Wajax : Earnings Document

WAJAX CORPORATION

News Release

TSX Symbol: WJX

WAJAX ANNOUNCES 2022 FOURTH QUARTER AND ANNUAL RESULTS, INCREASES

QUARTERLY DIVIDEND BY 32%

--Expanded Relationship with Hitachi, and Growth in Industrial Parts and Engineered

Repair Services, Drove Record Revenue in 2022--

Toronto, Ontario - March 6, 2023 - Wajax Corporation ("Wajax" or the "Corporation") today announced its 2022 fourth quarter and annual results. All monetary amounts are in Canadian dollars unless otherwise noted.

Selected Highlights for the Fourth Quarter and Full Year

• Fourth quarter revenue of $541.3 million and full year revenue of $1.963 billion up 34.4% and 19.9%, respectively, over 2021;
• Fourth quarter adjusted EBITDA of $42.3 million and full year adjusted EBITDA of $165.9 million up 48.6% and 13.9%, respectively, over 2021(1);
• Fourth quarter adjusted net earnings of $17.8 million and full year adjusted net earnings of $69.8 million up 154.2% and 35.7%, respectively, over 2021(1); and
• Exited 2022 with backlog of $468.8 million.(1)

"In 2022 we delivered record revenue of nearly $2 billion and strong adjusted earnings per share growth of nearly 35% on a fully diluted basis", said Iggy Domagalski, President and Chief Executive Officer. "In addition to benefiting from our enhanced relationship with Hitachi, industrial parts and engineered repair services sales demonstrated robust year-over-year growth due, in part, to elevated commodity prices and sustained capital spending by customers across all regions.(1)

"During the first half of the year, improved cash flow from operations allowed us to make early repayment of our acquisition credit facility and fund two tuck-in acquisitions, further expanding our ERS footprint and service offerings. In 2022, we generated $69.1 million in cash flow from operations, reflecting investments in inventory and increases in receivables to support a growing business. We continue to manage our balance sheet prudently, and saw our leverage ratio decline to a 10-year low of 1.10 times during the year, before rising slightly to 1.13 times at year-end. Our strong balance sheet gives us the flexibility to invest in our expanded Hitachi relationship, additional organic initiatives and acquisition opportunities to help drive future growth."(1)

(Dollars in millions, except per share data)

CONSOLIDATED RESULTS

Revenue

Equipment sales

Product support

Industrial parts

Engineered repair services (ERS)

Equipment rental

Net earnings

Basic earnings per share(2)

Adjusted net earnings(1)(3)

Adjusted basic earnings per share(1)(2)(3)

Adjusted EBITDA(1)

Three Months Ended		Year Ended
	December 31		December 31
2022	2021 % change	2022	2021 % change

$541.3	$402.8	34.4%	$1,962.8	$1,637.3	19.9%
$202.2	$119.8	68.8%	$628.6	$484.2	29.8%
$118.3	$102.8	15.1%	$483.9	$437.6	10.6%
$137.9	$108.7	26.9%	$535.8	$438.1	22.3%
$72.6	$61.9	17.2%	$275.5	$241.7	14.0%
$10.2	$9.6	7.1%	$39.1	$35.5	10.0%
$16.6	$8.0	108.9%	$72.4	$53.2	36.0%
$0.78	$0.37	108.5%	$3.38	$2.50	35.4%
$17.8	$7.0	154.2%	$69.8	$51.5	35.7%
$0.83	$0.33	153.7%	$3.26	$2.41	35.1%
$42.3	$28.5	48.6%	$165.9	$145.6	13.9%

Outlook

Moving into 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 budgeting for capital projects. The Corporation started 2023 with a strong backlog of $468.8 million, up 10.5% from 2022, which supports management's confidence in the near-term future. In addition to expected growth in its heavy equipment business, Wajax anticipates further strong demand in its less cyclical industrial parts and engineered repair services businesses, building on the 22.3% and 14.0% top-line growth seen in those categories, respectively, in 2022. Wajax expects the challenges of 2023 to be similar to those of 2022 - ongoing supply chain volatility, higher interest rates, inflation, and a tight labour market.(1)

The Corporation's core strategic priorities remain unchanged and Wajax is focused on continuing to invest in its people and their overall health and well-being, delivering exceptional customer value, organically growing its business, transacting on a robust acquisition pipeline, leveraging its enhanced relationship with Hitachi, prudently managing its balance sheet, deploying its ERP system, and entrenching sustainability into the business.

