Q3 2022 Wabash National Corp Earnings Call
Good morning, My name is Rob and I'll be your conference operator today.
This time I would like to welcome everyone to the well Bos third quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you were.
To withdraw your question again press Star one.
Thank you Ryan Reed Senior director corporate development and Investor Relations you May begin your conference.
Thank you and good morning, everyone. We appreciate you joining us on this call with me today are Brent <unk>.
President and Chief Executive Officer, and Mike Pettit, Chief Financial Officer.
Before we get started please note. 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 available at IR Dot one Wabash Dot com.
Refer to slide two in our earnings deck for the company's safe Harbor disclosure addressing forward looking statements.
And it off of Brent So he can get us started with his highlights.
Thanks, Ryan good morning, everyone and thanks for joining us today.
Had a strong quarter and outlook to discuss but I'd like to start by reviewing the exciting progress we've made in advancing our strategy over the past quarter.
Our team has continued to execute on changes that are building the structure for Wabash to change how the world reaches you.
During the third quarter Wabash added two important partners to our industry, leading dealer network.
Are these truck centers and alliance trucks are both located in the northeast and fill a critical gaps in the Wabash network by providing the type of high level expertise and service our customers desire to support their businesses in this rapidly changing logistics environment. We are very excited to welcome them to the Wabash family and I believe this.
This is another proof point on how we see our dealer network is a critical enabler to our strategy going forward.
From a product brand standpoint, we announced the launch of our <unk> portfolio of solutions for intelligent thermal management with superior thermal capability through the use of advanced materials and enhanced structural integrity enabled by breakthroughs in system design.
<unk> solutions are positioned to provide enhanced thermal management performance over a wide range of use environments and applications.
The <unk> product line shows our commitment to developing innovative cold chain solutions that ultimately will span beyond the transportation distribution and logistics landscape.
The overarching therm random barela encompasses our innovative eco next technology, which offers lighter weight paired with thermal advantages that do not require sacrifice and structural integrity.
In August we announced a $20 million of investment to be made in our manufacturing capacity by 2023 to produce eco next piece.
These efforts have Wabash weapons, I shouldn't generate an incremental $125 million of cold chain revenue by 2025.
I'd also like to say a few words about it recently held stakeholder conference call at ignite.
Out in late September .
<unk> was created the foster powerful collaboration between our suppliers dealers customers and other innovative partners with expertise and experience in spaces like digital brokerage electrification cold chain autonomous vehicles regulatory forces sustainability, and social awareness and changing logistics model.
With Wabash acting as the connective tissue between these diverse constituents. This conference provided a peek into the future of what our company is working to create as we continue to build an ecosystem of innovative partners to help us bring forward looking solutions to the transportation logistics and distribution space.
At this event, we announced a new partnership with feeding America, which builds on our decade long history of supporting food banks in our local communities.
A feeding America corporate partner, we look forward to working alongside some of our customers and suppliers as well as other global businesses and the fight and under.
<unk> contributions to feeding America are dedicated to supporting mobile food pantry programs, which increase the access to food and underserved areas and require equipment like Wabash's refrigerated truck bodies to keep the program running we're excited to add this new partnership to our growing list of corporate responsibility efforts that positively.
Impact our world.
Before I move on we also had the opportunity at our ignite conference to recognize 34 of our top suppliers for excellent performance during 2022.
Although it has been a challenging year to maintain stability of supply throughout the whole of the industry I believe our supply chain has worked diligently to ensure that Wabash received supply commensurate with the strength of our product portfolio and our vision of the future.
I also believe that we have done well to structure a supply base is overwhelmingly centered in North America insulating us from the geopolitical important issues seen elsewhere.
Finally on the strategy front I'd like to mention that we welcomed a new director to our board in September trend Broberg as the CEO of a service.
Emotive logistics as a service platform.
Previously spent time with truckstop dotcom real time freight LLC and Swift transportation, we look forward to the contributions trend is able to pull from his extensive experience with major carriers as well as with digital and technology applications within the transportation management space.
Lastly, with our board of directors support we amended our asset backed lending facility, increasing the total credit facility to $350 million and.
And creating additional liquidity up to $125 million.
I'll, let Mike give more details here, but decreased liquidity gives us even more optionality as we move forward with our trailers as a service offerings as well as other investments required to move our strategy forward.
Moving on to our third quarter financial performance, our team delivered record EPS of <unk> 73.
With certainly exceeded our initial expectations for the quarter.
