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spk04: Good morning. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Wabash fourth quarter 2021 earnings call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one once again. Thank you, Ryan Reed, Director of Investor Relations. You may begin your conference.
spk05: Thank you. Good morning, everyone, and thanks for joining us on this call.
spk06: With me today are Brent Yeagey, 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 our investor site at onewabash.com. Please refer to slide two in our earnings deck for the company's safe harbor disclosure addressing forward-looking statements. Also, just a quick reminder that registration is open for our May 19th investor meeting on our investor website. We're looking forward to the opportunity to address trends in our markets, the changes we've made in support of our refreshed strategy, and our longer-term outlook. I'll now hand it off to Brent. Thanks, Ryan. I'd like to start today's call with an important announcement about the next step we are taking in our company's transformation. With our investors and other stakeholders, we often talk about the momentous transition that's happening in transportation, logistics, and distribution as the industry adapts to the compilation of forces. At Wabash, 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. There is no other truck body or trailer manufacturer that thinks the way we do, that acts the way we do, or that is making the kind of sweeping changes to prepare our customers for a very different world, one that is coming fast and will force disruption. On our last earnings call, we announced the change of our company name from Wabash National to Wabash, which signaled a strategic shift in our brand strategy. Today, we're excited to reveal that Wabash National and our family of brands have rebranded under one powerful Wabash brand that unites our products, our people, and our customers, and our business partners. As released in our AKA disclosure in early January, all legacy brands, including Supreme, Walker, Renner, Volk, Transcraft, and Benson, will henceforth go to market as Wabash. Over the next year, we will also introduce new brands to the market, including a new brand for our proprietary molded structural composite technology, which will go to market as EcoNext Technology. one of the most environmentally conscious materials in the market to advance sustainability throughout the transportation, logistics, and distribution industries. Moving on to capacity and product updates, our conventional reefer and dry van capacity timeline remains on track. Given historic capacity constraints and associated production inefficiencies, emerging sets of new customers with digital brokers and private fleets amassing trailer pools and a captive dealer network capable of further increases in sales, we see this as a critical opportunity to grow our production capacity. While stakeholder questions about adding capacity during a period of elevated industry demand are certainly valid, this additional drive and capacity is key to the growth of our entire portfolio through customer cross-selling opportunities and strategically positions Walsh for the next decade, rather than just capitalizing on strong market conditions over the next few years. In terms of specific efforts to grow and diversify our revenue streams through product development, during the fourth quarter we announced the launch of a new light duty refrigerated home delivery truck body that was developed in collaboration with a national grocer. We're excited to commercialize this new product which serves in a growing market with needed and desirable features like multi-temperature zones, maximized cargo capacity, and easier driver access. Additionally, the use of EcoNext, formerly known as Multistructure Composites, allows our customers improved operating efficiency while also reducing environmental impact with 25% to 30% greater thermal efficiency as well as reduced truck body weight. While our initial builds are on internal combustion engine chassis, we expect this truck body to translate very well to electric chassis applications. Additionally, during the fourth quarter, we announced the development kickoff of a next-generation walk-in van to further broaden our product offerings in support of efficient delivery of items to the home. We have engaged the leading mobility engineering firm, eDAG, to utilize our combined expertise to optimize the product design and continue to leverage Wabash's material technology expertise to offer a lightweight design. We're looking forward to moving from development to validation and on to key customer testing later this year. Additionally, we have partnered with Purdue University to enhance our speed in the market with these other projects. We are excited to leverage Purdue's expertise in areas including advanced engineering, material sciences, and electrification to help bring solutions to market faster for the transportation, logistics, and distribution industries. It is clear that the refinement of our strategy and vision to focus on solutions for transportation logistics and distribution markets combined with customer alignment within our organizational structure has accelerated our internal rate of change and focused our development activities on innovative products and services that will create value for our targeted set of customers. Wabash has always led the industry in product designs that have featured weight reduction as a key customer benefit, and in recent years, that value proposition has gained increased customer focus as part of an environmental impact and carbon reduction strategy. Our products will continue to extend benefits like weight savings and thermal efficiency as competitive differentiators in a world that has been increasingly prioritizing ESG initiatives at an accelerated pace. As one of the very few public companies among our array of competitors in different product segments, we look at ESG and corporate responsibility as additional opportunities