Good day. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Wabash Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Ryan Reed, Senior Director of Investor Relations and Corporate Development, you may begin your conference.

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 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.

Thank you, Ryan. Good morning, everyone, and thanks for joining us today. I'm pleased to announce another quarter of strong financial results, which continue to demonstrate successful execution against our strategic vision. With the industry's broadest portfolio of first to final mile product solutions and a growing parts and services offering that complements our transportation equipment group, we remain dedicated to elevating our value proposition even further for our partners. In addition to securing two pivotal agreements with strategic customers, we have also focused on adding value across our partner ecosystem by executing relational agreements with key suppliers like Hydro, Ryerson, and most recently, Rockland Flooring. Rockland is a longstanding supplier of wood flooring for trailers, and their supply commitment will bolster Wabash's strategic positioning as we look to enhance demand planning within our dynamic industry. Just as we continue in our pursuit of enhanced value creation within our transportation solutions business by redefining relationships with our evolving set of direct customers and key suppliers, we have a similar strategic focus on amplifying our parts and services offering by working collaboratively with our best-in-class dealer network to provide differentiated offerings to make customers more efficient by leveraging our parts distribution capabilities as well as embracing the power of digital transformation. I'm excited to announce a significant expansion of our Wabash parts network and trailers as a service capabilities to a new joint venture with Fernweh Group. The collaboration is strategically aimed at enhancing our e-commerce and partner ecosystem. Fernweh boasts a distinguished track record in scaling industrial tech, and we anticipate this joint venture will significantly accelerate our development and growth of an end-to-end digital platform that provides an industry-leading experience to our dealers, traditional and non-traditional suppliers of both parts and services, and a broad set of customers spanning the transportation, logistics, and distribution landscape. Wabash is positioned as a central figure in an increasingly complex ecosystem of industry participants where innovation endeavors to address challenges within transportation, and we look forward to using our unique positioning to work closely with Fernweh to scale transformative projects that will help to enhance the efficiency of logistics networks. I would also like to take a moment to thank our Board of Directors whose active engagement and diligent oversight throughout the process of forming the strategic joint venture has been instrumental. As always, their collective experience, guidance, and support have been pivotal in steering us along this path of reinvigorated organic growth. If this joint venture appears to be a departure from a well-worn path for Wabash, I would respectfully encourage you to take a closer look at our most recent journey. Over the past few years, our company has undergone a profound transformation. We've restructured, resegmented, rebranded, refinanced our debt, and recapitalized our manufacturing operations. These sweeping changes have yielded substantial financial accomplishments that have come ahead of schedule. At our 2022 investor meeting, we unveiled a new set of long-term financial targets, which included an EPS goal of $3.50 per share by 2025, which at the time was viewed as an ambitious target. For those keeping score at home, we have achieved $3.74 of EPS through the first three quarters of 2023 and are in the process of setting a new bar for what peak earnings can look like for this company. And just as importantly, as demand conditions within Van soften in 2024, we fully expect to put in our best trough performance as the power of our portfolio shines through with truck bodies, Van trailers, and parts and services all expected to continue posting strong financial performance. While I called this out in the past, I'd like to reiterate that the record earnings figure we will achieve in 2023 is being done on unit volume that resides meaningfully below full factory utilization. Additionally, by the time we make our way back to the next market peak, we would expect our parts and service business to be a margin-accretive piece of the portfolio. Turning our attention to market conditions and backlog, shipment activity continued to outpace new orders in the third quarter, which is not surprising given the softening of demand conditions as freight rates remain low. Considering the challenging transportation market conditions that our customers have been facing, it's also not surprising to see order activity shifting towards the later stages of the typical seasonality time frame. Ending Q3, our total backlog stood at $1.9 billion, while our 12-month backlog was $1.4 billion, and we do expect to achieve an uptick in order flow through Q4 with order season now underway. As industry participants have noted, every additional month that the freight market continues to languish, the stronger and more durable we expect the inevitable recovery to be. Over the long term, we maintain our belief that our core markets are benefiting from secular trends such as power-only, persistent driver shortages, and a resurgence of restoring activity within North America. Moving on to our financial outlook. With the first three quarters of EPS in 2023 outstripping many in the company's history, we are again pleased to raise the midpoint of our full year 2023 EPS guidance to $4.65 from $4.45. In closing, we are well prepared to execute in 2024. Wabash is as strong as it's ever been at this point in the freight cycle, with minimal leverage and the ability to continue our focused execution on our unique organic growth projects outlined on our strategic roadmap. We expect to navigate a reduction in dry van industry demand next year, but we will do so with recently proven capabilities and with the performance of other major facets of the business remaining strong in the coming year, which will allow us to accelerate as demand rebounds within the van segment during 2025. We see 2024 as a point in time where we will expand and deepen relationships with our dealers, suppliers, and customers as well as interesting new players within the transportation, logistics, and distribution landscape. Yes, certain markets may pull back in 2024, but nothing is happening that will derail us from our purpose and our strategic mission. We are executing to the plan that improves our financial