Q4 2020 Wabash National Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to today's Wabash National Corporation, Q4, 2020 earnings call.
And at this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
A question. During this session you will need to press Star then the number one on your telephone keypad and should require any further assistance. Please press star zero and I would now like to turn the conference over today to Ryan Reed Director of Investor Relations. Please go ahead.
Thank you Michelle.
Good morning, everyone. Thanks for joining us on this call.
With me today are Brian <unk>, President and Chief Executive Officer, and Mike Pettit, Chief Financial Officer.
Full of items before we get started first please note that this call is being recorded and also.
Like to point out that our earnings release.
This presentation and supplementing today's call and any non-GAAP reconciliations are all available and a refreshed and investor site.
Our Dod Wabash National Dot com.
Slide two contains our company and safe Harbor disclosure statement addressing forward looking statements.
And I'll hand, it over to Brent for his highlights.
Thanks Ryan.
As eager as everyone has to move onto 2021, we will start today's call by providing some perspective on 2020.
As we all know we learned the most about ourselves and other organizations from the challenges we encounter and there's also through these challenges that we prove what we're capable of.
First and foremost our employees came through for US and 2020, our team was able to see through the disruption caused by the pandemic and work through near term challenges like modifying our shop or environments and managing a disrupted supply chain.
And frankly keep our manufacturing running for our customers.
At the same time, our employees remain focused on our purpose to change how the world reaches you.
And executing on our first to final mile strategy.
However, it was the result of work structure to structurally realign and reorganize our business that has left me at all and <unk>.
But where I come to work every day.
Together, we are creating a new Wabash environment, where we are prioritizing ease of doing business for our customers, creating and growing portfolio of innovative engineered solutions and spanned from first to final mile and a culture that can treat that continually seeks for better process.
That creates value for our customers our employees and our shareholders.
Secondly, we learned about the resilience of our product portfolio, we've created over the last decade, and the processes, we've embedded within our businesses.
Our process discipline enabled Wabash national to observe a notable reduction and volume while minimizing the impact to operating income as trial and through 2014% decremental margins for the full year of 2020.
We generated $104 million of free cash flow during 2020, which enabled us to maintain our dividend through the cycle.
<unk> never remotely accomplished during a significantly challenging environment and the history of Wabash National.
I hope our strong financial performance during 2020 indicates the structural improvements that have taken place within our company over the last decade, but especially over the last two years.
We aim to continue this improvement and financial performance as we leverage our customer centric organizational structure, along with our opportunities for strategic growth. There was something special growing and wall batch national and we're starting to see that this leadership team our employees are buying into a new way to operate.
This is a good point to circle back to our broader strategy.
And <unk> purpose to change how the world Richard you positions us with a renewed focus on being the innovation leader within the transportation logistics and distribution markets.
This clarification has our team pulling and the same direction and we took action to streamline our portfolio by selling assets that do not offer strong strategic fit.
As we finished pruning our portfolio. We're also setting the stage to backfill divested revenue by continuing to diversification of our company with both expanded and new revenue streams with it and this transportation logistics and distribution markets.
Our customers are some of the most dynamic participants and the industry and will be responsible for shaping future trends. This is another benefit of our customer centric growth structure as we seek to capture customer pain points and the feed and the renovation efforts and develop unique solutions that add value to the for them.
We have proven that we have enhanced our ability to operate now we will show, we can profitably growth business and a more sustainable and interesting manner.
Moving on to specific efforts to grow and diversify our revenue streams through product development I'd like to start with an update on more disruptive composite technology.
MSC for molded structural composite technology was developed as a revolutionary new material with lighter weight and improved thermal properties for the <unk> III, but refrigerated band market.
And as carriers carriers continue to pilot this technology to assess the value created by lower operating costs and reduce emissions. We have found interesting applications for MSC within your refrigerated truck space and 2020, we worked with a major grocery to piloted MSC truck body designed specifically for home deliveries home delivery of groceries.
