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spk08: Good morning. My name is Stephanie, and I will be your conference moderator today.
spk00: At this time, I would like to welcome everyone to the 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer time. If you would like to withdraw your question, you are one. Thank you. Ryan. You may begin your conference. Good morning, everyone, and thanks for joining us on this call.
spk04: With me today are Brent Yagey, President and Chief Executive, Chief Financial Officer.
spk06: A couple of 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 onewallbash.com. Please refer to slide two in our earnings deck for the company's safe hardware disclosure addressing forward-looking statements. 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 the changes we've made in support of our new strategy and how those changes facilitate our longer term. I'll hand it off to Brent.
spk00: Thanks, Ryan. Good morning, everyone, and thank you for joining us today. We have a solid first quarter and a bright outlook to discuss.
spk04: but I'd like to start with a plug for our recently issued 2021 Corporate Responsibility. It's a box. Corporate responsibility is core to our strategy, and I'm proud of the progress made across our organization with the stewardship of our corporate responsibility team, which is made up of a cross-functional group of high-performing individuals at various points. This approach to efficiently allocating talent to grow our capabilities with a strategic initiative like corporate responsibility maximize the impact our organization is capable of making with our one Wabash approach.
spk06: This team brings to life our commitment to changing how the world reaches you and makes an outsized impact to drive positive change for our organization and our stakeholders. Wabash understands the role of sustainability and social responsibility in shaping the way we bring our purpose to life. It shapes important elements like engineering solutions that allow our customers to minimize their environmental impact or building a corporate culture that embraces diversity and inclusion. We are deeply committed to being leaders and making the world around us better. Moving to updates on our growing portfolio of engineering solutions, we are very pleased with the reception of our truck body products at the recent Work Truck Show in Indianapolis. We displayed a range of truck body solutions, including dry bodies featuring Durablake technology, as well as two different refrigerated solutions boasting our proprietary EcoNext technology. Feedback on our product lineup was very positive, and this show provided our first large-scale opportunity to show off our refreshed Wabash branding. Our message to customers has been that our branding refresh is meant to be the finishing touch on a holistic pivot within our company to be more customer-centric and organizationally simpler, creating the broadest and easiest transportation solutions provider to do business with. This is a message that customers have embraced. We are seen as that visionary leader who can collaborate with customers to create differentiated solutions that solve their greatest challenges in a rapidly changing transportation, logistics, and distribution landscape. To that point, we are launching a nationwide partnership program to apply our engineering expertise in support of alternative powered vehicles. Many of our truck body customers have interest in gaining exposure to electric vehicles within their fleets, and we believe that the EV segment offers a step change in the mobility technology available for customers to achieve their operational environmental goals. We also believe that Wabash is ideally situated to create value within its evolving ecosystem by providing innovative truck body solutions that help facilitate EV adoption. Wabash's truck body offering for alternative powered chassis features lightweight composite technology designed to offset battery weight, reduce corrosion susceptibility while embedding aerodynamics and enhancing aesthetics to complete a look and feel consistent with modern cab designs on alternative powered vehicles. Although Wabash's platform is non-exclusive and chassis agnostic, we have developed an excellent collaborative relationship with the team at Bollinger Motors, and we're working with them to jointly develop a prototype vehicle as we improve our concepts. We also have active discussions with other GP OEMs, and given some of the ongoing challenges with ICE chassis, we believe additional chassis suppliers will be positive for customers as well as our manufacturing cadence. The degree and rate of change of battery and EV chassis design requires us to take an open platform approach to ensure we are properly aligned with technology development over the long run. To lock into any one design or battery solution would be short-sighted and create undue risk. Lastly, we're excited to launch a new technology alliance with Clarence Technologies that is focused on trailer applications, including new advanced connectivity applications that will be essential as electric and autonomous vehicles come to market. As a