Increased volumes and improved pricing revenue increased 36% from the same quarter last year to an all time record of $655 million.
Profitability also continued to sequentially strengthened as we achieved 14% gross margin and eight 1% operating margin.
Like to call out that our operating margins expanded by 430 basis points relative to the same quarter last year.
Moving to market conditions, I'm, not trying to add to the debate on macro conditions.
It is important to mention is that implied demand for our products is so far above the industry capacity that even if implied demand is reduced by a macro event. We suspect that it will result in what we consider a good year for the industry.
Additionally, we have already learned in 2020 to that supply chain conditions now magically get better with the turn of the calendar year and as our industry continues to be constrained into 2023. This actually has a way of smoothing demand in the future years when.
When you layer and the structural changes in demand coming from digital brokers power on the solutions and the growth of trailer pools more generally we continue to feel very confident in our longer term financial targets into 2025.
Our backlog remains very strong at $2 3 billion, especially considering our strong record revenue coming out of the backlog during Q3 for anyone concerned that our backlog didn't continue to go up.
And to the right during the quarter Dumpy, it's critical to explain that the way we are filling our backlog has changed although our backlog is open.
This is not a first come first serve contracts.
We are intentionally curating, our 2023 backlog the center upon important strategic conversations with customers, who are not only interested in buying across the Wabash first to final mile portfolio of solutions, but also interested in collaborative demand planning and securing capacity for a period that looks beyond the given year.
As you all know we have undergone substantial organization change over the last few years to create the right structure in order to enable this type of strategic progress and we are beginning to reap the benefits of our one wall batch organizational structure as long term customer agreements come into focus.
We expect to have updates to share with you on that front in the coming weeks and months.
Once again, our backlog remains at $2 3 billion in Q3 and that is a purposeful outcome that we're very pleased with our backlog ending Q3 represents approximately 20% increase in the same period last year and also implies $1 $7 billion of orders for 2023.
I would like to conclude addressing our backlog by mentioning the cancellations across the business remain effectively nonexistent.
As I mentioned before with near and present constraints to industry production meeting implicit demand. It is difficult to foresee a scenario where carriers meaningfully reduced our trailer purchases knowing how many years. It can take to make up for that on the other side as well as the opportunity cost of missing out on top market conditions.
Storage <unk> followed periods of weakness.
Given our exceptional Q3 results and the visibility provided by our strong backlog, we're excited to raise our 2022 EPS outlook to $2 15.
There are multiple ways of backing into a reasonable 2023 outlook based on our 2022 performance.
We will save 2023 guidance for our Q4 call because I believe our backlog speaks for itself.
However, you arrive at your thoughts for 2023, we're likely to substantially outpace our 2022 performance as.
As well as any EPS figure from the prior decade.
I also think it's reasonable to point out that with our 2023, arriving in about two months and no clear return path to pre COVID-19 supply chain conditions demand may easily continue to push from 2023 into 2024, which may insulate our industry from some of the broader macro concerns.
I hope that the execution against our strategy is becoming clear.
It has not been for a lot of heavy lifting behind the scenes to structure our organization to enable our strategy.
But we're here and it's very gratifying to be in a phase where I can see progress quarter in quarter out we continue to engage an impressive array of strategic partners to help us move faster on our journey to bring innovative solutions to the transportation logistics and distribution industries product demand remains robust evidenced by our <unk>.
Strong backlog and we remained well suited in case the environment diverges from our expectations with a very strong balance sheet and excellent operators, who generated $104 million.
Free cash flow during the turbulence of 2020.
I'd like to close by thanking our team members, who have executed extremely well to help us achieve record quarterly EPS and more importantly, an accelerating pace of strategic progress with that I hand, it over to Mike for his comments.
Thanks, Brent starting off with a review of our third quarter financial results consolidated third quarter revenue was $655 million.
With new trailer and truck body shipments of approximately 13365 units and $4115, respectively shipment activity remained strong relative to ongoing supply chain in this and combined with our pricing construct that quickly recovered commodity price increases we achieved record quarterly revenue during <unk>.
Q3.
Gross margin was 14% of sales during the quarter, while operating margin came in at eight 1%.
This is a year over year improvement of 340, and 430 basis points respectively.
Operating EBITDA for the third quarter was $68 million or 10, 4% of sales, which is a 350 basis point improvement versus the third quarter of last year.
This was yet another quarter of margin improvement as we are seeing the intended impact although gaining input cost inflation experienced in 2021 as well as some stabilization cost inherent in ramping facilities to achieve record revenue.
