WABASH NATIONAL Corp Q2 FY2021 Earnings Call

Good day, and thank you for joining us for the Wabash National Corporation Second Quarter 2021 Earnings Call. I will now hand the conference over to your speaker today, Ryan Reed. Please proceed.

Thank you, Faye. Good morning, everyone, and thanks for joining us on this call. With me today are Brent Yeagy, President and Chief Executive Officer; and Mike Pettit, Chief Financial Officer. A couple of items before we get started. First, please note that this call is being recorded. I'd also like to point out that our earnings release, the slide presentation supplementing today's call and any non-GAAP reconciliations are all available at ir.wabashnational.com. Please refer to Slide 2 in our earnings deck for the company's safe harbor disclosure statement addressing forward-looking statements. I'll now hand it over to Brent for his highlights.

Thank you, Ryan. Good morning, everyone, and thanks for being here today. I want to start by expressing our satisfaction with the results from the second quarter. The manufacturing landscape remains tough for everyone, but Wabash National is managing well in this environment. Our operating profit and earnings per share exceeded our expectations as we executed effectively on the manufacturing side and maintained control over our costs. I'd like to take a moment to reflect on our ability to perform during these challenging times. We're seeing a new level of collaboration and coordination among our employees as we navigate what I believe is the toughest external environment I've encountered in my career. With our new organizational structure, our supply chain, manufacturing, and sales teams are working together across our business segments to share information and guidance more efficiently and swiftly than ever before. We are pleased, but not surprised, as this was our goal when we restructured to enhance management systems and focus more on our customers, aiming to expand our portfolio from first to final mile. I also want to commend our team for successfully selling the Extract Technology business at the end of the second quarter. Wabash's acquisition of Walker Group Holdings in 2012 included several businesses, particularly tank trailers and process systems, with Extract being a notable player in the containment and aseptic systems for various markets. While Extract is a strong business, our current strategy is concentrated on the transportation, logistics, and distribution sectors. Therefore, our review concluded that monetizing this asset was the best course of action, and we believe Extract is positioned well under Dietrich Engineering Consultants. I extend my gratitude to the Extract team for their contributions to Wabash National and wish them the best moving forward. Regarding strategy, I'm very happy to announce that Dustin Smith will take on the role of Chief Strategy Officer. This new position is aimed at accelerating our drive for innovative technologies, enhancing our product development efforts as we explore opportunities within the evolving transportation and logistics landscape. Dustin has been with Wabash National for 14 years and has a wealth of leadership experience from his roles both here and at Ford Motor Company. Most importantly, he has the trust of both leadership and employees. His primary roles will involve working closely with Mike Pettit and me to plot a course for profitable growth for our shareholders over the next five years and managing our current strategic growth initiatives like Cold Chain and expanding our multi-structural composite technology to take advantage of e-commerce trends and logistics disruptions. This type of role is possible now due to our One Wabash framework, which allows us to prioritize high-impact initiatives and allocate resources across the organization effectively. Now, let’s discuss market conditions. Our market indicators continue to show a solid setup for ongoing freight activity. Increased retail sales and low business inventories are driving higher manufacturing production, which is leading to robust freight activity within a fragmented landscape. Consequently, spot and contract rates are at favorable levels for our customers and are likely to remain stable into 2022. Labor hiring remains a challenge across the economy, and we have experienced this as well. However, perseverance is key in 2021, and we are making progress in increasing overall labor capacity despite the tough environment. While material costs and supply chain performance are still obstacles, we are managing these issues much more effectively than in previous cycles thanks to our enhanced visibility and responsive strategies. We are also having tough but necessary discussions with customers to recover increased costs across our backlog, while also working to mitigate the effects of rising costs through other measures. As I mentioned, we