Edited Transcript of WJX.TO earnings conference call or presentation 9-Aug-19 6:00pm GMT

Adjusted basic EPS of $0.63 was even year-over-year. The inch of that EPS originate was affected by higher financing costs due ought a higher debt level, due ought the acquisition of Delom and increased working main and too due ought the produce of IFRS 16. Stu will make farther commentary at impartial a moment.

Finally, safety constitution was excellent at the second quarter, because indicated by a TRIF tax of 0.29. Best quarterly safety originate we make ever recorded.

We thank our managers and team members because their efforts at workplace safety and because the exemplary improvements that they've worked accordingly difficult ought deliver.

Turning ought slip 4. Regional constitution at the second area was varied. Central Canada sales were down 11% year-over-year. The reduction is due ought changes at our construction tool lineup and specifically ought the loss of a lane house line, the sales of which were no offset by growth at other categories. The produce at Central is expected ought exist less significant year-over-year because we entered the second half because almost 70% of final year's sales occurred year-to-date June. Excluding the road-building issue, sales at Central Canada were up 3% at a year-to-date basis.

Eastern Canada sales were up 23%, maintaining a equal definite trend. Delom contributed ought a noise Eastern Canada business. ERS volume was complemented by excellent year-over-year constitution at construction, substance handling, force generation and engines and transmissions.

Western Canada sales were up 4%, despite ongoing challenging impartial conditions. noise increases at mining and forestry offset weakness at construction and force gen. Our mining affair nationally continues ought strengthen quiet especially accordingly at Western Canada with the appendix of a big spade added ought backlog because a headmaster grease sands customer, and different additional bids are currently at process.

Turning ought slip 5. revenue by kind of sales is shown. tool sales at the area were essentially flat. We saw energy at Construction, substance Handling and Hitachi-branded construction equipment, which was up 14% nationally. These improvements were partially offset by the earlier road-building tool commentary and lower mining tool and force generation sales at the quarter.

Industrial isolate sales were essentially flat. energy at Eastern Canada offset some weakness at the West, and Central Canada sales were although year-over-year. And produce back sales increased almost 4% year-over-year, based at energy at mining and off-highway engines transmission sales at Western Canada. Delivered margins from produce back improved slightly year-over-year based at improved parts margins.

Turning ought slip 6. I'll furnish some additional commentary at the impartial conditions affecting definite categories at the second area and year-to-date. ought escape repetition, I won't proceed at earlier comments, quiet you can certainly feel liberate ought demand these questions with any of our businesses afterward at the call.

In Construction, national impartial conditions improved sequentially at Q2. Using the construction lecture excavator impartial because a proxy because overall conditions, Q1's national impartial was down 29%, which improved ought a even impartial nationally at the second quarter. cottage year-to-date the impartial remainder down 11%, there are signs of strengthening conditions at Central and Eastern Canada and quoting activity has improved at the West. Wajax' impartial part at excavators was even year-to-date, and our wheel loader impartial part improved. Construction tool margins are although at a year-over-year basis.

In forestry, we are pleased with the noise results despite national impartial units being down 22% year-to-date. trend changes at our tool lineup make helped us improve focus, results and impartial part at forestry. We wish weakness at the BC forestry impartial ought exist offset by opportunities at Alberta and at Ontario. Forestry backlog increased significantly at the second quarter, both sequentially and year-over-year.

Finally, we linger bullish at the mining-related businesses including mining equipment, industrial parts and engineered repair services sales ought mining customers. This perspective relates ought our grease sands and customary service mining customers.

New tool backlog has increased again at Q2, and quoting activity is strong. Wajax continues ought invest at additional wealth and inventory ought back ask at our mining business.

I'll now alter the yell at ought Stu.

--------------------------------------------------------------------------------

Stuart H. Auld, Wajax company - CFO & Senior VP of Finance [4]

--------------------------------------------------------------------------------

Thanks, Mark. entertain alter ought slip 7 because my comments at our earnings. at the second area of 2019, adjusted basic EPS was flat, coming at can $0.63 compatible with the identical era at the preceding year.

Previously reported adjusted basic EPS because the second area of 2018 was $0.67, however, because disclosed at the corporation's audited consolidated econmic statements because the year ended December 31, 2018, our correction of nonmaterial errors at preceding year periods was recorded impacting preceding year comparative periods. farther details at these corrections can exist build at our MD&A below adjustments ought preceding era comparative econmic statements.

Higher net salary were offset by higher medium shares prominent contributing ought the even adjusted EPS. The salary enlarge relates chiefly ought higher revenue complete advantage margins and the inclusion of Delom. These increases were fully offset by higher finance costs.

Overall, SG&A because a percent of revenue increased 40 basis points ought 13.9% from 13.5% at the preceding year, which remainder below our targeted mountain of 14.5% ought 15.5%. The enlarge is chiefly related ought higher personnel costs ought back our 2019 affair plan and ongoing investments at our infrastructure related ought the new ERP system and guest back centers.