During our 2019 Investor day, we laid out an operating margin target of 8% and despite a lot of twists and turns thrown at us by a global pandemic I am very pleased to be able to exceed that threshold and our third quarter and we are projecting to achieve that in Q4.
Finally for the quarter net income attributable to common stockholders of $36 2 million or <unk> 73 per diluted share from a segment perspective transportation solutions generated revenue of $612 million and operating income of $63 million.
Parts and services generated revenue of $47 million.
And operating income was $7 7 million.
Year to date operating cash flow of $72 million and I believe we have ample opportunity to reduce working capital going forward.
With capital spending continuing to build throughout the year, our target for 2022 capital spending remains between 80 and $90 million and we are on track with our strategic capacity expansion and the conversion of our Lafayette based south plant from wafer capacity to drive and capacity.
Even with our increased growth Capex budget, we expect to generate over $75 million of free cash flow in 2022.
With regard to our balance sheet, our liquidity, which comprises both cash and available borrowings was $350 million as of September 30.
During the third quarter, we increased the size of our asset backed lending facility to $350 million, creating immediate additional liquidity of $100 million.
And thats, the $125 million, depending on our asset base.
We also extended the maturity of our ABL out to 2027, which reinforces our patient debt structure.
This added liquidity provides us with more optionality in how we accelerate our strategic initiatives, specifically, our trailers as a service platform.
With regard to capital allocation during the third quarter, we invested $20 million in capital projects utilized $11 million to repurchase shares and paid our quarterly dividend of $4 million.
Our capital allocation focus continues to prioritize organic growth capital spending while also maintaining our dividend and evaluating opportunities for share repurchase alongside of bolt on M&A opportunities.
Moving onto our outlook for 2022, I'm very proud of how our team has executed this year as we pull through yet another guidance increase due to our strong financial performance during the third quarter.
We expect revenue of $2 5 billion and we are increasing our outlook for EPS to $2 15 per share from $1 90 previously.
This guidance implies that Q4 looks relatively similar to Q3 from an EPS perspective.
As you can see from this slide we are on pace to meet or exceed all facets of our financial outlook for 2022 as it was laid out at our Investor meeting in May of this year, our strong execution in 2022 gives us an increased level of confidence in achieving the longer term financial targets, we have issued for 2025.
As Brent mentioned, we will give formal guidance for 2023 on our Q4 call.
There are a few points I'd like to highlight.
We would expect 2023 to show meaningful progress to all of our 2025 financial goals as laid out in May and given our Q3 performance and Q4 guidance that it appears to be a very reasonable assumption.
Secondly, we are launching our drive and capacity addition, in the first quarter of 2023 and like all significant capacity additions. This will come with a volume ramp that we'll see lower volume early in the year and then much greater volume later in 2023. This will also mean that we will see a bit more margin pressure in the first quarter versus the rest of 2000.
'twenty, three which is already the typical seasonal cadence.
Lastly, I would expect 2023 to be a year when we'll start to see the consistent margin and growth profile of our parts and service segment, we remain very.
We're excited by the growth prospects of this business along with recurring revenue that it provides.
In conclusion, I'm very pleased to report such a strong quarter on the way to a record year for Wabash I'm excited to see our team is executing on our strategy and also pleased with the moves we've made with our balance sheet to financially support the strategy. Our backlog is as strong as it's ever been and the changing more collaborative nature of filling our backlog.
As likely to generate more proof points over the coming quarter of how we are structurally improving the foundation of our company.
With that 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 Press Star then the number one on your telephone keypad and your first question comes from the line of Justin Long from Stephens. Your line is open.
Thanks, Good morning, and congrats on the quarter.
Hey, Thanks, good afternoon.
I guess to start with the performance in <unk> and the guide.
Guidance for <unk>, obviously things are playing out better than you expected in the second half of the year.
I wanted to see if you could provide some more color on what specifically is driving this upside just because the cake was kind of baked from <unk>.
Trailer pricing perspective, so I'm, assuming this is all operational but would love to get more detailed thoughts on what's driving the upside.
Yes, Jeff.
And as you mentioned were projected in Q4 to be in line with Q3 and a lot of it is just its stability and our ability to produce units.
All of our.
Operations and manufacturing facilities, it's not.
I wouldn't say, it's near back to where it needs to be which is part of why were somewhat measured and looking at 2023% to continue to look at the macro landscape, but it's clearly reached a level of stability that has allowed us to.
