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spk00: 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.
spk04: 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.
spk03: 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.
spk04: Thanks, Brent. I'd like to start off by giving you some additional color on our second quarter financial results. On a consolidated basis, second quarter revenue is $449 million. with consolidated new trailer shipments of approximately 11,590 units during the quarter. Gross margin was 12.4% of sales during the quarter. Operating margin came in at 5% or 4.6% on a non-gap adjusted basis. As Brent mentioned, these margins were somewhat above our expectations for the quarter as a result of continued strong cost control. Operating EBITDA for the second quarter was $35 million or 7.8% of sales. This is an even down margin that is consistent with margins generated prior to the pandemic. Finally, for the quarter net income was $12.3 million or 24 cents per diluted share. On a non-GAAP adjusted basis, EPS was 21 cents. From a segment perspective, commercial trailer products generated revenues of $296 million and operating income of $32.3 million. Diversified products group generated $77 million of revenue in the quarter with operating income of $5.8 million or $4 million on a non-GAAP adjusted basis when we take out the gain on the sale of extract technology. Final model products generated $81 million of revenue during the second quarter. Customer demand remains considerably stronger than industry production would show. While labor challenges have been par for the course in this business, supply disruptions have been greater as chassis OEMs have taken unplanned downtime to adjust their capacity to chip shortages. and we would expect these chip-related chassis headwinds to continue for the rest of 2021. FMP experienced an operating loss of $3.2 million, but a gain of $1.3 million of EBITDA. Because of FMP's heavy and increasing amortization burden, EBITDA provides a more stable measure of progress and a more relevant measure of impact on cash generation. Operating cash flow during the second quarter was $9.3 million. We invested roughly $6.9 million via capital expenditures, leaving $2.4 million of free cash flow. Working capital increased during the quarter, primarily from inventory, as volumes continued to ramp, partially offset by strong customer receivables. We remain on a path of achieving a capital-efficient ramp during the remainder of 2021, and we would expect to be free cash flow positive in the second half of the year. Because of our actions to reach all our existing capacity to support expanded drive-in production, we are increasing our CapEx guidance by $20 million to an anticipated range of $55 to $60 million in capital spending for 2021. With regard to our balance sheet, our liquidity for cash plus available borrowings as of June 30th was $304 million, with $136 million of cash, cash equivalent and restricted cash, and $168 million of availability on our revolving credit facility, which is fully untapped. As Brett mentioned, we completed the sale of XTRACT Technology at the end of the second quarter. In 2020, we announced that we would be reviewing our portfolio of businesses for fit. Since that time, we have divested extract, field tank trailers, and sold our last remaining Wabash branch location. These actions come after the divestiture in 2019 of Garcite, an aviation refueling business. Through these non-core asset sales, we have raised a total of approximately $40 million and also structured our portfolio in a manner that aligns with our strategy for growth. We feel great about the businesses that now comprise Wabash National, and our corporate development focus is ready to flip from divestitures to building a pipeline of potential acquisitions. The second quarter was a very active one for capital allocation, as we used $30 million for debt reduction, $22 million to repurchase shares, $7 million for capital projects, and $4 million to fund our quarterly dividend, and we still ended the quarter with over $134 million of cash on the balance sheet and net debt leverage of only 2.6 times. Our capital allocation focus continues to prioritize reinvestment in the business through growth CapEx while also maintaining our dividend and evaluating opportunities for debt reduction, sharing purchases, and M&A. Moving on to the outlook for 2021, we expect revenue of approximately $1.9 to $2 billion. From a revenue perspective, I'd like to remind you that we have a headwind of about $12 million per quarter versus year-ago levels as a result of the absence of revenue from what is now two divested businesses. SG&A's percent of revenue is expected to be in the low 6% range for the full year. Adjusted operating margins are expected to be in the high 3% range at the midpoint, which results in an EPS midpoint of 72 cents with a range of 67 to 77 cents. Again, the update to our EPS midpoint is a result of the divestiture of extract technology. Turning to the third quarter, we expect revenue in the range of $510 million to $540 million, up 17% at the midpoint sequentially versus Q2 with new trailer shipments of 12,500 to 13,500 as we look to continue increasing production throughout the year. Given that material cost headwinds will intensify as we move through the remainder of this year, we expect operating margins in the high 3% range in Q3. This implies Q3 EPS in a similar range to Q2. In closing, I'm very pleased with our performance for the first half of the year. As is evident from our financial results, the company's execution has been quicker and more decisive, which has been enabled by our new organizational structure. This new structure has proven integral in helping us capitalize on near-term opportunities and we believe it will continue to prove effective as we execute on the medium-term opportunities presented by strong customer demand, as well as the longer-term opportunities in our strategy, which emphasizes organic growth, leveraging Wabash's industry-leading first-to-final-mile portfolio. Expanding our dry van production capacity is an exciting investment that underpins our first-to-final-mile strategy and will further enable performance and will strengthen our push towards 8% operating margin. which is a target we continue to expect to achieve by 2023. With that, I'll turn the call back to the operator for questions.
