Wajax Announces 2021 First Quarter Results and Provides an Update Regarding COVID-19 Response

TSX Symbol:  WJX

TORONTO, May 3, 2021 /CNW/ - Wajax Corporation ("Wajax" or the "Corporation") today announced its 2021 first quarter results.

First Quarter Highlights

• Revenue in the first quarter of 2021 increased $43.1 million, or 12.5%, to $387.1 million, from $344.1 million in the first quarter of 2020. Regionally:
  
  
• Revenue in western Canada of $156.0 million increased 13.5% over the prior year due primarily to higher construction and forestry equipment sales, and higher revenue in the industrial parts and engineered repair services ("ERS") categories. The increase in industrial parts and ERS revenue was due mainly to the acquisition of Calgary, Alberta-based Tundra Process Solutions Ltd. ("Tundra") effective January 22, 2021. These increases were partially offset by lower mining product support revenue.
• Revenue in central Canada of $81.1 million increased 11.1% over the prior year mainly due to strength in construction and forestry equipment sales. 
• Revenue in eastern Canada of $150.0 million increased 12.3% over the prior year primarily due to higher equipment and product support sales in the construction and forestry category.
  
  
• During the quarter, the Corporation qualified for the Canada Emergency Wage Subsidy ("CEWS") and recognized $6.3 million as a reimbursement of compensation expense with $2.8 million and $3.5 million, respectively, allocated to cost of sales and selling and administrative expenses in proportion to personnel costs recorded in those areas. Approximately $2.5 million of the subsidy was allocated to temporary supplemental compensation programs directed at the Corporation's frontline employees who continue to provide excellent and essential support to customers across Canada. The resultant net pre-tax contribution to earnings of the CEWS recovery in the first quarter was approximately $3.8 million.
  
  
• Gross profit margin of 19.6% in the first quarter of 2021 decreased 0.4% compared to the same period of 2020. Excluding the $2.8 million CEWS recovery discussed above, gross profit margin was 18.9% in the first quarter of 2021, representing a decrease of 1.1% compared to the same period of 2020. The decline in margin was driven primarily by a higher proportion of equipment sales compared to parts and service sales. 
  
  
• Selling and administrative expenses as a percentage of revenue decreased 2.7% to 13.9% in the first quarter of 2021 from 16.6% in the same period of 2020. Excluding the $3.5 million CEWS recovery discussed above, selling and administrative expenses as a percentage of revenue decreased 1.8% to 14.8% in the first quarter of 2021. Selling and administrative expenses decreased by $3.5 million compared to the first quarter of 2020, due mainly to cost control initiatives and the $3.5 million recovery of personnel expenses from the CEWS discussed above, partially offset by additional selling and administrative expenses related to Tundra. 
  
  
• EBIT increased $10.8 million, or 94.6%, to $22.2 million in the first quarter of 2021 versus $11.4 million in the same period of 2020.⁽²⁾ The year-over-year increase in EBIT is primarily attributable to increased volumes, cost saving initiatives and the net recovery of personnel expenses from the CEWS, partially offset by a decline in margin due to a higher proportion of equipment sales compared to parts and service sales.⁽²⁾ 
  
  
• The Corporation generated net earnings of $12.5 million, or $0.59 per share, in the first quarter of 2021 versus $4.1 million, or $0.20 per share, in the same period of 2020. The Corporation generated adjusted net earnings of $12.4 million, or $0.59 per share, in the first quarter of 2021 versus $5.8 million, or $0.29 per share, in the same period of 2020.⁽²⁾ 
  
  
• Adjusted EBITDA margin increased to 9.0% in the first quarter of 2021 from 7.9% in the same period of 2020.⁽²⁾ 
  
  
• The Corporation's backlog at March 31, 2021 of $276.5 million increased $94.8 million, or 52.2%, compared to December 31, 2020, due primarily to higher orders in most categories, most notably the construction and forestry category and the ERS and industrial parts categories with the addition of Tundra's backlog.⁽²⁾ Compared to March 31, 2020, backlog increased $9.8 million, or 3.7%, due to higher orders in the construction and forestry category and higher orders in the industrial parts and ERS categories with the addition of Tundra's backlog. These increases were partially offset by lower mining orders.⁽²⁾⁽⁴⁾ 
  
  
• Total owned and net consignment inventory declined $2.9 million in the first quarter of 2021. Owned inventory of $378.6 million at March 31, 2021 increased $21.2 million from December 31, 2020 due primarily to the acquisition of Tundra and higher mining equipment inventory, partially offset by lower equipment inventory in the construction and forestry category. Net consignment inventory, comprised primarily of construction excavators, declined by $24.1 million to $30.5 million. 
  
  
• Working capital of $362.9 million at March 31, 2021 decreased $12.0 million from December 31, 2020, due primarily to lower trade and other receivables and deposits on inventory and higher accounts payable and accrued liabilities, partially offset by higher inventory and cash.⁽²⁾ Trailing four-quarter average working capital as a percentage of the trailing 12-month sales was 26.0%, a decrease of 1.8% from December 31, 2020, due to the combination of the lower four-quarter average working capital and the higher trailing 12-month sales.⁽²⁾ 
  
  
• Cash flows generated from operating activities amounted to $77.2 million in the first quarter of 2021, compared to cash flows used in operating activities of $7.4 million in the same quarter of the previous year. The increase in cash generated of $84.6 million was mainly attributable to an increase in cash generated from changes in non-cash operating working capital of $72.2 million, a decrease in rental equipment additions of $8.6 million and an increase in net earnings of $8.4 million. The increase in cash generated from changes in non-cash operating working capital of $72.2 million was driven primarily by an increase in cash generated from changes in trade and other receivables of $27.5 million, a decrease in cash used in changes in inventory of $21.1 million, and an increase in cash generated from changes in deposits on inventory of $27.1 million. 
  
  
• The Corporation's leverage ratio decreased to 2.04 times at March 31, 2021, compared to 2.28 times at December 31, 2020.⁽²⁾ The decrease in the leverage ratio was due to the higher trailing 12-month pro-forma adjusted EBITDA.⁽²⁾ The Corporation's senior secured leverage ratio was 1.57 times at March 31, 2021, compared to 1.73 times at December 31, 2020.⁽²⁾ 
  
  
• On January 22, 2021, the Corporation acquired all of the issued and outstanding shares of Tundra for total consideration of $99.3 million, consisting of $74.0 million in cash and the issuance of 1,357,142 common shares of Wajax with a fair value of $25.3 million. 

On May 3, 2021, the Corporation declared a dividend of $0.25 per share for the second quarter of 2021 payable on July 6, 2021 to shareholders of record on June 15, 2021.

Update Regarding COVID-19 Pandemic Response

As health authorities started to take steps to limit the spread of COVID-19 in 2020, the Corporation rapidly implemented protocols, policy changes and technology to better protect its employees, customers and their communities. The table below summarizes the Corporation's four main objectives in managing through this difficult period, and provides an update regarding key actions taken to date in furtherance of these objectives.

Commenting on the Corporation's results, President and Chief Executive Officer Mark Foote stated, "Recognizing that the challenges we faced in 2020 have persisted into 2021, the Corporation nonetheless enters 2021 with confidence expecting that it is positioned to succeed over the long term. In 2021, Wajax remains focused on the same priorities that guided it in 2020: protecting the health, safety and well-being of its team, providing excellent customer service, protecting the Corporation's financial health and driving its long-term growth strategy."

Commenting on financial expectations for 2021, Mr. Foote stated, "We expect revenue associated with the acquisition of Tundra to be a significant contributor to total revenue growth in 2021. In the first quarter, general market conditions affecting organic growth were better than the Corporation's expectations. Wajax will continue to work with its supplier partners to manage 2021 supply chain service levels. Inventory and working capital investments will be managed accordingly pending a clear indication of a sustained recovery."

As to Wajax's key product and service categories, Mr. Foote commented, "In our heavy equipment categories, we will continue to focus on success in construction and forestry, mining, material handling and power systems, including improvements in product support volumes. Wajax has excellent growth opportunities in these categories and will continue to work closely with its supplier partners to prudently grow market share and capture aftermarket sales.

In industrial parts and ERS, we expect strong growth including the contribution from Tundra. ERS continues to be one of Wajax's most significant opportunities, capable of growth at each point in the economic cycle."

Regarding other key projects, Mr. Foote advised, "Wajax's infrastructure programs are expected to continue in 2021, including investments in branch network consolidation and technology. Following the COVID-19 related delay in 2020, the phased implementation of our new ERP system is expected to begin in the second quarter of 2021 and continue over an approximate 24-month timeframe in order to reduce the associated implementation risks."

