Earnings call transcript: Wajax Q4 2024 earnings miss, stock drops 11.5%

Wajax Corporation reported its Q4 2024 earnings, revealing a significant miss on earnings per share (EPS) forecasts, which led to a sharp decline in stock price. The company posted an EPS of $0.34, falling short of the expected $0.5275. Revenue, however, exceeded forecasts, reaching $565.9 million against an anticipated $551.33 million. The stock reacted negatively, dropping 11.5% to $17.39 in pre-market trading. According to InvestingPro data, the company maintains a healthy current ratio of 2.1, indicating strong short-term liquidity despite the earnings disappointment.

Key Takeaways

• Wajax’s Q4 EPS of $0.34 missed the forecast by 35.5%.
• Revenue of $565.9 million exceeded expectations by 2.6%.
• The stock fell 11.5% following the earnings release.
• Gross profit margin decreased significantly from the previous year.
• Equipment sales surged, driven by mining sector demand.

Company Performance

Wajax’s performance in Q4 2024 was mixed. While revenue increased by 4.3% year-over-year, the company faced challenges with its gross profit margin, which fell to 17.1% from 21.2% in Q4 2023. Despite strong equipment sales, particularly in the mining sector, the decline in gross margin and adjusted EBITDA, which was down 25.6%, highlighted underlying operational pressures. InvestingPro analysis suggests the stock is currently undervalued, with 8 additional ProTips available to subscribers, including insights on dividend sustainability and financial health metrics.

Financial Highlights

• Revenue: $565.9 million, up 4.3% year-over-year
• Earnings per share: $0.34, down from $0.35 in the previous quarter
• Gross Profit Margin: 17.1%, down from 21.2% in Q4 2023
• Adjusted EBITDA: $35.1 million, down 25.6% year-over-year

Earnings vs. Forecast

Wajax’s actual EPS of $0.34 was 35.5% below the forecasted $0.5275, marking a significant miss. The revenue, however, surpassed expectations by 2.6%, coming in at $565.9 million against a forecast of $551.33 million. This discrepancy between EPS and revenue performance suggests margin pressures and cost challenges.

Market Reaction

Following the earnings announcement, Wajax’s stock dropped 11.5% to $17.39. This decline reflects investor concerns over the missed EPS expectations and the significant drop in gross profit margin. The stock’s current price is closer to its 52-week low of $16.5, indicating a challenging market environment for the company. With a market capitalization of $260.06 million and a P/E ratio of 7.12x, the stock trades at a relatively low earnings multiple. Notably, the company maintains a significant dividend yield of 7.12% and has sustained dividend payments for 21 consecutive years, as highlighted in InvestingPro’s comprehensive analysis.

Outlook & Guidance

Looking ahead, Wajax aims to improve margins and reduce inventory by approximately $25 million per quarter. The company plans to focus on cost management, particularly in workforce and facility expenses, to align with its strategic priorities for 2025. The leverage ratio remains a concern, currently at 2.61x, above the target range of 1.5-2.0x.

Executive Commentary

CEO Igi Domagalski emphasized, "We’re playing it safe," highlighting a cautious approach amid market uncertainties. Domagalski also noted, "We continue to see strong customer demand in the mining and energy sectors," which remains a positive driver for the company. The focus on reducing leverage was reiterated, with Domagalski stating, "Our priority is to reduce leverage and get back in our comfortable range."

Risks and Challenges

• Margin Pressure: Continued decline in gross profit margins could affect profitability.
• Economic Uncertainty: Potential Canada-US trade tariffs pose risks.
• Competitive Environment: Intense competition may impact market share and pricing power.
• Leverage Concerns: High leverage ratio could limit financial flexibility.
• Supply Chain Issues: Disruptions could impact inventory management and delivery timelines.

Q&A

During the earnings call, analysts focused on the gross margin pressures and the company’s strategy to manage working capital. Questions also addressed the potential impact of trade tariffs and how Wajax plans to leverage opportunities arising from the tariff landscape.

