Q1 2024 Wabash National Corp Earnings Call

Good day and welcome to the Wabash National Corporation first quarter 2024 earnings 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 would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

If you would like to withdraw your question. Please press star one again.

Well offered to assistance throughout the call. Please press star zero, and finally, I would like to advise all participants that this call is being recorded thank you.

I'd now like to welcome Ryan Reed VP corporate development Investor Relations to begin the conference.

Ian over to you.

Thank you and good afternoon, everyone. We appreciate you joining us on this call.

Today are Brent <unk> President.

President and Chief Executive Officer, and Mike <unk>.

<unk> financial officer.

Speaker Change: Before we get started.

This call is being recorded I would 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 one Wabash.

Please refer to slide two.

The safe Harbor disclosure addressing.

Forward looking statements.

Speaker Change: I'll hand, it off.

Thanks, Brian Good afternoon, everyone and thanks for joining us today.

Beginning with the first quarter of 2020 for our revenue and income fell slightly short of our expectations due to slower customer pickups.

I'd like to emphasize that particularly for a year of weaker demand Q1 tends to be seasonally weaker.

Additionally, the size of our products necessitates that rely on customers to pick up their equipment before we are able to recognize revenue.

That said our production outstripped shipments during the first quarter.

Alta versus our anticipated quarterly revenue and the associated income.

Subsequent quarters during 2024, particularly Q2.

As we will discuss later our financial outlook for the year remains unchanged.

From a strategy perspective, we continue to enhance our network of 78 dealer locations.

Marketplace joint venture, we launched the initial version of our Wabash marketplace in the first quarter.

Collaborating with leading technology and logistics providers.

<unk> seeks to deliver customer centric solutions to an integrated partner ecosystem that sets new industry standards for parts services and driver capacity.

The ultimate objective of the Wabash marketplace is to develop a comprehensive end to end digital platform that transforms the experience for dealers customers and suppliers.

Utilizing advanced technology and connectivity, we aim to streamline the supply chain experience, making it more efficient connected and user friendly.

Dealers and customers will benefit from improved access to wide range of parts and services with a particular focus on our trailers as a service or SaaS capabilities and the expansion of our Wabash parts distribution network.

The marketplace has significant potential for growth as the team focuses on opening up opportunities for additional value added offerings.

Our Wabash parts distribution JV is reaching an initial stage of maturity that will facilitate meaningful growth in 2024.

Of course, the synergy between our comprehensive first to final mile equipment portfolio, Wabash parts, and Wabash marketplace, and our parts and services segment broadly affirms our position in this market as we seek to add more value for our customers by supporting equipment through the course of its lifecycle.

Confidently investing in strategic growth initiatives during a down year in the trailer industry marks a new chapter for Wabash, one that we have not previously had the opportunity to explore.

As we gain more clarity on 2024, it's important to emphasize the resilience of our portfolio that has grown over the last decade.

We see relative stability in customer demand for our truck bodies and tank trailers, which helps to mitigate the anticipated decline in dry van demand this year.

In addition to benefiting from strategic customer relationships and best in breed participants in trucking logistics and retail our expanded and diversified equipment portfolio not only enhances our stability through market cycles, but also provides a stronger foundation for layering on strategic growth. This.

This backdrop positions us well to capitalize on market shifts and continue our innovation and leadership in the transportation logistics and distribution industries.

As we continue to advance our strategic objectives, a vital component is fostering higher levels of employee engagement, which we believe leads to enhanced execution and improved financial performance.

At Wabash, we are dedicated to building a culture that embodies our core values and emphasizes respect for individuals.

Speaker Change: In line with this commitment we have established an ultra counts a multi year initiative aimed at addressing critical aspects of our organizational environment.

These include our work environment, working relationships, well being and community growth in autonomy flexibility and consistency and systems and processes.

To bring these areas to life, we have formed cross functional teams tasked with implementing changes that positively affect all employees and creating an environment where everyone can succeed.

Teens represent various functions and geographical locations, ensuring a wide range of perspectives and ideas are being represented across teams.

This investment in our people and elevation of our internal standards not only aligns with our leadership responsibilities and values, but also advance the interests of Wabash, our customers partners shareholders and our communities through the acceleration of our strategic vision and increasing sustainability of value creation.

Moving on to market conditions, while our customers continue to experience a challenging freight environment, we have seen important leading indicators like the ISF index rising above 50.

Indicating expansion returning to the manufacturing sector, while surveys of inventory levels at shippers suggest abating headwinds from Destocking that had been working against the freight market over the last couple of years.

