Q2 2021 Wabash National Corp Earnings Call

Okay.

[music].

Good day, and thank you for standing by and walk on to the Wabash National Corporation second quarter 2021earnings call. At this time, all participants are in a listen only.

The mode. After the speaker presentation there'll be a question and answer session to ask a question during the session really depressed star 1 on your telephone. Please be advised that today's conference is being recorded 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. Please go ahead.

Thank you Sarah good morning, everyone and thanks for joining us on this call with me today on Friday President.

President and Chief Executive Officer and Mike.

Got it.

Financial Officer.

Couple of items before we get started first free.

Note that this call is being recorded.

I should point out that our earnings release, the slide presentation, supplementing today's call and any non-GAAP reconciliations are all available at IR Wabash National Dot com.

Please refer to slide 2 in our earnings deck for the company's Safe Harbor disclosure statement addressing forward looking statements.

I'll now hand, it over to Brent for his highlights.

Thanks, Ryan and good morning, everyone and thank you for joining us today I'd like to start by mentioning how pleased we were with our second quarter results and manufacturing environment continues to be challenging for everyone involved.

But I feel all based national is navigating well through this environment second quarter operating prop.

<unk> and EPS came in above our expectations as we executed on the manufacturing side, while controlling our cost structure.

I now want to step back and discuss our ability to execute in this environment.

We are witnessing a new and heightened level of collaboration and coordination amongst our employees as we navigate possibly.

Really the most difficult external environment I've seen in my career.

With our new organizational structure, our supply chain manufacturing and sales teams now work across our businesses to disseminate information and direction more effectively and with higher velocity than ever before.

We are delighted but not surprised because our intent.

To drive this level of management system improvement when we realigned our organization to drive functional excellence as well as a higher level of focus on our customers that span our entire portfolio.

First the final mile.

Speaking of our portfolio I'd also like to congratulate our team on successfully divesting the extract technology business.

At the end of the second quarter.

<unk> is the acquisition of <unk>.

Walker Group Holdings in 2012, while the handful of businesses into our portfolio, most notably tank trailers and process systems.

Extract was also included a net deal and as a leading provider of containment and a septic systems for the pharmaceutical.

Surgical healthcare biotech and chemical markets.

Extract is an excellent business. Our strategy is now squarely focused on the transportation logistics and distribution industries.

As such our best on a review concluded that we should look to monetize the asset and we believe extract is very well situated for the future.

Your ownership of Dietrich Engineering consultants.

I'd like to thank you extract team for their service to Wabash National and wish them all the best in the future.

Also on the strategy front I'm very pleased that Dustin Smith has accepted the position of Chief strategy Officer.

This is a new role for Wabash that is designed to accelerate our.

Our pursuit of innovative technologies expand and increase the velocity of our product development activities as we identify investigate emerging market opportunities within the changing landscape of transportation logistics and distribution.

Nothing has been the fall back to national for 14 years and brings with him broad leadership experience across the areas of Finance magazine.

Under the nurturing and supply chain from roles at Wall Bashing Ford Motor Company.

Most of all he brings with him the press that this leadership team and the rank and file of this organization.

<unk> primary responsibilities will be twofold.

First you will work directly with my pet at night as we draw on the chart and evolving course to drive.

Profitable growth for our shareholders over the next 5 years.

Second he will drive the deployment of current strategic growth initiatives, including cold chain and the portfolio expansion of our molded structural composite technology.

Leveraging the impact of e-commerce, and overall logistics disruption for growth and profitable expansion within updating parts.

It's in service.

Again this type of role would not have been possible in the context of prior organizational structure.

Given our 1 wall based approach this roadmap can prioritize high impact opportunities and marshal resources across the organization to execute our initiatives achieve our vision and live our purpose of changing how.

How the world reaches you.

Now, let's focus on market conditions.

Our market indicators continue to show the underpinnings of a very strong set up for ongoing freight activity.

Elevated retail sales and depressed business inventories are prompting increased manufacturing production, which has dropped driving strong freight activity.

Within a dislocated freight landscape.

As a result, both spot and contract rates reside at very favorable levels for our customers and seem likely to remain well into 2022.

Hi remains a challenge and seemingly all sectors of the economy on our experience has been no different.

That said the name of the game in 2020.

Perseverance and we continue to make improvement on our progress to increase overall labor capacity on a very challenging environment.