On a year-to-date basis, adjusted basic EPS decreased ought $1.07 from $1.12 from the identical era at the preceding year representing a 4% decrease. The lessen relates chiefly ought higher finance and SG&A expenses that we're no fully offset by revenue and complete advantage margin improvements. SG&A because a percent of revenue increased 60 basis points ought 14.5% from 13.9% at the preceding year. because we've stated previously, we wish the salary improvement will exist weighted ought the second half of the year because the fare basis becomes more although at a year-over-year basis.

Please alter ought slip 8, which summarizes our backlog and historic trending. Our Q2 2019 backlog increased $39.6 million, or 15% at a year-over-year basis, and increased $41.2 million or 16% sequentially from the preceding quarter. $296.5 million represents the highest backlog we make reported because our mountain salary year of 2012, and is supportive of achieving our plans because both 2019 and 2020.

The year-over-year sequential enlarge relates ought higher mining and forestry tool orders. The additional mining tool orders booked ought backlog at the second area attach ought delivery scheduled because 2020 and 2021.

Subsequent ought the quarter, an additional mining spade was added ought backlog at July and quoting activity remainder strong, providing good visibility because the next 2 years. We linger encouraged by the energy of our sales pipeline and other tool categories.

Please alter ought slip 9 because an update at our contemporary inventory levels. Inventory including consignment increased $128.5 million compared ought Q2 2018 or $30.5 million compared ought Q1 2019 and is chiefly higher along our targeted growth categories.

Consignment inventory increased $6.5 million from Q1 and consists chiefly of construction excavators ordered ought satisfy our 2019 sales plans.

Based at our contemporary sales plans and pipeline, we perform foretell -- we perform no foretell any substance risks and are confident at the quality of our inventory.

Equipment perform ripen are beginning ought improve providing farther flexibility at how we highway our orders and stock levels because 2020. We summary ought wish that inventory levels will lessen at the second half of the year, which we hope will make a net definite impact at working capital, money race and leverage.

Please alter ought slip 10, where I will furnish an update at our econmic post and constitution metrics. Our Q2 leverage ratio decreased compared ought Q1 from 2.89x ought 2.71x, chiefly because a duty of lower debt levels associated with lower working main and higher trailing 12-month EBITDA. We are pleased ought letter that $20.5 million of money was generated from operating activities at the area compared ought $11.1 million used at the preceding year.

We are continuing ought concentrate at working main efficiency, which is a key component at managing our overall leverage targets, and we wish the ratio ought improve farther at the remains of the year.

Our investment at inventory has increased our working main sales ratio at a trailing 12-month basis. quiet because I mentioned earlier, we wish the ratios ought refuse at concert with inventory levels at the second half of the year.

As our econmic constitution continues ought improve, we're seeing higher trailing 12-month adjusted EBIT, which increased $4.3 million or 7% compared ought the preceding year. quiet that hasn't translated into higher RONA because our net wealth make too increased by $120 million at the identical period.

Our strategic plan calls because investment at historic levels ought satisfy sales plans and higher net assets. However, we are committed ought increasing RONA at both the short and desire word because we summary ought concentrate at enhancing our EBIT margins and picture down our working main levels.

Finally, the Board has approved our third area dividend of $0.25 per part payable at October 2, 2019, ought shareholders of record at September 16, 2019. We linger confident at the sustainability of our dividend at this even and along the affair cycle.

Please alter ought slip 11. And at this point, I'll hand the yell back ought sign ought furnish a brief update at our 2019 econmic expectation and his concluding remarks.

--------------------------------------------------------------------------------

A. sign Foote, Wajax company - President, CEO & Director [5]

--------------------------------------------------------------------------------

So looking at slip 11, I won't read the sum page. It's unchanged from preceding quarters. I'll impartial yell out two significant points with admire ought that. We wish 2019 sum year adjusted net salary ought enlarge at 2018 based at consolidated revenue improvements and the sum year produce of Delom. And concluding our contemporary advice of the timing revenue and fare adjusted, those salary improvements will exist weighted ought the second half of the year.

I study at this point, we'll hole the yell up because questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from Michael Doumet with Scotiabank.

--------------------------------------------------------------------------------

Michael Doumet, Scotiabank Global Banking and Markets, inquiry section - Analyst [2]

--------------------------------------------------------------------------------

So I impartial wanted ought exercise down at your expectation because a improve salary found because the second half. at your outlook, you discussed the timing because it relates ought revenue and costs. accordingly is there anything at your queue of scene that could furnish a decent bump ought revenues at the second half?

And too can you quantify some of the costs, too no expected ought exist repeated or commonplace fare efficiencies at the second half?