spk00: Thank you, sir. As a reminder, to ask a question, you need to press star 1 on your telephone. To withdraw a question, press the pound key. Please stand by while we compile the Q&A roster. Your first question is from Justin Long from Stevens. Your line is open.
spk01: Thanks, and good morning. All right, Justin. So the quarter was better than expected, but with the full year guidance not changing when you strip out the divestiture, that implies the second half outlook has maybe moderated a bit. I just wanted to clarify what's changed from that perspective. It sounds like most of that is material cost increases, but is there anything else that's driving that? Maybe the A potential chassis issue, if you could give an update there, given some of the data points we've seen in the industry.
spk04: Yeah, I would say that the main headwind by far is materials. So the team has done a really good job of offsetting as much of the material cost as possible through pricing increases. And some of our inherent processes, such as hedging, will delay some of the material cost fits that we're going to see in the second half of the year. That's a big part of what you see in terms of the margin compression from first half to second half. I think you overlay that with an opportunity that may have been to offset some of that material cost increase with additional volume. It's just not going to be possible in businesses like F&P, as you mentioned, from chassis. There's a finite supply of chassis we're going to get. So where we would have thought we might have been able to get some additional volume, we're just not going to be able to do that now with the chassis constraints. The demand exceeds our supply of certain commodities. And it's not just chassis. It's also foam unrefrigerated trailers.
spk03: Yeah, I think that's the important piece is not to get hung up on any one supplied material. By far, what every manufacturer in this industry and many industries are dealing with is just the inflationary pressures that we feel across the supply base. And that's really the conversation. There is no one supply chain element that you can hang a hat on and say, if we could do this, volume would begin to just come falling from the trees. That's not going to happen. We are increasing production through the second half of the year because we manage it better than we believe our peers. That doesn't mean that we're not impacted across the board with daily supply chain issues. this is really an inflationary conversation in terms of our first half to our second half of the year.
spk01: Understood. That's helpful. And maybe I could shift next to the capacity addition. Brent, as you think about this decision strategically to add capacity in 2023, can you just talk about your comfort in doing that? I mean, obviously the The cycle right now is extremely strong. Trailer demand is high. You know, where we are in 2023 is a bit more of an unknown. But is there anything that you could share in terms of just longer-term relationships with customers, you know, commitments that they've made that might support this capacity addition and the return on this CapEx investment?
spk03: Yeah, I think the easiest way for us to be thinking about it, both here at Wabash National and on the call, is that the implicit demand for Wabash National Dry Vans has grown over the last 10 years by actions that we've undertook. And we saw that dry van market share expansion in 2020 when we were relieved from, we'll call it, industry demand constraints, right? So our capacity exceeded industry demand. We grew market share accordingly while preserving price. When we look at how we believe the industry is now growing right, has grown over the last 10 years. That's without, well, really debate. We've seen the peaks get higher. We've seen them extend. The market has shifted. Wabash has shifted accordingly. So when we think about this drive-in capacity addition, we're not playing a cycle. We're not looking to capitalize on a given cycle. This is taking advantage of a structural shift and a clear unmet need for our customers to that we are sizing this capacity for. We're not sizing it for what we think the overall industry is doing. We're sizing it for what we talk to our customers about and how they look at their long-term, you know, three-, five-, seven-year demand cycles and their communication of unmet need for our product. That's how we look at it, and that's why we are very confident in that this is an excellent investment in the business.
