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Wajax Strategic Update March 2018
\\ Cautionary Statement Regarding Forward-Looking Information
Wajax Strategic Update (March 2018)
This presentation contains certain forward-looking statements and forward-looking information, as defined in applicable securities laws (collectively, “forward-looking statements”). These forward-looking statements relate to future events or the Corporation’s future performance. All statements other than statements of historical fact are forward-looking statements. Often, but not always, forward looking statements can be identified by the use of words such as “plans”, “anticipates”, “intends”, “predicts”, “expects”, “is expected”, “scheduled”, “believes”, “estimates”, “projects” or “forecasts”, or variations of, or the negatives of, such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “should”, “might” or “will” be taken, occur or be achieved. Forward looking statements involve known and unknown risks, uncertainties and other factors beyond the Corporation’s ability to predict or control which may cause actual results, performance and achievements to differ materially from those anticipated or implied in such forward looking statements. There can be no assurance that any forward looking statement will materialize. Accordingly, readers should not place undue reliance on forward looking statements. The forward looking statements in this presentation are made as of the date of this presentation, reflect management’s current beliefs and are based on information currently available to management. Although management believes that the expectations represented in such forward-looking statements are reasonable, there is no assurance that such expectations will prove to be correct. Specifically, this presentation includes forward looking statements regarding, among other things, our updated Strategic Plan, including organic growth plans, goals and performance expectations for our ten major product and service categories, as well as our planned investments in staffing, inventory and infrastructure to support such growth; our acquisition strategy and criteria for evaluating potential acquisition targets in Canada and the U.S.; our plans to achieve further cost savings and efficiencies through the continued consolidation/optimization of “back office” functions; our plans to increase hiring and grow our sales and service teams; our expectation that, as we execute our updated growth strategy our operating leverage should improve; our goal of managing costs to deliver a target annual sales, general and administrative expense to revenue ratio of between 14.5% to 15.5%, regardless of future revenue levels; our plans to further reduce and consolidate/optimize our branch network, emphasize multi-purpose branch locations and to achieve a target annual facility cost to revenue ratio of between 2% to 2.5%; our planned implementation of a new enterprise resource planning solution, as well as the anticipated timing for completion of, and expected benefits of, such solution; our planned investment in customer support centers, the benefits of such centers and the expected operational date of our first major center; the guiding financial principles we intend to adhere to in executing our updated strategy; our target leverage ratio range of 1.5 – 2.0 times; our expectation that execution of our updated Strategic Plan will lead to higher per share cash flow generation and structurally higher EBITDA margins; and our expectation that improvement in our EBITDA margins will create meaningful shareholder value. These statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, assumptions regarding general business and economic conditions; the supply and demand for, and the level and volatility of prices for, oil, natural gas and other commodities; financial market conditions, including interest rates; assumptions regarding product or service market size and strength, and the adoption of certain emissions standards; our ability to execute our updated corporate strategy, including our ability to execute on our organic growth priorities, manage costs, complete and effectively integrate acquisitions and to successfully implement new information technology platforms, systems and software; our ability to realize the full benefits from our 2016 strategic reorganization, including cost savings and productivity gains; the future financial performance of the Corporation; our costs; market competition; our ability to attract and retain skilled staff; our ability to procure quality products and inventory; and our ongoing relations with suppliers, employees and customers. The foregoing list of assumptions is not exhaustive. Factors that may cause actual results to vary materially include, but are not limited to, a deterioration in general business and economic conditions; volatility in the supply and demand for, and the level of prices for, oil, natural gas and other commodities; a continued or prolonged decrease in the price of oil or natural gas; fluctuations in financial market conditions, including interest rates; the level of demand for, and prices of, the products and services we offer; levels of customer confidence and spending; market acceptance of the products we offer; termination of distribution or original equipment manufacturer agreements; unanticipated operational difficulties (including failure of plant, equipment or processes to operate in accordance with specifications or expectations, cost escalation, our inability to reduce costs in response to slow-downs in market activity, unavailability of quality products or inventory, supply disruptions, job action and unanticipated events related to health, safety and environmental matters); our ability to attract and retain skilled staff and our ability to maintain our relationships with suppliers, employees and customers. The foregoing list of factors is not exhaustive. Further information concerning the risks and uncertainties associated with these forward looking statements and the Corporation’s business may be found in our Annual Information Form for the year ended December 31, 2017, filed on SEDAR. The forward-looking statements contained in this presentation are expressly qualified in their entirety by this cautionary statement. The Corporation does not undertake any obligation to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise unless so required by applicable securities laws.
