Q1 2022 Wabash National Corp Earnings Call
Good morning, My name is Stephanie and I will be your conference operator today.
I would like to welcome everyone to know why Bush first quarter 2022 earnings conference call.
All lines have been placed on to prevent any noise.
After the Speakers' remarks there.
And the answer session, if you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question Press Star one. Thank you Ryan Reed director of Investor Relations you.
You may begin your conference.
Thank you good morning, everyone and 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 our Investor site at one wall Bash Dot com.
Please refer to slide two in our earnings deck for the company's safe Harbor disclosure addressing forward looking statements.
Just a quick reminder, that registration is open for May 19th Investor meeting on our Investor website.
Forward to the opportunity to address the changes we've made in support of our new strategy and how those changes facilitated our longer term outlook.
I'll now hand, it off to Brian .
Thanks, Ryan Good morning, everyone and thank you for joining us today.
We have a solid first quarter and a bright outlook to discuss but I'd like to start with a plug for our recently issued 2021 corporate responsibility report.
At the onset.
I'd like to clarify that I see this as much more than just report it ticks a box corporate responsibility is core to our strategy and I am proud of the progress made across the organization with the stewardship of our corporate responsibility team, which is made up of a cross functional group of high performing individuals at various points in their careers.
This approach to efficiently allocating talent to grow our capabilities within our strategic initiatives corporate responsibility.
One example of how we maximize the impact of our organization is capable of making with our one wall Bash approach.
This team brings to life, our commitment to changing how the world reaches you and makes an outsized impact to drive positive change for our organization and our stakeholders.
I understand the ROI of sustainability, and social responsibility and shaping the way we bring our purpose to life.
Shapes important elements like engineering solutions that allow our customers to minimize their environmental impact or building, a corporate culture that embraces diversity and inclusion.
We are deeply committed to being leaders in making the world around us better.
Moving to updates on our growing portfolio of engineered solutions. We are very pleased with the reception of our truck body products at the recent work truck show in Indianapolis, we display.
A range of truck body solutions, including dry body, featuring <unk> technology as well as two different refrigerated solutions both thing.
Terry do you go next technology fees.
Feedback from our product lineup is very positive and this show provided our first large scale opportunity to show off our refreshed Wabash branding.
Message to customers has been at our branding refresh is meant to be the finishing touch on a holistic within our company to be more customer centric and organizationally simpler, creating the broadest and easiest transportation solutions provider to do business with.
This is a message that customers have embraced.
We are seeing is that visionary leader, who can collaborate with customers create differentiated solutions that solve their greatest challenges rapidly changing transportation logistics and distribution landscape.
To that point, we are launching a nationwide partnership program to apply our engineering expertise and support of alternative powered vehicles.
Many of our truck body customers have interest in gaining exposure to electric vehicles within their fleets and we believe that the EV segment offers a step change in the mobility technology available for customers to achieve their operational environmental goals. We also believe that Wabash is ideally situated to create value within this evolving ecosystem by providing.
Innovative truck body solutions that help facilitate EV adoption.
While that used truck body offering for alternative power chassis features lightweight composite technology designed to offset battery weight reduce corrosion susceptibility, while embedding aerodynamics and enhancing aesthetics to complete a look and feel consistent with moderate cap designs on alternative powered vehicles.
Although wabash's platform is not exclusive and chassis agnostic we have developed an excellent collaborative relationship with Taylor Bollinger Motors, and we're working with them to jointly develop a prototype vehicle as we prove our concepts.
We also have active discussions with other Oems.
And given some of the ongoing challenges with ice chassis.
We believe additional chassis suppliers will be positive for customers as well as our manufacturing cadence.
The degree and rate of change of battery and EV chassis design requires us to take an open platform approach to ensure we are properly aligned with technology development over the long run to walk into any one design or battery solution be shortsighted and create undue risk.
Lastly, we're excited to launch a new technology alliance with acquiring technologies that is focused on trailer applications, including new advanced connectivity applications that will be essential as electric and autonomous vehicles come to market.
As a first step road ready advanced trailer telematics systems will become standard equipment, all Wabash dealer stock trailers.
Our new strategy and vision continue to drive focus on solutions for the transportation logistics and distribution markets.