for competitive differentiation. Our cross-functional corporate responsibility team has brought us a long way in a very short period of time regarding our public disclosures on ESG initiatives, and I encourage you to review our latest sustainability report to learn more about our accomplishments in this important area. One new development I'd like to highlight is Wabash being recognized as one of America's most responsible companies by Newsweek. This ranking was compiled by evaluating information across environmental, social, and corporate governance areas to determine companies that take these responsibilities more seriously than others. We intend to keep pushing forward with a continuous improvement mindset on how Wabash can continue to extend our leadership position on engaging with customers, communities, and other constituencies on these important topics. I look forward to talking more about this in our upcoming investor meeting. In addition to our corporate responsibility team, I'd also like to thank our board of directors for engagement and careful stewardship on ESG matters. Employee engagement is critical, but the involvement of our board of directors allows us to push our commitment to the next level. Moving on to market conditions and their backlog, freight rates remain at strong levels for carriers throughout peak season and have continued to remain elevated in 2022. Industry reports show strength in new trailer order activity during certain months in Q3 and Q4, and orders naturally tailed off as order books have become practically full across the industry. Overall, our backlog ended the fourth quarter at approximately $2.5 billion, up sequentially by approximately $600 million from the end of Q3. This represents a 31% sequential increase in backlog, or a 70% increase versus the same quarter of 2021. While our van business is essentially fully booked for 2022, our other transportation solutions products sport higher than normal backlogs, which continues to indicate constructive market demand conditions for 2022. As we've executed well relative to our competition to contain any 2021 backlog slippage to the first quarter of 2022, we will continue to maintain a forward-looking posture by collaborating with customers on longer-term deals to include 2023. Far from broadly opening up our order book, the industry is well positioned to work in partnership with select customers who purchase from across our first to final model portfolio to plan for how we best serve their demand for equipment in the future years while purposely maximizing the incremental capacity we bring online. Our outlook for 2022 is essentially unchanged, with a small tweak at the revenue line and a moderate adjustment on the income statement for reduced amortization as a result of the changes to our product branding strategy. I'll let Mike cover that in further detail, but I'd like to reiterate that we are looking at 2022 as a year where we can achieve significant revenue, operating income, and earnings per share expansion, even if the supply chain shows no improvement. As our backlog clearly indicates, we have upside to our outlook and supply chain conditions have improved. I'd like to conclude my comments by reinforcing how excited I am to announce our product brand strategy because the way Wabash goes to market has undergone a considerable shift during my tenure as CEO, and the refreshed brand strategy is the final piece of the puzzle. With accelerating innovation and product development activities shaped by the changing transportation landscape and intensified focus on sustainability, I believe Wabash is well positioned to move our industry forward. With that, I'll ask Mike to provide additional color on both our 2021 financial performance and our 2022 outlook. Thanks, Brent. Turning to our review of our quarterly financial results, on a consolidated basis, Fourth quarter revenue was $479 million with new trailer and truck body shipments of 11,655 units and 3,230 units respectively. In terms of operating results, consolidated gross profit for the quarter was $42.6 million or 8.9% of sales. On a GAAP basis, the company recorded an operating loss of approximately $19 million. This result includes a non-cash charge for impairment of trade names and trademarks related to the retirement of legacy product brand names. On a non-GAAP basis, adjusting for the non-cash impairment operating income was $9.7 million, or 2% of sales during the fourth quarter. Operating EBITDA for the fourth quarter was $22.8 million, or 4.8% of sales. Finally, for the quarter, GAAP net loss was $25.3 million, or negative 51 cents per diluted share. On a non-GAAP basis, adjusted for imperative trade names and trademarks, as well as debt transactions costs, net income was $3.7 million, or 7 cents per share. These quarterly results were somewhat below our expectations as the supply chain continues to struggle to support our production activity, with issues temporarily causing acute disruption within certain product lines. Additionally, COVID-related absenteeism spiked towards year-end in relation to the Omnicron variant as we saw absenteeism rates in late November and December increase, well over rates experienced during the rest of 2021. From a segment perspective, transportation solutions generated revenue of $443 million and non-GAAP adjusted operating income of $18 million, or 4.1% of sales. Parts and services logged revenue of $38.1 million and non-GAAP adjusted operating income of $4.4 million, or 11.6% of sales. While operating cash outflows of approximately $7 million for the year shows the impact on working capital driven by significant year-on-year revenue growth. I'd like to point out that from Q3 to Q4, we generated $66 million of cash from operations as both accounts receivable and inventory declined. During 2021, our capital spending of $49 million was right on target and prioritized investment in projects that we expect to be highly impactful to our future growth initiatives. As a reminder, in late September and early October, we upsized our revolving