We believe that this is likely to be a rapidly expanding market segment, where MSE continues to offer a unique value to customers with its durability reduced weight and improved thermal efficiency.
Our expertise and composites will be competitive.
Differentiator with any electric chassis space as well our ability to innovate with lighter weight composite materials for truck bodies and trailers are all all the more meaningful and the EV space, where total vehicle way has a direct impact on vehicle range and payload.
When you combine msc's lightweight properties properties with superior thermal efficiency. This composite technology will be intriguing for customers looking for innovative and sustainable solutions and the refrigerated space.
Consistent feedback from interested parties is that our technology offers benefits they've been unable to find elsewhere.
Additionally, within our coal trade efforts, we have completed an agreement to manufacture a garage refrigerated and search for the Ford transit within the United States to serve the rapidly expanding.
Foodservice grocery home delivery market, while traditionally constructed refrigerated cargo vans are insulated using spray foam, which can be subject to off gassing and mold intrusion Corral and search are engineered to fit specific band models and provide a superior finish with 30% to 50% thermal efficiency and standard refrigerated body construction.
Thus improving total cost of ownership, reducing spoilage and improving food safety. This is an important space for Wabash and participate in with our technology.
As it sets us up.
To better serve the smaller light duty update market compared to the two are larger and more traditional truck body product models.
We expect that this rapid.
We expect that the rapid progress made and the home delivery of groceries, and refrigerated homes, and width and refrigerated home delivery or and.
Main after the pandemic and we're excited about how products like MSC.
And <unk> and <unk> position us to add value for customers and this space.
This provides a natural transition and to corporate responsibility or some may say ESG strategy with particular focus on the environmental segment.
Because it ties and so much with our discussion on the benefits of our new products.
We're moving weight and improving thermal efficiency not only ways, we allow our customers to reduce their operating costs. They also reduce our customers and environmental impact and a world that is becoming.
And is becoming.
Aware.
The cost of carbon net zero thinking.
We are developing tech technology that not only reduces carbon impact of the use of our products, but it also creates numerous opportunities to reduce our impact on the natural resource consumption within our manufacturing processes.
We have seen many of our customers increase their commitment to ESG in recent years I'd like to echo our own commitment to these principles.
And whether it's innovating with environmental impact and mind, ensuring diversity of backgrounds and viewpoints on our on our board of directors or simply standing up for what we believe is right on social issues like ratio and quality. For example, I believe our ESG focus sets us apart and uniquely positions us as a desirable supplier to customers who value ESG.
Principal.
We are a company well positioned well wed and with the values that align with the changing world.
On that note.
And I want to take the time to reflect on the highly unfortunate assault on our nation's capital.
I would say that Wallace and this riding and destruction of property and a French the personal safety are unacceptable across the board.
However, the events that occurred at the capital were especially appalling to me and I have ensured both internally at Wabash and externally that my position is clear.
Was wrong and embarrassment to our country.
And for our democracy to be so specifically assaulted while our how peaceful transition of power was underway.
Ceos and value minded companies have an opportunity to lead on social issues and <unk>.
We choose to do so.
And then we'll move on to market conditions and backlog.
Freight rates remained at strong levels for carriers throughout the peak season and have continued to remain elevated into 2021.
As such industry reports and shown strength and new trailer order activity and we have clearly benefited from the recovery of demand and the marketplace.
Overall backlog ended the fourth quarter at approximately $1 5 billion.
Sequentially by approximately $500 million from the end of Q3.
Our backlog reflects a normal split within our businesses, which is to say that the backlog build was primarily in commercial trailer products.
In order to shipment cycles tend to be much more compact and both dbg, and particularly F&B and conversations with customers and those segments continue to indicate constructive market conditions for 2021 and those businesses.
And we mentioned on our last call that the availability of labor could be a headwind as we look to ramp our operations and 2021.
While I believe this remained true based on our own experience and feedback from suppliers customers and peers I do want to call out that we were able to successfully hire approximately 600, new employees across our business during the fourth quarter.