Material cost and supply chain performance remain headwinds, but we are handling this in a manner that is considerably better coordinated than in past cycles due to our ability to see the field much better and react in a more deliberate agile.

1 time sensitive manner.

We're also having the difficult but necessary conversations with our customers about recovering cost increases throughout our backlog and we continue to work to mitigate the impact of cost increases on other ways.

As I mentioned on the supply chain side, we are working as 1 team to navigate the uneven landscape.

On the results have been better than expected given the amount of volatility on our diverse supply base.

All types of transportation solutions are on high demand for 2021, and labor and supply chain constraints occurring now has only heightened desire for customers to have demand planning conversations that include 2022 and beyond.

That said our backlog for 2022 has not yet fully been opened.

We remain diligently focused on managing demand in a manner that reflects the reality of the challenges of material cost and labor uncertainty.

And assuring we price products in a manner that reflects that environment.

That includes the reality of the forthcoming demand will likely exceed the industries.

And our and our near term capacity constraints will talk more about that in a minute.

Moving on to backlog, it's very typical for our order backlog declined sequentially from Q1 to Q2.

As we fulfill customer orders and gear up a large deal season from van trailers later in the year.

<unk> backlog strength, and our TPG and F&B segments. Our order book saw from less than normal seasonality would indicate overall backlog remains up 77% year over year.

Moving on to our outlook, we are maintaining our EPS guidance raw material cost increases have been greater than anticipated.

Because on our financial performance in Q2 was enough to offset those material cost headwinds.

Such we are leaving our prior guidance essentially intact.

Because of the extra divestiture, we will address our outlook to reflect the absence of that business.

We remain on track to ramp our capacity utilization to enter 2022.

<unk> in a strong manner I am now going to shift the conversation to discuss how we will better meet the implicit demand for our products and services into the future.

As we think about the past present and future of our manufacturing footprint. We have found ourselves with demand has exceeded physical capacity.

<unk> for the production of dry van.

As a result, we are asked a lot of our workforce in 2018, and 2019 to work significant overtime and many weekends, so that we could fulfill.

As much customer demand as possible and even then we will have customers wanting.

Proppant demand profitable demand.

So our dry van has continued to grow over the past decade, as we have strengthened our indirect channel.

Utilized innovative materials to create by far the lightest driving on any industry and now reorganized our sales force to increase the effectiveness of our commercial efforts.

Couple that with a changing logistics landscape.

Knowing.

<unk> for our customers are uniquely positioned to grow capacity.

And 10 years of continued growth in the overall and overall trailer demand.

And it's time to la based national to move to increase our ability to capitalize on this profitable opportunity.

Therefore, we are announcing the transition of existing manufacturing.

<unk> debt space to produce dry vans beginning in 2023.

And we expect to be able to produce an incremental 10000 dry van <unk> annually.

To put these numbers in context that is roughly a 20% increase on our dry van capacity, but only a 5% increase for the industry.

This is obviously a small change.

<unk> growth stream that a considerable boost of Wabash national's ability to serve our direct customers and supplier indirect channel.

To facilitate this move we will be ramping down manufacturing of our conventional refrigerated van product and.

And converting that floor space to drive and production.

Over the next 18 months.

The transition of this existing floor space and this existing highly skilled labor force create.

Create significant and sustainable financial benefit for Wabash has it provides both top line growth and accretive margin potential.

When considering the strategic impact of our <unk>.

From the other end growth targets.

This aligns with our intent to transition our traditional convinced conventional refrigerated product technology.

<unk> superior and industry, leading molded structural composite technology.

<unk> with a more efficient and innovative future refrigerated van production capability.

Molded structure composite technology refrigerated vans have over 10 million miles on the road and show better thermal efficiency combined with its lighter weight designs.

With a different differentiated approach to refrigerated trailers that addresses our customers' growing needs for sustainability on operating efficiency, we expect the follow.

So up with an announcement of additional molded structural composite refrigerated van assembly capacity in the coming quarters.

When we started our journey to disrupt the refrigerated industry several years ago.

We did so with the specific intent to jump over the competition with superior technology.

We have now reached the point where <unk>.

Conventional wafer design is the past and we are all in and commercializing the future.

Let me close my portion of the call by saying that I'm extremely proud of our team's performance through these unusual times.

