Q4 2022 Wabash National Corp Earnings Call
Good morning, My name is Chris and I'll be your conference operator today at.
At this time I'd like to welcome everyone to the Wabash fourth quarter 2022 earnings call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
If he would like to ask a question. During this time simply press Star then one on your telephone keypad.
I'd now like to hand, the conference over to Ryan Reed Senior Director Investor Relations. Please go ahead.
Thank you good morning, everyone. Thanks for joining us on this call.
With me today are Brent <unk>, President and Chief Executive Officer, and Mike <unk>, Chief Financial Officer.
Couple of items before we get started first please note that this call is being recorded.
I'd also like to point out that our earnings release, the slide presentation, supplementing today's call and any non-GAAP reconciliations are all available at IR, one Wabash Dot com.
Please refer to slide two in our earnings deck for the company's safe Harbor disclosure addressing forward looking statements I'll hand, it off thanks, Ryan Good morning, everyone and thank you for joining us today.
Cause we're wrapping up a record quarter on top of a record year, while starting another calendar year with very bright prospects. It feels like an ideal time to review our strategic choices and recall, how we've arrived at this juncture, where our company is performing very well and then that's a soft freight market conditions.
Rewinding the last several years, we've added critical new legs to the stool that have enabled wabash to grow in capability and performance the.
The addition of truck bodies to the Wabash portfolio has positioned the company to serve customers across product classes and also maybe more importantly, broadened our perspective and allowed our team to get closer to trends in transportation logistics and distribution like the disruption to logistics models caused by E Commerce and home delivery rapid.
Growth in cold chain.
Our trends in power only brokerage.
And why did that those were part of that decision still surround the support me in my current role as CEO .
Our organizational journey has taken us from a siloed product centric approach to a customer centric model that prioritizes ease of doing business across our suite of products and services. This model has brought us closer to our customers evidenced by the commercial progress we've made over the last 18 months the.
The deployment of the Wabash management system philosophy has given us the process rather than problem solving culture that was required to meet the challenges of a dynamic environment, we find ourselves in today.
One of the key process improvements derived from the use of our management system tools.
Has been a long term agreement construct a new vision of supply chain engagement and the rapid deployment of recurrent revenue generating initiatives.
The modification of our pricing construct to a pass through model allows us to better serve our customers with transparent pricing.
Group pricing contracts also forms the groundwork for our longer term agreements.
Which would have been unworkable under a fixed price contract.
These longer term agreements prioritize capacity for our customers.
Our conviction around their equipment needs to engage in collaborative multiyear demand planning.
Beyond removing these strategic customers from the annual game of musical chairs, where some customers are inevitably left without a seat at the table. These strategic relationships will be additive as we collaborate on product development and R&D efforts to jointly address unmet equipment needs. We are very pleased to have an innovative organization like J B Hunt as our <unk>.
<unk> partners.
As we demonstrate the visionary leadership required to structurally improve relationships with major customers. We have successfully attracted the attention of key industry suppliers.
As our 10 year supply agreements with both hydro and Ryerson show suppliers recognize the moods Wabash is making and are aligning with us to combine our respective strengths in order to support our customers.
As our organization continues to leverage its more streamlined collaborative structure to create value for customers shareholders and our communities a major strategic focus is our parts and service initiatives.
Quickly spending up Wabash parts, our parts distribution joint venture to developing innovative new offerings like trailers as a service for the power on the brokerage space. We're excited with the potential to grow this more recurring revenue business that will act as a synergistic support mechanism for our transportation equipment.
Our board of directors has been incredibly supportive of the organization evolution and the board has continued to keep pace with us by adding new directors with capabilities that will further support Wabash and strategic direction.
September addition, attract broberg CEO of a service and automotive logistics as a service platform our board welcomed Sudan, Shoeprint Darci as our newest director.
Mr. <unk> is a global finance and operations leader with extensive experience in the Tech logistics E Commerce retail consumer packaged goods and pharmaceutical industries in the U S Asia and Australia.
