Wabash National Corporation

Good day, and thank you for standing by and welcome to the Wabash National Corporation Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to speaker today, Ryan Reed. Please go ahead.

Thank you, Faith. Good morning, everyone, and thanks for joining us on this call. With me today are Brian Yeagy, President and Chief Executive Officer, and Mike Patton, Chief Financial Officer. A couple 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.wabashnational.com.

Please refer to slide two in our earnings deck for the company's safe harbor disclosure statement addressing forward-looking statements. I'll hand it over to Brent for his highlights. Thanks, Ryan. Good morning, everyone, and thank you for joining us today. I'd like to start by mentioning how pleased we were with our second quarter results. The manufacturing environment continues to be challenging for everyone involved, but I feel Wabash National is navigating well through this environment. Second quarter operating profit and EPS came in above our expectations as we executed on the manufacturing side while controlling our cost structure. I now want to step back and discuss our ability to execute in this environment. We are witnessing a new and heightened level of collaboration and coordination amongst our employees as we navigate possibly the most difficult external environment I've seen in my career. With our new organizational structure, our supply chain, manufacturing, and sales teams now work across our businesses to disseminate information and direction more effectively and with higher velocity than ever before. We are delighted but not surprised because it was our intent to drive this level of management system improvement when we realigned our organization to drive functional excellence, as well as a higher level of focus on our customers to expand our entire portfolio of First to Final Mile. Speaking of our portfolio, I'd also like to congratulate our team on successfully divesting the extract technology business at the end of the second quarter. Wabash's acquisition of Walker Group Holdings in 2012 brought a handful of businesses into our portfolio, most notably Tank Trailers and Process Systems. Extract was also included in that deal and is a leading provider of containment and aseptic systems for pharmaceutical, healthcare, biotech, and chemical markets. Although Extract is an excellent business, our strategy is now squarely focused on the transportation, logistics, and distribution industries. As such, our best owner review concluded that we should look to monetize the asset, and we believe Extract is very well situated for the future under the new ownership of Dietrich Engineering Consultants. I'd like to thank the extract team for their service to Wabash National and wish them all the best in the future. Also on the strategy front, I'm very pleased that Dustin Smith has accepted the position of Chief Strategy Officer. This is a new role for Wabash that is designed to accelerate our pursuit of innovative technologies, expand and increase the velocity of our product development activities as we identify and investigate emerging market opportunities within the changing landscape of transportation, logistics, and distribution. Dustin has been with Wabash National for 14 years and brings with him broad leadership experience across the areas of finance, manufacturing, and supply chain from roles at Wabash and Ford Motor Company. Most of all, he brings with him the trust of this leadership team and the rank and file of this organization. Dustin's primary responsibilities will be twofold. First, he will work directly with Mike Pettit and I as we jointly chart an evolving course to drive profitable growth for our shareholders over the next five years. Second, he will drive the deployment of current strategic growth initiatives, including cold chain and the portfolio expansion of our multi-structural composite technology, leveraging the impact of e-commerce and overall logistics disruption for growth and profitable expansion within up-dating parts and services. Again, this type of role would not have been possible in the context of prior organizational structure. But given our one wall-based approach, this role now can prioritize high-impact opportunities and marshal resources across the organization to execute our initiatives, achieve our vision, and live our purpose of changing how the world reaches you. Now let's focus on market conditions. Our market indicators continue to show the underpinnings of a very strong setup for ongoing freight activity. Elevated retail sales and depressed business inventories are prompting increased manufacturing production, which is driving strong freight activity within a dislocated freight landscape. As a result, those spot and contract rates reside at very favorable levels for our customers and seem likely to remain well into 2022. Hire remains a challenge in seemingly all sectors of the economy, and our experience has been no different. That said, the name of the game in 2021 is perseverance, and we continue to make improvement in our progress to increase overall labor capacity in a very challenging environment. Material costs and supply chain performance remain headwinds, but we are handling this in a manner that is considerably better coordinated than in past cycles due to our ability to see the field much better and react in a more deliberate, agile, and time-sensitive manner. We are also having the difficult but necessary conversations with our customers about recovering cost increases throughout our backlog and we continue to work to mitigate the impact of cost increases in other ways. As I mentioned, on the supply chain side, we are