first step, road-ready advanced trailer telematics systems will become standard equipment on wall-based fuel or stock trailers. Our new strategy and vision continue to drive focus on solutions for the transportation, logistics, and distribution markets. With strategy enabling and customer aligning changes in our organizational structure, we are accelerating our internal rate of change and focusing our development activities on innovative products and services that will create value for our targeted set of customers. You'll notice that many of these developments within our portfolio link back to the environmental aspect of our corporate responsibility focus. We are intent on providing solutions that allow our customers to move forward with sustainable products that aid in their operational effectiveness. We'll also build out after-sales solutions to support these products. Moving on to our first quarter financial performance, our team continued to work diligently to generate revenue and EPS that exceeded our initial expectations. Importantly, hiring activity has increased, allowing us to ramp our production rates at a measured pace in line with our expectations. Between increased volumes and improved pricing, revenue increased nearly 40% from a year ago. Profitability also strengthened as we began shipping. 2022 backlog. I was pleased to see margin improvement each month throughout the quarter, moving the market conditions first. I think it's important to address that we find the invasion of Ukraine to be a heartbreaking situation for many individuals and families that have been affected. We certainly hope that the end of this horrific violence will soon be forthcoming. As those who follow our company know, our revenue exposure to Europe is effectively zero post the vestiture of extract technologies in 2021. It's also important to mention that our supply chain is highly leveraged in North America with no known exposure to either Russia or Ukraine. In addition, we continue to reduce our exposure throughout our supply chain to China and other Asian countries. It is part of a strategic pivot initiated in response to the 2018 tariff changes. All part of building a strategically resistant and robust supply chain that supports a first-to-final-mile portfolio of products. We estimate that 95% of our Tier 1 spend is within North American resources, and over 80% of our Tier 2 and Tier 3 remain solidly in North America. From a macro and market perspective, we keep our eyes on a variety of short-term indicators. While trucking spot rates have declined in recent weeks, we as well as other market participants have recognized for some time that relief from all-time high spot rates would be reasonably expected. That said, As we've seen across many aspects of the post-COVID business cycle, trends don't necessarily follow traditional norms, and I think it's important to distinguish that although rates have come off of peak levels, they still reside in very healthy territory. It also is important to recognize that substantial trucking capacity is tied to contract rates, which tend to be more stable over time. As we speak to customers, they remain extremely confident in their ability to continue to operate profitably in the current environment. Our customers are committed to pulling capital to refresh their equipment, as well as plan for incremental capacity as trailers continue to provide compelling economics to customers. We continue to believe that structural changes driven by e-commerce related logistics disruption The entry of new customers for trailers and the emergence of larger trailer pools will drive extended positive demand backdrop over the next several years. 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, then burning off the first two calendar quarters. The strength within our customers' businesses from first to final mile has been well reflected in our backlog, which stood at the first quarter record of $2.3 billion. That represents a 50% increase versus the same period last year. 2023 backlog development is coming into view as robust conversations are taking place in an interesting and constructive manner with those customers that lead the pack in logistics, innovation, and growth. Given the visibility provided by our strong backlog, aided by a more certain margin structure, given our updated advanced pricing methodology, we're pleased to raise our 2022 EPS outlook to $1.90. In closing, our new strategy is being enabled by supporting organizational changes. Our journey to change how the world reaches you continues to press forward as we add to our portfolio solutions with development driven by the intersection of sustainability and customer needs. Meanwhile, the beginning to 2022 was marked by great execution by our team and our solid backlog enables the confidence necessary for an increased EPS outlook of $1.90 in 2022. With that, I'll hand it over to Mike for his comments. Thanks, Brent. I'd like to start off by providing some additional color on our first quarter financial results. Consolidated first quarter revenue was $547 million, with new trailer and new truck body shipments of approximately $11,695 and $3,540 respectively. As