 % | ||||
Equipment sales | 10.6 % | 11.5 % | ||||
Product support | 15.0 % | 11.6 % | ||||
Industrial parts | 15.7 % | 17.1 % | ||||
Engineered repair services (ERS) | 21.9 % | 31.0 % | ||||
Equipment rental | 16.0 % | 19.2 % | ||||
Net earnings | 33.5 % | 23.0 % | ||||
Basic earnings per share(2) | 33.1 % | 22.6 % | ||||
Adjusted net earnings(1)(3) | 37.7 % | 26.8 % | ||||
Adjusted basic earnings per share(1)(2)(3) | 37.3 % | 26.4 % | ||||
Adjusted EBITDA(1) | 26.6 % | 18.6 % |
Outlook
After the first half of 2023, the Corporation 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 strong 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
Second Quarter Highlights
- Revenue in the second quarter of 2023 increased
$75.0 million , or 14.7%, to$586.2 million , from$511.2 million in the second quarter of 2022. Regionally: - Revenue in western
Canada of$269.4 million increased 19.2% from the prior year due to strong mining equipment sales, including the delivery of a large mining shovel, higher engineered repair services ("ERS") and industrial parts sales, and higher product support revenue in all categories. - Revenue in central
Canada of$103.2 million increased 23.5% from the prior year due primarily to higher equipment sales in the material handling, and construction and forestry categories, as well as strength in the industrial parts and ERS categories. - Revenue in eastern
Canada of$213.7 million increased 5.9% from the prior year due primarily to strength in the industrial parts and ERS categories, offset partially by lower equipment sales in the power systems category. - Gross profit margin of 19.9% in the second quarter of 2023 decreased 20 basis points ("bps") compared to gross profit margin of 20.1% in the same period of 2022.(1) The decrease was driven primarily by lower product support and industrial parts margins, offset partially by higher equipment and ERS margins, and a higher proportion of ERS sales.
- Selling and administrative expenses as a percentage of revenue decreased to 12.2% in the second quarter of 2023 from 13.4% in the second quarter of 2022, driven by the 14.7% increase in revenue.(1) Selling and administrative expenses in the second quarter of 2023 increased
$2.9 million compared to the second quarter of 2022 due primarily to higher personnel costs as the volume of business increased over the prior year. - EBIT increased
$11.2 million , or 32.9%, to$45.3 million in the second quarter of 2023 versus$34.1 million in the same period of 2022. The year-over-year increase in EBIT resulted primarily from higher sales volumes, offset partially by lower product support margins and higher selling and administrative expenses. - The Corporation generated net earnings of
$29.0 million , or$1.35 per share, in the second quarter of 2023 versus$21.7 million , or$1.01 per share, in the same period of 2022. The Corporation generated adjusted net earnings of$27.1 million , or$1.26 per share, in the second quarter of 2023 versus$19.7 million , or$0.92 per share, in the same period of 2022. Adjusted net earnings in the second quarter of 2023 excludes non-cash gains on mark to market of derivative instruments of$1.9 million after-tax, or$0.09 per share (2022 – gains of$2.0 million , or$0.10 per share).(1) - Adjusted EBITDA margin increased to 9.8% in the second quarter of 2023 from 8.8% in the second quarter of 2022.(1)
- The Corporation's backlog at
June 30, 2023 of$551.2 million increased$20.5 million , or 3.9%, compared toMarch 31, 2023 backlog of$530.8 million due primarily to higher material handling and ERS orders, offset partially by lower construction and forestry orders. The Corporation's backlog atJune 30, 2023 of$551.2 million increased$16.4 million , or 3.1%, compared toJune 30, 2022 due to higher ERS and material handling orders, offset partially by lower construction and forestry, and power systems orders.(1) - Working capital of
$480.6 million atJune 30, 2023 increased$55.4 million fromMarch 31, 2023 due primarily to higher inventory. Working capital efficiency was 18.9%, an increase of 140 bps fromMarch 31, 2023 , due to the higher trailing four quarter average working capital.(1) - Cash flows used in operating activities amounted to
$6.0 million in the second quarter of 2023, compared to cash flows generated from operating activities of$34.0 million in the same quarter of the previous year. The decrease in cash generated from operating activities of$40.0 million was mainly attributable to an increase in inventory of$40.7 million during the quarter compared to an increase of$4.6 million in the prior year. - The Corporation's leverage ratio increased to 1.76 times at
June 30, 2023 , compared to 1.74 times atMarch 31, 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. The Corporation's senior secured leverage ratio was 1.38 times atJune 30, 2023 , compared to 1.33 times atMarch 31, 2023 .(1) - Effective
June 23, 2023 , André Dubé was appointed to the role of Senior Vice President, Industrial Parts and ERS. Mr. Dubé has 24 years of experience atWajax , first joining in 1999 as a strategic sourcing specialist. Since then, he has held increasingly senior roles, including Vice President, Key Accounts, and Vice President, End Market Mining. Most recently, he was serving as Regional Vice President,Ontario andQuebec . - As noted above, subsequent to quarter end, on
July 4, 2023 , the Corporation's wholly-owned subsidiary,Tundra Process Solutions, Ltd. ("Tundra"), acquired all of the issued and outstanding shares of Polyphase Engineered Controls (1977) Ltd. ("Polyphase") for cash consideration of approximately$17.8 million , plus a three-year performance-based earnout. The purchase price is subject to normal post-closing net working capital adjustments and the result of the three-year performance-based earnout. As of the acquisition date, Polyphase had trailing twelve-month revenue of approximately$26.0 million . For additional information regarding the Polyphase acquisition, please see the Corporation's press release datedJuly 4, 2023 .