Full transcript - Wajax Corporation (WJX) Q4 2024:

Conference Operator: Thank you for attending Wajax Corporation’s twenty twenty four Fourth Quarter and Year End Financial Results Webcast. On today’s webcast will be Mr. Igi Domagalski, President and Chief Executive Officer Mr. Stuart Auld, outgoing Chief Financial Officer and Ms. Tanya Casadino, Incoming Chief Financial Officer.

Please be advised that this webcast is being recorded. Please note that this webcast contains forward looking statements. Actual future results may differ from expected results. I will now turn the call over to Tanya Casadino.

Tanya Casadino, Incoming Chief Financial Officer, Wajax Corporation: Thank you, operator, and good afternoon. Thank you for participating in our fourth quarter results call. This afternoon, we will be following a webcast, which includes a summary presentation of Wajax’s Q4 twenty twenty four financial results. The presentation can be found on our website under Investor Relations, Events and Presentations. To begin, I would like to draw your attention to our cautionary statement regarding forward looking information on Slide two and the non GAAP and other financial measures on Slide three.

Please turn to Slide four. And at this point, I’ll turn it over to Iggy.

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Thank you, Tanya. To start, I will provide highlights on our fourth quarter before turning it over to Stuart and Tanya for commentary on backlog, inventory and the balance sheet. This slide provides an overview of Wajax. The corporation has one hundred and sixty seven years of Canadian operating history and operates across 114 branches with a team of more than 3,000 employees. During the quarter, our heavy equipment categories and revenue sources made up approximately 62% of our total revenue, while industrial products and ERS generated approximately 38%.

Turning to Slide five. This slide provides an overview of our purpose and values. WageX’s purpose statement is empowering people to build a better tomorrow, which we strive to achieve by living our values and delivering an exceptional experience for our people, customers, suppliers and the communities we serve. By living our purpose and values, we’ll continue to build a people first company that is strong, resilient and profitable. Our purpose and values guide our decision making and allow us to execute on our strategic priorities.

Turning to Slide six, slide provides an overview of our strategic priorities which have been refined for 2025. Management is completely focused on executing against these priorities between our purpose and values and these six priorities we have the foundation to continue growing our company for many years to come. Turning to Slide seven. In the fourth quarter, Wajax saw higher revenues and lower selling and administrative expenses, which were offset by lower gross profit margins and restructuring and other related costs. Revenue of $565,900,000 increased $23,300,000 in the quarter.

The increase resulted primarily from higher mining equipment sales in Western Canada from the delivery of two large mining shovels in the fourth quarter of twenty twenty four with no such deliveries in the fourth quarter of the prior year. These increases were offset partially by lower ERS sales in Western And Central Canada. Gross profit margin of 17.1% decreased four twenty basis points compared to the same period of 2023, driven primarily by lower margins realized on equipment, ERS and rental revenue due to increased market pressures as well as a lower proportion of ERS product support and industrial parts sales relative to equipment sales. Selling and administrative expenses as a percentage of revenue decreased to 14.1% in the fourth quarter of twenty twenty four from 16.1% in the fourth quarter of twenty twenty three. Selling and administrative expenses in the fourth quarter of twenty twenty four decreased $7,400,000 or 8.5% compared to the fourth quarter of twenty twenty three due primarily to lower spending in multiple areas including personnel, bonuses, travel and entertainment and supplies and marketing driven largely by cost savings initiatives.

In the fourth quarter of twenty twenty four, the corporation implemented workforce reductions in response to market conditions, a restructuring cost of $5,800,000 was recognized in the fourth quarter relating primarily to severance costs. Adjusted EBITDA of $35,100,000 decreased $12,100,000 or 25.6% the fourth quarter of twenty twenty three, noting the adjustments recorded on this chart. The decrease resulted primarily from lower gross profit margins offset partially by reduced selling and administrative expenses. Adjusted net earnings of $0.35 per share decreased 58.2% or $0.48 per share from the fourth quarter of twenty twenty three, noting the adjustments recorded on this chart. At the end of Q4, the TRIF rate was 0.94%, a decrease of 7% from the fourth quarter of twenty twenty three.