Mr. Foote concluded, "On behalf of the leadership team, I would like to again thank our employees for their resilience, dedication and hard work which allowed us to continue to operate safely and serve our customers during the first quarter of 2021."

Wajax Corporation

Founded in 1858, Wajax (TSX: WJX) is one of Canada's longest-standing and most diversified industrial products and services providers. The Corporation operates an integrated distribution system providing sales, parts and services to a broad range of customers in diverse sectors of the Canadian economy, including: construction, forestry, mining, industrial and commercial, oil sands, transportation, metal processing, government and utilities, and oil and gas.

The Corporation's goal is to be Canada's leading industrial products and services provider, distinguished through its three core capabilities: sales force excellence, the breadth and efficiency of repair and maintenance operations, and the ability to work closely with existing and new vendor partners to constantly expand its product offering to customers. The Corporation believes that achieving excellence in these three areas will position it to create value for its customers, employees, vendors and shareholders.

Wajax will webcast its First Quarter Financial Results Conference Call. You are invited to listen to the live webcast on Tuesday, May 4, 2021 at 2:00 p.m. ET. To access the webcast, please visit our website wajax.com, under "Investor Relations", "Events and Presentations", "Q1 2021 Financial Results" and click on the "Webcast" link.

Cautionary Statement Regarding Forward-Looking Information

This news release 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. To the extent any forward-looking information in this news release constitutes future-oriented financial information or financial outlook within the meaning of applicable securities law, such information is being provided to demonstrate the potential of the Corporation and readers are cautioned that this information may not be appropriate for any other purpose. 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 news release are made as of the date of this news release, 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 news release includes forward looking statements regarding, among other things, our main objectives in managing our business through the COVID-19 pandemic; our intention to manage owned and consignment equipment inventory levels in accordance with market conditions in 2021; our expectation that the proceeds of our real estate monetization program will be used for debt reduction; our plans to begin implementing our new ERP system in the second quarter of 2021 and to minimize the associated implementation risks; our expectation that, despite the challenges of 2020 carrying over into 2021, we are positioned to succeed over the longer term; our expectation that Tundra will be a primary contributor to our total revenue growth in 2021; our plans to prudently manage inventory and working capital investments pending a clear indication of a sustained recovery; with respect to our key product and services categories, our plans to continue our focus on success in construction and forestry, mining, material handling and power systems, and our belief that we have excellent opportunities in these categories; our expectation that our industrial parts and ERS categories will yield strong growth, including the contribution of Tundra, and that ERS continues to be one of Wajax's most significant opportunities; our expectation that our key infrastructure programs will continue in 2021, including investments in branch consolidation and technology; our goal of becoming Canada's leading industrial products and services provider, distinguished through our core capabilities; and our belief that achieving excellence in our areas of core capability will position Wajax to create value for its customers, employees, vendors and shareholders. These statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, our ability to successfully manage our business through the COVID-19 pandemic and actions taken by governments, public authorities, suppliers and customers in response to the novel coronavirus and its variants; 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; our ability to execute our updated Strategic Plan, including our ability to develop our core capabilities, execute on our organic growth priorities, complete and effectively integrate acquisitions, such as NorthPoint and Tundra, and to successfully implement new information technology platforms, systems and software, such as our new ERP system; 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, the geographic spread and ultimate impact of the COVID-19 virus and its variants, and the duration of the coronavirus pandemic; the duration and severity of travel, business and other restrictions imposed by governments and public authorities in response to COVID-19, as well as other measures that may be taken by such authorities; actions taken by our suppliers and customers in relation to the COVID-19 pandemic, including slowing, reducing or halting operations; a continued or prolonged deterioration in general business and economic conditions (including as a result of the COVID-19 pandemic); 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 (including disruptions caused by the COVID-19 pandemic), 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, 2020 (the "AIF"), in our annual MD&A for financial risks, and in our most recent quarterly MD&A, all of which have been filed on SEDAR. The forward-looking statements contained in this news release 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.

Readers are cautioned that the risks described in the AIF, and in our annual and quarterly MD&A, are not the only risks that could impact the Corporation. We cannot accurately predict the full impact that COVID-19 will have on our business, results of operations, financial condition or the demand for our products and services due to the uncertainties related to the spread of the virus and its variants. Risks and uncertainties not currently known to the Corporation, or currently deemed to be immaterial, may have a material effect on the Corporation's business, financial condition or results of operations.

Additional information, including Wajax's Annual Report, is available on SEDAR at www.sedar.com. 

Wajax Corporation
Management's Discussion and Analysis – Q1 2021

The following management's discussion and analysis ("MD&A") discusses the consolidated financial condition and results of operations of Wajax Corporation ("Wajax" or the "Corporation") for the quarter ended March 31, 2021. This MD&A should be read in conjunction with the information contained in the unaudited condensed consolidated interim financial statements and accompanying notes for the quarter ended March 31, 2021, the annual audited consolidated financial statements and accompanying notes for the year ended December 31, 2020 that are prepared in accordance with International Financial Reporting Standards ("IFRS") and the associated MD&A. Information contained in this MD&A is based on information available to management as of May 3, 2021.

Management is responsible for the information disclosed in this MD&A and the unaudited condensed consolidated interim financial statements and accompanying notes, and has in place appropriate information systems, procedures and controls to ensure that information used internally by management and disclosed externally is materially complete and reliable. Wajax's Board of Directors has approved this MD&A and the unaudited condensed consolidated interim financial statements and accompanying notes. In addition, Wajax's Audit Committee, on behalf of the Board of Directors, provides an oversight role with respect to all public financial disclosures made by Wajax and has reviewed this MD&A and the unaudited condensed consolidated interim financial statements and accompanying notes.

Unless otherwise indicated, all financial information within this MD&A is in millions of Canadian dollars, except ratio calculations, share, share rights and per share data. Additional information, including Wajax's Annual Report and Annual Information Form, are available on SEDAR at www.sedar.com.

Wajax Corporation Overview

Founded in 1858, Wajax (TSX: WJX) is one of Canada's longest-standing and most diversified industrial products and services providers. The Corporation operates an integrated distribution system, providing sales, parts and services to a broad range of customers in diverse sectors of the Canadian economy, including: construction, forestry, mining, industrial and commercial, oil sands, transportation, metal processing, government and utilities, and oil and gas.

Strategic Direction and Outlook

The goal of the One Wajax strategy is to provide customers with access to the Corporation's full range of products and services while delivering a consistently excellent level of customer service. Wajax is focused on delivering a strong experience for its customers and employees through the execution of clear plans in five key areas:

• Investing in the Wajax team - The safety, well-being and engagement of the Corporation's team of approximately 2,680 employees is the foundation of the Corporation.
  
  
• Investing in Wajax customers - The Corporation has the privilege of supporting 32,000 individual customers across Canada ranging from small local contractors to the country's largest industrial and resource organizations.
  
  
• Executing a clear organic growth strategy - The Corporation has organic growth opportunities in each of its Heavy Equipment and Industrial Parts and Services categories. Heavy Equipment categories include construction and forestry, mining, material handling and power systems which collectively serve a broad range of customer capital equipment and related product support needs. Industrial Parts and Services categories include industrial parts and Engineered Repair Services ("ERS") which collectively serve a broad range of customer fixed plant maintenance, repair and reliability needs.
  
  
• Accretive acquisitions strategy - Acquisitions are an important aspect of the Corporation's growth strategy. Primarily, the Corporation focuses on acquisitions that add to the breadth and scale of Industrial Parts and Services. Wajax's national infrastructure and extensive customer relationships position the Corporation as an aggregator in the highly fragmented ERS and related Industrial Parts market. Secondarily, the Corporation considers acquisitions in Heavy Equipment categories where extensions to existing major distribution relationships are enhanced.
  
  
• Investing in the Wajax infrastructure - The Corporation invests in its infrastructure to improve the consistency of customer service and lower costs. The Corporation's current programs include the ongoing consolidation of its branch network, investing in new information systems and implementing Customer Support Centres (each a "CSC") that provide 24/7 customer support in all product and service categories.

In addition to the above and to meet the Corporation's long-term sustainability goals, the Corporation has introduced a more comprehensive sustainability program as outlined below and further discussed in the Corporation's  2020 Annual Report:  

Sustainability Roadmap

Outlook
Recognizing that the challenges Wajax faced in 2020 have persisted into 2021, the Corporation nonetheless enters 2021 with confidence expecting that it is positioned to succeed over the long term. In 2021, Wajax remains focused on the same priorities that guided it in 2020: protecting the health, safety and well-being of its team, providing excellent customer service, protecting the Corporation's financial health and driving its long-term growth strategy.