This hiring activity equated to adding to our workforce by about 15%.
We fully expect to add another 900 employees during the first half of 2021 based on our progress to date.
I will now address our outlook for 2021, we are initiating our full year revenue outlook at just under $2 billion.
And this environment, we are seeing earnings per share of approximately <unk> 75 at the midpoint.
While early to talk about 2022, we believe that structural change is occurring across the industry. As a result of asset imbalance forthcoming regulations with a new administration in Washington, as well as the further pace of logistics and supply chain disruptions brought on by the current pandemic will positively impact our revenue outlook.
And in 2021.
I'd like to conclude my comments by saying that I couldnt be more proud of how our employees responded to the challenges that confronted us this year.
But I am excited to turn to page on 2020 and begin to talk about what comes next.
And with early and significant wins with our new organizational structure, reducing reducing friction for customers and allowing us to think and new and interesting ways.
Our purpose vision mission.
And that provides common direction throughout our organization and the growth of the culture shaped by our Wabash management system, we are ready to act with a growing strategic purpose.
The future is bright for Wabash national.
With that I'll ask Mike to provide additional color on both our 2020 financial performance and our 2021 outlook.
Thanks, Bryan turning now to slide four.
On a consolidated basis fourth quarter revenue was $404 million.
Consolidated new trailer shipments were approximately 10006 hundred units during the quarter, we achieved our strongest shipments and revenue of the year during Q4, as a result, and increasing customer demand.
In terms of operating results consolidated gross profit for the quarter was $45 $5 million or 11, 3% of sales.
The company generated operating income of $10 million and operating margin of two 5% during the fourth quarter.
Consolidated decremental margins were 12% during the fourth quarter, which is a performance. We're very proud to have achieved our strong financial performance as both was bolstered by our cost savings efforts and have structurally reduced our SG&A footprint compared to Q4 of last year SG&A expense was lower by about $5 6 million or <unk>.
16%.
Operating EBITDA for the fourth quarter was $25 2 million or six two percentage of sales.
Finally for the quarter GAAP net income was $5 5 million.
Or <unk> 10 per diluted share.
Let's move on to look at the segments.
And with CGP.
From a segment perspective commercial trailer products performed very well with revenue of $283 million and non-GAAP adjusted operating income of $23 3 million.
Average selling price for new trailers within CGP was about $27000 and the fourth quarter, which is roughly flat with the same quarter of last year.
Diversified products group generated $75 million of revenue and the quarter with non-GAAP adjusted operating income of $3 3 million.
As a reminder, we completed the sale of a niche business and our tank trailer portfolio at the end of Q4.
And this business was responsible for approximately $20 million during 2020.
Which is revenue that will not be part of <unk> results going forward.
This was a business that manufacturing and aerospace suffocation of aluminum tank trailers with a low center of gravity that were geared towards the train and the Pacific Northwest.
And with returns that meet our threshold and limited opportunity to grow the business. We felt it was best to redeploy our resources and a more scalable opportunities.
We continue to see our Romanian tank trailer businesses is integral to our overall portfolio of first to final mile transportation fees.
As we discussed on our last earnings call final mile products continues to operate below breakeven and volumes as Covid has impacted demand and this segment differently and other end markets.
S&P generated $52 million of revenue during the quarter with an operating loss of $4 5 million.
Due to the burden of depreciation and increasing amortization and the business. It's important to point out that Fmc's fourth quarter EBITDA was a loss of only 600000 and we expect this part of our business to begin showing showing positive EBITDA and the first half of 2021 and to be solidly EBITDA profitable full year 2021 and around breakeven on the <unk> line.
Slide eight shows the walk to year to date free cash flow for 2020.
Operating cash flow of approximately $124 million roughly $20 million was re invested via capital expenditure, leaving $104 million of free cash flow.
We are extremely pleased with the work the team did a registered $100 to $104 million of free cash flow during the pandemic.
To put that number and a little bit of perspective. It is a higher level of free cash flow than the average of 2018, and 2019, which where peak years for the trailer and truck body markets.