performance at all points in the cycle and facilitates opportunities for Wabash to continue to 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 third quarter, our consolidated revenue was $633 million. During the quarter, we shipped approximately 10,765 new trailers and 4,160 truck bodies. Given what we see in the market environment for vans, we made the decision to take some targeted downtime at our main trailer facility. This accounted for new trailer shipments coming in slightly below what we might have expected one quarter ago. In doing this, we have maintained the vast majority of our full-time production employees in order to preserve our flexibility to respond to near-term demand changes. Gross margin was 19.4% of sales during the quarter, while operating margin came in at 12.3%. These figures remained strong due to a combination of favorable factors, including material cost and mix benefits as truck bodies, tank trailers, and parts and services remain bright spots in our portfolio. In the third quarter, we achieved strong operating EBITDA of $93 million or 14.8% of sales. Finally, for the quarter, net income attributable to common stockholders was $55.3 million or $1.16 per diluted share. From a segment perspective, Transportation Solutions generated revenue of $583 million and operating income of $89 million. Parts and services generated revenue of $56 million and operating income of $12.4 million. Our parts and service segment grew again in excess of 20% during the quarter, and our partnership with FreightVana increases our confidence in the future revenue potential for this business. Looking forward to next year, we expect parts and services to continue growing at a 20% clip. Year-to-date operating cash flow was $205 million, reflecting our strong financial performance. Even in the context of significant growth investment via capital expenditure of $30 million, the company generated $28 million of free cash flow during the quarter. Concerning our balance sheet, our liquidity, which comprises both cash and available borrowings was $447 million as of September 30th. We finished Q3 with a net debt leverage ratio of 0.8 times. This is our lowest leverage ratio since 2017, and I'd also like to note that Wabash's debt rating was upgraded during the third quarter by S&P. Given the current interest rate environment, we are very pleased with our debt structure, which is simple, consisting of one issuance of $400 million in principal value and also favorable in today's environment with a rate of 4.5%. These notes mature in late 2028, and we currently see no reason for debt repayment to be part of our capital allocation priorities. On the topic of capital allocation, during the third quarter, we invested $29 million in capital projects and $1 million in revenue-generating assets for our trailers as a service platform. We utilized $18 million to repurchase shares and paid quarterly dividends of $3.8 million. Our capital allocation focus continues to prioritize capital expenditure above and beyond our annual CapEx maintenance 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 a bolt-on M&A. Moving on to our outlook for 2023. Our financial outlook now contemplates revenue of approximately $2.6 billion, and we are increasing our outlook for EPS by $0.20 per share at the midpoint to $4.65 per share, with a range of $4.60 to $4.70 per share. This compares to the previous EPS outlook midpoint of $4.45 per share. We continue to expect $150 million of free cash flow during 2023 in a year where we have meaningfully recapitalized the manufacturing of a flagship drive-in product line while also providing additional capacity for future growth. We've also invested in important growth initiatives such as cold chain and returning revenue. In our financial outlook, we expect fourth-quarter earnings per share in the range of $0.86 per share to $0.96 per share. While we're still in the process of gathering all the necessary inputs to provide precise 2024 guidance, I would like to share some insights that I hope are helpful in thinking about the outlook for next year. First, as Brent mentioned, the cadence of order season for vans this year is much more similar to the calendarization of many pre-COVID years. We were fortunate in 2020, 2021, and 2022 that demand conditions were exceedingly strong to pull order season forward in those years. 2023 resembles something more usual from a historical perspective. Our negotiations with customers have been productive, and we expect to actively close orders for 2024 during the fourth quarter. What we've seen so far aligns with industry forecasters in that demand seems poised for a modest pullback to a level that most would consider mid-cycle territory. Now that commentary is specific to vans. With regard to our other businesses, we expect to see continued strength within areas like truck bodies, tank trailers, and parts and services. Together, these segments are poised to contribute significantly with the potential to generate around $200 million of gross profit in 2024. To be clear, that figure excludes the contribution from dry vans, and it alone surpasses our consolidated gross profit performance in years like 2020 and 2021, reflecting the robust potential within truck bodies, tank trailers, and parts and services. In conclusion, I'm thrilled to check off a meaningful long-term financial target more than two years ahead of schedule. I'm also pleased to be able to raise our full year guidance again this year, but even more excited about what our 2023 financial performance signals for years to come. We have a very strong and capable team that has generated our record 2023 performance, and we believe we're still in the early innings of realizing the full capability of our remade company. Perhaps surprisingly, I'm also enthusiastic about our prospects for 2024. For over three years, we've been exploring the potential of our first to final model, One Wabash plan, designed to transform the company's cyclicality. As we look ahead to 2024, we're poised to showcase the continued progress we've achieved in stabilizing Wabash's historical earnings volatility. Wabash occupies a prominent position as an industry leader in transportation equipment and is positioned at the center of an increasing and complex ecosystem of participants within transportation, logistics, and distribution. We're actively collaborating with Fernweh to bring value to this ecosystem by crafting a digital marketplace capable of uniting these diverse stakeholders to address industry challenges. We firmly believe that this initiative will define the next chapter in our journey to change how the world reaches you. It's an exciting time and we're eager to continue shaping the future of the industry alongside our partners and stakeholders. I'll now turn the call back to the operator, and we'll open it up for questions.