He currently serves as Chief Financial Officer procuring Dr. Pepper and previously served in roles at Vista outdoor export Walmart Cipla and Pepsico.
We're excited to continue driving our strategy forward with the support and contributions of all of our board of directors.
Moving on to our fourth quarter financial performance, our team delivered record EPS of <unk> 84.
Which exceeded our expectations for the quarter between increased volumes and improved pricing revenue increased 37% from the same quarter last year to an all time record of $657 million.
Profitability also continued to sequentially strengthened as we achieved 14, 4% gross margin and eight 8% operating margin I'd like to call out that our operating margin expanded by 680 basis points relative to the same quarter last year.
Our 2022 as a whole I believe we've demonstrated improvement across any indicator of financial performance. You can look at we're very encouraged as our strategic choices shine through to enhance financial performance capped by record revenue of $2 5 billion.
And record EPS of $2 25.
Moving on the market conditions and their backlog.
We're mindful of freight rates that had been indicative of the ongoing correction in freight markets for numerous reasons, we have not seen this reduction in rates impact underlying trailer demand.
Cyclical and structural influences, we agree with third party forecasters that equipment demand is likely to remain strong.
With under buys in prior years and supply chain remaining as a constraint into 2023 imply demand for this year is still very likely to outstrip supply just on those cyclical factors one.
And structural influences like the demand from formation of trailer pools to support drop and hook activity, our power owned brokerage and we believe substantial scarcity remains in the marketplace. That's before we consider what would be another significant tailwind for trailers coming from the ramp of autonomous is that technology continues to advance.
Turning to our backlog total bookings ended the fourth quarter at approximately $3 $4 billion up.
<unk> by approximately $1 1 billion.
From the end of Q3, despite an outflow of record revenue.
This implies net order inflow of $1 $7 billion during Q4.
And for full transparency.
Although not announced until January our long term agreement with JV Hi.
In a to be announced additional agreement are reflected in this backlog figure.
Given the addition of multi year orders, we are adding disclosure on the portion of our backlog we expect to ship within the next 12 months.
And in Q4 that subset of our backlog was $2 8 billion, which.
Which implies somewhere in the range of $600 million worth of orders that reside beyond 2023.
Given the excellent visibility provided by our backlog we are initiating our 2023 financial outlook with a revenue range of $2 $8 billion to $3 billion.
And an EPS range of $2 72.
The $3.
I would like to reiterate that we are looking at 2023 as a year, where we can achieve significant revenue operating income and EPS generation, even at the supply chain shows no improvement as our backlog indicate we do have the upside to our outlook has supply chain conditions improve.
I'd like to conclude my comments by reiterating my excitement for the peso strategic progress that we've been able to achieve this is a testament to the dedication and level of engagement of our Wabash team, who has crested in our organizational and strategic moves and is executing incredibly well on our day to day business, while driving structural improvements in the fundamentals.
At the business.
With a record backlog and evidenced throughout 2022, a great execution on margins, we are positioned to set a new bar for our financial performance.
During 2023.
With that I'll hand, it over to Mike for his comments.
Thanks, Brett starting off with a review of our fourth quarter financial results.
Salad databases fourth quarter revenue was $657 million with new trailer and truck body shipments of 13310, and 3250, respectively. As Brent mentioned this was yet another quarter of record revenue generation for the fall.
Gross margin was 14, 4% of sales during the quarter, while operating margin came in at eight 8%. This represents year over year improvement of $550 680 basis points, respectively. We feel that our margin structure really hit a stride during the second half of 2022 at supply chain surprises reduced costs inherent to where I think.
<unk> stabilized operating.
Operating EBITDA for the fourth quarter was $69 8 million or 10, 6% of sales, which was a 580 basis point improvement versus the fourth quarter of the prior year.
For the quarter net income was $41 $5 million or 84 cents per diluted share.
From a segment perspective transportation solutions generated revenue of $611 million and operating income of $67 million.
Or 11% of sales.
Parts and services generated revenue of $49 6 million and operating income of $7 9 million or 15, 9% of sales.
I could call out the growth in our parts and services segment was about 20% year over year when adjusting for revenue from that business that was the vessels in mid 2021.