Strategy, enabling and customer aligning changes in our organization structure, we are accelerating our internal rate of change and focusing our development activities on innovative products and services that will create value for our targeted set of customers.
You'll notice that many of these developments within our portfolio link back to the environmental aspect of our corporate responsibility focus we are intent on providing solutions that allow our customers to move forward with sustainable products that aid in their operational effectiveness. While also build out after sales solutions to support these products.
Moving on to our first quarter financial performance. Our team continued to work diligently to generate revenue and EPS that exceeded our initial expectations.
Fortunately hiring activity has increased allowing us to ramp our production rates at a measured pace in line with our expectations.
Between increased volumes and improved pricing revenue increased nearly 40% from a year ago.
Stability also strengthen as we began shipping 2022 backlog and I was pleased to see margin improvement each month throughout the quarter.
Moving to market conditions first I think it's important to address that we buy and the invasion of retraining to be a heartbreaking situation for many individuals and families.
We certainly hope that the end of this horrific violence will soon be forthcoming.
As those who follow our company know our revenue exposure to Europe is effectively zero post divestiture of extract technologies in 2021.
It's also important to mention that our supply chain is highly levered to North America with no known exposure to either Russia or Ukraine.
In addition, we continue to reduce our exposure throughout our supply chain to China and other Asian countries.
Part of a strategic pivot initiated in response to 2018 tariff changes.
All part of building, a strategically resistant and robust supply chain that supports a first to final mile portfolio products.
We estimate that 95% of our tier one spin is within North American resources and over 80% of our tier two and tier three remained solidly in North America.
From a macro and market perspective, we keep our eyes on a variety of short term indicators.
While tracking spot rates have declined in recent weeks, we as well as other market participants have recognized for some time that relief all time highs spot rates will be reasonably expected.
That said as we've seen across many aspects of the post COVID-19 business cycle trends don't necessarily follow the traditional norms and I think it's important to distinguish that although rates have come off of peak levels. They still reside in very healthy territory.
It also is important to recognize that substantial trucking capacity is tied to contract rates, which tend to be more stable over time as we speak to customers. They remain extremely confident in their ability to continue to operate profitably in the current environment.
Our customers are committed to deploying capital to refresh their equipment as well as plan for incremental capacity as trailers continue to provide compelling economics to customers. We continue to believe the structural changes driven by e-commerce related logistics disruption the entry of new customers for trailers and the emeritus at larger trailer pools will drive extended positive demand.
Backdrop over the next several years as a reminder, the trailer industry has a strong seasonal pattern of ordering activity and which OEM backlog still during the second half of the calendar year.
Then burning off through the first two calendar quarters.
<unk> within our customers' businesses from first to final mile has been well reflected in our backlog, which stood at a first quarter record of $2 3 billion.
That represents a 50% increase versus the same period last year.
2023 backlog development is coming into view as robust conversations are taking place at an interesting and constructive manner with those customers that lead the pack in logistics innovation and growth given the visibility provided by our strong backlog aided by a more certain margin structure, given our updated advanced pricing methodology, where please.
To raise our 2022 EPS outlook to $1 90.
In closing our new strategy is being enabled by supporting organizational changes.
Our journey to change how the world reach issue continues to press forward as we add to our portfolio of solutions with development driven by the intersection of sustainability and customer needs.
Meanwhile, the beginning to 2022 was marked by great execution by our team and our solid backlog enables the confidence necessary for an increased EPS outlook of $1 90 and 2022.
With that.
I'll hand, it over to Mike for his comments, thanks, Brian I'd like to start off by providing some additional color on our first quarter financial results.
Consolidated first quarter revenue was $547 million with new trailer and new truck by shipments of approximately 11695 and 3540, respectively. As a reminder, shipments tend to be that we get from that first quarter and we actually delivered a slight sequential step up from the fourth quarter. Additionally.
Trailer build rates improved significantly in Q1 and rebuild approximately 800 more units than we ships taken together. This bill in shipment data gives us confidence in the trajectory for the remainder of the year.
Gross margin was 10, 6% of sales during the quarter, while operating margin came in at three 7% and generally in line with our expectations.
Operating EBITDA for the first quarter was $36 million or six 6% of sales.
As Brent mentioned from a margin perspective, we saw improvement throughout the quarter as early months in Q1 were impacted by shipments from our 2021 backlog.