are collaborating as one unit to navigate the unpredictable landscape, and our results have surpassed expectations given the volatility in our supply base. Demand for all kinds of transportation solutions is high for 2021, and current labor and supply chain constraints have intensified customers' interest in demand planning discussions that extend into 2022 and beyond. However, our backlog for 2022 has not yet fully opened. We are focused on managing demand in a way that reflects the realities of material costs and labor uncertainties while ensuring that our products are priced accordingly. We also acknowledge that future demand will likely outpace our near-term capacities and those of the industry. We will delve into that further in a moment. Now moving on to backlog. It is common for our order backlog to decrease sequentially from Q1 to Q2 as we fulfill customer orders and prepare for a significant deal season for van trailers later in the year. Due to strong backlog in our DPG and FMP segments, our overall backlog is up 77% year-over-year despite the less usual seasonality. Regarding our outlook, we are maintaining our EPS guidance. Although material cost increases have been greater than expected, our financial performance in Q2 was sufficient to offset these inflationary pressures, allowing us to keep our previous guidance largely intact. As a result of the Extract divestiture, we will adjust our outlook to exclude that business. We are also on track to increase our capacity utilization entering 2022 in a strong position. I will now discuss how we plan to better meet the implicit demand for our products and services going forward. Historically, we've experienced demand outstripping physical capacity for dry van production. Consequently, we have relied heavily on our workforce in 2018 and 2019 to work overtime and weekends to meet demand, even then facing requests for more. There has been continuous growth in profitable demand for our dry vans over the past decade, bolstered by strengthening our indirect channel, utilizing innovative materials to create the lightest dry van in the industry, and reorganizing our sales force for improved commercial effectiveness. With the shifting logistics landscape and our customers’ potential to expand capacity, coupled with a sustained decade of trailer demand growth, it’s time for Wabash National to enhance our ability to seize this profitable opportunity. Thus, we are announcing a transition of existing manufacturing space to produce dry vans starting in 2023, anticipating an additional annual production of 10,000 dry vans. To contextualize this, it represents roughly a 20% increase in our dry van capacity while only contributing a 5% industry increase. This may seem modest for the industry but significantly boosts Wabash National's capacity to serve our direct customers and support our indirect channel. To facilitate this change, we will scale down the production of our conventional refrigerated vans and convert that space for dry van manufacturing over the next 18 months. This transition, along with our skilled labor force, will yield substantial and sustainable financial advantages for Wabash, providing top-line growth and improved margin potential. Aligning with our Cold Chain growth targets, this transition also positions us to evolve our conventional refrigerated technology to superior Molded Structural Composite technology, enhancing our refrigerated van production capabilities with efficiency and innovation. Molded Structural Composite technology has surpassed 10 million miles in service, showcasing better thermal efficiency in their lighter design. Our approach to refrigerated trailers aims to meet our customers' growing demands for sustainability and operating efficiency, with plans to announce additional Molded Structural Composite refrigerated van assembly capacity in upcoming quarters. When we began our quest to transform the refrigerated industry years ago, our goal was to outpace competitors with superior technology. We have reached a pivotal point where traditional reefer designs are in the past, and we are fully committed to commercializing the future. In closing, I want to express my pride in our team's performance during these extraordinary times. In 2020, we achieved the best cycle-to-trough performance in our company's history by generating over $100 million in free cash flow. We continue to elevate our performance as we navigate the unprecedented challenges of labor and supply chains while generating robust operating income. These notable improvements stem from a refreshed strategy and an organization built to execute that strategy effectively. All of these exciting changes are unfolding at just the right time as we look forward to continuing this pathway of enhanced execution and responsiveness to customer needs in the coming years. Now, I’ll hand it over to Mike for his remarks.