spk04: One point to add, too, even at mid-cycle volume levels, our existing drive-in manufacturing footprint works a tremendous amount of overtime.
spk01: cost of adding this capacity? And Mike, how does this change the incremental and decrement?
spk04: As we move forward, the all-in cost is in the $60 to $70 million range. We would still expect to be able to be cash flow positive the second half of this year and for full year 2022. So this is an investment that is funded through free cash flow, and we'll still be able to be positive and generate really good returns on this installed capacity.
spk01: Okay, great. I'll leave it at that. I appreciate the time. Thanks, Justin.
spk00: Your next question is from Jeff Kaufman from Vertical Research. Your line is open.
spk05: Thank you very much, and congratulations on a solid quarter. Just a couple of detailed questions here. In the P&L for DPG, it looked like other operating expense was only about $6 million. Normally, that would be about $9 million. Is that because the gain on sale was taken against those numbers in that division?
spk04: The gain on sale was in the DPG business, Jeff.
spk05: Okay.
spk04: as we continue to ramp up in 21 going into 22. So we have tailwind on our base currently installed capacity as we get the manpower required to run in 2022. Then you'll add the volume on top of it for 23. Yeah.
spk03: We aren't necessarily talking about the more simple and traditional increases in throughput and capacity and other aspects of the business that are additive to how we believe we will perform in 2022 and beyond.
spk05: Okay. And thinking about the refrigerated business, are we still making refrigerators out of a different location? Are we basically out of the refrigerated business for about a year while these changes occur?
spk03: So what we will be doing is we'll be utilizing the effective capacity of conventional reapers for a, we'll just call it the majority of 2022. We'll begin ramping that down in the mid-year timeframe. Simultaneously, we will be ramping up assembly capacity for our MSC all composite reefer in an alternative location. And that will be early, what I would call more grassroots capacity additions. And then simultaneous to all that, we will be talking about what the future capacity model will be for all composite refrigerated vans in 2023 and beyond.
spk05: Okay. And would you say, I think I heard Mike say, we're still thinking 8% operating margins when we get out to 2023. So now you're saying 8% on the higher volume number. So in effect, it's a guidance increase in terms of profit dollars in the year 2023. Is that the right way to think about it?
spk04: Absolutely, Jeff. Yes. And we think, as I mentioned, The mix inherent in there on the driver versus the reefer, this is an enabler to achieve 8% for sure.
spk03: Yeah. Everything that we're doing inside the organization, Jeff, is about maximizing profitable growth first and foremost, and all the actions are summing up to that reality.
spk05: Okay, and then just one more net, and then I'm good. So you mentioned the CapEx increase for this year. How should I think about CapEx as I look out to 22 and 23? Do we still have this elevated $55 million, $60 million spend rate next year? Does it start to come back down toward a more historical level, or is there a new historical level since we'll have new facilities and new locations?
spk04: Yeah, I don't want to give specific guidance out to 23, but I will say 22 will be elevated like 21 to finish the capacity install, and then we'll look at 23. I don't see it being elevated forever over the next five years, but over the next two years, we will need additional capacity to not only do the drive-in from reefer swap that we've mentioned, but also to install the MSC capacity that we're going to need in 2023. Yeah.
spk05: All right. Well, thank you for your answers. Terrific quarter. Good luck. Thanks, Jeff.
spk00: Your next question is from Felix Bochen from Raymond James. Your line is open.
spk02: Hey, good morning, everybody. Hey, I was kind of hoping to stay on the 8% margins in 2023. You know, it feels like you're around 4% for the full year in 2021, and I through labor, maybe raw materials, supply chain, even premium freight, maybe two parts. And I'm not looking for exact guidance, but can you help us understand how you would expect margins to kind of ramp into 2022 on the way toward that 8%? And then is there a cost? Yeah, maybe we'll start there.