The fourth quarter drift rate was up 3% from the third quarter of twenty twenty four. Safety continues to be Wajax’s number one priority and management is committed to continuously improving our safety programs to improve on this result. We thank everyone on our team for their ongoing dedication to workforce safety. Turning to Slide eight. Revenue increase of 4.3% in the fourth quarter resulted from higher revenue in Western Canada offset partially by lower revenues in Central Asia.

Western Canada sales of $275,000,000 increased 16.7% in the quarter due primarily to higher industrial parts sales and higher mining equipment sales including the delivery of two large mining shovels in the fourth quarter of twenty twenty four with no such deliveries in the fourth quarter of the prior year. These increases were offset partially by lower ERS sales. Central Canada sales of $100,000,000 decreased 5.4% in the quarter due primarily to lower equipment sales in the construction and forestry category as well as lower ERS sales. The decrease was offset partially by higher equipment sales in the material handling category. Eastern Canada sales of $191,000,000 decreased 5.1% in the quarter due primarily to lower equipment sales in the construction and forestry category as well as lower industrial parts sales.

The decrease was partially offset by higher equipment sales in the material handling category. Please turn to Slide nine. An update on equipment and product support sales and year over year variances are shown on this page. Equipment sales of $2.00 $8,000,000 increased $50,000,000 or 32% compared to last year due primarily to higher mining sales in Western Canada including the delivery of two large mining shovels in the fourth quarter of twenty twenty four with no such deliveries in the fourth quarter of the prior year as well as higher material handling sales in all regions. Increases were offset partially by lower construction and forestry sales in all regions.

Product support sales of $133,000,000 were essentially flat compared to last year. Please turn to Slide 10. An update on industrial parts and ERS sales and year over year variances are shown on this page. Industrial parts sales of approximately $134,000,000 decreased $2,000,000 or 2%. ERS sales of approximately $79,000,000 decreased $25,000,000 or 24% due to lower sales in all regions, particularly in Western Canada.

Turning to Slide 11. The slide summarizes sales at the category level for our company’s overall groupings of heavy equipment and industrial parts and services. In the fourth quarter, heavy equipment categories increased $50,000,000 or 17%, driven primarily by higher mining sales in Western Canada, including the delivery of the two large mining shovels in the fourth quarter with no such deliveries in the fourth quarter of the prior year, as well as higher material handling sales in all regions. These increases were offset partially by lower construction and forestry sales in all regions. The industrial parts and service category decreased $27,000,000 or 11% driven by lower ERS sales in all regions, particularly in Western Canada and lower industrial parts sales due to weaker market conditions.

As previously announced on 11/04/2024, Tony Casadino has been appointed Chief Financial Officer effective today following the planned retirement of Stuart Ault from the CFO role. Sue has agreed to remain with Wajax in the near term to support a series of operational efficiency initiatives. On behalf of the Board and management, I would like to thank Stuart for his many contributions to Wajax over the last ten years. His extensive operational knowledge positions him to remain a core contributor and we appreciate the continued benefit of his expertise and leadership. I’d also like to congratulate Tanya and her appointment to the role of CFO.

We look forward to further leveraging her expertise and disciplined approach to financial risk management. I will now turn the call over to Stuart and Tanya for commentary on backlog, inventory and the balance sheet.

Stuart Auld, Outgoing Chief Financial Officer, Wajax Corporation: Thanks, Higgi. Please turn to Slide 12 for my comments on backlog and inventory. Our Q4 backlog of $564,400,000 decreased $23,700,000 or 4% compared to backlog of $588,100,000 at Q3 and increased $10,500,000 or 1.9% on a year over year basis. The sequential decrease was due primarily to lower material handling and mining orders and backlog at 12/31/2024 included seven large mining shovels. The year over year increase was due primarily to higher construction and forestry orders and higher mining orders, including seven large mining shovels offset partially by lower material handling, ERS and industrial parts orders.

