Wabash National Corporation

Thank you for standing by. My name is Jeannie and I will be your conference operator today. At this time, I would like to welcome everyone to the Wabash Third Quarter 2024 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 followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference over to Ryan Reed. You may begin.

Thank you and good morning, everyone. We appreciate you joining us on this call. With me today are Brent Yagy, president and chief executive officer, Pat Kaplan, chief financial officer, and Mike Pettit, chief growth officer. Before we get started, please note that this call is being recorded. I'd also like to point out that our earnings release, slide presentation supplementing today's call, and any non-GAAP reconciliations are all available at .1wabash.com. Please refer to slide two in 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 afternoon, everyone, and thank you for joining us. Let's start out by level setting that our adjusted third quarter financial results largely align with our prior expectations. Before we get into the details on the quarter, I'd like to provide some strategic updates and address how we see the path of our growth continuing to unfold. To set the stage, I want to step back and reflect on the last few years of our journey to change the growth and performance trajectory of Wabash, highlighting how we've reached our current position and where we see the company heading. When I assumed the role of CEO, our strategy of becoming a more diversified industrial was no longer serving us well. While the fundamental rationale behind it to address drive-in cyclicality was found, especially after the challenges of the 2009 financial crisis, it had become clear that some of the most promising mega trends were happening within our core markets of transportation, logistics, and distribution. We need to refocus closer to home. Expanding our equipment portfolio to complement our core drive-in product line created greater value and an opportunity for deeper relationships with our customers. But we hadn't fully capitalized on that potential. The pandemic provided an opportunity to quickly restructure both our organization and the -to-market strategy, with a wider shifting from a product-centric model to a more customer-centric one where we could expand the definition of how value could be created. By streamlining access to multiple equipment types through a single commercial point of contact, we created significant value for our customers. This shift has brought us closer to our customers, enabling us to jointly plan for the future and foster innovation. It also gave us further insight into what their deeper problems and business needs were beyond the products we make and the solutions we provide at the time. We are now able to position our total portfolio of transportation solutions as a more resilient set of revenue streams. The value of a deeper customer relationship gives us reason to engage more strategically with our supply chain to enhance the manner in which business can be conducted, allowing for more resilient responsiveness and willingness to collectively serve the customer. Suppliers recognize Wallbash's efforts to improve the industry status quo and are aligning with us, combining strengths to provide even greater benefits to our customers, particularly within the next industry upcycle. Our reimagined manufacturing capacity will also be a key asset in this regard. Our increased resiliency and improved responsiveness will allow us to outperform as compared to previous cyclic upturns. One major area of strategic focus has been our parts and service initiative. For years, this opportunity was overlooked in our previous drive for diversification. We now recognize that growing this higher margin, recurring revenue business is a core element of balancing the cyclic nature of demand for transportation equipment. We're excited about the potential in parts and services, not just as a revenue driver, but as a critical support mechanism to maximize the life cycle of our equipment. We continue to drive the core aspects of this growth journey and are increasingly excited about unmet needs we're covering through enhanced customer relationships. Our partnerships with HDI and Fernway Group are instrumental in this growth. The Wallbash Parts Joint venture with HDI rapidly established expensive distribution capabilities, providing our dealer network and fleet customers with efficient access to a broad portfolio of aftermarket parts. Meanwhile, our link JV with the Fernway Group is enhancing our digital capabilities, providing us the capability of engaging our customers differently and engaging in solutions to problems in different ways. The ability to revolutionize how our dealers and our suppliers and customers experience the Wallbash brand through the solutions we provide and the manner in which we provide it within the vast transportation and logistics landscape. We have positioned the company well for this next chapter, where the continued investment and development capabilities were increased to scale profitable growth for the company. To further refine our focus, we made some key organizational changes. Mike Pettit, formerly CFO, has been both a thought leader and internal catalyst for our parts and service risks. Recognizing that we needed to free him from his day to day CFO responsibilities to allow him to fully focus on the mission to accelerate the scale of our achievements. Mike will now serve as Chief Growth Officer overseeing parts and services, digital enablement and engineering. Collectively, these areas of the business will be leveraged in a manner to bring our purpose of changing how the world reaches you to life at scale. Let me turn it all over to Mike for his first update as Chief Growth Officer. So here's Mike.