spk04: Yeah, absolutely. I think the first and foremost is The material cost headwind we are seeing in 2021, let me frame that for the people on the call. It's about $120 million of total cost increases we've seen from a material perspective in 2021. Now, the team has done a very good job of offsetting a large percentage of that. It's how we've been able to maintain our guidance through the year. That will be fully priced into our 2022 backlog, and that's what's opening up here over the last couple weeks and in the next couple weeks. accounting for all the inflation that we've worked really hard to offset in 2021 will be fully baked in in 2022. And that will be the number one improver to margins as you're thinking about going from high threes to eight. We're going to get a big pop in material margin from that. Also, obviously, as you mentioned, as we're ramping the facilities, there's a lot of off-standard labor costs that are hitting all year. A lot of that will be behind us. Those are the two biggest enablers, as well as the full-year effective volumes. Those of you who are amped through 2021, as is implied in our guidance, will be coming out at a much higher rate. So those are the items that will really lead to the increase, and that should just accelerate into 2023 where we're confident we can hit 8%.
spk03: And I would add, on the pricing side of it, if you look at the script and you read it again, we talk about the backlog not being fully open. It's safe to say we have tested the market and understanding what price can be in 2022 coming out of the gate. We know absolutely how we have raised necessary pricing to offset costs for the fourth quarter as we lead into 2022. So we feel good that the market will allow appropriate pricing to manage this business going forward, offsetting materials accordingly. From a
spk04: Pricing perspective, now that we know we're looking at going into 2022, it is much easier to stay ahead of it than what it was in 2020 going into 2021. And that's the number one reason we have a high degree of confidence that we'll see margin expansion in 2022.
spk02: Right. Okay, that's helpful. And that's kind of exactly where I was going with this line of questioning. And so I'm curious, just on the 120 million raw material headwinds, That's a gross number. Do you have a net number for us after you've repriced some of the backlog, I would presume?
spk04: Yeah, I'm not going to give you the net, but I'll say that we've repriced the majority, the vast majority. In order for us to maintain guidance, we would have had to have done that. But clearly we have not gotten it all, but we've gotten it.
spk03: I would echo a substantial portion far beyond industry norm.
spk02: and far beyond anything wabash national has executed in the past okay that's helpful and then just to be clear on your pricing comment and understanding you haven't fully opened the slots for 2022 yet but whatever that net raw material headwind will be in 2021 off the gross 120 would you basically assume that the net out to zero into next year and thus that's the year-over-year benefit
spk04: That would be, assuming there's no additional pricing for demand, yes, that would be the net benefit. That would be, I would say, the minimum net benefit would be that delta. But I think there's other opportunities to price for our product.
spk03: And I want to make it very clear that we are pricing for the total environment.
spk02: Okay, very helpful. Okay, and then I had a different one. This is more on the capacity expansion aspect. Obviously, you feel that there's been a shift in the trailer market from a demand perspective. That's not a cycle comment, but in and through cycles, you'll be able to produce at that new level. I'm curious, as you look at maybe the rest of the industry, have you seen anybody else come out and really try to add capacity during this time? Or do you think that 5% that you would be adding to industry capacity is your expectation over the next couple of years?
spk03: I think we feel very confident that the 5% capacity add that we've done will be met, again, with intrinsic demand for the product. We have the unmet need. I think it's safe to say the unmet need for Wabash National Dry Vans throughout the last three to five years of market performance. exceeds the 10,000 units that we are putting in place. So we feel pretty comfortable that we will still have conversations with customers about their unmet need even going forward.
spk02: Got it. Okay. That's very helpful. And then just this is the last one for me, but I think in your opening remarks, you mentioned cold chain and upfitting as two major initiatives. I presume that that's on the final mile side. I was just wondering if you could maybe give us some color around what percent of the final mile book you kind of up in-house today and maybe what your refrigerated split is as a percent of the book.
