Wabash National Corporation (NYSE:WNC) Q1 2023 Earnings Call Transcript April 26, 2023
Wabash National Corporation beats earnings expectations. Reported EPS is $1.04, expectations were $0.48.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Wabash First Quarter 2023 Earnings Call. I would now like to turn the call over to Ryan Reed, Senior Director of Investor Relations. Please go ahead.
Ryan Reed: Thank you, and good morning, everyone. We appreciate you joining us on this call. With me today are Brent Yeagy, 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 in our earnings deck for the company’s Safe Harbor disclosure addressing forward-looking statements. I hand it off now to Brent.
Brent Yeagy: Thanks, Ryan. Good morning, everyone, and thanks for joining us today. We are extremely pleased with our record first quarter results. Importantly, these results highlight last four years of hard work we’ve undertaken to affect structural improvement in our business, in the lead up to this moment in time. Customer portfolio reshaping a significant redesign of our organization and reporting structure a new customer-centric go-to-market approach, including an improved pricing construct and long-term customer agreements matched on the sourcing side with retooled and relationship based strategic agreements with key suppliers. We have re-imagined our production capacity and are also acting to increase our recurring revenue exposure by achieving our rightful share in parts and services having already laid the groundwork through our parts and distribution joint venture.
All managed through a purposely crafted lean based management system and a strategic deployment process that mutually act on the business each and every day to drive execution and bring our strategy to a measurable reality. My team and I believe strongly that the changes made to date have significantly brightened the future prospects of our company. Our way of managing the business does not rest, and we have more work to do and opportunities to harvest. While progress is easily indicated by our first quarter performance, what really drives long-term value is the fact that our management system works to benefit customers, suppliers, employees, and communities and shareholders together. During the first quarter, we continued our steady pace of execution against our strategy.
As I’ve mentioned before, we see our industry-leading dealer network as a meaningful competitive advantage that is unique in our industry. Our dealer network is also a key enabler to the success of our parts and service initiative. Ultimately, we succeed by facilitating our dealer success and in order to ensure optimal alignment of our collective incentives, we launched our ambassador program for our dealer partners during the first quarter. We believe this is a foundational step to sustaining the impressive rates of growth we’ve shown in our recurring revenue parts and service business. Also during the first quarter, we continue to advance our Trailers as a Service program by launching a subscription service with Loadsmith, a digital broker founded by a team with significant shipping and transportation industry experience.
This relationship builds on our initial Trailers as a Service relationship with FreightVana, which was our initial Trailers as a Service customer and a relationship as provided a great learning and market exploration opportunity. We believe we can continue to help remove waste from a logistics system with Trailers as a Service, while also building a flywheel that pulls on many areas of our parts and service offerings. Trailers as a Service is an excellent example of how our dealer network helps us with national scale to provide service support within this program while we create new opportunities for our dealers to help them broaden their revenue base. Finally, following considerable heavy lifting by our employees and partners, our Lafayette Bay South Plant is now ready to begin initial production of dry van trailers.
Production is beginning at low levels as we run off and validate all processes and as we develop the workforce on the new and exciting equipment in the facility. Having personally walked a new line, reviewed the new processes several times over the last 30 days, I’m pleased to say that this will be our most modern plant and certainly our most efficient capacity. What is also very clear is that this new dry van capacity provides us with the opportunity to upgrade our legacy dry van manufacturing assets for both capacity and efficiency. Meaningful upgrades were not previously possible given the year-in and year out burden, our legacy facility fell running three shifts even at mid-cycle levels. This is a key reason we decided to make this capacity investment and we’re very pleased with the outcome.
Our backlog has served as another proof point of our strategic progress making a step change during the fourth quarter of last year as long-term customer agreements entered the picture. Our backlog remained very strong at $3.1 billion during the first quarter. Strong shipment activity modestly outpaced new orders in Q1, which was not a surprise. While we have somewhat limited visibility on real time demand conditions, given the strengths of our backlog field, we follow macro conditions like everyone else and certainly pay attention to the commentary of our customers. With a backdrop of an aggressive Fed and recent banking issues complicating the macro picture, I believe the consensus view has shifted somewhat from a crate market rebound during the second half of 2023 to a view where most are hoping to see some positive trajectory return by year-end.
Clearly, spot rates have been under pressure since the beginning of 2022. That said, the vast majority of our customers both direct and indirect are tied to contract rates, which tend to be more stable. Contract rates have certainly experienced some pressure due to the overarching imbalance in freight demand and capacity as the ongoing inventory correction plays out. In this environment, it’s natural that customers will diligently manage their capital spending, well, we believe trailers will remain a relative priority as carriers and shippers know the long-term pain it creates to allow their fleet age to step up. Between trends like power only, nearshoring, persistent driver shortages and so on, we feel that our space is structurally very well situated.