Thank you, Brent. Your first question comes from Justin Long from Stephens. Your line is open.

Thanks, and good morning.

Morning.

Morning, Justin.

So maybe to start, I was wondering if you could help us understand the positive impact you saw from material margin in the third quarter? And then as we move into the fourth quarter and early next year, how you see that progressing?

Yeah. We did see some positive sourcing-related material cost impact in Q3, call it, non-commodity related that some of that will continue into Q4, some will not. And that was a partial driver to our figures versus our original guide. So I would expect a little bit of a step down into Q4 in our material margin, which is embedded in our guidance. But not a ton. So we would expect to maintain some of that bursting benefits of the gap, but you will see a little bit of a step down from the material margin perspective.

Okay. And would you expect that to normalize in the first and second quarter next year? And at what point will we get to kind of a more normalized manufacturing margin level?

Yes, Q4 will be a, I would say a much closer to what we'd expect to see in 2024 from a margin perspective, but we obviously still have a lot of work to do from a backlog fill perspective before we can give any official guidance. So we didn't give guidance for 2024 yet. So I can't say that will be the exact margin profile, but Q4 will be closer to what we'd expect to see in a run rate level.

Okay. Understood. And maybe following up on what you just said, you gave some helpful puts and takes for 2024 and totally under I appreciate that the macro environment makes forecasting challenging, but how are you thinking about the range of potential outcomes for the business in 2024? And maybe you could speak to how you're managing resources based on that range. I heard you say at one point, you took some targeted downtime at one of your facilities in the third quarter. But just curious if you could comment on the range for 2024, if you have any thoughts there and how you manage resources to that range?

Yes, I'll begin and then Brent can address the resource aspect of the other question. We are confident that we will see a significant influx of orders in the fourth quarter, which is typical. In our earlier remarks, we noted that in the pre-COVID era, the majority of backlog completion at year-end and in the fourth quarter was not unusual, and we are returning to that pattern of order fulfillment. We are optimistic about our deliverables for the fourth quarter and into 2024. This is a specific comment related to driving, but we also have several other revenue sources that we believe will significantly support us in 2024. These include parts, tank trailers, and trucks. Given this wide range of revenue streams, we refrained from providing formal guidance. However, we anticipate that any decline in trailer orders will not substantially affect our overall revenue due to the support we have from other segments. We will provide more detailed insights regarding dry vans during the year-end call.

Yes. So Justin, when you think about it from just, I think, you're primarily talking about hourly headcount, structure and so on. I think the way that we see it is that we've got to look at Q3 and Q4 of 2023 to bridge the entire story. We specifically are managing this current period of time to position our overall headcount to support how we see the first half of 2024 playing out and making sure that we're in a great position to react to an increase in demand as we go into the tail end of 2024 and absolutely into 2025. So what does that actually mean? What that means is, specifically for our dry van operation, we believe we can stay solidly on a two-shift operation throughout the year with the ability of using overtime to flex with opportunistic changes in demand in the early part of the year and give us a nice solid baseline that we can grow and prepare for 2025 in the second half of the year. We think the market has the potential to be able to do that, even with the clarity issues we have today. To Mike's point on the rest of the business, specifically tanks, truck bodies, and parts, we're actually in a position where we are maintaining, if not growing, headcount in those aspects of the business in 2024 to meet the known market drivers and demand that we have on the table today. So we are still, what I would say, net-net, in a great position in terms of how we think about having an active and robust resource management outlook going into 2024.