The Corporation expects revenue associated with the acquisition of Tundra Process Solutions Ltd. ("Tundra") to be a significant contributor to total revenue growth in 2021. In the first quarter, general market conditions affecting organic growth were better than the Corporation's expectations. Wajax will continue to work with its supplier partners to manage 2021 supply chain service levels. Inventory and working capital investments will be managed accordingly pending a clear indication of a sustained recovery.

In the Corporation's heavy equipment categories, Wajax will continue to focus on success in construction and forestry, mining, material handling and power systems, including improvements in product support volumes. Wajax has excellent growth opportunities in these categories and will continue to work closely with its supplier partners to prudently grow market share and capture aftermarket sales.

In industrial parts and ERS, Wajax expects strong growth including the contribution from Tundra. ERS continues to be one of the Corporation's most significant opportunities, capable of growth at each point in the economic cycle.

The Corporation's infrastructure programs are expected to continue in 2021, including investments in branch network consolidation and technology. Following the COVID-19 related delay in 2020, the phased implementation of the Corporation's new ERP system is expected to begin in the second quarter of 2021 and continue over an approximate 24-month timeframe in order to reduce the associated implementation risks.

An update regarding Wajax's response to COVID-19 is set out below.

See the Cautionary Statement Regarding Forward-Looking Information section.

Highlights for the Quarter

• Revenue in the first quarter of 2021 increased $43.1 million, or 12.5%, to $387.1 million, from $344.1 million in the first quarter of 2020. Regionally:
  
  
• Revenue in western Canada of $156.0 million increased 13.5% over the prior year due primarily to higher construction and forestry equipment sales, and higher revenue in the industrial parts and ERS categories. The increase in industrial parts and ERS revenue was due mainly to the acquisition of Calgary, Alberta-based Tundra effective January 22, 2021. These increases were partially offset by lower mining product support revenue. 
• Revenue in central Canada of $81.1 million increased 11.1% over the prior year mainly due to strength in construction and forestry equipment sales. 
• Revenue in eastern Canada of $150.0 million increased 12.3% over the prior year primarily due to higher equipment and product support sales in the construction and forestry category.
  
  
• During the quarter, the Corporation qualified for the Canada Emergency Wage Subsidy ("CEWS") and recognized $6.3 million as a reimbursement of compensation expense with $2.8 million and $3.5 million, respectively, allocated to cost of sales and selling and administrative expenses in proportion to personnel costs recorded in those areas. Approximately $2.5 million of the subsidy was allocated to temporary supplemental compensation programs directed at the Corporation's frontline employees who continue to provide excellent and essential support to customers across Canada. The resultant net pre-tax contribution to earnings of the CEWS recovery in the first quarter was approximately $3.8 million.
  
  
• Gross profit margin of 19.6% in the first quarter of 2021 decreased 0.4% compared to the same period of 2020. Excluding the $2.8 million CEWS recovery discussed above, gross profit margin was 18.9% in the first quarter of 2021, representing a decrease of 1.1% compared to the same period of 2020. The decline in margin was driven primarily by a higher proportion of equipment sales compared to parts and service sales.
  
  
• Selling and administrative expenses as a percentage of revenue decreased 2.7% to 13.9% in the first quarter of 2021 from 16.6% in the same period of 2020. Excluding the $3.5 million CEWS recovery discussed above, selling and administrative expenses as a percentage of revenue decreased 1.8% to 14.8% in the first quarter of 2021. Selling and administrative expenses decreased by $3.5 million compared to the first quarter of 2020, due mainly to cost control initiatives and the $3.5 million recovery of personnel expenses from the CEWS discussed above, partially offset by additional selling and administrative expenses related to Tundra.
  
  
• EBIT increased $10.8 million, or 94.6%, to $22.2 million in the first quarter of 2021 versus $11.4 million in the same period of 2020.⁽¹⁾ The year-over-year increase in EBIT is primarily attributable to increased volumes, cost saving initiatives and the net recovery of personnel expenses from the CEWS, partially offset by a decline in margin due to a higher proportion of equipment sales compared to parts and service sales.
  
  
• The Corporation generated net earnings of $12.5 million, or $0.59 per share, in the first quarter of 2021 versus $4.1 million, or $0.20 per share, in the same period of 2020. The Corporation generated adjusted net earnings of $12.4 million, or $0.59 per share, in the first quarter of 2021 versus $5.8 million, or $0.29 per share, in the same period of 2020.⁽¹⁾
  
  
• Adjusted EBITDA margin increased to 9.0% in the first quarter of 2021 from 7.9% in the same period of 2020.⁽¹⁾
  
  
• The Corporation's backlog at March 31, 2021 of $276.5 million increased $94.8 million, or 52.2%, compared to December 31, 2020, due primarily to higher orders in most categories, most notably the construction and forestry category and the ERS and industrial parts categories with the addition of Tundra's backlog.⁽¹⁾ Compared to March 31, 2020, backlog increased $9.8 million, or 3.7%, due to higher orders in the construction and forestry category and, with the addition of Tundra's backlog, higher orders in the industrial parts and ERS categories. These increases were partially offset by lower mining orders.⁽¹⁾⁽²⁾
  
  
• Total owned and net consignment inventory declined $2.9 million in the first quarter of 2021. Owned inventory of $378.6 million at March 31, 2021 increased $21.2 million from December 31, 2020 due primarily to the acquisition of Tundra and higher mining equipment inventory, partially offset by lower equipment inventory in the construction and forestry category. Net consignment inventory, comprised primarily of construction excavators, declined by $24.1 million to $30.5 million.
  
  
• Working capital of $362.9 million at March 31, 2021 decreased $12.0 million from December 31, 2020, due primarily to lower trade and other receivables and deposits on inventory and higher accounts payable and accrued liabilities, partially offset by higher inventory and cash.⁽¹⁾ Trailing four-quarter average working capital as a percentage of the trailing 12-month sales was 26.0%, a decrease of 1.8% from December 31, 2020, due to the combination of the lower four-quarter average working capital and the higher trailing 12-month sales.⁽¹⁾
  
  
• Cash flows generated from operating activities amounted to $77.2 million in the first quarter of 2021, compared to cash flows used in operating activities of $7.4 million in the same quarter of the previous year. The increase in cash generated of $84.6 million was mainly attributable to an increase in cash generated from changes in non-cash operating working capital of $72.2 million, a decrease in rental equipment additions of $8.6 million and an increase in net earnings of $8.4 million. The increase in cash generated from changes in non-cash operating working capital of $72.2 million was driven primarily by an increase in cash generated from changes in trade and other receivables of $27.5 million, a decrease in cash used in changes in inventory of $21.1 million, and an increase in cash generated from changes in deposits on inventory of $27.1 million.
  
  
• The Corporation's leverage ratio decreased to 2.04 times at March 31, 2021, compared to 2.28 times at December 31, 2020.⁽¹⁾ The decrease in the leverage ratio was due to the higher trailing 12-month pro-forma adjusted EBITDA.⁽¹⁾ The Corporation's senior secured leverage ratio was 1.57 times at March 31, 2021, compared to 1.73 times at December 31, 2020.⁽¹⁾
  
  
• On January 22, 2021, the Corporation acquired all of the issued and outstanding shares of Tundra for total consideration of $99.3 million, consisting of $74.0 million in cash and the issuance of 1,357,142 common shares of Wajax with a fair value of $25.3 million.

Update Regarding COVID-19 Pandemic Response

As health authorities started to take steps to limit the spread of COVID-19 in 2020, the Corporation rapidly implemented protocols, policy changes and technology to better protect its employees, customers and their communities. The table below summarizes the Corporation's four main objectives in managing through this difficult period, and provides an update regarding key actions taken to date in furtherance of these objectives.

Summary of Operating Results

Results of Operations

Revenue Sources

For the three months ended March 31, 2021, revenue increased 12.5%, or $43.1 million, to $387.1 million, from $344.1 million in the same period of 2020. In addition to regional revenue commentary provided previously herein, the following factors contributed to the increase in revenue:

• Equipment sales have increased due mainly to strength in construction and forestry sales across all regions.
  
  
• Product support sales have decreased primarily on lower mining revenue in western Canada, partially offset by higher construction and forestry sales in all regions.
  
  
• Industrial parts sales have increased due mainly to higher bearings and hydraulics sales in eastern Canada and the acquisition of Tundra effective January 22, 2021.
  
  
• ERS sales have increased due primarily to the acquisition of Tundra.

