Q1 2021 Wabash National Corp Earnings Call
Good day and thank you for standing by welcome to the Wabash National Corporation, Q1, 2021 earnings call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Ryan Reed director of Investor Relations. Please go ahead.
Thank you Lindsey and good morning, everyone. Thanks for joining us on this call with me today are Brian Yankee, President and Chief Executive Officer, and Mike Pettit, Chief Financial Officer.
A couple of items before we get started first please note that this call is being recorded.
I'd also like to point out that our earnings release, the slide presentation, supplementing today's call and any non-GAAP reconciliations are all available at IR, the Wabash National Dot com.
Please refer to slide two of our earnings deck for the Companys Safe Harbor disclosure addressing forward looking statements.
I'll hand, it off the breath for his highlights.
Thanks, Brian and good morning, everyone and thank you for joining us today I'd like to start by mentioning how pleased we were with our first quarter results.
Water operating environment has been unusual to say the least.
But we will touch more on that in a minute I'd like to highlight the dedication of intense focus our team demonstrated in delivering solid quarterly performance.
First quarter operating profit and earnings per share came in above our expectations as we executed on the manufacturing side, while continuing to tightly manage our overall cost structure.
Indicators for our core transportation logistics and distribution markets continue to be remarkably strong.
The spot rates and expectations for continued increases in contract rates are indicative of a robust consumer demand and capital spending paired with already strained industry capacity on.
All types of transportation solutions are in high demand as we begin 2021 and I'll call on our final mile truck body business because of course correction and S&P's markets. During 2020 was more severe than we would've expected during non pandemic circumstances, and we're optimistic that the bounce back is going to be some really strong.
Indications from our large leasing customers is that demand has returned from small and medium sized business segments of the market that they serve so effectively.
The rental businesses have also benefited us fleet scramble for equipment as well. We believe these trends have staying power as the pandemic has clearly accelerated changes that were already underway in transportation logistics and distribution and we feel good about the demand environment as we look forward to this year and beyond.
I will now talk about the labor and supply chain situation for.
Robust industrial and consumer demand across the broader manufacturing landscape has create imbalances throughout an array of manufacturing supply chain, leading to aggressive increases in the price of the materials as well as further compounding labor availability across the country.
I'm not aware of any manufacturer of theres been immune to these issues and although we have introduced the effective countermeasures excuse me effective countermeasures to mitigate the impact within Wabash. We also feel of the result of headwinds rising from those labor availability and material cost increases.
Hiring remains a challenge and after a relatively successful fourth quarter, our intake of new team members was less than desired during the first quarter and reflective of the general reality of the U S labor market.
We will continue to pursue additional manufacturing talent throughout 2021, as we work to meet our 2021 customer demand and prepare for our 2022 market reality and.
And our guidance is the reality of that integrating additional manufacturing talent impacts overall productivity in the near term.
This is just a simple reality of the situation. The other realities of the bulk of this impact will not carry over into 2022.
It is fair to say the supply change we're already stressed heading into this year and we had some unique quarter one weather events to say, the least that compounded supply chain issues as heavy winter storms impacted production, both with ourselves and our suppliers.
This did impact our final mile manufacturing in Texas disrupted basic flow of commerce for an extended period of time and significantly impact the chemical related production across many industries.
All adding to the stress supply chain, which we feel in terms of increased disruption in further increases in material costs.
The cost of commodities and semi finished components has reacted strongly to the current manufacturing environment constraints and basic feedstock and lack of labor availability or already elevating already elevated heading into the year cost of the hedge inputs have continued to run for us which is why despite our EPS beat in Q1, we have maintained.
And our prior EPS guidance.
As I mentioned when referencing market conditions, our products remained high in demand with our customers.
In particular, our molded structural composite technology is entering a new phase of the market adoption and we are moving into our next phase of modest MSC for destruction composite technology capacity additions for 2022.
As we mentioned on our prior call continued high demand for our current dry and refrigerated products, coupled with product innovation opportunities being brought forward by the structural changes made to our product innovation and technology team means that we are in need of manufacturing capacity to capture the full value of the innovation in these traditional product markets.