a reminder, shipments tend to be the weakest in the first quarter, and we actually delivered a slight sequential step-up from the fourth quarter. Additionally, trailer build rates improved significantly in Q1, and we built approximately 800 more units than we shipped. Taken together, this bill and shipment data gives us confidence in the trajectory for the remainder of the year. Roast margin was 10.6% of sales during the quarter, while operating margin came in at 3.7%, and generally in line with our expectations. Operating EBITDA for the first quarter was 36 million, or 6.6% of sales. As Brent mentioned, from a margin perspective, we saw improvement throughout the quarter as early months in Q1 were impacted by shipments from our 2021 backlog that spilled over into 2022. Shipment margins noticeably improved as we moved through the quarter and transitioned fully to a 2022 backlog mix, and we are excited about the flow-through impact of this mix going forward. Finally, for the quarter, net income was $12.1 million, or 24 cents per diluted share. From a segment perspective, transportation solutions generated revenues of $502 million and operating income of $32 million. Parks and services generated revenue of $47 million and operating income of $6.8 million. We also continue to believe our partisan services segment has started charting a path of sustainable growth during 2022, and we will continue to prioritize the expansion of the current revenue. Year-to-date operating cash flow was negative $35 million. Working capital continues to be elevated through the first quarter. However, we do expect a release of working capital as we fully ramp up and approach our installed capacity level around mid-year. Our current target of 2022 capital spending is between $80 and $90 million as we continue to make progress with our strategic capacity expansion and the conversion of the Lafayette-based South Plant from reefer capacity to drive-in capacity. Even with our increased growth cap ex-budget, we expect to be salary-free cash flow positive in 2022. With regard to our balance sheet, our liquidity or cash plus available borrowings as of March 31st was $203 million with $73 million of cash and cash equivalents, and approximately $130 million of availability on our revolving credit facilities. I'd like to point out that our refinance debt structure is now effectively pulling through over $1 million quarterly in year-over-year interest expense savings. With regard to capital allocation during the third quarter, we utilized $5 million to repurchase shares, paid our quarterly dividend of $4 million, and invested $10 million in capital projects. Our capital allocation focus continues to prioritize reinvestment in the business through growth capex while also maintaining our dividend and evaluating opportunities for share repurchase alongside of bulk on M&A opportunities. Moving on to our outlook for 2022, we continue to expect improvement in both revenue and margin performance through the year, particularly through the first half. The continuing strength in our backlog coupled with successfully adding approximately 300 production employees for the second quarter in a row allows us to increase our 2022 outlook. We expect revenue of $2.5 billion, which would set a new record level for the company. Additionally, we expect DPS of $1.90 per share, which would meaningfully exceed the recent high achieved in 2019, despite building lesser unit volumes as we continue to ramp our operations through 2022 as compared with 2019. Full-year 2022 operating margins are expected to be approximately 6% at the midpoint, and we are well on our way to achieving our 8% operating margin target by 2023. While we did see some improvement in the supply chain in the first quarter, I'd like to reiterate that this guidance continues to assume that present supply chain conditions persist for the remainder of 2022. We expect second quarter revenue in the range of $600 million to $640 million an EPS of 45 cents to 50 cents per share for the quarter. In conclusion, the first quarter was an excellent start to an exciting year. Our One Law Bash team has done an excellent job of embracing strategic and organizational change, while at the same time answering the call by significantly ramping the business in a very difficult operating environment. While there is still much work to do, at this point, we are very well positioned to deliver a strong 2022. I'll now turn the call back to the operator, and we'll open it up for questions.
spk08: At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. Your first question comes from Mike Schliske with DA Davidson. Your line is open.
spk03: Yes, hello. Good morning, guys.
spk04: Good morning, Mike.
spk03: I wanted to start asking the question about your pricing on new trailers. Great job in the quarter. You had some really strong pricing. I think you're in excess of $37,000. Can you maybe tell us if you were able to fully offset price costs in the quarter? And if there's any kind of downside with the prior year, is that perhaps some lingering manufacturing inefficiencies there? Any other call you can provide on the price cost would be appreciated.