Okay. Very helpful. Thanks for the time.

Thanks, Justin.

Thanks, Justin.

Hello. And thanks for taking my question.

Yeah.

Can we start off by discussing the Reefer business? I know it's currently undergoing a transition. Can you provide an update on the transition to Minnesota for that business and how we might expect it to ramp up next year or in 2025?

Yeah. So when we think about our cold chain product lineup, Mike, we want to make sure we talk about it in the total lineup, not just on Reefer Vans. We're going to be in a nice place in 2024, where we think we can actually be additive in the total amount of cold chain revenue and overall product output in 2024. That's a combination of a relative amount of maintaining, if not slightly growing on our EcoNex reefer van, but also pulling through additional parts and service revenue, and we are now seeing an opportunity with EcoNex medium-duty truck bodies that we've been able to establish a foothold in, in 2023. That's an area of potential expansion for us in 2024.

Got it. And then just taking a step back on 2024, it sounds like you're already calling that trough. And I guess I'd like to know your confidence that that 2024 will, in fact, just be a single-year downturn, a single year trough. Is there anything about 2025 should be thinking out about the regulations or just where you think of reaching currently that makes you feel like it will just be a single year?

I think it's important to recognize that we still don’t fully understand what is going to happen both globally and domestically. Therefore, I can't make any predictions at this point. However, if we can limit the Fed rate adjustments to just one or two, I believe we’ll find ourselves in a good position where freight could recover enough to allow the strongest players in the industry to pursue their growth plans and strategies in 2025. These are primarily the customers we typically engage with, based on our backlog and customer portfolio. We are currently discussing 2025 with those customers to gain insight into their perspectives, which is crucial. They seem to view 2025 quite differently, and I would suggest that the latter part of 2024 should start to provide them with the confidence to invest in market share as others continue to recover from the current downturn. This is why Wabash is focused on being ready to respond to that demand as soon as it arises, and we believe that our customers will signal this demand before the overall market does.

Understanding. Can I just squeeze one last one in here. Can you update us on the impact of the UAW strike on orders of your business? I guess, on the truck body side, has there been chassis supply issues that have been exacerbated over the last couple of weeks? And on the trailer side, are you getting a sense that some of the fleets are holding off on ordering because they're not sure if there will be excess capacity if there's no auto parts components and autos themselves being shipped around the country?

Yes. I'll take the last part of the question first. I don't really believe yet we are seeing a significant impact in any type of 2024 order behavior based on what's going on with the current state of the UAW strike. I'm not going to quote them all, but I think there's a series of metrics out there, at least that I've been exposed to that say that we haven't really even seen truly material impacts of the UAW strike in terms of real freight impact. We also know that it's not a full strike yet. It's more of an iterative process that they're going through. So I don't think it's material yet in any decision-making. And I don't think it would be until we get into something into the first quarter or to last that long. And even then, it might be somewhat limited to the carriers at which it really does impact. It's not a high item on that front from a risk management standpoint for Wabash's demand profile. When we think about it from a truck body standpoint, we've had a limited impact, and we probably will see what I would call limited incremental sporadic impact in 2023 that we're able to maneuver around that is a nuisance, but I wouldn't call it a headache. If this were to get into 2024, so this is again a first quarter protracted more full strike, we'll see a larger amount of impact. But we've got enough lead time, good or bad, because of the way they've done this with the incremental nature of how they're rolling this out, not taking them all to their needs right at the moment. We have plenty of time to adjust in how we demand plan to fill the first half of the year to move away from the chassis pool, the Detroit 3 supply, call it, line of businesses; there's enough out there, specifically during the first half of the year that we're able to maneuver accordingly. So while it may operationally change how we do demand management, at this point, I would not see it being a material impact on the actual output of Wabash.

Yes. I think just to add, Brent mentioned there, but just to double click on it. We do have a pretty significant percentage of our truck value build is medium-duty and not dependent on the Detroit 3. So there's a lot of our mix that isn't impacted at all.

Great. Perfect. Guys, I appreciate the color. I'll pass it along. Thank you.

Thanks, Mike.

Your next question comes from the line of Jeff Kauffman from Vertical Research Partners. Your line is open.

Good morning, guys. Congratulations.

Yes. Thanks.