In 2020, we posted the best cycle trough performance in the Companys history by.

By generating over $100 million of free cash flow.

We now continue to raise the bar on our performance at a different phase of the cycle as we manage through unprecedented labor and supply chain.

Environments, while generating strong operating income.

This very obvious improvement doesn't happen by trying harder.

These improvements are the result of our refreshed strategy and on organization does now structured to execute that strategy.

All of these exciting changes that have happened at precisely the right time as we look forward to continuing this cadence of improved execution paired with the ability to move.

Thoroughly.

More dynamically serving customers in the coming years.

With that I'll hand, it over to Mike for his comments.

Thanks, Brent I'd like to start off by giving you. Some additional color on our second quarter financial results on a consolidated basis second quarter revenue was $449 million.

With consolidated new trailer shipments of approximately 11500.590 units during the quarter.

Gross margin was 12.4 percentage of sales during the quarter.

Operating margin came in at 5% or 4.6% on a non-GAAP adjusted basis.

Brent mentioned these margins were somewhat above our expectations for the quarter.

As a result of continued strong cost control.

Operating EBITDA for the second quarter was $30.35 million or 7.8 percentage of sales.

This is an EBITDA margin that is consistent with margins generated prior to the pandemic.

Finally for the quarter net income was $12.3 million or 24 per diluted share.

<unk> and non-GAAP adjusted basis, EPS was <unk> 21 zone.

From a segment perspective commercial trailer products generated revenues of $296 million and operating income of $32.3 million.

Diversified products group generated $77 million of revenue in the quarter with operating income of $5.8 million.

Or $4 million on a non-GAAP adjusted basis, when we take out the gain on the sales extract technology.

Final mile products generated $81 million of revenue during the second quarter.

Customer demand remains considerably stronger than industry production would show.

While labor challenges have been par for the course in this business supply disruption.

On a dozen greater as chassis Oems have taken unclaimed downtime to adjusted capacity to chip shortages and we would expect these chip related chassis headwinds to continue for the rest of 2021.

FMT experienced an operating loss of $3.2 million.

But again at $1.3 million of EBITDA.

Cause of Fmc's heavy an.

An increase in amortization burden EBITDA provides a more stable measure of progress and we're in a more relevant measure of impact on cash generation.

Operating cash flow during the second quarter was $9.3 million, we invested roughly $6.9 million via capital expenditures, leaving $2.4 million of free cash flow.

Working capital increased during the quarter.

Rob from primarily from inventory as volumes continue to ramp partially offset by strong customer receivables.

We remain on a path of achieving a capital efficient ramp during the remainder of 2021, and we would expect to be free cash flow positive in the second half of the year.

Because of our actions to reach our existing capacity to support expanded.

On to drive and production, we are increasing our capex guidance by $20 million to an anticipated range of $55 million to $60 million on capital spending from 2021.

With regard to our balance sheet, our liquidity or cash plus available borrowings as of June 30 was $304 million with a $136 million of cash.

<unk> cash equivalent and restricted cash and $168 million of availability on our revolving credit facility, which is fully intact.

As Brent mentioned, we completed the sales extract technology at the end of the second quarter in.

In 2020, we announced that we will be reviewing our portfolio of businesses for fit.

Since that time, we have divested ex.

Cash flow Youll tank trailers and sold our last remaining Wabash branch locations.

These actions come after the debentures.

During 2019 at Carson and aviation refueling business.

Through these noncore asset sales, we have raised a total of approximately $40 million and also structure on our portfolio in a manner that aligns with our strategy for growth.

We feel great about the businesses that now comprise law Bash national and our corporate development focus is ready to flip from divestitures to building a pipeline of potential acquisitions.

The second quarter was a very active on for capital allocation as we used $30 million for debt reduction $22 million to repurchase shares 7.

On $1 per capital projects and $4 million to fund our quarterly dividend and we still ended the quarter with over $134 million of cash on the balance sheet and net debt leverage of only 2.6 times.

Our capital allocation focus continues to prioritize reinvestment in the business through growth Capex, while also maintaining our dividend and evaluate opportunities.

For debt reduction share repurchases and M&A.

Moving on to the outlook for 2021, we expect revenue of approximately $1.9 billion to $2 billion.

From a revenue perspective, I'd like to remind you that we have a headwind of about $12 million per quarter versus euro versus year ago levels. As a result of the absence.

