Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Wajax Corp (WJXFF, Financial) reported an increase in gross profit margin to 20.9% in Q2 2024, up from 19.9% in the same period of 2023.
- The company successfully rolled out a new ERP system to 99 branch locations, representing approximately 90% of 2023 annual revenue.
- Eastern Canada saw an 8.3% increase in sales, driven by higher equipment sales in construction and forestry and increased power systems sales.
- Wajax Corp (WJXFF) has a strong M&A pipeline, indicating ongoing strategic growth opportunities.
- The company has secured orders for eight large mining shovels, with deliveries scheduled through 2025, indicating a strong backlog in the mining sector.
Negative Points
- Revenue decreased by 3.1% in Q2 2024 compared to the same quarter in 2023, primarily due to lower sales in Western and Central Canada.
- Adjusted EBITDA decreased by 4.3% from the second quarter of 2023, impacted by lower sales volumes and higher personnel expenses.
- Selling and administrative expenses increased to 14.4% of revenue in Q2 2024, up from 12.8% in Q2 2023, due to higher personnel costs.
- The company's backlog decreased by 7.2% compared to Q1 2024, primarily due to lower orders in construction, forestry, and ERS.
- Industrial parts and ERS sales were soft in Q2, with declines in Central and Eastern Canada, reflecting broader market challenges.
Q & A Highlights
Q: Industrial parts and ERS demand were soft in Q2. Are there specific regions or end markets driving this, or is it more broad-based?
A: We are seeing softness in industrials and forestry, specifically pulp and paper. A small part of the decrease was due to the ERP rollout, which takes about a quarter to fully integrate.
Q: Has the demand trend continued into early Q3, and are there indicators suggesting a turning point?
A: We are not expecting significant changes in demand trends moving into Q3.
Q: Can you provide insight into the organic revenue growth decline in ERS and industrial parts, excluding acquisitions?
A: We do not disclose specific numbers for organic revenue growth decline.
Q: Equipment inventories improved in Q2 but are still above early 2024 levels. Should we expect a gradual sell-down, and what is the quality of current inventory?
A: We feel good about the quality of our inventory, which is all sellable equipment. We expect inventory levels to decline significantly over the next two quarters.
Q: What are the benefits of the new ERP system rollout, and when will they be realized?
A: The ERP system was implemented to replace aged infrastructure and unify systems across locations. We expect to see efficiencies over the next year or two, such as streamlined processes and quicker order-to-receivable conversions.
Q: Can you update us on the inorganic growth opportunities and the impact of market softness on M&A?
A: The M&A pipeline remains full, and we are actively pursuing deals. Market softness is company-specific and will be considered in pricing, but it hasn't significantly impacted M&A dynamics yet.
Q: Regarding the upcoming maturity of a senior unsecured debenture, what options are being considered?
A: One option is to pay it off with our line of credit. We are also exploring other potential vehicles, as the listed debenture market is no longer viable.
Q: What is the timing for the delivery of mining shovels in the backlog, and what does it look like for 2025?
A: We have eight large mining shovels in the backlog, with three expected to deliver in Q4 2024, four throughout 2025, and one in early 2026.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