Thank you for the insights. I understand your message about taking a break in 2024, and I see the numbers are already reflecting that. We plan to use this downtime to strengthen our business and improve our bottom line. You mentioned the significant announcement today regarding parts and services, which will also represent a larger share of our business. I have two questions. First, I’ve noticed you've lost a bit of market share over the past year due to taking the factory offline for the transition to dry vans and relocating reefer production to Minnesota. It seems you are on track to produce around 45,000 trailers this year. Considering your comments, do you think it's feasible to still achieve around 45,000 trailers even if the overall trailer market declines by about 15% next year? I’m curious if I’m misunderstanding your perspective.

Well, Jeff, as always, you asked very astute questions. What I would tell you is I'm going to correct one thing, no.

Okay.

The set we ramping up of our dry van manufacturing and the transition of reefer really has had no real impact on what I would call our literal market share as we think about 2022-2023. What I would call any gross material way that affects 2024 at all, right? I know there's some math in between, but it really doesn't. When we think about market share in 2023, this is much more about a deliberate management decision to drive pricing, to maintain pricing in the second half of the year based off of the level of demand in security that's been caused by the overall freight conditions. We felt as an organization that as the premium supplier into the market, maintaining pricing was paramount as we move into the order season for 2024. It also just happened to match the level of capacity smoothing that we needed to do to prepare for 2024. And so there'd be no reason to chase pricing in order to run up against a hard stop and then an inefficiency hit going into 2024. That would not be the smartest business. So when we think about market share in 2024, I think you're absolutely in the ballpark of the market share that is inherently available for us as we adjust our pricing to still be premium in the market and still be at a much higher level than what we've seen over past cycles. We will be in a nice place that we can maintain plus or minus, probably in that range that you're alluding to with the capacity that we'll have on the ground starting 2024.

Thank you. I want to follow up on Mike's question about whether 2024 will be just a single backward year. While none of us can predict for sure, I'm considering the significant EPA mandate for fleets in 2027, which could lead to a pre-buy of tractors in 2026, possibly even starting in 2025. Unfortunately, even if the profit and loss situation for trucks improves, there might be limited capital available for trailers. I’m thinking about the demand shape in the industry for the next few years. In 2024, we might see a brief respite, and in early 2025, we may experience a similar situation before it starts to improve. However, we will soon face the tractor buying requirement that many customers will need to address. I'm curious about your perspective on how trailer demand will evolve over the next couple of years, understanding that it's uncertain.

I believe it's a more complex issue than simply determining one universal trend for how the market will evolve based on the factors you've mentioned. There is potential for some pre-buy activity based on current circumstances. While there may be a slight influence, it won't impact every fleet equally. Different customers will respond differently. Carriers and users of tractors and trailers who need to make specific decisions about their capital investments may fall into categories of what to purchase. Wabash, in particular, does not target those customers who are restricted in their capital choices. We usually cater to clients who have sufficient capital to sustain a balanced asset base. It's worth noting that over 300,000 trailers were not purchased from 2020 to 2023, which still plays a role in the current landscape. Well-capitalized and well-managed fleets, focused on operational costs, are unlikely to fall behind on their trailers, even with a potential pre-buy scenario. Therefore, when considering our customers, I believe we will be somewhat insulated from such influences. Consequently, I see the demand curve varying across different segments of the overall buying community.

Thank you for that. One last question, if I can, this one for Mike. You know Mike, you mentioned that capital spending this year is going to be about $70 million to $80 million higher than what would be maintenance CapEx because of some of these growth opportunities, which I think is great. It's great that you have that growth project out there. So given your current slate of growth projects, how should we be thinking about the right amount of CapEx as I look out to 2024 and 2025 and just some of the projects that you have that you're spending on right now?

It's hard to predict exactly what 2024 will look like because we're currently managing a lot of activities, and some of the year-end expenditures could somewhat alter the 2024 figures. However, I anticipate that 2024 will see a decrease of 10% to 20% compared to 2023, which is likely to be the peak for capital expenditures in the near future. Nonetheless, we do have significant growth projects planned for 2024 and 2025 that will surpass our historical performance at Wabash, although they won't reach the levels seen in 2023.

Yes. And growth is a good thing. I'm just curious how to think about the next two to three years of modeling since you do have these growth projects to spend on. That's helpful. Thank you. Well, congratulations, guys. Thanks for your time.

Thanks, Jeff. Appreciate it.

Thanks, Jeff.

And there are no further questions at this time. I will now turn the call back over to Ryan Reed for some closing remarks.

Thanks Rob and thanks, everyone, for joining us today. We look forward to following up during the quarter. Have a great day.

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