While we benefited from reduction of working capital due to declining revenues. We do believe our organizational structure has allowed us to permanently improve working capital efficiency, which will help enable continued strong free cash flow performance into the future.
During 2020, we made solid progress on our efforts to free resources from non core assets. We successfully closed the sale of our Columbus, Ohio Branch location. We also closed the sale of the <unk> brand of tank trailers.
Dreamliner portfolio has positioned us to align internal talent around strategic growth initiatives, which include cold chain home delivery and parts and services.
With regard to capital allocation during the fourth quarter, we utilized $11 $2 million to pay down debt $8 $7 million to repurchase shares and invest six for $6 4 million and capital projects.
And paid our quarterly dividend of $4 $2 million.
Moving now to slide nine with our outlook for 2021.
We expect revenue of approximately one $9 billion to $2 billion.
TTP has clearly posed poised for a meaningful balance and activity, but we also expect to see substantial rebounds, and revenue, particularly for <unk> and to a lesser extent <unk> as a result of the absence of divested revenue.
SG&A as a percentage of revenue is expected to be approximately six 5% for the full year and we remain positioned to sustain the reduction and our cost structure by $20 million from 2019 with around $15 million of that cost out residing within SG&A.
Operating margins are expected to be four percentage of nikolay.
While we've talked about both incremental and decremental margins for the company being and a 20% range on a normalized basis.
The base on which we calculate and incremental margins for 2021 has considerable furloughs savings included.
Which temporarily serve to depress incremental margins, we had approximately $25 million to $30 million of one time reductions in areas such as furloughs and incentive compensation in 2020 that will that will return in 2021 with that in mind, we would expect incrementals to be closer to the low teens and 2021, but.
But we would expect 20% incrementals from 2021 to calendar year 2022.
Lastly, I'd like to make on the full year consolidated P&L is the amortization of intangibles does step up again in 2021 by about $2 million.
On a segment basis to step up and amortization will be seen entirely within FMT, bringing this segment's full year amortization to $12 4 million.
Full year capital spending is expected to rebound in 2021 compared to the prior year as we catch up on projects that were deferred during Covid and total we estimate 2021 and capital spending will be between 35% and $40 million.
As we return to normal seasonal patterns and I would like to remind everyone that Q1 tends to be our lowest quarter in terms of revenue and EPS generation.
Combined those seasonal trends with the massive capacity ramp we are undertaking to keep up with the demand.
It has just adding roughly 1500 hourly employees from September 30 to March 31, and we would expect Q1 to be pressured.
We should see increasing quarterly revenue margins and EPS as we move through 2021. However.
Our expectation is for first quarter revenue to come to come in between $390 million and $420 million with new trailer shipments of 9500 to 10500 and to be approximately breakeven from an EPS perspective.
From a cash perspective, working capital become a use of cash given the volume growth, we're expecting throughout the business as inventories expands and accounts receivable increase.
We continue to look for opportunities to drive structural improvements and working capital levels and the short term and <unk> and.
And we do expect in 2000, and 2020 and want to consume upwards of $50 million of cash.
First of which will occur and the first half of the year.
And long term targets I'd like to circle back and discuss what was laid out and our 2019 Investor day, we had outlined targets centered around achieving a consolidated operating margin of 8%.
While the World has obviously changed and mentally essentially initially released these targets I do want to reiterate that the teams still six 8% operating margin as a reasonable goal and the medium term.
Given our longer term planning I believe the 8% operating margins is achievable over the next two to three years.
In closing I am proud of the actions our employees took to deal with short term challenges and also progressed our longer term plans.
I'm also excited by our financial results. We've achieved this year excellent decremental margins positive full year, EPS and exceptional free cash flow generation all illustrate our 2020 financial performance has raised the flow of relative to prior troughs and.
Just as critical however is important to note that we did not slow down our growth initiatives or compromise our business and any way during the downturn and we are poised to recover rapidly during the cyclical bounce back while also developing and sustainable revenue streams for years to come.