Absent the revenue from what is now 2 divested businesses.

SG&A as a percent of revenue is expected to be on the low 6% range for the full year.

Adjusted operating margins are expected to be in the high 3% range at the midpoint, which resulted in an EPS midpoint of <unk> 72.

With a range of 67 to 77.

Again, the update to our EPS midpoint as a result of the divestiture of extract technology.

Turning to the third quarter, we expect revenue in the range of $510 million to $540 million up 17% at the midpoint sequentially versus Q2 with new trailer shipments of 12.500 to 13500 as we look to continue.

Increasing production throughout the year.

Given that material cost headwinds will intensify as we move through the remainder of this year, we expect operating margins in the high 3% range in Q3. This implied Q3 EPS in a similar range to Q2.

In closing I'm very pleased with our performance for.

Half of the year.

As is evident from our financial results. The company's execution has been quicker and more decisive which is which has been enabled by our new organizational structure. This new structure has proven integral in helping us capitalize on near term on near term opportunities and we believe it will continue to prove effective as we execute on the medium term opportunities.

For the first presented by strong customer demand as well as the longer term opportunity and our strategy, which emphasizes organic growth leveraging Wabash has industry, leading first to final mile portfolio.

Expanding our drive add production capacity as an exciting investment that underpins our first to final mile strategy and will further enable performance and.

We will strengthen our push towards 8% operating margin, which is a target. We continue to expect to achieve by 2023 with that I'll turn the call back to the operator for questions.

Thank you Sir.

A reminder to ask a question press star 1 on your telephone.

A question press the pound key please standby.

<unk>, let me compile the Q&A Ross.

Your first question is from Justin long from Stephens. Your line is open.

Thanks, and good morning.

Morning, Justin.

So the quarter was better than expected, but with the full year guidance has not changed.

Changing when you strip out the divestiture that implies.

Half outlook is maybe moderated a bit I just wanted to clarify.

What's changed from that perspective, it sounds like most of that is material cost increases.

Is there anything else, that's driving that maybe debt.

Sam on potential chassis issue, if you could give an update there given some of the data points, we've seen in the industry.

Yes, I would say that the main headwind, but as far as materials. So the team has done a really good job of offsetting as much of the material cost as possible through price increases.

And some of our inherent processes, such as such as hedging.

Delay some of the material cost debt that we're going to see in the second half of the year. That's a big part of what you see in terms of the margin compression from first half to second half I think you overlay that with an opportunity that may have been to offset some of that.

<unk> cost increase with additional.

Additional volume is just not going to be possible in businesses like F&B geometric from chassis. There's a finite supply of chassis, we're going to get so where we would have thought we might have been able to get from additional volume. We're just not going be able to do that now with the chassis constraints the demand exceeds our supply certain commodities and it's not just chassis. That's also a fault on refrigerated trailers.

Yes, I think that's the important piece is not to not to get hung up on any 1 supplied material flow.

By far.

Every manufacturer in this industry and many industries are dealing with is just the inflationary pressures.

That we feel across the supply base and that's really the conversation.

There is.

1 supply chain element that you can hang your hat on and say if we could do this.

Volume would begin to just come volume from the trees, that's not going to happen.

We are increasing production through the second half of the year, because we manage it better than we believe our peers.

No. It doesn't mean that we're not impacted across the board with daily supply chain issues.

This is really an inflationary conversation.

In terms of our first half to second half of the year.

Understood.

Helpful and maybe I can share mix to net capacity.

Here's The addition, Brian as you think about the decision strategically to add capacity in 2023 can you just talk about your comfort in doing that I mean, obviously debt.

The cycle right now is extremely strong trailer demand is high you know where we are in 2000.

<unk> III is a bit more of an unknown, but is there anything you can share in terms of just longer term relationships with customers commitments that they've made that might support net capacity addition, and the return on this capex investment.

I think the easiest way for us to be.

On the 20th got it both here at Wildlife National on the and on the call.

Is that implicit demand the law based on national dry vans.

<unk> has grown over the last 10 years by actions that we've undertook.

And we saw that drive and market share expansion in 2020 on when we were relieved from.

We'll call it industry demand constraints right. So our capacity exceeded industry demand, we grew market share accordingly, while preserving price.