credit facility by $50 million to $225 million and closed an issuance of $400 million in senior secured notes respectively. After repaying our previous senior notes and term loans, our improved debt structure results in $3 million in annual interest expense savings that we began to see flow through during the fourth quarter. More importantly, these transactions create a reasonably priced patient debt structure that allows us to invest in our business and enhances our opportunity to create value with a lower cost of capital. With regard to capital allocation during the fourth quarter, we utilized $21 million for capital investments as spending on our incremental drive-in capacity began. $12 million to repurchase shares and paid our quarterly dividend of $4 million. For the full year, we repurchased about 4 million of shares at an average price of $16.64 per share. Our capital allocation focus continues to prioritize reinvestment in the business through Growth CapEx. We'll also maintain our dividend and evaluate opportunities for share repurchase alongside of bull thought M&A opportunities. Moving on to our financial guidance for 2022, our prior outlook remains largely intact. We've increased our revenue expectation at the midpoint by $15 million to $2.3 billion to reflect our significant backlogged fill. While remaining conservative in our assumptions about the production activity, current supply chain conditions will allow. We did add 275 employees during Q4, which will allow us to continue to increase line rates. Operating income increase versus our prior guide has resulted in a combination of lower amortization going forward, as well as an accompanying increase due to the slightly improved revenue outlook. These changes result in our EPS outlook ticking up to $1.75 from $1.70 per share previously. I'd like to reiterate that our guidance continues to assume no change in supply chain conditions. As Brett mentioned, We believe our backlog infers that there is clear upside opportunity to our 2022 financial outlook should the supply chain improve. We also believe our parts and service segment will begin charting a path of sustainable growth during 2022 by prioritizing expansion of recurring revenue. When excluding sold and discontinued operations, parts and services grew revenue and operating income year-over-year by $27 million and $5.8 million respectively. I'd like to remind everyone that Q1 tends to be our lowest quarter in terms of revenue and EPS generation. Additionally, we do expect Q1 of 2022 to be the long quarter or 2021 backlog pushed into 2022, resulting in an unfavorable margin mix compared to the remaining quarters of calendar year 2022. Our expectation is for the first quarter revenue to come in between $470 million and $500 million and to be between $0.10 and $0.15 per share from an EPS perspective. Operating margin in our full year 2022 guidance is expected to be approximately 6%. And with continued growth next year, we believe we can achieve our 8% operating margin target in 2023. In closing, I believe we are well positioned to execute the next steps of our strategic plan. We're also continuing to serve strong near-term customer demand for our first and final model solutions. Our one Wabash team has done an admirable job of embracing significant strategic and organizational change. We're all excited to move forward under a unified product brand strategy, knowing that we will be able to leverage the strength of our Wabash brand name as we continue to grow our business with unique new products and services. I'll now turn the call back to the operator, and we'll open it up for questions.
spk04: Thank you. At this time, I'd like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster, and we'll take our first question from Felix Oshin with Raymond James.
spk03: Hey, good morning, everybody. Morning, Carlos. Hey, I wanted to start off on some of the comments around the backlog and sort of forward sales expectations. But obviously, the backlog is actually a little bit higher than your 2022 sales guidance as of now. So I'm just trying to understand, I'm going to call it the incremental $200 million. Is there a chance that would get booked in 2022? Or is that specifically sort of earmarked for 2023 at this point?
spk06: Yeah, thanks, Felix. I'll take that one. So our sales group and commercial organization as a whole has done a really outstanding job of constructing a backlog that gives us a tremendous amount of optionality. That was very purposeful in how we looked at managing the supply chain and available capacity in 2022. So with the guidance being predicated on the supply chain not getting better, we wanted to make sure that if it did, When it does, we have the ability of pulling that backlog into 2022, assuming timing allows. So that gives us tremendous flexibility. That's why we say we constructed the backlog in a way to allow a constructive upside to be possible, and we're working every day to see if we can make that happen.
spk03: Okay, got it. That's super helpful. And then, Brent, in the release, you specifically mentioned some of the new pricing initiatives and specifically about pass-through arrangements on raw materials. Can you broadly comment on how that pricing change has been received by your customers? And I just wanted to clarify, is this exclusively on the trailer book or truck bodies also?
spk06: Yeah. So, first off, let me say I am exceptionally pleased with how we are executing the in an inflationary environment as we lead into 2022. I do not have reservations based on how our commercial group is executing our variable pricing model and how we've been successful passing through incremental inflation even in the last 30 days as we manage component other related price increases. So I feel very good about that. It is primarily based where most of the work has been done to date on the van side of the business, However, we are implementing, I will call it purposeful variations to that same mindset across the entire business throughout 2022. So we are managing well on that front.
