WAJAX ANNOUNCES 2023 THIRD QUARTER RESULTS

TORONTO, Nov. 6, 2023

TORONTO, Nov. 6, 2023 /CNW/ - Wajax Corporation ("Wajax" or the "Corporation") today announced its 2023 third quarter results. All monetary amounts are in Canadian dollars unless otherwise noted.

Selected Highlights for the Third Quarter

• Third quarter revenue of $509.7 million, up 8.3% over 2022;
• Third quarter adjusted EBITDA of $50.0 million, up 28.0% over 2022;
• Third quarter adjusted net earnings of $20.7 million, up 24.4% over 2022; and
• Ended the quarter with record backlog of $599.2 million, up $48.0 million from June 30, 2023.⁽¹⁾

"We continued to execute clearly against our core strategic priorities during the third quarter, and this drove strong financial performance," said Iggy Domagalski, President and Chief Executive Officer. "Top line growth was supported by sustained customer demand across all regions, including continued positive momentum in central Canada. Solid year-over-year growth in product support sales was complemented by even greater strength in industrial parts revenue. Improved operating leverage saw year-to-date adjusted basic earnings per share grow 25.8% versus 2022, to $3.06. Our record backlog of $599.2 million, up $48.0 million sequentially from the second quarter due largely to mining orders, as well as solid fundamentals across many of Wajax's key markets, supports confidence in our prospects as we advance into the fourth quarter and beyond."⁽¹⁾

"We also continued to execute our industrial parts and engineered repair services growth strategy during the quarter, adding sought-after technical capabilities and expanding the services we offer to customers across the country. We acquired Calgary-based Polyphase Engineered Controls, and Sault Ste. Marie-based Beta Fluid Power and Beta Industrial, increasing our custom electrical, hydraulic and pneumatic capabilities in key regions. Becoming an increasingly valuable partner, with a fully integrated service offering is critical to gaining market share, driving improved margins and offering a top-notch customer service experience. The acquisitions of Polyphase, Beta Fluid Power and Beta Industrial, as well as our strategic investments in inventory during the year, resulted in our leverage ratio increasing to 2.16 times during the quarter, slightly above our target range of 1.5 to 2.0 times. Our strong financial results and balance sheet give us the flexibility to further invest in our expanded Hitachi relationship, additional organic initiatives and acquisition opportunities to help drive future growth."⁽¹⁾

Outlook
After the first nine months of 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 customer budgeting for capital projects. The Corporation's record backlog also continues to support management's confidence as Wajax advances into the last quarter of the year.⁽¹⁾ In addition to expected growth in its heavy equipment business, Wajax continues to anticipate further strong demand in its less cyclical industrial parts and engineered repair services ("ERS") businesses. For the balance of 2023, Wajax continues to expect challenges associated with supply chain volatility, although additional improvements are anticipated. Higher interest rates, wage and price inflation, and a tight labour market are also expected to remain challenges, and management continues to monitor market dynamics and customer sentiment for signs of possible weakness.

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, leveraging its enhanced relationship with Hitachi, delivering exceptional customer value, organically growing its business, transacting on its robust acquisition pipeline, prudently managing its balance sheet, deploying its ERP system, and entrenching sustainability into the business.

Dividend
The Corporation has declared a dividend of $0.33 per share for the fourth quarter of 2023, payable on January 3, 2024, to shareholders of record on December 15, 2023.

Third Quarter Highlights

• Revenue in the third quarter of 2023 increased $39.0 million, or 8.3%, to $509.7 million, from $470.8 million in the third quarter of 2022. Regionally:

• • Revenue in western Canada of $232.9 million increased 3.8% from the prior year due to strong industrial parts sales, material handling sales, and product support revenue in the mining category. These increases were offset partially by lower equipment sales in the construction and forestry, and mining categories.

• • Revenue in central Canada of $92.0 million increased 29.7% from the prior year due primarily to higher equipment sales in the material handling, and construction and forestry categories, as well as higher product support revenue in all categories, and strong industrial parts and ERS sales.

• • Revenue in eastern Canada of $184.8 million increased 5.3% from the prior year due primarily to higher industrial parts and ERS sales, offset partially by lower equipment sales in the power systems category.

• Gross profit margin of 22.2% in the third quarter of 2023 increased 180 basis points ("bps") compared with gross profit margin of 20.3% in the same period of 2022.⁽¹⁾ The increase was driven primarily by higher product support, equipment and ERS margins, as well as a higher proportion of industrial parts sales. These increases were offset partially by lower industrial parts margins.

• Selling and administrative expenses as a percentage of revenue decreased to 14.5% in the third quarter of 2023 from 14.7% in the third quarter of 2022, driven by the 8.3% increase in revenue.⁽¹⁾ Selling and administrative expenses in the third quarter of 2023 increased $5.0 million compared with the third quarter of 2022 due primarily to higher personnel costs as the volume of business increased over the prior year.