2
\\ Contents
Wajax Strategic Update (March 2018) 3
Page
Wajax Overview 4
Sustainable Revenue Growth 9
Operating Leverage 18
Investing in Key Infrastructure 21
Optimized Capital Structure 25
Creating Shareholder Value 28
Wajax Overview
\\
Founded in 1858, Wajax is one of Canada’s longest-standing and most diversified industrial products and services providers offering:
• Broad range of products and services
• Best-in-class manufacturing partners (OEM’s)
• Diverse market experience across many industries
• ~2,400 total employees
5
Who We Are
National Footprint – 104 Branches
~ 750 SKILLED TECHNICIANS
~ 650 SALES & SUPPORT PROFESSIONALS
~ 300 PARTS & SERVICE SUPPORT
Wajax 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/commercial, oil sands, transportation, metal
processing, government/utilities and conventional oil/gas.
Wajax Strategic Update (March 2018)
\\ Diverse Revenue Base
Wajax Strategic Update (March 2018) 6
$1.32 billion 2017 revenue
$1.22 billion 2016 revenue
8.0% YoY increase
\\
7
Wajax Transformation
Wajax Strategic Update (March 2018)
LE
GA
CY
WA
JAX
“ON
E W
AJA
X”
• Transitioned to “One Wajax” starting in 2016, increasing operating leverage and asset utilization, streamlining the customer and manufacturer relationship while improving our ability to drive change
• Successfully reduced our annual administration costs by ~$20 million
• Positioned to execute our new strategy to further enhance growth, customer service, operational efficiency and leverage technology investments to improve national sales and service capabilities
• Prior to the 2016 reorganization, Wajax operated three business segments that served common end markets
• Each legacy business operated its own “back-office”, sales, branch and support infrastructure, managed its own OEM relationships and product/service portfolios
• Legacy structure did not provide a competitive advantage. Change was required to lower costs, improve consistency of customer experience, drive higher growth and improve asset utilization.
\\
- Primary focus on organic growth
- Category specific investment thesis
- Secondary focus on acquisitions
- Drive working capital efficiency
- Maintain maximum liquidity
- Manage leverage targets
- Disciplined capital deployment
- Improved earnings durability
- Shareholder/Management alignment
• - Implement new technology
• - Branch network optimization
• - New Customer Support Centers
INVESTING IN KEY
INFRASTRUCURE
• - Leverage restructuring efficiencies
• - Tight management of costs
• - Higher asset utilization
Why Invest Today?
Wajax Strategic Update (March 2018) 8
SUSTAINABLE REVENUE GROWTH
OPERATING LEVERAGE
MAXIMIZE SHAREHOLDER
VALUE
OPTIMIZED CAPITAL
STRUCTURE
2 5
3 4
1
1. Sustainable Revenue Growth
\\
• Our updated strategy establishes priorities for organic growth and defines the new parameters for potential acquisition targets
• The vast majority of our growth between 2018 and 2020 is expected to come from organic growth initiatives in existing product and service lines
• Historically our peak to trough performance has been highly correlated to commodity cycles and linked to the prosperity of our customers in Western Canada
• The goal of our organic growth planning is to focus on incremental growth from categories that provide greater stability through the cycle as well as the potential for greater geographic diversity
• The strategic plan also establishes acquisitions as an important growth opportunity
• In Canada, we will continue to pursue opportunities focused primarily on Engineered Repair Services. We will also consider opportunities that extend our territory coverage with existing major manufacturers
• In the U.S. market, we will consider opportunities that are consistent with our category strategy, offer stable and accretive EBITDA1 and extend our existing relationships with major manufacturers
Investing in Our Growth
Wajax Strategic Update (March 2018) 10
1 EBITDA does not have a standardized meaning prescribed by GAAP. See Non-GAAP and Additional GAAP measures in the Appendix.