Speaker Change: While these positive indicators have yet to meaningfully translate into improved freight conditions.

We are optimistic that improvements may be on horizon. When you pair the strengthening macro backdrop with the amount of capacity has left the transportation industry since the market downturn began in early 2022.

Thinking beyond the current rate cycle, we remain bullish on our core markets benefiting from secular trends like power only persistent driver shortages and the resurgence of near shoring activity within North America.

Shifting focus to our backlog at the close of the first quarter. We had a total of $1 8 billion in orders with $1 5 billion of that figure is expected to be shipped in the next 12 months.

Both figures were lower by roughly $100 million sequentially, but it's important to note that with over $500 million in revenue for the quarter.

Relative stability of our backlog implies that we continue to see meaningful volumes of new orders.

Moving to our financial outlook with the benefit of further visibility provided by our sizable backlog. We are reiterating our full year 2024 guidance of $2 3 billion of revenue and a midpoint of $2 25 of EPS.

Speaker Change: In closing we are capitalizing on the opportunities presented by the market environment in 2024.

With a diverse portfolio of first and final mile equipment, and a growing parts and service business, while bashes position with unprecedented strength paired with minimal leverage at this stage of the freight cycle.

I believe our ability to maintain focused execution on our unique organic growth projects underscores the strength of our strategic positioning for the future.

We are actively working to deepen relationships with our dealers suppliers and customers as well as engaging with interesting new players within the transportation logistics and distribution landscape.

Simultaneously, we are committed to fostering a culture of continuous improvement within our own employee experience and ensuring that we remain well equipped to act on our strategy. We are confident that this approach will not only enhance our financial performance at all points in the cycle, but also enable wabash to sustainably grow our level of value creation for all stakeholders.

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

Thanks, Brian beginning with a review of our quarterly financial results in the first quarter. Our consolidated revenue was $515 million during the quarter. We shipped approximately 8500, new trailers and 3690 truck buyers as Brent mentioned, we saw some delays in customer pickups of equipment during the <unk>.

First quarter, and we do anticipate the opportunity to recognize revenue on these finished goods in subsequent quarters, including second quarter.

Gross margin was 14, 8% of sales during the quarter, while operating margin came in at five 7%.

In the first quarter, we generated operating EBITDA of $46 million or eight 8% of sales.

Finally for the quarter net income attributable to common stockholders was $18 2 million or <unk> 39 per diluted share.

From a segment perspective transportation solutions generated revenue of $470 million and operating income of $44 million or.

Parts and services generated revenue of $49 million and operating income of $10 $5 million.

Year to date operating cash was an outflow of $17 million.

Reflecting with typically a back ended quarter of shipments in Q1.

Concerning our balance sheet, our liquidity, which comprises both cash and available borrowings of $389 million as at March 31.

Speaker Change: We finished Q1 with net debt leverage ratio of <unk> nine times.

On capital allocation during the first quarter, we invested $19 million in capital projects.

Utilized $60 million to repurchase shares and pay quarterly dividends of $4 2 million.

Our capital allocation focus continues to prioritize capital expenditures above and beyond our annual maintenance capex spend of 20% to $25 million.

Speaker Change: In order to support our organic growth initiatives.

We are committed to maintaining our dividend and then we anticipate continuing to evaluate opportunities for share repurchase alongside of bolt on M&A.

Moving onto our outlook for 2024, we are reiterating guidance of a revenue range of $2 2 billion to $2 4 billion with.

With a midpoint of $2 3 billion.

And an EPS range of $2 to $2 50 per share with a midpoint of $2 25.

We believe this outlook is well supported by a stable backlog and new order flow that continued at a reasonable pace during the first quarter.

We continue to see truck body tank trailers and parts and services as stabilizing forces within our portfolio in 2024 as market conditions remained stronger in those businesses relative to drive it.

In particular, we anticipate year on year growth in parts and service is to accelerate as we move through 2024.

Thank you specifically about our second quarter, our expectation is for revenue to come in between $550 million and $600 million.

And for EPS to be between 50% and 55 per share.

Moving onto capital deployment expectations for 2024, we anticipate traditional capital investments to be between 75 and $85 million in 2024 as a result of planned expenditures to support our strategic growth initiatives.

Also expect to invest in Capex that will be immediately revenue generating through our trailers as a service program.

We anticipate investment in that program will be back half loaded and will again more specific guidance as the figure of the the focus but we would expect at least 1000 units in 2024.