--------------------------------------------------------------------------------

A. sign Foote, Wajax company - President, CEO & Director [3]

--------------------------------------------------------------------------------

Probably the more eminent revenue things are more at the fourth area than at the third. quiet we're expecting a reasonably noise finish ought forestry. And we've got -- we're expecting some mining sales will acquire delivered at the fourth quarter, which is -- the timing, which appears ought exist recently advantage accurate now. accordingly those are at the revenue side. And we got some, I think, some decent comp growth. We don't make the identical issues at Central Canada at the second half of the year, because we're comping off a much lower quantity because construction tool at Ontario. accordingly I feel reasonably good nearly the revenue performance. at the fare aspect of things,

two things ought make at mind. One is at the first half of this year, nearly speaking, yell it amid $3 million and $4 million, was spent at the projects that we've talked nearly from an SG&A standpoint. Some of that, that normalized though. quiet it's at the sum SG&A base. accordingly then that will exist reduced at the second half of the year chiefly because the guest back heart costs are lower at the second half of the year than they were at the first.

And the enlarge at personnel costs, at the first half of this year relative ought the final year, were more significant than they're expected ought exist at the second half.

--------------------------------------------------------------------------------

Michael Doumet, Scotiabank Global Banking and Markets, inquiry section - Analyst [4]

--------------------------------------------------------------------------------

And any efficiencies because it relates ought the ERP or CSC?

--------------------------------------------------------------------------------

A. sign Foote, Wajax company - President, CEO & Director [5]

--------------------------------------------------------------------------------

No. The ERP is going ought situate astronaut highway until we're completely comfortable with it. accordingly it's no indeed a productivity factor at sum this year. It will exist at the future quiet it isn't this year. And the CSC, it -- the respond is internal the company, yes, a bit.

We've truly shifted wealth ought escape investing at incremental folks at the company. accordingly we shifted wealth into the CSC. quiet I study the more eminent productivity improvements are maybe more at the 2020 range.

--------------------------------------------------------------------------------

Michael Doumet, Scotiabank Global Banking and Markets, inquiry section - Analyst [6]

--------------------------------------------------------------------------------

Okay. Thank you. And then I'm no certain if I caught you -- if I caught the right wording nearly this, quiet you indicated the quoting activity nearly mining provides good visibility because the next 2 years. can you impartial elaborate at that?

--------------------------------------------------------------------------------

A. sign Foote, Wajax company - President, CEO & Director [7]

--------------------------------------------------------------------------------

Sure. healthy the backlog has got some good volume at it that goes ought '20 -- a sheet of it is this year, obviously, quiet 2020 and 2021. And the quoting activity is lovely noise accurate now. And assuming some kind of success with that, that presents some additional volume, which is maybe more related ought 2021. quiet it's got us passion reasonably good nearly the mining affair this year and next year and the year after that.

--------------------------------------------------------------------------------

Michael Doumet, Scotiabank Global Banking and Markets, inquiry section - Analyst [8]

--------------------------------------------------------------------------------

Okay. That's sum grease sands?

--------------------------------------------------------------------------------

A. sign Foote, Wajax company - President, CEO & Director [9]

--------------------------------------------------------------------------------

No, it's no actually. It's partially grease sands. And there is -- make some additional activity at British Columbia, there is some additional activity at Northern Ontario.

--------------------------------------------------------------------------------

Michael Doumet, Scotiabank Global Banking and Markets, inquiry section - Analyst [10]

--------------------------------------------------------------------------------

Okay. And perhaps impartial thinking longer term, Mark. I mean, if we proceed back here I think, healthy because it was kind of an expected, continued noise revenue growth along 2019 and potentially into 2020. accordingly obviously, the markets make slowed somewhat, especially at Construction the first half. Meanwhile I confide EBITDA margin expansion kind of beyond the midpoint of the mountain at the long-term expectation was predicated at an operating leverage. accordingly I suppose the question is, at a slower growth environment, what are the headmaster levers at your worry ought expanding margins farther or expanding RONA further?

--------------------------------------------------------------------------------

A. sign Foote, Wajax company - President, CEO & Director [11]

--------------------------------------------------------------------------------

There's maybe a connect of things. The first is the margin rates -- the complete margin rates the method they exhibition accurate now are maybe a good proxy because the year. quiet a fate of work going at at the company accurate now that stands ought assistance us improve the margin tax going forward, which ought offset any kind of, friendly of, organic revenue growth that can exist tougher if the impartial becomes a sheet more challenging. accordingly there are some complete margin opportunities, which don't necessarily influence our impartial part expectations. And the mix of businesses is something that we're looking at lovely carefully accurate now. There is some, obviously, higher-margin businesses that can justify a sheet more investment at the salary of some of the others. accordingly it's both an absolute tax enlarge because a originate of some pricing fare and efficiency changes, and some of the margin we lose below the queue related ought warranty and things similar that. And there's too mix of affair changes, because obviously, some of the heavier service-oriented businesses similar ERS, because an example, impartial fetch higher margins and the mix used to exist accretive ought the rate. accordingly I don't learn if we're -- because a affair of fact, I learn we're no necessarily changing our revenue expectations overall. quiet we perform visit some kind of latitude at the complete margin, which hopefully will offset any revenue danger and perhaps used to exist accretive looking forward.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

Your next question comes from Michael Tupholme with TD Securities.

--------------------------------------------------------------------------------

Michael Tupholme, TD Securiti