Our forward looking innovation team has done excellent work to identify interesting new technologies that we can leverage across our integrated portfolio of transportation solutions and the other logistics and distribution markets.
And support will be committing new and additional resources into our product development and launch team. The further scale and accelerate the introduction of new engineered solutions and our entry into new product and customer markets. As we have now organized our commercial organization around our dynamic customer base.
We're in the early stages of creating the appropriate conditions to leverage new technologies across our industry, leading first the final mile products portfolio to the extend our competitive advantage with key customers.
With this evolving landscape, we see of receipt real opportunity to grow in our markets and grow the shared value created with our employees our customers and our shareholders.
Given the opportunity ahead of us being facilitated by strategic changes to our organizational structure and the ability to leverage flexible manufacturing across product lines. I can think of few opportunities more beneficial to our long term shareholders than reinvesting in our business to support our future organic growth.
Case in point is our backlog through the first quarter.
It is typical for Q1 backlog declined sequentially. After we booked large deals in the fourth quarter.
Of the previous year.
This year, new orders kept pace with our shipment activity during the quarter as we saw strong demand for our non band business, which again is sold out for 2021.
Obviously unable to go for the orders for the year.
This level of demand for diversified products and final mile was expected given our customer conversations heading into the year, but it's always nice to see the committed customer orders come through as.
As we look to the future demand for Wabash engineered solutions continues to grow in a manner that requires us to act on our ability to satisfy them.
As I previously previously mentioned, we are maintaining our prior guidance.
We are very pleased with how our demand environment has taken shape in 2021 and its extension into 2022 and beyond.
We expect of labor to be of challenge and we were not disappointed on that we.
We remain on track to ramp of our total manned capacity to enter 2022, and a very strong manner.
However, I would say the rise of material cost has been greater than anything we could have reasonably expected given that we are in uncharted uncharted territory with an all time highs and the number of commodities.
I am pleased to see is that we have taken immediate and decisive action to recover a large portion of those costs and manage and other ways to mitigate mitigate the impact far beyond wall bashes performance of the past.
Yeah.
As the World begins to return to something that resembles normalcy, we are optimistic that the labor and supply chain challenges of 2021 will normalize over time and leave us with the less challenging operating environment in 2022, while freight growth remains strong and customer demand continues to be robust. We are therefore excited about what the future of <unk>.
<unk> has many of the structural and process base changes that we've made to our organization and having the intended outcome of synergistically furthering our ability to execute on our strategy.
Our improved ability to operate in the growing reality of the established vision of enabling our customers of succeed with breakthrough ideas and solutions that help them move everything in the first to final mile is now on active play.
We are executing the plan and with that I'll hand, it over to Mike for his comments.
Thanks, Brent I'd like to start off by giving you some color on our first quarter of financial results on a consolidated basis first quarter revenue was 392 million with consolidated new trailer shipments of three of 9670 units during the quarter.
Gross margin was 12% of sales during the quarter, while operating margin came in at 92, 9%.
As Brent mentioned these margins were somewhat above our expectations for the quarter as the result of continued strong cost control.
Additionally, I'd like to reference of 2020 initiatives to lower our cost structure by $20 million of which $15 million was SG&A because after the first quarter, we lose clean SG&A comparisons from last year as furloughs and other temporary cost control measures were implemented beginning of the second quarter 2020.
SG&A was lower year over year in Q1 by $4 7 million. Additionally.
Additionally, about 25% of our savings initiatives are being realized as reductions in cost of goods sold.
So we are pleased that the structural savings are more of that holding during a significant ramp in volumes.
Operating EBITDA for the first quarter was $26 million or six 7% of sales.
Finally for the quarter net income was $3 $2 million or <unk> <unk> per diluted share.
From a segment perspective commercial trailer products generated revenue of $248 million in operating income of $20 9 million.
Average selling price for new trailers within the CGP, whereas rep was roughly $26000, which represents a seven 5% decrease versus Q1 of 2020 as a result of meaningfully higher mix of Pup trailers, where prices tend to be significantly lower at 53 foot dry van trailers.
