Wajax Corp

TSX:WJX

Earnings Call Transcript 2019-Q2

[Operator]

Thank you for attending the Wajax Corporation's 2019 Second Quarter Results Webcast. On today's webcast will be Mark Foote, Wajax President and Chief Executive Officer; Mr. Stuart Auld, Senior Vice President, Finance and Chief Financial Officer; and Mr. Trevor Carson, VP, Financial Planning and Risk Management. Please be advised that this webcast is being recorded. Please note this webcast contains forward-looking statements. Actual future results may differ from expected results. I will now turn the call over to Trevor Carson.

[Trevor Carson]

Thank you, operator. Good afternoon, everyone, and thank you for participating in our second quarter results call. This afternoon, we will be following a webcast, which includes a summary presentation of Wajax' Q2 2019 financial results. The presentation can be found on our website under Investor Relations, Events & Presentations. To begin, I would like to draw your attention to our cautionary statement regarding forward-looking information on Slide 2. Additionally, non-GAAP and additional GAAP measures are summarized on Slides 13 through 20 for your reference. At this point, please turn to Slide 3, and I'll turn the call over to Mark.

[A. Mark Foote, President, CEO & Director]

Thank you, Trevor. I'll provide highlights on our second quarter before turning it over to Stu for comments on earnings backlog inventory in the balance sheet. We were pleased with revenue growth of 7% in the second quarter, which included very strong performance in Eastern Canada that helped to offset expected reductions in Ontario. The sales trend in Western Canada improved modestly in Q2, and I'll provide further comments on our regional revenue trends in just a moment. Market conditions improved nationally in heavy equipment. From our experience in the first quarter, comparable revenue in Q2, which excludes the contribution from our acquisition of Delom, increased 2% from prior year against the tough comparable of 27% up in the second quarter last year. EBITDA improved 19% in the second quarter. Gross margin rate was 19.1%, which was 70 basis points higher than prior year. On the year-over-year basis, margin rates on equipment sales were stronger and product support margin rates were comparable. Cost productivity in the second quarter was 13.9% of sales, which was in line with our expectations, given higher personnel cost and major projects underway. Adjusted basic EPS of $0.63 was flat year-over-year. The inch of that EPS result was affected by higher financing costs due to a higher debt level, due to the acquisition of Delom and increased working capital and also due to the effect of IFRS 16. Stu will have further commentary in just a moment. Finally, safety performance was excellent in the second quarter, as indicated by a TRIF rate of 0.29. Best quarterly safety result we have ever recorded. We thank our managers and team members for their efforts in workplace safety and for the exemplary improvements that they've worked so hard to deliver. Turning to Slide 4. Regional performance in the second quarter was varied. Central Canada sales were down 11% year-over-year. The reduction is due to changes in our construction equipment lineup and specifically to the loss of a road building line, the sales of which were not offset by growth in other categories. The effect in Central is expected to be less significant year-over-year as we entered the second half as approximately 70% of last year's sales occurred year-to-date June. Excluding the road-building issue, sales in Central Canada were up 3% on a year-to-date basis. Eastern Canada sales were up 23%, maintaining a very positive trend. Delom contributed to a robust Eastern Canada business. ERS volume was complemented by excellent year-over-year performance in construction, material handling, power generation and engines and transmissions. Western Canada sales were up 4%, despite ongoing challenging market conditions. Strong increases in mining and forestry offset weakness in construction and power gen. Our mining business nationally continues to strengthen but particularly so in Western Canada with the addition of a large shovel added to backlog for a major oil sands customer, and various additional bids are currently in process. Turning to Slide 5. Revenue by type of sales is shown. Equipment sales in the quarter were essentially flat. We saw strength in Construction, Material Handling and Hitachi-branded construction equipment, which was up 14% nationally. These improvements were partially offset by the earlier road-building Equipment commentary and lower mining equipment and power generation sales in the quarter. Industrial part sales were essentially flat. Strength in Eastern Canada offset some weakness in the West, and Central Canada sales were comparable year-over-year. And product support sales increased approximately 4% year-over-year, based on strength in mining and off-highway engines transmission sales in Western Canada. Delivered margins from product support improved slightly year-over-year based on improved parts margins. Turning to Slide 6. I'll provide some additional commentary on the market conditions affecting certain categories in the second quarter and year-to-date. To avoid repetition, I won't go over earlier comments, but you can certainly feel free to ask these questions with any of our businesses later in the call. In Construction, national market conditions improved sequentially in Q2. Using the construction class excavator market as a proxy for overall conditions, Q1's national market was down 29%, which improved to a flat market nationally in the second quarter. While year-to-date the market remains down 11%, there are signs of strengthening conditions in Central and Eastern Canada and quoting activity has improved in the West. Wajax' market share in excavators was flat year-to-date, and our wheel loader market share improved. Construction equipment margins are comparable on a year-over-year basis. In forestry, we are pleased with the strong results despite national market units being down 22% year-to-date. Recent changes in our equipment lineup have helped us improve focus, results and market share in forestry. We expect weakness in the BC forestry market to be offset by opportunities in Alberta and in Ontario. Forestry backlog increased significantly in the second quarter, both sequentially and year-over-year. Finally, we remain bullish on the mining-related businesses including mining equipment, industrial parts and engineered repair services sales to mining customers. This perspective relates to our oil sands and conventional service mining customers. New equipment backlog has increased again in Q2, and quoting activity is strong. Wajax continues to invest in additional resources and inventory to support demand in our mining business. I'll now turn the call over to Stu.

