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spk01: 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.
spk07: 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.
spk06: 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.
spk09: Thanks, Brent. Starting off with a review of our fourth quarter financial results. On a consolidated basis, fourth quarter revenue was $657 million, with new trailer and truck body shipments of 13,310 and 3,250, respectively. As Brent mentioned, this was yet another quarter of record revenue generation for the public. Close margin was 14.4% of sales during the quarter, while operating margin came in at 8.8%. This represents year-over-year improvement of 550 and 680 basis points, respectively. We feel that our margin structure really hit its stride during the second half of 2022 as supply chain surprises reduced and cost inherent to ramping facilities stabilized. Operating EBITDA for the fourth quarter was $69.8 million, or 10.6% of sales, which was a 580 basis point improvement versus the fourth quarter of the prior year. Finally, for the quarter, net income was $41.5 million, or 84 cents per diluted share. From a segment perspective, Transportation Solutions generated revenue of $611 million and operating income of $67 million, or 11% of sales. Parks and Services generated revenue of $49.6 million and operating income of $7.9 million, or 15.9% of sales. I'd like to call out that growth in our Parks and Services segment was above 20% year-over-year when adjusting for revenue from a business that was invested in mid-2021. Year-to-day operating cash flow is $124 million. A strong net income was supplemented by more efficient inventory in the fourth quarter as we were able to lean out inventory levels as the supply chain continues to strengthen. Moving to capital expenditure, the timing on some payments from our dry van expansion did push from 2022 to 2023, and that CapEx underspend relative to our expectations for 2022 will be reflected in our 2023 CapEx spending. As I mentioned, relative to our meaningful cash flow generation in 2020, followed by a significant ramp in working capital during 2021, I think it's important to take a longer-term view on what continues to be strong free cash flow generation through the cycle. That said, I believe that the measure of a healthy company is not simply maximizing annual free cash flow, but purposely investing in the business when presented with the opportunity to generate significant returns that are in the best interest of long-term businesses. Alldash is also committed to delivering ROIC over the cycle that both significantly exceeds our cost of capital, but also exceeds our historical performance. We are now in a period where accretive organic investment opportunities exist, and as a result, we would expect to see CapEx as a percent of revenue in the range of 3% to 4% of revenue over the next couple of years. With regard to our balance sheet, our liquidity, which comprises both cash and available borrowings, with $401 million as of the end of the quarter. Turning to capital allocations, during the fourth quarter, we invested $15 million in capital projects, utilized $10 million to repurchase shares, and paid our quarterly dividend of $4 million. For the year, we invested $57 million in CapEx, $31 million for share repurchases at an average price of $17.55 a share, and returned $16 million to shareholders via our dividends. As stated earlier, our capital allocation focus continues to prioritize organic growth via capital spending, while also maintaining our dividend and evaluating opportunities for share repurchases alongside of M&A. Moving on to our financial guidance for 2023, we expect revenue of $2.8 billion to $3 billion, with a midpoint of $2.9 billion. This outlook is supported by our significant backlog fill while remaining reasonable in our expectations for the production activity ongoing supply chain constraints will allow. We are on track in Q1 to complete equipment installation and begin system fill of our driving and capacity additions. Like all significant capacity additions, this will come with a volume ramp that will see lower production rates in the first half of the year and then greater volume later in 2023 as we become more efficient and our expanded production benefits from the support of our recently announced supply agreements with Ryerson and also Hedra. From an operating income perspective, we expect to generate $218 million at the midpoint, or 7.5%. This results in an EPS outlook of $2.70 to $3 per share with a midpoint of $2.85 per share. I'd like to reiterate that our guidance continues to assume that supply chain constraints continue to persist. As Brett mentioned, we believe our backlog infers that there is clear upside opportunity to our 2023 financial outlook should supply chain and conditions improve. We also look forward to another year of strong growth within our parts and services segment, which generates accretive operating margins. We expect capital spending to be between $90 and $100 million in 2023 as a result of planned expenditures from our dry band expansion. Econext capacity expansion, as well as the previously mentioned drive-in expansion payments that push from Q4 to Q1. We also expect to invest in CapEx that will be immediately revenue-generating through our trailers as a service program. Our evaluation of the best way to finance the expansion of trailers as a service is ongoing and not included in our traditional CapEx guide, but we expect to take small bites at using our balance sheet in the short term, with less than $10 million earmarked for the first half of 2023. We will continue to call this out separately for transparency. I would like to remind everyone that it's typical for Q1 to be our lowest quarter in terms of revenue and EPS generation. In 2023, this seasonality will be compounded by the cost to ramp our new drive-in capacity. Our expectation is for the first quarter revenue to come in between $600 and $640 million and for EPS to be between $0.40 and $0.50 per share. I'd like to sincerely thank our Wabash team for their remarkable efforts in generating record revenue and EPS in 2022. This year was a major pivot point as we accomplished our 2022 financial goals laid out at our 2019 Investor Day, and we also took a meaningful step toward achieving our 2025 target of $3 billion in revenue, 11% EBITDA margins, and $3.50 a share of EPS. We're excited to take another significant step toward those financial targets in 2023. More importantly, the Wabash team took a giant leap in our cultural transformation that will enable us to move even faster in 2023 and beyond. We enter 2023 as a transformed and rebranded company, representing a first-to-final model portfolio that is unmatched in our industry and powered by a team that is inspired and driven by our purpose to change how the world reaches you. I'll now turn the call back to the operator, and we'll open it up for questions.