Diversified products group generated $74 million of revenue in the quarter with operating income of $6 1 million and segment EBITDA margin of 14, 3%, which was the best level since 2016.
Average selling price for new trailers within TPG was roughly $72000, which represents a 4% increase versus Q1 of 2020.
Final mile products generated $77 million of revenue as this business ramps to meet stronger market demand.
S&P experienced an operating loss of $4 million, which was expected in our prior quarterly guidance.
Because of S&P's heavy and increasing amortization burden EBITDA provides a more stable measure of progress and more relevant measure of impact on operating cash generation.
We are encouraged that Fmc's EBITDA moved back to positive territory. During the first quarter with a gain of $621000 as improved volumes allowed us to better leverage our fixed cost during the quarter.
We expect <unk> EBITDA generation to improve in the second half of 2021 as the business installed additional capacity.
To continue meeting customer demand through the Onboarding of new employees.
Year to date operating cash flow was negative $22 million, we invested roughly $4 million of.
Capital expenditures, maybe negative $27 million of free cash flow.
Although our payables widened out considerably receivables and inventory combined to have a meaningful impact on working capital as was expected during the quarter. We continued to show of working capital efficiency in Q1 as part of our one law that transformation and we are well on our way to achieving a capital efficient ramp in 2021.
We continue to target $35 million to $40 million on capital spending for 2021.
With regard to our balance sheet, our liquidity or cash plus available borrowings as of March 31 was $337 million with the $169 million of cash and $168 million of availability on our revolving credit facility, which is fully untapped.
For capital allocation during the first quarter, we utilized $18 $2 million to repurchase shares paid our quarterly dividend of $4 $3 million and invested $4 $2 million on capital projects. Furthermore, in April we made of volatile of voluntary $15 million payment on our term loan.
Our capital allocation focus continues to prioritize reinvestment of the business through of growth Capex, while also maintaining our dividend and evaluate opportunities for debt reduction and share repurchase.
Moving on to the outlook for 2021, we expect revenue of approximately of $1 $95 billion to $2.05 billion.
CGP is right back to bumping up against capacity constraints, while S&P, it's still a plenty of fielding plenty of demand with labor being the primary gating factor.
<unk> backlog is also building nicely. So I'd like to remind you that we do have a quarterly headwind of about $6 million per quarter versus year ago levels. As a result of the absence of divested revenue.
SG&A as a percentage of revenue is expected to be in the low for six range for the full year and we remain on track to sustain the reduction in our cost structure by $20 million relative to 2019.
With around $15 million of that cost out residing with it SG&A.
Operating margins are expected to be in the high 3% range at the midpoint.
Turning to the second quarter, we expect revenue on the range of $450 million to $480 million up 17% at the midpoint sequentially versus Q1 with new trailer shipments of 10500 to 11500, as we look to keep increasing production throughout the year.
Given our expectations for operating margins in the low 3% range in Q2. This implies EPS in the range of 10 to 15 for the quarter.
In closing I am pleased with the results to start to start the year ramping manufacturing is never easy and this year certainly comes with unique challenges for ourselves and other manufacturers, but we see it as a great opportunity to scale up and ensure that we're firing on all cylinders as customers increasingly become focused on 2022.
And what we expect to be a smoother operating environment that will allow us to return the company revenues to levels approaching what was recorded in 2018 in 2019 of the.
The company is just beginning to enter into these exciting times as the structure of our organization is in the early days of it of achieving its intended purpose of advancing our strategy, which emphasizes organic growth leveraging our industry, leading first to final mile portfolio.
With that I'll turn the call back to Lindsay and open it up for questions.
As a reminder, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
Our first question comes from Justin Long with Stephens. Your line is open.
Thanks, and good morning.
I guess of them.
I wanted to start with the question on margin so.
About your operating margin guidance. It seems like the slight reduction there was mainly a function of gross margin.
SG&A actually came down a little bit versus the prior forecast. So can you give a little bit more color on gross margin expectations by segment.
Day versus where they were at the at the start of the year and where you've seen the biggest changes.
