Q2 2024 Wabash National Corp Earnings Call
Thank you for standing by.
I am at this stage.
Great.
At this time I would like to welcome everyone to the Wabash.
Core earnings.
All lines have been placed them yet.
I think if you go to Mike.
A question and answer session.
I would like to ask a question David Chang Gingerbread sniper elevate the number one on your telephone.
It was we got your question right.
I wanted to get.
I would now like the thing I'll make anything Randy Vice President corporate development Investor Relations. Please go ahead.
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 that this call is being recorded I would also like to point out that our earnings release slide presentation, supplementing today's call and any non-GAAP reconciliations are 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 now for Brent.
Brent: Thanks, Ryan good morning, everyone and thanks for joining us today.
Brent: Beginning with the second quarter of 2024, while our quarterly revenue was at the lower end of our previous guidance range our earnings per share surpassed our outlook on stronger margin performance.
Brent: Our team has continued to execute well during this transitional year for the industry I would like to commend our employees for their efforts.
As we acknowledged that 2024 will be a down year for the industry. This underscores the importance of the strategic changes we have made at Wabash over the past several years.
By three mining our organization optimizing overall customer portfolio solidifying our balance sheet and narrowing our strategic focus to the transportation logistics and distribution markets. We have positioned the company to pursue higher margin and more resilient revenue opportunities.
Nothing speaks to this more than a strategic focus on parts and services and a developmental work taking place in 2024.
So we are excited about our emerging capability to digitally enabled trailers as a service through our Wabash marketplace.
Brent: Which provides us the platform to provide additional value added services to our customers in.
In addition, we can now connect all of our customers to our Wabash preferred partner network for maintenance with a full assortment of parts fulfilled by our Wabash parks joint venture.
With digitally linked them all by structured services coming together to begin scaling in 2025, Wabash is positioned to continue raising both before and the ceiling on financial performance parts and services is more stable than transportation equipment and as these emerging revenue scale. They will provide a critical stabilizing force within our financial performance.
But our strategic focus on parts and services ultimately ties back to the equipment side of our portfolio given.
Given the ongoing conditions and freight is worth analyzing our portfolio of first to final mile equipment to recognize the drivers of market activity do vary across Burgos.
On this call we are all well aware and how demand for dry vans is certainly influenced by changes in general freight market conditions.
However, very meaningful parts of our equipment portfolio, such as truck bodies and tank trailer businesses are influenced by different market drivers.
For example, our.
Our tank trailers are utilized by end customers for specialized Paul's such as chemical hoard Berry, which are part of supply chains. It demonstrates significantly more stability over time compared to general freight conditions.
Within our truck body business. These pieces of equipment are used for a wide range of transportation logistics and distribution applications for middle mile warehouse redistribution to home delivery.
Brent: This diversity means that truck body is not driven by the over the road freight rates, but a much broader set of demand drivers.
Extensive strategic planning has gone into shaping our current equipment portfolio and we are now reaping the benefits of this diversity and the very factors that influence demand and profitability across our transportation solutions portfolio.
Walsh is not pursuing a single market and we should not be measured in that manner. Instead, we are developing a more resilient and diverse array of products and services. The survey dynamic range of customers from first to final mile.
It's not about doing more of the same it's about boldly taking the necessary steps to build a foundation of business resilience and growth. This approach will enable us to continue our trajectory of higher highs and higher lows and financial performance.
Turning to market conditions, we see pockets of both strength and weakness, but on balance I believe there is optimism about what lies ahead.
Our dry van customers about little relief from the ongoing great recession, although the truckload market seems to be experiencing returned to normal seasonality a positive way point on the path to recovery.
That said customers have still revise their capital expenditure plans downward for the balance of this year.
Holding reality of 2024 is certainly at odds with how most of the back half of 2024 would bring moderate improvements in both demand within the freight market as well as freight rates.
While important macro indicators like industrial production have turned positive and inventory levels have moved from a state of excess the balanced it will take some time for the supporting factors to manifest in the freight markets.
Also on the macro outlook a bit further out I would like to address the narrative of heavy duty truck pre buy potentially impacting carrier spending on trailers, while we agree that the economics underpinning. The epa's 2027 emissions mandates could temporarily boost demand for trucks above trend, we don't anticipate a significant diversion of capital.
