Wajax Corporation (WJX) Earnings Call Transcript & Summary

Thank you for attending Ray Jack's Corporations 2026 Second Quarter Financial Results webcast. On today's webcast will be Mr. George McLean, President and Chief Executive Officer, Ms. Tanya Casadino, Chief Financial Please be advised that this webcast is being recorded. Please note that this webcast contains forward-looking statements. Actual future results differ from expected results.

I will now turn the call over to Tanya Casadino. Tanya Casadino, Wage Access Q2, Financial Results, Q2, 2020 Thank you, operator. Good afternoon, and thank you for participating in our second quarter results call. This afternoon, we will be following a webcast which includes a summary presentation of Wage Access Q2, 2026 financial results. The presentation can be found on our website under Investor Relations, Events and Presentations. To begin, I would like to draw your attention to our cautionary statement regarding forward-looking information on slide two and the non-GAAP and other financial measures on slide three. Please turn to slide four and at this point I'll turn the call over to George.

Thank you, Tanya. Thank you, everyone, for joining us today. Before I get into the quarter, I want to spend a moment on where we're headed as a company. As many of you know, I joined Wayjax and joined the Wayjax team in the CEO role in March, and I've focused a good deal of my time on what I describe as my look, listen, learn tour. I get out to the branches and spend time with our teams, our customers, and our supplier partners across the country. I am now five months in, and that tour is largely complete. I've come away even more confident than when I started, and importantly, we are now shifting from listening to planning and preparing the organization for growth. What I've seen so far reinforcements. my confidence in this business, in the strength of our company, the character and dedication of our people, and in the significant opportunities we have ahead of us. That strength starts with this platform shown on the slide. This slide provides an overview of WageX. The corporation has more than 167 years of Canadian operating history and operates across 104 branches with a team of 2,900 employees. During the quarter, our heavy equipment categories and revenue sources made up approximately 56% of our total revenue, while industrial parts and ERS generated approximately 44%. Turning to slide five, our purpose and values, this slide provides an overview of our purpose and values. WageX'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 is grounded in our belief in our team. We hire great people, we listen to them, and we channel their energy, first toward efficiency and now increasingly toward growth. We also draw real strength from our roots as a stable, proudly Canadian company that has been operating since 1858 with a footprint right across the country. Our purpose and values guide our decision making and allow us to execute on our strategic priorities. Turning to slide six. This slide provides an overview of our strategic priorities, which were refined for the start of 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. In 2026, management continues to emphasize disciplined operation 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. At this point, I thought it would be worthwhile to give you some color on the ambition behind those priorities and how we are executing. Our ambition is straightforward. We want WageX to be a stronger, more resilient and higher margin business over time, one that grows profitably and consistently through the cycle and not just with it. We have a good platform in our recurring product support ERS businesses, which give us a more stable, higher margin base of revenue, and we have our strategic relationship with Hitachi, which remains a key long-term growth driver. The benefits are building gradually, but the opportunity is significant, particularly as Hitachi expands its presence in the Americas. And with our balance sheet now in excellent shape, we have real flexibility to rebuild our acquisition pipeline for when the timing is right. With a focus on efficiencies, we are embedding a lean culture across the organization. We've completed white belt training across much of the entire company. Our branch leaders and other key roles are now moving through yellow belt training, and we've put in place a process to let our team members surface improvement ideas from the front line. We are also growing a dedicated strategic projects team to lead change initiatives and we made further ERP improvements in the quarter, including a better quoting process and enhancements to how we support our customers. We remain intensely focused on efficiencies, process improvement, cost management, and our margin initiatives. We're using better data to sharpen our decision-making, tighten our procurement and inventory management, and drive further efficiencies across our network. Thank you. This is iterative work we hope to build on our gains quarter by quarter. That discipline is the foundation. The next slide shows how we're building on it and preparing the company for growth. This slide provides an overview of our strategic planning process. We've launched a strategic planning process engaging a group of 18 senior leaders from across the organization called the Strategy Working Group. Together, through a number of meetings, we're assessing opportunities across our businesses, regions, and operational functions to identify where we can create the greatest value for our customers shareholders. As part of preparing the company for growth we are recruiting into a number of key positions across the organization spanning sales, marketing, strategic projects, talent and communications and these roles are helping to build our organizational capacity and bench strength. Since 2025, our focus has been on strengthening