Wajax Corporation ($WJX)

Thank you for attending Wajax Corporation's 2026 First Quarter Financial Results Webcast. On today's webcast will be Mr. George McLean, President and Chief Executive Officer; Ms. Tania Casdinho, Chief Financial Officer. 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 will now turn the call over to Tania Casadinho.

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' Q1 2026 financial results. The presentation can be found on our website under Investor Relations, Events and Presentations. Again, 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. Please turn to Slide 4. And at this point, I'll turn the call over to George.

Thank you, Tania. To start, I will provide highlights on our first quarter before turning it back to Tania, commentary on backlog, inventory and the balance sheet -- provides an overview of Wajax. The corporation has more than 167 years of Canadian operating history and operates across 105 branches with a team of approximately 2,900 employees. During the quarter, our heavy equipment categories and revenue sources made up approximately 55% of our total revenue, while industrial parts and ERS generated approximately 45%. Turning to Slide 5. This 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 shareholders customers, suppliers, our people and the communities we serve. Our purpose and values guide our decision-making and allow us to execute on our strategic priorities. Turning to Slide 6. Slide provides an overview of our strategic priorities, which were refined for 2026. During 2025, management focused on cost control, inventory optimization and margin improvement to reduce leverage, enhance profitability and increase cash flow from operations. These actions represented initial steps in an ongoing program of operational improvements. 2026, management continues to emphasize disciplined operational execution across these focus areas, supported by balance sheet strength and prudent capital allocation, which will enable the corporation to deliver sustainable long-term value. Turning to Slide 7. In first quarter of 2026, Wajax delivered improved margins, strong operating cash flow and a further reduction in leverage despite lower year-over-year revenue. Revenue of $502.1 million decreased $52.9 million or 9.5% in the quarter. The decrease resulted primarily from lower equipment volumes, including the delivery of 1 large mining shovel in the current quarter compared to 2 in the first quarter of the prior year as well as continued customer uncertainty and increased caution across certain sectors. Gross profit margin of 20.6% and increased 150 basis points compared to the same period of 2025, reflecting margin initiatives and sales mix. The increase was driven primarily by higher margins realized in industrial parts and ERS sales and a lower proportion of equipment sales from a sales mix perspective. These increases were partially offset by lower margins realized on product support revenue. We remain focused on these margin improvement initiatives, to strengthen our margin profile, mitigate ongoing market pressures and drive continued earnings performance. Selling and administrative expenses as a percentage of revenue increased to 14.8% in the first quarter of 2026 from 14.3% in the same period of 2025 driven by the year-over-year decline in revenue. In the adjustments noted on the slide, adjusted selling and admin expenses decreased $1.5 million in the first quarter of 2026 compared with the same period in the prior year, primarily due to ongoing discipline in cost control and operational efficiency. Adjusted EBITDA margin of 8.1% in the first quarter of 2026 improved from 7.8% compared to the same period of 2025 and increased from 7.9% in the fourth quarter of 2025. Adjusted EBITDA of $40.5 million decreased $2.7 million or 6.3% from the first quarter of 2025, noting the adjustments recorded on this chart. Adjusted net earnings of $0.67 per share decreased 2.4% or $0.02 per share from the first quarter of 2025, noting the adjustments recorded on this chart. At the end of Q1, the TRIF rate was 2.02%, an increase of 55% from the first quarter of 2025. Safety continues to be Wajax's #1 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 workplace safety. Turning to Slide 8. I Revenue decreases of 9.5% in the first quarter resulted from lower revenue in all regions. Western Canada sales of $227 million decreased 14% in the quarter due primarily to lower construction and forestry equipment volumes and lower mining volumes, reflecting the delivery of one large mining shovel in the first quarter of 2026 compared to two in the first quarter of the prior year. Central Canada sales of $90 million decreased 9.5% in the quarter due primarily to lower revenue in the material handling and industrial parts categories. Eastern Canada sales of $184 million decreased 3.3% in the quarter due primarily to -- for equipment volumes in the Construction & Forestry segments and material handling categories and lower industrial parts sales. These decreases were partially offset by higher ERS revenue and higher equipment volumes in the Power Systems category. Please turn to Slide 9. Update on equipment and product support sales and year-over-year variances are shown on this page. Equipment sales of $131 million decreased $39.8 million or 23.3% compared to last year due -- primarily to lower construction and forestry sales in Western and Eastern Canada for material handling sales in all regions and lower mining sales in Western Canada reflecting the delivery of one large mining shovel in the first quarter of 2026 compared to two in the first quarter of the prior year. Product support sales of $136 million decreased $10.3 million or 7% compared to last year due primarily to lower mining revenue in Western Canada. Please turn to Slide 10. The Update on industrial parts and ERS and year-over-year variances are shown on this page. Industrial parts sales of approximately $138 million decreased $7 million or 4.9% compared to last year due primarily to lower sales in Central and Eastern Canada, driven by softer market conditions. PRS sales of approximately $87 million increased $5 million or 6% due primarily to higher sales in Eastern Canada, driven by timing of projects. Turning to Slide 11. Slide summarizes sales at a category level for our company's overall groupings of heavy equipment and industrial parts and ERS. First quarter, the heavy equipment categories decreased $50.9 million or 15.5% due to primarily lower construction and forestry equipment sales in all regions for mining equipment and product support sales in Western Canada. First quarter, the industrial parts and ERS categories decreased $2 million or 0.9%, driven by lower industrial sales Industrial, parts sales in Central and Eastern Canada, offset partially by higher ERS sales in Eastern Canada. I will now turn the call back to Tania for commentary on backlog, inventory and the balance sheet.