spk01: Thank you. As a reminder, if you would like to ask a question, please press star then one under your telephone keypad. Our first question is from Justin Long with Stevens. Your line is open.
spk03: Thanks. Good morning, and congrats on the quarter. Thanks, Justin. So, Brent, maybe to start with the comment you made about the long-term agreements, obviously you've announced the agreement with J.B. Hunt, it sounds like there was another one that was reflected in the backlog, and we may hear more about that customer at some point. But if you were to look at those two agreements collectively, is there a way to help us think about how much of a contribution that had to the backlog this quarter? And maybe you could talk about additional momentum with some of the LTAs beyond these first two.
spk06: yeah thanks thanks justin um when we think about long-term agreements we're we're looking in general uh in 2023 and and and you know somewhat growing in 2024 and have that be about 20 uh of our overall backlog uh and if with the capacity gains and if you go through the full vision possibly being as far as 30 of our backlog in 2024 that gives you kind of a ballpark of what we're shooting for That still gives us enough room within our supply plan to meet other customers' requirements. In terms of thinking about it in our Q4 reported backlog, I would just frame it as a substantial add and is generally reflective of what you see in the O4 backlog, and you kind of can extrapolate that into O3.
spk03: Okay, that's helpful. And to get to that 20% of the backlog, are these first two LTAs, you know, getting you close to that, or do you need additional LTAs in order to do that? I guess, you know, going back to the comment on kind of momentum, additional momentum with other customers on this front, I'd love to get more color.
spk06: We'd love to pick up and have in ongoing conversations at least two more that we would like to be coming to conclusion with in the first half of 2023. And then we're also looking at what we can do to expand the concept of long-term demand fulfillment to our dealer body, especially around those dealers and their customers that are well-positioned to take advantage of the market going forward.
spk03: Very helpful, and maybe I'll shift my next one for Mike. When I look at the revenue guidance at the midpoint, it's up about $300 million relative to last year. Any additional color you can give us on kind of the key components of that growth and maybe what you're expecting for revenue growth for trailers versus truck bodies versus parts and services?
spk09: Yeah, so I would say first and foremost, it's across the board. We're seeing growth in the traditional driving business that I talked about in some part from some of our long term agreements, but we're also seeing growth in some of our less talked about value streams like tank trailers. We believe 2023 can be the best year in tank trailer history for Wabash, which is an important point. We're going to see significant growth in our truck body business on the revenue side in 2023 as well. And we would expect parts and services to grow in generally the same magnitude, what we saw from 21 to 22, which was 20%, as I mentioned in my remarks. We'll see similar growth in 22 to 23. So it really is across the board, and we're really excited about all the value streams that are growing, but we're going to see it in parts and services that we're extra excited about. We do believe that that revenue provides a more recurring, repeatable profile, and it is very synergistic to what we do on the transportation solutions front.
spk06: Yeah, I just want to reiterate that our management system is based on the fact that all of the existing value streams have to provide continued improvement, top line and margin growth as we go forward. You know, we've done the pruning of the portfolio to date to get us to where we have extreme focus. Results show that. And there's no area that we have more focus than parts and service right now. So it all aligns with what Mike said, but it is a very purposeful construct in the way that we do business here now.
