Wajax (WJX) Q2 2024 earnings summary

Executive summary

• Q2 2024 revenue was CAD 568.3 million, down 3.1% year-over-year, mainly due to the absence of a large mining shovel delivery and lower construction, forestry, and mining equipment sales in western and central Canada, partially offset by higher sales in eastern Canada.

• Gross profit margin improved to 20.9%, up 100 basis points from the prior year, driven by higher margins in ERS and product support.

• Adjusted EBITDA was CAD 54.7 million, a decrease of 4.3% year-over-year, reflecting lower sales volumes and higher personnel costs; adjusted EPS was CAD 1.06, down 16.3% from Q2 2023.

• Backlog at quarter-end was CAD 544.9 million, down 7.2% sequentially and 1.2% year-over-year; eight large mining shovels are in backlog, with three expected to deliver in Q4 and four in 2025.

• ERP system rollout expanded to 99 branches, covering about 90% of 2023 revenue, with efficiency benefits expected over the next 1-2 years.

Financial highlights

• Selling and administrative expenses rose to 14.4% of revenue, up from 12.8% in Q2 2023, mainly due to higher personnel costs.

• Cash flow from operating activities was CAD 35.8 million, a significant improvement from cash used of CAD 6 million in Q2 2023, mainly due to lower inventory and receivables.

• Q2 leverage ratio decreased to 2.17x from 2.2x in Q1, reflecting lower debt levels but remaining above the target range due to inventory investments.

• Dividend of CAD 0.35 per share declared for Q3 2024, payable October 2, 2024.

• Working capital at June 30, 2024 was CAD 533.3 million, down CAD 9.6 million from March 31, 2024.

Outlook and guidance

• Management expects stable gross margins and further inventory reductions through the remainder of 2024, with no significant changes in demand trends anticipated.

• ERP rollout now covers 99 branches, representing 90% of 2023 revenue, with efficiency benefits expected over the next 1-2 years.

• Management is evaluating options to repay or refinance CAD 57 million in debentures maturing January 2025.

• Focus remains on executing six strategic priorities, including ERP rollout and cost structure improvements.