From trailers to trucks.
These EPA mandates impact certain chassis classes that receivable base truck bodies and we do expect this segment to remain strong over the next few years.
I'll continue to emphasize that over the long term, we remain bullish on higher trailer to tractor ratios being driven by persistent secular trends like power only operations driver shortages and near shoring. The increase in freight inefficiency is only set to grow.
Many shippers are specifying higher trailer to tractor ratios in their rfps, which will only amplify this impact into the future.
Shifting focus to our backlog at the close of the second quarter, we had a total of $1 $3 billion in orders with $1 billion of that figure expected to be shipped in the next 12 months and a significant portion of that earmarked for 2024.
While our backlog indicates softer customer capital expenditure and intentions for 2024.
It is also difficult to see a seasonal pullback in orders during the summer months as carriers prepare for large deal season, which traditionally occurs in the fall timeframe as they begin to shift focus to 2025.
Moving onto our financial outlook with greater information on customers' Capex plans, we are reducing our full year 2024 guidance to a midpoint of $2 $1 billion in revenue at a midpoint of $1 55 in EPS.
Brent: As we have continued to refine our financial outlook for the year. It is important to remember that our overarching theme remains unchanged. While <unk> is on track to achieve the best financial performance on record during correction in our industry.
Finally, I'd like to touch on capital allocation priorities for both the second quarter and full year.
Given the significantly positive free cash flow, we anticipate generating this year, we are well positioned in the capital to invest in the Companys strategic growth initiatives, which we will continue to elevate wabash's financial performance.
Brent: Additionally, we increased the pace of our share repurchases during the second quarter, taking advantage of what we have viewed as a compressed valuation.
We expect to continue making opportunistic repurchases has the company's long term and even medium term earnings potential and free cash flow generation does not seem to be fully reflected in our most recent valuation.
In closing we continue to remain agile adjusting our operations to align with the current market reality.
That said Wabash is benefiting from enhanced portfolio diversity within our set of first to final mile equipment, driven by influences far beyond general freight conditions.
Brent: With a significantly less cyclical parts and service business <unk> is well positioned and focused on building for the future.
To reiterate our EPS outlook midpoint of $1 55.
Brent: Fall squarely in the middle of the financial performance of peak years, like 2018, and 2019, reflecting resilience we have built within our portfolio and the structural improvements we have made to our base business.
<unk> has never been better positioned to capitalize on the next period afraid expansion.
Brent: We are focused on continuing our progress toward achieving outsized strategic growth that is both more resilient and more profitable.
With that I'll hand, it over to my first comments.
Thanks, Bryan again.
Speaker Change: Beginning with a review of our quarterly financial results in the second quarter. Our consolidated revenue was $551 million during the quarter, we shipped approximately 9245, new trailers and 3925 truck bodies.
Gross margin was 16, 3% of sales during the quarter, while operating margin came in at seven 9%.
In the second quarter, we generated adjusted EBITDA of $63 million or 11, 2% of sales finally for the quarter net income attributable to common stockholders of $29 million or <unk> 64 cents per diluted share.
From a segment perspective transportation solutions generated revenue of $499 million and operating income of $57 million parts and service has generated revenue of $55 million and operating income of $12 1 million.
Year to date operating cash was an outflow of $6 million driven by an increase in receivables, reflecting a busier market shipments in June relative to April and May.
Speaker Change: Regarding our balance sheet, our liquidity, which comprises both cash and available borrowings was $381 million as of June 30, We finished Q2 with a net debt leverage ratio of one two times.
On capital allocation during the second quarter, we invested $17 million in capital projects utilized $21 $7 million to repurchase shares and pay quarterly dividends of $3 6 million.
Our capital allocation focus continues to prioritize capital expenditures above and beyond our annual maintenance capex spend of 20% to $25 million 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 repurchases alongside at bolt on M&A.
Speaker Change: In addition to the factors I just mentioned our process for assessing our buyback opportunity takes into account the gap in valuation between our internal DCF models, driven by our three year plan and the current market value of the company as Brent mentioned, we've accelerated our buyback activity in Q2 based on what we view as a compressed valuation, bringing our year.
Year to date share repurchase activity to roughly $37 million.
Just over one 5 million shares.