Year to date operating cash flow of $124 million as strong net income was supplemented by more efficient inventory in the fourth quarter as we were able to lean on inventory levels.
Supply chain continues to strengthen.
Moving to capital expenditure with timing on some payments from our dry van expansion did push from 2022 to 2023 and that Capex understand relative to our expectations for 2022 will be reflected in our 2023 capex spending.
As I mentioned relative to a meaningful cash flow generation in 2020, followed by a significant ramp in working capital. During 2021, I think it's important to take a longer term view on what continues to be strong free cash flow generation through the cycle.
That said I believe that the measure of a healthy company is not simply maximizing annual free cash flow was purposely investing in the business was presented with the opportunity to generate significant returns that are in the best interest of long term bill.
<unk> is also committed to delivering our ROIC over the cycle that both significantly exceed our cost of capital, but also exceeds our historical performance.
We are now in a period, where accretive organic investment opportunities exist and as a result, we would expect to see capex as a percent of revenue in the range of 3% to 4% of revenue over the next couple of years.
With regard to our balance sheet, our liquidity, which comprises both cash and available borrowings was $401 million as of the end of the quarter.
Turning to capital allocation during the fourth quarter, we invested $15 million in capital projects utilized $10 million to repurchase shares and paid our quarterly dividend of $4 million.
For the year, we invested $57 million in Capex $31 million for share repurchases at an average price of $17 55 per share and returned $16 million to shareholders via our dividend.
As stated earlier, our capital allocation focus continues to prioritize organic growth via capital spending while also maintaining our dividend and evaluate opportunities for share repurchases alongside of M&A.
Moving onto our financial guidance for 2023, we expect revenue of $2 8 billion to $3 billion with a midpoint of $2 $9 billion.
This outlook is supported by our significant backlog fell while remaining reasonable in our expectations for the production of activity ongoing supply chain constraints will allow.
We're on track in Q1 to complete and equipment installation and began system sale of our dry van capacity addition.
All significant capacity additions, which will come with a volume ramp that we'll see lower production rates in the first half of the year and then greater volume later in 2023, and we become more efficient and our expanded production benefits from the support of our recently announced supply agreement supplier said and also hydro.
From an operating income perspective, we expect to generate $218 million at the midpoint or seven 5%.
This resulted in EPS outlook of $2 70 to.
The $3 per share with a midpoint of $2 85 per share.
I'd like to reiterate that our guidance continues to assume that supply chain constraints continue to persist.
Brett mentioned, we believe our backlog infers that there is clear upside opportunities to our 2023 financial outlook shared supply chain and conditions improve.
So look forward to another year of strong growth with one of our parts and services segment, which generate accretive operating margins.
We expect capital spending to be between 90 and $100 million in 2023 as a result of planned expense expenditures from our dry van expansion Eco next capacity expansion as well as the previously mentioned driving expansion payments that pushed from Q4 to Q1.
We also expect to invest in Capex that will be immediately revenue generating through our trailers as a service program. Our evaluation of the best way to finance the expansion of trailers of the service is ongoing and not included in our traditional Capex guide, but we expect to take small bites at using our balance sheet in the short term with less than $10 million.
Earmarked for the first half of 2023, we will continue to call this out separately for transparency.
I would like to remind everyone that is typical for Q1 to be our lowest quarter in terms of revenue and EPS generation in.
In 2023, well seasonality will be compounded by the cost to ramp our new dry van capacity.
Our expectation is for the first quarter revenue to come in between 600 and $640 million for EPS to be between 40 and 50 per share.
I'd like to sincerely, thank our Wabash team for their remarkable efforts in generating record revenue and EPS in 2022.
This year, we've got a major pivot play as we accomplished our 2022 financial goals laid out at our 2019 Investor day.
Also took a meaningful step toward achieving our 2025 target of $3 billion in revenue, 11% EBITDA margins and $3 50, a share of EPS.
We're excited to take another significant step towards our financial targets in 2023 more.
More importantly, the Wabash team took a giant leap in our cultural transformation that will enable us to move even faster in 2023 and beyond.