[Stuart H. Auld, CFO & Senior VP of Finance]

Thanks, Mark. Please turn to Slide 7 for my comments on our earnings. In the second quarter of 2019, adjusted basic EPS was flat, coming in at $0.63 consistent with the same period in the prior year. Previously reported adjusted basic EPS for the second quarter of 2018 was $0.67, however, as disclosed in the corporation's audited consolidated financial statements for the year ended December 31, 2018, our correction of nonmaterial errors in prior year periods was recorded impacting prior year comparative periods. Further details on these corrections can be found in our MD&A under adjustments to prior period comparative financial statements. Higher net earnings were offset by higher average shares outstanding contributing to the flat adjusted EPS. The earnings increase relates primarily to higher revenue gross profit margins and the inclusion of Delom. These increases were fully offset by higher finance costs. Overall, SG&A as a percentage of revenue increased 40 basis points to 13.9% from 13.5% in the prior year, which remains below our targeted range of 14.5% to 15.5%. The increase is primarily related to higher personnel costs to support our 2019 business plan and ongoing investments in our infrastructure related to the new ERP system and customer support centers. On a year-to-date basis, adjusted basic EPS decreased to $1.07 from $1.12 from the same period in the prior year representing a 4% decrease. The decrease relates primarily to higher finance and SG&A expenses that we're not fully offset by revenue and gross profit margin improvements. SG&A as a percentage of revenue increased 60 basis points to 14.5% from 13.9% in the prior year. As we've stated previously, we expect the earnings improvement will be weighted to the second half of the year as the cost base becomes more comparable on a year-over-year basis. Please turn to Slide 8, which summarizes our backlog and historical trending. Our Q2 2019 backlog increased $39.6 million, or 15% on a year-over-year basis, and increased $41.2 million or 16% sequentially from the previous quarter. $296.5 million represents the highest backlog we have reported since our peak earnings year of 2012 and is supportive of achieving our plans for both 2019 and 2020. The year-over-year sequential increase relates to higher mining and forestry equipment orders. The additional mining equipment orders booked to backlog in the second quarter relate to delivery scheduled for 2020 and 2021. Subsequent to the quarter, an additional mining shovel was added to backlog in July and quoting activity remains strong, providing good visibility for the next 2 years. We remain encouraged by the strength of our sales pipeline and other equipment categories. Please turn to Slide 9 for an update on our current inventory levels. Inventory including consignment increased $128.5 million compared to Q2 2018 or $30.5 million compared to Q1 2019 and is primarily higher across our targeted growth categories. Consignment inventory increased $6.5 million from Q1 and consists primarily of construction excavators ordered to meet our 2019 sales plans. Based on our current sales plans and pipeline, we do foresee -- we do not foresee any material risks and are confident in the quality of our inventory. Equipment lead times are beginning to improve providing further flexibility in how we approach our orders and stock levels for 2020. We continue to expect that inventory levels will decrease over the second half of the year, which we anticipate will have a net positive impact on working capital, cash flow and leverage. Please turn to Slide 10, where I will provide an update on our financial position and performance metrics. Our Q2 leverage ratio decreased compared to Q1 from 2.89x to 2.71x, primarily as a function of lower debt levels associated with lower working capital and higher trailing 12-month EBITDA. We are pleased to note that $20.5 million of cash was generated from operating activities in the quarter compared to $11.1 million used in the prior year. We are continuing to focus on working capital efficiency, which is a key component in managing our overall leverage targets, and we expect the ratio to improve further over the balance of the year. Our investment in inventory has increased our working capital sales ratio on a trailing 12-month basis. But as I mentioned earlier, we expect the ratios to decline in concert with inventory levels in the second half of the year. As our financial performance continues to improve, we're seeing higher trailing 12-month adjusted EBIT, which increased $4.3 million or 7% compared to the previous year. But that hasn't translated into higher RONA as our net assets have also increased by $120 million over the same period. Our strategic plan calls for investment above historical levels to meet sales plans and higher net assets. However, we are committed to increasing RONA over both the short and long term as we continue to focus on enhancing our EBIT margins and drawing down our working capital levels. Finally, the Board has approved our third quarter dividend of $0.25 per share payable on October 2, 2019, to shareholders of record on September 16, 2019. We remain confident in the sustainability of our dividend at this level and across the business cycle. Please turn to Slide 11. And at this point, I'll hand the call back to Mark to provide a brief update on our 2019 financial outlook and his concluding remarks.