Thank you, George. Please turn to Slide 12 for my comments on backlog and inventory. Our Q1 backlog of $521.7 million increased $5.1 million compared to backlog of $516.6 million at Q4. We decreased $39.6 million on a year-over-year basis. The increase was due primarily to higher construction and forestry and material handling backlog, offset partially by lower mining backlog, driven largely by the delivery of a large mining shovel in the quarter, which was in backlog at December 31, 2025. Year-over-year decrease was due primarily to lower mining backlog driven largely by the delivery of 5 large mining shovels since March 2025 and lower material handling backlog. Leases were partially offset by an increase in Power Systems backlog driven by the subcontract with Irving Shipbuilding, Inc. entered into during the fourth quarter of 2025 and higher ERS orders. Backlog at March 31, 2026, included one large mining shovel. Inventory increased $4 million compared to Q4 of 2025. The increase in the first quarter of 2026 resulted primarily from targeted equipment inventory purchasing in the construction and forestry category to support anticipated seasonal demand. Inventory decreased $64.5 million compared to Q1 of 2025. The year-over-year decrease resulted primarily from lower mining equipment and industrial parts and ERS inventory. Management believes that inventory levels are within a normal operating range at this point. Please turn to Slide 13, where I'll provide an update on cash flow, leverage and working capital. Cash flows generated from operating activities in the current quarter of $46.8 million compared with cash generated of $25.7 million in the same quarter of the prior year. Decrease in cash generated of $21.1 million was mainly attributable to an increase in accounts payable and accrued liabilities, offset partially by a targeted increase in inventory during the quarter to support anticipated seasonal demand and an increase in trade and other reasons. Our Q1 leverage ratio improved to 1.51x from 1.62x in Q4 -- primarily to the lower debt level driven by cash generated from operating activities during the quarter. nation's leverage ratio is currently within our target range of 1.5 to 2x at the end of Q1. Our available credit capacity at the end of Q1 was $302.2 million, which is sufficient to meet short-term normal course working capital and maintenance capital requirements to fund our planned strategic initiatives. We continue to focus on working capital efficiency, which is a component in managing our overall leverage targets. -- in working capital efficiency was 24.6%, an improvement in efficiency of 50 basis points from 25.4% at December 31, 2025, due to the lower trailing 4-quarter average working capital. Inventory turns have remained the same from Q4 of 2025 and improved to 2.5x from 2.2x in Q1 of 2025 and in 2x Q4 of 2024, due primarily to lower average inventory levels offset partially by lower sales. The optimization of inventory improvement in working capital efficiency, a meaningful reduction in leverage reflects management's disciplined execution and strong balance sheet as we look ahead to the balance of 2026. Finally, the Board has approved our second quarter 2026 dividend of $0.35 per share -- payable on July 3, 2026, to shareholders of record on June 15, 2026. Turning to Slide 14. And at this point, I will now turn the call back to George.