When we look at how we believe the industry is now growing right has grown over the last 10 years that's without.

We aren't really debate, we've seen the peaks get.

Higher we've seen them extend.

The market has shifted Wabash shifted accordingly.

So when we think about this dry van capacity addition, we're not playing a cycle, we're not looking to capitalize on again on cycle. This is taking advantage of a structural shift.

NAV.

Unmet need for our customers.

That we're sizing the capacity for we're not sizing it for what we think the overall industries is doing we're sizing it for what we talk to our customers about it and how they look at their long term.

357 year demand cycles.

And their communities.

Location of unmet need for our product that's how we look at it as why we are very confident.

And that this is an excellent investment in the business.

1 point to add to even at mid cycle volume levels.

Our existing dry van manufacturing footprint works on a tremendous.

Tremendous amount of overtime.

In cost.

Adding this capacity and Mike how does this change the incremental and decremental.

Briefer.

As we move forward.

The all in cost is in the 6% to $70 alright.

4 we would still expect to be.

We're able to to be cash flow positive second half of this year and for full year 2022. So this is this isn't on investment that is funded through free cash flow and we'll still be able to be positive and generate really good returns on this thing selling capacity.

Okay, Great I'll leave it at that I appreciate the time.

Thanks, Jonathan.

Sure.

Your next question is from Jeff Kauffman from vertical research your line is open.

Thank you very much and congratulations on a solid quarter.

Just a couple of detailed questions here in the P&L for <unk>. It looks like other operating expense was only about $6 million normally that would be.

And as debt because the gain on sale was taken against such numbers on that division.

The gain on sale was it was on the DBA business Jeff.

Okay.

As we continue to ramp up in 'twenty, 1 going into 'twenty..2 so there was we had a tailwind on our on our base.

Currently installed capacity as we get the manpower required to run in 2022, then you'll add to volume on top of line 3 that we are necessarily talking about the more simple and traditional.

Increases in throughput and capacity on other aspects of the business that are additive to how we believe we will perform in 2022 and beyond.

Okay and thinking about the.

Refrigerated business.

Making refrigerated.

Out of a different okay.

Out of the refrigerator business for about a year, while these changes occur.

So what we will be doing is we'll be utilizing the effective capacity at conventional reapers foray.

We'll just call it.

We'll call it the majority.

As of 2022, we'll begin ramping that down.

On the midyear time frame simultaneously, we will be ramping up ascend.

Assembly capacity for our MSC.

All composite reefer and alternative location and that will be early.

What I would call more grass roots capacity additions.

And then simultaneous to all that we will be talking about what the future capacity model will be for all composite.

Refrigerate advance in.

In 2023 and beyond.

Okay.

I think I heard Mike say, we're still think an 8% operating margin is when we get out to 2023, so now you're saying, 8% on the higher volume numbers. So in effect it's a.

Guidance increase in terms of profit dollars in the year 2023 is that the right way to think about it.

Would you censor really Jeff yes.

We think as I mentioned the mix the mix inherent in there on the drivers of the river. This is an enabler to achieve 8% sure that everything that we're doing inside the organization, Jeff is about maximizing profitable growth.

First and foremost and all the actions are summing up.

That reality.

And then just 1 more on net and then Im good. So you mentioned the Capex increase for this year.

How should I think about capex as I look out to 'twenty, 2 and 'twenty 3 do we still have this elevated $55.60 million spend rate next year.

Does that start to come back down toward a more historical level or is there a new historical level since we will have new facilities and new locations.

Yes, I don't want to give specific guidance out to 'twenty 3 balance day 22 will be elevated line.

'twenty 1 to finish the capacity installed and then we'll look at 'twenty 3.

Does it being elevated forever over the next 5 years, but over the next 2 years, we will need additional capacity.

So not only.

Do the dry van from re force proppant that we've mentioned, but also to install new capacity and we're going to need in 2023.

Well. Thank you for your answers terrific quarter good luck.

Don't see that.

Yeah.

Your next question is from Felix <unk> from Raymond James Your line is that day.

Hey, good morning, everybody good.

I wanted to do it.

Hey.

I was kind of hoping to stay on the 8% op margin from 2023.

It feels like you're around 4% for the full year on 2021.

There's a couple of cost items in there as we think through labor day.

On materials supply chain, even premium freight.