Dividend Increase

Wajax also today announced that its Board of Directors has approved a 32% increase in the Corporation's quarterly dividend. The Corporation has declared a dividend of $0.33 per share for the first quarter of 2023, payable on April 4, 2023, to shareholders of record on March 15, 2023.

"The increase in our quarterly dividend, representing an additional annual outlay of approximately $6.9 million, reflects growing confidence in both our near- and longer-term outlooks, which is being driven by our expanded relationship with Hitachi, as well as solid demand for the full suite of products and services we offer across our business," said Mr. Domagalski. "Our strong ability to generate cash flow, coupled with over $300 million in availability on our bank credit facility, allows us to invest in organic growth and acquisition opportunities, while supporting this increased distribution to our shareholders."

Fourth Quarter Highlights

• Revenue in the fourth quarter of 2022 increased $138.5 million, or 34.4%, to $541.3 million, from $402.8 million in the fourth quarter of 2021. Regionally:
• • Revenue in western Canada of $278.8 million increased 64.3% from the prior year due primarily to robust growth in equipment and product support sales in the mining, and construction and forestry categories, and strength in the engineered repair services ("ERS") and industrial parts categories.
  • Revenue in central Canada of $86.9 million increased 14.4% from the prior year mainly due to organic growth in industrial parts sales.
  • Revenue in eastern Canada of $175.6 million increased 11.8% from the prior year due primarily to organic industrial parts growth driven by higher bearings sales, and higher equipment sales in the construction and forestry, and material handling categories.
• Gross profit margin of 18.1% in the fourth quarter of 2022 decreased 220 basis points ("bps") compared to the same period of 2021. The decrease in margin was driven primarily by lower product support margins and a higher proportion of equipment sales, largely due to the sale of several large mining shovels in the fourth quarter of 2022 without any similar sales in the same period of the prior year. These factors contributing to the decrease in margin were partially offset by higher equipment margins.(1)
• Selling and administrative expenses as a percentage of revenue decreased to 13.2% in the fourth quarter of 2022 from 16.5% in the fourth quarter of 2021, driven by the 34.4% increase in revenue over the prior year. Selling and administrative expenses in the fourth quarter of 2022 increased $4.9 million, or 7.4%, compared to the fourth quarter of 2021, due primarily to higher personnel costs as the volume of business increased over the prior year.(1)
• EBIT increased $11.4 million, or 74.4%, to $26.7 million in the fourth quarter of 2022 versus $15.3 million in 2021. The year-over-year increase in EBIT resulted primarily from higher sales volumes and equipment margins, offset partially by lower product support margins, a higher proportion of equipment sales, and increased selling and administrative expenses.
• The Corporation generated net earnings of $16.6 million, or $0.78 per share, in the fourth quarter of 2022 versus $8.0 million, or $0.37 per share, in 2021. The Corporation generated adjusted net earnings of $17.8 million, or $0.83 per share, in the fourth quarter of 2022 versus $7.0 million, or $0.33 per share, in 2021. Adjusted net earnings for the quarter excludes non-cash losses on mark to market of derivative instruments of $1.1 million after-tax, or $0.05 per share (2021 - losses of $0.2 million after-tax, or $0.01 per share). Adjusted net earnings in the same period of 2021 also excluded a gain recorded on the sale of properties of $1.2 million after-tax, or $0.06 per share.(1)
• Adjusted EBITDA margin increased to 7.8% in the fourth quarter of 2022 from 7.1% in 2021.(1)
• Cash flows generated from operating activities amounted to $19.1 million in the fourth quarter of 2022, compared to $36.0 million in the same quarter of the previous year. The decrease of $16.9 million was mainly attributable to a decrease in cash generated from changes in non-cash operating working capital of $30.3 million, which was driven largely by an increase in accounts receivable of $33.0 million in the fourth quarter of 2022 as compared to an increase in accounts receivable of $1.9 million in the same quarter of the previous year. This decrease in cash generated was partially offset by an increase in net earnings excluding items not affecting cash flow of $14.5 million.
• The Corporation's backlog at December 31, 2022 of $468.8 million decreased $90.0 million, or 16.1%, compared to September 30, 2022 due primarily to deliveries of multiple mining shovels that were in the prior quarter's backlog, along with most other categories completing more deliveries in the quarter versus new orders added to backlog, most notably in the construction and forestry category. These decreases were partially offset by higher ERS orders.(1)
• Working capital of $346.0 million at December 31, 2022 increased $3.4 million from September 30, 2022, due primarily to higher trade and other receivables and inventory, partially offset by higher accounts payable and accrued liabilities and income taxes payable. Working capital efficiency was 16.8%, a decrease of 80 bps from September 30, 2022, due to the higher trailing 12-month revenue.(1)