Yes, I don't think.
That segment level has changed that much the headwinds that we're facing that would require that the flat markets margin compression is similar across the businesses. So you've obviously got of commodity run up and you've got you've got labor. So those are the two things obviously of that most of it would compress gross margins you are right we will.
Expect we.
We're expecting the actually a little bit better levels of SG&A. So it's all coming through the gross margin line.
I would say for the most part probably <unk>, a little bit more acutely than TPG.
Just given the some of the geographies in their input costs, but they're all still on those basic.
Input cost pressures.
Okay, great and the color on the second quarter was helpful, but any thoughts around the cadence of earnings and operating margin to net the back half of the year, mainly just curious how you expect to exit. This year you made the point a couple of times that the setup for 2022.
Pretty compelling just given the demand environment and some of these cost pressures starting to fade. So curious if you could give us some color on the on the back half.
Yes.
For the most part yes.
Those of the math would tell you our Q1 actuals and Q2 guidance, we expect the second half to be meaningfully above the first half and that's largely because of the ramp as we continue to ramp up we would expect so.
A bunch of improvement every quarter as they go into from Q Q on Q2, we guided to that and we'd expect improvement into Q3 and Q4, so our come out rates into 2022 or something.
Approach, where we've been in the company's very recent history of 2018 in 2019 that I talked about in my comments. So you would expect that.
You would see that improvement throughout the year and we're doing that obviously our guide for Q2 showed that we did have a little bit of a slowdown in some of the hiring of the Brent mentioned that causes Q2 to maybe be a little bit more challenged all of it of thought three months ago, but still well on our way to having a sequential improvement in every quarter of 2021.
Great and last quick question on free cash flow I think you talked about being positive for the full year is that still the expectation.
Yes, right now with our capital plans that we guided to and our.
EBITDA generation, we would expect positive free cash flow.
Okay, Great I'll leave it at that thanks for the time.
Thank you Melissa.
Our next question comes from Joel <unk> with BMO. Your line is open.
Hey, guys how are you doing.
Is it at all.
So can you talk a little bit about.
Like like peak gross margins, if we look out maybe peak is the wrong word, but sort of normalized like as we look out to 'twenty three of 24, when we get through all of these all of these sort of shorter term issues.
And.
Just to give us a sense of of how things are coming together and what you guys are looking at thank you.
Yes, I'll follow up.
So nothing's changed on our view of.
Discussed at the last call that we think of the next two to three years, we can get back to an 8% operating margin, which is still on which is still our goal. We still think that's very doable nothing were seeing today at all.
Preclude us from continuing to hit that whether Thats <unk>.
'twenty two 'twenty three 'twenty for its difficult to say right now so I'm not giving guidance of what here, but what we're seeing as we ramp the facilities back up in the.
The conversations we're having with our customers on the products are coming to market.
Really make us believe those are that's still a very realistic goal as we get some of the near term.
The pressure from commodities and labor behind US, we think for 'twenty, two and 'twenty three will really open up and be really really positive year for us.
I guess it'd be on just a slight more bolt on that.
Barring the.
I will call it headwinds that we see right now.
Just say we are highly optimistic.
That 8% is a doable number we obviously are putting in plans to work to the exceed that.
But very confident in saying, 8% is a doable number and I think the way the world is lining up.
Regardless of the calling at year.
I would say that the day opportunity for that to be sooner than later.
Is becoming more evident in the way the world is shaping up.
Yeah, that's great yeah, because I sense that sort of the.
Some of the the cost reductions and the structural changes even on the on the mix and all of that kind of stuff.
A little bit more positive than then.
Then how things were before can you also talk a little bit about the the.
Your customer sort of like the conversations you're having in terms of pushing pricing through.
And just any sense it seems like the customers really need the products badly and theyre not as worried about the cost side of it but maybe thats not exactly right can you just give us a little sense of how the conversations are going.
Well first off let me say this is strictly the cost price conversation.
We can talk about the more interesting conversations that we're having in terms of growth and innovation.
Separate question.
When it comes to.