Maybe 2 parts, if and I'm not looking for exact guidance, but can you help us understand how you would expect margin to kind of ramp.

Into 2022 on the way towards that 8%.

And then there are.

Cask, yes, maybe we'll start there absolutely I think first and foremost is the material cost headwind. We are seeing in 2021, let me frame that for people.

People on the call, it's about $120 million on total cost.

Increases we've seen from a material perspective in 2021 that the team has done a very good job of offsetting a large percentage of that is how we were able to maintain our guidance through the year that will be fully priced into our 2022 backlog and thats whats opening up here over the last couple of weeks on into next couple of weeks that count.

Accounting for all of the into.

<unk> that we've worked really hard to offset in 2021 will be fully baked into 2022 and that will be the number 1 improve or from the margin that you're thinking about going from high threes to 8.

We're going to get a big big pop in material margin from that also obviously as you've mentioned as we're ramping that facility, whereas on a lot of our standard labor cost Center.

We're hitting on all year, along a lot of that will be behind us. Those are the 2 biggest biggest enablers as well as the full year effect of volume so the ramp through 2020.

1 is as implied in our guidance will be coming out at a much higher rate. So those those are the items that will really lead to the increase in actually just accelerated in 2023, where we're confident.

That percentage and I would add on the pricing side of it.

If you look at the script.

And you read the created again, we talk about the backlog that being fully opened.

Is it safe to say, we have tested the market and understanding what.

Price can be in 2022 coming.

We can any day.

No absolutely how we have raised.

<unk> pricing to offset costs.

The fourth quarter.

As we lead into 2022, so we feel good that the market will allow appropriate pricing.

To manage this business going forward.

Offsetting materials accordingly.

From a from a pricing perspective now that we know that we know we're looking at going into 2022. It is much easier to stay ahead of it on when it was in 2020 going into 2021 and that's the number 1 reason we have high degree of confidence that we'll see margin expansion in 2020.

Right.

Okay. That's helpful on that that's kind of exactly where I was going with this line of questioning and so I'm curious just on the $120 million raw material headwind.

That's a gross number do you have a net number for us after the after you've re price some of the backlog I would presume.

Yeah, I'm not going to give you the net but I'll say that.

We have repriced.

The majority the vast majority are in order for us to maintain guidance, we would've had to hedge on that.

Clearly, we have not gotten it all and but we've gotten a day.

I would echo a substantial portion far beyond.

The industry norm.

And far beyond anything Wabash.

National was executed in the past.

Okay. That's helpful. And then just to be clear on your pricing comment and understanding you haven't fully opened the slots for 2022, yet, but whatever that net raw material headwind will be in 2021 off the growth 120.

Would you basically assume.

To net out to zero into next year.

Year over year benefit.

That would be assuming there's no additional pricing for.

Demand, yes that would be the net benefit that would be I would say the minimum net benefit could be that delta, but I think there's other opportunities.

Took price from a problem at all.

I want to make it very.

Very clear that we are pricing for the total environment.

Okay very helpful.

Okay, and then I had a different 1.

More on the capacity expansion.

Hum.

So obviously, obviously you feel that theres been a shift sort of in the trailer market.

From a demand perspective that that's not that's not a cycle comment button and through cycles, you'll be able to take on it continues at that new level.

I'm curious as you look at maybe the rest of the industry have you seen anybody else come out and really trying to add capacity. During this time or do you think that that 5% that you would be added to the industry.

Capacity is sold on your expectation over the next couple of years.

I think the.

We feel very confident that the 5% capacity at that we've got it will be met again with intrinsic demand from the product we have.

Unmet need I think it's safe to say the unmet need.

Cash National drive ads throughout the last 3 to 5 years of market performance.

Exceeds the 10000 units that we're putting in place so we feel pretty comfortable that.

We will still have conversations with customers about their unmet need even going forward.

Got it Okay. That's very helpful. And then just this is the last 1 from me, but I think in your opening remarks, you mentioned cold chain and operating as 2 major initiatives I presume that's on the final mile side.

I was just wondering if you could maybe give us some color around what percentage of the final mile book and kind of up to an hour today.

And maybe what the what the what your refrigerated yes.

<unk> as a percentage of the book.

I think first off I wanted to take a step back from that and when we think about bidding in the universe that we play in from first to final mile.

Don't necessarily see it limited to just.