profitability, increasing cash generation, and maintaining disciplined capital allocation. Building on that foundation, we're now focused on enhancing the capabilities that will support long-term profitable growth. Key priorities include strengthening commercial execution, investing in our sales force and capabilities, advancing our go-to-market strategy, driving operational excellence, and ensuring we have the right organizational structure and talent to support future success. The outcome of this work will help shape our 2027 strategic priorities and investment decisions. As always, we will remain disciplined in how we allocate capital and will focus on opportunities that strengthen our competitive position while delivering attractive long-term returns for shareholders. The work is progressing and we look forward to providing investors with additional detail on these priorities and investments as our planning advances. Overall I've been very encouraged by what I've seen during my first five months at Wajax. We have a strong foundation, exceptional people and trusted customer and supplier relationships. Our focus now is building upon on these strengths, improving execution, strengthening our competitive position, and investing in the capabilities that will support sustainable, profitable growth and long-term shareholder value. Moving to slide eight. With that context, let me turn to the quarter itself. In the second quarter of 2026, wage acts achieved stronger margins, generated robust operating cash flow, and further reduced leverage despite lower year-over-year revenue. Revenue of $515.7 million increased – sorry, decreased 31.5 million or 5.7% in the quarter. The decrease resulted primarily from lower equipment volumes, including the delivery of one large mining shovel in the second quarter of 2025 with no comparable delivery in the current quarter. Gross profit margin of 20.9%, increased nicely 180 basis points compared to the same period of 2025, reflecting margin improvement initiatives and sales mix. increase in margin was primarily due to higher margins realized on industrial parts and ERS sales, reflecting margin improvement initiatives and a lower proportion of equipment sales from a sales mix perspective. 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 second quarter of 2026 from 13.4% in the same period of 2025, driven by the year-over-year decline in revenue. Excluding the adjustments noted on the slide, adjusted selling and administrative expenses increased 0.2%. million in the second quarter of 2026 compared with the same period last year. Adjusted EBITDA of 8.9% in the second quarter of 2026 improved from 8.2% compared to the same period of 2025 and increased from 8.1% in the first quarter of 2026. Adjusted EBITDA of $45.9 million increased $1.2 million or 2.6% from the second quarter of 2026. of 2025, noting the adjustments recorded on this chart. Adjusted net earnings of 84 cents per share increased 9.7% or 7 cents per share from the second quarter of 2025, noting the adjustments on the chart. At the end of Q2, the TRIF rate was 1.43, an increase of 40% from the second quarter quarter of 2025. Safety continues to be truly Wajax's number one 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 nine, revenue by region. The revenue decrease of 5.7% in the second quarter resulted from lower revenue in Western and Central Canada. Western Canada sales of $223 million decreased 10.7% in the quarter due primarily to lower mining equipment sales, including the delivery of large mining equipment. mining shovel in the second quarter of the prior year with no comparable delivery in the second quarter of this year. This decrease is partially offset by higher product support sales in the mining category. Central Canada sales of 83 million decreased 12.9% in the quarter due primarily to lower equipment sales in the construction and forestry category and lower ERS revenue. Eastern Canada sales of $210 million increased 3.7% in the quarter due primarily to higher equipment sales in the construction and forestry segments and power systems categories, and higher product support revenue in most categories. These increases were partially offset by lower equipment sales in the material handling category. Please turn to slide 10. An update on equipment and product support sales and year-over-year variances are shown on this page. equipment sales of $137 million decreased $39.4 million or 22.3% compared to last year due primarily to lower mining equipment sales in western Canada including the delivery of a large mining shovel in the second quarter of the prior year with no comparable delivery in the second quarter of this year. We are also looking at the cost of equipment sales in the this year. Wage Act also experienced lower material handling equipment sales in Western and Eastern Canada and lower construction and forestry equipment sales in Central Canada. Product support sales of $143 million increased $9.2 million, or 6.9%, compared to last year, due primarily to strong mining revenue in Western Canada. Please turn to slide 11. An update on industrial parts and ERS sales and year-over-year variances are shown on this page. Industrial part sales of approximately $138 million decreased 2.7 million or 1.9% compared to last year. ERS sales of approximately $86 million increased $2.4 million or 2.9% compared to the prior year. Turning to slide 12, the slide summarizes sales at a category level for our company's overall groupings of heavy equipment and industrial parts and ERS. In the second quarter, the heavy equipment categories decreased $31.2 million, or 9.7%, due primarily to lower mining equipment sales in Western Canada, and lower material handling equipment sales in Western and Eastern Canada. The industrial parts and ERS categories decreased 0.3 million or 0.1%. I'll now turn the call back over to Tanya for commentary on backlog, inventory, and our balance sheet.