working as one team to navigate the uneven landscape, and our results have been better than expected given the amount of volatility in our diverse supply base. All types of transportation solutions are in high demand for 2021, and labor and supply chain constraints occurring now have only heightened desire for customers to have demand planning conversations that include 2022 and beyond. That said, our backlog for 2022 has not yet fully been opened. We remain diligently focused on managing demand in a manner that reflects the reality of the challenges of material cost and labor uncertainty, and assuring weak price products in a manner that reflects that environment. That includes the reality that forthcoming demand will likely exceed the industry's and our near-term capacity constraints. We'll talk more about that in a minute. Moving on to backlog, it's very typical for our order backlog to decline sequentially from Q1 to Q2 as we fulfill customer orders and gear up for large deal season for van trailers later in the year. Because of backlog strength in our TPG and FMP segments, our order books saw them less than normal seasonality would indicate an overall backlog remained up 77% year over year. Moving on to our outlook, we are maintaining our DPS guidance While material cost increases have been greater than anticipated, our financial performance in Q2 was enough to offset those material cost headwinds. As such, we are leaving our prior guidance essentially intact. Because of the extract divestiture, we will adjust our outlook to reflect the absence of that business. We remain on track to ramp our capacity utilization to enter 2022 in a strong manner. I am now going to shift the conversation to discuss how we'll better meet the implicit demand for our products and services into the future. As we think about the past, present, and future of our manufacturing footprint, we have found ourselves with demand as exceeded physical capacity for the production of dry vans. As a result, we have asked a lot of our workforce in 2018 and 2019 to work significant overtime and many weekends so that we could fulfill as much customer demand as possible, and even then we left customers wanting. Profitable demand for our dry vans has continued to grow over the past decade as we have strengthened our indirect channel, utilized innovative materials to create by far the lightest dry van in the industry, and now reorganized our sales force to increase the effectiveness of our commercial efforts. Couple that with a changing logistics landscape, knowing that our customers are uniquely positioned to grow capacity. In 10 years of continued growth in overall trailer demand, and it's time for Wabash National to move to increase our ability to capitalize on this profitable opportunity. Therefore, we are announcing the transition of existing manufacturing floor space to produce dry vans beginning in 2023, and we expect to be able to produce an incremental 10,000 dry vans annually. To put these numbers in context, that is roughly a 20% increase in our dry van capacity, but only a 5% increase for the industry. This is obviously a small change for the industry, but a considerable boost to Wabash National's ability to serve our direct customers and supply our indirect channel. To facilitate this move, we will be ramping down manufacturing of our conventional refrigerated van product. and converting that floor space to dry van production over the next 18 months. The transition of this existing floor space and this existing highly skilled labor force creates significant and sustainable financial benefit for Wabash as it provides both top-line growth and a creative margin potential. When considering the strategic impact of our cold chain growth targets, This aligns with our intent to transition our traditional conventional refrigerated product technology to far superior and industry-leading molded structural composite technology, coupled with a more efficient and innovative future refrigerated van production capability. Molded structural composite technology refrigerated vans have over 10 million miles on the road and show better thermal efficiency combined with its lighter weight designs. With a differentiated approach to refrigerated trailers that addresses our customers' growing needs for sustainability and operating efficiency, we expect to follow up with an announcement of additional motor structural composite refrigerated van assembly capacity in the coming quarters. When we started our journey to disrupt the refrigerated industry several years ago, we did so with the specific intent to jump over the competition with superior technology. We have now reached the point where conventional reefer design is the past, and we are all in in commercializing the future. Let me close my portion of the call by saying that I am extremely proud of our team's performance through these unusual times. In 2020, we posted the best cycle to trout performance in the company's history by generating over $100 million of free cash flow. We now continue to raise the bar on our performance at a different phase of the cycle, as we manage through unprecedented labor and supply chain environments while generating strong operating income. This very obvious improvement doesn't happen by trying harder. These improvements are the result of a refreshed strategy and an organization that is now structured to execute that strategy. All of these exciting changes have happened at precisely the right time as we look forward to continuing this cadence of improved execution paired with the ability to move more thoroughly and more dynamically serving customers in the coming years. With that, I'll hand it over to Mike for his comments.