Spilled over into 2022.
Shipment margins noticeably improved as we moved through the quarter and transitioned fully to a 2022 backlog mix and we are excited about the flow through impact of this mix going forward.
Finally for the quarter net income was $12 1 million or <unk> 24 cents per diluted share.
From a segment perspective transportation solutions generated revenues of $502 million and operating income of $32 million.
Parts and services generated revenue of $47 million and operating income of $6 8 million.
We also continue to believe our parts and services segment has started charting a path of sustainable growth during 2022, and we will continue to prioritize the expansion of recurring revenue.
Year to date operating cash flow was negative $35 million working capital continues to be elevated through the first quarter. However, we do expect a release of working capital as we fully ramp up and approach our installed capacity levels around midyear.
Our current target of 2022 capital spending is between 80 and $90 million as we continued to make progress with our strategic capacity expansion and the conversion of our Lafayette based south plant from wafer capacity to drive any capacity.
Even with our increased growth Capex budget, we expect to be solidly free cash flow positive in 2022.
With regard to our balance sheet, our liquidity or cash plus available borrowings as of March 31 was $203 million.
With $73 million of cash and cash equivalents and approximately $130 million of availability on our revolving credit facility.
I'd like to point out that our refinanced debt structure is now effectively pulling through over $1 million quarterly and year over year interest expense savings.
With regard to capital allocation during the third quarter.
We utilized $5 million to repurchase shares paid our quarterly dividend of $4 million and invested $10 million in capital projects.
Our capital allocation focus continues to prioritize reinvestment in the business for growth Capex, while also maintaining our dividend and evaluate opportunities for share repurchase alongside of bolt on M&A opportunities.
Moving onto our outlook for 2022, we continue to expect improvement in both revenue and margin performance through the year, particularly in the first half the continued strengthen our backlog coupled with successfully adding approximately 300 production employees for the second quarter in a row allows us to increase our 2022 outlook.
We expect revenue of $2 5 billion, which was set a new record level for the company. Additionally.
Additionally, we expect EPS of $1 90 per share, which was meaningfully exceed the recent high achieved in 2019. Despite building lesser unit volumes as we continued to ramp our operations through 2022 as compared with 2019.
Full year 2022 operating margins are expected to be approximately 6% at the midpoint and we are well on our way to achieving our 8% operating margin target by 2023.
While we did see some improvement in the supply chain in their first quarter I'd like to reiterate that this guidance continues to assume that presence supply chain conditions persist for the remainder of 2022, we expect second quarter revenue in the range of $600 million to $640 million and EPS of <unk> 45 to <unk> 50 per share for the.
Quarter.
In conclusion, the first quarter was an excellent start to an exciting year or one while that team has done an excellent job of embracing strategic and organizational change while at the same time answering the call by significantly ramping the business in a very difficult operating environment.
While there is still much work to do at this point, we're very well positioned to deliver a strong 2022.
I'll now turn the call back to the operator, and we'll open it up for questions.
At this time I would like to remind everyone in order to ask a question.
Please press Star then the number one on your telephone keypad.
Your first question comes from Mike <unk> with D. A Davidson.
Your line is open.
Yes, Hello, good morning, guys. Good morning.
Right.
I wanted to start out with a question about your pricing.
Pricing on.
New trailers, great job on the quarter you had some really strong pricing I think you are 37000.
Could you maybe tell us if you were able to fully offset price cost in the quarter and if there is any kind of downside was the prior year, but was that perhaps some lingering.
Manufacturing inefficiencies there.
Provided on the <unk> concentrate will be appreciated.
Yes, so Mike.
Any of the price cost that wasn't.
<unk> in Q1 is due to some backlog that we had that slipped from 2021% to 2022, we talked about that a little bit the last call. So we did have some of those units.
That would have compressed the material margin in Q1 that is behind US now the pricing is relatively flat, but what youre going to see now is a full mix of 2022 priced units going into the next three quarters and Thats why we feel really good about our implied margin uplift in our full year guidance.
Okay.
No.
So I was just announced.
Okay.
I wanted to ask.
Sorry, yes, I wanted to ask.
Maybe about 2023 order books.
I wasn't sure if it was.
To be clear on the.