This equates to a reduction of approximately 3% of the float versus the average 2023 share count.
We continually run this process to assess our buyback opportunity and we will continue to engage when we feel the company is significantly undervalued.
Moving on to outlook for 2024, while reducing our revenue guidance to a range of $2 billion to $2 2 billion with a midpoint of $2 1 billion.
And an EPS range of $8 50 to $1 60, with the midpoint at $1 55.
We continue to see truck body and parts and services as stabilizing forces within our portfolio in 2024 as market conditions remained stronger in those businesses relative to drive it.
Speaker Change: In particular, we anticipate parts and services will move back into year on year growth territory during the second half.
Thank you specifically about our third quarter, our expectation is for revenue to come in between $450 million and $500 million and for EPS to be between 20 and 25.
I'd like to mention that while we are not yet position to provide guidance for next year I would caution against extrapolating, our implied financial performance for the fourth quarter of 2024 into 2025.
We expect to be able to flex our cost structure to better align with market conditions as we gain more clarity on our 2025 backlog Phil as large deal season approaches.
We're also expecting to see continued and accelerating growth in our higher margin parts and services segments.
Moving on to capital deployment expectations for 2024, we anticipate traditional capital investment to be between 75 and $85 million in 2024 as a result of planned expenditures to support our strategic growth initiatives.
We also expect to invest in Capex that will be immediately revenue generating through our trailers as a service program. As this investment is somewhat dependent on the evolution of the freight market. We will look forward to get a more specific guidance as the figure comes into focus.
In conclusion I'd like to emphasize that 2024 represents a significant opportunity to show the company's improved through the cycle financial profile driven by the diversity of our loan portfolio, but we're working to supplement with further parts and service exposure.
Believe that the enhancement to our portfolio along with a further improvement contemplated in our strategic plans have not been adequately reflected in our recent valuation.
We're confident that this year's share repurchase activity will prove to be savvy allocation of capital over the medium to long term.
To expand our breath comparisons to 2024 with the previous peak years of 2018 in 2019, our expected 2024, EPS midpoint of $1 55, all of the train the adjusted EPS of $1 44 generated in 2018, and a $1 62 in 2019.
<unk>.
Additionally, anticipated new trailer shipments in the low 30000 range for 2024 compared to 62000, and 2018 and 57500 in 2019.
I believe this underscores a fundamental improvements our team has achieved across the business.
By 2024, I turned out incrementally weaker than initially expected it's important to recognize that the gap between market forecast and market reality can go both ways, although industry forecast for 2025 had been revised lower we believe it's too early to make the call.
No more Wabash is well situated to generate year over year EPS growth across a broad range of market environments in 2025 with our confidence in continued growth next year in <unk> as a service specifically parts and services more broadly and our truck body business. We view 2024 as a floor for EPS generation.
I'll now turn the call back to the operator, and we'll open it up for questions.
Yeah.
Brian.
Hi, everyone.
Question.
Speaker Change: And an umbrella.
Yes.
Hi, <unk>.
Yes.
Speaker Change: My first question my Q&A.
Speaker Change: David Zhang Please go ahead.
Yes, hi, good afternoon, and thanks for taking my questions.
Hi.
Speaker Change: Hey, there.
So let me start off with a question about transportation solutions margins.
I know there were some kind of there was a bit of a one time benefit in the quarter sort of pickups that where it made in the first quarter that got pushed to the second so there was some good.
What's coming in you've got some decent revenue without a lot of cost.
Can you maybe give us some thought about the back half of the year margins in that segment.
Are there any unusual movements are large orders that will be unusually profitable during the rest of the year or you see more kind of normalized back half of the year for that segment.
So yeah.
To your point, Mike We did see we did see a little pick up and pick ups, we call that in Q1, we expect to that so it was.
Our guide, but I would say in the second half, where youre going to see it'll be it'll be normalized but it is going to be lower in large part because of the reduced revenue that we're ever.
Guiding to so if you look at our full year forecast and how we are projecting the full year. It would necessitate a lower transportation solution margin in Q3 Q4, but there is no theres no anomalies or one off so I would expect it to be kind of a normal calendar <unk>.
It will be lower than the first half.
Okay.
And Mike you had mentioned.
For the full year kind of a low 30 this number of shipments of trailers.