Get some conversion cost improvement and Thats, what youre seeing in Q3 and Q4.
Got it.
Thinking about next year, I know youre, not giving specific guidance at this time, but just bigger picture from an industry perspective, I think acte's forecast out there for about 300000 trailers next year in terms of production.
Wanted to see how you feel about that estimate based on the demand you see today in the supply chain moving into next year and then also if theres any color you could provide on trailer pricing into next year, particularly given what's gone on with commodity prices here recently.
Yes, Justin I'll take that one this is Brent I'll start with the pricing side of it.
In general we see pricing so generally in line with Q3 and Q4.
When you look out through 2023.
We are still going to have some settling of commodities, but at the same time, we're going to have offsetting.
Inflation on individual components and labor and other things that will be that are baked into our variable pricing construct.
Or how we look and manage our portfolio for 2023.
One 7 billion and the backlog effectively in 2023, we're pretty knowledgeable on what the pricing is going to do and how at what customers are willing to spend.
One of the reasons, we opened up our backlog a little earlier than the rest.
Because of the demand for our product is unique long term agreements that we're working on.
And then the pricing constructs that we have are resonating.
With the market.
Now.
In terms of supply chain and what's going on with demand.
Look theres, a theres a lot to integrate with that I would just say this I think taking everything into consideration.
<unk> General forecast is in the appropriate range for what 2023.
It should be that's barring some unknown thing thats not on the table right now.
Supply chain in general is going to constrain industry growth across the board and you alluded to that in our in our narrative.
Which is going to moderate 'twenty, three and protect 24, a little bit.
And because.
Because of that carriers.
Our customer base in general is.
Is very concerned about taking a time out in 'twenty three.
Because they may not be able to make that up in 'twenty four and 'twenty five.
We feel pretty good about where those estimates are again barring.
Any unforeseen.
Macroeconomic issue.
Is not on the table right now.
Got it thanks that's helpful.
And your next question comes from the line of John Joyner from BMO capital markets. Your line is open.
Yes, good morning.
So stocks actually do go up on good results. So it's good to see.
Every once in a while it does work that way.
And it does so Brent and Mike.
Regarding your discussions and you kind of touched on this a little bit already but.
Discussions with large carriers around.
Longer term agreements.
How long do these agreements run are there opportunities for them across kind of your product lineup.
And also are there.
Parts and services opportunities with them.
So a great question.
The way that we look at long term deals are very inclusive of all product lines and service lines that we offer through that one wall of ash.
<unk>.
Product and service portfolio options. They are we are generally looking at two to three years in length in general obviously these are tailored to the individual customer.
At this point.
We are specifically waiting this was the first to final mile contract everything that we do is based off that is this quarter our strategy at this time. So when you look at those customers.
Embedded into that is the ability.
Some are buying because they're wanting to move more.
On the truck body perspective, some are entering in dry van perspective, so on and so forth, but every one of them that we court.
Has opportunities for generally platforms tanks truck body strong dry and refrigerated vans dry refrigerated and parts and service.
And that's what allows them to be in the funnel to be considered for a strategic long term agreement.
Okay. Thank you that's that's.
Very good color I appreciate that and then just maybe just one more question regarding the referred to driving conversion at your South plant Lafayette, I guess, how do you see that ramping up and when do you expect to reach full power.
Full line run rates.
Yes, yes.
So I would say next mid next summer is when I would expect us to reach full line rates. So.
We will we will hit job one in Q1 as planned and we will ramp through Q1 and into Q2 and I would say exiting Q2 into Q3 at some time, we will hit full Ryan line rate and Thats why in my prepared remarks, I made a comment about Q1, we'll see that normal ramp costs, you have and you're adding capacity, where youll have people, but youll have full output.
See some of that in Q1, but I would expect by the second half of 2023, we'll be at full rate for our capacity addition at our Southland.
Okay excellent very helpful. Thanks for the time.
Yes, Thanks John .
Our next question comes from the line of Mike <unk> from D. A Davidson your line is open.
Yes, Hello, good morning, and thanks for taking my question.
Yes, Hello, I wanted to touch on on your truck by business.
Any volumes creep up quarter by quarter now for basically a year.
Can you update us on the chassis supply situation in that business.
The demand situation in that part of your business.
Yes, so I'll start with the chassis supply.
You are you are fully aware of the chassis supply did begin to improve early in the quarter.
That has continued to progress as we sit here today and Thats beginning to translate itself into improved bill rates and it goes to Mike's point about improved conversion cost as we sit here today as noise is dropping out of the system.