spk07: Yeah, so it might be any of the price costs that wasn't covered in Q1 is due to some backlog that we had that slipped from 2021 to 2022.
spk06: We talked about that a little bit the last call. So we did have some of those units that would have compressed the material margin in Q1.
spk07: That is behind us now.
spk06: The pricing is relatively flat, but what you're going to see now is a full mix of 2022 priced units going into the next three quarters, and that's why we feel really good about our implied margin uplift and our full-year guidance.
spk03: Okay. Sorry, was there something else? Okay. I wanted to ask – sorry, yes. I wanted to ask – separately maybe about your 2023 order books. I wasn't sure if it was fully clear on your comments. Are the order books actually open for 2023 at this point? And do you know if your competitors are open at this point?
spk06: Most of our competitors haven't even fully opened up their 2022 yet in the conservativeness that they're using to manage demand. We've been much more bullish in the way that we've approached 22 demand, especially with the variable pricing that we put in place that's working extremely well. A follow up to your previous question is that we saw very clean results in the month of March that really showed the flow through a pricing, starting to see the improved efficiency with the labor that's been brought in over the last two quarters. So we feel very good about that. Now, when you talk about 2023 demand, We are sitting with a very robust set of 2023 customers that are looking to begin to populate 2023 right now. And while the books aren't officially open, we are diligently working on some longer-term agreements and some strategic customer demand that we think we'll be able to talk about on the second quarter earnings call. The books will probably open up a little bit earlier than they did for even 2022 to meet the demand as we very specifically shape how we want our demand profile to look in 2023. We feel very good about how that is setting up for us right now. We're in a little bit different position in that some of the players that are more robust, have longer-term growth needs, are talking to us ahead of the curve. While some are just trying to figure out 22, they're working with us on 23.
spk03: That's a great color. I want to throw one more question out there, and that is I think I have some questions from some folks with an argument about whether what we're seeing right now is a cycle upturn or a structural change in trailers and how trailers are sold. and kind of what they're being used for these days. And you implied in your presentation that there are some trailers being used in new and interesting ways. Can you comment as to what you think we're seeing right now? Is it more just a positive cycle thanks to high rates, or is it more of more drop-in, more other ways to use trailers? And does that change the kind of long-term view on what the average replacement year might look like next time we have one?
spk06: Now, we absolutely subscribe to the fact that there are structural changes in logistics across the board driven by the broader effect of e-commerce creating friction and dysfunction from first to final mile. Most people think about that just being at the final mile end of the spectrum, and they fail to realize how that kind of goes upstream and disrupts through mid to the first mile. And as a result, that friction continues to drive a higher tractor-trailer ratio across that entire spectrum of assets, not just in the truck load, not just in first mile, but we're talking middle mile all the way to final. So we are seeing both private fleets who are really looking to grow their capability, their internal fleet structure to manage their supply chains, and their logistics costs really ramping up what they are going to be buying strategically over the next three to five years. We also see the rise of digital brokers, and we'll say larger traditional truckload companies moving into the brokerage space with conviction, really looking at trailers being something that is the critical link to make the business model work. When we talk to some of the forecasters out there that kind of leverage rearward-looking models to predict the future, they are missing this demand, this structural force in terms of how 23, 24, and 25 are going to pan out. There's too much going on out there in a disruptive world of logistics to just do the old-style spot market math and looking at just basic freight seasonality to think that you've got the whole picture of what's going on. And those customers that we're talking to right now, about 23 to 25, are very convicted that regardless of what happens with freight, they are going to be buyers in the market because they're solving a different problem.
spk03: And just maybe give us an instance of what you think, what would an average year look like once all these new customers or these different customers are kind of up and fully running here?