We entered 2023 of the transformed and rebranded company representing first to final mile portfolio that is unmatched in our industry and powered by a team that is inspired and driven by our purpose to change how the World Agency.
I'll now turn the call back to the operator, and we'll open it up for questions.
Thank you.
As a reminder, if you would like to ask a question. Please press. The Star then one on your telephone keypad.
First question is from Justin long with Stephens. Your line is open.
Thanks, Good morning, and congrats on the quarter.
Thanks, Jonathan.
So Brian maybe to start with the comment you made about the long term agreement, obviously, you've announced the agreement with J behind it sounds like there was another one that it was.
Afflicted in the backlog and we may hear more about that customer at some point, but if you were to look at those two agreements collectively is there a way to help us think about how much of a contribution that had to the backlog this quarter and maybe you could talk about additional momentum with some of the LTA.
These first two.
Yeah. Thanks, Thanks, Justin when we think about long term agreements, we're looking in general in.
In 2023 and.
Somewhat growing in 2024 and have that be about 20%.
Our overall backlog.
And with the cat capacity gains and if you go through the full vision, possibly being as far as 30% of our.
Backlog in 2024 that gives you kind of a ballpark of what we're shooting for.
It gives us enough room within our supply plan to meet other customers' requirements.
In terms of thinking about it in our Q4 reported backlog I would I would just frame it as a substantial ad.
And is generally reflective of what you see in the <unk> backlog and you can extrapolate that into the theory.
Okay, that's helpful and to get to that 20% of the backlog are these first two LTA.
Getting close to that or do you need additional LTA is in order to do that I guess.
Back to the comment on kind of momentum additional momentum with with other customers on this front I'd love to get more color.
We'd love to pick up and have an ongoing conversations at least two more.
That we would like to be coming to conclusion with in the first half of 2023.
And then we're also looking at what we can do to expand the concept of long term demand fulfillment.
Our dealer body.
Especially around those dealers.
Are there customers that are well positioned to take advantage of the market going forward.
Very helpful and maybe I'll shift my next one for Mike when I look at the revenue guidance at the midpoint.
Up about $300 million relative to last year any additional color you can give us on kind of the key components of that growth and maybe what youre expecting for revenue revenue growth for trailers versus truck bodies versus parts and service.
Yeah, So I would say first and foremost.
It's across the board, we're seeing growth.
And the traditional dry van business.
That Brian talked about and some part from some of our long term agreements, but we're also seeing growth in some of our less talked about value streams like tank trailers. We believe 2023 can be the best year in tank trailer history.
For Wabash, which is an important point, we're going to see significant growth in our truck body business on the revenue side in 2023, as well and we wouldn't expect parts and services to grow.
And a generally the same magnitude as what we saw from 'twenty, one to 'twenty, two which was 20% as I mentioned in my remarks, we will see similar growth in 'twenty two 'twenty three so it really is across the board and we're really excited about all the value streams that are growing that we're going to see it in parts and services.
Extra excited about so we do believe that.
That revenue provides a more recurring repeatable.
Profile and is very synergistic to what we do on the transportation solutions front I just wanted to reiterate that our management system is based on the fact that all of the existing value streams have to provide continued improvement.
Top line and margin growth as we go forward.
We've done the pruning of the portfolio to date to get us to where we have extreme focus.
<unk> show that and there is no area that we have more focus in parts and service right now.
It all aligns with what Mike said, but it is a very purposeful construct.
Where do we do business here now.
Got it and I guess the last one for me there are clearly secular demand drivers that are driving strength in your business in backlog right now I'm just curious if that.
<unk> and any change in the competitive landscape are you hearing anything about competitors, adding capacity, new entrants et cetera, or would you say that competitive landscape is essentially unchanged at this point.
I'd say based on what we see we see it as unchanged the same barriers existed.
Six 912 months ago still access to labor and a supply chain that is able to support overall capacity gains.
Remember that the capacity that we're adding specifically on dry vans and an arrow in our tank operation.