A measured approach and the way that we scheduled truck bodies, knowing that there is still just inherent instability.
Prove it and then ramp it is kind of the way we look at it.
With that said.
We're seeing them.
Coming forward with chassis stability that you can begin to start to scale truck bodies in a meaningful way as we control conversion costs along that path.
Distinct.
I'll call it philosophy that we're employing as as we manage that business.
And again from a demand perspective.
There is still plenty of dollars.
Of demand and that all your backlog, yes, so that the.
The truck body market has been inherently underserved firm going on.
From a pre and post pandemic standpoint.
And that is just now starting to really unfold as chassis has come into view.
So we have we have ample demand that's why we take a very diligent approach to how we schedule it and what we're going to be taking as we go forward to manage that in a similar constructive way that we manage dry van and other product platforms at Wabash.
Can we just can I clarify just a little bit further there.
Lightning on SaaS is that.
Also seeing large increases in the prices on the buys that you guys do.
Are you getting some of the pricing that youre seeing.
Dry van business and as that pricing at the same kind of.
Dynamics in 2023.
Yes, so what we've seen as I will.
Call it a very similar.
Price cost recovery in the second half and the truck body.
Product line that Youre seeing in the advanced product line just to make sure I referred for no confusion on the call. It the chassis cost itself really isn't in our P&L, but the truck body piece is and that that piece is being very similar pricing dynamics, where we've been able to recover the inflation of 2021, and we would expect the basic price Scott construct we have right now.
To continue into 2023, both in truck body and the vans business.
Great. That's great color. Thanks, almost just squeeze one more and that is your comments Greg.
Curating the backlog.
I know through acuity means, but I guess im just kind of want to figure out.
When you say you are carrying a backlog is it.
To start booking multiyear orders or in an effort.
Figure out which are the what's the right <unk>.
<unk> schedule or is there an effort to find the best margin orders like.
Can you give us a little color as to whats known.
Yes, I would say, it's a comprehensive look at all the variables that you just talked about.
The business systems that have we've been able to put in place over the last two to three years under our one wall batch system, coupled with our management system and bluntly talent that we brought into the organization allows us to integrate all of those variables into.
What's the strategic importance of that customer first to final mile.
What does it do to maximize conversion cost and flow through the plant.
Their ability to help work with us to manage an inflationary environment because they have unique demand needs. We take all that into account to cure eight or optimize what we bring into our backlog its a much different way than a first come first serve.
So who speaks allowed us version filling in your backlog.
Okay. Thank you so much for that appreciate it I'll pass it along.
Thanks, Mike.
Your next question comes from the line of Felix <unk> from Raymond James Your line is open.
Hey, good morning, everybody and congrats on the results. Thank you everybody look.
Hey, just a quick follow up maybe for Mike on the capacity expansion that understood <unk> might have some relative margin pressure as youre still ramping those volumes.
But can you remind us of mix implications on margins as youre doing more dry van versus conventional resource through the year, just kind of trying to square that away with the with our comments on margin trajectory.
Yes, that's going to be.
We're going to be kind of a multifaceted because what youll see is as we ramp up and you produce more units youll actually see better margins with dry vans are because we're getting don't forget we were taken installed capacity and we're more than doubling the output. So youre going to see some nice conversion cost improvement, which will actually be margin accretive over time.
But that won't be probably the first half of that particular facility, you'll see more of that in the second half, though it will be a margin it will be a margin tailwind over time, the one area, where it will compress a bit as asps.
It does it drive and typically has a lower.
ASP than a refrigerated trailers, so youll see some ASP compression potentially from a mixed component, but we wouldn't expect to see margin compression due to the capacity change.
Okay. That's helpful.
Then.
It feels like just broadly from an industry perspective, I'm going to call. It more traditionally asset light bulbs are leaning into into owning trailers are certainly garnering trailer capacity.
And so I'm curious on the back of Curating backlog commentary and I don't know if its possible to put numbers on this let's say relative to pre COVID-19.
Is there any way to frame, how youre trailer customer mix might look different in 'twenty, three 'twenty four versus sort of pre COVID-19 levels.
I think the easiest way of framing it from a baseline as there was little to no.
What I would call.
Digitally enabled white asset trailer pool, whatever whatever vernacular you want to use to to label that.
It didn't exist prior relates to the pandemic there were discussions around it but not actual demand pools.
As we exited the <unk>.
Post COVID-19 getting into mid 2021 is when we started to see.