Thanks, Brent. Before diving in, I'd like to mention that while I genuinely enjoyed my time as CFO, I'm excited about my new position and the focus it provides to more consistently drive growth through the organization. On the topic of growth, one of the ways Wallbash is leading within the transportation, logistics and distribution industries is by leveraging our ecosystem to navigate shifts and seize emerging opportunities. As a market leader in transportation equipment, Wallbash sits in unique crossroads collaborating with suppliers, dealers, carriers, shippers and technology providers. These partnerships allow us to tackle complex challenges and no single entity can solve alone. While we're still early in this process, in October, we hosted our second gathering of Keogh Ecosystem Partners at our Ignite Conference, bringing together over 300 attendees. This gathering really demonstrates our commitment to transforming what was once viewed as a basic supply chain into a collaborative ecosystem capable of solving broader challenges together. There are already a couple of proof points I'd like to highlight. First, we recently signed a 10-year strategic supply of VIM with Steel Dynamics, a leading North American steel producer. This agreement strengthens our supply chain, ensuring priority access to critical components like steel coils and cross numbers during periods of high demand. This will help us meet customer needs, even during times when other manufacturers may face constraints. This agreement with Steel Dynamics adds to similar ones with Heidel, Ryerson and Rockland Flooring, positioning Wallbash as a leader in supply reliability and operational excellence. Secondly, our trailers is a service partnership with Kodiak, a leader in autonomous truck technology, is another significant step forward. Our TAS program provides Kodiak with a flexible solution, offering access to a fleet of reliable trailers via subscription that includes maintenance, repair and managed care support. This will allow Kodiak to focus on developing the autonomous technology, while Wallbash handles the logistics of trailer utilization, uptime management and maintenance through our managed care services. This brings together a unique technology partner and Wallbash dealer service capabilities, supplemented by a growing managed care network with Wallbash acting as a connective tissue to create value for all parties. Our team is excited by these partnerships and we are just getting started. He has inlaying the foundation for growth in 2024 that we believe will prove to be transformative for Wallbash in the next couple of years as we look forward to continuing to create these opportunities by leveraging our position in the transportation, logistics and distribution ecosystem. With that, I'll hand the call back over

to Brent. Thanks, Mike. Many of you on this call know Mike and his passion for Wallbash and the strategic direction we are following. We are lucky to have a leader like him drive our strategic growth forward and we look forward to seeing him drive in this new role. I'm equally excited for Pat Kesslin to take the duties of CFO and work directly with Mike and I to achieve our strategic goals. After spending 15 years at Honeywell in various finance roles, Pat joined Wallbash and has progressed through several leadership positions, most recently as VP of Finance. I have worked directly with Pat since he joined Wallbash in 2017 and I know that he has what we need as we move into this next chapter of the company. Moving on to our third quarter, you'll see a significant divergence between our gap and non-gap financial results due to the impact of a September 2024 jury verdict. As we previously shared, a St. Louis jury found Wallbash liable for $12 million in compensatory damages and $450 million in punitive damages in connection with a 2019 motor vehicle accident. This incident involved a passenger vehicle traveling at a high speed with an unobstructed view that struck the back of a nearly stopped 2004 Wallbash trailer. While we booked a non-cash charge during the quarter related to this verdict, we believe the damages are abnormally high and the verdict is not supported by the facts or the law. Among other things, and despite precedent to the contrary, the jury was prevented from hearing critical evidence in the case, including that the driver's blood alcohol level was over the legal women at the time of the accident and neither the driver nor the passenger was wearing a seat belt was also kept from the jury. There will be post judgment proceedings before the court enters a final judgment for the purpose of appeal, but in the meantime, we are working closely with our external legal counsel, accounting and insurance firms, and we'll be evaluating all available legal options. We will continue to share updates as appropriate. Wallbash continues to stand firmly behind the quality and safety of our products. This will not stop us from continuing to challenge ourselves to create new and innovative products and do what we can to contribute to safer roads. Turning to our backlog and financial outlook, total bookings at the end of the third quarter total just over $1 billion. This compares to about $1.3 billion at the end of Q2. As we expected, the dry van large deal season is pushing to the latter stages of normal seasonality in 2024 and we anticipate the flow of new orders to increase in Q4 and into early Q1 of 2025. With the drive in picture for 2025 yet to be fully developed, we feel that's prudent to adjust capacity in our vans facility in order to ensure we are optimizing our current labor structure for now and for what we expect to be a medium term improvement. In the areas such as truck bodies, we're thoughtfully increasing incrementally to prepare for a positive 2025. Our parts and service revenue streams continue to add capability and we will have both a broader and deeper set of offerings as we enter into the new year and continue our march to higher levels of growth in this key area of the business. For now, the rebalancing of our Q4 drive in demanding capacity necessitates that we lower our full year revenue outlook to roughly $1.95 billion and an EPS to approximately $1.25. While it's too early to quantify expectations for 2025, I do believe our 2025 EPS performance can exceed that of 2024. We look forward to providing more detail on our Q4 call. Finally, I'd like to touch on capital allocation priorities as we move forward. Reiterating that the significant legal charge in the third quarter was non-cash, we remain well positioned to invest in the company's strategic growth initiatives with a focus on funding parts and service growth. We believe our current dividend is competitive with our Peer stat and we expect to continue evaluating between potential returns we can generate via repurchases compared to M&A. In closing, we believe by adjusting our operations to align with the current market reality, we are optimizing our future earnings power. We have made significant changes throughout the company to increase Wallbash's customer value creation and we believe the company is well positioned to grow our parts and services revenue extremes, which will complement the transportation solution side of our portfolio to further enhance our value proposition to customers and our financial performance to shareholders. Our ecosystem approach to grow value is showing early signs of success and the company's new organizational structure is designed to accelerate and create focus on how we build our collective future. With that, I'll hand it over to Pat for his comments.

