Wabash National Corp (WNC) 2024 Q1 法說會逐字稿

Good day, and welcome to the Wabash National Corporation first-quarter 2024 earnings call. (Operator Instructions) And finally, I would like to advise all participants that this call is being recorded, thank you.

I'd now like to welcome Ryan Reid, VP Corporate Development and Investor Relations to begin the conference. Ryan, over to you.

Thank you and good afternoon, everyone. We appreciate you joining us on this call.

With me today are Brent Heagy, President and Chief Executive Officer; and Mike Pettit, Chief Financial Officer. Before we get started, 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 available at ir.onewabash.com. Please refer to slide 2 and our earnings deck for the company's safe harbor disclosure addressing forward-looking statements.

I'll hand it off now to Brent.

Thanks, Ryan. And good afternoon, everyone, and thanks for joining us today. Beginning with the first quarter of 2024, our revenue and income fell slightly short of our expectations due to slower customer pickups of equipment. I'd like to emphasize that particularly for a year of weaker demand, Q1 tends to be seasonally weaker.

Additionally, the size of our products necessitates that we rely on customers to pick up their equipment before we are able to recognize revenue. That said, our production outstripped shipments during the first quarter, so the delta versus our anticipated quarterly revenue and the associated income will flow into subsequent quarters during 2024, particularly Q2. As we'll discuss later, our financial outlook for the year remains unchanged.

From a strategy perspective, we continued to enhance our network of 78 dealer locations. Through our marketplace joint venture, we launched the initial version of our Wabash marketplace in the first quarter, collaborating with leading technology and logistics providers.

Our platform seeks to deliver customer centric solutions through an integrated partner ecosystem that sets new industry standards for parts, services, and trailer capacity.

The ultimate objective of the Wabash marketplace is to develop a comprehensive end to end digital platform, that transforms the experience for dealers, customers, and suppliers. Utilizing advanced technology and connectivity, we aim to streamline the supply chain experience, making it more efficient, connected, and user-friendly.

Dealers and customers will benefit from improved access to a wide range of parts and services, with a particular focus on our Trailers as a Service, or task capabilities, and the expansion of our Wabash parts distribution network. The marketplace has significant potential for growth, as the team focuses on opening up opportunities for additional value added offerings.

Also, our Wabash parts distribution, JV, is reaching an initial stage of maturity that will facilitate meaningful growth in 2024. Of course, the synergy between our comprehensive first to final mile equipment portfolio, Wabash Parts, and the Wabash Marketplace, and our parts and services segment, more broadly affirms our position in this market as we seek to add more value for our customers by supporting equipment through the course of this lifecycle.

Confidently investing in strategic growth initiatives during a down year in the trailer industry marks a new chapter for Wabash, one that we have not previously had the opportunity to explore. As we gain more clarity in 2024, it's important to emphasize the resilience of our portfolio that has grown over the last decade.

We've seen relative stability in customer demand for our truck bodies and tank trailers, which helps mitigate the anticipated decline in dry van demand this year.

In addition to benefiting from strategic customer relationships with best-in-breed participants in trucking, logistics, and retail, our expanded and diversified equipment portfolio not only enhances our stability through market cycles, but also provides a stronger foundation for layering on strategic growth.

This backdrop positions us well to capitalize on market shifts and continue our innovation and leadership in the transportation, logistics, and distribution industries.

As we continue to advance our strategic objectives, a vital component is fostering higher levels of employee engagement, which we believe leads to enhanced execution and improved financial performance. At Wabash, we are dedicated to building a culture that embodies our core values and emphasizes respect for individuals.

In line with this commitment, we have established a culture council, a multiyear initiative aimed at addressing critical aspects of our organizational environment. These include our work environment, working relationships, well-being and community, growth and autonomy, flexibility and consistency, and systems and processes.

To bring these areas to life, we have formed cross-functional teams tasked with implementing changes that positively affect all employees, and creating an environment where everyone can succeed. These teams represent various functions in geographical locations, ensuring a wide range of perspectives and ideas are being represented across the teams.

This investment in our people, an elevation of our internal standards not only aligns with our leadership responsibilities and values, but also advanced the interest of Wabash, our customers, partners, shareholders, and our communities, through the acceleration of our strategic vision, and increasing sustainability of value creation.