spk06: Yeah, that's a great question. I think the math is still out on that. But, I mean, I think when you're looking at kind of what would have been a historical kind of mid-cycle year, I think you're talking somewhere in that 15% to 20% missing percentage. demand, looking at historical models. And I think that's a conservative statement. I'm doing heavy discounting based on the rhetoric that we see right now from customers. It's still early, and I hope to be wrong in that it's actually a much greater need than what I'm saying right now.
spk03: Great. I appreciate that. I will join out and look forward to seeing you guys in a few weeks. Thank you.
spk07: Thanks, Mike.
spk08: Your next question comes from Felix Bochen with Raymond James. Your line is open.
spk02: Hey, good morning, everybody. Hey, good morning, everybody. Hey, Mike, maybe this is best for you, but I was curious if you could comment maybe on the monthly margin progression you alluded to. Two questions on that. Was March the first, I'm going to call it, clean quarter of March?
spk07: um sort of new variable pricing model on the trailers um and if you would provide maybe a margin runway at the end of the quarter i think that'd be super helpful to conceptualize yeah we clearly saw a step up in uh in margin as we went through q1 and i i don't know if march was 100 clean yet because we're still working through you know as you know we've got to build ship the dynamics so even things we build early in the quarter may not shift until late in the quarter but April is clean, and so that gives us a pretty good view of the margin that we would expect in Q2, which is implied under guidance, that those operating margins will be at levels that are right back in line with where they were pre-pandemic now. And don't forget, one of the things that I think people miss is the fact that while we've got our price, material cost,
spk06: margins lined out. Now we've accounted for all the material costs that came in the great inflation of 2021. What we're still doing is ramping the facilities pretty aggressively. So we are still seeing ramp costs with people coming on. I mentioned that we've added 300 people two quarters in a row, which is fantastic progress, but that comes with some cost with manpower training and upskilling and just some churn.
spk07: So we'd expect some of that to be in Q2 as well, and that's what I really point to. While we have a huge step up from Q1 to Q2 in EPS that we've implied in our guidance, you'll see a smaller step up, but it'll still be there in Q3 and Q4.
spk06: largely due to the stabilization we'll get within our operations. And I would also add on top of that, as Mike said, we're talking about margins going through the year that are pre-pandemic levels. Pre-pandemic, we were running at effectively 100% capacity. So obviously, to Mike's point, we were void of those variable cost pressures with ramping up and everything goes with that inefficiency. But today, we will still be throughout most of the year, depending on your product line, 15 to call it 20% below absorption levels that we saw during that period as well. Yeah, our implied guidance per unit count is still significantly below 2019 levels, which I don't want to get too far ahead of us and start talking about 2023, but it gives us a lot of confidence in the runway we see over the next couple of years. Yeah, so there's a lot of positive structural changes that that we've accomplished over the last couple of years that would just continue to show, you know, as we raise the proverbial water level with production, that'll flow out.
spk02: Okay, super helpful. And then maybe this is a good segue into my second question, but I'm really curious if you could talk about Wabash, maybe internal capacity. I know you guys have onboarded quite a few employees over the last, call it, three quarters. But I'm curious how you see you guys stacked up today and sort of how much more there is to come to sort of adequately meet what still feels like super strong demand right now.
spk06: Yeah, so we had a really good last, I'd say, six to ten weeks of onboarding across the business, really picked up in the middle of Q4 and has been strong since. And that's without having to make any real further decisions. adjustments in wage or benefit to make that happen. So we feel really good about where we're at in terms of bringing labor on board. We are right on target for where we need to be with labor at this stage of the game. We feel very good that labor is in place to meet the guidance that we put out at this stage or we wouldn't have done it. And we still think based on, you know, if supply chain continues to stabilize and improve, which is a positive sign, the labor market looks like it's there for us to continue to ramp throughout the year. We will generally, you know, we know that our truck body business is seasonal, so that's always an up and down exercise. But the other aspects of trailers, of our trailer market, solutions group will be effectively running at full capacity across the board as we enter 2023.