In conclusion I'm excited about 2024, as we take the opportunity to demonstrate what we believe is an insurance through the cycle financial profile for the company. Additionally, while that currently enjoys the most significant potential for strategic growth in our Companys history by pursuing our parts and service adjacency and where he.

To demonstrate our capacity to grow the top line of this business to allow us to become a more meaningful contributor to our portfolio as a whole.

As an industry leader in transportation equipment positioned at the epicenter of an increasingly complex ecosystem of participants within the transportation logistics and distribution industries, we have a unique opportunity to unite diverse stakeholders to address industry challenges, we had a wildlife marketplace digital platform as well as the Wabash parts.

Distribution business and we look forward to updating you on the progress of this initiative.

We firmly believe that this area of strategic growth will define the next chapter in our journey to change how the world Richie here.

Speaker Change: I'll now turn the call back to the operator, and we'll open it up for questions.

If you wish to ask a question. Please press star followed by one on your telephone and wait for your next we announced that.

That is star one if you wish to ask a question.

And your first question comes from the line of Mike Zaremski of D. A Davidson your line is open.

Yes, Hello, Thanks for taking my questions.

Hi, Mike.

Yes, So I guess I wanted to ask first about some of the pick up.

And logistical issues.

Change things from the first quarter to the second quarter or elsewhere during during the year.

Curious was this an industry wide phenomenon, it's just an issue with with with.

With La Boston supposed to Cook.

No.

I spoke to Indiana.

To get their trailers and other people didn't have that issue. If they are based elsewhere in the country. I was curious to see if that's something that we should be thinking of that everyone's facing or its just a strictly wabash issue.

Yes, Mike.

As we said.

Speaker Change: In the release.

On the actual.

Got it.

Narrative, we put out there I mean this is a normal type of situation that our industry fields across the board at any time that we are in.

Not only the first quarter of the year, but when compounded by being in a.

<unk>.

Down year relative to dry van so this is a normal and customary type of issue to have so everyone is feeling it throughout the overall industry at this point.

And in general is to be expected.

Terms of wheat pickups as people were working to understand what needs to be put in service at this time of the year so while.

We're a little short and what those expectations are that phenomenon in itself is a normal and customary industry facts.

Okay. Okay. Thanks for that.

I also wanted to ask about trailer as a service.

Thank you outline a couple of details there.

And that maybe we don't get into actual numbers and guidance per se. I mean, you did mentioned at least 1000 units, but just how to win how do we start to.

Start to model that out do.

Do we model that as a thousand units of sales 1000, yes.

Chris the inventory with.

Speaker Change: Rental attached to it or leasing revenue attached to them.

Im not sure what to put in my current model and what's incurred in guidance as far as that business is concerned.

From a from a P&L perspective market it will show up as.

Our lease type expense. So you wouldn't see a full unit of revenue recognition like you would.

<unk> it will be.

<unk> leasing type models, so youll see a monthly expense monthly revenue and the associated expense.

From a cash flow perspective, youll see it show up in a week.

Break it out in our statement of cash flows as a revenue generating asset and it will be separate from our normal plant property and equipment as you can see as those units get put into service. It will show up on that line in our cash flow statement.

Okay.

Maybe one last one for me I guess.

Sure.

Some thoughts about what you think has to improve in the market.

<unk> orders.

Speaker Change: Go up from current levels.

I guess, we've had the one large of a few large bankruptcies happen in the last 12 months. They had largely older units that probably didn't get back in the market.

And the and the <unk>.

Used markets Alright, I am curious, whether if there is a capacity exiting the market today that might improve the high demand between.

And.

And loads.

Some of those.

It's early in the market will be much newer.

Some of that used equipment may end up taking away from new over the next couple of quarters.

Yes, Mike I think what's at what needs to happen is already happening and I think the what has always been evident within our industry is that when it is most confusing.

So there are mixed there's kind of a.

The level of most mixed signals as when the market is actually beginning to make the improvements that it needs.

To get on the path of the upswing right. So we are seeing gross manufacturing activity begin to.

Move in upward direction, we're seeing capacity leave the market.

We're seeing imports continued to improve.

Things that need to be happening are happening now and what they don't have a real time effect on freight in the spot market that is going to happen.

Incremental <unk> over the course of the next six months as it should for where we're sitting right now so everything is still lined up for the let's.

I'll say market forecasts that are out there, but ACP and FTR.

There is really no deviation from the forces are that drive that and it's exactly what should be happening the setup for the estimates for 2025.