Moving on to market conditions. While our customers continue to experience a challenging freight environment, we have seen important leading indicators -- like the ISM index rising above 50 -- indicating expansion returning to the manufacturing sector, while surveys of inventory levels at shippers suggest abating headwinds from destocking that have been working against the freight market over the last couple of years.

While these positive indicators have yet to meaningfully translate into improved freight conditions, we are optimistic that improvements may be on horizon, when you pair the strengthening macro backdrop with the amount of capacity that has left the transportation industry since the market downturn began in early 2022.

Thinking beyond the current freight cycle, we remain bullish on our core markets, benefiting from secular trends like power only, persistent driver shortages, and a resurgence of near-shoring activity within North America.

Shifting focus to our backlog, at the close of the first quarter, we had a total of 1.8 billion in orders, with 1.5 billion of that figure expected to be shipped in the next 12 months. Both figures were lower by roughly 100 million sequentially, but it's important to note that with over 500 million in revenue for the quarter, the relative stability of our backlog implies that we continue to see meaningful volumes of new orders.

Moving to our financial outlook, with the benefit of further visibility provided by our sizable backlog, we are reiterating our full year 2024 guidance of $2.3 billion of revenue and a midpoint of $2.25 of EPS.

In closing, we are capitalizing on the opportunities presented by the market environment in 2024. With a diverse portfolio of first to final mile equipment and a growing parts and service business, Wabash is positioned with unprecedented strength paired with minimal leverage at this stage of freight cycle.

I believe our ability to maintain focused execution on our unique organic growth projects underscores the strength of our strategic positioning for the future. We are actively working to deepen relationships with our dealers, suppliers, and customers, as well as engaging with interesting new players within the transportation, logistics and distribution landscape.

Simultaneously, we are committed to fostering a culture of continuous improvement within our own employee experience, ensuring that we remain well equipped to act on our strategy. We are confident that this approach will not only enhance our financial performance at all points in the cycle, but also enable Wabash to sustainably grow our level of value creation for all stakeholders.

With that, I'll hand it over to Mike for his comments.

Thanks Brent. Beginning with a review of our quarterly financial results. In the first quarter, our consolidated revenue was $515 million. During the quarter, we shipped approximately 8,500 new trailers and 3,690 truck volumes.

As Brent mentioned, we saw some delays in customer pickups of equipment during the first quarter, and we do anticipate the opportunity to recognize revenue on these finished goods in subsequent quarters, including second quarter.

Gross margin was 14.8% of sales during the quarter, while operating margin came in at 5.7%. In the first quarter, we generated operating EBITDA of $46 million or 8.8% of sales. Finally, for the quarter, net income attributable to common stockholders was $18.2 million or $0.39 per diluted share.

From a segment perspective, transportation solutions generated revenue of $470 million and operating income of $44 million. Parts and services generated revenue of $49 million and operating income of $10.5 million.

Year to date, operating cash was an outflow of $17 million, reflecting what is typically a back ended quarter of shipments in Q1. Concerning our balance sheet, our liquidity, which comprises both cash and available borrowings, was $308 million as of March 31.

We finished Q1 with net debt leverage ratio of 0.9 times. On capital allocation, during the first quarter, we invested $19 million in capital projects, utilized $60 million to repurchase shares, and paid quarterly dividends of $4.2 million.

Our capital allocation focus continues to prioritize capital expenditures above and beyond our annual maintenance CapEx spend of $20 million to $25 million in order to support our organic growth initiatives. We are committed to maintaining our dividend, and then we anticipate continuing to evaluate opportunities for share repurchase alongside of bolt-on M&A.

Moving onto our outlook for 2024, we are reiterating guidance of a revenue range of $2.2 billion to $2.4 billion, with a midpoint of $2.3 billion, and an EPS range of $2 to $2.50 per share within midpoint of $2.25. We believe this outlook as well supported by a stable backlog and new order flow that continued at a reasonable pace during the first quarter.

We continue to see truck body, tank trailers, and parts and services as stabilizing forces within our portfolio in 2024, as market conditions remain stronger in those businesses relative to [drive-ins]. In particular, we anticipate year on year growth in parts and services to accelerate as we move through 2024.

Thinking specifically about our second quarter, our expectation is for revenue to come in between $550 million and $600 million, and for EPS to be between $0.50 and $0.55 per share.