\\
Construction
Material Handling
Engineered Repair Services
• Wajax currently provides products and services across 10 major categories and our growth plans focus on their relative opportunities considering:
• Market size and current market share
• Strength of manufacturer relationships and products
• Profitability and durability of earnings across the business cycle
• All categories have investment allocations consistent with the nature of each business, however, “Targeted Growth” categories are expected to receive the largest investment in staffing, inventory and infrastructure
Organic Growth Strategy
Wajax Strategic Update (March 2018)
Targeted Growth 31% of 2017 Revenue
Core Strength 50% of 2017 Revenue
Cyclical/Major Projects 19% of 2017 Revenue
Industrial Parts
Forestry
On-Highway Transportation
Power & Marine
Mining
Engines & Transmissions
Crane & Utility
11
Largest contributor to growth primarily
based on increased market share
Maintaining strong market position
to capitalize on opportunities
Expected to grow inline with or greater
than the underlying end markets
\\ Construction
Wajax Strategic Update (March 2018)
2013
2016
Category Growth
Drivers
• Continued market share expansion in Hitachi excavators and Bell articulated dump trucks
• Continued effective roll out of Hitachi wheel loader program
• New heavy rent and comprehensive used equipment programs
• National aftermarket warranty and service programs
Market
Assumptions
• Large excavator annual new unit market size of ~4,250
• Full Tier IV emissions standards adopted by year end 2018
Critical Success
Factors
• Manufacturer capacity in initial stage of outlook period
• Aftermarket support programs
• Improved market share in central and eastern Canada
• Heavy rental fleet capital investment and program effectiveness
12
Expected to be a major contributor to organic growth objectives and requires focused investment in
personnel and inventory to meet market share targets
$289 $273
$207
$170
$231
4,344 4,296
3,426
3,054
4,316
0
1,000
2,000
3,000
4,000
5,000
$0
$100
$200
$300
$400
2013 2014 2015 2016 2017
Revenue ($millions) Canadian Large Excavator Market (Units)
\\ Material Handling
Wajax Strategic Update (March 2018)
2013
2016
13
Category Growth
Drivers
• Continued market share expansion of Hyster-Yale product lines
• Expansion of existing rental and used equipment programs
• National aftermarket warranty and service programs
• Introduction of supporting ancillary product lines
Market
Assumptions
• Annual new unit market size of ~ 15,000 units
• Strength in central and eastern Canada distribution and warehousing markets
• Continued trend towards non-internal combustion engine vehicles
Critical Success
Factors
• Manufacturer product innovation and price competitiveness
• Market share improvements in warehouse market in central and eastern Canada
• Aftermarket support programs
• Rental fleet capital investment and continued program effectiveness
Planning based on achievable market share expansion targets and further investment in our rental
fleet to capitalize on best in class Hyster-Yale product offerings
2013
2016
$125 $122 $124
$109 $120
14,872 15,839
14,937 14,076
16,613
0
10,000
20,000
$0
$100
$200
2013 2014 2015 2016 2017
Revenue ($millions) Canadian Lift Truck Market (Units)
\\ Engineered Repair Services
Wajax Strategic Update (March 2018) 14
Category Growth
Drivers
• Development of major accounts
• Introduction of additional services including asset management, condition monitoring and
preventative maintenance
• Expansion of core capabilities across six national Centers of Excellence
Market
Assumptions
• Estimated $5 billion annual market for both commercial and resource customers including
repairs, field services and engineered solutions.
• Fragmented market of service providers
Critical Success
Factors
• Leverage of existing customer relationships to expand services revenue
• Operational excellence in Centers of Excellence
• Shop and field personnel safety
Unique market opportunity for Wajax supported by our industrial engineering talent, which can be
leveraged nationally to support our key customer partnerships
$38
$63
$25
$58 $63
0
10,000
20,000
$0
$25
$50
$75
2013 2014 2015 2016 2017
Revenue ($millions)
\\ “Core Strength” Categories
Wajax Strategic Update (March 2018)
• Core Strength categories are key contributors to our overall revenue growth and are expected to track well against growth in their respective end markets
• We believe we have a strong competitive position in each of these categories and view them as critical businesses to support given the strength of our teams and the unique customer relationships we have fostered nationally
15
Power & Marine
Industrial Parts
$365
$320
$340
Peak Trough 2017
Forestry On-Highway Transportation
$144
$97
$144
Peak Trough 2017
$111
$89 $109
Peak Trough 2017
$80
$72 $72
Peak Trough 2017
2015 2017
2014
2014
Wajax offers its customers expert
service and support across a full
range of bearings and power
transmission, process and fluid
power products. Industrial Parts is
an important competitive
differentiator.