Backlog
Backlog of $276.5 million at March 31, 2021 increased $94.8 million, or 52.2%, compared to December 31, 2020 due to higher orders in most categories, most notably the construction and forestry category and the ERS and industrial parts categories with the addition of Tundra's backlog. The Corporation's backlog at March 31, 2021 of $276.5 million increased $9.8 million, or 3.7%, compared to March 31, 2020 due primarily to higher orders in the construction and forestry category and higher orders in the industrial parts and ERS categories with the addition of Tundra's backlog. These increases were partially offset by lower mining orders.⁽¹⁾

Canada Emergency Wage Subsidy (CEWS)
For the three months ended March 31, 2021, the Corporation recognized $6.3 million as a reimbursement of compensation expense with $2.8 million and $3.5 million, respectively, allocated to cost of sales and selling and administrative expenses in proportion to personnel costs recorded in those areas. Approximately $2.5 million of the subsidy was allocated to temporary supplemental compensation programs directed at the Corporation's frontline employees who continue to provide excellent and essential support to customers across Canada. The resultant net pre-tax contribution to earnings of the CEWS recovery in the first quarter was approximately $3.8 million.

Gross profit
For the three months ended March 31, 2021, gross profit increased $7.2 million, or 10.5%, compared to the same period last year due to increased volumes and the recovery of personnel expenses from the CEWS, partially offset by a higher proportion of equipment sales compared to parts and service sales.

For the three months ended March 31, 2021, gross profit margin of 19.6% decreased 0.4% compared to the same period last year. Excluding the $2.8 million year-to-date CEWS recovery discussed above, gross profit margin was 18.9%, representing a decrease of 1.1% compared to the prior year. The decline in margin was driven primarily by a higher proportion of equipment sales compared to parts and service sales.

Selling and administrative expenses
For the three months ended March 31, 2021, selling and administrative expenses decreased $3.5 million compared to the same period last year. This decrease was due mainly to cost control initiatives and the $3.5 million recovery of personnel expenses from the CEWS discussed above, offset by additional selling and administrative expenses related to Tundra. Selling and administrative expenses as a percentage of revenue decreased to 13.9% in 2021 from 16.6% in 2020. Excluding the CEWS recovery, selling and administrative expenses as a percentage of revenue decreased 1.8% to 14.8% in 2021.

Finance costs
For the three months ended March 31, 2021, finance costs of $5.0 million decreased $0.8 million compared to the same period in 2020 due primarily to lower borrowings under the bank credit facility. See the Liquidity and Capital Resources section.

Income tax expense
The Corporation's effective income tax rate of 27.4% for the three months ended March 31, 2021 was higher compared to the statutory rate of 26.2% due mainly to the impact of expenses not deductible for tax purposes. The Corporation's effective income tax rate of 27.4% for the same period in 2020 was higher compared to the statutory rate of 26.5% due mainly to the impact of expenses not deductible for tax purposes.

Net earnings
For the three months ended March 31, 2021, the Corporation generated net earnings of $12.5 million, or $0.59 per share, compared to $4.1 million, or $0.20 per share, in the same period of 2020. The $8.4 million increase in net earnings resulted primarily from increased volumes, cost saving initiatives and the net recovery of personnel expenses from the CEWS, partially offset by a decline in margin due to a higher proportion of equipment sales compared to parts and service sales.

Adjusted net earnings (See the Non-GAAP and Additional GAAP Measures section)
Adjusted net earnings for the three months ended March 31, 2021 excludes non-cash gains on mark to market of derivative instruments of $0.3 million after-tax, or $0.02 per share (2020 – losses of $1.4 million after-tax, or $0.07 per share), and Tundra transaction costs of $0.3 million after-tax, or $0.01 per share (2020 - nil). Adjusted net earnings in the same period of 2020 also excludes restructuring and other related costs of $0.1 million after-tax, or less than $0.01 per share, and NorthPoint transaction costs of $0.2 million after-tax, or $0.01 per share.

As such, adjusted net earnings increased $6.6 million to $12.4 million, or $0.59 per share, for the three months ended March 31, 2021 from $5.8 million, or $0.29 per share, in the same period of 2020.

Comprehensive income
For the three months ended March 31, 2021, the total comprehensive income of $14.6 million included net earnings of $12.5 million and an other comprehensive gain of $2.1 million. The other comprehensive gain of $2.1 million in the current year resulted primarily from $1.7 million of gains on derivative instruments outstanding at the end of the period designated as cash flow hedges.

Acquisition of Tundra
On January 22, 2021, the Corporation acquired all of the issued and outstanding shares of Calgary, Alberta-based Tundra for an aggregate purchase price of $99.3 million composed of cash consideration of $74.0 million and the issuance of 1,357,142 Wajax common shares with a fair value of $25.3 million. Founded in 1999, Tundra provides maintenance and technical services to customers in the western Canadian midstream oil and gas, oil sands, petrochemical, mining, forestry and municipal sectors. Tundra also distributes a diverse range of industrial process equipment, representing industry-leading manufacturers of valves and actuators, instrumentation and controls, motors and drives, control buildings, boilers and water treatment solutions. Employing approximately 150 people at the time of acquisition, Tundra operates four facilities in Alberta and maintains a sales presence in western Canada. Tundra added revenues of $18.2 million and net earnings of $0.9 million during the three months ended March 31, 2021. Consistent with Wajax's strategy, the acquisition of Tundra is expected to provide meaningful growth in the Corporation's ERS and industrial parts categories. Tundra's operations are complementary to Wajax's existing ERS and industrial parts businesses, adding extensively to its service offering and product portfolio, and further enhancing the "One Wajax" value proposition as macro tailwinds support the potential for a return to pre-COVID-19 activity levels. The acquisition is expected to be immediately accretive to Wajax shareholders in an anticipated range of $0.10 - $0.15 for the 2021 financial year, on an earnings per share basis.

Selected Quarterly Information

The following table summarizes unaudited quarterly consolidated financial data for the eight most recently completed quarters.

Although quarterly fluctuations in revenue and net earnings are difficult to predict, during times of weak resource sector activity, the first quarter will tend to have seasonally lower revenues. However, the project timing of large mining trucks and shovels and power generation packages can shift the revenue and net earnings throughout the year. In addition, the sale of large construction units can also impact revenue due to the seasonality in that industry. Starting in 2020, revenues and net earnings have also been impacted by COVID-19.

Effective January 13, 2020, the Corporation acquired NorthPoint, and effective January 22, 2021, the Corporation acquired Tundra. The results of operations and financial position of these acquired businesses have been included in the figures since the dates of acquisition. The acquisition of NorthPoint facilitated year-over-year growth in the Corporation's ERS revenue when comparing 2020 to 2019, which contributed to weathering the conditions of the COVID-19 pandemic in 2020, adding $36.9 million in incremental revenue and $2.1 million in incremental net earnings in 2020. The acquisition of Tundra facilitated year-over-year growth in the Corporation's ERS and industrial parts revenue when comparing 2021 to 2020, adding $18.2 million in incremental revenue and $0.9 million in incremental net earnings during the first quarter of 2021.

A discussion of Wajax's previous quarterly results can be found in Wajax's quarterly MD&A available on SEDAR at www.sedar.com.

Consolidated Financial Condition

Capital Structure and Key Financial Condition Measures

The Corporation's objective is to manage its working capital and normal-course capital investment programs within a leverage range of 1.5 to 2.0 times and to fund those programs through operating cash flow and its bank credit facilities as required. There may be instances whereby the Corporation is willing to maintain a leverage ratio outside of this range during changes in economic cycles. The Corporation may also maintain a leverage ratio above the stated range as a result of investments in acquisitions and may fund those acquisitions using its bank credit facilities and other debt instruments in accordance with the Corporation's expectations of total future cash flows, financing costs and other factors. The Corporation's leverage ratio is currently just above the target range primarily due to the acquisition of Tundra in the current period, and the adverse effect of COVID-19 on the Corporation's operating results. See the Funded Net Debt section.

Shareholders' Equity

The Corporation's shareholders' equity at March 31, 2021 of $360.4 million increased $34.8 million from December 31, 2020, due primarily to net earnings of $12.5 million and shares issued to acquire Tundra of $25.3 million.

The Corporation's share capital included in shareholders' equity on the condensed consolidated interim statements of financial position, consists of:

At the date of this MD&A, the Corporation had 21,409,323 common shares issued and outstanding, net of shares held in trust.

At March 31, 2021, Wajax had four share-based compensation plans; the Wajax Share Ownership Plan (the "SOP"), the Directors' Deferred Share Unit Plan (the "DDSUP"), the Mid-Term Incentive Plan for Senior Executives (the "MTIP") (with MTIP awards being composed of performance share units ("PSUs") and restricted share units ("RSUs")) and the Deferred Share Unit Plan (the "DSUP").