Moving on to capital flow and expectations for 2024, we anticipate traditional capital investments to be between $75 million and $85 million in 2024, as a result of planned expenditures to support our strategic growth initiatives.

We also expect to invest in CapEx that will be immediately revenue generating through our Trailers as a Service program. We anticipate investment in that program will be back half loaded, and we will give more specific guidance as the figure comes into focus, but we would expect at least 1,000 units in 2024.

In conclusion, I'm excited about 2024 as we take the opportunity to demonstrate what we believe is an improved business cycle financial profile for the company. Additionally, Wabash currently enjoys the most significant potential for strategic growth in the company's history, by pursuing our parts and service adjacency, and were eager to demonstrate our capacity to grow the top line of this business, to allow us to become a more meaningful contributor to our portfolio as a whole.

As an industry leader in transportation equipment positioned at the epicenter of an increasingly complex ecosystem of participants within the transportation, logistics, and distribution industries, we have a unique opportunity to unite diverse stakeholders to address industry challenges via our Wabash Marketplace digital platform as well as the Wabash parts distribution business, and we look forward to updating you on the progress of this initiative.

We firmly believe that this area of strategic growth will define the next chapter in our journey to change how the world reaches you. I'll now turn the call back to the operator and we'll open it up to questions.

(Operator Instructions) Mike Shlisky, D.A. Davidson.

Yes, hello. Thanks for taking my questions. So I guess I wanted to ask first about some of the pickup and logistical issues that might change things from the first quarter to the second quarter, or elsewhere during during the year. I'm curious, was this an industry-wide phenomenon, or was it just an issue with Wabash and [FirstLook]?

[How to get FirstLook and beyond] to get their trailers, and other people didn't have an issue if they're based elsewhere in the country, was curious to see if it's something that we should be thinking of that everyone's facing, or is it just a strictly Wabash issue?

Yes, Mike, as we said in the release and on the actual narrative we put out there. I mean, this is a normal type of situation that our industry feels across the board at any time that we are in. Not only the first quarter of the year, but when compounded by being in a down year relative to dry vans, this is a normal and customary type of issue to have.

So everyone is feeling it throughout the overall industry at this point. In general, to be expected, in terms of weak pickups as people are working to understand what needs to be put in service at this time of the year. So while we are a little short in what those expectations are, the phenomenon itself is a normal and customary industry fact.

Okay, okay. Thanks for that. I also wanted to ask about Trailer as a Service. Mike, you outlined a couple of details there. I understand that maybe I won't get the actual numbers and guidance per se, I mean you did mention the 1,000 units, but just how do we start to model that out?

Do we model that as a thousand units of sales? A thousand units of inventory with rental attached to it, or leasing revenue attached to it? I'm not sure what to put my current model and what's incurring guidance as far as that business is concerned.

Yes, so from a from a P&L perspective, Michael, it will show up as a as a lease type expense. You wouldn't see a full unit of revenue recognition like you would a ship. It would be a leasing type model. So you'll see a monthly expense -- see a monthly revenue and the associated expense.

From a cash flow perspective, you'll see it show up, we break it out in our statement of cash flows as a revenue generating asset, and it will be separate from our normal plant property and equipment. So you can see as those units get put into service, it will show up on that line at our cash flow status.

Okay. Maybe one last one for me. I guess I should say some some thoughts, Brent, about what you think has to improve in the market to see orders go up from current levels.

I mean, I guess we've had the one large or a few large bankruptcies happened in the last 12 months. They have largely older units that probably didn't get back in the market in the used market.

Sorry, I'm curious whether if there is capacity out there in the market today that might improve the high demand between trailers and loads, whether some of those [hanging in] in the market will be much newer and some of that used equipment may end up taking away from new over the next couple of quarters?

Yes, Mike, I think what needs to happen is already happening. And I think what hs always been evident with in our industry is that when it is most confusing, when there are mixed -- kind of at a level of most mixed signals -- when the market is actually beginning to make the improvements that it needs to get it on the path of the upswing, right?

So we are seeing gross manufacturing activity begin to move in that direction. We're seeing capacity leave the market. We're seeing imports continue to improve. The things that need to be happening are happening now, and they don't have a real time effect on freight, and the spot market.

That's going to happen incrementally over the course of the next six months, as it should, for where we're sitting right now. So everything still winds up for the market forecasts that are out there -- the ACT and FTR. There is really no deviation from the forces that drive that.