Our organization is excited to move forward with our <unk> approach to customer and our strong backlog helps to provide visibility well into 'twenty and 'twenty. One we look forward to ramping up capital expenditures to support our growth initiatives, while maintaining our dividends and becoming more active with debt reduction and share repurchases.
I'll now turn the call back to Michelle and we'll open it up for questions.
Thank you at this time as a reminder, if anybody would like to ask a question. Please press star one on your telephone keypad.
Your first question comes from Justin.
Long from Stephens Your line is open.
Thanks, and good morning.
Okay.
So maybe to start and Mike you gave a little bit of color on the first quarter, but I was wondering if you could help us think through the operating margin cadence that you're expecting over the course of 2021, because I'm guessing, we'll kind of start that first quarter and little bit weaker and.
And then the exit rate will be much higher so any color you can give around that.
You said it right.
We will the first quarter will definitely be the lowest of the year and it will step up as we go through the year and the easiest way to think about that as the 600 employees. We mentioned we added in Q4 and the 900 and we're looking to add and Q1, which will obviously that ramp will pressure margins in Q1.
Probably slightly and early Q2, and then it will be more up at full capacity rates. The mid part of the year. So youll see that come through on the operating margin line and <unk>.
Most of sequential fashion from Q1 and Q4.
And could you share what you expect the exit rate to be and from a margin perspective, as we get to the fourth quarter.
It'll be.
If we look at we mentioned that at the beginning of the year.
And we're going to be we're going to end up at.
And at EPS breakeven.
And our margins will go up through the year I said, 44% at the midpoint. So we're obviously going to above four and an exit rate.
You can kind of do the math you had assumed that it would be somewhere upwards of five probably at the end of the year going into 2021.
Okay and that's all.
Helpful and and.
Kind of stay with that same line of questioning you mentioned that the 8% operating margin target longer term and the next two to three years could you talk about what that assumes by segment and specifically related to the final mile business, how much of an improvement we need to see to get to.
Consolidated target.
Yeah, absolutely so I'm not going to breakout specific margins by segment and I will say if you unpack my.
2021 commentary around SMP, while still not nowhere near the level of performance, we're going to achieve in that business. It's a pretty significant step up from 2020, and you would expect to see.
And another large step up in 'twenty, one to 'twenty, two and that business, which should really help expand margins on a consolidated basis.
The actual timing of when we would hit and 8% will depend on the market obviously.
But we would expect you would expect <unk> to be exiting 2021, and I would say near.
And the levels of margin performance going into 2022, and S&P will still be stepping up and 2022 and as we've talked before we would expect to get that business too.
Similar EBITDA margin levels of CCP and the 'twenty two 'twenty three probably more than 2003 timeframe, but if you kind of model that out you could that would be a pretty good roadmap to get to 8% operating margins and that time period.
Okay. That's helpful. And then maybe just one last one on the guidance does that assume any buybacks and maybe could you talk about any debt Paydown and you have planned for 2021 as well.
Yes, so and.
It would all be and our guidance, what we do seem to do with our capital allocation.
It's obviously somewhat fluid depending on what the market will do but we ended the year with $218 million of cash on the balance sheet, we would expect to be.
Free cash flow positive in 2021 is we obviously have some cash that we can deploy and we will look for opportunities to deploy that the most.
And most effectively as possible whether that share repurchases capital allocations internally, which we still have as Brian mentioned in his commentary the product development front is really picking up some steam and the opportunities with MSC specifically and.
And S&P, so we might have some opportunities to deploy extra capital there, but with its after that and we look at those two we will look to look to the share repurchase Avenue and we definitely see opportunities with our 'twenty 'twenty two 'twenty three kind of implied guidance, there with our targets and where we sit today. We think there is opportunity to be to be active and share repurchases.
Okay, Great I'll leave it at that congrats on a good year and a tough environment.
Thank you Allison.
And again, if anybody would like to ask a question. Please press star one on your telephone keypad and it.