SKF
Timken
ITT
3M Eaton
Wajax offers an industry-leading
range of equipment and
aftermarket services to logging
contractors and other forestry
customers. Wajax has achieved
strong market share in a number of
important product areas.
Tigercat
Hitachi
On-highway transportation product
support covers a wide range of
shop and road services for
municipalities, coach operators and
large highway vehicle customers.
Wajax is an industry leader in large
engine and transmission services.
Detroit
Allison Transmission
Standby, prime power and co-
generation power systems are an
important focus for Wajax. Our
legacy strengths in resource
industries has been augmented to
focus on growth areas including
data centers, health care and water
treatment.
Rolls Royce
Volvo
2016 2012 2012 2017
Rev
en
ue
($
mil
lio
ns
)
\\ “Cyclical/Major Projects” Categories
Wajax Strategic Update (March 2018)
• These categories address critical customer needs in more cyclical industries or are sensitive to major capital projects that are challenging to forecast
• Growth planning has been assumed below historical peak levels over the outlook period, however, given our strong range of products and services, we are well positioned to benefit from upturns in these markets
• Recent activity suggests strengthening market conditions in various resource commodities
16
Mining Engines & Transmissions
Crane & Utility
Wajax is a leader in the sales and service of
large hydraulic mining shovels used in surface
mining operations across Canada and
continues to develop new opportunities in the
rigid frame mining truck market. To expand the
range of products and services to our mining
customers, Wajax has focused on new
underground mining equipment as well as re-
build services for other OEM equipment.
Hitachi
Fletcher
Wajax supports a very broad range of engines
and transmissions used in off-highway
applications such as oil and gas drilling, well
stimulation and large vehicle or system re-
powers. Products and services include design
engineering, systems packaging, shop and field
repair and re-build services. Wajax continues to
focus on aftermarket and re-power services.
MTU
Allison Transmission
Wajax offers a broad range of design and
fabrication services to provincial utility and other
customers. As utility customers adjust their
capital spending on new equipment, Wajax is
regularly reviewing additional crane and utility
opportunities.
Terex
Palfinger
$233
$86 $112
Peak Trough 2017
2012 $157
$71 $90
Peak Trough 2017
2012
$57
$41 $41
Peak Trough 2017
2014
2015
2016 2016
Rev
en
ue
($
mil
lio
ns
)
\\ Acquisition Strategy
Wajax Strategic Update (March 2018) 17
Targeted acquisition strategy focuses primarily on services businesses in Canada and
opportunities to enter the U.S. market by leveraging strong major manufacturer relationships
• Our acquisition strategy sets out 4 key criteria that will be used to evaluate potential targets:
• Provides increased business scale
• Enhances EBITDA1 margins
• Reduces EBITDA1 volatility
• Advances our overall corporate strategy
• Wajax will actively assess opportunities in a disciplined manner to complement our organic growth
CANADA U.S.
Market
Overview
• Industrial distribution has undergone considerable
consolidation, leaving limited non-competing
acquisition opportunities available
• Services market is highly fragmented and relevant to
ERS growth strategy
• North American equipment dealer consolidation has
continued with manufacturers favoring larger and well-
capitalized dealers with clear succession plans
• Wajax is well positioned to participate in this trend
given our financial flexibility and strong manufacturer
relationships
Growth
Strategy
• Where available, leverage existing manufacturer
relationships to expand distribution to adjacent
territories
• Continue to review potential services acquisitions of
scale to advance our strategy and support customer
demands
• Leverage existing manufacturer relationships to review
U.S. entry options
• Opportunity to build an operating platform to assist
manufacturers with consolidation and to add new
categories to a target’s portfolio
Target
Categories
1) Engineered Repair Services 1) Material Handling 4) Engines & Transmissions
2) Material Handling 2) Construction 5) On-Highway Transportation
3) Power & Marine 3) Power & Marine
1 EBITDA does not have a standardized meaning prescribed by GAAP. See Non-GAAP and Additional GAAP measures in the Appendix.