And it's exactly what should be happening to setup for the estimates for 2025. It's already in play. Nothing new needs to happen. I think one thing that gets questioned is, what is the Fed going to do from an interest rate standpoint?

The forces in play are already in play. It’s already factoring in where the Fed is at right now. So, if the Fed waits until, let’s just say Q4, to have an interest rate reduction, that is not going to probably materially affect the forces that will drive the upswing into 2025.

So, I think the play is set. It's been called. It’s happening. It just needs to work itself out over time.

Got it. I appreciate the color, Brent. I'll pass it along. Thank you.

Thanks, Michael.

Justin Long, Stephens.

Thanks and good morning.

Good morning.

So I guess getting back to the delayed pickup of trailers, is there any way to quantify what that headwind was in the first quarter versus your expectation, to just help us think through that catch-up we could see in the second quarter?

And then as you just take a step back and look at trailer shipments over the balance of the year, is there any color you can provide on the quarterly cadence that is reflected in the guidance?

Yes, I would say that, generally, the disconnect we saw between our guidance and Q1 results was largely that delay in pick-ups that we had. And then you see some of that stepping into Q2 obviously with a little higher revenue and EPS guidance in Q2 versus Q1.

We would expect the back half to continue to see moderate increases in revenue and EPS but not significant. So obviously you can do the calendarization with our full-year guidance, but we will see that pretty good step up from Q1 to Q2, which [will does] encompass that quite pickup miss that we had, and then a little further affirming Q3 and Q4 to set up for what Brent just mentioned what we think will be a much stronger 2025.

Yes, just to put some additional color to it, most of the gap to pickups were in January, and early to mid February. And then we saw pickups dramatically improve as we moved into the tail end of the first quarter and then kind of continuing on that pace as we move into the second quarter.

So that piece of it has generally abated, and that timing of that gap in January and February kind of really is about fleets. Really trying to understand what is the operating environment that they're working into for the first half of the year.

Where do they need to move trailers to? Because remember, when they pick them up, they're putting into service and routing the areas to create revenue, so they're waiting to see where that's going to be, and then once they know they move and we saw that happen, right, and then it just flows from there.

Okay. Got it. That's helpful.

And I guess along similar lines, I was wondering if you could talk about the cadence of operating margins that you're expecting over the balance of the year? If I look at the first quarter, you were a touch below 6%. The guidance for the full year is around 7%. So that implies we need to be above that level to kind of average up. So just wanted to get some more color on the cadence you're expecting and what will drive that improvement sequentially through the year?

Yes, I think it's largely going to follow the volume I described earlier, because that's what was holding it down below 7%. We held our full year at 7% and finished Q1 at 5.7% net less largely a, you know, fixed over a contribution margin impact of a lower revenue number in Q1 that we expect will naturally grow as we move into Q2 in the back half of the year.

The other thing that we talked about in our remarks is we expect parts and services to continue to perform well this year, and grow in the second half of the year. That will also be a tailwind to our margin performance as we get into the second half, as parts and service that delivers an outsized margin component of our business compared to the OE side.

Got it. And I think the last one for me, along those lines, two other areas you've talked about historically as being areas of resiliency in addition to parts and service are the tank trailer business, and the truck body business. So I'm curious if you could talk a little bit more about what's getting baked into the 2024 guidance for those two segments, are you expecting growth in those areas?

Yes, we would expect year-over-year growth in truck bodies for sure. Q1 was a little bit some of the things we discussed on the trailer side, we were very specific in our trailer commentary, but it also pertains a bit to truck body shipments were a little bit weaker than we hoped in Q1 for truck bodies, but we do expect to see some pretty nice sequential step ups for the truck body business.

And we should see shipments increase year over year in that business, which has always been saying that, well, all of our OE products participate in the broader transportation and logistics industries, so there is some cyclicality.

It's less cyclical than it is in the dry van business. And we would actually expect to see a little bit of growth in truck drivers. Tanks, we'll see. We won't see growth in tanks earlier this year, but we'll see less of a pullback in tanks. And we saw only selling dry vans.

And I think to circle back to conversations we've had on these calls, tanks, truck bodies, and parts and services really form three legs of a stool of stable earnings, more stable earnings, than what we have in our more classic drive-in business at Wabash, and we're excited to continue to show it off this year. So while they all participate in an industry that has cycles, they tend to be less cyclical than we see in dry vans.