It's already in play nothing new needs to happen.

Speaker Change: B.

I think from a one thing. It gets question is the what is it that you're going to do from an interest rate standpoint.

The forces in play are already in play.

You're already factoring in where the fed is at right now.

So if the fed waits until lets say Q4 to have an interest rate reduction.

That is not going to be probably materially affect but forces that will drive the upswing in the 2025.

I think I think the the.

Speaker Change: The play is that it's been called it's happening it just needs to work itself out over time.

Got it I appreciate the color print I'll pass it along thank you.

Thanks, Mike.

Your next question comes from the line of Justin Long of Stephens. Your line is open.

Thanks, and good morning.

Justin Trennon Long: Good morning, gentlemen.

Justin Trennon Long: I guess getting back to the delayed pickup of trailers is there any way to quantify what that headwind was in the first quarter versus your expectation to just help us think through the catch up we could see in the second quarter and then as you just take a step back and look at.

Trailer shipments over the balance of the year is there any color you can provide on that quarterly cadence that is reflected in the guidance.

Yes.

I would say that.

Generally.

The disconnect we saw between our guidance and Q1 results was largely that delay.

And pick ups that we have and then you see some of that stepping into Q2, obviously with a little higher revenue and EPS guidance in Q2 versus Q1.

Justin Trennon Long: We would expect the back half.

To continue to see moderate increases in revenue and EPS, but not significant so either so you can do the calendar relation with our full year guidance.

But we will see that pretty good step up from Q1 to Q2, it really does encompass that slate.

Pick up Miss that we had and then a little further affirming in Q3 and Q, Florida to set up for what Bryan just mentioned, what we think will be a much stronger 2020, yes, just to put output from <unk>.

Additional color to most of the gap in pickups were in January and early to mid February.

And then we saw pickups dramatically improve as we move into the tail end of the first quarter.

And then kind of I would say continuing on that pace as we move into the second quarter.

So that piece of it hasnt.

Generally abated.

And that timing of that gap in January and February kind of really is about fleets really trying to understand what is the operating environment that theyre working into for the first half of the year.

Where do they need to move trailers do because remember when they pick them up putting them into service and routing the areas to create revenue. So they are waiting to see where thats going to be and then once they know they move and we saw that happen right and then it just flows from there.

Okay got it that's helpful.

And I guess, along similar lines I was wondering if you could talk about the cadence of operating margins that youre expecting over the balance of the year. If I look at the first quarter you were a touch below 6% guidance for the full year is around seven so that implies we need to be above that.

Level to kind of average up so just wanted to.

Get some more color on the cadence, you're expecting and what will drive that improvement sequentially through the year.

Yes, I think it's largely going to follow the volume I described earlier, because thats, what thats whats holding it down below settings, we held our full year at southern and finished Q1 pipeline.

Justin Trennon Long: Pipelines are the net less largely.

A.

Fixed overhead contribution margin impact of a little lower revenue number in Q1 that we expect will naturally grow as we move into Q2 in the second half of the other thing that we.

About in our remarks is we expect parts and services to continue to perform well this year and grow in the second half of the year that will also.

Tailwind to our margin performance as we get into the second half as parts and service that delivers an outsize margin component of our business compared to the OE side.

Got it and I think the last one for me along those lines to other areas you've talked about historically as being areas of resiliency and addition of parts and service or the tank trailer business in the truck body business. So I'm curious if you could talk a little bit more about what's getting baked into the two.

24 guidance for.

For those two segments are you expecting growth in those areas.

Yes, we would expect a year over year growth in truck bodies for sure Q1 was was a little bit some of the things we discussed on the trailer side, we were very specific in our trailer commentary.

It also pertains a bit to truck value shipments were a little bit weaker than we hoped in Q1 for dress size, but we do expect to see some pretty nice sequential step ups for the dress side of business. So we should see.

Shipments increased year over year in that business, which has already been saying that thats what.

While all of our OE products participate in the broader transportation and logistics industries and so there is some cyclicality, it's less cyclical than we see in the dry van business and we would actually expect to see a little bit of growth in truck by this year taxes will see we will see growth in tanks every year this year.

Justin Trennon Long: But we'll see.

Justin Trennon Long: Less of a pullback in tanker resale Alexandra ends and I think that.

Justin Trennon Long: Circle back to conversations we've had on these calls.

Truck bodies in parts and service is really form a three legged stool of stable earnings more stable earnings and what we have in our more classic.