Inventory decreased $48,400,000 compared to Q3 twenty twenty four due primarily from lower equipment inventory in the mining category driven by the delivery of two large mining shovels in the quarter and lower equipment inventory in the power systems category. Management continues to focus on reducing and managing the corporation’s inventory levels and ongoing inventory reduction initiatives have decreased inventory by 76,300,000 from peak levels at 03/31/2024. Inventory increased $38,000,000 compared to Q4 twenty twenty three due primarily from higher equipment inventory in the construction and forestry, mining and material handling categories. These increases were partially offset by lower equipment inventory in the Power Systems category and lower Industrial Parts inventory. I will turn over the call to Tanya for comments on cash flow, leverage and working capital.

Tanya Casadino, Incoming Chief Financial Officer, Wajax Corporation: Thanks, Stuart. Please turn to Slide 13. Cash flows generated from operating activities in the current quarter of seventy five point nine million dollars compared with cash flows generated from operating activities of $48,500,000 in the same quarter of the prior year. The increase in cash generated of $27,400,000 was mainly attributable to a decrease in inventory and an increase in accounts payable and accrued liabilities, offset partially by an increase in accounts receivable and a decrease in net earnings excluding items not affecting cash flow. Our Q4 leverage ratio decreased to 2.61 times from 2.78 times at Q3 due to lower debt levels driven largely by cash generated from operating activities during the quarter.

The corporation’s leverage ratio is currently outside the target range of 1.5 to two times at the end of Q4, primarily due to higher debt from investment in working capital and acquisitions completed in 2023 and lower trailing twelve month pro form a adjusted EBITDA driven by weaker market conditions. Our available credit capacity at the end of Q4 was $212,600,000 which is sufficient to meet short term normal course working capital and maintenance requirements and fund our planned strategic initiatives. We continue to focus on working capital efficiency, which is a key component in managing our overall leverage targets. The Q4 working capital efficiency was 26%, a decrease of 60 basis points from 09/30/2024, due to lower trailing four quarter average working capital and higher trailing twelve month revenue. Excluding the debentures, which are classified within current liabilities, working capital efficiency was 28.7 as at both 12/31/2024 and 09/30/2024.

Subsequent to year end, on 01/15/2025, Wajax announced the repayment in full of the $57,000,000 in principal amount owed under its 6% senior unsecured debentures due 01/15/2025, along with accrued interest up to but excluding the maturity date. The corporation’s existing bank credit facility was used to complete the repayment. Finally, the board has approved our first quarter twenty twenty five dividend of $0.35 per share payable on 04/02/2025 to shareholders of record on 03/14/2025. Please turn to Slide 14. And at this point, I’ll turn the call back to Iggy.

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Thanks, Tanya. Our outlook is summarized on Slide 14. During the fourth quarter of twenty twenty four, Wajax delivered revenue of $565,900,000 up $23,300,000 or 4.3% from the fourth quarter of twenty twenty three. The year over year increase in revenue was primarily due to higher mining equipment sales in Western Canada from the delivery of two large mining shovels in the fourth quarter of twenty twenty four with no such deliveries in the fourth quarter of the prior year. Gross profit margin decreased to 17.1% in the fourth quarter of twenty twenty four versus 21.2% in the fourth quarter of twenty twenty three, driven by lower margins realized on equipment, ERS and rental revenue due to increased market pressures as well as a lower proportion of ERS product support and industrial parts sales relative to equipment sales.

