Good morning. My name is Stephanie, and I will be your conference coordinator today. Welcome to the Wabash First Quarter 2022 earnings conference call. All lines have been placed on mute. Following the speaker's remarks, we will conduct a question-and-answer session.
Good morning, and thank you for joining us. With me today are Brent Yeagy, President and Chief Executive Officer, and Mike Pettit, Chief Financial Officer. Please note that this call is being recorded.
Thank you, Ryan. Good morning, and thank you for joining us. We have a solid first quarter and a positive outlook to discuss, but I will begin by highlighting our recently issued 2021 Corporate Responsibility Report. This is significantly more than a check-the-box exercise; corporate responsibility is a core component of our strategy.
This team embodies our commitment to "changing how the world reaches you," driving positive change for our stakeholders. Sustainability and social responsibility are central to our purpose, shaping engineering solutions that help customers minimize their environmental impact. We are building a corporate culture that embraces diversity and inclusion and are committed to leadership in community improvement.
Feedback on our product lineup was very positive, and the Work Truck Show provided our first large-scale opportunity to showcase the refreshed Wabash branding. This rebranding is the final element of a holistic pivot toward a customer-centric and organizationally simpler model. Our goal is to be the most accessible and comprehensive transportation solutions provider in the industry.
Many of our truck body customers are interested in transitioning to electric fleets. We believe the EV segment offers a unique opportunity to help customers achieve both operational and environmental goals. Wabash is well-positioned to create value within this evolving ecosystem by providing innovative truck body solutions that facilitate EV adoption.
We are in active discussions with other EV OEMs. Given the ongoing challenges with Internal Combustion Engine (ICE) chassis, expanding the supplier base will benefit both our customers and our manufacturing cadence. The rapid evolution of battery and chassis design necessitates an open-platform approach to ensure alignment with long-term technology development. Committing to a single design or battery solution at this stage would be short-sighted and create undue risk.
Our new strategy and vision remain focused on delivering solutions for the transportation, logistics, and distribution markets. By implementing organizational changes that enable our strategy and align with our customers, we are accelerating our internal rate of change. We are focusing development on innovative products and services that create specific value for our target customers.
Hiring activity has increased, allowing us to ramp production rates at a measured pace in line with our expectations. Driven by increased volumes and improved pricing, revenue grew nearly 40% compared to the prior year. Profitability also strengthened as we began shipping the 2022 backlog, with margin improvement occurring each month throughout the quarter.
Our supply chain is highly leveraged in North America, with no exposure to Russia or Ukraine. Since the 2018 tariff changes, we have proactively reduced our exposure to China and other Asian countries. This strategic pivot is designed to build a resistant and robust supply chain that supports our "first-to-final-mile" product portfolio.
While trucking spot rates have declined in recent weeks, we and other market participants anticipated a correction from record highs. However, as observed throughout the post-COVID business cycle, current trends do not strictly follow traditional norms. Although rates have decreased from peak levels, they remain in a very healthy range.
Structural changes—driven by e-commerce logistics disruption, new customer entrants, and the emergence of larger trailer pools—will continue to support an extended positive demand backdrop for several years. Historically, the trailer industry follows a strong seasonal pattern: OEM backlogs build during the second half of the calendar year and are fulfilled during the first and second quarters.
Visibility from our strong backlog, coupled with a more certain margin structure under our advanced pricing methodology, allows us to raise our 2022 EPS outlook to $1.90. Our new strategy is supported by organizational changes that continue to drive our mission to change "how the world reaches you."
Consolidated first quarter revenue was $547 million, with new trailer and new truck body shipments of approximately 11,695 and 3,540 units, respectively. While shipments are typically weakest in the first quarter, we achieved a slight sequential increase from the fourth quarter.
Operating EBITDA for the first quarter was $36 million, or 6.6% of sales. As Brent mentioned, margins improved throughout the quarter. Performance in early Q1 was impacted by the fulfillment of 2021 backlog orders that carried over into 2022.
We believe our Parts & Services segment has established a path of sustainable growth in 2022, and we will continue prioritizing recurring revenue expansion. Year-to-date operating cash flow was -$35 million, as working capital remained elevated through the first quarter. We expect a release of working capital as we reach installed capacity levels by mid-year.
As of March 31, our liquidity—comprised of cash and available borrowings—was $203 million. This includes $73 million in cash and cash equivalents and approximately $130 million available on our revolving credit facility. Our refinanced debt structure is now generating over $1 million in quarterly year-over-year interest expense savings.
Regarding our 2022 outlook, we anticipate continued improvement in revenue and margin performance throughout the year, particularly in the first half. Our strong backlog, supported by the addition of approximately 300 production employees for the second consecutive quarter, allows us to increase our guidance.