Managing the cost realities that we have that we have right now what I would say what is different is that we literally had this conversation with every customer within Wabash national and it doesn't matter what product market.
Which segment you belong within at <unk>, we're having a conversation with you and that has not always been a wall bash handled it.
And the level of success and the scale at which we are acting on the portfolio is much larger.
And what we've seen in the past.
Why can we do that while we've had the increase in confidence.
And what I would call just empirical understanding that the implicit demand for our products exceeds.
Our ability to deliver.
<unk> on the World that we live in right now, we're creating our own reality.
Because of the demand for our products that gives us opportunities to the.
Older more confident in the way that we talk to our customers and that's the way we've approached it not in an arrogant sort of way, but in a matter of fact sort of way and when you've got steel prices that have gone up.
When youre bumping against the $4800 per ton the spot market.
Those are just real and transparent conversations that you're going to have with the customer in order to maintain a viable business. That's what we've done so far.
No one likes it or to anyone who said thank you may I have another.
Some of them.
Taken another.
The hospital side.
But that's the way we approach it.
And then can you spend another minute on your more interesting or two minutes of whatever and then I don't want to take up too much time.
I would just say the last 90 days have been some of the most interesting.
Conversations and levels of output from some of the most interesting names and logistics transportation and distribution that I have had the pleasure of dealing with in my career.
And we're just.
And it feels like we're just.
Touching the tip of the iceberg and.
They all of us.
The all.
Deal with.
Problems that are just endemic within the these how these customers want to act on their markets over the next 2345 years.
And how Wabash could uniquely provide them solutions that no one else is talking to them about and in many ways, we're having that in the context of innovation.
That's coming from we'll call it a widened ecosystem that we're pulling from that they've never been exposed to.
And that creates a different type of conversation then I believe our competitors have the capability of doing.
And this is why we talk about that as we have these and we touch the.
The tip of the iceberg.
<unk> gives us reason to invest accordingly, and the ability of making that real.
And bringing that to the customer's door step in the near term. So we are we're pretty jazzed up with that type of conversation and what we're getting so far.
That's great. Thank you very much I'll get back in the queue.
Thanks Joel.
Our next question comes from Ryan <unk> with Craig Hallum Capital. Your line is open.
Good morning, guys.
Hey, Rob.
Just wanted to start.
You touched on it some but just the confidence and visibility to the ramp in the second half I guess.
Revenue came in weaker Q1 expectations for Q2 also weaker so it's pushing more to the back half here. Despite some.
Labor issues or challenges et.
Et cetera, So I guess, what's giving you that confidence given all of the the headwinds out there that you can make that up in the back half I know of demand is there, but on the production side primarily.
Yes, I would just say the remainder of the.
What I'll call labor ramp that we have the I'll call. It we're over the basic hump of what that looks like.
And the time span, which we need to fill out the labor is extended right.
We will call of less steep of a ramp over the course of the year.
We also have a set of actions, which I will not get into that also begin to impact that labor availability in terms of.
I'll, just say internal things that we're doing to attract and retain employees that we're seeing a level of traction on.
The other thing that we'll see is just basic productivity gains with the labor that we've installed that we're just now starting to see.
That will.
I would call very straightforwardly materialize in Q3 of four.
That's on the labor side of it on the.
The material cost standpoint.
Couple of things.
First off.
For most in most cases of the backlog is set and that allows us to have very straightforward and clean visibility as to what the material cost challenges are on the <unk>.
Customer by customer basis, most if not all of the actions.
We've taken to date and we will still take.
Our Q3 and Q4 are materializing.
Based on where the backlog how early you can act and when those mitigation.
Mitigation factors come into play and so thats, primarily three and four of its pretty straightforward calculable things that we can bake into our guidance on our sequential margin improvement.
And then the other thing where we do have open backlog, we've already priced for.
Which is primarily Q3 and Q4 primarily Q4.
And a few of the product markets that we serve.
Those price increases have already been put in place in real time, and those backlog slots are being filled.
The actively putting in the full impact of materials plus the level of risk. So that's why we are confident and why we can continue to improve throughout the year.