spk03: Got it. And I guess the last one for me, there are clearly secular demand drivers that are driving strength in your business and backlog right now. I'm just curious if that's resulting in any change in the competitive landscape. Are you hearing anything about competitors adding capacity, new entrants, etc.? Or would you say that competitive landscape is essentially unchanged at this point?
spk06: I'd say based on what we see, we see it as unchanged. The same barriers existed 6, 9, 12 months ago. It's still access to labor and a supply chain that is able to support overall capacity gains. Remember that the capacity that we're at specifically in dry vans and in our tank operation we are redeploying existing labor for the most part or, in the case of Mexico, in a place where labor is available. And speaking to the two 10-year agreements plus others that are a little bit more traditional but yet still profound, our supply base is responding to our call for added capacity. So we're really the only ones positioned to do this at scale right now.
spk02: Understood. Thanks for the time. Thanks, Justin.
spk01: The next question is from Mike Schliske with DA Davidson. Your line is open.
spk10: Yes. Hi. Good morning, and thanks for taking my question. Maybe I'll start off with a question on the truck body business. There were downcour over quarter in the number of units shipped, but we keep hearing that chassis supply from the OEMs got a bit better during the last few weeks of December. So, I was kind of wondering if you could comment on how chassis supply looks to start the year here at Wabash, and if you expect to see some good growth in the number of truck buyers that you get out the door to customers in the first half of 2023. Yeah.
spk06: Thanks. Great question. We alluded to it on our last call when we talked about what did the supply of chassis look like and early signs of chassis flow improving. And that was, yes, they're improving, but the actual flow in terms of right chassis, right time wasn't substantially improving. So what we saw across the truck body industry is chassis flowing in and sitting on the lot and unable to match the entire supply chain to get finished product flow. So what that means is lots of chassis on the yard for our customers and not a great ability to get those to flow through the business in terms of shipments. What we have seen through the fourth quarter as we come into the first quarter is we're starting to get back on track. We're seeing the actual improvement in the sequencing and the on-time delivery where the right chassis are beginning to show up, and that's why we're confident that we should see the targeted truck body growth that we expect in 2023. That's great, Brent.
spk10: And then moving on to parts and service, you know, I really liked how parts and service, the mix helped you in the fourth quarter here. And you've got some, it sounds like you've got some pretty good expansion plans for 2023 as well. So can you comment on whether margins could expand in turn in that segment if you see that good, you know, growth there in the coming year?
spk09: Well, we're really trying to, you know, Target here, Mike, is profitable growth and get some scale. So we're not really guiding to improving margins. We think we can maintain those margins and add to the top line. As you scale a business, we've got some specific initiatives. We're really excited to be able to scale that business and maintain. And we grew margins in 22, but we think we can maintain that profile in 23 and then add significant revenue on top. We'll get some more guidance as we get through the year, but that's really the mission for 2023, which will improve the overall corporation's margins because, as you mentioned, the parks and services margin is significantly higher at the base than transportation solutions is.
spk10: Great. If I could just maybe for my last question, zoom out a bit on your answer there, Mike, about your 2025 targets. You know, you've talked about getting to 350 and getting $3 billion of top line. You actually hit that in 2023, a couple of years early. The margins obviously might not be there yet. Could you maybe outline for us a couple of the moving parts that might get you either to a margin that works for the 350 EPS in 2025? Or do you think maybe given what you know today and how things are playing out in some of your key initiatives, whether there could be upside to a $3 billion top line number at that point?
spk09: Yeah, so as we outlined it at the investor day when we launched those targets in May of 2022, We said several of the drivers would be front-loaded in the three-year plan, and one would be our expansion of our drive-in capacity, which will be a driver of revenue. So first and foremost, what could have us hit that number quicker would be the supply chain allowing us to ramp our overall facilities for drive-ins a little bit quicker. We're not expecting that to happen in 2023, but certainly it could happen. lead to us achieving those targets maybe before 2025. But as of right now, we're focused on the guide that we've given and also scaling the parts and services, as I mentioned, at a consistent margin profile, which we believe we can maintain the growth to get to 300 million that we guided to back in May of 2022 in that 2025 time period. Kind of to summarize, what I think could happen if we were to get to 3 billion quicker than the planned period, it would be our ability to get the supply for dry van components and get more volume out the door. That maybe could come quicker than 2025, but I don't perceive that right now happening in 2023.