As of March 31, 2021, there were 490,835 SOP and DDSUP (treasury share rights plans) rights outstanding of which 461,644 rights were vested, 301,045 MTIP PSUs and equity-settled DSUP (market-purchased share rights plans) rights outstanding of which 25,226 rights were vested, and 633,935 MTIP RSUs and cash-settled DSUP (cash-settled rights plans) rights outstanding of which 122,431 rights were vested. Depending on the actual level of achievement of the performance targets associated with the outstanding MTIP PSUs, the number of market-purchased shares required to satisfy the Corporation's obligations could be higher or lower.

Wajax recorded compensation expense of $2.1 million for the three months ended March 31, 2021 (2020 - expense of $0.1 million) in respect of these plans.

Funded Net Debt (See the Non-GAAP and Additional GAAP Measures section)

Funded net debt of $229.1 million at March 31, 2021 increased $9.5 million compared to $219.6 million at December 31, 2020. The increase during the quarter was due primarily to the $73.4 million in cash paid as part of the consideration to acquire Tundra, the payment of lease liabilities of $6.7 million and dividends paid of $5.0 million, offset partially by cash generated from operating activities of $77.2 million.

The Corporation's ratio of funded net debt to total capital decreased to 38.9% at March 31, 2021 from 40.3% at December 31, 2020, primarily due to the share issuance in the current period as part of the consideration for the acquisition of Tundra.

The Corporation's leverage ratio of 2.04 times at March 31, 2021 decreased from the December 31, 2020 ratio of 2.28 times due to the higher trailing 12-month pro-forma adjusted EBITDA. See the Non-GAAP and Additional GAAP Measures section.

See the Liquidity and Capital Resources section.

Financial Instruments

Wajax uses derivative financial instruments in the management of its foreign currency, interest rate and share-based compensation exposures. Wajax policy restricts the use of derivative financial instruments for trading or speculative purposes. 

Wajax monitors the proportion of variable rate debt to its total debt portfolio and may enter into interest rate hedge contracts to mitigate a portion of the interest rate risk on its variable rate debt. A change in interest rates, in particular related to the Corporation's unhedged variable rate debt, is not expected to have a material impact on the Corporation's results of operations or financial condition over the long term.

Wajax has entered into interest rate hedge contracts to minimize exposure to interest rate fluctuations on its variable rate debt. All interest rate hedge contracts are recorded in the unaudited condensed consolidated interim financial statements at fair value. As at March 31, 2021, Wajax had the following interest rate hedge contracts outstanding:

• $150.0 million, expiring in November 2024, with a weighted average interest rate of 2.12% (December 31, 2020 - $150.0 million, expiring in November 2024, with a weighted average interest rate of 2.12%)

Wajax enters into foreign exchange forward contracts to hedge the exchange risk associated with the cost of certain inbound inventory and foreign currency-denominated sales to customers along with the associated receivables as part of its normal course of business. As at March 31, 2021, Wajax had the following contracts outstanding:

• to buy U.S. $47.0 million (December 31, 2020 – to buy U.S. $45.9 million),
• to buy Euro €0.6 million (December 31, 2020 - to buy Euro €0.1 million),
• to buy AUD $0.1 million (December 31, 2020 - nil),
• to sell U.S. $28.3 million (December 31, 2020 – to sell U.S. $32.2 million), and
• to sell Euro €1.0 million (December 31, 2020 – to sell €0.9 million).

The U.S. dollar contracts expire between April 2021 and December 2022, with an average U.S./Canadian dollar rate of 1.2831.

The Euro contracts expire between April 2021 and December 2022, with an average Euro/Canadian dollar rate of 1.5286.

The AUD contracts expire in June 2021, with an average AUD/Canadian dollar rate of 0.9787.

Wajax has entered into total return swap contracts to hedge the exposure to share price market risk on a class of MTIP rights that are cash-settled. All total return swap contracts are recorded in the unaudited condensed consolidated interim financial statements at fair value. As at March 31, 2021, Wajax had the following total return swap contracts outstanding:

• contracts totaling 390,000 shares at an initial share value of $6.6 million (December 31, 2020 - contracts totaling 387,000 shares at an initial share value of $7.2 million)

The total return swap contracts expire between March 2022 and March 2024.

Contractual Obligations

There have been no material changes to the Corporation's contractual obligations since December 31, 2020. See the Liquidity and Capital Resources section.

Off Balance Sheet Financing

It is likely but not reasonably certain that existing leases will be renewed or replaced, resulting in lease commitments being sustained at current levels. In the alternative, Wajax may incur capital expenditures to acquire equivalent capacity.

The Corporation had $30.5 million (December 31, 2020 – $54.6 million) of consigned inventory on hand from a major manufacturer at March 31, 2021, net of deposits of $23.3 million (December 31, 2020 – $42.3 million). In the normal course of business, Wajax receives inventory on consignment from this manufacturer which is generally sold or rented to customers or purchased by Wajax. Under the terms of the consignment program, Wajax is required to make periodic deposits to the manufacturer on the consigned inventory that is rented to Wajax customers or on-hand for greater than nine months. This consigned inventory is not included in Wajax's inventory as the manufacturer retains title to the goods. In the event the inventory consignment program was terminated, Wajax would utilize interest free financing, if any, made available by the manufacturer and/or utilize capacity under its credit facility to finance the purchase of inventory.

Although management currently believes Wajax has adequate debt capacity, Wajax would have to access the equity or debt capital markets, or reduce dividends to accommodate any shortfalls in Wajax's credit facility. See the Liquidity and Capital Resources section.

Liquidity and Capital Resources

The Corporation's liquidity is maintained through various sources, including bank and non-bank credit facilities, debentures and cash generated from operations.

Bank and Non-bank Credit Facilities and Debentures

Wajax has a $450.0 million bank credit facility, of which $400.0 million matures October 1, 2024 and is composed of a non-revolving term facility and a revolving term facility, and $50.0 million matures December 30, 2022 and represents a non-revolving acquisition term facility. On January 22, 2021, the Corporation utilized the $50.0 million non-revolving acquisition term facility to finance the acquisition of Tundra. The remaining cash portion of the purchase price was financed with the revolving term facility.

At March 31, 2021, Wajax had borrowed $203.9 million and issued $11.8 million of letters of credit for a total utilization of $215.7 million of its $450.0 million bank credit facility. Borrowing capacity under the bank credit facility is dependent on the level of inventories on-hand and outstanding trade accounts receivables. At March 31, 2021, borrowing capacity under the bank credit facility was equal to $411.0 million, of which $195.3 million was accessible to the Corporation.

The bank credit facility contains customary restrictive covenants, including limitations on the payment of cash dividends and an interest coverage maintenance ratio, all of which were met as at March 31, 2021. In particular, the Corporation is restricted from declaring dividends in the event the Corporation's senior secured leverage ratio, as defined in the bank credit facility agreement, exceeds 4.0 times. At March 31, 2021, the Corporation's senior secured leverage ratio was 1.57 times.

Borrowings under the bank credit facility bear floating rates of interest at margins over Canadian dollar bankers' acceptance yields, U.S. dollar LIBOR rates or prime. Margins on the facility depend on the Corporation's leverage ratio at the time of borrowing and range between 1.5% and 3.0% for Canadian dollar bankers' acceptances and U.S. dollar LIBOR borrowings, and 0.5% and 2.0% for prime rate borrowings under the non-revolving and revolving term facilities. Margins on the non-revolving acquisition term facility range between 1.7% and 3.3% for Canadian dollar bankers' acceptances and U.S. dollar LIBOR borrowings, and 0.7% and 2.3% for prime rate borrowings.

In addition, Wajax had $57.0 million of senior unsecured debentures outstanding at March 31, 2021, bearing interest at a rate of 6.00% per annum, payable semi-annually and maturing on January 15, 2025. The debentures will not be redeemable before January 15, 2023 (the "First Call Date"), except upon the occurrence of a change of control of the Corporation in accordance with the terms of the indenture governing the debentures (the "Indenture"). On and after the First Call Date and prior to January 15, 2024, the debentures will be redeemable in whole or in part from time to time at the Corporation's option at a redemption price equal to 103.0% of the principal amount of the debentures redeemed plus accrued and unpaid interest, if any, up to but excluding the date set for redemption. On and after January 15, 2024 and prior to the maturity date, the debentures will be redeemable, in whole or in part, from time to time at the Corporation's option at par plus accrued and unpaid interest, if any, up to but excluding the date set for redemption. The Corporation shall provide not more than 60 nor less than 30 days' prior notice of redemption of the debentures.

The Corporation will have the option to satisfy its obligation to repay the principal amount of the debentures due at redemption or maturity by issuing and delivering that number of freely tradeable common shares determined in accordance with the terms of the Indenture. The debentures will not be convertible into common shares at the option of the holders at any time.