2. Operating Leverage
\\
• 300 management and administrative positions were eliminated from the business, representing approximately 11% of the total workforce
• These reductions generated annual SG&A savings of ~$20 million
• Further cost savings are anticipated from the continued optimization of “back-office” functions into a new shared services center which is expected to be implemented starting in 2018
• Using the foundation now in place, we plan to increase hiring to grow our revenue generating sales and service teams while continuing to focus on the efficiency of personnel costs in support areas
19
Operating Leverage
Wajax Strategic Update (March 2018)
Our 2016 reorganization was effective in right-sizing Wajax to the then-current market conditions
while enabling the implementation of stronger sales and shop management practices
SG&A is targeted to remain at 14.5% to 15.5% of revenue driving margin expansion as the top line grows
\\
$1,466 $1,429
$1,451
$1,273
$1,222
$1,319
$208 $212 $217 $203 $195 $199
14.2%
14.8%
14.9%
15.9%
16.0%
15.1%
13.0%
13.5%
14.0%
14.5%
15.0%
15.5%
16.0%
16.5%
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
2012 2013 2014 2015 2016 2017 2018 2019 2020
Revenue SG&A ($) SG&A (%)
20
Operating Leverage (continued)
Wajax Strategic Update (March 2018)
The impact of our operating leverage and the “One Wajax” business model is geared to drive SG&A
ratio improvements going forward
Our goal is to manage expenses
to deliver a 14.5% to 15.5%
SG&A ratio regardless of future
revenue levels
As we execute our growth
strategy, our operating leverage
should improve, increasing our
margins and net earnings
3. Investing in Key Infrastructure
\\
• Our national network will continue to evolve, resulting in fewer total facilities, lower overhead costs and an emphasis on multi-purpose locations covering a broader range of product/service offerings to enhance local customer service
• By 2020, we expect facility count to be reduced by a further ~10% due to branch optimization in various markets and ongoing consolidation to improve the customer experience as leases expire
• Expected cost savings are estimated at ~$3 million per year
• Our plan aims to achieve facility costs in the range of 2.0 – 2.5% of revenue annually
22
Branch Consolidation
Wajax Strategic Update (March 2018)
Wajax has reduced branch count by ~20% since our 2012 peak from 128 to 104, while delivering
higher revenue per branch over that period
Existing facility
Branch consolidation opportunity
\\
• A key to achieving our strategic objectives and enhancing our margins is ensuring we have the systems in place to efficiently meet the needs of our team and our customers
• Historically, Wajax has operated with multiple decentralized technology platforms
• The 2016 reorganization reduced the number of ERP systems in use from five to two
• We are currently in the process of transitioning from the two remaining systems to a new, best-in-class ERP solution
• Implementation of the new system is expected to begin in Q1 2019, with anticipated completion by June 2020 across all branches and locations
• The new solution compliments our recent investments in CRM and other systems, is a major factor in the next level of our operational integration, brings new sales channel capabilities and improves the cost efficiency of our support teams
Technology Enhancements
Wajax Strategic Update (March 2018) 23
\\
• Wajax is investing significant resources to continue to deliver a better customer experience
• Customer Support Centers are included in our plan providing branch and customer support, new fulfillment capabilities and broader market coverage
• These support centers are a major factor in delivering the “One Wajax” customer promise due to their ability to support branches and customers across our full range of products and services
• Incremental savings would be expected due to changes in branch workload and further opportunities for facility network change
• Customer Support Centers would also offer revenue growth opportunities due to improved inbound and outbound customer sales call support
• Our primary focus is to ensure that our customers have access to our full range of technical expertise, products and services from any location using the channel most convenient to them
• Our first major Customer Support Center is expected to be operational in 2019
Customer Support Centers
Wajax Strategic Update (March 2018) 24
4. Optimized Capital Structure
\\
26
Financial Guiding Principles
Create Shareholder Value • Build the business focusing on accretive growth opportunities
• Allocate capital to the most accretive investments on a risk adjusted basis
Maintain Earnings Quality • Grow revenue and margins while minimizing earnings volatility
• Build dynamic funding plans to execute strategic capital investments
Prioritize Liquidity • Maintain access to debt and equity capital markets at all times
• Maximize access to committed credit facilities through strong lender relations
Disciplined Risk Management • Manage interest rate risk by adopting dynamic hedging strategies
• Minimize exposure to currency fluctuations through detailed funding strategies
Optimize Capital Structure • Assess and use appropriate leverage sources to minimize cost of capital
• Manage refinance risk and extend duration where possible
1
4
3
2
5
Wajax Strategic Update (March 2018)
Financial capacity and flexibility are crucial to achieving our strategic goals. Wajax has adopted a
disciplined approach to capital allocation and risk management.