• EBIT increased $12.3 million, or 46.3%, to $39.0 million in the third quarter of 2023 versus $26.7 million in the same period of 2022. The year-over-year increase in EBIT resulted primarily from higher sales volumes and higher product support margins, offset partially by higher selling and administrative expenses.

• The Corporation generated net earnings of $23.4 million, or $1.09 per share, in the third quarter of 2023 versus $18.0 million, or $0.84 per share, in the same period of 2022. The Corporation generated adjusted net earnings of $20.7 million, or $0.96 per share, in the third quarter of 2023 versus $16.7 million, or $0.78 per share, in the same period of 2022. Adjusted net earnings in the third quarter of 2023 excludes non-cash gains on mark to market of derivative instruments of $2.5 million after-tax, or $0.12 per share (2022 – gains of $1.3 million, or $0.06 per share), and a gain recorded on the sale of properties of $0.1 million after tax, or less than $0.01 per share (2022 - nil).⁽¹⁾

• Adjusted EBITDA margin increased to 9.8% in the third quarter of 2023 from 8.3% in the third quarter of 2022.⁽¹⁾

• The Corporation's backlog at September 30, 2023 of $599.2 million increased $48.0 million, or 8.7%, compared with June 30, 2023 backlog of $551.2 million due primarily to higher mining orders, offset partially by lower ERS and industrial parts orders. The Corporation's backlog at September 30, 2023 of $599.2 million increased $40.5 million, or 7.2%, compared to September 30, 2022 due to higher mining, ERS and material handling orders, offset partially by lower construction and forestry, industrial parts, and power systems orders.⁽¹⁾

• Working capital of $591.4 million at September 30, 2023 increased $110.8 million from June 30, 2023 due primarily to higher inventory and lower accounts payable and accrued liabilities. Working capital efficiency was 21.4%, an increase of 250 bps from June 30, 2023, due to the higher trailing four quarter average working capital.⁽¹⁾

• Cash flows used in operating activities amounted to $62.0 million in the third quarter of 2023, compared with cash flows used in operating activities of $3.4 million in the same quarter of the previous year. The decrease in cash flows generated from operating activities of $58.6 million was mainly attributable to a decrease in accounts payable and accrued liabilities of $69.4 million during the quarter driven largely by timing of inventory payments, compared to an increase of $41.7 million in the same quarter of the prior year. This decrease in cash generated was offset partially by a decrease in trade and other receivables of $2.7 million during the quarter compared to an increase of $36.2 million in the prior year, and by an increase in net earnings excluding items not affecting cash flow of $11.2 million.

• The Corporation's leverage ratio increased to 2.16 times at September 30, 2023, compared with 1.76 times at June 30, 2023. The increase in leverage ratio was due to the higher debt level in the current period, driven largely by the Corporation's investment in inventory, timing on repayment of accounts payable and accrued liabilities, and cash paid for business acquisitions in the quarter. The Corporation's senior secured leverage ratio was 1.82 times at September 30, 2023, compared with 1.38 times at June 30, 2023.⁽¹⁾

• On July 4, 2023, the Corporation acquired all of the issued and outstanding shares of Polyphase Engineered Controls (1977) Ltd. ("Polyphase"). The shares of Polyphase were acquired for an estimated aggregate purchase price of approximately $26.9 million, subject to normal post-closing adjustments and the results of a three-year performance-based earnout. Polyphase's trailing twelve-month revenue at the time of acquisition was approximately $25.8 million.

• On September 1, 2023, the Corporation acquired all of the issued and outstanding shares of Beta Fluid Power Ltd. and Beta Industrial Ltd. (together, "Beta") for an estimated aggregate purchase price of approximately $8.5 million, subject to normal post-closing adjustments and the results of a three-year performance-based earnout. Beta's trailing twelve-month revenue at the time of acquisition was approximately $16.7 million.

• On November 6, 2023, Wajax announced the retirement of Steve Deck, Chief Operating Officer, and Senior Vice President, Heavy Equipment, to be effective January 1, 2024. Since joining the Corporation in 2014 to lead its industrial components business, Mr. Deck has held a number of senior executive roles and played a significant role in executing the "One Wajax" strategy, building the vision for Wajax's industrial parts and ERS business, and developing Wajax's relationship with Hitachi. Succession planning remains underway, and additional information will be provided in due course. Mr. Deck will remain active in his role until his retirement date, and will support the orderly transition of his responsibilities.

Conference Call Details
Wajax will webcast its Third Quarter Financial Results Conference Call. You are invited to listen to the live webcast on Tuesday, November 7, 2023 at 2:00 p.m. EDT. To access the webcast, please visit our website wajax.com, under "Investor Relations", "Events and Presentations", "Q3 2023 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.

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