[A. Mark Foote, President, CEO & Director]

So looking at Slide 11, I won't read the entire page. It's unchanged from prior quarters. I'll just call out two important points with respect to that. We expect 2019 full year adjusted net earnings to increase over 2018 based on consolidated revenue improvements and the full year effect of Delom. And concluding our current view of the timing revenue and cost adjusted, those earnings improvements will be weighted to the second half of the year. I think at this point, we'll open the call up for questions.

[Operator]

[Operator Instructions] Your first question comes from Michael Doumet with Scotiabank.

[Michael Doumet, Analyst]

So I just wanted to drill down on your expectation for a better earnings set up for the second half. In your outlook, you discussed the timing as it relates to revenue and costs. So is there anything in your line of sight that could provide a decent bump to revenues in the second half? And also can you quantify some of the costs, either not expected to be repeated or general cost efficiencies in the second half?

[A. Mark Foote, President, CEO & Director]

Probably the more notable revenue things are more in the fourth quarter than in the third. But we're expecting a reasonably strong finish to forestry. And we've got -- we're expecting some mining sales will get delivered in the fourth quarter, which is -- the timing, which appears to be recently secure right now. So those are on the revenue side. And we got some, I think, some decent comp growth. We don't have the same issues in Central Canada in the second half of the year because we're comping off a much lower number for construction equipment in Ontario. So I feel reasonably good about the revenue performance. On the cost side of things, two things to keep in mind. One is in the first half of this year, roughly speaking, call it between $3 million and $4 million, was spent on the projects that we've talked about from an SG&A standpoint. Some of that, that normalized though. But it's in the total SG&A base. So then that will be reduced in the second half of the year primarily because the customer support center costs are lower in the second half of the year than they were in the first. And the increase in personnel costs, in the first half of this year relative to the last year, were more significant than they're expected to be in the second half.

[Michael Doumet, Analyst]

And any efficiencies as it relates to the ERP or CSC?

[A. Mark Foote, President, CEO & Director]

No. The ERP is going to stand pilot mode until we're completely comfortable with it. So it's not really a productivity factor at all this year. It will be in the future but it isn't this year. And the CSC, it -- the answer is inside the company, yes, a bit. We've actually shifted resources to avoid investing in incremental folks in the company. So we shifted resources into the CSC. But I think the more notable productivity improvements are probably more in the 2020 range.

[Michael Doumet, Analyst]

Okay. Thank you. And then I'm not sure if I caught you -- if I caught the correct wording around this, but you indicated the quoting activity around mining provides good visibility for the next 2 years. Can you just elaborate on that?