On your comments are the order books actually open.
First wanted to be at this point.
And do you know if your competitors are open at this point.
Yes.
Most of our competitors haven't even fully opened up their 2022 yet.
And the Conservatives nest that they're using.
To manage demand.
We've been much more bullish in the way that we've approached 22 demand, especially with the variable pricing that we've put in place that's working extremely well.
A follow up to your previous question is that we saw very clean results in the month of March that really showed the flow through of pricing.
Starting to see the improved efficiency with the labor that's been brought in over the last two quarters. So we see be feel very good about that now when you talk about 2023 demand we are sitting with a very robust set of.
2023 customers that are looking to begin to populate 2023 right now.
And while the books arent officially open.
Diligently working on some longer term agreements and some strategic customer demand that we think will be able to talk about on the second quarter earnings call.
The books will probably open up a little bit earlier than they did for even 2022 to meet the demand as we very specifically shape, how we want our demand profile to look.
In 2023, we feel very good about how that is setting up for US right now we're in a little bit different position in that the some of the players that are more robust.
Have longer term growth needs are talking to us ahead of the curve.
While some are just trying to figure out 'twenty two they are working with us on 23.
That's.
Great color.
I'll throw one more question out there in that as well.
I think I have some questions from some folks.
With an argument about whether what we're seeing right now is they are cycle upturn or a structural change and trailer sales.
How trailers are sold.
They are being used for these the new implied in your in your press release that there was some.
<unk> is being used in new and interesting ways.
Any comment as to what you think we are seeing right now is it more just a positive cycle. Thanks to high rates or is it more of more dropping.
More other ways to use trailers.
And does that change the kind of long term view on what the average replacement year might might look like next time, we have one.
Yes, we absolutely subscribe to the fact that there are structural changes and logistics across the board driven by.
The broader effect of e-commerce , creating friction and dysfunction from first to final mile. Most people think about that just being at the final mile ends of the spectrum and they fail to realize how that.
Goes upstream and distress through mid two first mile and as a result that friction continues to drive a higher tractor trailer ratio across that entire spectrum.
Of assets.
Not just in the truckload not just in first mile that we're talking middle mile. All the way to <unk> items. So we are seeing both private fleets, who are really looking to grow their capability or they're internal fleet structure to manage their supply chain and logistics costs really ramping up what they are going to be buying.
Strategically over the next three to five years, we also see the rise of digital brokers and we will say larger trucks traditional truckload companies moving into the brokerage space.
With conviction really looking at trailers being something that era is the.
A critical link to make the business model work.
When we talk to some of the forecasters out there that.
Kind of leverage rearward looking models to predict the future.
You are missing this demand.
The structural force.
In terms of how 23, 24% and 25 are going to pan out.
There is too much going on out there in a disrupted world of logistics to just do the old style spot market maps.
Looking at just basic brakes seasonality to distinct that you've got the whole picture of what's going on and those customers that we're talking to right. Now about 23 to 25 are very convicted that regardless of what happens with freight.
They are going to be buyers in the market because they are solving a different problem.
Yeah.
And just and just maybe.
Do you think that that's what you think liberate an average youll look like once all these new customers all of these different customers upon the up and fully running here.
Great question.
I think the math is still out on that but I think when youre looking at.
We've done a historical kind of.
Mid cycle year, I think youre talking somewhere in that 15% to 20% missing.
Demand looking at historical models.
And I think Thats, a conservative statement doing heavy discounting based on the rhetoric that we see right now from customers.
It's still early and I hope to be wrong in that but it's actually a much greater need than what I'm, saying right now.
Great I appreciate that I will join us for the forward to seeing you guys in a few weeks. Thank you.
Thanks, Mike.
Your next question comes from Felix <unk> with Raymond James.
Your line is okay, Hey, good morning, everybody Hey, good morning, everybody.
Thank you.
Hey, Mike maybe this is best for you.
But I was curious if you could comment maybe on the monthly margin progression you alluded to.
Two questions on that was March the first I'm going to call it clean quarter of.
Sort of new variable pricing model on the trailers.
And if you would provide maybe a margin run rate at the end of the quarter I think that'd be super helpful.
Centralized.
Yeah, we clearly saw a step up in.
And margin as we went through Q1.
I.
