Good day, and welcome to the Wabash National Corporation First Quarter 2024 Earnings Call. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. I'd now like to welcome Ryan Reed, VP, Corporate Development and Investor Relations to begin the conference. Ryan, over to you.

Thank you, and good afternoon, everyone. We appreciate you joining us on this call. With me today are Brent 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'll hand it off now to Brent.

Thanks, Ryan. Good afternoon, everyone, and thanks for joining us today. Beginning with the first quarter of 2024, our revenue and income fell slightly short of our expectations due to slower customer pickups of equipment. I'd like to emphasize that particularly for a year of weaker demand, Q1 tends to be seasonally weaker. Additionally, the size of our products necessitates that we rely on customers to pick up their equipment before we were able to recognize revenue. That said, our production outstripped shipments during the first quarter to the delta versus our anticipated quarterly revenue and the associated income will flow into subsequent quarters during 2024, particularly Q2. As we'll discuss later, our financial outlook for the year remains unchanged. From a strategy perspective, we continue to enhance our network at 78 dealer locations. Through our marketplace joint venture, we launched the initial version of our Wabash Marketplace in the first quarter. Collaborating with leading technology and logistics providers, the platform seeks to deliver customer-centric solutions through an integrated partner ecosystem that sets new industry standards for parts, services and trailer capacity. The ultimate objective of the Wabash Marketplace is to develop a comprehensive end-to-end digital platform that transforms the experience for dealers, customers and suppliers. Utilizing advanced technology and connectivity, we aim to streamline the supply chain experience, making it more efficient, connected and user-friendly. Dealers and customers will benefit from improved access to a wide range of parts and services, with a particular focus on our Trailers as a Service or TAAS capabilities and the expansion of our Wabash Parts distribution network. The marketplace has significant potential for growth as the team focuses on opening up opportunities for additional value-added offerings. Also, our Wabash Parts distribution JV is reaching an initial stage of maturity that will facilitate meaningful…

Thanks, Brent. Beginning with a review of our quarterly financial results. In the first quarter, our consolidated revenue was $515 million. During the quarter, we shipped approximately 8,500 new trailers and 3,690 truck bodies. As Brent mentioned, we saw some delays in customer pickups of equipment during the first quarter, and we do anticipate the opportunity to recognize revenue on these finished goods in subsequent quarters, including second quarter. Gross margin was 14.8% of sales during the quarter, while operating margin came in at 5.7%. In the first quarter, we generated operating EBITDA of $46 million or 8.8% of sales. Finally, for the quarter, net income attributable to common stockholders was $18.2 million or $0.39 per diluted share. From a segment perspective, Transportation Solutions generated revenue of $470 million and operating income was $44 million. Parts and Services generated revenue of $49 million and operating income of $10.5 million. Year-to-date, operating cash was an outflow of $17 million, reflecting what is typically a back-ended quarter of shipments in Q1. Concerning our balance sheet, our liquidity, which comprises both cash and available borrowings of $389 million as of March 31. We finished Q1 with net debt leverage ratio of 0.9x. On capital allocation, during the first quarter, we invested $19 million in capital projects, utilized $16 million to repurchase shares and paid quarterly dividends of $4.2 million. Our capital allocation focus continues to prioritize capital expenditures above and beyond our annual maintenance CapEx spend of $20 million to $25 million in order to support our organic growth initiatives. We are committed to maintaining our dividend, and then we anticipate continuing to evaluate opportunities for share repurchase alongside of bolt-on M&A. Moving on to our outlook for 2024. We are reiterating guidance of a revenue range of $2.2 billion to $2.4 billion…

[Operator Instructions] And your first question comes from the line of Mike Shlisky of D.A. Davidson.

Yes. So I guess I wanted to ask first about some of the pickup and logistical issues that might have changed things from the first quarter to the second quarter or elsewhere during the year. I'm curious, was this an industry-wide phenomenon? Was it just an issue with Wabash and [indiscernible] to get their trailers and other people didn't have an issue if they're based elsewhere in the country. Just curious to see if this is something that we should be thinking of as everyone is facing, or is it just a strictly Wabash issue?