Looking ahead to the first half of twenty twenty five, we continue to see strong customer demand in the mining and energy sectors with the former supported by strong backlog. Headwinds are expected with broader market conditions remaining soft and uncertainty surrounding potential tariffs and counter tariffs on Canada U. S. Trade and additional headwinds are expected as such tariffs materialize. As this backdrop, management remains committed to executing the corporation’s six strategic priorities, which are set up on Slide six, which will continue to support and position the business for future success and which have been refined for 2025.

As additional focus areas, management will execute initiatives to reduce inventory, improve margins and lower costs. I’ll now turn it back to the operator and open the line for questions.

Conference Operator: Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Jonathan Goldman from Scotiabank (TSX:BNS). Please go ahead.

Jonathan Goldman, Analyst, Scotiabank: Hi, good afternoon and thanks for taking my questions.

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Hey, Jonathan.

Jonathan Goldman, Analyst, Scotiabank: Igi, the gross margin pressure in the quarter, are you able to eliminate how much of that was due to mix versus lower product line margins?

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Yes. So there was a the mix impact was material. I mean, we the mix in Q4 was totally different than any of our previous three quarters. So, a bunch of the impact was definitely due to mix. And then we are seeing some pressures in the market.

I wouldn’t say that we’re losing any market share, but customers are certainly sharpening their pencils, which is making us sharpen our pencils. There’s more three bids in a buy as opposed to just getting sole sourced on certain things. So there is some pressure there. As we look forward, I would say that Q4 was a seems like it was definitely a low point in our margins. We do see definite and meaningful improvement over Q4 in the short term, but we don’t expect to be getting back to the levels of say the first half of twenty twenty four in the near term.

Jonathan Goldman, Analyst, Scotiabank: That makes sense. And can you discuss how the competitive environment has trended so far in Q1 relative to Q4?

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Yes, good question. I think the competitive environment hasn’t changed too much between Q1 and Q4. Competition remains strong as it always has and we haven’t seen too many different tactics. I just think the customer sentiment continues to be a challenge with what’s going on in The U. S.

And recent announcements even yesterday and today. I think some of our customers are just a bit hesitant on and uncertain on what’s going to happen here in the coming months.

Jonathan Goldman, Analyst, Scotiabank: Okay. And maybe if I can squeeze in one more. I’m just trying to reconcile the comments and the outlook. On the one hand, you’re talking about strong customer demand in mining and energy. But then you’re also talking about broader market conditions being soft and seeing headwinds.

And it does seem also customers are exercising capital discipline. I’m just trying to reconcile on the one hand some sort of positive commentary and then also the caution.

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Yes, I think in the near term, a lot of these customers are under long term contracts and I’m talking specifically about customers who sell to The U. S. They’re under long term contracts and so we think a lot of those contracts are good and they’ll continue to deliver those products that are needed by The U. S. But we also have a lot of mining customers and energy customers who don’t sell a lot of their products to The U.

S. And we see consistent or those customers are seeing consistent strong demand and we continue to see strong demand from them.

Jonathan Goldman, Analyst, Scotiabank: Okay. Thanks for taking my questions. I’ll get back in queue.

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Thanks, Jonathan.

Conference Operator: Your next question is from the line of Patrick Sullivan from TD Cowen. Please go ahead.

Patrick Sullivan, Analyst, TD Cowen: Good afternoon. Thanks for taking my question.

Conference Operator: Just to

Patrick Sullivan, Analyst, TD Cowen: get back onto the margin topic, I sort of inferred that part of the impact was from rightsizing inventory. And it sounds like management is prepared to do more inventory rightsizing as well. So is that accurate? And then is there any sort of amount or number you could put on that?

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Yes, there was during Q4, there was continued inventory reduction. We did sell some inventory at meaningfully lower margins. So that had a small impact on the gross profit percentage in the quarter. As we look forward, we do plan to continue to reduce inventory. So if you look back to the end of Q1 twenty twenty four, our inventory peaked at just around $750,000,000 and we brought that down to about $675,000,000 by the end of the year.

So that’s about $25,000,000 a quarter. It’s not perfectly $25,000,000 a quarter, but we see that as a good rate of inventory reduction.