Yes, I'll just add one thing that is always a nuance for Wabash national and that is in the first quarter, we actually produce significantly more trailers and what we ship and the ship numbers what shows up in revenue. So theres always that timing nuance. So the the actual manufacturing throughput would be a little bit of greater than what the red.
The new line, which show the point.
That gives us confidence for Q2, and just to add a little more color. The brand's commentary there is going to be some.
<unk> margin.
Hit in the second half of the year, but it's implied in our guidance and we can see at this point because it's in the backlog and it will be somewhat offset by our <unk>.
Fixed cost absorption that will have as we as we ramp up the facility going into second half of their facilities.
And I wouldn't worry too much about.
Some implied where did the <unk> fall in terms of shipment.
The order everything that was produced.
<unk> been paid for our ready to ship as Mike talked about the other piece of it just from a revenue revenue recognition standpoint, the winter storm that we had was almost a week of literally a seven day period.
Of disruption and outbound shipment.
Tailed off somewhat at the end of that week, but that was something that really impacted that specific business segments ability to ship product and recognize revenue in the period.
Great.
And then just on final mile specifically, it sounds like some sort of more upbeat kind of the commentary from the fleet customers et cetera for the rental fleet I should say.
Im curious of operating margin or I guess is negative again this quarter.
The labor challenges, there, but I guess any way to frame up kind of timeline on when we can expect that to the inflect back to profitability is it.
It can be Q2 or is the second half of 2022 or several years.
Any general kind of commentary on the path back to profitability there.
Yes so.
As I said in my remarks, we expect it to generate pretty significant EBITDA in 2021.
And that will give us on our path of profitability.
<unk> ability on the on the operating income line.
It won't it won't be in Q2, most likely because we sell all of the ramp to do the second half of the year will be meaningfully better than the first half of the year at that kind of pointed to that but by next year. I think 2022 of that business should not only the generate significant EBITDA of I should also be positive on the operating income line as well.
Thanks, guys. Good luck.
Thanks Ryan.
Our next question comes from Jeff Kauffman with vertical research your line is open.
Hey, good morning, everybody.
Hey, Jeff Yeah terrific results on a real challenging quarter.
Just a couple of quick hitters here.
On the on the J B Hunt earnings call. They talked about an increase in the container order of 6000 units on their trailer order of three sales and that incremental was going to go into their trailer pool.
That was kind of an innovative solution as you might've mentioned to conditions in the marketplace.
Im wondering if that kind of thing is what youre alluding to and just without naming customers what types of solutions people are considering given the fundamentals on the trucking market right now.
You always ask these very interesting questions Jeff.
Absolutely what JV is doing and how it's acting on the overall logistics market is part of how Wabash National's views of the future.
Things that are happening happening with brokerage slash asset.
Enabled brokerage solutions is something that we are very keyed into.
Going forward.
And.
J B Hunt.
Is one of those customers that is acting on the market in a way that aligns with where Wabash national sees the world going and as an extension of our strategy as well.
Okay. Thank you. Thank you yes.
Seeing trailer pools and all.
All kinds of interesting solutions of different companies are adopting out there, but when you use that terminology of me think Hunt's commentary. Thank you.
Okay, just a couple of quick hitters.
Mike.
Working capital Big drain this quarter I think you alluded to a little bit of that but I'd like to get a little more color and also the tax rate.
Was a lot higher than I would've expected of 36% can you just address those two real quick.
So the working capital was the drained but I did hit that commentary at the end of the year. We expected in fact, it was it was less than we expected.
We had some really nice.
Working capital efficiency in Q1, we always use working capital on the first quarter as we ramp the business, but we were happy with where it came in and I think I said it could be upwards of $50 million of working capital in the first half of the year might see a little bit more in Q2, but alright. Good pace, we're better than we typically are in a ramp as far as the be inefficient with their use of working capital.
Let me just say one thing on that I mean, obviously that is not by chance exercise with the reorganization with the added.
One wall Bash approach the manufacturing.
Syncing up are in P&L.
Group and our sourcing production of procurement group.
We're just doing a better job at managing.