Yes, Mike. I mean as we said in the release and on the actual, call it, narrative we put out there. I mean this is a normal type of situation that our industry feels across the board at any time that we are in, not only the first quarter of the year, but when compounded by being in a down year, relative to dry vans. This is a normal and customary type of issue to have. So everyone is feeling it throughout the overall industry at this point. And in general, is to be expected in terms of weak pickups as people are working to understand what needs to be put in service at this time of the year. So while we were a little short in what those expectations are, the phenomenon itself is a normal and customary industry fact.

Okay. Okay. I also want to ask about Trailer as a Service. Mike, you outlined a couple of details there. I understand that maybe you don't want to get into actual numbers and guidance per se. I mean you did mention at least 1,000 units. But just how do we start to model that out? Do we model that as 1,000 units of sales, 1,000 units per inventory with rental attached to it or leasing revenue attachment? I'm not sure like what to put in my current model and what's incurring guidance as far as that business is concerned.

Yes. So from a P&L perspective, Mike, it will show up as a lease-type expense. You wouldn't see a full unit of revenue recognition like you would a ship unit. It will be a leasing-type model. So you'll see a monthly expense -- see in monthly revenue and the associated expense. From a cash flow perspective, you'll see it show up in -- we break it out in our statement of cash flows as a revenue-generating asset. And it will be separate from our normal plant, property and equipment. So you can see as those units get put into service that will show up on that line in our cash flow statement.

Okay. Maybe one last one for me. I guess some thoughts, Brent, about what you think has to improve in the market to see orders go up from current levels? I mean I guess we've had one large or a few large bankruptcies happen over the last 12 months, they had largely older units that probably didn't get back in the market -- in the used market, sorry. I'm curious whether if there is capacity exiting the market today that might improve the high demand between trails and loads, whether some of those units exiting the market will be much newer and some of that used equipment may end up taking away from new over the next couple of quarters.

Yes, Mike, I think what needs to happen is already happening. And I think the -- what has always been evident within our industry is that when it is most confusing when there are mixed kind of at a level of most mixed signals is when the market is actually beginning to make the improvements that it needs to get it on the path of the upswing, right? So we are seeing gross manufacturing activity begin to move in a number of direction. We're seeing capacity leave the market. We're seeing imports continue to improve. The things that need to be happening are happening. Now -- and what they don't have a real-time effect on freight and the spot market. That's going to happen incrementally over the course of the next 6 months as it should from where we're sitting right now. So everything still lines up for the, I'll say, market forecasts that are out there by ACT and FTR, there is really no deviation from the forces that drive that. And it's exactly what should be happening to set up for the estimates for 2025. It's already in play, nothing new needs to happen. The -- I think from -- one thing that gets questioned is what is the Fed going to do from an interest rate standpoint. The forces in play are already in play. It's already factoring in where the Fed is at right now. So if the Fed waits until let's just say, Q4, to have an interest rate reduction, that is not going to probably materially affect the forces that will drive the upswing into 2025. So I think the play is set, it's been called. It's happening. It just needs to work itself out over time.

Your next question comes from the line of Justin Long of Stephens.

So I guess getting back to the delayed pickup of trailers, is there any way to quantify what that headwind was in the first quarter versus your expectation to just help us think through the catch up we could see in the second quarter. And then as you just take a step back and look at trailer shipments over the balance of the year, is there any color you can provide on the quarterly cadence that is reflected in the guidance?

Yes. I would say that generally, the disconnect we saw between our guidance and Q1 results was largely that delayed in pickups that we had. And then you see some of that stepping into Q2, obviously, with a little higher revenue and EPS guidance in Q2 versus Q1. We would expect the back half to continue to see moderate increases in revenue and EPS, but not significant. So obviously, you can do the calendarization with our full year guidance. But we will see that a pretty good step-up from Q1 to Q2, which really does encompass that slight pickup miss that we had and then a little further firming in Q3 and Q4 to set up for what Brent just mentioned, what we think will be a much stronger 2025.

Yes. Just to put -- I'll put some additional color to it. Most of the gap in pickups were in January and early to mid-February. And then we saw pickups dramatically improve as we moved into the tail end of the first quarter and then kind of, I would say, continuing on that pace as we move into the second quarter. So that piece of it has generally abated. And that timing of that gap in January and February kind of really is about fleets really trying to understand what is the operating environment that they're working into for the first half of the year. Where do they need to move trailers to, because remember, when they pick them up, they're putting them into service and rounding the areas to create revenue. So they're waiting to see where that's going to be. Then once they know, they move, and we saw that happen, right? And then it just flows from there.