Under the terms of the bank credit facility, Wajax is permitted to have additional interest bearing debt of $25.0 million. As such, Wajax has up to $25.0 million of demand inventory equipment financing capacity with two non-bank lenders. At March 31, 2021, Wajax had no utilization of the interest bearing equipment financing facilities.

In addition, the Corporation has an agreement with a financial institution to sell 100% of selected accounts receivable on a recurring, non-recourse basis. Under this facility, up to $20.0 million of accounts receivable is permitted to be sold to the financial institution and can remain outstanding at any point in time. After the sale, Wajax does not retain any interests in the accounts receivable, but continues to service and collect the outstanding accounts receivable on behalf of the financial institution. At March 31, 2021, the Corporation continues to service and collect $10.1 million in accounts receivable on behalf of the financial institution.

As at March 31, 2021, $195.3 million was accessible under the bank facility and $25.0 million was unutilized under the non-bank facilities. As of May 3, 2021, Wajax continues to maintain its $450.0 million bank credit facility and an additional $25.0 million in credit facilities with non-bank lenders. Wajax maintains sufficient liquidity to meet short-term normal course working capital and maintenance capital requirements and certain strategic investments. However, Wajax may be required to access the equity or debt capital markets to fund significant acquisitions.

The Corporation's tolerance to interest rate risk decreases/increases as the Corporation's leverage ratio increases/decreases. At March 31, 2021, $204.8 million of the Corporation's funded net debt, or 89.4%, was at a fixed interest rate which is within the Corporation's interest rate risk policy.

Cash Flow

The following table highlights the major components of cash flow as reflected in the Condensed Consolidated Interim Statements of Cash Flows:

Operating Activities
Cash flows generated from operating activities amounted to $77.2 million in the first quarter of 2021, compared to cash flows used in operating activities of $7.4 million in the same quarter of the previous year. The increase in cash generated of $84.6 million was mainly attributable to an increase in cash generated from changes in non-cash operating working capital of $72.2 million, a decrease in rental equipment additions of $8.6 million and an increase in net earnings of $8.4 million. The increase in cash generated from changes in non-cash operating working capital of $72.2 million was driven primarily by an increase in cash generated from changes in trade and other receivables of $27.5 million, a decrease in cash used in changes in inventory of $21.1 million, and an increase in cash generated from changes in deposits on inventory of $27.1 million.

Rental equipment additions in the first quarter of 2021 of $0.8 million (2020 – $9.4 million) related primarily to material handling lift trucks.

Changes in significant components of non-cash operating working capital include the following:

Significant components of the changes in non-cash operating working capital for the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020 are as follows:

• Trade and other receivables decreased $40.2 million in the first quarter of 2021 when excluding the trade and other receivables acquired from Tundra of $24.7 million, compared to a decrease of $12.6 million in the same period of 2020. The decrease in the first quarter of 2021 resulted primarily from strong collections and the collection of a receivable balance for a large mining shovel. The decrease in 2020 resulted primarily from lower sales activity in the quarter compared to the previous quarter.
  
  
• Inventory increased $1.0 million in the first quarter of 2021 compared to an increase of $22.1 million in the same period of 2020. The increase in 2020 was due primarily to higher equipment inventory in the construction and forestry and mining categories, including the receipt of a large mining shovel at the end of the quarter.
  
  
• Deposits on inventory decreased $18.4 million in the first quarter of 2021 compared to an increase of $8.7 million in the same period of 2020. The decrease in the first quarter of 2021 resulted from the sale of older consignment inventory for which the Corporation had made deposits. The increase in 2020 was due primarily to increased deposits related to consignment inventory being held in excess of nine months.
  
  
• Accounts payable and accrued liabilities increased $6.9 million in the first quarter of 2021 compared to a decrease of $9.1 million in the same period of 2020. The increase in the first quarter of 2021 resulted primarily from higher trade payables and higher payroll, bonuses and incentives accruals. The decrease in 2020 resulted primarily from payments on certain large supplier payable balances and lower accrued liabilities, partially offset by the receipt of a large mining shovel at the end of the quarter.
  
  
• Contract liabilities decreased $3.1 million in the first quarter of 2021 compared to an increase of $11.3 million in the same period of 2020. The increase in 2020 resulted primarily from a deposit received in the quarter on a large mining equipment order not yet delivered.

Investing Activities
The Corporation used $74.5 million of cash in investing activities in the first quarter of 2021 compared to cash used in investing activities of $19.3 million in the same quarter of 2020. During the first quarter of 2021, Wajax invested $1.0 million in property, plant and equipment additions, consistent with 2020. Intangible assets additions of $0.7 million (2020 - $1.0 million) during the first quarter of 2021 resulted primarily from software additions relating to the Corporation's new ERP system. During the first quarter of 2021, Wajax invested $73.4 million in the acquisition of Tundra, net of cash acquired of $0.6 million (2020 - $17.6 million in the acquisition of NorthPoint, net of cash acquired of $1.4 million).

Financing Activities
The Corporation generated $18.7 million of cash from financing activities in the first quarter of 2021 compared to cash generated from financing activities of $17.5 million in the same quarter of 2020. Financing activities in the quarter included a net bank credit facility borrowing of $30.9 million (2020 – net borrowing of $28.8 million), dividends paid to shareholders of $5.0 million (2020 – $5.0 million) and payment of lease liabilities of $6.7 million (2020 – $6.0 million).

Dividends

Dividends to shareholders were declared and payable to shareholders of record as follows:

On May 3, 2021, the Corporation declared a dividend of $0.25 per share for the second quarter of 2021 payable on July 6, 2021 to shareholders of record on June 15, 2021.

Critical Accounting Estimates

The preparation of the unaudited condensed consolidated interim financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenue and expenses. Critical accounting estimates are those that require management to make assumptions about matters that are highly uncertain at the time the estimate or assumption is made. Critical accounting estimates are also those that could potentially have a material impact on the Corporation's financial results were a different estimate or assumption used.

Estimates and underlying assumptions are reviewed on an ongoing basis. These estimates and assumptions are subject to change at any time based on experience and new information. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

On March 11, 2020, the World Health Organization declared the novel coronavirus a global pandemic. With the majority of governments worldwide declaring a state of emergency in response to the COVID-19 pandemic, any estimate of the length and severity of these developments is therefore subject to significant uncertainty, and accordingly estimates of the extent to which the COVID-19 pandemic may materially and adversely affect the Corporation's operations, financial results and condition in future periods are also subject to significant uncertainty. Therefore, uncertainty about judgements, estimates and assumptions made by management during the preparation of the Corporation's unaudited condensed consolidated interim financial statements related to the potential impacts of the COVID-19 outbreak on revenue, expenses, assets, liabilities, and note disclosures could result in a material adjustment to the carrying value of the asset or liability affected.

The key assumptions concerning the future and other key sources of estimation uncertainty that have a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities within the next fiscal year are as follows:

Allowance for credit losses
The Corporation is exposed to credit risk with respect to its trade and other receivables, and COVID-19 has increased the measurement uncertainty with respect to the determination of the allowance for expected credit losses. However, this is partially mitigated by the Corporation's diversified customer base of over 32,000 customers, with no one customer accounting for more than 10% of the Corporation's annual consolidated sales, which covers many business sectors across Canada. In addition, the Corporation's customer base spans large public companies, small independent contractors, original equipment manufacturers and various levels of government. The Corporation follows a program of credit evaluations of customers and limits the amount of credit extended when deemed necessary. The Corporation maintains an allowance for possible credit losses, and any such losses to date have been within management's expectations. The allowance for credit losses is determined by estimating the lifetime expected credit losses, taking into account the Corporation's past experience of collecting payments as well as observable changes in and forecasts of future economic conditions that correlate with default on receivables. At the point when the Corporation is satisfied that no recovery of the amount owing is possible, the amount is considered not recoverable and the financial asset is written off. The $3.5 million allowance for credit losses at March 31, 2021 decreased $0.1 million from $3.6 million at December 31, 2020. As economic conditions change, there is risk that the Corporation could experience a greater number of defaults compared to prior periods which would result in an increased charge to earnings.

Inventory obsolescence
The value of the Corporation's new and used equipment and high value parts are evaluated by management throughout the year, on a unit-by-unit basis considering projected customer demand, future market conditions, and other considerations evaluated by management. When required, provisions are recorded to ensure that the book value of equipment and parts are valued at the lower of cost or estimated net realizable value. The Corporation performs an aging analysis to identify slow moving or obsolete lower value parts inventory and estimates appropriate obsolescence provisions related thereto. The Corporation takes advantage of supplier programs that allow for the return of eligible parts for credit within specified time periods. The inventory obsolescence impact on earnings for the three months ended March 31, 2021 was a charge of $0.4 million (2020 – charge of $1.0 million). As economic conditions change, there is risk that the Corporation could have an increase in inventory obsolescence compared to prior periods which would result in an increased charge to earnings.