I don't know if March was 100% clean yet because we're still working through as you know we've got to build ship the dynamics, so as needed and things we build early in the quarter may not ship until late in the quarter, but.
<unk> is clean and so that gives us pretty good view of the.
The margin that we would expect.
In Q2, which is implied in our guidance.
Those operating margins will be at levels. They are.
Right back in line with where they were pre pandemic now and don't forget one of the things that I think people Miss.
While we've got our price material cost.
Margins lined out now we've accounted for all of the material cost that came in in the greater inflation of 2021, what we're still doing is ramping the facility is pretty aggressively. So we are still seeing.
Ramp cost with people coming on I mentioned that we've added theater people two quarters in a row, which is fantastic progress, but that comes with that comes with some cost with manpower training and ups going into some churn. So we would expect some of that to be in Q2, as well and Thats why I really point to what kind of a huge step up from Q1 to Q2 in EPS.
So we've implied in our guidance, you'll see a smaller step up but it will still be there in Q3 and Q4 largely due to the stabilization will get within our operations and I would also add on top of that Mike as Mike said, we're talking about margins going through the year that are pre pre pandemic levels pre pandemic, we were running.
At effectively 100% capacity, so obviously to Mike's point, we were buoyed of those variable cost pressures with ramping up and everything that goes with that inefficiency, but today, we will still be.
Throughout most of the year, depending on your product line 15.
Call it 20% below.
Absorption levels that we saw during that period as well.
Our implied guidance for unit count is still significantly below 2019 levels, which.
Don't want to get too far ahead of us as I've talked about 2023, but it gives us a lot of confidence in the runway we see over the next couple of years. So theres a lot of positive structural changes that we've accomplished over the last couple of years that will just continue to show as we raise the proverbial water level with production that will flow out.
Okay Super helpful. And then maybe this is a good segue into my second question, but I'm really curious if you could talk about Wabash, maybe internal capacity.
I know you guys have onboard are quite a few employees over the last call it three quarters.
Curious how you see you guys stacked up today and sort of how much more there is to come to sort of adequately meet what still feels like super strong demand right now.
Yes, So we had a really good last I'd say six to 10 weeks of Onboarding.
Across the business really picked up in the middle of Q2.
I'll take the middle of Q4 and has been strong sense and thats without having to make any real further adjustments in wager or benefit to make that happen. So we feel really good about where we're at.
In terms of bringing labor onboard there we are right on target for where we need to be with labor at this stage of the game, we feel very good.
That labor is in place to meet the guidance put out at this stage, where we wouldn't have done it.
And we still think it's based on if supply chain continues to stabilize and improve which is a positive sign.
The labor market looks like it's there.
For us to continue to ramp throughout the year.
We will generally we know that our truck body business is seasonal so that's always a an up and down exercise, but the other aspects of trailers of our trailer.
Solutions group will be effectively running at full capacity across the board as we enter 2023.
Okay helpful. And then maybe a bigger picture question for you.
You alluded to this earlier already in the call, but obviously it seems that April .
April and large spot rates frankly has slowed quite a bit.
And historically trailers do correlate significantly with the health of the overall truckload market I E pricing.
The trailer pool phenomenon seems very unique this cycle.
I'm curious if you could expand a little bit more on how you think this might impact your customer mix through cycles, if any at all and any sort of margin implications with that.
Yes, so <unk>.
Spot rate is obviously something that is most sensitive to those I'll call. It those carriers that are asked us to we'll call. It the smaller size end of the spectrum.
And those are the ones that most people will allude to they're going to have the most trouble with spot rate are our customers our strategic customers. The vast majority of the customers our dealers sell to are much more protected.
And our harvesting of great contract rates right now.
And when you talk to them. They are very bullish in what they will be able to do with contract rates.
In stabilizing those within a good range of profitability going into 2023 at this stage.
So when we look at spot rates fluctuating at this level spin.
Specifically for for dry vans were going to see that possibly at the tail end of the dealer exposure.
But at the same time, we can't keep stock trailers on the yard at dealers right now because they keep moving so we have seen nothing in terms of any impact of spot rate on the buying decisions of customers that we cater to I think some of our competitors may be more exposed to that because they are not a premium product.