Thanks, Brent. I'd like to start off by giving you some additional color on our second quarter financial results. On a consolidated basis, second quarter revenue was $449 million with consolidated new trailer shipments of approximately 11,590 units during the quarter. Gross margin was 12.4% of sales during the quarter. Operating margin came in at 5% or 4.6% on a non-GAAP adjusted basis. As Brent mentioned, these margins were somewhat above our expectations for the quarter as a result of continued strong cost control. Operating EBITDA for the second quarter was $35 million or 7.8% of sales. This is an EBITDA margin that is consistent with margins generated prior to the pandemic. Finally, for the quarter, net income was $4.3 million or $0.24 per diluted share. On a non-GAAP adjusted basis, EPS was $0.21. From a segment perspective, commercial trailer products generated revenues of $296 million and operating income of $32.3 million. The diversified products group generated $77 million of revenue in the quarter with operating income of $5.8 million or $4 million on a non-GAAP adjusted basis when we take out the gain on the sale of Extract Technology. Final mile products generated $81 million of revenue during the second quarter. Customer demand remained considerably stronger than industry production would show. While labor challenges have been part of the course in this business, supply disruptions have been greater as chassis OEMs have taken unplanned downtime to adjust their capacity to chip shortages, and we would expect these chip-related chassis headwinds to continue for the rest of 2020. FMP experienced an operating loss of $3.2 million but a gain of $1.3 million of EBITDA. Because of FMP's heavy and increasing amortization burden, EBITDA provides a more stable measure of progress and a more relevant measure of impact on cash generation. Operating cash flow during the second quarter was $9.3 million. We invested roughly $6.9 million via capital expenditures, leaving $2.4 million of free cash flow. Working capital increased during the quarter primarily from inventory as volumes continued to ramp, partially offset by strong customer receivables. We remain on a path of achieving a capital-efficient ramp during the remainder of 2021 and we would expect to be free cash flow positive in the second half of the year. Because of our actions to reach our existing capacity to support expanded dry van production, we are increasing our CapEx guidance by $20 million to an anticipated range of $55 million to $60 million in capital spending for 2021. With regard to our balance sheet, our liquidity, or cash plus available borrowings as of June 30, was $304 million with $136 million of cash, cash equivalents and restricted cash and $168 million of availability on our revolving credit facility, which is fully untapped. As Brent mentioned, we completed the sale of Extract Technology at the end of the second quarter. In 2020, we announced that we would be reviewing our portfolio of businesses for fit. Since that time, we have divested Extract, fuel tank trailers and sold our last remaining Wabash branch location. These actions come after the divestiture in 2019 of Garsite, an aviation refueling business. Through these non-core asset sales, we have raised a total of approximately $40 million and also structured our portfolio in a manner that aligns with our strategy for growth. We feel great about the businesses that now comprise Wabash National, and our corporate development focus is ready to shift from divestitures to building a pipeline of potential acquisitions. The second quarter was a very active one for capital allocation as we used $30 million for debt reduction, $22 million to repurchase shares, $7 million for capital projects, and $4 million to fund our quarterly dividend, and we still ended the quarter with over $134 million in cash on the balance sheet and net debt leverage of only 2.6 times. Our capital allocation focus continues to prioritize reinvestment in the business through growth CapEx while also maintaining our dividend and evaluating opportunities for debt reduction, share repurchases and M&A. Moving on to the outlook for 2021, we expect revenue of approximately $1.9 billion to $2 billion. From a revenue perspective, I'd like to remind you that we have a headwind of about $12 million per quarter versus year-ago levels as a result of the absence of revenue from what is now the two divested businesses. SG&A as a percent of revenue is expected to be in the low 6% range for the full year. Adjusted operating margins are expected to be in the high 3% range at the midpoint, which results in an EPS midpoint of $0.72, with a range of $0.67 to $0.77. Again, the updates to our EPS midpoint are a result of the divestiture of Extract Technology. Turning to the third quarter, we expect revenue in the range of $510 million to $540 million, up 17% at the midpoint sequentially versus Q2 with new trailer shipments of 12,500 to 13,500 as we look to continue increasing production throughout the year. Given our material cost headwinds that will intensify as we move through the remainder of this year, we expect operating margins in the high 3% range in Q3. This implies Q3 EPS will be in a similar range to Q2. In closing, I'm very pleased with our performance for the first half of the year. As is evident from our financial results, the company's execution has been quicker and more decisive, which has been enabled by our new organizational structure. This new structure has proven integral in helping us capitalize on near-term opportunities and we believe it will continue to prove effective as we execute on the medium-term opportunities presented by strong customer demand, as well as the longer-term opportunities in our strategy, which emphasizes organic growth leveraging Wabash as the industry-leading First to Final Mile portfolio. Expanding our dry van production capacity is an exciting investment that underpins our First to Final Mile strategy and will further enable performance while strengthening our push toward an 8% operating margin, which is a target we continue to expect to achieve by 2023. With that, I'll turn the call back to the operator for questions.