Goodwill and intangible assets
The value in use of goodwill and intangible assets has been estimated using the forecasts prepared by management for the next five years. The key assumptions for the estimate are those regarding revenue growth, EBITDA margin, discount rate and the level of working capital required to support the business. These estimates are based on past experience and management's expectations of future changes in the market and forecasted growth initiatives.

Unanticipated changes in management's assumptions or estimates could materially affect the determination of the fair value of the Corporation and therefore, could reduce or eliminate the excess of fair value over the carrying value of a Corporation and could potentially result in an impairment charge in the future.

The Corporation performs an annual impairment test of its goodwill and intangible assets unless there is an early indication that the assets may be impaired in which case the impairment tests would occur earlier. There was no early indication of impairment in the quarter ended March 31, 2021.

Lease term of contracts with renewal options 
The lease term is defined as the non-cancellable term of the lease, including any periods covered by a renewal option to extend the lease if it is reasonably certain that the renewal option will be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain that the termination option will not be exercised.

Judgement is used when evaluating whether the Corporation is reasonably certain that the lease renewal option will be exercised, including examining any factors that may provide an economic incentive for renewal. In the event of a significant event within the Corporation's control that could affect its ability to exercise the renewal option, the lease term will be reassessed.

Changes in Accounting Policies

During the period, the Corporation did not adopt any new accounting standards or amendments that had an impact on the Corporation's unaudited condensed consolidated interim financial statements.

Accounting standards and amendments issued but not yet adopted

• Amendments to IAS 1, Presentation of Financial Statements (effective January 1, 2023) clarify the classification of liabilities as current or non-current. For the purposes of non-current classification, the amendments remove the requirement for a right to defer settlement of a liability for at least twelve months to be unconditional. Instead, such a right must have substance and exist at the end of the reporting period in order to qualify for non-current classification. Management is currently assessing the impact of adopting these amendments on its financial statements.

Risk Management and Uncertainties

As with most businesses, the Corporation is subject to a number of marketplace and industry related risks and uncertainties which could have a material impact on operating results and the Corporation's ability to pay cash dividends to shareholders. The Corporation attempts to minimize many of these risks through diversification of core businesses and through the geographic diversity of its operations. In addition, the Corporation has adopted an annual enterprise risk management assessment which is prepared by senior management and overseen by the Board of Directors and committees of the Board of Directors. The enterprise risk management framework sets out principles and tools for identifying, evaluating, prioritizing and managing risk effectively and consistently across the Corporation. There are however, a number of risks that deserve particular comment which are discussed in detail in the MD&A for the year ended December 31, 2020 which can be found on SEDAR at www.sedar.com.

Disclosure Controls and Procedures and Internal Control over Financial Reporting

Wajax's management, under the supervision of its Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), is responsible for establishing and maintaining disclosure controls and procedures ("DC&P") and internal control over financial reporting ("ICFR").

As at March 31, 2021, Wajax's management, under the supervision of its CEO and CFO, had designed DC&P to provide reasonable assurance that information required to be disclosed by Wajax in annual filings, interim filings or other reports filed or submitted under applicable securities legislation is recorded, processed, summarized and reported within the time periods specified in such securities legislation. DC&P are designed to ensure that information required to be disclosed by Wajax in annual filings, interim filings or other reports filed or submitted under applicable securities legislation is accumulated and communicated to Wajax's management, including its CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

As at March 31, 2021, Wajax's management, under the supervision of its CEO and CFO, had designed ICFR to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. In completing the design, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in its 2013 version of Internal Control – Integrated Framework. With regard to general controls over information technology, management also used the set of practices of Control Objectives for Information and related Technology created by the IT Governance Institute. The Corporation has excluded from its evaluation the ICFR of Tundra, which was acquired effective January 22, 2021, as discussed in Note 4 of the unaudited condensed consolidated interim financial statements and accompanying notes for the period ended March 31, 2021. The total revenue subject to Tundra's ICFR represented 4.7% of the Corporation's consolidated total revenue for the three months ended March 31, 2021. The total assets subject to Tundra's ICFR represented 5.1% of the Corporation's consolidated total assets as at March 31, 2021.

There was no change in Wajax's ICFR that occurred during the three months ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, Wajax's ICFR.

Non-GAAP and Additional GAAP Measures

The MD&A 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:

Non-GAAP financial measures are identified and defined below:

Reconciliation of the Corporation's net earnings to adjusted net earnings and adjusted basic and diluted earnings per share is as follows:

Reconciliation of the Corporation's net earnings to EBT, EBIT, EBITDA, Adjusted EBITDA and Pro-forma adjusted EBITDA is as follows:

Calculation of the Corporation's funded net debt, debt, leverage ratio and senior secured leverage ratio is as follows:

Cautionary Statement Regarding Forward-Looking Information

This MD&A 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. To the extent any forward-looking information in this MD&A constitutes future-oriented financial information or financial outlook within the meaning of applicable securities law, such information is being provided to demonstrate the potential of the Corporation and readers are cautioned that this information may not be appropriate for any other purpose. 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 MD&A are made as of the date of this MD&A, 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 MD&A includes forward looking statements regarding, among other things, the main elements of our One Wajax strategy, including our focus on executing clear plans in five important areas: investments in our team, investments in our customers, executing our organic growth strategy, our accretive acquisition strategy and investments in our infrastructure; our introduction of a more comprehensive sustainability program and the achievement of targets and goals related to employee health, safety and wellness, training and development, diversity and equal opportunity, sustainable products and services, environmental responsibility, governance and community; our expectation that, despite the challenges of 2020 carrying over into 2021, we are positioned to succeed over the longer term; our main objectives in managing our business through the COVID-19 pandemic; our expectation that Tundra will be a significant contributor to our total revenue growth in 2021; our plan to prudently manage inventory and working capital investments pending a clear indication of a sustained recovery; with respect to our key product and services categories, our plans to continue our focus on success in construction and forestry, mining, material handling and power systems, and our belief that we have excellent opportunities in these categories; our expectation that our industrial parts and ERS categories will yield strength growth, including the contribution of Tundra, and that ERS continues to be one of Wajax's most significant opportunities; our expectation that our key infrastructure programs will continue in 2021, including investments in branch consolidation and technology; our plans to begin implementing our new ERP system in the second quarter of 2021 and our plans to minimize the associated implementation risks; our intention to manage owned and consignment equipment inventory levels in accordance with market conditions in 2021; our expectation that the proceeds of our real estate monetization program will be used for debt reduction; our expectation that Tundra will provide meaningful growth in our ERS and industrial parts categories and that the acquisition of Tundra will be immediately accretive to shareholders in an anticipated range of $0.10 - $0.15 for the 2021 financial year on an earnings per share basis; our objective of maintaining a target leverage ratio range of 1.5 - 2.0 times unless a leverage ratio outside such range is required to support acquisitions or fluctuations in working capital levels during changes in economic cycles; our expectation that the impact of changes in interest rates (in particular, related to unhedged variable rate debt) will not have a material impact on our results of operations or financial condition over the longer term; the adequacy of our debt capacity and sufficiency of our debt facilities; our intention and ability to access debt and equity markets or reduce dividends should additional capital be required, including the potential that we may access equity or debt markets to fund significant acquisitions; and our financing, working and maintenance capital requirements, as well as our capital structure and leverage ratio. These statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, our ability to successfully manage our business through the COVID-19 pandemic and actions taken by governments, public authorities, suppliers and customers in response to the novel coronavirus and its variants; 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; our ability to execute our updated Strategic Plan, including our ability to develop our core capabilities, execute our organic growth priorities, complete and effectively integrate acquisitions, such as NorthPoint and Tundra, and to successfully implement new information technology platforms, systems and software, such as our new ERP system; 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, the geographic spread and ultimate impact of the COVID-19 virus and its variants, and the duration of the coronavirus pandemic; the duration and severity of travel, business and other restrictions imposed by governments and public authorities in response to COVID-19, as well as other measures that may be taken by such authorities; actions taken by our suppliers customers in relation to the COVID-19 pandemic, including slowing, reducing or halting operations; a continued or prolonged deterioration in general business and economic conditions (including as a result of the COVID-19 pandemic); 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 (including disruptions caused by the COVID-19 pandemic), 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 this MD&A under the heading "Risk Management and Uncertainties" and in our Annual Information Form for the year ended December 31, 2020 (the "AIF"), and in our annual MD&A for financial risks, each of which have been filed on SEDAR. The forward-looking statements contained in this MD&A 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.

