Wabash National Corporation

Good morning, my name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Wabash fourth quarter 2022 earnings 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 session. If you would like to ask a question during this time, simply press star then one on your telephone keypad. I would like to hand the conference over to Ryan Reed, Senior Director, Investor Relations. Please go ahead.

Thank you. Good morning, everyone. Thanks for joining us on this call. With me today are Brent Yeagy, 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.onewabash.com. Please refer to slide two on our earnings deck for the company's safe harbor disclosure addressing forward-looking statements. I'll hand it off now to Brent.

Thanks, Ryan. Good morning, everyone, and thank you for joining us today. Because we're wrapping up a record quarter on top of a record year while starting another calendar year with very bright prospects, it feels like an ideal time to review our strategic choices and recall how we've arrived at this juncture where our company is performing very well in the midst of soft freight market conditions. Rewinding the last several years, we've added critical new legs to the stool that have enabled Wabash to grow in capability and performance. The addition of truck bodies to the Wabash portfolio has positioned the company to serve customers across product classes and also, maybe more importantly, broadened our perspective and allowed our team to get closer to trends in transportation, logistics, and distribution, like the disruption to logistics models caused by e-commerce and home delivery, rapid growth in cold chain, or trends in power-only brokerage. I am delighted that those who were part of that decision still surround and support me in my current role as CEO. Our organizational journey has taken us from a siloed, product-centric approach to a customer-centric model that prioritizes ease of doing business across our suite of products and services. This model has brought us closer to our customers, evidenced by the commercial progress we've made over the last 18 months. The deployment of the Wabash management system philosophy has given us the process-driven and problem-solving culture that was required to meet the challenges of the dynamic environment we find ourselves in today. One of the key process improvements derived from the use of our management system tools has been our long-term agreement construct, a new vision of supply chain engagement, and the rapid deployment of recurrent revenue-generating initiatives. The modification of our pricing construct to a pass-through model allows us to better serve our customers with transparent pricing. Our improved pricing construct also forms the groundwork for our longer-term agreements, which would have been unworkable under a fixed price construct. These longer-term agreements prioritize capacity for our customers who have the forward conviction around their equipment needs to engage in collaborative multi-year demand planning. Beyond removing these strategic customers from the annual game of musical chairs, where some customers are inevitably left without a seat at the table. These strategic relationships will be additive as we collaborate on product development and R&D efforts to jointly address unmet equipment needs. We are very pleased to have an innovative organization like J.B. Hunt as our inaugural partner. As we demonstrate the visionary leadership required to structurally improve relationships with major customers, we have successfully attracted the attention of key industry suppliers. As our 10-year supply agreements with both Hedro and Ryerson show, suppliers recognize the moves Wabash is making and are aligning with us to combine our respective strengths in order to support our customers. As our organization continues to leverage its more streamlined collaborative structure to create value for customers, shareholders, and our communities, a major strategic focus is our parts and service initiative. From quickly spinning up Wabash Parts, our parts distribution joint venture, to developing innovative new offerings like trailers as a service for the power-only brokerage space, we're excited for the potential to grow this more recurring revenue business that will act as a synergistic support mechanism for our transportation equipment. Our board of directors has been incredibly supportive of the organization evolution, and the board has continued to keep pace with us by adding new directors with capabilities that will further support Wabash's strategic directions. After the September edition of Trent Broberg, CEO of Assertus, an automotive logistics as a service platform, our board welcomed Sudhanshu Priyadarshi as our newest director. Mr. Priyadarshi is a global finance and operations leader with extensive experience in the tech, logistics, e-commerce, retail, consumer packaged goods, and pharmaceutical industries in the U.S., Asia, and Australia. He currently serves as Chief Financial Officer for Keurig Dr. Pepper, and previously served in roles at Vista Outdoor, Flexport, Walmart, Cipla, and PepsiCo. We're excited to continue driving our strategy forward with the support and contributions of all of our board of directors. Moving on to our fourth quarter financial performance, our team delivered record EPS of 84 cents, which exceeded our expectations for the quarter. Between increased volumes and improved pricing, revenue increased 37% from the same quarter last year, to an all-time record of $657 million. Profitability also continued to sequentially strengthen as we achieved 14.4% gross margin and 8.8% operating margin. I'd like to call out that our operating margin expanded by 680 basis points relative to the same quarter last year. For 2022 as a whole, I believe we've demonstrated improvement across any indicator of financial performance you can look at. We're very encouraged as our strategic choices shine through to enhance financial performance capped by record revenue of $2.5 billion and record EPS of $2.25. Moving on to market conditions and their backlog. We are mindful of freight rates that have been indicative of the ongoing correction in freight markets. For numerous reasons, we have not seen this reduction in rates impact underlying trailer demand. Between cyclical and structural influences, we agree with third-party forecasters that equipment demand is likely to remain strong. With underbuys in prior years and supply chain remaining as a constraint into 2023, implied demand for this year is still very likely to outstrip supply just on those cyclic factors alone. Add in structural influences like the demand from formation of trailer pools to support drop and hook activity or power-only brokerage, and we believe substantial scarcity remains in the marketplace. That's before we consider what would be another significant tailwind for trailers coming from the ramp of economists as that technology continues to advance. Turning to our backlog, total bookings ended the fourth quarter at approximately $3.4 billion, up sequentially by approximately $1.1 billion from the end of Q3 despite an outflow of record revenue. This implies net order inflow of $1.7 billion during Q4 And for full transparency, although not announced until January, our long-term agreement with J.B. Hunt and a to be announced additional agreement are reflected in this backlog figure. Given the addition of multi-year orders, we are adding disclosure on the portion of our backlog we expect to ship within the next 12 months. Ending Q4, that subset of our backlog was $2.8 billion. which implies somewhere in the range of $600 million worth of orders that reside beyond 2023. Given the excellent visibility provided by our backlog, we are initiating our 2023 financial outlook with a revenue range of $2.8 to $3 billion and an EPS range of $2.70 to $3. I'd like to reiterate that we are looking at 2023 as a year where we can achieve significant revenue, operating income, and EPS generation, even if the supply chain shows no improvement. As our backlog indicates, we do have upside to our outlook if supply chain conditions improve. I'd like to conclude my comments by reiterating my excitement for the pace of strategic progress that we've been able to achieve. This is a testament to the dedication and level of engagement of our Wabash team who has trusted in our organizational and strategic moves and is executing incredibly well on our day-to-day business while driving structural improvements in the fundamentals of the business. With a record backlog and evidence throughout 2022 of great executional margins, we are positioned to set a new bar for financial performance during 2023. With that, I'll hand it over to Mike for his comments.