Sure Brian on your telephone keypad and your next question comes from Joel <unk> from BMO. Your line is open.
Hey, guys How's it going.
And Joel.
Can you give us any color around the backlog is there any part of the increase and the backlog from inability to ship or is that just all strong orders.
It's all strong orders at this point Joe.
The way the market has materialized for.
And for 2021 is right in line with the expectations that we had roughly three or four months ago, we saw quote order pick up.
Generally shipments are.
And in line with how we thought that would materialize and the fourth quarter.
And as we look at 2021, we don't see anything that is a.
A structural impediment to moving forward.
Okay, Great and then and as long as Youre here can you give us a little bit of a sense of what you guys are working on like for the next five years, whereas the industry is going to be there's certainly a lot of zone.
A lot of moving parts between here and there and even even with like refrigerated transport for vaccines and things like that can you give us a little sense of what you guys are working on kind of longer term.
Yes, I can take you back and the script, we talked about just three main headers, which is cold chain home delivery and parts and service and so let me talk specifically about cold chain and home delivery.
While we think about these as we'll call it individual areas of focus they really overlap and many different ways and when we think about rapidly disruptive logistics chains.
You factor in a regulatory environment the push for sustainability impact of climate change increase I think we will.
Call It five and change relate related regulation at least for the next four years I would argue.
And some manner going beyond that I think it opens up a really interesting way that Wabash national can take the ideas that we generate from an innovation standpoint, the technology that we have and really bring sustainable solutions within those spaces. So we think about the opportunity that E commerce.
At least call it home delivery, but what we're really talking about is E commerce and what it does to change logistic models across the board and.
And it gives us some very unique opportunities and the first and middle mile to grow the portfolio of the product portfolio.
Around these openings that begin to open day to day that opened up the other piece that we follow is that our largest customers on the truckload side are quickly moving into that middle mile and final mile space and that allows us to get some we'll call. It volume leverage as we make these improvements so we really bring those things together.
And then the other piece and I would talk about is when we think about home delivery.
There are so many different ways in which home delivery actually impacts the market and it's not just the small parcel delivery that we see I mean, it's everything from big and bulky, it's the return leg.
It's the flow between filament centers, there's so many ways Wabash national can play beyond just that but thats that parcel delivery piece that we tend to become fixated with and it really is just this offshoot of our first to final mile strategy. It's a much broader way of looking at the world than just <unk>.
And just that small parcel delivery. So that's the big picture of what we're working on.
If I were to fine tune that a little bit.
Our pruning our product portfolio.
And the ideas that we have within it so that we very very dispassionately focus on the areas that I, just talked about and buy everything from what we do and our internal processes, how we look to connect to the market.
Assets that don't match everything is about creating significant leverage in those areas.
So that we can rapidly deployed and the next 24 months.
Hello.
And then just one little last piece, how much temporary cost comes back and the first quarter.
The year over year, the biggest quarters weather was temporary costs for Q2 and Q3. So I would say Q4 is pretty clean year over year, and Q1 is relatively clean as well youre going to see the biggest moves.
Year over year, and Q2 and Q3, we actually had the biggest flow. There is some there will be a couple of million dollars Joel, but the bigger pieces will be and Q2 and Q3.
Okay beautiful. Thank you so much for your time.
Thanks Joel.
And your next question will come from Felix <unk> from Raymond James Your line is open.
Hey, good morning, everybody.
Good morning.
Hey, Brent and I was hoping maybe we could also start with a little bit of a bigger picture.
Bigger picture question here, but.
And the release, you really talked about finding adjacent revenue streams and I know, we've talked a little bit about some of the product development opportunities and your prepared remarks, but I was.
Just curious if you could expand a little bit more on your approach here is this really organically driven I E. It sounds like you have a lot of product development going on or would you also look to maybe participate and more M&A over the next couple of years I'm, just trying to kind of understand the bigger picture behind those comments.
Sure well guess, we first off we're absolutely repositioning and resources within the.