[A. Mark Foote, President, CEO & Director]

Sure. Well the backlog has got some good volume in it that goes to '20 -- a bit of it is this year, obviously, but 2020 and 2021. And the quoting activity is pretty strong right now. And assuming some degree of success with that, that presents some additional volume, which is probably more related to 2021. But it's got us feeling reasonably good about the mining business this year and next year and the year after that.

[Michael Doumet, Analyst]

Okay. That's all oil sands?

[A. Mark Foote, President, CEO & Director]

No, it's not actually. It's partially oil sands. And there is -- have some additional activity in British Columbia, there is some additional activity in Northern Ontario.

[Michael Doumet, Analyst]

Okay. And maybe just thinking longer term, Mark. I mean if we go back here I think, well as it was sort of an expected, continued strong revenue growth through 2019 and potentially into 2020. So obviously, the markets have slowed somewhat, particularly in Construction the first half. Meanwhile I believe EBITDA margin expansion sort of beyond the midpoint of the range in the long-term outlook was predicated on an operating leverage. So I guess the question is, on a slower growth environment, what are the major levers in your mind to expanding margins further or expanding RONA further?

[A. Mark Foote, President, CEO & Director]

There's probably a couple of things. The first is the margin rates -- the gross margin rates the way they look right now are probably a good proxy for the year. But a lot of work going on in the company right now that stands to help us improve the margin rate going forward, which should offset any degree of, kind of, organic revenue growth that may be tougher if the market becomes a bit more challenging. So there are some gross margin opportunities, which don't necessarily affect our market share expectations. And the mix of businesses is something that we're looking at pretty carefully right now. There is some, obviously, higher-margin businesses that may warrant a bit more investment at the expense of some of the others. So it's both an absolute rate increase as a result of some pricing cost and efficiency changes, and some of the margin we lose below the line related to warranty and things like that. And there's also mix of business changes because obviously, some of the heavier service-oriented businesses like ERS, as an example, just carry higher margins and the mix would be accretive to the rate. So I don't know if we're -- as a matter of fact, I know we're not necessarily changing our revenue expectations overall. But we do see some degree of latitude in the gross margin, which hopefully will offset any revenue risk and perhaps would be accretive looking forward.

[Operator]

Your next question comes from Michael Tupholme with TD Securities.

[Michael Tupholme, Research Analyst]

Mark, can you talk about what the Other/ERS revenue would have been up on a year-over-year basis, excluding Delom this quarter? And also if possible comment on what the organic growth within the Delom business has been since you acquired the company?

[A. Mark Foote, President, CEO & Director]

I'm sorry, I don't have those numbers exactly handy, Michael. So if we can get back to you with that, I would appreciate it. The Delom business is growing at a reasonably good clip. The guys have some very good activity going right now. I don't have the exact number for you right now. So I apologize. I don't have those exact numbers. But I think the ERS number was up, probably, on an organic basis about 10 points on a revenue basis. But our own business base was up probably 10 points. I think that's year-to-date. And the Delom business has a lot of project work in it, so looking at the revenue from 1 month to the next is a bit lumpy because of a lot of work in process. But that business is moving along, momentum-wise, at a pretty good clip breaker.

[Michael Tupholme, Research Analyst]

Okay. And is it fair to say that the momentum you're seeing there is not yet reflective of any of the synergy opportunities you would hope to be able to realize from that acquisition?

[A. Mark Foote, President, CEO & Director]

Yes.

[Michael Tupholme, Research Analyst]

And when would you think those would sort of -- to possibly contribute?

[A. Mark Foote, President, CEO & Director]

I think the operators on the ground would say they started to contribute a bit right now. I would say that that's probably something that are more -- a more material thing is probably in the next year. There's a bunch of integration activities that are underway in the second half of this year, which brings the sales team a little bit closer together. Delom doesn't have much -- really doesn't have any revenue base in Western Canada. So the teams have been out West, meeting with a number of our oil sands teams. And our teams have been into -- into Eastern Canada to see the facilities and understand the capabilities. But I'd say that from a perspective of somebody like yourself, I don't know if I'd look for a ton until 2020. And we remain really, really bullish on our initial experience with our new colleagues at Delom.