Thanks Brent and good afternoon everyone. I'm excited to be here and honored to step into the role of CFO. Mike has been an excellent mentor and I look forward to building on his accomplishments. As we continue transforming Wallbash into a visionary leader in connected solutions for the transportation, logistics and distribution industries, I'm eager to work with all our stakeholders. Beginning with the review of our quarterly financial results, in the third quarter, our consolidated revenue was $464 million. During the quarter, we shipped approximately 7,585 new trailers and 3,630 truck bodies. Gross margin was .1% of sales during the quarter while adjusted operating margin came in at 3.7%. In the third quarter, we generated adjusted EBITDA of $34 million or .4% of sales. Finally, for the quarter, adjusted net income attributable to common stockholders was $8.6 million or $0.19 per diluted share. Adjusted EPS generation for the quarter was slightly short of our prior quarterly outlook range. However, I'd like to mention that we did incur higher than expected legal expense of $1.4 million or $0.02 of EPS in connection with the St. Louis legal verdict. We did not include these costs in the non-GAF adjustments made for Q3, as they may be recurring while we move forward to find an acceptable resolution to the matter. Moving on to our reporting segments, Transportation Solutions generated revenue of $416 million and operating income of $29 million. Parts and services generated revenue of $52 million and operating income of $8.3 million. -to-date operating cash generation was $36 million, with sequential working capital trends in Q3 being incrementally helpful to operating cash. Regarding our balance sheet, our liquidity, which comprises both cash and available borrowings, was $405 million as of September 30th. We finished Q3 with net debt leverage ratio of 1.5 times. On capital allocation, during the third quarter, we directed $15 million to traditional capex, invested $1.4 million in revenue generating assets via our Trailers as a Service initiative, utilized $18.4 million to repurchase shares and paid quarterly dividends of $3.5 million. Our capital allocation focus continues to prioritize capital expenditure above and beyond our annual maintenance capex spend of -$25 million in order to support our organic growth initiatives. As Brent mentioned, we are committed to maintaining our dividends and we will continue to evaluate opportunities for share repurchase alongside of both on M&A. Moving on to our guidance for 2024, we are reducing our revenue outlook to approximately $1.95 billion and EPS to roughly $1.25. From previous midpoints, this represents a reduction of $150 million in revenue and $0.30 of EPS. The most significant changes from our prior outlook come from reduced revenue stemming from level loading of line rates, as well as some step up in G&A related to increase legal expenses as our team works to address the aforementioned jury verdicts. Our updated guidance implies fourth quarter revenue of $425 million to $450 million and modest to lead positive Q4 EPS. Moving on to capital deployment expectations for 2024, we anticipate traditional capital investment to be between -$80 million in 2024 as a result of planned expenditures to support our strategic growth initiatives. We also expect to continue with a modest level of investment in capex that will be immediately revenue generating through our Trailers as a Service program. While we expect to have a more complete picture of 2025 by our Q4 call, we continue to believe that we have opportunity to generate stronger adjusted financial performance in 2025 relative to 2024. As the drive-in market troughs and we achieve improving performance from our truck body, tank trailer, and parts and services businesses, we believe 2025 adjusted EPS can eclipse that of 2024. I'll now turn the call back to the

operator and we'll open it up for questions.

Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. And your first question comes from the line of Jeff Kaufman with Vertical Research. Please go ahead.

Thank you very much and congratulations in a tough environment. I want to take a look at a bigger picture, kind of. We know the market's slowing down right now because of the pressure on industry P&L that's out there. We know that trailers are getting her a little hard in trucks just because fleets are nervous about 20-70PA and they're holding on to the truck purchasing commitments for the year. As you talk to your customers about 2025, you know, a lot of the truckload earnings calls I've heard, companies are saying, hey, we may spend less than 25 than we are in 24. You know, what have your customers told you so far about their 25 intentions versus their 24 intentions and, you know, at research just reduce their forecast for 25 below 24. What parts of your customer base are seeing the greatest pressure versus what parts of your customer base are actually holding in pretty well despite the environment? Thanks, Jeff.

Complicated question, complicated answer. In the past, it would be much more enabled to give very discrete answers relative to the segments that make up our customers. The way I would explain it today is that it is varied amongst customers regardless of segment. So while there, I'll use LTL, while there is relative, a more relative robust environment for the LTL players, we have some LTL players that are holding a level of volume that they gave in 2024. We have other customers that are signaling, waiting on the sidelines, at least for the time being, to figure out what the market is going to do. And we have some that are having conversations about how they would add additional units throughout the year if the market warrants. So it's just in the LTL, it's a varied landscape. And I would say the truckload is very similar there. We have small and medium sized players are still in the same position that they were really at, you know, in the first and second quarter of 2025. That has not changed, which all goes into ACT and FTR's revised numbers. There are some larger players that are, again, maintaining their level of bite, where they have a more rigid slash purposeful replacement cycle and they do not want to get behind like they have in the past. And there are some that are either, again, waiting on the sidelines or holding off to assign more clarity to their purchasing decision, which is why we see it pushing in the cycle. It is a very customer independent decision making process right now, not a broad brush application of what the market is or isn't.

Thank you for that answer. If I can come at it a different way more from the company side. I think the forecast this year, depending on who you talk to is for about 235,000 units this year. If you look at the production forecasts for on a quarterly basis that may dip all the way down to kind of 180,000 unit annualized rate over the winter months and then maybe bounce kind of a 230 or 240 in the summer months. How do you manage for that kind of volatility and then with the pricing model having changed where you made that switch a couple years ago, should we be thinking about operating margins moving with volume differently than they have in the past?

That's a multi-part answer. Let me start on the first part and then I'll let others chime in. First off, I think the ACT-FTR estimates for 2025 are absolutely in the ballpark for the world that we're experiencing right now. From a, I'll go a little further with the question than maybe what you asked, the pricing from a pricing standpoint, the pricing that we are, that we have experienced just to round out our drive-in backlog for 2024, we feel is indicative of how we will start out 2025. So we feel like that's a relatively clear data point that we can bridge off of and probably the street can bridge off of. From a dynamic nature, Jeff, you know, we've been doing this for 20 plus years. So in the world of dynamic, this isn't as bad as what we've experienced in the past. So well within our capability of managing and we manage it better today than we ever have. But with the capacity reductions that we allude to with revised guidance that we gave are the moves that we're making right now to right size to create a better, call it net margin profile over the next six months with an eye on how do you preserve a level of dynamic capability to obviously take advantage of whatever the market gives us. So that's what I would say from a narrative qualitative standpoint. Yeah,

Brent hit it with the pricing where we expect the levels that we're at right now to flow into 2025. To answer your question specifically about operating margins now relative to what we've seen in the past. So it's a past trough times. We would expect to see an improvement there given what we've been able to do with pricing. So hopefully that answers your question, Jeff.

Yeah, and what I would add is that you really have to integrate in the improved position of where we set with our truck body business. You have to add in the additional parts and service on top of what is a better starting position at this point in a trough from a drive-in perspective compared to any other time we've had in our history. Yeah, we have a more diverse set of revenue streams

than we've ever had during a trough and buy-in.

All right, well thank you very much and I want to congratulate you for hiring an Indiana Hoosier as your CFO. Big fan. It just shows you were capable of anything.