spk02: Okay. Helpful. And then, Brent, maybe a bigger picture question for you. You alluded to this earlier already in the call, but obviously it seems that April and March spot rates, frankly, have slowed quite a bit. um and historically trailers do correlate you know significantly with with the help of the overall truckload market i.e pricing um the the trailer pool phenomenon seems very unique this cycle um i'm curious if you could expand a little bit more on how you think this might impact your customer mix through cycles if any at all and any sort of margin implications you would see with that yeah so the spot rate is
spk06: obviously something that is most sensitive to those carriers that are at the smaller size end of the spectrum. Those are the ones that most people allude to. They're going to have the most trouble with spot rate. Our customers, our strategic customers, the vast majority of the customers our dealers sell to are much more protected and are harvesting off of great contract rates right now. And when you talk to them, they are very bullish in what they'll be able to do with contract rates and stabilizing those within a good range of profitability going into 2023 at this stage. So when we look at spot rates fluctuating at this level, specifically for dry vans, we're going to see that possibly at the tail end of the dealer exposure. But at the same time, we can't keep stock trailers on the yard at dealers right now because they keep moving. So we have seen nothing in terms of any impact of spot rate on the buying decisions of customers that we cater to. I think some of our competitors may be more exposed to that because they're not a premium product. But we cater to a different group of customers. We've been slanting our portfolio to be more robust for exactly this reason so that we outperform the market regardless of what's happening. Now, related to trailer pools and others, those customers that are going to be impacted by spot rate are going to move to something. Those trucks and those drivers will go somewhere, and we think that's even going to further embolden the power-only model that's being created, which is going to put more fuel into the trailer pool fire, and it's just going to, again, embolden those digital brokers and truckload groups going into digital brokerages to further fund their trailer pool creation over the next three years. So we've got a different type of virtuous cycle that's being created in the buying habits and the business model structure of trucking that I think people miss out there. And Wabash is best positioned to be able to take advantage of And we're doing it right now in the discussions with those customers as we bring this to an executable outcome.
spk02: Got it. Very helpful. If I could just sneak one more in. I'm just curious if you could talk about third-party chassis supply as it relates to your truck body book. If anything sort of changed there, getting incrementally better or worse sort of expectations through the rest of the year.
spk06: Yeah, just that. Chassis, up until about five weeks ago, were still pretty choppy. We have started to see incremental improvement with specifically lighter-duty chassis coming off the line at several of the providers. The medium-duty are still a little tough. The feedback that we get is that that should begin to relieve itself going in, I'll say, mid to the end of the second quarter, all that is in line with our expectations and guidance that we've put to the street. I think this is gonna be a different type of truck body year across that specific industry segment where chassis will actually improve quarter over quarter throughout the year, which will create a different, I'll say, demand slash revenue output than what we've seen in the last five to 10 years.
spk07: I think that's an important point when you look at modeling our step-up that we've guided to through the year.
spk06: We believe that the truck body shipment number in Q1 was the low point of the year for sure. As Brent mentioned, we're starting to see better flow. That's going to provide a natural tailwind for us as we go to Q2 and to Q3 because we are starting to see some improvement. It did come off of a very low level in Q1 of this year, but we have the backlog. We have a very strong backlog in that business. We just got majestic flow. We've got truck bodies picking up all year. You have overhead absorption. It's going to improve all year, stable variable pricing, which is a new fact for what we've got. We've got the variable costs that will continue to come back in the line as friction and inefficiency leaves the business. So, you know, we feel really good as you look at how this year pans out. And then as we kind of sprint into 23, we're really in a good spot right now.
spk02: Thank you.
spk06: I appreciate it.
spk08: Your next question comes from Justin Long with Stevens. Your line is open.
