Wajax Corporation

Trevor Carson – Vice President-Financial Planning and Risk Management Mark Foote – President and Chief Executive Officer Darren Yaworsky – Senior Vice President, Finance and Chief Financial Officer

Thank you, operator. Good afternoon, everyone, and thank you for joining our call today.

I’m Trevor Carson, Vice President of Financial Planning and Risk Management at Wajax. I’m new to the company and will be working with Mark and Darren to support the Investor Relations efforts at Wajax.

Beginning this quarter, we have introduced the use of a webcast, which includes a summary presentation of Wajax’s Q2 2017 financial results. The presentation will be found on our website under Investor Relations, Events and Presentations, Webcasts.

To begin, I would like to draw your attention to our cautionary statement regarding forward-looking information on Slide 2. Additionally, non-GAAP and additional GAAP measures are summarized on Slides 9 and 10 for your reference.

Please turn to Slide 3 and at this point, I would like to turn the meeting over to Mark Foote.

Thank you, Trevor. I would like to express my thanks to the entire Wajax team’s, who worked quite hard to deliver the results in the second quarter.

We’re pleased with the year-over-year and sequential quarterly improvements in the business. Revenue declined modestly year-over-year.

The decline is attributable to approximately $20 million in mining equipment sales, which occurred in the second quarter of last year and were not repeated in this quarter. After adjusting for the non-recurring mining equipment sales, revenue was up approximately 2.7%, primarily on the strength of number of categories: higher construction equipment sales in both Central and Western Canada; higher bearing and power transmission sales in Eastern Canada; higher hydraulic sales in Western Canada; higher construction and mining parts and services sales in Western Canada; and higher on-highway parts and service sales in all regions.

Our EBIT increased approximately 49% to $13.1 million year-over-year. The improvement is attributable to – the improvement in EBIT is attributable to improved margins resulting from increased revenue composition from industrial parts sales and product support sales as well as improved margin rates in both parts and service.

The improvement in EBIT was partially offset by lower revenue, as I discussed earlier, and modestly higher selling and administrative expenses resulting primarily from incentive compensation. In second quarter of 2017, the Corporation’s active headcount was 6% lower compared to the same period in the prior year.

And we continue to estimate that annualized cost savings of approximately $17 million will result from the corporate reorganization that we completed in 2016. However investments in strategic initiatives to pursue organic growth opportunities and volume related expenses will also be incurred in 2017, which will partially offset these cost reductions.

Basic EPS improved approximately 77% year-over-year to $0.39. And I’d like to call out finally that the excellent work that’s been done by our team to continue to ensure we operate in a safe workplace.

Our group achieved another improved quarter for safety results with our second quarter total recordable incident frequency, or TRIF, at 0.94, representing a 33% reduction of recordable injuries, and our year-to-date TRIF now stands at 1.25. And I’m very, very proud to say that there were no lost time incidents in the second quarter.

So if you could turn to page – to Slide 4, I’ll turn the meeting over to Darren for a deeper look at revenue and earnings.

Thanks, Mark. My focus on this slide will be on the equipment sales, which is outlined in black; industrial parts, which is outlined in gray; and product support, which is outlined in red.

Starting with equipment sales, equipment sales were modestly lower in Q2 in the first half, resulting from lower mining equipment sales in Western Canada. However, construction equipment sales in Western and Central Canada have improved.

Moving to industrial parts sales, they were modestly higher in Q2 and the first half, resulting from higher bearing and power transmission sales in Eastern Canada and higher hydraulic sales in Western Canada. Finally, product support revenue was higher in Q2 and in the first half, resulting from higher revenue in construction and mining parts and services in Western Canada and higher on-highway parts and service sales in all regions.

Moving on to Slide 5. As Mark mentioned, we experienced a marked improvement in our basic EPS year-over-year.

In the second quarter of 2017, basic EPS improved to $0.39 from $0.22 from the quarter of the same period – from the prior period. The earnings improvement relates to shifts in our revenue composition to areas that enjoy better margins, coupled with overall improvement in product support margins.

We experienced increase in SG&A expenses related to increases in our incentive compensation accruals. As Mark mentioned, we continue to estimate annualized cost savings of approximately $17 million resulting from our reorganization in 2016.

However, strategic – investments in strategic initiatives to pursue organic growth opportunities and volume-related expenses will also be incurred in 2017, and these expenses will partially offset the cost reductions. Moving to Slide 6.

Our Q2 2017 backlog is modestly lower on a year-over-year basis and remained stable from Q1 2017. The year-over-year change relates to mining equipment that was formerly in backlog and has since been delivered to the customers in 2016.

Since Q4 2016, we’ve experienced increasing backlog in equipment, industrial parts and ERS. Moving to Slide 7.

I believe it was Ben on our last call who had asked the question about our capital allocation approach. It’s an important question, so I – we thought we’d provide the framework on the right side of the slide, which summarizes our capital allocation waterfall.

Simply, our first priority is to maximize cash flow from operations and thoughtfully reinvest into accretive organic and acquisitive growth opportunities. To that end, we’re in the middle of a comprehensive strategic planning process, in which we’re examining and prioritizing organic growth opportunities as well as examining complementary acquisition opportunities.

Finally, we’re examining opportunities to optimize our capital structure to support both the organic and acquisitive growth initiatives. We remain committed to our leverage target and that Q2 will remain within that target.

The final steps in the allocation waterfall is thoughtfully returning capital to shareholders. And to that end, the board approved our third quarter dividend of $0.25 payable on October 3rd.

Additionally, with regards to our dividend, we remain very confident in the sustainability of the dividend at this level across the business cycle. At this point, I would like to turn the meeting back over to Mark.

Thank you, Darren. Are we – we’re on the outlook page, so that’s Slide number 8.

As I indicated in my earlier comments, we’re pleased with the year-over-year and sequential quarterly improvements in the business. Although the first half results are positive and we continue to expect that most major resource and industrial markets will remain under continuing spending constraints and margin pressures for the remainder of this year, and we remain focused on three simple things: replacing the revenue from the four large mining shovels that were delivered in 2016; continuing to manage our gross margins effectively; and ensuring that we deliver the expected benefits from our 2016 strategic reorganization efforts.

And assuming the achievement of these objectives, management continues to anticipate that adjusted net earnings for 2017 will increase compared to 2016’s adjusted net earnings. And at this point, we would be very happy to answer any questions if you have.

So, we’ll turn it back over to the operator.

Well, okay. Well, we appreciate your time today, and we look forward to speaking to you again at the end of the third quarter.

Thank you.