spk06: Yeah, the only thing I would add to that is when Mike talked about earlier, your first question about getting the initial scale on the parts business, and really what that is is the scale – is part and parcel with adding additional capability inside our ore walls in 2023. As we execute on both ends of that, I think that is one of the areas that we'll be able to, as Mike said, throughout 2023, give additional feedback on and how that really propels us into 2024. That would be another opportunity for us to pull those targets forward. But it all comes down to growing that capability, which is why we're so focused on it.
spk10: At this point, do you feel like the reefer capacity coming online in Minnesota in 24 and 25 would also be a positive driver towards your margin goals and your own goals?
spk06: Yeah, I wouldn't count it as narrow as in Minnesota, but I would say overall the opportunity for us to grow top line relative to taking advantage of what's going on in the cold chain is absolutely another way. That is absolutely a 24-25 more targeted timeframe for us to get that scale, but it is something that could be very positive. At a minimum, its core part of hitting 25 targets has the potential to pull that forward.
spk09: Yeah, I would say of our three key strategic initiatives, that's one that's going to be more back and loaded in the plan period.
spk08: So we will see some of that more in the 24-25 time period, or you can see some of the real nice growth in the logistic disruption through dry bands and parts and services in the earlier period of the plan. Yeah.
spk10: Perfect. I appreciate the discussion. I'll pass it along.
spk01: Thanks, Mike. The next question is from Jeff Kaufman with Vertical Research Partners. Your line is open.
spk05: Thank you very much. First of all, congratulations. I mean, it's been a long time in coming, and it's kind of nice when everything you've been investing for kind of starts to come together. So that's fantastic. Just a couple follow-up questions. In terms of getting to the $2.8 to $3 billion revenue number, I'm tinkering with the model here, but basically there's a $300 million increase in the revenue guidance at the midpoint. And if I assume we ramp slowly on the new trailer capacity and I assume ASP is up slightly, I get about halfway there, maybe two-thirds of the way there. So is the jump in outlook based on the idea that we could be producing close to 60,000 units for the year, or is the jump in outlook that our ASP continues to move even higher than expected because of the nature of these long-term contracts and the pricing that's in the backlog? I'm just trying to get to that $2.8 to $3 billion. I...
spk09: I believe maybe a piece that you could be missing in there, as I mentioned earlier, we do have some nice growth coming through our tank trailer business, which probably wasn't called out in your model. And also, we expect a significant increase in truck bodies as well, which would drive some of that revenue growth. I wouldn't expect significant ASP growth year over year. As we've mentioned, we feel pretty good that we've got the The price-cost aligns with some of the inflation that we saw.
spk08: So while we'll always look at opportunities, that wouldn't be a huge driver. You're going to get second-half revenue coming out of our drive-in capacity expansion, plus some tailwinds from truck bodies, tank trailers, and parking services.
spk05: Okay, so your point is ASP could be up, but that could be a mixed issue based on just more tank trailers.
spk08: Correct, yes. They have a much higher ASP than a drive-in.
spk05: All right, well, as we kind of chug along through 23 and we head into 24 and you ramp up the new drive van capacity, what are your thoughts about the production capacity that you have? I know, you know, and then secondly, you know, we saw 52,000 units, I think, this year. You're bringing in 10,000 units of new capacity. Obviously, we won't use all that. But, you know, where do you think we can go in 23 and 24 on a unit capacity basis? And can you hire enough of the right kinds of employees to get you there? Is that going to be a bit of a governor on that growth?
spk06: Yeah, great question. When we talked about the baseline number of adding approximately 10,000 units with the surge initiative, which is the conversion of the south plant into which was primarily a refrigerated plant. Now it's producing drive-ins. You take that, put it on top of the 52, and then we have additional productivity gains and very simple and straightforward capacity gains on the rest of our drive-in manufacturing here in Lafayette. So I think using mix as a factor, easily 60 to 65 based on that, and then you have the ability of pushing a little bit higher with the productivity gains we can get with existing operations. Based on that, labor would not be a significant barrier for us to be able to produce, we'll just call it slightly above 65,000 units.
spk07: Jeff, just to dial it in a little bit closer for 2023, like you mentioned, we'll probably ramp up to full line rate throughout the year. So for all of 2023, figuring that we're running a little slower in the first half, a little faster in the second half, we're looking at about 7,500 units out of that facility this year, and then, like Brent said, longer term, that goes to $10,000.