Inventories from our lean management perspective.
And it's something that we are purposely.
Looking for these results going forward and leveraging them year over year, which is one of the reasons, we've been able to be a.
Aggressive with capital deployment things like paying $15 million on the term loan was because we feel really good about how we're using cash on this ramp of work.
<unk> put some of that capital to work.
People just segue people think lean manufacturing is all about just simple operating results will no. It's about allocating resources in a more effective and value added way and Thats, where it goes what we try to translate internally is we can work working capital.
How's us to do things for the shareholder that other companies may or may not be able to do.
Yes, exactly and then the tax rate Jeff was a one time book to tax true up for some incentive based compensation that won't repeat throughout the rest of the year.
Okay. Thank you last follow up.
Brent this is going to be another one of those interesting questions.
MSC.
I think it sounds like a real game changer.
Thank you.
The unique maybe in the way <unk> might've been the unique at the time to the dry business.
Now a few years into it you've made a large investment in it.
Kind of what's come out better than you thought what's been a little frustrating about it and how is your view on the role of MFC.
Changing within the company.
Well first off I'd say, we are at a very unique point in time, where the I'll just call. It assembly of factors have increased the adoption.
The potential for the technology across the wide array of products and so when we think about MSC, while we originally talked about it in the context of <unk>.
We now talk about it in the context of acting with an.
Not only of refrigerated van space, the refrigerated truck body space. We think it is and is being actively researched and prototypes in spaces outside of our current portfolio of transportation related solutions.
And an active and very scalable way.
That's all in what I would call early prototype phase and so the amount of activity that we have around the idea of MSC technology as that of scale, that's significantly above how we thought about it 24 months ago.
When you think about the value proposition.
When you think about that this product does not tie to material costs.
Like steel and aluminum you start to understand that the material cost Delta.
Can begin to be.
Will it be of value added feature for itself you start to go away wait a minute sustainability in the active value of that for publicly traded companies is growing at a extensive right. So there's value that is being created that wasn't in existence of 24 months ago tangible cash.
Fuel meaningful value of that goes right into executive compensation.
Programs makes it a different sale.
Those are some of the things that have come to bear and as a result, the amount of door knocking to us.
To explain how those could impact their business has gone up.
I would just say significantly just in the last six months.
So that leaves us in a place where not only from the manufacturing standpoint, but from a total business standpoint, we are now entering into a phase where.
Everything from how we sell it how do we engineer it how do we turn it into.
I will call it a scalable bill of material. So the we can produce the scale we've entered into that space as we look forward for the next three to five years.
Okay, that's awesome.
Thanks, Joe.
Our next question comes from Felix <unk> with Raymond James Your line is now open.
Hey, good morning, everybody.
Quite honestly look.
Hey, maybe just a bigger picture question on the final mile.
But if we go back to the <unk> acquisition I'm. Just curious have you guys seen any changes to the customer mix within the business.
Or put another way if there are certain type of customers, whether that's more on the lightweight body side or on the larger side that you're increasingly targeting within that business.
Yes, there is.
A lot of short and long term component to that answer.
What we've got in the near term we saw it somewhat in 'twenty.
We're seeing it from 2021, we're trying to understand what it looks like in 'twenty two.
The larger product, we'll just call it 18 feet longer.
It doesn't have the exact same demand characteristics, primarily based on the pandemic kind of economic reality that also tends to come through the leasing arm of.
Of our product channels, we don't see that as strong as what we've historically seen going all the way back to 2017 and that seems to be we believe a more near term economic reality.
Now what we're wanting to understand is how that manifests itself.
Going forward into 'twenty, two 'twenty, three 'twenty for and how that shifts back and the speed at which it doesn't we believe it will the understanding is this going to be a what I would call a rubber band snapback.
As a gradual wasn't going to be right now it feels more like a rubber band snapback.
That's one side of it I think on the longer term, we obviously see a growth in what I'll call of the class.
For Us class one through four solution set.
Within the space as we see we'll say final mile but bigger than just what do I deliver to the home.
We want to get past and probably need to talk better.