Your next question comes from the line of Mike Schlesky with DA Davidson. Please go ahead.

Yes, hi, good afternoon and thanks for taking my questions. Just following that last answer you gave, if you've got volumes that are flattened a little bit down next year on the trailer side, does the mix change now that you've ramped up your new facility, does the mix change between what you're producing, you're new and you're old, and is there a margin tailwind just as you may have learnings as that's been open for a year and you've gotten your processes together, is there any kind of positive there for 2025?

Again, complicated question relative to the market. First off, I would say that Wabash has the ability of, I would say, being in a better position relative to the demand that we generate in 2025. Even with what's called flat industry levels from 24 to 25. So we will look to capitalize on that and we believe we can do that with the pricing that we've got. The mix that you tend to get, or just the absolute level of volume by mix, has a limiting effect on how you utilize your assets most effectively in this type of environment. So we will not expect to necessarily get the full effect of the new capital, but we will get a level of positive impact by having it up and running. And it should be running at a full per shift volume throughout 2025. So we'll see a full year contribution of that, which should be helpful. And then we are actively working, as we looked at, outstrip, or not outstrip, but to outperform the demand environment. We are specifically looking and trying to tailor that demand to sit where we can most effectively build it. Okay,

okay. Makes sense. And I hopped on a little bit late, so if my next two questions are having asked and answered, please just tell me to hop with you later on it. One asked about the parking service business. I was a little bit surprised you didn't see substantial growth in that business, given your effort that you've made. You rolled out the new portal, I think, over the last few months. I guess I'm just going to feel for whether your efforts are bearing fruits and all we're seeing is just the effect of just a sluggish market broadly, but your efforts, you feel confident that you'll see some growth there over the next few quarters.

Yeah, and on the scripted aspect of the call, we've alluded to the fact that we are very confident that the foundational elements that we have put in place, plus what is coming online, or what has come online in the last few months, and what will be coming online in the next month after that, give us a great position relative to 2024 going into 2025. The relative dip, not really dip, but I would just say more sluggish performance, right? Still grew when you think about where we were. It's a tough market out there at this moment and nothing that, we're not immune to that. And, you know, parts and services are not immune from the cyclic demand characteristics of a market like this, but they are absolutely more resilient than most of our revenue streams. And I think that's showing in our numbers. So that's proving out and with that, just having stability in the market will provide a tailwind in 2025 as compared to 2024. When customers are trying to figure out one quarter to the next, is it going to get better or worse, that makes for delayed buying decisions and incomplete buying decisions and maybe not optimal. Just stability, regardless of the level, will help our parts and services.

Yeah, I think it's important to remember too, Mike, there's a lot of different revenue streams that roll up in a part of services and a lot of what you alluded to, we're seeing some nice growth and progress in, but we do sell some into the OE space from component parts for a while back. You can actually see that in our pressure release, we see some weakness in some of our parts, as Brett mentioned. The initiative itself is much more resilient than the basis, as you can see that. It's providing the stability that we thought it would, but it still does operate within the overall free landscape. I guess

I'd even be more specific, the retail side of our parts and service, we get pretty happy with. What we directly provide in terms of part components that are directly consumed, which are directly related to OEM demand, they're in the same place the rest of our business is in.

Okay, got it. I also, maybe my last question, I also appreciate your commentary that there's a good chance for growth in earnings next year, even if there's no tremendous growth in the drive-in business. But you alluded to also, there have been some reductions to the drive-in forecast, and who knows, there could be more to come. It could be the other direction, but we could see an additional step downward. I'm just curious, can you maybe ballpark for us, what is the max amount that maybe the Grotto trailer market can be down for Wabash to still have a flat to up year in earnings for 2025?

I think that would be going beyond our ability right now to give that type of bottom floor guidance. I would be hesitant to do that, as I said here right now. There's absolutely room for that to occur, but I do not necessarily, there's a lot of factors to integrate in answering that question. I

would say we would expect to see growth in parking services, we would expect to see growth in truck body, and so that would offset some softness in driving in, but not breaking down the specific unit count.

Okay, that's totally fair. Appreciate the answers. I'll pass it along. Thanks, Mike.

That concludes our Q&A session. I will now turn the conference back over to Ryan Reed for closing remarks.

Thank you very much and thanks everyone for joining us today. We look forward to following up during the quarter. Have a great day.

That concludes today's call. Thank you for joining. You may now disconnect.