spk03: Okay. Helpful. And then just my last one, maybe this is better for Mike, but just around the 1Q guidance. You mentioned, you know, that there would be some of the 2022 or 2021 backlog that's going into 2022 that is going to be a negative margin drag. Is there any way to quantify how much of the 1Q sales is going to be a 2021 backlog pushed into 2022? Just trying to kind of understand how we can isolate some of the mixed dynamics in that guide.
spk00: Yeah, it is – I would say you could probably look at generally – The shipment and build miss that we had in Q4 is really the main piece that pushes into 2022. It's not a huge percentage of the 2022 Q1 build and ship, but it is going to be a headwind. And I remind people that Q1 is always our weakest shipment quarter.
spk06: So you've got really two factors that are going to make Q1 look – much lower than what we'll see in Q2 to Q4. The shipments are always a little bit lower in Q1, and we have that overhang.
spk00: I would say of the build, it's going to be in the 5% to 10% range is what got pushed in.
spk06: I'll add a little bit more beyond your question, just anticipating others. When we think about Q1 as it carries forward, not only do you have the, I'll call it, that's moderate demand, margin headwind that Mike's talking about. You know, when we think about Q4 and what was shipped and how we executed on the production front, the Omicron reality did create a pretty forceful event in the December timeframe. And just as the world and the United States is dealing with it, that's continued through really the month of January. We're now starting to see it trail off just as we're seeing it around the country. So that's another reason when we think about Q1 being not only our most seasonal lowest quarter of the year, but we got a little bit of that headwind leading into it as well. There's nothing surprising about that based off of what's going on around the world.
spk03: Got it. Very helpful. I'll stop there.
spk05: Thank you. Thanks, Felix.
spk04: Next, we'll go to Justin Long with Stevens.
spk01: Thanks, and good morning. I wanted to ask about new trailer ASP. Obviously, a lot of momentum on that front. Any updated thoughts on how that metric could trend going into 2022? And if I look at the fourth quarter forecast, I know there's been the resegmentation, but it looks like new trailer ASP actually went up a good bit sequentially, maybe 10 percent or so in the fourth quarter. But margins in the transportation solution segment actually went down. So, Brent, you may have answered this question a moment ago with Omicron. Is that really what drove that discrepancy or is there anything else that was contributing to that?
spk00: Yeah, there's two pieces, Justin. This is Mike. So first of all, yes, you're starting to see the ASP push up, which you'll continue to see into 2022, which we talked about that a lot at the Q3 call. We also mentioned that Q4 would
spk06: We are at the peak paying quarter of the price-cost relationship. So what you really are seeing is you're seeing the price starting to catch up, but you still have that extra material cost in Q4 that wasn't fully 100% priced in, which we knew was going to happen in 2021.
spk00: We believe most of that is behind us in 2022. So you'll continue to see the ASP increase, and the material cost will essentially flatten out is the best way to think about that. Also, as you mentioned and Brent mentioned, Omicron did get us in December, which was some of the conversion costs.
spk06: The majority of that margin you're seeing compression is on the material cost versus price relationship. Yeah, it goes a little bit more on the Omicron piece. Mike alluded to the fact that we've been very successful in the last quarter bringing in additional headcount to meet our 2022 capacity plan requirements, our supply plan requirements. That happened last And that was very favorable in the context of with the absenteeism rate spiking in December, the additional headcount that we brought in was able to mitigate that to some degree. But it did preclude us from building the extra volume that we had planned on getting from that. All that adds into the inefficiency and conversion cost map when you think about the quarter. But the bright side of that is that we have labor in place. We continue to add that labor to meet the supply plan for all 2022. And while we're taking a little bit of conversion cost lumps in the near term, we're setting the table for full 2022.
spk01: Okay, that makes sense and that's helpful. Mike, you gave the guidance for the first quarter. I was curious if you could give some color on the remainder of the year in terms of the cadence of EPS and maybe where you're expecting to exit the year, kind of what's embedded in the guidance once pricing catches up with cost.
spk00: Yeah, what you're going to see, the big step up is going to be from Q1 to Q2. And that's, again, some of the units that we push from Q4 to Q1, some of the Omicron that Brent mentioned. So Q1 and the lower shipments is going to be the lowest. You'll see the big step up into Q2. You'll see some moderate increase from there.
spk06: And then when you get to Q4, but it's going to be much smoother EPS profile from Q2 to Q4 with a moderate step up. And then if you calendarize Q4 into 2023, that's when you can really start to see the EPS power that we'll have in 2023.