Patrick Sullivan, Analyst, TD Cowen: Okay, excellent. Thank you. And then I guess ERS revenue is down quite a bit. I mean, can you elaborate on that? Is that work more break into nature?

Was it a slow period? Was any of that deferred or delayed? Because the backlog in the IPERS was relatively stable quarter over quarter?

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Yes. So the backlog is relatively stable. What we’re finding with our customers is there is still a mix component in our backlog and in our business even within IP and ERS. And some of the business, most of the business within IP and ERS is that MRO, the maintenance repair operation type business, where that spending needs to happen almost no matter what’s going on. But there is a portion of our IP and ERS business that is related to capital projects.

And those are new facilities that are being built or significant upgrades, brownfield type projects. And there has been a slowdown in those, a material slowdown. So the MRO business remains strong. The capital portion of IP and ERS has definitely been slower with customer uncertainty.

Patrick Sullivan, Analyst, TD Cowen: Okay, great. Thank you.

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Thanks, Patrick.

Conference Operator: Your next question is from the line of Devin Dodge from BMO Capital Markets. Please go ahead.

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Yes,

Devin Dodge, Analyst, BMO Capital Markets: thanks. Good afternoon. I wanted to start with the supplier finance programs. You continue to see that increase in Q4. I think it now covers about 45% or so of your equipment inventory.

Just wondering if there’s a way to frame how much time on at least on average that Wake X has until this becomes interest bearing? And what do you view as a targeted level for this equipment financing for your business?

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Devin, I would say I mean we have floor plans from a number of our manufacturers and we feel pretty comfortable with where we’re at right now. Where we’re really focusing our efforts is just moving out older inventory. Over the last year, the inventory that is now interest bearing has gotten a little bit higher and that’s really the focus of our inventory dispersal program and we’ve developed some new reporting and new programs to help our sales teams really focus on those and get those out the door so that we’re just not paying on the interest on the inventory that’s on the ground.

Devin Dodge, Analyst, BMO Capital Markets: Okay, fair enough. Okay. In the sixth priority listed in the outlook, there was a small change that we noted. It was on the focus on parts, service and margin improvement. I think we saw the comment on expanding product support was stripped out, and investment in tools, training and support was added.

So just wondering if you could provide a bit more color on this and any shifts in focus or priorities from say six to twelve months ago?

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: No, Devin, I wouldn’t say there’s a we just refined our strategic priorities and just then tweak the wording. But generally the focus on product support is still there and there hasn’t been a meaningful change in direction.

Devin Dodge, Analyst, BMO Capital Markets: Okay. And then the last one for me, you’ve made a lot of progress on streamlining costs in late twenty twenty four. I think that looks suggest more focus on lowering the cost structure in 2025. Just wondering if you could provide some thoughts on what areas of the business you see the most opportunity for cost improvement as we think about 2025?

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: When you look at our P and L, the biggest cost that we have is people and the second biggest cost that we have is facilities. And so those are two areas that we continue to look at. As you noted, we had a restructuring charge in Q4 of twenty twenty four and we’re continuing down the path of reducing our costs. And just making sure that we’re right sized and that we’re just defensive. What is going to be happening here in the coming months and years with our economy and our biggest trading partner to the south still remains a bit of a question mark.

So we’re playing it safe.

Devin Dodge, Analyst, BMO Capital Markets: Okay. Thanks a lot. I’ll turn it over.

Conference Operator: Your last question is from the line of Maxim Sytchev from National Bank Financial. Please go ahead.

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Hi, good afternoon. Hi, Max.

Maxim Sytchev, Analyst, National Bank Financial: I was wondering if it’s possible to get a bit of color around the cyclicality of ERS and IP business. Just curious when we look at obviously 2023 loss of growth in hindsight, maybe just feels like a pull through of COVID. What are your thoughts right now around sort of the quality of these businesses?