spk01: Thanks. Thanks. Good morning and congrats on the quarter. I wanted to start with a question on the guidance, specifically around SG&A. So I think you're expecting SG&A to be 5.5% to 6% of revenue now for the full year. You were previously expecting something that was closer to the mid-6% range. So could you give a little bit more color on what's driving that? And just thinking about it from a high level, revenue guidance went up. STNA percentage went down, but the operating margin guidance was unchanged. So can you just kind of help me think through that and, you know, maybe what the offset to lower STNA was?
spk07: Yeah, so a lot of that from the SG&A perspective, obviously SG&A tends to be a bit more thick.
spk06: So as revenue went up, we see a little bit less percent of SG&A's percent of revenue. We also, Q1 numbers, delivered a pretty good continued cost control with SG&A that we've talked about for the last couple of years. Our One Wabash initiative is really a driven some nice efficiency through our corporate operations. And that continues to pay some dividends.
spk07: And we essentially guided to that, from that to flow through to the full year. On the out margin side, I would just say, As Brent mentioned, the backdrop is so positive for Wabash right now that we are taking a measured approach to how much cost it may take to rent the facilities because we are going to invest in the people and necessary equipment to be able to hit a very strong demand environment for the rest of 22 and 23. We don't know exactly when that stabilizes, whether it's mid-year or later in the year, but all that is implied in our guidance. And as we hit those full line rates, which we're still ramping to, then you'll start to see that operating margin start to expand again.
spk06: But it's really us making sure that we are accounting for all the necessary costs related to the ramp that's ahead of us and well underway.
spk01: Okay, great. And I guess following up on that point, is there any color you can give us on the expected ramp and trailer deliveries on a quarterly basis over the rest of the year? And thinking about 2023, is everything with the capacity addition plan still intact?
spk07: Yes, it is. And so the revenue ramp is going to – is going to follow along with the EPS guidance that we gave. We gave the guidance for Q2 of $40,000 to $50,000, but I would say Q3 and Q4 are going to be flattish. So you're looking at about 20 or so in the second half of the year split between those two quarters. But then we just normalize that come-out rate of Q3, Q4, then add surge volume on top of that, Don't forget you've got to net out the refrigerated mix. But if you're going to have a net of 5,000 add to the come out rate in Q3, Q4, you start to get to a really healthy EPS profile in 2023.
spk06: I want to add a little bit more additional color around that. We are very confident and delighted with the progress we've made with surge implementation. We have With the reviews we've had with equipment providers and the timeline we've got, we are really sticking to that first, kicking it off early in the first of 2023, and we feel very good about that. And customer expectation slash demand to be able to utilize that based on the conversations we're having are exactly what we thought it would be. So everything just seems to come in line with that. On top of that, and we've alluded to, you know, we're ramping down our conventional reefer business to make room to convert that plant to drive-ins. The work that we've done with EcoNext, which is our proprietary composite solution that has a specific application in refrigerated trailers and truck bodies, continues to grow at an astounding rate. And so it actually is pressuring us to look at how we can bring capacity online in a more, we'll call it earlier, an effective manner, which is very positive for us that we're working through right now. The characteristics and value that it creates are really resonating with customers, and they see how, from a sustainability standpoint, it makes real sense for them to do this at a substantial scale. So everything we're looking at between capacity expansion and new product introduction really is in sync right now to our expectations.
spk01: Great to hear. And last quick one from me. Are buybacks factored into this updated guidance for 2022? They are not. Okay. That's all I've got. I appreciate it. Thanks, Justin. Justin?
spk08: Your next question comes from Jeff Kaufman with Vertical Research Partners. Your line is open.
spk05: Thank you very much. Hey, guys, congratulations. Terrific call. So a couple questions. Bigger picture questions here. One detail question. My detail question is, if I look at the operating income by division, there's the transportation solutions, there's parts and service, and then there's eliminations and other. And normally that runs about a 12 to 13 million rate per quarter. This quarter it was in the 18 range. I've gone through the release trying to figure out anything weird that would have driven it up. So
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