But we cater to a different group of customers and we've been planting our portfolio to be more robust for exactly. This reason so that we outperform the market regardless of what's happening now.
Now related to trailer pools, and others those customers that are going to be impacted by spot rate right are going to move to something those trucks and those drivers will go somewhere and we think that's even going to further embolden. The power only model, that's being created which is going to put more fuel.
And to the trailer pool.
Fire and is just going to.
Again important.
<unk> digital brokers and truckload groups going into digital brokerages.
To further fund their trailer pool creation over the next three years.
We've got a different type of call. It virtuous cycle, that's being created in the buying habits and the business model structure of trucking that I think people Miss out there.
And <unk> is best positioned to be able to take advantage of this and we're doing it right now and the discussions with those customers as we bring this to to execute a bowl.
<unk>.
Got it very helpful. If I could just sneak one more in I'm just curious if you could talk about there.
Third party chassis supply as it relates to your truck body book.
If anything sort of changed are getting incrementally better worse sort of expectations through the rest of the year.
Sure.
<unk> up until about.
Five weeks ago, we're still pretty choppy, we have started to see it.
Incremental improvement with specifically lighter duty chassis is coming off the line.
Several of the providers the medium duty are still a little tough the feedback that we get is that that should begin to relieve itself going in kind of I'll say mid to the end of the second quarter. All of that is in line with our expectations and guidance.
We've put to the street.
I think this is going to be a different type of.
Truck body, a year across that specific industry segment, where chassis will actually improve quarter over quarter throughout the year, which will create a different I'll say demand slash revenue output than what we've seen in the last five to 10 years.
That's an important point when you look at modeling.
Up there we've guided to.
Through the year.
We believe that the truck body shipment number in Q1 was a low point of the year for sure and it's permanent so we're starting to see better flows that's going to provide a a natural tailwind for us as we go into Q2 into Q3, because we are starting to see some improvement did come off of a very low level in Q1 of this year, but we have the backlog we have a very strong backlog in that business, we just yet.
The chassis flow that we've got truck bodies picking up all year you have overhead absorption.
It's going to approve all year stable variable pricing, which has us as a as a new fact.
For what we've got we've got.
The variable cost will continue to come back into line as friction and inefficiency leaves the business. So.
We feel really good that as you look at how this year pans out and then as we kind of spread to end of 'twenty three.
We're really in a good spot right now.
Thank you I appreciate it.
Got it okay. Thanks very much.
Okay.
Your next question comes from Justin long with Stephens.
Your line is open thanks.
Thanks, Good morning, and congrats on the quarter.
Thanks Joseph.
I wanted to start with a question on the guidance specifically around SG&A. So I think youre expecting SG&A to be five 5% to 6% of revenue now for the full year. You were previously expecting something that was closer to the mid 6% range. So could you give a little.
Bit more color on what's driving that and just thinking about it from a high level revenue guidance went up.
SG&A percentage went down but the operating margin guidance is unchanged. So can you just kind of help me think through that and maybe what the offset to lower SG&A was.
Yes, so a lot of that from the SG&A perspective, obviously SG&A tends to be a bit more fixed so as revenue went up we see a little bit less percent of SG&A as a percent of revenue. We also Q1 numbers.
Liver.
Pretty good continued cost control of SG&A that we've talked about for the last couple of years with our one Wabash initiative has really driven some nice efficiency through our corporate operations and that continues to pay some dividends and we essentially guided to that some of that to flow through to the full year.
On the op margin side.
Just say as Brent mentioned the backdrop is so positive for Wabash right now that we are taking a measured approach to how much cost it may take to ramp to facilities, because we're going to invest in the people and necessary.
Equipment to be able to hit a very strong demand environment for the rest of 'twenty, two and 'twenty three.
Don't know exactly when that stabilizes, whether it's midyear or later in the year, but all of that is implied in our guidance that as we hit those full line rates, which we're still ramping to then youll start to see that operating margin start to expand again.
But it's really us making sure that we are accounting for all of the necessary cost related to the ramp Thats ahead of us and are well underway.
Okay.
Okay, Great and I guess following up on that point is there any color you can give us on the expected ramp in trailer deliveries on a quarterly basis over that the rest of the year and thinking about 2023 is everything with the capacity addition plans still intact.
Yes, yes, it is and so the revenue ramp is going to.