We are redeploying existing labor for the most part or in the case of Mexico.
A place where labor is available.
And speaking to our 10 year agreements plus others that we are that are a little bit more traditional but yet still profound.
Our supply base is responding to our call for added capacity. So we're really the only ones position to do this at scale right now.
Understood. Thanks for the time.
Thanks, Justin.
And the next question is from Mike <unk> with da Davidson. Your line is open.
Yeah.
Yes, hi, good morning, and thanks for taking my question.
I'll start off with a question on the truck body business.
They were down quarter over quarter in the number of units shipped but we keep hearing that chest in supply from the Oems kind of been better during the last two weeks of December .
Just kind of wondering if you could comment on how China supply looks to start the year here at Wabash and would you expect to see some good growth in the number of truck buyers that you get out the door to customers in the first half of 2023.
Yes.
Thanks, Great question, we alluded to it on our last call. When we talked about what is the supply of chassis to look like an early sign of chassis flow improving and that was yes. They are improving but the actual flow in terms of right chassis right time wasn't substantially improving.
So what we saw across the truck body industry is chassis is flowing in.
And sitting on the lot and unable to match the entire supply chain.
Finished product flow so what that means is.
<unk> chassis on the yard for our customers and not a great ability to get those to flow through the business in terms of shipments what.
What we have seen during the fourth quarter as we come into the first quarter as we're starting to get back on track and we're seeing the actual improvement in the sequencing and the on time delivery, where the right chassis are beginning to show up and Thats. Why we are confident that we should see the targeted truck body growth that we expect in 2023.
That's great.
And then moving on to parts and service.
I really liked how parts and service the mix helped you in the fourth quarter here.
And you've got some it sounds like <unk> got some pretty good expansion plans for 2023 as well. So can you maybe comment on whether margins could expand in turned in that segment, if youll see that its good.
Consistent growth there in the coming year.
What we're really trying to.
Target here, Mike is profitable growth and get some scale. So we're not really guiding to improving margins. We think we can maintain those margins and add to the topline as we as you scale a business. We've got some specific initiatives, we're really excited to be able to scale that business and maintain and we grew margins in 'twenty two but we think we can.
Maintain that profile in 'twenty, three and then add significant revenue on top will give some more guidance as we get through the year, but that's really the effluent emissions for 2023, which will improve the overall corporation's margins because as you mentioned the parts and services margin is significantly higher.
At the base and then transportation solutions.
Hi.
Great and if I could just maybe my last question zoom out a bit on that on your answer there Mike.
About your 2025 targets.
You've talked about getting to $3 50.
And $3 billion of.
Topline you actually hit that in 2023 couple of years early.
Martin's obviously might not be there yet.
Can you maybe outline for US a couple of other moving parts that might get you either to a margin that works for the $3 50, EPS in 2025 or do you think maybe.
Given what you know today and how things are playing out in some of your key initiatives, whether there could be upside too.
$3 billion top line number at that point.
And so as we outlined it.
The Investor Day, we have launched with targets in May of 2022, we said several of the drivers would be front loaded in the three year plan and one that would be our expansion of <unk> capacity, which will which will be a driver of revenue. So first and foremost what could have hit that number of quicker.
It'd be the supply chain, allowing us to ramp our overall facility for driving a little bit quicker.
We're not expecting that to happen in 2023, but certainly it could.
Achieving those targets maybe.
For 2025, but as of right now we're focused on.
The guide that we've given and also scaling the parts and services as I mentioned at a at a consistent margin profile, which we believe we can maintain their growth against the $300 million that we guided to back in May of 2022, and that 2020, turning 25 time period. So.
Summarize what I think could happen if we were to if we were to hit the 3 billion quicker than the plant there it would be our ability to get the supply for dry van components and get more volume out the door that maybe you could come quicker than 2025, but I don't perceive that right now has been in 2023.
The thing I would add to that is when Mike talked about Europe earlier first question about getting the initial scale on the parts business and really what that is is the scale is part and parcel with adding additional capability inside our four walls and in 2023.
As we execute on both ends of that I.