[Michael Tupholme, Research Analyst]

Okay, great. And question about the gross margins up year-over-year but off about 40 basis points sequentially. I'll go back to the Q1 conference call. There was a suggestion that the gross margin we saw on the first quarter might be a decent proxy for what to look for, for the full year. So just wondering are we in a situation here where we should expect gross margins to step back up and reflect the commentary made at Q1? Or is it more likely that we see something along the lines of what we saw in the first quarter over the remainder of the year?

[A. Mark Foote, President, CEO & Director]

Yes. I mean markets are going to bounce a little bit, Michael. So they've got 30 or 50 basis points in one quarter to the next is not really unusual for us. If I'd say if you stick around the 19 range, you're probably reasonably close. The margins in the second quarter, we saw some reasonably good new equipment margins, which related to material handling, forestry and our engines and transmissions business. And we saw some, on a year-over-year basis, strength in the parts margin. So where we took a bit of a hit in margin in the second quarter was our labor margins were lower. Part of that was just the fact that we've been adding technicians. And so the productivity hurts that margin a bit over the short term. But sitting around the '19 range is probably a pretty good way to think about it.

[Michael Tupholme, Research Analyst]

Okay. And then looking at Western Canada, it seemed to me at the start of the year that you were maybe a little bit cautious on the demand outlook for Western Canada as a whole. You did 4% revenue growth year-over-year in the second quarter. Is that coming in a little stronger than you expected? Or is that -- did I sort of misinterpret the idea that there was maybe some caution around Western Canada?

[A. Mark Foote, President, CEO & Director]

It's a category-by-category answer. I guess if you asked the question is that -- are the market conditions a bit better now than they were 3 or 4 months ago, the answer to that is yes.I don't know if we've seen anything specific that would suggest that they would decelerate. But if you look inside the categories, they're up and down in a -- for a bunch of different reasons. So our forestry business is expected to be a bit of a challenge just because of the certain stances in BC in the second half of the year. We've got some excellent opportunities from a mining equipment standpoint in the second half of the year, so that more than offsets that. Construction definitely got better in the second quarter. I believe the trend is less negative from an excavator standpoint. And our short cycle businesses like industrial parts, they're okay but they're not comping as nearly as strong as they are in the rest of the country. So it's a bit of a mixed bag. But on the balance it's a bit better, I think, than we would have expected in the first quarter. And we don't see any, kind of, consolidated change in trend that the categories will go up and down a bit, like I said.

[Michael Tupholme, Research Analyst]

Okay. And then just a clarification. The -- where is it that the mark-to-market derivative impacts shows up on the income statement? What line item is that actually in?

[A. Mark Foote, President, CEO & Director]

It's in SG&A.

[Operator]

Your next question is from Derek Spronck with RBC Capital Markets.

[Derek Spronck, Analyst]

How long will the trial phase be on the ERP system? And what are the initial feedback from the branches been so far, the thought around the trial process?

[Stuart H. Auld, CFO & Senior VP of Finance]

Sure. So we launched it over the long weekend in July. We're just in the process. We did 2 branches, a former power branch and a former equipment branch. We're just in the process of finishing the, kind of the first month end on the system. I'm going to say the first 30 days has gone as expected. We trained all the staff. We were on the ground with a trained group of people for probably 3 weeks. We're still in the process of making tweaks to the system, and we'll continue to do that over the next, probably several months. But I'd say it's been very positive with the team. They've -- at both the branches, they've dug in. They've been pretty excited about it. And the interesting thing that we've done is we have trained about 75 super users, which are folks that are in the next branches that we're going to. So we got about a -- 1 super user producer for every branch that's already trained up. So it's pretty positive, I'd say. And just from perspective of change, we've been through a number of changes with a whole bunch of our staff, whether it's having put a payroll system in, a CRM system in being Salesforce, and also going from 4 ERP systems to do -- to 2. The staff is pretty excited about the change we've gone through. And we've done the normal things around change management, about communication and training, and it's worked out pretty well.

[A. Mark Foote, President, CEO & Director]

Just to add something to Stu's comment, that the likelihood of us having more than another handful of branches before the end of this year is pretty low because we're taking a pretty cautious approach to this until it's locked down, and we feel pretty comfortable that a more significant rollout is appropriate.