Your first question is from Justin Long from Stephens.

So the quarter was better than expected. But with the full-year guidance not changing when you strip out the divestiture, that implies the second half outlook has maybe moderated a bit. I just wanted to clarify what's changed from that perspective? It sounds like most of that is material cost increases, but is there anything else that's driving that, maybe a potential chassis issue, if you could give an update there, given some of the data points we've seen in the industry?

Yes. I would say that the main headwind by far is material. So, the team has done a really good job of offsetting as much of the material cost as possible through pricing increases and some of our inherent processes such as hedging will delay some of the material cost increases that we're going to see in the second half of the year. That's a big part of what you see in terms of the margin compression from the first half to the second half. I think you overlay that with an opportunity that may have been to offset some of that material cost increase with additional volume, it's just not going to be possible in businesses like FMP as you mentioned from chassis. There's a final supply of chassis we're going to get. So, what we would have thought we might have been able to get some additional volume, we're just not going to be able to do that now with the chassis constraints. The demand exceeds our supply of certain commodities and it's not just chassis, as well as cooling on refrigerated trailers.

Yes. I think that's the important piece is not to get hung up on any one supplied material. By far, what every manufacturer in this industry and many industries are dealing with is just the inflationary pressures that we feel across the supply base and that's really the conversation. There is no one supply chain element that you can head on and say, if we could do this, volume would begin to just come falling from the trees. That's not going to happen. We are increasing production through the second half of the year because we manage it better than we believe our peers. That doesn't mean that we're not impacted across the board with daily supply chain issues. This is really an inflationary conversation in terms of our first half to our second half of the year.

Understood. That's helpful. And maybe I could shift next to the capacity addition. Brent, as you think about this decision strategically to add capacity in 2023, can you just talk about your comfort in doing that? I mean, obviously that cycle right now is extremely strong, trailer demand is high, where we are in 2023 is a bit more of an unknown, but is there anything that you can share in terms of just longer-term relationships with customers, commitments that they've made that might support this capacity addition and the return on that CapEx investment?

Yes. I think the easiest way for us to think about it both here at Wabash National and on the call is that the implicit demand for Wabash National dry vans has grown over the last 10 years by actions that we've undertaken, and we saw that dry van market share expansion in 2020 when we were relieved from what we call industry demand constraints. Right? So our capacity exceeded industry demand. We grew market share accordingly while preserving price. When we look at how we believe the industry is now growing, it is growing over the last 10 years that's without really debate; we've seen the peaks get higher. We've seen them extend. The market has shifted, and Wabash has shifted accordingly. So, when we think about this dry van capacity addition, we're not playing a cycle; we're not looking to capitalize on a given cycle, this is taking advantage of a structural shift and a clear unmet need for our customers that we are sizing this capacity for. We're not sizing it for what we think the overall industry is doing; we're sizing it for what we talk to our customers about and how they look at their long-term three, five, seven-year demand cycles and their communication of unmet need for our product. That's how we look at it; that's why we are very confident in that. This is an excellent investment in the business.

One point to add too, even at mid-cycle volume levels, our existing dry van manufacturing footprint works a tremendous amount.

Cost of adding this capacity. And Mike, how does this change the incremental and decremental?

As we move forward, the all-in cost is in the $60 million to $70 million already; we would still expect to be able to be cash flow positive in the second half of this year and for the full year 2022. So this is an investment that is funded through free cash flow, and we'll still be able to be positive and generate really good returns on the installed capacity.

Your next question is from Jeff Kauffman from Vertical Research.

Thank you very much, and congratulations on a solid quarter. Just a couple of detailed questions here. In the P&L for DPG, it looked like other operating expense was only about $6 million; normally, that'd be about $9 million. Is that because the gain on sale was taken to get numbers and not division?

The gain on sale was on the DPG business, Jeff.

Okay.

As we continue to ramp up in '21 going into '22. So we had a tailwind on our base currently installed capacity as we get the manpower required to run in 2022, then you'll add the volume on top of it for 2023.

Yes. We are necessarily talking about the more simple and traditional increases in throughput and capacity and other aspects of the business that are additive to how we believe we will perform in 2022 and beyond.

Okay. And thinking about the refrigerated business, you are making refrigerators out of a different location, I believe basically out of the refrigerated business for about a year while these changes occur?

We will be utilizing the effective capacity at conventional reefers for most of 2022 before beginning to scale it down around the middle of the year. At the same time, we will start increasing our assembly capacity for our MSC all composite reefer in a different location, which will be more of an initial capacity addition. Concurrently, we will discuss the future capacity model for all composite refrigerated vans in 2023 and beyond.

Okay. And would you say, I think I heard Mike say we're still thinking 8% operating margins when we get out to 2023. So now you're saying 8% on the higher volume numbers. So, in effect, it's the guidance increase in terms of profit dollars in the year 2023. Is that the right way to think about it?

Absolutely. Jeff, yes. Yes. And we think, as I mentioned, the mix inherent in there on the drivers of the reefer is an enabler to achieve 8% for sure.

Everything that we're doing inside the organization, Jeff, is about maximizing profitable growth, first and foremost, and all the actions are summing up to that reality.

