Wabash National Corporation

Good day and thank you for standing by. Welcome to Wabash National Corporation third quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star then the number one on your telephone. If you require any further assistance, please press star zero. I would like to hand the call over to your speaker today. Mr. Ryan Reed, please go ahead.

Thank you. Good morning, everyone. Thanks for joining us on this call. With me today are Brent Yagee, President and Chief Executive Officer, and Mike Pettit, 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.lawbashnational.com. Please refer to slide two in our earnings deck for the company's safe harbor disclosure addressing forward-looking statements.

I'll now hand it off to Brent. Thank you, Ryan. Good morning, everyone, and thank you for joining us today. We have a number of exciting updates to share with you. Upon becoming CEO, our team began this journey of repositioning Wabash as an innovation leader of engineered solutions for the transportation, logistics, and distribution markets with a unifying purpose of changing how the world reaches you. We have made deliberate organizational and structural changes over the last few years to further enable and accelerate the deployment of our strategy. First, we built a portfolio of first-to-final-mile equipment, which positions us to have the most complete set of solutions for our customers as they respond to changing logistics environments, primarily driven by the growth of e-commerce. Second, we implemented the Wabash management system. a lean-based and enterprise-focused process development effort that drives breakthrough and scalable business capabilities. Lastly, we introduced the OneWallbash approach to focus all aspects of our business, our processes, and our people to create and deliver value to our customers. These significant advances to our company structure and culture have been made with the goal of enhancing collaboration, innovation, and customer centricity across the enterprise. We now go to market as one Wabash. We provide our customers with an improved experience as they continue to increase purchasing from across our product and service portfolio. Our innovation, product development, and manufacturing capabilities from across all businesses are overseen by one centralized team, which enables our talent to focus on solving the most pressing needs for our customers, focusing on deployment of resources, while driving the highest levels of innovation within our markets. This structure enables the Wabash management system, the foundation of how we do things, to drive connected thinking, problem solving, and alignment so that we can create breakthroughs at an increasingly rapid pace. These changes have not only enabled a better customer experience, but also allowed Wabash to be more productive, as evidenced by our $20 million of structural cost efficiencies achieved during 2020. This enhanced platform for growth positions Wabash to seize the opportunities created by an increasingly disruptive logistics landscape. The Wabash management system has also enabled the company to focus on the growing opportunities within the transportation, logistics, and distribution markets. Our team has worked hard to align our portfolio of businesses with the new strategy, and as a result, we have invested three non-core businesses, Garcite, Beal, and Extract. These decisions all follow the principles of our system, such as assuring resources are focused on deployment of the strategy, powerful redeployment of capital, and focus is critical to our success. The outstanding efforts of our extended leadership team and all of our employees to accept and drive change has strategically repositioned Wabash to execute the next phase of our growth strategy. Coal chain, the growth in e-commerce, and parts and services offer numerous secular growth opportunities within the transportation, logistics, and distribution markets, and we intend to leverage our people, our technologies, and our existing and growing capabilities in order to foster profitable growth in these attractive markets. Our coal chain initiative leverages new technologies to add value within the rapidly growing refrigerated transportation and logistics space. The e-commerce space has been experiencing dynamic growth, and our product portfolio is expanding to better serve that market from first to final mile. And our parts and service platform initiative is one where we are excited to build upon existing revenue streams and target growth of higher margin, more recurrent sales as we deliver to our customers' changing needs. We will deliver on this growth from a market leadership position while continuing to innovate and deliver industry-leading customer service. The opportunities for profitable growth over the next decade had never been as significant in the company's history, and Wabash's position precedes this moment. This moment is special. Transportation, logistics, and distribution markets are going through a momentous transition as they adapt to a compilation of forces. We see a different future reality than our competition in the context of social, technological, and logistics changes, and we've chosen to go down a substantially different path to reshape the industry and pull that future forward for our customers. It is time to be bold and send a message to all of our stakeholders that we choose to take the next step forward in our maturity as a company, as a solution provider, and as part of a greater contributor to the sustainability and social awakening of the world. The decision to drop national from our name, while on the surface may seem insignificant, is in fact a powerful change and symbolic for the significant strategic changes that we have made as one Wabash and will continue to make on our growth journey. We are redefining and reimagining our identity with customers, dealers, suppliers, employees, and shareholders. Wabash has become a more dynamic place to work. We are reshaped to grow beyond our traditional markets, and we have a visionary mindset and the capacity to prosper in a changing world. So today, we are announcing our name change, and in the near future, we will outline our plan to adapt our brand strategy to reflect our vision of the future. In addition to changing our identity, we are changing our segment reporting structure to align with how we operate the business and how we go to market. Given we now have one face to the customer for our first-to-final MAR portfolio of equipment, we will now have two reportable segments. The first new segment, Transportation Solutions, comprises of vans, platforms, tank trailers, and truck bodies, and accounts for about 90% of our year-to-date sales. We continue to provide disclosure of new trailer unit shipment volumes, and we have added disclosure on unit shipment volumes for truck bodies to provide visibility to what we anticipate will be a strong growth trajectory for that business going forward. The second new segment is parts and services, a higher margin, more repeatable business that is poised to benefit from a changing logistics landscape, new and emerging customer needs, and the rise of the digital marketplace. While we currently generate a small portion of our company's total revenue from parts and service businesses, we appreciate the cyclicality damping effects and the margin uplift that parts and services can create for OEMs. As such, we have shifted significant talent to lead our parts and service team, and they are focused on executing aggressive plans that now underpin our growth initiatives in this space. Aftermarket parts, repair and maintenance services, and upbidding, as well as equipment services all present compelling opportunities for revenue growth