And the given company to accelerate the organic efforts that we have to create additional revenue and a way that has never been seen at Wabash National and the focus is growing at an incredible rate than what I've experienced over the last 16 17 years of being part of this company.
Now with that all part of the plan, which has been executed really in 2020 was to provide a different structural.
Financial capability as we've demonstrated right. So would you come in with over $210 million of cash into this period.
We're absolutely positioned the balance sheet to be able to move forward and in very interesting ways, whether it's partnerships jv's M&A funding organic opportunities and what we've never done this and we've never been faced with a market that has this much potential.
So all the.
I'll call. It all the ways that we could potentially grow are on the table right now and.
And we have specifically invested and we will call. It our corporate development process over the last year year and a half to begin to prime the idea of pump properly for whats the best way to move forward and this market right, whether it's and expansion of updating.
And acquisition of technology, maybe it's a product platform a geographical platform that all remains to be seen but.
But we are going to look smartly and aggressively and how.
We grow going forward, but we're going to do it in a way that assures profitability, which is core to why we're putting into the Wabash management system and deploying it and restructuring the organization. So that when we choose to act we act at a much higher level of execution and the mall based and as demonstrated in the past.
And so Thats Super helpful. And then just maybe along the same lines, if I think about molded structural composites.
I just wanted to understand the timeline a little bit better here I know you've been testing the product for some time and the grocery application makes a whole lot of sense.
But do you have anything and the guide.
And as it relates to MSC contributing revenue this year or is it still more of a two to three year story until we see more meaningful impact.
Yes, that's a great question I think we are living in a world right now where we have a convolution of horses that are aligning right now where the technology.
Has.
Becoming a much more.
And we'll call it.
A larger opportunity based on what's happened and the last year.
Coupled with the drive for sustainability, so the willingness to <unk>.
Except innovation has really never been higher on this front and so.
I would say we have we are cautious and the way that we guide relative to what the impact of MSC is.
And we are not only are we looking at how do we scale. This through various we'll call. It product platforms. When we think about internal uses of capital were also talking about how we would quickly expand the.
Manufacturing capability.
And the next couple of years and until we have solved that off it is hard to say.
How I want to answer that question right now.
Okay, Yeah, no that's very fair.
And then maybe just last one for me.
But I know that the truck body business was kind of outsized impact from Covid and you had some non essential exposure in there and I think some pretty good SMB exposure as well.
Just curious if you could talk about the current demand backdrop, what youre hearing from your customers as there may be thinking about planning for 'twenty one.
Yeah. So I think the impact is still very real and evident even within the backlog that we see today.
And we have seen the leasing customer come back into the market.
And because of just overall economic conditions and the ability to look forward within their businesses. The small business is still trying to figure out what they can do and how they move forward and.
And I think we'll see that play out through 2021 that really looks more like a 'twenty two of it when they were going to be and are positioned financially and I will say, even psychologically to move forward in a meaningful way and Thats why we think the step up and revenue for final mile really is kind of a two phase thing right, we have to and we have a.
Certain we'll call it demographic, that's going to come back and 'twenty, one and we see the rest of and come back and 22 accordingly.
So that gives that muted it gives a muted impact to all the disruption we hear around us and opportunity because we just have real financial and psychological issues that impact buying decisions and makes up for a real interesting 'twenty two and 'twenty three.
In terms of how we look at capacity and how we choose and serve the market. Those are things, we are evaluating and selling off right now in terms of how we deploy capital and we'll call it continuing to refine that business going forward.
But what I will say is that.
The larger customers.
I have a much more positive output impact and.
And perspective about 2021 and they've come in.
Nicely at the beginning of the year.
Okay very helpful. I'll stop there. Thank you.
Thanks Felix.
At this time I have no further questions. Thank you.
Call back over to Mr. <unk> for closing remarks.
Thanks, Michelle and thanks, everyone for joining us today and look forward to following up during the quarter.
Thank you everyone and this will conclude today's conference call and you may now get and connect.