spk05: Okay, that helps with my math there. That's fantastic. Well, I've got to tell you, this is awesome to see. I wish I had a buy rating on the stock. I don't, but this is fantastic to see everything you've worked so hard for kind of coming around your way, so congratulations.
spk01: Thanks, Jeff. Again, that's star one to ask a question. The next question is from Felix Boshin with Raymond James. Your line is open.
spk04: Hey, good morning, everybody. Good morning. Hey, Mike, I just wanted to quickly follow up on the CapEx of, you know, call it close to $100 million. I'm just curious if you're able to provide some context to maybe dissect that between, say, the dry van capacity kind of spillover, maybe EconX, maintenance capex and some other growth projects you have in there?
spk09: Yeah, so the three main drivers by far are the capacity addition that's going to be somewhere in the 40% or 50% of that number. As I mentioned, there's some flow through for 22. We've got EcoNext would be the next biggest driver of our Little Falls plant expansion.
spk08: And then the next one would be some significant growth in our parks and services.
spk09: uh initiatives and there's some there's some technology spend in there uh that will help us ramp in 20 really that those benefits to being 24 and beyond and then there's always that 25 million ish of cost of doing business to maintain you know 14 manufacturing facilities but those are the big drivers of the growth initiatives within capex got it and then you know just on the parts and services um you know i appreciate the bridge on the on the on the strong year-over-year eps contribution coming out of that
spk04: And I'm just wondering, is there much baked in from trailer as a service at this point, or should we think about that as being more of a longer-term story?
spk09: Yeah, I would view that more as a longer-term story. It's interesting because we view trailers as a service that does a product offering within our parts and services, and how we're trying to develop our ability to maintain trailers in the field. And as I mentioned, the synergistic way that it helps support our dealer network and our customer's But the actual big trailers-to-service growth you're going to see will probably be in 2024 and beyond. We'll talk about it more in upcoming calls, but I did mention we'll do a few million this year, first half of the year, in the trailers-to-service from a leasing perspective as we bring some of those on the balance sheet. But the big driver from a revenue and EPS generation will be 2024 and beyond.
spk04: Got it. Okay. And then I don't know if this is maybe best for Brent, but I'm just curious if you can help us understand the – call it direct versus dealer channel mix in the trailer business today, and where you think that might go long-term just post the capacity expansion. I'm just trying to understand, you know, if all these changes from a multi-year agreement perspective might change the mix over time.
spk06: Yeah, so today, and we're specifically talking drive-ins right now, it is approximately a 50-50 split between direct and indirect. And that number, or that set of numbers, is a direct result of purposely increasing the indirect channel or dealers from roughly about 30% to 50% of our dry van allocation. And if you think about kind of what we want to see, we'll see about 20% long-term agreements in the direct side, and I'd love to see closer to 10% of that allocation or that capacity on the indirect side and that'd be a nice mix for us uh that we think would fit a a a real nice subgroup of customers that have a long-term vision uh they're going to be able to play this market really well okay got it and then just my last one these long-term agreements are they mostly with existing customers today
spk04: What I'm really trying to understand is to what degree, you know, call it the rise of power-only brokers out there and just the build-out of trailer pools. Does that open up just completely incrementally new customers to you? And would those type of customers be interested in long-term agreements? I'm just trying to kind of think through mixed implications long-term, Brent.
spk06: Yeah, so today when we think about long-term agreements, they are primarily predisposed to those customers that had a – a more traditional first to final mile view. They buy across our portfolio, and they are well positioned from a leadership and a business model standpoint to outgrow the overall industry based on the structural changes that we have going on. That's how we look at it today. And when we think about trailers as a service, digital brokerage, and power only, You are absolutely right. That is a new subset of customers that will grow and scale that we're purposely cultivating today that we think become much more material 24 and beyond. And as a core part of our commercial constructs today, the way we are going to be allocating capacity in the future and the systems that we're bringing to bear and capabilities of the organization.
spk02: Got it. I appreciate it. Thanks so much for the time. Yeah, thank you, Felix.
spk01: have no further questions at this time we'll turn it over to mr reed for any closing remarks thanks chris and thanks everyone for joining us today we look forward to following up during the quarter ladies and gentlemen this concludes today's conference call thank you for for participating you may now
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