Okay, and then just one more and then I'm good. So, you mentioned the CapEx increase for this year. How should I think about CapEx as I look out to '22 and '23? Do we still have this elevated $55 million, $60 million spend rate next year? Does it start to come back down toward a more historical level or is there a new historical level since we'll have new facilities and new locations?

Yes. I don't want to give specific guidance out to 23 today, but I'll say '22 will be elevated like '21 to finish the capacity installed. Then we'll look at '23. I don't see it being elevated forever over the next five years. Over the next two years, we will need additional capacity to not only do the dry van from reefer swap that we've mentioned but also to install the MSC capacity that we're going to need in 2023.

Your next question is from Felix Boeschen from Raymond James.

I was kind of hoping to stay on the 8% operating margins in 2023. It feels like you're around 4% for the full year in 2021, and I understand there are a couple of cost items in there as we think through labor, maybe raw material supply chain, even premium freight. Maybe two parts and I'm not looking for exact guidance, but can you help us understand how you would expect margins to kind of ramp into 2022 on the way toward that 8%? And then is there a cost, yes, maybe we'll start there.

Yes, absolutely. I think the first and foremost is the material cost headwind we are seeing in 2021. So let me frame that for the people on the call; it's about $120 million of total cost increases we've seen from a material perspective in 2021. Now, the team has done a very good job of offsetting a large percentage of that, which is how we were able to maintain our guidance through the year. That will be fully priced into our 2022 backlog and that's what's opening up here over the last couple of weeks and in the next couple of weeks. That accounting for all of the inflation that we've worked really hard to offset in 2021 will be fully baked into 2022, and that will be the number one improver in terms of margins that you're thinking about going from the high 3% to 8%. We're going to get a big pop in the trailer market from that. Also, obviously as you mentioned, as we're ramping the facilities, there's a lot of off-standard labor costs that are hitting all year; a lot of that will be behind us. Those are the two biggest enablers, as well as the full-year effect of volume that we ramp through 2021 as we've applied in our guidance will be coming out at a much higher rate. So, those are the items that will really lead to the increase, and that should just accelerate in 2023 where we're confident we can hit 8%.

And I would add on the pricing side of it, if you look at the script, and you create it again, we talk about the backlog that being fully open. It is safe to say we have tested the market and understanding what price can be in '22 coming out of the gate. We know absolutely how we have raised necessary pricing to offset costs for the fourth quarter as we lead end of 2022. So, we feel good that the market will allow appropriate pricing to manage this business going forward, offsetting materials accordingly.

From a pricing perspective, now that we know what we're looking at going into 2022, it is much easier to stay ahead of it than what it was in 2020 going into 2021, and that's the number one reason we have a high degree of confidence that we'll see margin expansion in 2022.

Right. Okay, that's helpful. And that's kind of exactly where I was going with this line of questioning. And so I'm curious, and just on the $120 million raw material headwinds, that's a gross number? Do you have a net number for us after you've repriced some of the backlog, I'd presume?

Yes, I'm not going to give you the net, but I'll say that we repriced the majority; the vast majority, in order for us to maintain guidance, we had to have done that, but clearly have not gotten it all. But we've gotten a bit.

I would echo a substantial portion, far beyond industry norms, and far beyond anything Wabash National has executed in the past.

Okay, that's helpful. And then just to be clear on your pricing comment and understanding you haven't fully opened the slots for 2022 yet, but whatever that net raw material headwind will be in 2021 off the gross $120 million, would you basically assume that to net up to zero into next year and that's the year-over-year benefit?

That would be assuming there is no additional pricing for demand. Yes, that would be the net benefit; that would be I would say the minimum net benefit, would be that delta, but I think there's other opportunities to price for our products in 2022.

And I want to make it very clear that we are pricing for the total environment.

Okay, very helpful. Okay. And then I had a different one. This is more on the capacity expansion. So obviously you feel that there's been a shift sort of in the trailer market from the demand perspective, that's not a cycle comment, but in and through cycles, you'll be able to produce at that new level. I'm curious as you look at maybe the rest of the industry. Have you seen anybody else come out and really try to add capacity during this time or do you think that 5% that you would be adding to industry capacity is sort of your expectation over the next couple of years?

Yes. I think we would feel very confident that the 5% capacity add that we've done will be in that again with intrinsic demand for the products that we have. The unmet need, I think it's safe to say the unmet need for Wabash National dry vans throughout the last three to five years of market performance exceeds the 10,000 units that we are putting in place. So, we feel pretty comfortable that we will still have conversations with customers about their unmet needs even going forward.