Dry van business, while the action, where we're excited to continue showing off this year so while the hour.

Participate in an industry that has cycles, they tend to be less cyclical noisy and driving.

The ability to see the overall resiliency can be evidenced in our set of markets that we have today, where it's much more secular in nature, where different forces are affecting different.

Sub segments differently, we're not we're not experiencing a 2009 of them were not experiencing.

Macro type of negative set of horses that affect all different groups simultaneously. This is segment based courses.

Justin Trennon Long: It really allows us to leverage the resiliency of the portfolio.

Okay, Great I'll leave it there thanks for the time.

Okay. Thanks, gentlemen.

Your next question comes from the line of Jeff Kauffman of vertical Research partners. Your line is open.

Thank you very much hey, congratulations everybody.

A couple of modeling questions.

I wanted to get back to the units that were not picked up on time I mean this happens every now and then it just is what it is.

Let's just say for arguments sake that number was 500 in the first quarter I don't know what the number is and you guys havent from one out but we normally see something like two thirds of it in the following quarter than the third of it maybe in the third quarter. How does this typically work when we have this happen it doesn't all happen in <unk>.

<unk> necessarily right.

Jeff you've been doing this long enough to know how it works and I would say that as a.

Generally good approximation for how the World works.

Alright, and then ASP was pretty strong stronger than I was looking for both truck bodies and trailers, which is great.

But I would assume with raw material costs coming down that ASP levels off a little bit could you give us an idea of what trailer ASP might have looked like without the mix issue.

Tanks, being a little bit stronger and give us a feel for what was driving the higher truck body ISP.

Yes.

I'll start with trailers.

Speaker Change: I would say if you think about either.

We have a long backlog business.

The prices sure the SP that shows through in the revenue for the quarter.

Speaker Change: It comes in at all different times over the last year or so so you would see some <unk>.

ASP reduction as we go through 2024, I think you'll see volume increase in ASP to come down.

As we go through the year for truck by.

There can be some mix in that business, but generally speaking I think it is.

Represents what we've been saying and more stable.

Borderline strong demand environment in that business. It was enable to have pricing stability. So I wouldn't expect as much of a pricing move and truck bodies as they go through the year, but.

Trailers, you will see a step down as we go through Q2 in the second half of the year and just general commentary, Jeff is that and I would just say pricing across all the segments.

Minus maybe platform trailers.

The overall pricing resiliency has I would say net and in some cases exceeded our expectations for the market that we're in.

And I think a big part of that is we're seeing.

The actual value of the product shining through and the nature of the portfolio changes that we've made.

And kind of channel movement really starting to have an impact on pricing, which mutes the effect of just a more of a.

<unk>.

Pricing environment that you might expect in the past, we're just doing a little better in how we manage it.

Okay, Great and as you mentioned, Brad I've seen these things a bunch of times, but sometimes you forget.

And then lastly.

A very impressive margins in parts and service gross margins were pretty strong, but the operating margin flow through was a lot better than I expected, which is fantastic is 21%, which I don't remember seeing an operating margin basis is this a new level that we've reach because of.

What's changed in parts and service and is this more sustainable or was there something that helped that number a little bit in <unk>.

Yes, I wouldn't guide to something over 20%.

Jeff we have been saying high teens upwards of 20.

I would maintain that affiliated later, we had a really strong margin performance in that in that revenue stream in Q1, and while it is outsized compared to the rest of the portfolio I wouldn't want to model something above 20 going forward, while that may be something we can do down the road in a few years for now I would still say high teens up to 20 in the business.

Okay, and then final question, you talked a little bit about how trailers as a service is going to be accounted for.

Could you could you just could I ask you to go back and repeat what you said because I wasn't entirely clear you talked about the lease expense and the revenue I wasn't really sure where that's going to show up.

So.

From a revenue perspective, we will you will see what how many months in service. The unit is in the field that will show up as a.

Lease revenue coming through.

And it will and then.

Our capital expense will show up as a revenue generating asset.

And our cash flows so Jeff will come to a parcel service and see if any of your.

Question. Okay that was my question already in service and parts of the country pricing service et cetera.

Speaker Change: Okay awesome, well congratulations challenging environment solid results best of luck. Thank you. Thank you. Thanks, Jeff.

There are no further questions at this time, so I'd like to hand back to Ryan.

Thanks, Kevin and thanks, everybody for joining US today, we'll look forward to following up during the quarter and have a great day.

That does conclude our conference for today. Thank you for participating you may now disconnect.

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