• The Corporation's leverage ratio decreased to 1.13 times at December 31, 2022, compared to 1.28 times at September 30, 2022. The decrease in the leverage ratio was due to the combination of the lower debt level in the current period driven by cash generated from operating activities, and the higher trailing 12- month pro-forma adjusted EBITDA. The Corporation's senior secured leverage ratio was 0.71 times at December 31, 2022, compared to 0.81 times at September 30, 2022.(1)
• Effective October 6, 2022, the Corporation amended its $400.0 million bank credit facility to extend the maturity date from October 1, 2026 to October 1, 2027. At December 31, 2022, Wajax had borrowed $85.0 million and issued $6.2 million of letters of credit for a total utilization of $91.1 million of its $400.0 million bank credit facility.
• Subsequent to quarter-end and effective January 23, 2023, Mark Edgar was appointed to the role of Chief People Officer. Prior to joining Wajax, Mr. Edgar's career has included extensive human resources experience gained as Senior Vice President, Human Resources for Royal Sun Alliance Canada, Head of Human Resources - Corporate, for Centrica plc, the parent company of British Gas, and Head of Human Resources - Customer Group, for British Sky Broadcasting plc (now Sky plc).

Conference Call Details

Wajax will webcast its Fourth Quarter Financial Results Conference Call. You are invited to listen to the live webcast on Tuesday, March 7, 2023 at 2:00 p.m. ET. To access the webcast, please visit our website wajax.com, under "Investor Relations", "Events and Presentations", "Q4 and Full Year 2022 Financial Results" and click on the "Webcast" link. An archive of the webcast will be available following the live presentation.

About Wajax Corporation

Founded in 1858, Wajax (TSX: WJX) is one of Canada's longest-standing and most diversified industrial products and services providers. The Corporation operates an integrated distribution system providing sales, parts and services to a broad range of customers in diverse sectors of the Canadian economy, including: construction, forestry, mining, industrial and commercial, oil sands, transportation, metal processing, government and utilities, and oil and gas.

The Corporation's goal is to be Canada's leading industrial products and services provider, distinguished through its three core capabilities: sales force excellence, the breadth and efficiency of repair and maintenance operations, and the ability to work closely with existing and new vendor partners to constantly expand its product offering to customers. The Corporation believes that achieving excellence in these three areas will position it to create value for its customers, employees, vendors and shareholders.

Notes:

1. "Adjusted net earnings", "Adjusted basic and diluted earnings per share", "Adjusted EBITDA", "Adjusted EBITDA margin", "Backlog", "Leverage ratio", "Senior secured leverage ratio", "Working capital", "Gross profit margin", "Selling and administrative expenses as a percentage of revenue" and "Pro-forma adjusted EBITDA" 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 December 31, 2022 was 21,453,250 (2021 - 21,409,323) and 22,228,401 (2021 - 22,145,597), respectively.
   Weighted average shares, net of shares held in trust, outstanding for calculation of basic and diluted earnings per share for the year ended December 31, 2022 was 21,423,140 (2021 - 21,328,093) and 22,196,918 (2021 - 22,026,875), respectively.
3. Net earnings excluding the following:
4. 1. after-taxnon-cash losses on mark to market of derivative instruments of $1.1 million (2021 - losses of $0.2 million), or basic and diluted loss per share of $0.05 (2021 - loss per share of $0.01) for the three months ended December 31, 2022.
   2. after-taxnon-cash gains on mark to market of derivative instruments of $2.6 million (2021 - losses of less than $0.1 million), or basic and diluted earnings per share of $0.12 (2021 - loss of less than $0.01) for the year ended December 31, 2022.
   3. after-taxgain recorded on the sale of properties of nil (2021 - $1.2 million), or basic and diluted earnings per share of nil (2021 - $0.06 and $0.05 respectively) for the three months ended December 31, 2022.

1. after-taxgain recorded on the sale of properties of nil (2021 - $2.1 million), or basic and diluted earnings per share of nil (2021 - $0.10) for the year ended December 31, 2022.
2. after-taxTundra Process Solutions Ltd. ("Tundra") transaction costs of nil (2021 - $0.3 million), or basic and diluted earnings per share of nil (2021 - $0.01) for the year ended December 31, 2022.

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:

1. these measures are commonly reported and widely used by investors and management;
2. 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;
3. "Adjusted net earnings" and "Adjusted basic and 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;
4. "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
5. "Pro-formaadjusted 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 (gain) loss recorded on the sale of properties, non-
	cash losses (gains) on mark to market of derivative instruments and Tundra
	transaction costs.