I think that is one of the areas that we'll be able to as Mike said throughout 2023 give additional feedback on <unk> and how that really propels us into 2024 that would be another opportunity for us to pull those targets forward, but it all it all comes down to growing that capability, which is why we're so focused on it.
At this point do you feel like the reefer capacity coming online in Minnesota, 24, and 25 would also be.
A positive driver towards you.
Your margin goals.
On your Angola, narrow I would couch it as narrow as in Minnesota, but I would say overall the opportunity for us to.
Grow topline relative to taking advantage of whats going on cold chain is absolutely another way.
That is absolutely a 2425.
A more targeted timeframe for us to get that scale.
It is something that could be very positive at a minimum is core part of hitting 25 targets has the potential to pull that forward, yes, I would say.
There.
Of our three key strategic initiatives, that's one that's going to be more back end loaded in the planning period. So we will see some of that more than 'twenty four 'twenty five time period, whereas you can see some of the really nice growth in the logistics disruptions through dry vans in parts and services in the earlier periods of the brand.
Perfect I appreciate the discussion I'll pass it along.
Thanks, Mike.
The next question is from Jeff Kauffman with vertical research partners. Your line is open.
Thank you very much first of all congratulations I mean, thats been a longtime coming and just kind of nice when everything you've been investing for kind of starts to come together.
So that's fantastic.
Just a couple follow up questions.
In terms of getting to the 2.83 billion dollar revenue number.
Take care and in with the model here, but basically there is $300 million increase in the revenue guidance at the midpoint.
And if I assume we ramp slowly on the new trailer capacity and I assume asps up slightly.
I get about halfway there maybe two thirds of the way there.
So is the jump in the outlook based on the idea that we could be producing close to 60000 units for the year or is the job outlook that are.
Asps continues to move even higher than expected because of the nature of these long term contracts and the pricing that's in the backlog I'm just trying to get to that $2 83 billion.
Yes.
Aye.
I believe maybe a piece of it year it could be messaging in there as I mentioned earlier, we do have some some nice growth coming through our our tank trailer business, which probably wasn't called out in your model and also we would expect a significant increase in truck bodies, as well, which will drive some of that revenue growth I wouldn't expect significant ASP growth year over year.
As we've mentioned we feel pretty good that we've got the.
But price cost.
Aligned with some of the inflation that we saw so while we're while we'll always look at opportunity that wouldn't be a huge driver and you're going to get a second half revenue coming out of our dry van.
Capacity expansion, plus some tailwind from truck bodies and trailers in person services.
So your point is ASP could be up but that could be a mix issue based on just for tank trailers correct. Yes.
A much higher ASP.
In a dry van alright.
Alright.
We kind of chug along through 'twenty, three and we head into 'twenty, four and you ramp up the new dry van capacity what are your thoughts about the production capacity.
That you have I know.
And then secondly.
We saw 52000 units. So I think this year you are bringing in 10000 units of packed new capacity, obviously, you won't use all of that.
But where do you think we can go in 'twenty three 'twenty four unit capacity basis.
Can you hire enough for the right kinds of employees to get you there or is that going to be a bit of a governor on that growth.
Yes, great question.
When we talk to kind of a baseline number of adding approximately 10000 units with the surge initiative, which is the conversion of south plant into which was.
Primarily a refrigerated plant now producing drive ins.
Take that but then on top of the 52, and then we have additional productivity gains and <unk>.
Very simple and straightforward capacity gains on the rest of our dry van manufacturing here in Lafayette.
Thank you.
It's easing mix as a as a factor and easily 60 to 65 based on that and then you have the ability of pushing a little bit higher with the productivity gains we can get with existing operations based on that.
Labour would not be a significant barrier for us to be able to produce we'll just call it slightly above 65000 units.
Jeff just a just a dial it in a little bit closer for 2023 like you mentioned will probably ramp up to full line rates throughout the year. So for all of 2023 figuring that were a little.
Running a little slower in the first half a little faster in the second half. We're looking at about 7500 units out of that facility. This year and then like Brent said longer term that goes to 10000.