It's going to follow along with the EPS guidance that we gave we gave the guidance.
<unk> for Q2 of $45 50, and I would say Q3, and Q4 are going to be flattish.
So youre looking at about 20 or so in the second half of the year split between those two quarters, but there is normalized that that come out rate of Q3, Q4 that add surge volume on top of that.
Don't forget net out the refrigerated mix, but you're going to have a net of 5000 AD to come out right. In Q3 Q4, you start to get to a really healthy EPS profile in 2023.
I want to add a little bit more additional color around that.
<unk>.
Very confident.
And delighted with the progress we've made with surge implementation.
We have.
With reviews, we've had with equipment providers.
The timeline, we've got we are really sticking to that first kicking it off really in the first of 2023.
And we feel very good about that.
And customer.
Expectation slice demand to be able to utilize that based on the conversations we're having are exactly what we thought it would be.
So everything just keeps come online with that on top of that and we've alluded to we're ramping down our conventional reefer business.
To make room to convert that plant to dry vans. The work that we've done with <unk>, which is our proprietary composite solution.
As a specific application and refrigerated trailers and truck bodies continues to grow at an astounding rate and an accurate is pressuring us to look at how we can bring capacity online.
And in a more I'll call it earlier and effective manner.
Which is very positive for us that we're working through right now.
The.
Characteristics and value that it creates are really resonating with customers and they see how from a sustainability standpoint, it makes real sense for them.
To do this at a substantial scale so everything we're looking at between capacity expansion.
And new product introduction really is in sync right now to our expectations.
Okay.
Great to hear and then last quick one from me our buyback factored into the updated guidance for 2022.
They are not.
Okay. That's all I've got I appreciate it.
Thanks, Jess and dresses.
Your next question comes from Jeff Kauffman with vertical research partners.
Your line is open.
Thank you very much hey, guys congratulations terrific quarter.
So couple of <unk>.
Bigger picture questions here one detailed question my detailed question is.
If I look at the operating income by Division. There is the transportation solutions. There is parts and service and then Theres eliminations and other and normally that runs about 12% to $13 million rate per quarter. This quarter. It was in the 18 range I'm going through the release trying to figure out anything weird that would have driven it up. So is 18, the new run rate was there is some.
That flush that that caused that to be so large this quarter and I should think about 12% to 13 is kind of the normal run rate could you help me understand that.
Yes, sure now is that going to be as high as 18, Jeff. There is a couple of things that ran through in Q1.
There were some.
Our rebranding costs that were through there. We've also got some.
Internal operations efficiency.
<unk> that are working to continue to ramp the facility that are more variable.
One time type costs that are running through the P&L in Q1. So those are those are two big drivers that will normalize and bring it back closer to what <unk> seen historically.
Is that going to be more of a later this year thing or is most of this impact local to <unk> I'm just thinking about how to model two Q3 Q4 a year.
The metal for Q2, and then it gets back to more normalized levels in Q3 Q4, okay.
Okay awesome.
And then in terms of modeling.
Taylor deliveries.
Got the act data I've got an idea of what your normal share sorry on each quarter, but because of the shutdown of refrigerated production.
So to bring on the dry van this next year is there going to be more of an anomaly in the <unk> seasonality of <unk> or are we kind of prebuilt those trailers for customers and we will still be delivering even though we might not be producing.
Aye.
I don't think well see any abnormal seasonality I think for the most part.
Uh huh.
As we ramp we know Q1 is always a tough shipment quarter because typically their equipment is really needed that earlier in the year, but we build it.
I mentioned in my comments that we built 800 oriented Zoe ship, but as we get to Q2 and Q3 you tend to see those built ship numbers normalize. So I would expect pretty normal I'm going back to kind of normal pre pandemic seasonality.
For the rest of the year, so I don't.
I expect anything abnormal from a seasonality perspective.
I would expand on that and say even in 2023, as we shift and grow capacity still shouldnt have any.
Dramatic effect, the same seasonality on a higher base, which still generally apply yes, jeff or within a percentage point or so of our normal seasonality on a quarterly basis.
Okay, and if I do the math I know one of the callers earlier talked about the ASP per trailer in the quarter could you break that down like what is the mix difference. It seems like tank trailers did a little bit better in <unk> than they have in the last few years.