[Derek Spronck, Analyst]

Okay, great. And what does this system specifically do? And is there any way to quantify the benefit?

[Stuart H. Auld, CFO & Senior VP of Finance]

Well, there's all of our -- it does -- arguably all of our financial transactions, which would be part sales, equipment sales, rentals. So -- and then obviously, at the back end, it does all your journal entries, your accruals and all of that. So it's a full blown system. But it's really based off an equipment and rental business.There's some -- and -- while I wouldn't be able to sort of state all of the benefits, I'll give you at least one simple example. So today in one of our Winnipeg branches, we have 2 of our businesses, an Industrial Components business and a Power business. So you have 2 systems in that business, and you'd basically have 2 separate receiving departments. When the system is done, you have one system with one way of receiving, one way of looking at inventory. So there's natural savings and efficiencies, not only internally but through our vendors who are putting the system in. But that's more of a -- by the time we're finished the rollout, you'll start to see the benefits.

[Derek Spronck, Analyst]

Okay. Now that's great. And is it a -- are you going to be running like a redundant system behind it, as before when you do turn it on or once you do switch it on?

[Stuart H. Auld, CFO & Senior VP of Finance]

No. We -- what we've done in terms of the 2 branches is the 2 branches -- parts of the business that when we closed the books, receivables and payables stay on the old system, and we wind transactions down through that system. We just -- we bring fixed assets and inventory on to the new system. So it actually makes it an easier transition and doesn't really necessitate us having to run a backup system. We also close out, for the most part, all of the work orders, the counter orders, the purchase orders. So it makes it a much simpler implementation with no real need to do a backup system...

[Derek Spronck, Analyst]

Okay, I got it.

[Stuart H. Auld, CFO & Senior VP of Finance]

...or run it parallel.

[Derek Spronck, Analyst]

Yep, okay. And then just last one for myself before I turn it over. Once you kind of get through the ERP system and some of the other cost reduction initiatives, and assuming a consistent end market environment that's similar to what it is today, what do you think is a normalized run rate EBIT margin you could run at on a sustainable basis?

[A. Mark Foote, President, CEO & Director]

You're probably talking in the [ 6 to 7 ] range.

[Derek Spronck, Analyst]

Yes. Okay, great.

[A. Mark Foote, President, CEO & Director]

We focused a lot more on the EBITDA margins, which is what's in the public commentary. But if you kind of had to back off of that, from depreciation standpoint, [ 6 to 7 ] is probably not that far off.

[Operator]

Your next question is from Devin Dodge with BMO Capital Markets.

[Devin Dodge, Analyst]

So I just wanted to get your thoughts on the competitive environment for excavators. I know Wajax is looking to gain some market share there. I think what we've seen -- it seems like it's come through in Q2, availability from other OEMs has improved. I think even Finning was talking about -- they were gaining market share in construction equipment, at least broadly speaking. Just -- have you seen any kind of change in -- by a competitive behavior in the markets?

[A. Mark Foote, President, CEO & Director]

Well, the inventory in the system is pretty high. So I think that's a bit of a difference over prior year. Our -- we can only speak to our share, obviously. So I think, year-to-date, we're roughly flat with where we were last year. We took market share hits on Ontario, so our market share was actually down in Ontario. But it was barely strong in Eastern Canada and held in there -- a little bit better in the West. So our issue right now is in the Central. And that's not a function of broad agreements there, that's just a function of our sales effectiveness, which we will continue to work on.

[Devin Dodge, Analyst]

Okay. Now that -- I mean excavators are usually a pretty competitive marketplace in the best of times. Have you seen any kind of pricing pressure for that product lineup?

[A. Mark Foote, President, CEO & Director]

Not anything material. Our new equipment market share is -- I'm sorry, new equipment margins in construction are essentially the same as they were in the second quarter last year.

[Devin Dodge, Analyst]

Okay. So maybe just coming back to inventories. I mean they were up in Q2. I get that this is to support growth in certain categories, but equipment sales were roughly flat year-over-year. It feels like construction demand, at least in some markets, is a bit sluggish. I guess how are inventory levels tracking to maybe the initial plan that you had at the beginning of the year? And can you talk about or talk to the average age of consignment inventory in relation to that 9-month payment-free period?