spk03: I think, first off, I want to take a step back from that. And when we think about upfitting... In the universe that we play in from first to final mile, we don't necessarily see it limited to just coming off of the traditional final mile revenue base. We think there are emerging opportunities in first, middle, and to a degree, I'm sorry, not only final and middle, but also on first mile based on where logistics is going. So it really needs to be looked at, total book of business. Now, specific to your question, I'd say roughly we capture somewhere north of 20% of the product that we produce today passes through some level of Wabash National upfitting, whether it be at a decoupled site or at the primary final assembly factory. We would grow off of that accordingly. We are expanding and expanding that thought to middle mile product, which be traditionally thought of as a CTP revenue base. But we see that now emerging as logistics continues to change. That's different than maybe how we thought about parts and service, you know, five, 10 years ago with the traditional branches and service offerings that we had for CTP. This is a different model, and it is because logistics is changing. And can you touch on the cold chain question again, make sure I answer that specifically?
spk02: Yeah, I was just curious, because I know you do some refrigerated bodies in Final Mile. I was just curious what the updated split was, you know, as a part of the total book about refrigerated in Final Mile.
spk04: Yeah, from a revenue perspective today, it's 15%-ish, 1.5%. But it's not yet optimized. I think what's important to note, when we talk about cold chain, we're talking about that cold chain from first to final mile and even outside the core transportation markets. And MSP will play not only in our refrigerated trailers. but also in refrigerated truck bodies and inserts. And there's lots of opportunities on the horizon for us to really grow that percentage. It's a low percent today. The product hasn't been a differentiating point, but will be with MSC. And we're just at the early stages of growing that book of business with MSC truck bodies. It's an opportunity, not just in trailers, but in truck bodies.
spk03: Yeah, we really have to think about, again, cold chain, bike upfitting. Cold chain now has to be thought of as encompassing all of our We'll call it traditional revenue streams. And we have to manage it because our customers now span accordingly, right? So even when we talk about MSC, we talk about it as an enabling technology. It's not a product in and of itself. It's an ingredient. So as we make moves with Reverb Vans, you can expect that simultaneously we'll be making moves to scale up integration and value-creating opportunities by broadening that ingredient into our final mile-related books of businesses as well. And that capacity that we add, those dollars spent, will not reside and create value just in one P&L, but multiple P&Ls going forward. That's how we create synergy in our first-to-final-mile application, one Wabash organization.
spk02: Got it. Very helpful. I'll leave it there. Thank you. Thanks very much.
spk00: we do have a follow-up question from Jeff Kaufman from Vertical Research. Your line is open.
spk05: Hi, guys. Mike, can we go back to that $120 million cost increase for 2021? When I think about what that would mean on a per-unit basis, am I dividing that by the full year assumed production or just your production in the second half of the year? I guess one leads me to an increase of about $2,500 a trailer. That seems low. The other leads me to about $5,000 a trailer. That seems high. I'm just trying to figure out how to think about RPU forecasting as we're heading into 2022.
spk04: Yeah, so what's important to note, Jeff, is that is – so that's across our whole book of business. But the reason you're not going to be able to get it to box, that's the actual increase we saw – incremental to what our hedging programs would have offset. So the actual cost increases more than that, but we were able to, to some of our programs, whether it's fixed pricing with our suppliers or hedging, we're able to want some of that. That's the actual impact we saw in the 2021 calendar year that we had to go out, back out to our customer base and try to offset. We didn't have to offset things that we already had hedged. So that's why you can't get the box, the numbers box.
spk03: There's some research that's out there, Jeff, where, you know, there's estimates in that six to $8,000 range.
spk05: I think one of those pieces was ours.
spk03: Yeah. That is indicative of the environment that the industry is facing.
spk04: The total cost increase far exceeds 120. The 120 is the piece that the team in the year 2021 had to offset, and that's what's important. And that wouldn't have been in our implied guidance when we went out earlier in the year. That's That means we're able to offset the vast majority of that to maintain guidance. So the total cost is more than $120,000.
spk05: Yeah, no, that's helpful because we had calculated the $6,000 to $8,000 increase, and these numbers were coming in lower, so I was trying to bridge the gap.
spk04: Thank you. I think you're pretty close, Jeff.
spk05: Thank you.
spk00: There are no further questions at this time. I'll turn the call back over to Ryan Reed.
spk04: Thanks, Faith. Thanks, everyone, for joining us today. We'll look forward to following up during the quarter.
spk00: Have a great day.
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