Okay that helps with my math, there thats fantastic well.
I got to tell you. This is awesome to see I wish I had a buy rating on the stock.
I don't but.
This is fantastic to see everything you've worked so hard for kind of coming around your way so congratulations.
Thanks, Jeff.
Again, Thats star one to ask a question. The next question is from Felix motion with Raymond James Your line is open.
Hey, good morning, everybody.
Alright.
Hey, Mike I, just wanted to quickly follow up on the Capex of call it close to $100 million.
I'm just curious if you're able to provide some context, maybe dissect that between say the dry van capacity kind of spillover, maybe eco next maintenance capex and some other growth projects you have in that.
Yes, so the three main drivers by far are the capacity.
Addition, that's going to be somewhere in the 40% 50% of that number.
Because as I mentioned, there is some flow through from 'twenty. Two we've got Eco index would be the next biggest driver of our little falls plant expansion and then the next one would be some significant growth in our parts and services.
<unk>.
Technology spend in there that will help us ramp in 2000, and really that those benefits will be in 'twenty, four and beyond and then theres always that 25 million ish of cost of doing business to maintain <unk>.
<unk> manufacturing facilities, but those are the big drivers of the growth initiatives within Capex.
Got it and then just on the parts and services.
I appreciate the bridge on the on the strong year over year EPS contribution coming out of that.
And I'm just wondering is there much baked in from trailer as a service at this point or should we think about that as being more of a longer term story.
Yeah, I would view that more as a longer term story.
It's interesting.
We view trailers into the services, a dozen product offering within our products and services and what we're trying to how we're trying to develop.
Our ability to maintain trailers in the field and as I mentioned this the synergistic ways that it helps support our dealer network and our customers.
But the actual big trailers and service growth Youre going to see will probably be in 'twenty four and beyond.
Talk about it more in upcoming calls I Didnt mentioned, we will do a few million dollars. This year first half of the year.
In the trailers and service from a leasing perspective, and we want to move on our balance sheet, but the big driver from a revenue and EPS generation will be 2024 and beyond.
Okay.
Got it Okay, and then I don't know if this is maybe best for Brian , but I'm. Just curious if you can help us understand the call it direct versus dealer channel mix in the trailer business today.
And where do you think that might go long term just post the capacity expansion I'm just trying to understand if all these changes from a multiyear agreement perspective might change that mix over time.
Yes, so today within Wabash.
Specifically talking drive Android now.
There is approximately a 50 50 split between direct and indirect.
And that that number or that set of numbers as a direct result of purposely increasing the indirect channel or dealers from roughly about 30% to 50% of our dry van and allocation.
And if you if you think about kind of what we want to see we will say about 20%.
Long term agreements in the direct side and would love to see it closer to 10% of that allocation of that capacity on the indirect side and that would be a nice mix for us that we think would fit.
A real nice sub group of customers that have a long term vision and.
They're going to be all play this market really well.
Okay got it and then just my last one these long term agreements are they mostly with existing customers today.
What I'm really trying to understand is to what degree you know call. It the rise of power only brokers out there and just the build out of trailer pools does that open up it just completely incrementally new customers to you and would those type of customers be interest in the long term agreements I'm, just trying to kind of think through mix implications long term Brian .
So today, when we think about long term agreements they are primarily.
Predisposed to those customers that had a.
A more traditional first the final mile do they buy across our portfolio.
And they are well positioned from a leadership and a business model standpoint to outgrow the overall industry based on the structural changes that we have going on that's how we look at it today.
We think to think about trailers as a service digital brokerage and power only.
You are absolutely right that is a new subset of customers that will grow and scale that we're purposely cultivating today.
That we think become much more material 'twenty four and beyond.
And as a core part of our commercial construct today the way we are going to be allocating capacity in the future and the systems that were put at bringing to bear at.
And capabilities of the organization.
Got it I appreciate it thanks, so much for the time.
Yes.
We have no further questions at this time I will turn it over to Mr. Reid for any closing remarks. Thanks.
Thanks, Chris and thanks, everyone for joining us today and look forward to following up during the quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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