\\
27
Robust Balance Sheet
0.0x
1.0x
2.0x
3.0x
4.0x
Debt
/ E
BIT
DA
1
Credit Capacity
Target Range
Available
Capacity
2.06x
Q4 2017
Available Liquidity
• Recently enhanced $300 million committed, revolving credit facility with additional $100 million accordion
• Tier 1 relationship banks in our lending syndicate with strong interest from additional banks to participate
• Strong access to Canadian debt and equity capital markets
Wajax Strategic Update (March 2018)
Working Capital Efficiency
22.9%
21.8%
21.4% 2.8x
2.5x
3.2x
2.0x
2.5x
3.0x
3.5x
20%
21%
22%
23%
Q4/16 Q3/17 Q4/17
Working Capital to Sales (LHS) Inventory Turns (RHS)
1 EBITDA does not have a standardized meaning prescribed by GAAP. See Non-GAAP and Additional GAAP measures in the Appendix.
5. Creating Shareholder Value
\\
• Achieving our three year strategic plan is based on the following assumptions:
• Modest revenue growth supported by robust business plans
• Mid-cycle market conditions
• Stable gross margins reflecting current competitive dynamics
• Leveraging our fixed asset investments to keep SG&A rates flat as we grow
• Executing our strategy is expected to lead to higher per share cash flow generation and structurally higher EBITDA4 margins
29
Wajax Outlook
Wajax Strategic Update (March 2018)
($ millions) 2017 Low Mid High
2017 Actual Revenue $ 1,319
3 Year Revenue CAGR1 8.0%2 5.0% 7.0% 9.0%
Implied Revenue Range $ 1,527 $ 1,616 $ 1,708
Assumed EBITDA4 Margin 6.0%3 7.0% 8.0% 9.0%
Implied EBITDA4 $ 793 $ 107 $ 129 $ 154
EBITDA5 CAGR 10.6% 17.8% 24.8%
WJX
1 Growth rates shown are illustrative and are based solely on organic growth
2 Year over year increase from December 31, 2016 3 December 31, 2017 reported Adjusted EBITDA margin and Adjusted EBITDA
2018 Consensus EBITDA4 Trading Multiples (based on Feb. 23, 2018 closing share prices)
• Based on 2018 consensus EBITDA4 estimates, Wajax trades at a significant discount to its larger peers
• As our EBITDA4 margins improve, the valuation gap relative to these peers should compress, creating meaningful shareholder value
0.0x
5.0x
10.0x
WJX Peer 1 Peer 2 Peer 3 Peer 4
4 EBITDA does not have a standardized meaning prescribed by GAAP. See Non-GAAP and Additional GAAP measures in the Appendix.