and margin expansion. We expect parts and services to benefit from our planned capital allocation activities to drive both organic and inorganic growth, enabled by significant free cash flow generation by our transportation solution segment. With a mature strategic deployment process as one of our many new capabilities installed under the Wabash Management System, This will be an area of extreme focus and will benefit from our enhanced ability to create scalable and profitable growth in both OEM and aftermarket parts, focus service and update offerings, as well as other service offerings. Our new segmentation structure reflects our enhanced focus on new growth opportunities, as well as aligns how we discuss the business with how we operate the business. This will create enhanced transparency and a more simplified discussion of how and where value is created at Wabash for our employees, our customers, and our shareholders. I will now discuss our plans at shifting capacity from traditional refrigerated vans to dry vans and the scale growth of our composite refrigerated products, which includes molded structural composite technology. I'm pleased to report that our progress remains on track for additional dry van production to begin in early 2023. As we discuss these capacity changes with the investment community over the last quarter, I'd like to revisit a few points that I believe are helpful in explaining our rationale for these changes and the forthcoming benefits. Going to market as one Wabash allows a portfolio selling approach that leverages the unrivaled breadth of our products. That capability to meet this new customer demand more fully for our flagship dry van product is tremendously important in supporting our portfolio selling approach. Additionally, Our enhanced drive-in capacity will allow us to more adequately supply product to our Wabash-exclusive and industry-leading dealer network. This added capacity is also necessary to supply a logistics market that continues to drive changes in the way trailers are utilized. Drop and Hook is a strategy carriers use to maximize drivers' time on the road. Driver shortages are a persistent problem but have become more severe since 2020 with little clarity on how or when the situation will materially improve. Overall, our customers' incremental economics of adding a trailer to a tractor have meaningfully increased and represent a compelling value proposition in the marketplace. Additionally, incremental demand for drive-in trailers is being generated by customers that did not consume trailers 5 to 10 years ago. private fleets, and freight brokers are building trailer pools to ensure consistent access to capacity and more effectively leverage power-only capacity. Given our efforts to grow drive and production, we have also planned several steps ahead to ensure stability of component supply. As one example, our management team has spent time with our supply partners at Hedro, a global leader in aluminum extrusions, which have historically been in high demand during times of elevated trailer industry build rates. The Hedro team appreciates the vision that Wabash is working to bring to life, and Hedro has agreed to be a key supplier for Wabash over the life of a 10-year supply agreement, which is a meaningful development, increasing supply certainty for both our existing and new dry van capacity. When considering the differentiation facilitated by our industry-leading lightweight panel technology, we believe this capacity expansion creates an incredible long-term opportunity for Wabash. We also remain on track with our plans to scale our innovative multi-structural composite technology within refrigerated vans, truck bodies, and other transportation logistics and distribution related products. We believe we have a unique technology and operational capability that has the ability to disrupt the broad cold chain product market as well as change operating models for carriers and shippers. These composite technologies facilitate improved operating efficiency for our customers, changes the model of asset usage and life, while also supporting a customer base that is increasingly focused on sustainability and reducing their carbon footprint. We now have over 25 million miles logged to date, and we are excited to scale this opportunity as we move into full commercialization of this product technology. Finally, we believe long-term investors will be rewarded in the near term by our dry van capacity project, as our converted traditional refrigerated van facility will produce 10,000 units post-conversion, which is twice as many dry vans as compared to the reefers that were previously manufactured. Notably, dry vans carry a higher margin compared with our conventional refrigerated products. All told, we expect to realize 15 to 20 cents of annual EPS accretion in 2023 and beyond as a result of this near-term capacity movement. This capacity project will also enable us to further create shareholder value as we fully commercialize our breakthrough all-composite refrigerated technology over the next several years. Moving to market conditions, demand for freight remains robust and supply continues to be constrained by a multitude of factors. strong business investment and consumer spending paired with persistently low inventory levels continue to propagate robust levels of freight activity we see the overall freight environment remaining positive through 2022 and well into 2023 coupled with structural changes as previously discussed in terms of e-commerce related logistics disruption the entry of new customers and the emergence of large trailer pools we see demand remaining robust for an extended period of time Possibly the strongest period of demand we have seen in history. As a reminder, the trailer industry has a strong seasonal pattern of ordering activity in which OEM backlogs build during the second half of the calendar year. The strength within our customer businesses from first to final mile has been well reflected in our backlog, which increased by $600 million sequentially in Q3 to a total of $1.9 billion. This represents an 87% increase versus the same period last year. $1.9 billion in backlog also establishes a new record for our order book, which is testament to our new commercial structure and market strength, as well as changing dynamics of how the market utilizes trailers. The strength in our backlog creates the visibility necessary to offer an initial EPS outlook for 2022 of $1.70, assuming no improvement in supply chain conditions. In closing, We're excited to announce our identity change and the realignment of our external reporting with our operating structure, our growth initiatives, and our strategy going forward. Our portfolio of transportation solutions positions us to leverage unmatched product breadth as a competitive advantage, shored up by unified commercial structure and go-to-market strategy. We expect our increased drive-in capacity to be a linchpin to many new and expanded customer relationships and our shift to all composite refrigerated technology to drive growth well into the future. Driving focus in our parts and service business enhances visibility to our higher margin, more repeatable business that features ample potential for growth. These reporting changes are the culmination of modifications to our organization to facilitate our refresh strategy, and we're eager to share our progress with you as the new reporting structure enables more effective communication. We believe a story that started with a change in vision and a deep desire by so many at Wallbase to be different, to be better. Ultimately, we are living our purpose with action, to change how the world reaches you. With that, I'll hand it over to Mike for his comments.