Thank you, George. Please turn to slide 13 for my comments on backlog and inventory. Our Q2 backlog of $546.6 million increased $24.9 million compared to backlog of $521.7 million at Q1 and increased $22.4 million on a year-over-year basis. The sequential increase was due primarily to high mining backlog with the addition of a large mining shovel, higher construction and forestry backlog, and higher ERS backlog. The year-over-year increase was due primarily to an increase in power systems backlog driven by the river class destroyer subcontract entered into with Irving Shipbuilding Inc. during the fourth quarter of 2025 and higher construction and forestry backlog. These increases were partially offset by lower mining backlog driven largely by the delivery of large mining shovels since Q2 of 2025. Backlog at June 30th, 2026 included two large mining shovels scheduled for delivery over the next two quarters. Inventory decreased $3.7 million compared to Q1 of 2026, while inventory decreased $12.3 million compared to Q2 of 2025. The year-over-year decreases resulted primarily from lower industrial parts and ERS inventory, offset partially by higher rental option inventory, in the construction category. Management believes that inventory levels are within normal operating range at this point in time. Please turn to slide 14 where I will provide an update on cash flow, leverage, and working capital. cash flows generated from operating activities in the current quarter of $36.2 million compared with cash generated of $68.3 million in the same quarter of the prior year. The decrease in cash generated of $32.1 million was mainly attributable to a decrease in inventory of $3.7 million during the quarter, compared to a decrease of $56 million in the same quarter of the prior year. The decrease in cash generated was offset partially by an increase in contract liabilities of $7.4 million during the quarter compared to a decrease of $4.6 million in the same quarter of the prior year. Our Q2 leverage ratio improved to 1.3 times from 1.51 times in Q1 due to the lower debt levels driven largely by cash generated from operating activities and management's continued focus on disciplined capital allocation. Our Our available credit capacity at the end of Q2 was $297.8 million, which is sufficient to meet short-term normal course working capital and maintenance capital requirements and fund our planned strategic initiatives. We continue to focus on working capital efficiency with a key component in managing our overall leverage targets. the Q2 working capital efficiency was 24.3%, an improvement in efficiency of 30 basis points from 24.6% at March 31, 2026. due to the lower trailing four quarters average working capital. Inventory turns have declined marginally from Q1 of 2026 and improved to 2.4 times from 2.2 times in Q2 of 2025 and from 2 times in Q4 of 2024, due primarily to lower average inventory levels offset partially by lower sales. The optimization of inventory, improvement in working capital efficiency, and meaningful reduction in leverage reflect management's disciplined execution. Finally, the Board has approved our third quarter 2026 dividend of 35 cents per share payable on October 2, 2026 to shareholders of record on September 15, 2026. Please turn to slide 15 and at this point I will turn the call back to George.