Full-year 2022 operating margins are expected to be approximately 6% at the midpoint, positioning us to achieve our 8% operating margin target by 2023. While we observed slight supply chain improvements in the first quarter, our guidance assumes that current supply chain constraints will persist for the remainder of 2022.
While significant work remains, we are well-positioned to deliver a strong 2022. I will now turn the call back to the operator to open the floor for questions.
To ask a question, please press *1 on your telephone keypad. Our first question comes from Mike Shlisky with D.A. Davidson. Your line is now open.
Yes, hello. Good morning, guys.
Good morning, Mike.
I want to begin by asking about new trailer pricing. You achieved strong pricing in the quarter, exceeding $37,000 per unit. Were you able to fully offset price-costs during the period? If there was any margin downside compared to the prior year, was that due to lingering manufacturing inefficiencies or other factors?
Any price-cost gap in Q1 resulted from 2021 backlog that slipped into 2022. As discussed on our last call, those units compressed material margins in the first quarter. That transition is now behind us. While pricing remains relatively flat, the next three quarters will feature a full mix of 2022 priced units, supporting our implied margin expansion and full-year guidance.
Regarding the 2023 order books, I wanted to clarify your previous comments. Are the order books officially open for 2023 at this stage, and do you have visibility into whether your competitors have opened theirs?
Most of our competitors have not fully opened their 2022 order books, reflecting a conservative approach to managing demand. In contrast, we have been significantly more bullish in our strategy for 2022. Our proactive approach allows us to secure market share while others remain cautious.
Our variable pricing model is performing exceptionally well. March results demonstrated clean flow-through of this pricing and improved labor efficiency following two quarters of hiring. We are satisfied with the current trajectory of these operational improvements.
We anticipate opening our 2023 order books earlier than we did for 2022 to meet high demand and specifically shape our 2023 demand profile. We are encouraged by our current positioning.
I want to address whether current market conditions reflect a standard cyclical upturn or a structural change in trailer utilization and sales. Your presentation implied that trailers are being used in new, innovative ways. Are we seeing a positive cycle driven by high rates, or a broader adoption of trailers for alternative logistics functions?
Does this structural change alter the long-term view of the average replacement year during the next cycle?
We believe there are fundamental structural changes in logistics across the board, driven by e-commerce creating friction and dysfunction from the first to the final mile. While many associate this disruption only with the final mile, it also moves upstream to disrupt the middle and first mile.
Private fleets are expanding their internal structures to manage supply chain logistics and costs, strategically increasing their procurement outlook over the next three to five years. We also observe digital brokers and traditional truckload companies moving into the brokerage space with conviction. These players view trailers as the critical link for their business models.
The disruptive nature of modern logistics renders traditional spot market math and basic rate seasonality insufficient for understanding the full industry landscape. Customers engaging with us for the 2023–2025 period are convinced that, regardless of freight market fluctuations, they will remain active buyers. These strategic partners are focused on solving fundamental structural challenges rather than reacting to short-term cycles.
Could you provide a sense of what an average production year might look like once these new customer segments are fully operational?
Historically, the industry viewed 225,000 units as a mid-cycle "average" year. However, with the structural shifts in e-commerce and the increasing trailer-to-tractor ratio, we believe the new baseline is significantly higher.
Great. I appreciate that. I will do enough and look forward to seeing you guys in a few weeks. Thank you.
Thanks, Mike.
Your next question comes from Felix Boeschen with Raymond James. Your line is open.
Hey, good morning, everybody.
I am curious about the monthly margin progression you mentioned. Was March the first "clean" month for the new variable pricing model on trailers? Additionally, could you provide a margin runway for the end of the quarter to help us conceptualize the trajectory?
We observed a clear margin step-up throughout the first quarter. While March was not yet 100% "clean" due to build-to-ship dynamics—where units built early in the quarter may not ship until late in the period—April was clean. This provides high visibility into our Q2 margins, which we expect to return to pre-pandemic levels.
While our pricing, material costs, and margins are now aligned, we continue to ramp our facilities aggressively. This expansion includes the addition of 300 production employees for two consecutive quarters. This progress involves significant costs related to manpower training, upskilling, and labor churn.
We expect these training costs to persist into Q2. While our guidance implies a significant EPS step-up from Q1 to Q2, further incremental improvements in Q3 and Q4 will be driven by operational stabilization.
Our projected margins are returning to pre-pandemic levels. However, during the pre-pandemic period, we operated at 100% capacity and were void of the variable cost pressures associated with a large-scale labor ramp. Today, we remain 15% to 20% below those historical absorption levels across most product lines.