Uh huh.
Speaker Change: Just wanted to get a feel for the pricing you were down a little bit in the quarter from the previous quarter.
We can sort of back into it because I guess any kind of thought as to what pricing might look like on trailers in the back half that will be appreciated.
Yes, we're saying prudent with pricing, but it will be down second half.
It's not that it's not going to come down.
Speaker Change: Whole lot, but it will be down will be down sequentially and then.
But it's coming from a level that we feel is still going to generate pretty solid profitability for the business.
Physician wrapped within the freight cycle, but you will see some sequential step downs in pricing from Q2 to Q3 Q4.
Got it.
You also mentioned, maybe youre not ready to share numbers on entre unrivaled service and how that might impact.
Numbers in 'twenty, five, but it does sound like it.
We're gonna be a decent size number.
Could you comment on on whether the timing of launching it.
Got it this year into next year is like really good timing Im kind of wondering if if we see great fundamentals turn upward in any decent way.
If some shippers may be interested in that service.
As opposed to buying new if they're not sure how things might play out the first couple of quarters. If I wanted to get some temporary capacity and then may be worried about a larger permanent order down the road do you think you'll be.
Ready for any big upturn in the freight market with your trailer as a service solution do you think there is a role for it to play.
Sooner rather than later in the.
And the customer landscape.
So we are excited about the positioning of the offering when the upturn comes so we do believe that it could be a good place for a shipper a carrier broker to enter into the trailer space with a.
Speaker Change: At travelers and service offering as opposed to a full bias. So we feel really good about being ready for that upturn.
Speaker Change: Less certain when exactly that happens, which is why they are not given specific guidance, but we will be ready when it does happen and we are excited to have that offering.
As another option for our customers. Besides just the outright buy.
I can just squeeze one last one thanks for that Mike.
Maybe just wanted to ask about your feel for I don't know I mean.
Any one time or unusual costs in the first half of the year and even in the rest of the year.
As you look at what Dr. Martens Arts.
45% at the midpoint in the new guidance, but I am curious youre investing in trials of service not just the trailers, but probably some some admin costs.
Software and things like that you're also investing in the new parts.
Sales channel as well in other areas.
Kind of what would be the more a more normalized decremental margin do you think if all of that stuff were excluded also what might be a good incremental margin now that you've got your cost structure figured out when we do see an upturn in the trailer market.
Speaker Change: Yes, we like to think of it as 20% is a good incremental decremental I think theres two things that are happening in the first half you hit some of on balance there is puts and takes on some of those costs.
There were some there are some benefits and costs it's really.
Lower lower production output, which which can get you some compression and some pricing we already mentioned, which is making the decrementals a little higher than the 20%, but we would expect 20% to be a good incremental range as we start to grow in the 25.
Speaker Change: Okay. Thanks.
For that commentary guys I appreciate it I'll pass it all right excellent.
Your next question comes from Jeff Kauffman.
Yeah.
Okay.
Jeffrey Asher Kauffman: Thank you very much hey, everybody.
Terrific quarter.
So don't look behind look forward I guess is the message we're getting.
Mike could you repeat kind of where you thought deliveries could be.
Kind of missed the number you threw it out so quick are you thinking kind of in the 30 to 33 34 range, where where do you think deliveries are for the year.
Yes, that's correct 30 somewhere in that range.
Okay, so pretty wide.
Margin.
And it looks like trailer ASP is down is it a different type of trailer that we're expecting is it a different mix or are prices coming down.
There is some there is some price coming down but.
We already see mix you can see a mix between trailer types are different prototypes tank versus.
Bands and you can also see it with <unk> versus <unk>.
But there is.
Jeffrey Asher Kauffman: All of the above and that I think one of the.
Jeff This is Brent I think one of the changes.
This year, it's just the nature of the market is typically our indirect channel would be a stronger contributor.
In any given year and this market has somewhat muted that and those can be by the nature of the order size and the type of customer typically higher asps on our specs on a.
Jeffrey Asher Kauffman: Equal spec to spec, so thats weighing as to on Asps and that would be a.
Natural pick up once the market begins to turn in that channel turns back on more fully.