Thanks, Tonya. Our outlook is summarized on slide 15. Our second quarter results demonstrate the continued benefits of our operational initiatives with improved margins, strong operating cash flow, and a healthy balance sheet, despite lower year-over-year equipment sales. We also saw growth in product support and ERS sales. Our disciplined approach to margins management, working capital and capital allocation continues to strengthen the business and support our financial flexibility. Market conditions remain mixed, with customers continuing to exercise caution in certain end markets. That said, in a number of our end markets, we are seeing pockets of improved customer sentiment as we move into the second half. Mining remains strong, supported by healthy commodity prices, critical minerals investments, and long-term project pipelines. Oil and gas and oil sands momentum continues to build, and government and utilities demand is steady on the back of infrastructure and grid investment. Approval processes remain lengthy, and customers are still disciplined with their capital, but quoting activity and engagement remain robust across most regions. We have a strong business, a healthy balance sheet, a growing recurring revenue base, and a clear set of growth drivers, and I'm confident in our ability to manage the near term while we plan for the longer term. We continue to prioritize discipline execution on cost control and margin improvement supported by prudent capital allocation, this positions us well to navigate current market conditions conditions while continuing to create long-term value for our stakeholders. While Wage Access core strengths provide a solid foundation, as previously mentioned, we have commenced a strategic planning process involving a group of 18 senior leaders called the Strategy Working Group to identify the investments, capabilities, and operational priorities that will support profitable growth and strengthen our competitive position. We look forward to sharing additional details on our priorities and investment focus as that work progresses. I'll now turn it back to the operator and open the line for questions. Thank you for your continued interest in Wajax.

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press bar 1 on your telephone keypad. to withdraw your question, you may press star 2. Once again, that is star 1 should you wish to ask a question. And your first question is from Devin Dodge from BMO Capital Markets. Your line is now open.

All right, thank you. Good afternoon. I'm going to start with, I wanted to start with mining sales. They had a fairly meaningful year-over-year decline against both in Q2 and year to date, that seems a bit at odds with the mining sector, which seems to be doing well and even echoed in your comments about end market conditions. I mean, less shovel delivery seems like that was part of the softness, but it seemed like there may be more to it. Just can you provide any color there?.

Yes, thanks, Devin. Certainly, mining and demand in mining continues to be strong, and we don't have any concerns there. There are several new mining projects and fleet renewals in process. And of course, the sales cycle in mining is typically very long, so making period-to-period comparisons is difficult. The demand remains high in oil sands and also importantly in base metals like gold, copper, nickel, etc. We do see some softness in coal and iron ore, and that's based on commodity market conditions and rising operating costs. But most importantly, we do see the demand is high, the activity is high. Certainly we're in a lot of meetings and discussions and quoting processes in oil sands and in those base metals. So it is a little difficult to compare period to period, but we feel good about the activity.

Okay, okay, appreciate that. Second question, we thought it was encouraging that both ERS and product support saw positive growth in Q2. Is there any reason why that momentum wouldn't carry over into the second half? And could we see – could we actually see year-over-year growth figures step up, just given the comps last year –.

don't seem like a high bar. Yes, certainly we see ERS as one of our strongest performing businesses across the company. It's been driven by strong turnaround activity, power generation, hydro, mining and oil, oil and gas, maintenance spending, and certainly customers continue to prioritize asset reliability and life cycle extension. That's where we're seeing a lot of quoting activity, a lot of discussions for major projects, and that's a good thing to see. And we expect that momentum to continue through the year and beyond. On the product support side, it's definitely one of the most resilient areas of our business. The service activity is strengthened across most regions, supported by the fact that customers are really extending the life of existing assets in many cases. And oil sands, mining, utilities, Atlantic operations continue to perform particularly well. And then overall, in terms of the momentum you mentioned, we feel good about the strategic planning process priorities we're focused on. One of the areas will definitely be around technicians, which is a key aspect of the element to our success to date and our success going forward. And both of those areas, product support and engineered repair services, rely on great technicians. So we're pretty focused in our strategy working group. We don't have the details yet, but we're focused in definitely on technicians and training and customer service.