spk01: Okay, and last question I had was just given the resegmentation, can you give us some help around gross margins by segment and what's getting baked into the guidance for 2022?
spk00: Obviously, you're going to see a much larger step up in gross margin
spk06: from 2021 in the transportation solutions business, because that's where we have the real price, material cost disconnect. So you'll see that normalized in 2022. I don't expect to see a significant change in the gross margins on the parts and services business. We're really happy with the steadiness of that business. Underneath the hood, I said it in my prepared remarks, but it's worth mentioning again, is don't forget we uh divested the extract business last year and we discontinued some uh on-site uh repair work we were doing for a customer and both of those are uh if you net those out you see really nice growth into 2021 from 2020 and into 2022 we expect that to continue so i don't expect a lot of margin improvement in that business but i would expect some pretty nice top line and bottom line growth in the parts and services business
spk01: Great. Thanks for the time.
spk06: Thank you, Justin.
spk04: And as a reminder, ladies and gentlemen, to ask a question, press star 1 on your telephone keypad. Next, we'll go to Mike Schliske with DA Davidson.
spk02: Hey, guys. Good morning. Morning, Mike. So can you tell us first off – Are there any unusual one-time expenses that have to take place in 2022 as you rebrand all the other companies, all the other segments under the one Wabash system?
spk00: No, we took that whole charge in the Q4 financials on our gap. presentation of the financials for q4 all of the charges related to uh the one wabash and branding changes in q4 there'll be some minor obviously signage and branding things but nothing that's material to call out for 2022. great uh maybe let's just go a little deeper on that i was curious about the about the
spk02: Supreme brand changeover as well. I mean, that's a pretty big, well-established company that obviously you bought it a few years back. And the brand name was really important to that. I know you had an impairment here, but just tell us about a little bit like boots on the ground. What are the steps you're taking to kind of ensure that the old brand fades out, the new brand comes in in a way that doesn't challenge customer brand recognition or the way customers view those products?
spk06: Yeah, this is Brent. What I would say is that when we took on this initiative to understand what was the right direction going forward with how we represent the company to all of our stakeholders, we did a significant amount of third-party research facilitated by outside partners to make sure that we had real data on what was the truth on the ground across that stakeholder group. The feedback has been overwhelming. that when we think about how the strategy is being executed, how we're positioning the company, the relative strength of the Wabash brand to carry through what it means to bring engineered solutions to the world, the Wabash brand is what carries. Now, that does not take away necessarily from any of the brands that we've had, but to make sure that we have a one Wabash approach That matches how we operate internally, how we'll represent to the customer, how we'll sell them first to final mile solutions. The Wabash brand is what tested. It was shown to carry across all of that. So we feel extremely comfortable based on feedback from our largest customers that move the needle that they are enthused as well as our dealer body is enthused with the direction that we're going. So where we anticipated possible pushback, we got the opposite, which was embracing of the idea.
spk02: Got it. That's great color. I also wanted to ask about the new upcoming walk-in van product. That is a market that's been dominated by only a few players over the years. Obviously, you're obviously a big player as well, but not in that category. Can you give us a little bit more color as to how you intend to compete there? Is your product being developed with EVs solely in mind? Will it be an only EV-type product? Or do you plan to try and go on to some of the existing IC chassis that are out there today?
spk06: Let me answer the second part of the question first. So the design application that we're working on would be compatible with all engine types or power types going forward. That was a key design criteria as we look to meet our customers' expectations. Yes, there is a limited amount of competitive entry into this specific space from a body type standpoint. how we approach this is really being pulled by our customers. As we sell first to final mile, we sell them a full portfolio, they are asking us to get into this and provide a superior solution than what's being presented today, to do it differently, to do it with different materials, and to do it with a different mindset. This is our entry into that space. It is very holistic in the way that we're approaching it, And so you can think about our portfolio strategy with customers, those that we most strategically align with, that we are giving them very specific solutions to pull through to do the initial conversion of product. Once we build a platform called design capability, we'll then look at how we can broaden that to a larger market segment. But we have our hands full just meeting the expectations of large customers that are asking us to do something different.
spk02: Got it. Got it. Well said. Thank you very much.
spk05: Thanks, Mike.
spk04: Okay, well, there are no further questions at this time. I'll now turn the call back over to Ryan Reed for any additional or closing remarks.
spk05: Thanks, David, and thanks, everyone, for joining us today. We'll look forward to following up with you during the quarter.
spk04: And that does conclude today's conference. We thank you for your participation. You may now disconnect.
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