Thanks, Tonya. Our outlook is summarized on Slide 14. We -- in the first quarter of 2026, Wajax delivered revenue of $502.1 million compared to $555 million in 2025. Gross margin -- gross profit margin of 20.6% compared to 19.1% in 2025, adjusted basic earnings per share of $0.67 versus $0.69 in 2025 and cash flow from operating activities of $46.8 million compared to $25.7 million in 2025. Working capital efficiency improved to 24.6% from 25.1% at December 31, 2025, despite a targeted increase in inventory to support anticipated demand. Leverage improved to 1.51x from 1.62x at December 31, 2025, and remains within the corporation's target range of 1.5 to 2x. In 2026, management continues to emphasize disciplined execution across these priorities, supported by prudent capital allocation. Ahead, Wajax continues to see solid customer demand in the mining and energy sectors. Mining demand is supported by a backlog that includes 1 large mining shovel scheduled for delivery within the next 4 quarters. Market conditions in other sectors remain mixed across regions with ongoing macroeconomic softness and uncertainty related to Canada U.S. tariff and trade dynamics. Wajax continues to maintain a strong balance sheet and a solid backlog. Inventory levels are within a normal operating range, while margin improvement and cost control remain key focus areas. Low demand visibility varies across end markets. Corporation's diversified exposure, focused execution position to manage current market conditions effectively. Management believes the continued execution of its strategic priorities supported by balance sheet strength and prudent capital allocation will enable the corporation to deliver sustainable long-term value. I will now turn it back to the operator and open the line for questions. Thank you very much for your continued interest in Wajax.

[Operator Instructions] Our first question comes from the line of Devin Dodge from BMO Capital Markets.

George, I wanted to start with a question for you. you've officially been in the CEO seat for 2 months now. Just wondering if you can share some early perspectives on Wajax and where you see the biggest opportunities for the company?

Devin, thanks for the question. Yes, I started on March 3 and about 9 weeks into my term here at Wajax. I'm spending 150 days crossing the country on a look list and learn tour into about 1/3 of the locations, all of our distribution centers and met with many of the team. And in terms of early observations, I see a lot of good hard-working people across the country. We are really focused on customers, needs of our customers, our product segments and our industry. So really good people working hard, good focus on safety, obviously, lots more that we can do, but I'm seeing good potential in the business across the .

Okay. Excellent. Okay. The other commentary suggested customer caution may have escalated a bit in early 2026. I'm assuming this may be coming from some end markets that had already been weak. But just wondering if you could provide a bit more color on which end markets that you're seeing this?

That's exactly. It's mainly around construction and forestry where we see the softness or the perhaps concern in the market. But overall, I think pretty steady and stable with that caution that we're seeing -- same sectors and same customer segment over the last quarters.

Okay. That makes sense. And then one last one for me. MTU. It's one of the brands in your portfolio, but I believe the OEM often sells directly to larger customers, and that's we'll say, limited Wajax' presence in the data center sector. Just wondering if there's an opportunity to work for Wajax to work with MTU on some of these potential data center projects, even if it's only on a product support basis?