Okay, that's great. Thanks, George. I'll turn it over. Thanks, Devin. Thank you. And your next question is from Maxine Suchas from National Bank, New Orleans, Ohio.

Hi, good afternoon, team. The first question I had was around your strategic priorities where you're trying to address like Salesforce technicians and go-to-market initiatives. And I'm just trying to see what exactly you're trying to address here. Is it like insufficient coverage, technicians? and productivity, cross-selling, kind of organizational complexity. Like where exactly do you find the white spaces reside and where the biggest opportunity.

for you exists at the moment. Thank you. Thanks, Max. Appreciate it. Certainly all of the above, and all of that is being discussed. And, of course, an organization can do anything, but they can't do everything, and that's true for Wagex. So it'll be a matter of prioritization, but certainly you've hit on a number of key areas. Technicians, we know, are a key precondition. to success and we have a good group of technicians today. We want to get even better in attracting and retaining and training our technicians. On Salesforce effectiveness, we've hired a VP of sales enablement. Josie Patella started about a month ago and she has many decades of experience in this area where we will elevate the performance and effectiveness and help our salespeople be more effective. And so we, as I said at the start, see opportunities in all segments. There are some areas of excellence that we want to focus on that will support all of those segments. And then beyond that, there's some go-to-market opportunities where we're good in one region, let's say in ERS or in material handling or crane utility, and we know we could be good in another region with infrastructure. investment and change in the team. You also touched on role clarity, and that's going to be absolutely critical. Today we have a good group of people, but we can improve our role clarity to make sure that we've got a front to back sales focus and sales orientation, and then front to back operations orientation, and good, good accountability and empowerment in all those areas, which ultimately will deliver great customer service at a higher level, increase volume through our existing channel and ultimately drive a good ROIC and a good return for our shareholders.

Okay, that's super helpful. And actually, do you mind me building a little bit, because right now your ERP is is substantially complete. So do you mind maybe talking about where the biggest upside from getting, I guess, better data sets, better data kind of in general, where you could leverage it the most, whether by vertical geography, whatever you can maybe discuss publicly. Thanks.

Yes sure happy to share that so on the erp front uh it certainly is a key enabler to everything that we do and the team did a really nice job over the last couple of years to implement m3 and stabilize it and it's in great shape so that provides a greater access to detailed accurate data throughout the business on a fast basis so as we've run this strategic planning process we certainly have a big advantage now that we can get a better understanding of costs and profitability in each segment, in each region, for each supplier, and that will lead us to good conclusions around investments. I'd also say that the ERP is a really nice foundation for building our e-commerce platform. and getting into that space, which will help us in industrial products and also in parts and product support on the equipment side.

Overall, a great platform and a great enabler. Okay, thanks. And then one quick one for Tania, if I may. So you talk about building inventory in anticipation of seasonal demand, but I guess you're also a bit cautious depending on sort of whichever end market you are talking about. So do you think that I guess what gives you the confidence that the inventory level is sort of appropriate for the demand signals in the back of the.

I guess any color there. Thanks Max. Great question. Yes, we did build inventory up earlier in the year for expected seasonal demand and our inventory procurement process or the way we we plan for inventory is quite detailed at not only a category level, but unit level. So based on the forecasted demand that we have seen and. it does get adjusted on a monthly basis because it's a monthly process. We feel like we do have sufficient and appropriate levels of inventory at this point in time. When we look at the turns by category, that looks good too. Overall, from an inventory perspective, We're in the ballpark of our expected turns right now as well. Again, keeping an eye out on expected future demand based on what the business is seeing out in the field.