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

Yes, I think it's largely going to follow the volume I described earlier because that's what's holding it down below 7%. We held our full year at 7% and finished Q1 at 5.7% and less largely a fixed overhead contribution margin impact of a little lower revenue number in Q1 that we expect will naturally grow as we move into Q2 and the second half of the year. The other thing that we talked about in our remarks is we expect Parts and Services to continue to perform well this year and grow in the second half of the year. That will also be a tailwind to our margin performance as we get into the second half as Parts and Service delivers an outsized margin component of our business compared to the OE side.

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

Yes, we would expect year-over-year growth in truck bodies for sure. Q1 was a little bit -- some of the things we discussed on the trailer side, we were very specific in our trailer commentary, but it also pertains a bit to truck body shipments were a little bit weaker than we hoped in Q1 for truck bodies. But we do expect to see some pretty nice sequential step-ups for the truck body business. So we should see shipments increase year-over-year in that business, which has always been saying that that's -- while all of our OE products participate in the broader transportation and logistics industries, and so there is some cyclicality, it's less cyclical than we've seen in the dry van business. And we would actually to see a little bit of growth in truck bodies this year. Tank is -- we'll see -- we won't see growth in tanks year-over-year this year, but we'll see less of a pullback in tanks than we saw in dry vans. And I think to circle back to conversations we've had on these calls, tanks, truck bodies and Parts and Services really form 3 legs to a stool of stable earnings, more stable earnings than what we have in our more classic dry van business at Wabash. And we're excited to continue to show it off this year. So while they all participate in an industry that has cycles, they tend to be less cyclical than what we see in dry vans.

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

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

Congratulations, everybody.

Thank you, Jeff.

A couple of modeling questions. I want to get back to the units that were not picked up on time. I mean this happens every now and then. It just is what it is. Let's just say, for argument's sake, that number was 500 in the first quarter. I don't know what the number is, and you guys haven't thrown one out. But would we normally see something like 2/3 of it in the following quarter and then the 1/3 of it maybe in the third quarter. How does this typically work when we have this happen? It doesn't all happen in 2Q necessarily, right?

No, Jeff. You've been doing this long enough to know how it works. And I would say that is a generally good approximation for how the world works.

All right. And then ASP was pretty strong, a little stronger than I was looking for, both in truck bodies and in trailers, which is great. But I would assume with raw material costs coming down at ASP levels off a little bit. Could you give us an idea of what trailer ASP might look like without the mix issue of tanks being a little bit stronger and give us a feel for what was driving the higher truck body ASP.

Yes. I'll start with trailers. I would say, as you think about, obviously, we have a long backlog business. So the price that shows ASP that shows through in the revenue for the quarter comes in at all different times over the last year or so. So you would see some ASP reduction as we go through 2024. I think you'll see volume increase in ASP come down as we go through the year. For truck bodies, there can be some mix in that business. But generally speaking, I think it just -- it represents what we've been saying, a more stable borderline strong demand environment in that business that would enable to have pricing stability. So I wouldn't expect as much of a pricing move in truck bodies as we go through the year. But for trailers, you will see a step down as we go through Q2 and the second half of the year.

And this general commentary, Jeff, is that -- and I would just say pricing across all the segments, minus maybe platform trailers, the overall pricing resiliency has, I would say, net, in some cases, exceeded our expectations for the market that we're in. And I think a big part of that is we're seeing the actual value of the product shining through and the nature of the portfolio changes that we've made and kind of channel movement really starting to have an impact on pricing which mutes the effect of just more of a dog-eat-dog pricing environment that you might expect in the past. We're just doing a little better in how we manage it.

Okay. Great. And as you mentioned, Brent, I've seen these things a bunch of times, but sometimes you forget. And then lastly, very impressive margins in Parts and Service. The gross margins pretty strong, but the operating margin flow-through was a lot better than I expected, which is fantastic. Is 21%, which I don't remember seeing on an operating margin basis, is this a new level that we've reached because of what's changed in Parts and Service? And is this more sustainable? Or was there something that helped that number a little bit in 1Q?

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

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

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

So Jeff, that will come to Parts and Services...

Yes. Is that your question?

Okay. That was my question. Yes. Parts and Service.

[indiscernible] Parts and Service, I'm sorry.

Okay. Awesome. Well, congratulations, challenging environment, solid results. Best of luck.

Thank you.

Thanks, Jeff.

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

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

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