Readers are cautioned that the risks described in the AIF, and in our annual MD&A, are not the only risks that could impact the Corporation. We cannot accurately predict the full impact that COVID-19 will have on our business, results of operations, financial condition or the demand for our products and services due to the uncertainties related to the spread of the virus and its variants. Risks and uncertainties not currently known to the Corporation, or currently deemed to be immaterial, may have a material effect on the Corporation's business, financial condition or results of operations.

Additional information, including Wajax's Annual Report, are available on SEDAR at www.sedar.com.

W A J A X   C O R P O R A T IO N
C O N D E N S E D   C O N S O L I D A T E D   I N T E R I M   S T A T E M E N T S   O F
F I N A N C I A L   P O S I T I O N

W A J A X   C O R P O R A T I O N
C O N D E N S E D   C O N S O L I D A T E D   I N T E R I M   S T A T E M E N T S   O F
E A R N I N G S

W A J A X   C O R P O R A T I O N
C O N D E N S E D   C O N S O L I D A T E D   I N T E R I M   S T A T E M E N T S   O F
C O M P R E H E N S I V E   I N C O M E

See accompanying notes to unaudited condensed consolidated interim financial statements.

W A J A X   C O R P O R A T I O N
C O N D E N S E D   C O N S O L I D A T E D   I N T E R I M   S T A T E M E N T S   O F
C H A N G E S   I N   S H A R E H O L D E R S '   E Q U I T Y

W A J A X   C O R P O R A T I O N
C O N D E N S E D   C O N S O L I D A T E D   I N T E R I M   S T A T E M E N T S   O F
C H A N G E S   I N   S H A R E H O L D E R S '   E Q U I T Y

See accompanying notes to unaudited condensed consolidated interim financial statements.

W A J A X   C O R P O R A T I O N
C O N D E N S E D   C O N S O L I D A T E D   I N T E R I M   S T A T E M E N T S   O F
C A S H   F L O W S

W A J A X    C O R P O R A T I O N
N O T E S   T O   C O N D E N S E D   C O N S O L I D A T E D   I N T E R I M
F I N A N C I A L   S T A T E M E N T S

March 31, 2021
(unaudited, amounts in thousands of Canadian dollars, except share and per share data)

1. COMPANY PROFILE

Wajax Corporation (the "Corporation") is incorporated in Canada. The address of the Corporation's registered head office is 2250 Argentia Road, Mississauga, Ontario, Canada. The Corporation operates an integrated distribution system, providing sales, parts and services to a broad range of customers in diversified sectors of the Canadian economy, including: construction, forestry, mining, industrial and commercial, oil sands, transportation, metal processing, government and utilities, and oil and gas.

2. BASIS OF PREPARATION

Statement of compliance
These unaudited condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting and do not include all of the disclosures required for annual consolidated financial statements. Accordingly, these unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements of the Corporation for the year ended December 31, 2020. The significant accounting policies follow those disclosed in the most recently reported audited consolidated financial statements.

These unaudited condensed consolidated interim financial statements were authorized for issue by the Board of Directors on May 3, 2021.

3. CHANGE IN ACCOUNTING POLICIES

During the period, the Corporation did not adopt any new accounting standards or amendments that had an impact on the Corporation's unaudited condensed consolidated interim financial statements.

4. ACQUISITION OF BUSINESS

Tundra Process Solutions Ltd. ("Tundra")

On January 22, 2021, the Corporation acquired all of the issued and outstanding shares of Calgary, Alberta-based Tundra. Founded in 1999, Tundra provides maintenance and technical services to customers in the western Canadian midstream oil and gas, oil sands, petrochemical, mining, forestry and municipal sectors. Tundra also distributes a diverse range of industrial process equipment, representing industry-leading manufacturers of valves and actuators, instrumentation and controls, motors and drives, control buildings, boilers and water treatment solutions.

The acquisition was accounted for as a business combination using the acquisition method whereby the net assets acquired were recorded at fair value. Final valuations of certain items, including intangibles, are not yet complete, due to the timing of the acquisition and the inherent complexity associated with valuations. Therefore, the purchase price allocation is preliminary and subject to adjustment on completion of the valuation process and finalization of working capital adjustments.

The following table summarizes the acquisition-date fair value of each major class of consideration transferred, the recognized amounts of the identifiable assets acquired and liabilities assumed, and the resulting value of goodwill:

Net cash outflow for the acquisition was $73,426, as $597 of cash was acquired as part of Tundra's net assets.

Trade and other receivables represents gross contractual amounts receivable of $24,902 less management's best estimate of the allowance for credit losses of $177.

The fair value of common shares transferred as consideration is based on the Corporation's quoted share price on the date of acquisition, which was $18.61 per share.

Goodwill arising from the acquisition is attributable mainly to the ability to leverage the assembled workforce, industry knowledge, future growth and the potential to realize synergies in the form of cost savings. The goodwill recorded on the acquisition of Tundra is not deductible for income tax purposes.

Tundra revenues of $18,212 and net earnings of $879 were included in the condensed consolidated interim statements of earnings from the date of acquisition to March 31, 2021. Had the acquisition of Tundra occurred on January 1, 2021, the consolidated revenue would have increased by $5,449 and the consolidated net earnings would have increased by $145 for the three months ended March 31, 2021.

Tundra transaction costs, primarily for advisory services, were $405 for the three months ended March 31, 2021 and were included in selling and administrative expenses in the condensed consolidated interim statements of earnings. Additionally, Tundra transaction costs of $1,041 were recognized during the fourth quarter of 2020 in selling and administrative expenses.

5. TRADE AND OTHER RECEIVABLES

The Corporation's trade and other receivables consist of trade accounts receivable from customers and other accounts receivable, generally from suppliers for warranty and rebates. Trade and other receivables are comprised of the following:

6. CONTRACT ASSETS AND LIABILITIES

The following table provides information about contract assets and contract liabilities from contracts with customers:

The contract assets primarily relate to the Corporation's rights to consideration for work completed but not billed at the reporting date on product support and engineered repair services ("ERS") revenue. The contract assets are transferred to receivables when billed upon completion of significant milestones. The contract liabilities primarily relate to the advance consideration received from customers on equipment sales, industrial parts, and ERS revenue, for which revenue is recognized when control transfers to the customer.

7. INVENTORY

The Corporation's inventory balance consists of the following:

All amounts shown are net of obsolescence provisions of $28,947 (December 31, 2020 - $28,144).

As at March 31, 2021, the Corporation has included $55,209 (December 31, 2020 - $41,815) in equipment inventory related to short-term rental contracts that are expected to convert to equipment sales within a six to twelve month period.

Substantially all of the Corporation's inventory is pledged as security for the bank credit facility.

Deposits on inventory in the condensed consolidated interim statements of financial position, amounting to $25,763 as at March 31, 2021 (December 31, 2020 - $44,197), represents deposits and other required periodic payments on equipment held on consignment. These payments reduce the collateral value of the equipment and therefore the ultimate amount owing to the supplier upon eventual purchase. Upon sale of the equipment to a customer, the Corporation is required to purchase the equipment in full from the supplier.

8. PROPERTY, PLANT AND EQUIPMENT & RENTAL EQUIPMENT

The Corporation's property, plant and equipment balance at March 31, 2021 is $44,919 (December 31, 2020 - $41,371). The Corporation acquired property, plant and equipment with a cost of $1,043 during the quarter (2020 - $1,006), net of property, plant and equipment acquired through business acquisitions of  $4,329 (2020 - $3,409). Assets with a carrying amount of $52 during the quarter (2020 - $119) were disposed of, resulting in a gain on disposal of $106 (2020 - gain of $35). During the quarter, the Corporation recognized depreciation of property, plant and equipment of $1,809 (2020 - $1,828).

The Corporation's rental equipment balance at March 31, 2021 is $51,237 (December 31, 2020 - $56,901). The Corporation acquired rental equipment with a cost of $765 during the quarter (2020 - $9,364). Rental equipment with a carrying amount of $2,486 during the quarter (2020 - $4,496) was disposed of. The Corporation recognized depreciation of rental equipment of $3,943 during the quarter (2020 - $5,129).

9. RIGHT-OF-USE ASSETS

The Corporation's right-of-use assets balance at March 31, 2021 is $139,078 (December 31, 2020 - $131,733). The Corporation recognized net right-of-use assets additions of $8,230 during the quarter (2020 - $2,301). In addition, the Corporation acquired right-of-use assets through business acquisitions of $5,639 (2020 - $12,926).

During the quarter, the Corporation recognized depreciation of right-of-use assets of $6,487 (2020 - $5,913).

10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities are comprised of the following:

Supplier payables with extended terms relate to equipment purchases from suppliers with payment terms ranging anywhere from approximately 60 days to 8 months.

11. PROVISIONS AND CONTINGENCIES