We also know that our carefully selected customer base is well capitalized, remains profitable, and is positioning for long-term growth. As we progress through the year, we’ll continue to provide candid commentary on what we see from market conditions. In particular, our line of sight to a strong 2023 remains clear. With a very strong Q1 on our books, we are raising our 2023 earnings per share to a range of $4 to $4.50. Whether you’re a member of the investment community that has followed Wabash for many years or maybe only a few quarters, I hope you recognize our underlying pace of strategic progress and improvement in overall execution all the same. We are acting on this company to strengthen its business fundamentals and those changes have become increasingly clear to the strategic milestones we’ve achieved as well as the strength of our financial results over the last couple of years.
The acceleration of results from our strategic efforts is the key takeaway I hope you’re left with when evaluating our first quarter and future prospects. I think it’s fair to say that most financial models do not have Wabash generating our 2023 EPS guidance of $4.25 even at peak levels. I also think it’s important to point out that the implied trailer production and our financial outlook remains in the range of 20% below our maximum capacity, suggesting peak earnings levels that are significantly in excess of our current guidance. And that’s before we figure in any accretion from continued execution of known as well as upcoming strategic improvements in our business. I’d like to close by thanking our team members to not only underpin our quarterly execution, but more importantly, their belief in our strategic direction has and continues to push the impressive rate of chains seen within Wabash.
With that, I’ll hand it over to Mike for his comments.
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Mike Pettit: Thanks, Brent. Starting off with the review of our quarterly financial results. Consolidated first quarter revenue was $621 million with new trailer and truck body shipments of approximately 11,780 and 3,815 respectively. Shipment activity fell within our expected range as Q1 weaker shipment seasonality for trailers of any quarter during the year. Gross margin was 18.7% of sales during the quarter while operating margin came in at 11.3%. These figures exceed our expectations due to the combination of material cost and presence in the downside and operational efficiency in the form of improved labor cost per unit and lower variable conversion costs per unit. Additionally, a previously anticipated contributor to some of the margin improvement comes from the ramp down of our conventional refrigerated van production paired with our previously communicated expectations for strong performance within our tank trailer business.
Tank trailer production was up 29% year-over-year in Q1. Operating EBITDA for the first quarter was $82 million or 13.3% of sales, which amounts to a doubling of EBITDA margin relative to the first quarter of last year. We’re clearly very pleased with our ability to demonstrate this level of both EBITDA generation as well as underlying improvements relative to our margin history. Finally for the quarter, net income attributable to common shareholders was $51.2 million or $1.04 per diluted share. From a segment perspective, Transportation Solutions generated revenue of $578 million and operating income of $87 million. Parts & Services generated revenue of $47 million and operating income of $9.2 million. Year-to-date, operating cash flow was $69 million.
Even in the contact of significant capital expenditures of $31 million, the company still generated $38 million of free cash flow during the first quarter. With respect to our balance sheet, our liquidity, which comprises both cash and available borrowings was $410 million as of March 31. We finished Q1 with a net debt leverage ratio of 1.2 times. With regard to our capital allocation during the first quarter, we invested we invested $31 million in capital projects, utilized $14 million to repurchase shares and pay quarterly dividends of $4.6 million. Our capital allocation focus continue to prioritize organic growth via capital spending, while also maintaining our dividend and evaluating opportunities for share repurchase alongside of bolt-on M&A opportunities.
Moving on to our outlook for 2023, I’m very proud of how our team has executed to begin the year as we achieved a record quarter and are already able to pull through a guidance increase due to our strong financial performance during the first quarter and continue to robust backlogs. We expect revenue of $2.9 billion and we are increasing our outlook for EPS to $4 to $4.50 per share from a midpoint of $2.85 previously. As I mentioned on the last call, we continue to expect to see strong growth out of our Parts & Services strategic initiative as we fully anticipate to achieve greater than 20% growth for the third consecutive year in 2023. Combined with a sustainable strength we’re seeing in our tank trailer business, which we expect to set an all time record this year and improving chassis flow to feed our truck body business, I believe our portfolio is well situated to sustain the strong financial performance we’re in the process of demonstrating this year.
Our One Wabash first to final mile portfolio has more levers than has ever had previously in an uncertain freight environment. Thinking about the quarterly cadence of our outlook, assumed in this guidance is Q2 strengthens sequentially from Q1 to a range of a $1.30 to $1.50 per share. We set yet another quarterly EPS record. The second quarter often represents the seasonal height of our financial performance, and the back half of 2023 will likely sequentially step down as some of the cost tailwinds we saw in Q1 normalized. However, just to level set, even with the second half of the year stepping down from the first half, we still expect it to be the strongest second half in the company’s history. In conclusion, I’m very pleased to report such a strong quarter on the way to another record year for Wabash.
Record financial performance is one thing, but when these achievements are viewed as indicators of strategic progress and business transformation, the results are even more exciting. Clearly, freight markets continues to sit balance between demand and capacity and we’re monitoring that situation closely. However, we believe our performance shows a new level of execution during a period of market strength, and we expect to raise the bar on financial performance during any phase of this cycle that we’re given. This resiliency coupled with an exciting growth strategy enables us to be more confident in our longer term growth and performance than any time in our company’s history. I’ll now turn the call back to the operator and we’ll open it up for questions.
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