\\
30
Contacts
Email Phone
Mark Foote President & Chief Executive Officer
[email protected] (905) 288-2082
Darren Yaworsky SVP Finance & Chief Financial Officer
[email protected] (905) 212-3353
Trevor Carson VP Financial Planning & Risk Management
[email protected] (905) 212-3390
Wajax Strategic Update (March 2018)
Appendix
\\ Non-GAAP and Additional GAAP Measures
32 Wajax Strategic Update (March 2018)
Except where noted, all figures are in millions of Canadian dollars, except per share data and ratio calculations. This presentation contains certain non-GAAP and additional GAAP measures that do not have a standardized meaning prescribed by GAAP. Therefore, these financial measures may not be comparable to similar measures presented by other issuers. Investors are cautioned that these measures should not be construed as an alternative to net earnings or to cash flow from operating, investing, and financing activities determined in accordance with GAAP as indicators of the Corporation’s performance. The Corporation’s management believes that:
(i) these measures are commonly reported and widely used by investors and management, (ii) the non-GAAP measures are commonly used as an indicator of a company’s cash operating performance, profitability and ability to raise and service
debt, and (iii) the additional GAAP measures are commonly used to assess a company’s earnings performance excluding its capital, tax structures and
restructuring (recovery) costs. (iv) “Adjusted EBITDA” used in calculating the Leverage Ratio excludes the restructuring (recovery) costs, (gain) loss recorded on sales of properties and
senior notes redemption costs which is consistent with the leverage ratio calculation under the Corporation’s bank credit agreement. Non-GAAP financial measures are identified and defined below: Funded net debt Funded net debt includes bank indebtedness, long-term debt and obligations under
finance leases, net of cash. Funded net debt is a component relevant in calculating the Corporation’s Funded Net Debt to Total Capital, which is a non-GAAP measure commonly used as an indicator of a company’s ability to raise and service debt.
Debt Debt is funded net debt plus letters of credit. Debt is a component relevant in calculating the Corporation’s Leverage Ratio, which is a non-GAAP measure commonly used as an indicator of a company’s ability to raise and service debt.
EBITDA Net earnings before finance costs, income tax expense, depreciation and amortization. EBITDA is a non-GAAP measure commonly used as an indicator of a company’s cash operating performance.
Adjusted EBITDA EBITDA before restructuring (recovery) costs, (gain) loss recorded on sales of properties and senior notes redemption costs.
Leverage ratio
The leverage ratio is defined as debt at the end of a particular quarter divided by trailing 12-month Adjusted EBITDA. The Corporation’s objective is to maintain this ratio between 1.5 times and 2.0 times.
Additional GAAP measures are identified and defined below: Earnings before finance costs and income taxes (EBIT)
Earnings before finance costs and income taxes, as presented on the Consolidated Statements of Earnings.
Earnings before income taxes (EBT)
Earnings before income taxes, as presented on the Consolidated Statements of Earnings.
\\
33
Non-GAAP and Additional GAAP Measures
Wajax Strategic Update (March 2018)
Reconciliation of the Corporation’s net earnings to EBT, EBIT, EBITDA and Adjusted EBITDA is as follows: For the twelve
months ended December 31
2017
Net earnings $ 30.9
Income tax expense 11.8
EBT 42.7
Finance costs 9.8
Senior notes redemption(1)
5.5
EBIT 58.0
Depreciation and amortization 22.4
EBITDA 80.4
Restructuring recovery(2) (0.3)
(Gain) recorded on sales of properties (3)
(1.5)
Adjusted EBITDA $ 78.6 (1) For the twelve months ended December 31, 2017 – Includes the $5.5 million senior notes redemption costs recorded in the fourth quarter of 2017. (2) For the twelve months ended December 31, 2017 – Includes the $0.3 million restructuring recovery recorded in the second quarter of 2017. (3) For the twelve months ended December 31, 2017 – Includes the $1.5 million gain recorded on sales of properties recorded in the fourth quarter of 2017.
Calculation of the Corporation’s funded net debt, debt and leverage ratio is as follows: December 31
2017
Bank indebtedness $ 1.7
Obligations under finance leases 9.5
Long-term debt 143.7
Funded net debt $ 154.9
Letters of credit 7.3
Debt $ 162.2
Leverage ratio
(1)
2.06
(1) Calculation uses trailing four-quarter Adjusted EBITDA. This leverage ratio is calculated for purposes of monitoring the Corporation’s objective target leverage ratio of between 1.5 times and 2.0 times. The calculation contains some differences from the leverage ratio calculated under the Corporation’s bank credit facility agreement (“the agreement”). The resulting leverage ratio under the agreement is not significantly different.
wajax.com