Real demand signals coming forth as they approached us.
For long term capacity.
I would say is when I think about 'twenty three 'twenty four and 'twenty five we we see that as a potentially meaningful demand component for dry vans and possibly other products that will build over time.
We are still trying to understand the exact.
Trailers as a service suite of models that will employ.
I would say if I was trying to put just a general idea it will it will.
Start to become close to significant.
When we think about 2024 will still be seeding in 2023, so I wouldn't call it significant yet.
Okay, and then maybe my last follow up is kind of along those lines, but it sounds like trailer as a service is sort of at its infancy and really starting to grow within that parts service. This segment.
Maybe into next year, maybe into 2024 can you Directionally talk about the margin impact of that is as the pie grows within parts and services.
Yes.
What we've what we've consistently said we could do in parts and services is getting mid teens, plus EBITDA margins and we would expect any offering from our trailers are the service too.
Via that level or higher though.
We've shown that we've shown that margin.
Expansion.
We're on a pretty small base in parts and services, but we would expect to see.
Something mid to high teens approaching 20, and most of our trailers a service offering we're trying to we're trying to get that.
Revenue stream to something that can consistently be closer to 20, and so that's we would expect all of our trailers and the service offerings I mean, and I don't know how much impact is going to have in 'twenty three because as we were talking before it's going to be relatively small as a proportion of that as we get into 'twenty four you'll start to really see that.
I guess this is more qualitative but as you can imagine.
For the asset light quite a growing customer segment the ability of bundling a unique set of product and service offerings offer that type of customer.
Allows to view allows us to be significantly.
Margin accretive to just a stand alone make one by one.
Type of business model.
And obviously, that's why we're experimenting with it right now and really trying to understand how to expand.
Got it and then sorry, but if I could just sneak one more in.
Clearly it feels like demand is still outstripping supply and that drive Mt's won't Lauder reasons do you see anybody out there, adding any incremental capacity such as yourself.
No not in any meaningful way.
Everybody is still working through just getting labor to manage the capacity that's installed right now.
The difference for US again is that we're converting existing labor into meaningful capacity and Thats a unique difference for us at this moment, that's a key point, we wouldnt, we wouldnt have done it if we didn't have installed capacity.
Capacity already because of supply chain is the constraint and that's we're able to we're able to sneak a few more units through there with the same installed capacity.
<unk> for the supply chain to supply anymore componentry to the industry right now.
Got it thanks for the time.
Thanks very much.
Our next question comes from the line of Jeff Kauffman from vertical Research partners. Your line is open.
Hey, guys fantastic quarter congratulations.
I'm going to apologize in advance because I have two conference calls going on at the same time here. So I just jumped on I might have missed some of these comments.
But.
I guess these questions are related your share of the trailer.
Sales in the quarter dip by about 100 basis points versus last quarter.
Can we attribute most all of that to the.
Shutdown of operations that you have going on right now, while you're reconfiguring the south plant.
I think that's a part of it I think the other part of it is we have an extremely deliberate sales and operations planning process that is based on what the supply chain can do.
To manage conversion cost and waste and cost friction in the system.
And so what.
What we produced and shipped in the quarter is relevant for what was optimal based on those conditions.
Alright, and then shifting focus to the progress on the manufacturing changeover I'm.
Sure you comment on this in your general comments, but what is the latest update on timing or are you still looking on time and then in that fantastic to $3 billion backlog is there a part of that backlog that just isn't being booked right now because you're not done with the conversion.
So we don't necessarily want to commit to the slot and until we're sure of that or are you taking orders for those slots at the new South campus.
Okay, great several questions there, let me start with.
So we are on time relative to the redeployment of that facility with job one in the first quarter with meaningful ramp meeting we'll call. It generally.
Target by mid by mid year right. So we're completely on target for that in terms of how we manage the backlog.
No we are not holding back on backlog waiting to see what's going on between capacity that we have on existing lines or surge.
What we are doing with our backlog is purely managing it for maximum profitability and strategic purpose.
The timing and the way that we build the backlog is based on that process has nothing to do with well slots available or not we're pretty confident in what we'll add how will build in two.
<unk> 2023 based on same same supply chain to see right now.
Okay, well, that's all I have so thank you for the answers and congratulations on a fantastic quarter and outlook.
Yes.
And there are no further questions at this time, Mr. Ryan Reed I turn the call back over to you for some final closing comments.
Yes, Rob and thanks, everybody for joining us today, we look forward to following up during the quarter.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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