Alright, So my thought from 10000 feet is you've got truck industry P&L under pressures. So people would like to build trailer pools, but maybe that's on hold right now you've got a lot of customers that are out there, saying, okay. I got limited capital and cut my trailers more in the short term and try and hold onto my trucks, because I'm worried about EPA.
27, who knows.
Speaker Change: So to your point, maybe not cannibalization and 25% in 2006, but maybe in terms of the 24 budget.
The orders for trailers are down 30% the orders for trucks are down kind of 10 ish right now.
Speaker Change: Based on your conversations with customers is this more kind of applying a tourniquet to 2024.
And we think we go back to a more normal relationship in 'twenty five or do you think that theres risk that this extends into early 'twenty five until truck industry P&L pick up.
How are your customers, indicating fall order season, and kind of the shape of second half of 'twenty four versus $25.
Speaker Change: I think there's a lot to unpack there Jeff.
I think there is some plausibility that some what demand is.
Speaker Change: Unit and <unk> 24 to some degree.
And just kind of a continued.
Speaker Change: Leveling.
Call it pre buy but we'll just call some focus on tractors, but that is weakening we know that when I look at what's going on with direct orders going forward. So even though we saw that with <unk> yesterday.
Speaker Change: <unk>.
When we think about how that all multiple things youre integrating into what the first half or second half of 'twenty five may be.
I think regardless of all that I think it's pretty safe to say that we will look at somewhat increasing demand profiles across 2025.
We are not at a stage, where we can.
Quantify even qualitative really really understand what that initial first half demand will be.
It's too early conversations have started but not enough you can sum it up and gain a conclusion at this point in time.
In June I don't even think your customers know, they're they're busy revising budgets.
Speaker Change: And as we speak so yeah.
Steve noted.
Good 60, 90 days away from having those conversations and we'll call specificity.
Why we are holding off on guidance right now.
Speaker Change: I would say.
Speaker Change: We're somewhere within.
Speaker Change: The 10%.
Probably up.
Speaker Change: For example.
Speaker Change: What we're looking at right now if.
Speaker Change: If the market just begins basically begin to turn.
It could be a little higher than that if they really catches a momentum, but I'm not calling that in any way shape or form right now.
That would be and that's over the course of the first half and even that would be a climb as you start in January and you're working towards the June July timeframe.
That's how I would see it right now.
Okay, So based on where you're sitting right who knows.
Who really knows whats going I don't even think your customers know what's going on right now, but you would expect the worst of this to be in the second half of this year and then may be mitigating early next year, and then getting back to a probably a more normal splitter relationship of the capital pool as we get into 'twenty five.
Yes, I would say as we begin to materially get into 'twenty five we would expect sitting here today that we would be back on a.
General upward demand curve moving into the upswing of the cycle, yes, that's what we see.
Okay, and then final question.
If I look at something like profit per trailer.
There is a lot of different ways to look at that but.
Speaker Change: 22, and 23 were pretty good years.
Would you argue we're getting back to something more normalized but because of cost inflation, we probably level out at a higher level than we were previously even though we're kind of normalizing right now yes.
Speaker Change: Yes, I think thats, a safe assumption even at base case.
Inflation and so on a profit per territory has absolutely.
We'll call it skewed the field going forward.
Speaker Change: We're not seeing relief or change in that right now.
And then I would add that I think.
When you turn internally evaluate what's going inside of Wabash and I think there is a.
Speaker Change: The positive impact that we're also adding on that profitability plus what inflation has given us on a again on a profit per unit standpoint.
We're going to see some.
So we're looking for.
Resetting.
Where we're starting from.
But I think we're still going to be in a good position to continue to climb that.
Profitability over the course of the market upswing over the next 234 years.
Depending on how long that part of the cycle is so good jumping off point.
The punch line, Hey, guys Thats all true Jeff the other thing that is in there.
Positive is the breadth of the portfolio. So specifically truck bodies looking at transportation solutions profitability, that's been there and higher than it was prior to 'twenty two 'twenty three.
That's a helpful. We believe sustainable tailwind.
Alright, well congratulations on a solid second quarter and thank you very much. Thank.
Thank you Jeff.
Okay.
Speaker Change: That concludes our Q&A session.
Matt: Hi, Matt.
<unk>.
Hum.
Thanks, everyone for joining us today, we'll look forward to following up during the quarter and good day.
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