Conference Call Details
About
Founded in 1858,
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 six months ended | |||
(3) | Net earnings excluding the following: | ||
a. | after-tax non-cash gains on mark to market of derivative instruments of | ||
b. | 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.
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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.
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Total capital | Total capital is shareholders' equity plus funded net debt. |
EBITDA | Net earnings (loss) before finance costs, income tax expense, depreciation and amortization.
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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. |
Working capital | Defined as current assets less current liabilities, as presented in the condensed consolidated interim statements of financial position.
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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.
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Adjusted EBITDA margin | Defined as adjusted EBITDA (defined above) divided by revenue, as presented in the condensed consolidated interim statements of earnings.
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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 | 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 | Six months ended | |||
2023 | 2022 | 2023 | 2022 | |
Net earnings | $ 29.0 | $ 21.7 | $ 46.5 | $ 37.8 |
Non-cash gains on mark to market of derivative instruments, after-tax | (1.9) | (2.0) | (1.6) | (2.4) |
Adjusted net earnings | $ 27.1 | $ 19.7 | $ 44.9 | $ 35.4 |
Adjusted basic earnings per share(1) | $ 1.26 | $ 0.92 | $ 2.09 | $ 1.65 |
Adjusted diluted earnings per share(1) | $ 1.22 | $ 0.89 | $ 2.03 | $ 1.60 |
(1) | For the three months ended |
For the six 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 | Six months ended | Twelve months ended | ||||
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EBIT | $ 45.3 | $ 34.1 | $ 73.9 | $ 60.5 | $ 127.3 | $ 113.9 |
Depreciation and amortization | 14.5 | 13.9 | 28.4 | 27.3 | 56.7 | 55.5 |
EBITDA | $ 59.8 | $ 48.0 | $ 102.3 | $ 87.7 | $ 184.0 | $ 169.3 |
EBIT | $ 45.3 | $ 34.1 | $ 73.9 | $ 60.5 | $ 127.3 | $ 113.9 |
Non-cash gains on mark to market of derivative instruments(1) | (2.6) | (2.8) | (2.1) | (3.3) | (2.3) | (3.5) |
Adjusted EBIT | $ 42.7 | $ 31.3 | $ 71.8 | $ 57.2 | $ 125.0 | $ 110.4 |
Depreciation and amortization | 14.5 | 13.9 | 28.4 | 27.3 | 56.7 | 55.5 |
Adjusted EBITDA | $ 57.2 | $ 45.2 | $ 100.2 | $ 84.5 | $ 181.6 | $ 165.9 |
Payment of lease liabilities(2) | (8.6) | (7.9) | (17.2) | (15.5) | (33.7) | (32.0) |
Pro-forma adjusted EBITDA | $ 48.6 | $ 37.3 | $ 83.0 | $ 69.0 | $ 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 |
Calculation of the Corporation's funded net debt, debt, leverage ratio and senior secured leverage ratio is as follows:
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Bank indebtedness | $ 4.4 | $ 19.0 | $ 5.2 |
Debentures | 56.0 | 55.9 | 55.8 |
Long-term debt | 195.9 | 158.5 | 83.6 |
Funded net debt | $ 256.4 | $ 233.4 | $ 144.6 |
Letters of credit | 4.4 | 4.0 | 6.2 |
Debt | $ 260.8 | $ 237.5 | $ 150.8 |
Pro-forma adjusted EBITDA(1) | $ 147.9 | $ 136.6 | $ 133.9 |
Leverage ratio(2) | 1.76 | 1.74 | 1.13 |
Senior secured leverage ratio(3) | 1.38 | 1.33 | 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:
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Shareholders' equity | $ 475.9 | $ 455.0 | $ 449.8 |
Funded net debt | 256.4 | 233.4 | 144.6 |
Total capital | $ 732.3 | $ 688.4 | $ 594.4 |
Funded net debt to total capital | 35.0 % | 33.9 % | 24.3 % |
Calculation of the Corporation's working capital and other working capital amounts is as follows:
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Total current assets | $ 1,042.9 | $ 981.1 | $ 860.1 |
Total current liabilities | 562.2 | 555.8 | 514.1 |
Working capital | $ 480.6 | $ 425.2 | $ 346.0 |
Trade and other receivables | (308.4) | (301.1) | (307.1) |
Inventory | (625.1) | (584.4) | (462.2) |
Accounts payable and accrued liabilities | 487.3 | 470.8 | 423.8 |
Other working capital amounts | $ 34.4 | $ 10.6 | $ 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 robust backlog, as well as solid fundamentals across many of our key markets, supports management's confidence in our prospects as we advance further into 2023 and beyond; our continued belief that the Corporation's strong financial results and balance sheet give us the flexibility to further invest in our expanded Hitachi relationship, additional organic initiatives and acquisition opportunities to help drive future growth; our outlook after the first half of 2023, including our 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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