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Max, in our IP and ERS business, the cyclicality is it really ranges by customer and we just have so many different customers and so many different areas that we serve that there is a little bit it’s harder to really pinpoint the cyclicality. We’re definitely coming off of two peak years in 2022 and 2023. We grew by almost 20% each year. So it’s a little bit softer. But I would say as a general comment within the year, Q2 and Q4 seem to be a little bit higher and Q3 would be a bit of a softer season for us.

But there is a lot of individual customer variability in there.

Maxim Sytchev, Analyst, National Bank Financial: And I guess, I mean, the results obviously were before tariffs. How do you think that kind of wet blanket is going to play out on this part of the business?

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Thanks. Yes. So there’s a few ways that we think about tariffs. I mean, one is our direct exports to The U. S, which is very minimal.

That would be less than 1% of revenue, so immaterial. Then there is on our customers who export to The U. S. So we’re exposed to a lot of them. So thinking of the steel and aluminum producers and others, we expect that they’re not shutting down their plants and that they will still continue to need our products and services for the MRO portion of their operation.

And during the previous tariff period, we weren’t affected too much. History doesn’t always repeat itself, so we don’t know exactly what this one will be. But there was a minimal impact last time this happened. And then the last one is on reciprocal tariffs coming into Canada. The first round of $30,000,000,000 is negligible impact on us.

It’s the next round that is a question mark. Will individual bearings be tariffed or not? If they are that could have an impact. Forklift remains a question mark or other heavy equipment. In some cases, it could be negative, but in some cases, it could actually be positive.

And I think of Hitachi (OTC:HTHIY) as an example, where the product is made in Japan, so obviously not subject to any kind of tariffs. But most of our much of our competition is made in The U. S. So it immediately gives us an upper hand. So while there is while I think there are some headwinds on the topic of tariffs, I also think there could be select opportunities that will definitely jump on should they materialize.

Maxim Sytchev, Analyst, National Bank Financial: Fair enough. And then just was wondering also about the dividend payout ratio. I think we’re kind of crossing about 50. And as you sort of think about your financial priorities and cost of debt and all these things, do you mind maybe kind of revisiting the priorities and again the comfort level around where we are relative to net income and free cash flow generation? Thanks.

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: As we look forward for the rest of the year, referring to our previous remarks right at the end on the last slide there, we’ve got some meaningful priorities to reduce inventory, continue to reduce costs and improve our margins. And when all those things line up, you get reduced leverage and that is ultimately the priority. We’re at 2.6%. We’re outside of our range of 1.5% to 2%. So we definitely want to get our leverage back in the range where we feel comfortable.

And then when that happens, we continue to review the dividend on a quarterly basis. But when you’re in a better leverage spot then the dividend becomes a lot more stable.

Maxim Sytchev, Analyst, National Bank Financial: Yes. And I guess, I mean can you provide any color around the working capital sort of free up that we can expect on a prospective basis and how quickly we can get to that maybe two times leverage ratio? Thanks.

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Yes, I mean, we’ve been reducing inventory by an average of 25,000,000 a quarter, since we started at the end of Q1. And I would say that type of a pace is something reasonable to look at. And then, I mean, the other two big pieces of our working capital are receivables and payables, which we continue to manage the same as always. And so they just they fluctuate, but and they generally offset each other.

Maxim Sytchev, Analyst, National Bank Financial: Okay. Okay, that’s great. That’s it for me. Thank you very much.

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Thanks Max.

Conference Operator: There are no further questions at this time. I’d like to turn the call over back to Mr. Iggy Domagalski for closing remarks. Sir, please go ahead.

Igi Domagalski, President and Chief Executive Officer, Wajax Corporation: Thank you, operator. Thank you for your continued interest in Wajax. We look forward to providing you with further updates at our Annual General Meeting on May. Thank you.

Conference Operator: This concludes today’s conference call. Thank you very much for your participation. You may now disconnect.

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