Our implied unit count remains significantly below 2019 levels. This disparity provides immense confidence in our growth runway over the next several years as we bridge that volume gap.
Several positive structural changes implemented over the last two years will become increasingly evident as we raise production levels.
Could you discuss your internal capacity? You have onboarded a significant number of employees over the last three quarters. How do you view your current staffing levels, and what further scaling is required to meet the current strength in demand?
We experienced a strong 10-week period of onboarding that gained momentum in mid-Q4 and has remained robust. Notably, we achieved this without further adjustments to wages or benefits. We are currently on target with our labor requirements and are confident the necessary workforce is in place to meet our updated guidance
As the supply chain stabilizes, the labor market appears sufficient to support continued ramping throughout the year. While our Truck Body business follows its typical seasonal patterns, we expect the Trailer Solutions group to be running at effective full capacity across the board as we enter 2023.
March and April spot rates have slowed significantly. Historically, trailer demand correlates strongly with the health and pricing of the truckload market. However, the trailer pool phenomenon appears unique to this cycle. How might this impact your customer mix through various cycles, and what are the potential margin implications?
Spot rate volatility primarily affects smaller carriers at the lower end of the spectrum. Our strategic customers and the vast majority of our dealers' clients are better protected, as they are currently harvesting strong contract rates. These customers remain bullish regarding their ability to maintain profitable contract rates into 2023.
While spot rates for dry vans are fluctuating, we have seen no impact on the buying decisions of our target customer base. Unlike some competitors who may be more exposed due to non-premium product offerings, we have intentionally slanted our portfolio toward a robust group of customers to outperform the market regardless of conditions.
Furthermore, trucks and drivers impacted by spot rate shifts will transition elsewhere. We believe this will further embolden the power-only model and accelerate the expansion of trailer pools. This trend supports digital brokers and truckload groups in funding their trailer pool creation over the next three years. This creates a virtuous cycle in buying habits and business models that the market currently overlooks. Wabash is uniquely positioned to capitalize on this shift, and we are currently finalizing executable outcomes with these customers.
Could you discuss third-party chassis supply as it relates to your Truck Body order book? Has the situation improved or deteriorated, and what are your expectations for the remainder of the year?
Chassis supply remained inconsistent until approximately five weeks ago. We are now seeing incremental improvements, specifically with light-duty chassis from several providers. While medium-duty chassis remain constrained, we expect relief beginning in the mid-to-late second quarter.
It is important to note that our Q1 truck body shipment numbers represent the low point for the year. As chassis flow improves, it will provide a natural tailwind moving from Q2 into Q3. Our backlog in the Truck Body business remains exceptionally strong; we simply require consistent chassis flow to execute.
We anticipate Truck Body production increasing throughout the year, which will steadily improve our overhead absorption. Additionally, we now benefit from stable variable pricing—a new structural advantage for our business.
Thank you. I appreciate the insight.
Your next question comes from Justin Long with Stephens. Your line is open.
Good morning and congratulations on the quarter.
I wanted to start with a question on the guidance, specifically around SG&A. I think you're expecting SG&A to be 5.5%-6% of revenue now for the full year. You were previously expecting something that was closer to the mid-6% range. Could you give a little bit more color on what's driving that? You know, just thinking about it from a high level, you know, revenue guidance went up, SG&A percentage went down, but the operating margin guidance was unchanged. Can you just kind of help me think through that and, you know, maybe what the offset to lower SG&A was? Yeah. A lot of that, from the SG&A perspective, obviously SG&A tends to be a bit more thick.
As revenue increased, we observed a reduction in SG&A as a percentage of revenue. Our Q1 results demonstrated continued cost control, a direct result of the One Wabash initiative which has driven significant efficiency throughout our corporate operations. These improvements are now paying dividends, and our updated guidance reflects this efficiency flowing through to the full fiscal year.
Regarding operating margins, we are taking a measured approach to the costs required to ramp our facilities. We are investing in the personnel and equipment necessary to meet a robust demand environment through 2022 and 2023.
We are ensuring that all necessary costs related to the current and upcoming manufacturing ramp are fully accounted for. This measured approach allows us to manage the expansion effectively as it remains well underway across our facilities.
I guess following up on that point, is there any color you can give us on the expected ramp and trailer deliveries on a quarterly basis over the rest of the year? Thinking about 2023, is everything with the capacity addition plan still intact?
The capacity addition plan remains fully intact, and the revenue ramp will align with our 2023 EPS guidance. We have guided to $0.40–$0.50 for Q2. We expect Q3 and Q4 to be relatively flat, with approximately $0.20 in the second half of the year split between those two quarters.