Coming off of the traditional.

Final mile Cot revenue base, we think there are emerging opportunities first metal and to a degree.

I'm sorry.

Not only final and middle but also on first mile based on where logistics is going.

So.

It is real.

It needs to be needs to be looked at total book of business now specific to your question I'd say roughly.

We capture somewhere north of 20%.

On the product that we produce today.

<unk> through some level of Wabash national updating whether it be at a.

Decoupled site or at the primary final Assembly factory.

We would grow off of that accordingly.

We are expanding and expanding net dot 2 middle mile product, which.

Traditionally thought of as <unk> revenue base, but we see.

That now emerging as logistics continues to change that's different than maybe how we thought about parts and service.

510 years ago with the traditional branches and service offerings that we had for CPP. This is a different model.

And it is because logistics is changing.

On and can you touch on the Corp. The cold chain question again to make sure I answer that specifically.

Yeah I was just curious because I know you do some refrigerated bodies in final mile. I was just curious what the updated split was.

Is.

As a percentage of total book above refrigerated other models.

Yeah from a.

Revenue perspective today.

15% ish, a 1.5%.

It's not it's not yet optimized I think what's important to note when we talk about cold chain, we're talking about that cold chain from first to final mile on even outside the core transportation.

And MSC will play not only in our refrigerated trailers, but also in refrigerated truck bodies and inserts and theres lots of opportunities on the horizon for us to really grow that percentage at the low present today.

Product hasnt been a differentiating point, but it will be with MSC and we're just at the early.

Patient with.

Growing that book of business with MSC truck bodies.

The opportunity not just on trailers and truck, but yeah, we really have to think about again cold chain like updating cold chain now has to be thought of as encompassing all of our we'll call. It traditional traditional revenue streams and we have to manage it because.

Stages versus now span.

Accordingly, right. So even when we talk about MSC, we talked about it as an enabling technology not a product in and of itself. It's an ingredient.

So.

As we make moves with reverb bands you can you can expect that simultaneously, we will be making moves.

Cash.

Integration.

And value, creating opportunities by broadening that ingredient into our final mile related books of businesses as well and that capacity that we add those dollar spent will not reside and create value just in 1 P&L, but multiple P&L.

The score that's how we create synergy and our first to final mile application on 1 wall Bash organization.

Got it very helpful I'll leave it there.

Thank you Andrew.

But do you have a follow up question from Jeff Kauffman from vertical research. Your line is open.

Hi, guys.

Mike can we go back to that $120 million cost increase for 2021.

When I think about what debt.

Could mean on a per unit basis.

Dividing that by the full year assumed production or just your percentage of production in the second half of the year.

I guess, 1 leads me to an increase of about $2500 a trailer that seems low the other.

Leaves me to about $5000 a trailer that same time I'm just trying to figure out how to think about <unk>.

Forecasting as we're heading into 2022.

Yes, so what's important to note Jeff is that as well.

Our whole book of business, but there is not going to able to get it to box and that's the actual increase we saw incremental to what our hedging programs would have offset so the actual cost increase is more than that but we were able to flow to some of our programs are those fixed pricing with our suppliers or hedging we're able to blunt some of that that is the actual impact we saw in 2021 calendar.

We had to go out back out to our customer base and try to offset we didn't have to offset things that we already on hedge. So that's why you can't get to back the number of index.

Some research that's out there, Jeff where there's estimates of net 6 to $8000 range.

1 of those cases.

Yes.

That is indicative of the environment.

The industry has paid a total of the total cost increase far exceeds 120 to 120 is a piece of the team in 2000 and the year of 2021 had the offset and that's what's important.

Even in our implied guidance when we went out earlier in the year.

We were able to offset the vast majority of.

Debt to maintain guidance so the total cost of more than 1 line.

No. That's helpful. Because we had calculated the 6 to 8000 increase in these numbers are coming in lower so I was trying to bridge to GAAP.

I think a pretty poster.

Thank you.

There are no further questions at this time I will turn.

Second word seek line wheat.

Thanks, everyone for joining us today look forward to following up during the quarter have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.

Yeah.

Okay.

Nicole.

Okay.

Yeah.

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Net.

Yes.

Sure.

Yes.

[music] weighted.

1 day.

Moving now.

Okay.

Every day.

Your line.

Yes.

On the kind of thing.

Richard.