I know one of your competitors was talking about.
Curtailing, some flatbed production because of aluminum allocations.
I guess kind of put this into one big question are you.
Benefiting from any of these competitive shortages in the market and is that affecting the mix, which might be impacting the ISP in some way shape or form.
First off I'd say across the board we are at a very advantageous position relative to.
Industry related supplier shortfalls.
Everyone is impacted to a degree but we are definitely.
We will call it a preferential ice in terms of our position with the supply chain.
I wouldn't say that we've had any major significant changes in mix.
That would affect the math that you're doing.
The vast majority.
The weighted Matt is the rise in ASP of dry vans.
While we've.
Addressed inflation across all of our products the leverage point is by far dry vans and working through our ASP math on a consolidated basis.
Okay and then one last question if I can and thank you for that.
Brent you were talking a little bit about evs, and avs and smart trailer technology and changes in the marketplace.
Clearly to the extent this became an industry requirement.
Ticket would benefit <unk> in a big way, but can you talk a little bit about some of the.
Trailer configuration changes that are probably going to be necessary say, if I go out three to five years, whether it's the EPA related or explain to us a little bit maybe how smart trailer technology would be necessary to work with autonomous vehicles or electric vehicles.
Give us a sense of that advantage.
Yes, So let me come back to the when we talked in the very first part of the earnings call. We talked about corporate responsibility, we talked about sustainability.
As a key part of our strategy. This really roles into your question. So with the centralized R&D group in product development group that we have that we put in place about a year and a half to two years ago. It was all with the ideas that you are talking about in mind.
We clearly see that the need for advanced technology that facilitates changes in trailer design to accommodate everything from added weight and the tractors the battery way auxiliary batteries.
More fuel efficient better thermal dynamics are all aspects in changes in overall transportation system design that is trailers, the truck bodies tanks, and arguably giving giving getting in the flatbed.
What youll see over the next three to five years is that that intersection differ.
Different technologies, requiring a change of state and system design I think youre really youre, probably you will see it in about call. It three year three or four from now.
But youre going to see the leading edge of it and Thats some of the conversations we're having with our large longer term strategic customers as do the advanced product planning that allows them to bring EV and other alternative energy systems online.
Now when you think about autonomous shifting gears, a little bit and the.
Overall operational sensing that's required to facilitate that that is part of sustainability is part of solving a driver shortage, so on and so forth and all pressured by the regulatory.
Ski that's out there.
Friction into the system.
If youre going to get to the class three or four system.
For autonomous or at least going to be a class III to make any economic sense to solve these problems and arguably it needs to be a class for that.
That requires a total system designed to bring the sensing.
Up to a level, that's why we partnered with Clarice technologies.
Got to get exactly knowing what the solution is but to bring that big part of that ecosystem together. So that we can bring all the parties to solve that problem. We're not racing right now to do the small scale.
Presence sensing devices that many of our competitors are out there trying to do right now we're positioning to solve a much bigger problem to bring this type of technology to.
The market. We also see this as being a key part of EV adoption, because the dynamic by which calculations to manage range.
And battery selection are going to require the trailer to be a huge part of that calculation.
And we're working on trying to understand how best we can facilitate that so where the trailer of choice because that is going to be a key aspect of understanding cannot using EV.
Power unit in this specific lane or track. So we're working on all of that Jeff with much bigger picture in mind and say those that we kind of hanging around with in our industry.
And then I guess to the point, if you're a major company and we know who's out there testing it.
And this is where youre thinking of going in three years to four years.
You need a trailer partner who is working on it now this isn't something you can just turn on a dime to three years from now.
Absolutely right and we've got the best partners, we've got the best call. It R&D staff.
I would say not only in our industry, but I would argue.
Beyond our industry working on this and some great third parties that were partnered with we have a much bigger vision.
How we play in this market.
The upcoming future.
Awesome, we're looking forward to Investor day, and thank you for your answers.
Thanks, Jeff.
Okay.
There are no further questions at this time, Mr. <unk> I'll turn the call back over to you.
Thanks, Stephanie Thanks, everybody for joining us today, we'll look forward to following up.
Okay.
Thank you. This concludes today's conference you.
You may now disconnect.
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Yes.
Okay.
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Okay.
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