We are highly confident in our progress regarding the surge implementation. Based on our reviews with equipment providers and our current timeline, we remain committed to a Q1 2023 launch. Customer demand and expectations for this additional capacity align perfectly with our initial projections.
Our proprietary composite solution, EcoNex, continues to grow at an astounding rate within our refrigerated trailer and truck body segments. This demand is pressuring us to accelerate our capacity expansion plans to bring production online earlier and more effectively.
Are share buybacks factored into this updated guidance for 2022?
They are not.
I appreciate the clarification.
Your next question comes from Jeff Kauffman with Vertical Research Partners. Your line is now open.
Thank you. Congratulations on a terrific quarter.
My specific question concerns operating income by division. The "Eliminations and Other" line typically runs at a $12 million to $13 million quarterly rate, but this quarter it reached $18 million. Is $18 million the new run rate, or were there specific items in Q1 that caused this increase?
The $18 million figure is not the new permanent run rate. Q1 included rebranding costs and expenses related to internal operations efficiency teams working on facility ramps. These are variable, one-time costs. We expect these drivers to normalize, bringing the rate back closer to historical levels.
Should we expect that normalization to occur later this year, or was the impact mostly localized to Q1? I am looking for clarity on how to model Q2 and Q3.
I would model a midpoint for Q2, with the rate returning to more normalized levels in Q3 and Q4.
Regarding trailer delivery modeling, does the shutdown of refrigerated production—to facilitate the transition to dry vans next year—create a seasonal anomaly in Q2 or Q3? Have you pre-built inventory to ensure consistent deliveries to customers during this transition?
We do not anticipate any abnormal seasonality. Historically, Q1 is a challenging shipment quarter as equipment demand is typically lower early in the year, but we continue to build inventory. In Q1, we produced 800 more units than we shipped. As we move into Q2 and Q3, we expect the production-to-shipment ratios to normalize.
The delivery cadence should remain consistent with pre-pandemic seasonality for the remainder of the year. We do not expect any significant deviations from those historical trends.
Seasonality for the remainder of the year will remain normal.
Even as we increase capacity in 2023, we do not expect a dramatic effect on our quarterly cadence; the same seasonal patterns will apply to a higher revenue base. We are currently within a percentage point of our historical quarterly seasonality.
Could you break down the Average Selling Price (ASP) per trailer for the quarter? Was there a significant shift in product mix, particularly regarding tank trailers or flatbeds? Furthermore, are you benefiting from competitor supply shortages—such as aluminum allocations—and is that impacting your consolidated ASP?
Wabash is in a very advantageous position regarding industry-wide supplier shortfalls. While the entire industry is impacted, we maintain a preferential position within the supply chain. We have not seen significant changes in product mix that would materially alter your calculations.
Looking out three to five years, how will trailer configurations change to accommodate Electric Vehicles (EV) and Autonomous Vehicles (AV)? Could you explain how Smart Trailer technology integrates with these platforms and what specific advantages Wabash holds in this transition?
Sure.
Just give us a sense of that advantage.
Sustainability and corporate responsibility are foundational to our strategy. Our centralized R&D and Product Development groups, established approximately two years ago, were designed specifically to address the technological shifts you've described.
This transformation encompasses our trailers, truck bodies, tanks, and flatbeds. Over the next three to five years, the intersection of these technologies will necessitate a fundamental change in state and system design. While we anticipate the leading edge of this shift within three or four years, the groundwork is being laid today.
Shifting to autonomous operations, the required operational sensing is intrinsically linked to sustainability and addressing the chronic driver shortage. These advancements are further accelerated by regulatory frameworks that currently create friction within the transportation system.
Our partnership with Clarience Technologies is designed to unify the broader ecosystem, bringing all relevant parties together to address complex industry challenges. We are not focused on the small-scale presence-sensing devices currently pursued by our competitors; instead, we are positioning Wabash to solve the structural problems required to bring advanced technology to market at scale.
Wabash is the trailer of choice because we provide the critical data necessary to determine if an EV power unit is viable for a specific lane or route. We are developing these solutions with a much broader strategic vision than our industry peers, focusing on the total integration of the transportation ecosystem.
Major companies currently testing these technologies require a trailer partner engaged in development now. This level of integration cannot be implemented instantaneously in two or three years.
That is correct. We have secured the best partners and maintain an R&D staff that rival teams well beyond our industry. Alongside our third-party collaborators, we possess a significantly broader vision for our role in this market's future.
I look forward to Investor Day. Thank you for your time.
There are no further questions at this time. Mr. Reed, I turn the call back over to you.
Thank you everyone for joining us today. We look forward to following up with you soon
Thank you. This concludes today's conference call. You may now disconnect.