[A. Mark Foote, President, CEO & Director]

Yes. I'll speak to the first part. And then I'll ask Stuart and Trevor to help me with the second part. We had expected -- our plan was based on inventory being higher in the second quarter. So it's really not that far off what our original expectations were. And we're continuing to feel reasonably comfortable with the inventory levels we have, given the sales plans we have for the second half of the year. So on the consignment basis, I think the short answer is probably that we've actually done a fairly good job of not allowing a bunch of the consignment inventory age out that would have cost us some payments, and we've been pretty successful with that. So at the moment, we don't have any specific concerns on the age of consignment -- the average age of the consignment inventory.

[Devin Dodge, Analyst]

Okay. That's helpful. Maybe just switching gears to mining. Q2, another strong quarter for bookings. Just -- can you give us a sense of these replacement of existing Hitachi equipment, or are they incremental to your installed base?

[A. Mark Foote, President, CEO & Director]

They are virtually all incremental.

[Devin Dodge, Analyst]

Okay. And for the mining equipment, do you typically have to put some deposits down with the OEM? Are there other financing arrangements available?

[A. Mark Foote, President, CEO & Director]

No. We don't. We commit to the order, but we don't part with any cash until pretty close to when the customer pays us.

[Devin Dodge, Analyst]

Okay. And then maybe just one last one, but it's probably for Stu. But in the notes to the financial statements, there was mention of a program where Wajax sells some of its accounts receivables. Can you provide some color on these arrangements? And it appears that just from the figures that we've seen, that Wajax is increasing its usages program. Just -- are we looking at this the right way? And if so, how should we be thinking about the AR program over the next 6 to 12 months?

[Trevor Carson]

Devin, this is Trevor. So we do have 2 programs in place now that are able to sell receivables. We're in clear. So it only applies to a handful of our largest customers. So that's the facility that's provided to cycle through and increase our cash collection and reduce our DSO. So that's what we've been using for the last few quarters, really as a means to be a bit more efficient with our working capital and drive down our AR. It's not just something that you can continue to expect to see us using going forward.

[Operator]

[Operator Instructions] Your next question comes from Ben Cherniavsky with Raymond James.

[Ben Cherniavsky, Managing Director & Head of Industrial Research]

I'll just ask, maybe an open-ended question for Stuart, just as -- relatively new to the role. I'm curious on what you're -- what priorities you've got? What opportunities you see at Wajax? Your overall impression of the company and financial situation? What -- sort of articulate what you are -- what you think you can add here in the role?

[Stuart H. Auld, CFO & Senior VP of Finance]

Well, why don't I start with -- there's, obviously, multiplicity of things sort of going on in the business. Certainly, the initial 90 days that I've been on the role, the first couple of things that have gone on are just finishing up the finance consolidation. So we've now got a consolidated finance group in one place, which is incredibly positive. We've also then -- put a pilot in place for the ERP. So both -- that's been a long-standing piece of work that I've been involved in, and that will carry us out for probably the next 18 months. So 2 large projects that -- one that we started and one that we completed that will have a lot of, I think, positive impact on the business going forward. I think as we -- I've been here for 5 years, so I've seen us go through a tremendous amount of change. And I expect that we'll continue to see significant change as we go forward. I think we're -- certainly, I believe, my role is to not only finish the ERP and to continue and improve our systems, which obviously help the business. But obviously, the focus for me is supporting Mark and the business leads to continue to hit our strategic planned targets, whether it's through inventory management, through sales programs, through implementation and support of the CSC. Obviously, working with Trevor and continuing to improve our financing opportunities, as he just said with a number of programs that we've just put in place. And I'm pretty positive about what we've achieved since I've been here in 2014, and what I expect we can achieve over the next couple of years.

[Operator]

This does conclude the Q&A period. I'll now turn it back to management for any closing remarks.

[A. Mark Foote, President, CEO & Director]

Okay. Well, thanks. Thanks very much for joining us today. We look forward to speaking to you again at the third quarter. Thank you.

[Operator]

This concludes today's conference call. You may now disconnect.