Got it. Okay, that's very helpful and then just, this is the last one for me, but I think in your opening remarks, you mentioned cold chain and upfitting as two major initiatives. I presume that's on the Final Mile side. I was just wondering if you could maybe give us some color around what percent of the Final Mile both in kind of in-house today and maybe what your refrigerated split is as a percent of total book?

I think, first off, I want to take a step back from that. And when we think about a bidding in the universe that we play in from first to final mile, we don't necessarily see it limited to just coming off of the traditional final mile called revenue base. We think there are emerging opportunities in first middle and, to a degree, I'm sorry, now a final and middle, but also on first mile based on where logistics is going. So, it is really needed to be easily looked at the total book of business. Now, specific to your question, I'd say roughly, we captured somewhere north of 20% of the product that we've produced today passes through some level of Wabash National upfitting. Whether it'd be at the coupled site or at the primary final assembly factory. We would grow off of that accordingly. We are expanding that thought to middle mile products, which we traditionally thought of as a CTP revenue base, but we see that now emerging as logistics continues to change. That's different than maybe how we thought about parts and service five, 10 years ago with the traditional branches and service offerings that we had for CTP. This is a different model and it is because logistics is changing. And can you touch on the cold chain question again to make sure I answered that specifically?

Yes. I was just curious because I know you do some refrigerated bodies and final mile. I was just curious what the updated split was as a percent of total book that's refrigerated and final mile?

Yes. Okay. From a revenue perspective today, it's just 15%-ish, 15%, but it's not yet optimized. I think what's important to know when we talk about the cold chain, we're talking about that cold chain from first to final mile even outside the core transportation markets, and MSC will play not only in our refrigerated trailers but also in refrigerated truck bodies and inserts, and there's lots of opportunities on the horizon for us to really grow that percentage. It's a low percent today. The product hasn't been at a differentiating point, but will be with MSC and we're just at the early stages of growing that book of business with MSC truck bodies. It's an opportunity not just in trailers but truck bodies.

Yes. We really have to think about again cold chain, like upfitting. Cold chain now have to be thought of encompassing all of our, we'll call it traditional revenue streams. And we have to manage it because our customers now span accordingly. Right? So, even when we talk about MSC, we talk about it as an enabling technology. It's not a product in and of itself; it's an ingredient. So, when as we make moves with reefer vans, you can expect that simultaneously we'll be making moves to scale up integration and value-creating opportunities by broadening that ingredient into our final mile related books of businesses as well, and that capacity that we add, those dollars spent will not reside and create value just in one P&L but multiple P&Ls going forward. That's how we create synergy in our first to final mile application, one Wabash organization.

We do have a follow-up question from Jeff Kauffman from Vertical Research.

Mike, can we go back to that $120 million cost increase for 2021? When I think about what that would mean on a per unit basis, am I dividing that by the full year assumed production or just your per site production in the second half of the year? I guess one leads me to an increase of about $2,500 a trailer that seems low. The other leads me to about $5,000 a trailer that seems high. I'm just trying to figure out how to think about ARPPU forecasting as we're heading into 2022?

Yes. It's important to understand, Jeff, that this is across our entire business, but you won't be able to get it to a specific figure. The actual increase we experienced was more than what our hedging programs would have offset. While we were able to mitigate some of the cost through fixed pricing arrangements with our suppliers and our hedging strategies, the real impact we observed in 2021 required us to reach out to our customers for adjustments. However, we didn't need to address the costs already covered by our hedging. That's why you can't pinpoint the exact number.

There's some research that's out there, Jeff, where there's estimates in that $6,000 to $8,000 range.

I think one of those pieces was ours. Yes.

That is indicative of the environment, yes, the industry is facing.

The total cost increased far exceeds $120 million; the $120 million is the piece of the team in the year 2021 had to offset, and that's what's important.

And that wouldn't have been in our implied guidance when we went out earlier in the year, and that means we were able to offset the vast majority of that to maintain guidance. So, the total cost is more than $120 million.

Yes, no, that's helpful because we had calculated the $6,000 to $8,000 increase, and these numbers are coming in lower, so I was trying to bridge the gap. Thank you.

Yes. I think you're pretty close, Jeff. Yes.

There are no further questions at this time. I will turn the call back over to Ryan Reed.

Thanks, Faith. Thanks everyone for joining us today. I look forward to following up during the quarter. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.