That's understood for sure. Royce MTU is a great company with great products. we're pleased to represent them. There is a lot of opportunity, as you said, all across the country in stationary applications and mobile applications, including power generation backup innovative products. And I think their direct sales are fairly limited, but certainly, as you said, in some of the bigger projects, but we're definitely the supplier of choice when it comes down the road. So we look at participating in that as well and growing that relationship.

Our next question is from Patrick Sullivan from DB Colin.

Great. I guess, was there anything unique about Q1 this year, understanding that orders and deliveries can be a bit lumpy in any quarter, but Q1 can also be kind of at most risk for variability in terms of seasonality as well. Was there anything kind of stuck over this quarter?

Sorry, we missed -- this is Pat, right?

Yes, it is.

So from a Q1 perspective, yes, you're correct in terms of -- it can be a bit bumpy due to seasonality. We are coming up on a comparison to a pretty strong Q1 in 2025, where we did see a bit of what we believe was pull forward demand in equipment in the first quarter of last year. And we didn't necessarily see that pull forward this quarter. In addition to that last quarter or last year same quarter, we had 2 mining shovels. This quarter, we only had one. So there's some lumpiness in there for sure.

Okay. Understood. And then you noted the inventory build ahead of expected seasonal demand. I guess can you talk about the areas where you're stocking up for? And I guess your confidence in that demand coming to fruition?

Yes. So we did stock up specifically in the construction and forestry areas because Q1 -- end of Q1 and Q2 typically are seasonally a bit higher for us. So we're stocking up in advance of that or that expected demand.

Okay. Got it. And then maybe one last one before I turn it back over -- the backlog was relatively stable quarter-over-quarter, but I'm wondering if you can talk about the quoting activity you're seeing out in the market? I guess, like how is the quoting environment?

Yes, backlog is -- this is George. This backlog is solid for us, which is great. In terms of quoting, we don't see any concerns or any major upsurge, and it lines up with what we see in the market generally around oil and gas, mining and then a little bit of uncertainty in construction, forestry, et cetera. But we do see some upturn as Ton, you said in terms of the need for inventory and we'll continue to quote on that basis.

Next question is from Maxim Sacha from National Bank Capital Markets.

Is it possible to get a bit more color around what exactly happened with product support in Q1? How much of that is seasonality? How much of that is stuffer comps? I guess any greater color -- and more importantly, I guess, how should we be thinking about the rest of the year on sort of sequential basis? Or should we expect a recovery in that category?

Max. From a product support perspective, I'll address your portion around the comps. We did have a strong comp as well in Q1 of last year. We had some larger sales in mining, which also impacted the comparison on the margin as well, and hence, the call out. In terms of what we expect, it comes back to the caution as well. So really Q2 tends to be seasonally better, but we are cautioned.

So just to drill down a little bit. I mean, like the installed base is already there, so in terms of like the delays or the caution around product support, what is it really being driven by -- is it services? Is it part? I mean, like what exactly is happening there?

Yes, it's -- George, I think there's nothing we can point to directly it's more about just making sure we're performing in the field and that we meet the demand. There is definitely softness, but we think there's more we can do to meet that -- to meet the market in that area and nothing more really in detail we can point to at this stage till we see the trend play out.

Okay. And then I guess, when we look forward, I mean, obviously, where WCS at the moment. I mean, what are your conversations with mining clients? And specifically, I'm just wondering if you have one stumbling backlog, but what about the visibility to potentially add more on a going-forward basis? What is the pipeline looking from that perspective?

Sorry, we missed the first part, adding more what troubles?

Troubles. Troubles.

Yes, I think that's -- we don't have a good line of sight to I think we have good demand over time, but nothing unexpected or inordinate in that area. We continue to work that market. And we do believe we have an excellent product, but nothing more to disclose it -- remains strong. Sorry, active quotes remained strong for us, and we're hopeful and optimistic that we'll.

Right. And I guess, I mean, the bottom line was from mining clients specifically, I mean, has it gotten better on the back of oil pricing spike? Or is it more sort of steady relative to because I think people, I guess, assume some sort of normalization from a pricing perspective, what are you feeling kind of on the ground?