Yes, the ability to see the overall resiliency can be evident in the set of markets that we have today, where it's much more secular in nature, where different forces are affecting different subsegments differently. We're not experiencing a 2009 event. We're not experiencing a macro type of a negative set of forces that affects all different groups simultaneously. This is segment-based forces, which really allows us to leverage the resiliency of the portfolio.

Okay, great. I'll leave it there. Thanks for the time.

Jeff Kauffman, Vertical Research Partners.

Thank you very much. Hey, congratulations, everybody.

A couple modeling questions. I wanted to get back to the units that were not picked up on time. I mean, this happens every now and then it just is what it is it, let's just say for argument's sake, that number was 500 in the first quarter.

I don't know what the number is, and you guys haven't thrown one out, but we'd normally see something like two-thirds of it in the following quarter, and a third of it maybe in the third quarter. How does this typically work when we have this happen? It doesn't all happen in 2Q necessarily, right?

Right, Jeff. You've been doing this long enough to know how it works. And I would say that is a generally good approximation for how the world works.

All right. And then ASP was pretty strong -- a little stronger than I was looking for -- both in truck bodies and trailers, which is great. But I would assume with raw material costs coming down that ASP levels off a little bit.

Could you give us an idea of what trailer ASP might look like without the mix issue of tanks being a little bit stronger, and give us a feel for what was driving the higher truck body ASP?

Yes, I would say -- I'll start with trailers. I would say as you think about, obviously, we have a long backlog business.

So the price that shows ASP that shows through in the revenue for the quarter comes in at all different times over the last year or so. So you would see some ASP reduction as we go through 2024. I think you’ll see volume increase in ASP come down as we go through the year.

For truck bodies, there can be some mix in that business. But generally speaking I think it just represents what we’ve been saying a more stable borderline strong demand environment in that business that would enable us to have pricing stability.

So I wouldn’t expect as much of a pricing move in truck bodies as we go through the year. But for trailers, you will see a step down as we go through Q2 and the second half of the year.

And just general commentary, Jeff, I would just say pricing across all the segments minus maybe platform trailers, the overall pricing resiliency has, I would say, met, and in some cases exceeded, our expectations for the market that we're in.

And I think a big part of that is we're seeing the actual value of the product shining through, and the nature of the portfolio changes that we've made, and kind of channel movement really starting to have an impact on pricing, which mutes the effect of just a more of a dog-eat-dog pricing environment that you might expect in the past. We're just doing a little better in how we manage it.

Okay, great. And as you mentioned, Brent, I've seen these things a bunch of times, but sometimes you forget.

And then lastly, very impressive margins in parts and service. The gross margins were pretty strong, but the operating margin flow through was a lot better than I expected, which is fantastic. Is 21%, which I don't remember seeing on a operating margin basis, is this a new level that we've reached because of what's changed in parts and service? And is this more sustainable, or was there something that helped that number a little bit in 1Q?

Yes, I wouldn't guide to something over 20%, Jeff, we've been saying high 10%, upwards of 20%, and I would maintain that. We had a really strong margin performance in that revenue stream in Q1, and while it is outsized compared to the rest of the portfolio. I wouldn't want to model something above 20% going forward. While that may be something we can do down the road a few years from now, I would still say high 10% up to 20% in the business.

Okay. And then final question. You talked a little bit about how Trailers as a Service is going to be accounted for. Could I ask you to go back repeat what you said? Because I wasn't entirely clear. You talked about the lease expense and the revenue. I wasn't really sure where that's going to show up?

So from a revenue perspective, you will see what how many months in service. The unit is in the field that will show up as a lease revenue coming through if you will, and then that capital expense will show up as a revenue generating asset in our statement of cash flows.

So Jeff, that will come to parts and service.

Yes. Is that your question?

Okay, that was my question.

Yes, (inaudible) parts and services part of the data.

Ok, awesome. Well, congratulations. Challenging environment, solid results. Best of luck. Thank you.

Thanks, Jeff.

There are no further questions at this time. So I'd like to hand back to Ryan.

Thanks, Gavin. Thanks, everybody, for joining us today, and we'll look forward to following up during the quarter. Have a great day.

That does conclude our conference for today. Thank you for participating. You may now all disconnect.