About positioning the that the e-commerce reality of effects.
So much more than just do I have a product that can carry cardboard boxes to the home.
And that is affecting products, all the way up the F&B portfolio or even potential portfolio.
So we see change happening there.
In that space that is generally smaller products compared to an 18 foot or for greater so.
We are dedicating.
We will call on product development mind share in that space as a result so.
Short answer is.
We think lease is going to come back which is going to pressure us on the longer more traditional at the same time.
We've got ample opportunity.
For where the market's going and more solutions being required in that smaller E com commerce disrupted space.
The other thing that we're seeing that's important to note is from 2000 Seventeens are clearly seeing more pull across our whole portfolio from legacy <unk>.
<unk> customers wanting to buy final mile products, and vice versa, S&P customers rely on <unk>. It really is becoming a we talked about omni channel, but if you can comment on omni channel equipment by two and which is one of the reasons. We've made the strategic organizational changes we've made because it really is pulling through the whole product and the best yet.
That's the cold chain of Jones goes back to the question previous that dovetails into this when we now talk about.
Cold chain solutions for customers.
To be named at a later date.
We're not talking to them about just the refrigerated van we're talking about them to them about two to three different types of we'll call. It smaller vehicle solutions to solve a multi problem set of how you deliver and distribute redistribute and move within a fall of <unk>.
Just exchange.
Logistics cold chain and we're asking what is the full technology solution set to be able to do that and so that's a shift and not only how we sell how we engineer, but it also is going to impact the mix of what we produce going forward.
Right.
That's super helpful. I appreciate all the color.
I guess the follow up to that.
On on final mile margins.
We think about it from a higher level of conceptually and just kind of looking at what's the prime used to run.
We have to add back a couple of points of amortization.
But then also looking at what you used to run in 2019 that was before some of the structural initiatives you guys have undertaken for the past couple of years.
On this I should say.
Knowing or understand the demand is on the upswing can you help us walk through some of the puts and takes of maybe 2022 operating margins for that business as you see it now what are some of the key sort of Kpis that you guys are looking at.
Yes for.
For 2022.
Obviously on the margin side of the F&B specifically.
They are looking to get back to a more stable position from the from a labor install of labor base.
That will provide a significant.
Tailwind from 'twenty, one to 'twenty two.
Feel very confident we'll have.
And I would say that's one of our one of our one of our big Kpis of being able to see the labor thats coming on in the <unk>.
Stability in that and we also think another part of that that will help us. We believe we will have a better Q3 Q4 demand profile on that business, which is something that over time over the decades has been a little weaker we think we can that demand improvement in the second half of the year will propel us into 2022, yes, I think the other piece.
That will be a new set of kpis.
For S&P and it's somewhat leveraging what we did with the commercial trailer products. The change the portfolio to a better margin producing portfolio is being able to to do have a more discriminate view of the relative margin potential actual and realize.
By a different segmentation grouping than maybe how.
<unk> historically looked at its business to drive through our commercial reorganization of <unk>.
Different.
Quality of revenue within that within that business So picture.
Third level Kpis that we'll call it inform and encourage different demand.
Inputs.
As we go forward with this business.
Right, Okay, no that makes sense.
And I just had a follow up on the trailer pricing commentary.
I know, we talked about ASP being down.
I think it was quite of bit of mixed driven is there is there any way to quantify sort of of core price metric you guys are getting out of the market right now.
Or any way to just kind of normalize for the mix impact.
I would just say I'll just put it this way for a standard Wabash dry van refrigerated trailer, so from primarily talking about CDP and the way I think you frame that.
I would just say that there.
On that product we are.
The $1 higher.
On a standard 53 foot.
Moderate option product, where thousands of dollars higher than the way, we price the product and realized that sale right now than where we were.
120 days ago.
Got it very helpful I'll leave it there.
Thanks.
There are no further questions in queue at this time I'll turn the call over to Ryan Reed for any closing comments.
Thank you Lindsay thanks, everyone for joining us today, we look forward to following up during the quarter of a great day.
This concludes today's conference call you may now disconnect.
Okay.
Yes.
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