It's a mix of steady and maybe some optimism about growth going forward, but it still hasn't played out yet. So I think solid with hope for some upside going forward as this trend in prices.

Okay. And then maybe a question for Tantan. In terms of accounts payable, obviously, the Q1. How should we think about that line item on a sort of the remainder of the year basis? Just from a modeling perspective, if you want to maybe address working capital in general because like, I guess, AP is only part of that. But yes, anything to help us from a kind of a free cash flow perspective.

Yes. So the way we look at working capital, it's a holistic view. So inventory is really the biggest driver. And in accounts payable, it's the timing of the payables associated with inventory for the most part. So if we think about inventory, as we've been saying for a while, we are focused on optimizing our inventory, which means having inventory at the right time. So as we make our way through this build of the inventory, you'll see that go through AP eventually as well, but we are still very keenly focused on optimizing our working capital and by default or inventory.

Okay. Do you want maybe providing anything sort of numeric in terms of the optimization levels that you think are appropriate, I don't know, like as a percentage of revenue or anything tangible from that perspective?

Are your line is breaking up a little bit. What was the first part of.

Sorry, I apologize. I'm just wondering, in terms of the working capital sort of efficiency, is it possible to maybe provide any sort of quantitative measure like as a percentage of revenue or something like that, that we should be thinking of on a prospective basis in terms of kind of like we're starting from point A and point B is going to be, I don't know, like 10% improvement? Any color that would be super helpful.

Yes. A little bit difficult to give it to you on a working capital efficiency perspective. But like I said, inventory is the biggest driver working at it from a turns perspective. And we feel quite good with where the turns are at this moment. I think we're at 2.5 and have been there for 2 quarters now. So that will drive the level of inventory that we'll have on hand versus the expected sales.

Our next question is from Jonathan Goldman from Scotiabank.

I just want to circle back to the conversation on product support. I was wondering if we could just -- there's one line in your disclosures, if we can drill down on a bit more. I think in the revenue section, you talked about product support sales down 7% year-on-year, and the explanation was lower mining revenue in Western Canada. So I was wondering if you can explain the dynamics there because it seems like the outlook in the end markets are pretty good in mining. So I just wanted to know if there's anything specific in the quarter in the region that's happening in Western Canada.

Yes, it's a good question. We don't have a great line of sight in that area, but there is this ebb and flow between the work that is outsourced to the market or to us and then self-performance of product support work in-house by some of our customers. So there's always a dynamic there depending on their current situation, their needs and and their cash flows. So we don't, as I said, have a great line of sight in terms of all those details, but that is the balance. So it may be that there's some self-performance work in the market. But we know that our service offer is very good, and we expect it to continue to be solid through the rest of the year.

Okay. That's helpful. And I guess, relatedly, a separate line on the disclosures about some pressure on product support margins. Maybe you can just walk us through if there's been any change in the competitive dynamics in the marketplace, whether it's competing against customers themselves and self-perform other competitors? And if there's any dynamic with the oil price and kind of demand levels that would change sort of margin expectations going forward?

Yes, nothing in the market or any concern. It's really just a strong comp that we're lapping that from the mining segment.

Okay. And maybe one for Tanya on a housekeeping one. How should we think about the cadence of, I guess, level of SG&A and inventory and cost no difference and in terms of on a full year basis, so we feel good about. we are looking at ti from mid term to long term, but it is a key focus for us and dollars going through the year off of? A little higher than we have been seing over last quarter now and talking about marings and cost is no different and in terms of S&A on a full year basis, historically and but we were looking at it in mid term and long term and depending on the volumeif that helps.

How are you thinking about it? the balance sheet is in best shape . capital allocation from where you sit today?

Thanks for the question and lots of possibilities and that will be part of discussion, how much of expenditure when ready, at least 6 months to play out .

There are no questions at this time. I will turn the call back over to McClean for closing remarks.

Thank you for joining us today. Have a great day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.