Wabash National Corporation (NYSE:WNC) Q4 2023 Earnings Call Transcript
Wabash National Corporation (NYSE:WNC) Q4 2023 Earnings Call Transcript February 1, 2024
Wabash National Corporation beats earnings expectations. Reported EPS is $1.09, expectations were $0.89. WNC isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: [Call starts abruptly] …2023 Earnings Call. I would now like to welcome Ryan Reed, VP of Investor Relations, to begin the call. Ryan, over to you.
Ryan Reed: Thank you. 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 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.
Brent Yeagy: Thanks, Ryan. Good morning, everyone and thanks for joining us today. 2023 has been a year in which we've substantially exceeded the financial performance in any year of the company's history. I'd like to congratulate the Wabash team on the significant achievement. Beyond our financial accomplishments, I'm even more excited about the strategic progress we have made during 2023 and how it positions us to generate even stronger performance going forward for our employees, our customers and our other stakeholders. In thinking about our strategic accomplishments in 2023, I'd like to emphasize the theme of connections, relationships and networks. Our journey began with enhancing the core of our business through greater connection with our customers.
The transformation to be a more customer-centric organization has been a pivotal change. We created more points of connection with our customers with enhanced dry van capacity, greater focus on parts and services, as well as innovative offerings like Trailers as a Service that allow Wabash to add recurring longer-term value beyond our initial transaction. These advancements have not only deepened our customer engagement but have also enriched our collaborations with supplier and technology partners. By gaining a more profound understanding of our customer problems and their opportunities, we are more able to share valuable insights with our suppliers, our technology partners and other parties that can contribute to customer success. The power of bringing our ecosystem together for our customers enhances our collective ability to elevate performance through the cycle.
We have solidified specific partnerships with HTI and the Fernweh Group which is enabling Wabash to grow our recurring revenue within the transportation, logistics and distribution ecosystem. Our Wabash Parts joint venture with HTI rapidly established significant distribution capabilities that allow our dealer network efficient access to our comprehensive portfolio of aftermarket parts. Fernweh Group is now playing a crucial role in advancing our digital capabilities which aim to revolutionize the online experience for our dealers, traditional and non-traditional suppliers of both parts and services and a broad set of customers spanning across the vast transportation and logistics landscape. We've also made a commitment to deepening our relationship with our employees.
We appreciate that strong employee engagement enables superior financial performance. Our focus is on cultivating a work environment and a culture that keeps respect for our employees front and center by empowering them to confidently bring their best selves to work and an atmosphere that drives an openness for change and innovative spirit. This commitment to a high-performance culture is not just about achieving corporate goals. It's about fostering a sense of unity and purpose, where every individual feels respected, valued and part of something bigger. With every day that goes by, Wabash is marking its role as a visionary leader with the capability to address the opportunities within an increasingly complex transportation, logistics and distribution ecosystem.
Our strategy very much intends to harness our expanding ecosystem to create enhanced value for all engaged parties. As we contemplated the strategic positioning we've attained in most recent years, our emerging set of capabilities will continue to scale over time. To ensure we accelerate effectively, we have made the decision to shift our organization to enhance our focus on bringing our longer-term strategy plans to life. In December, Dustin Smith transitioned from Chief Strategy Officer to Chief Operating Officer and Kristin Glazner to Chief Administrative Officer. Dustin has been instrumental in our strategy refresh and will now lead our operations through this vital phase. His role will focus on the deployment of operational and manufacturing capabilities required to foster growth in our business.
Kristin has led our legal and people support functions over the past few years. As Chief Administrative Officer, she will ensure we possess the required capabilities and business processes to act on our business in a manner that drives respect for people to the highest achievable levels, a culture that embraces change and the capacity to scale our business to new levels of performance. Our team is excited about these changes and I'd like to extend my congratulations to Dustin and Kristin on their new roles. Moving on to our financial performance during the fourth quarter of 2023, we achieved earnings per share of $1.07. This brings our full year earnings to $4.81 per share, surpassing our 2025 EPS goal set in 2022 by 39%. While favorable market conditions supported this achievement, we firmly believe in the sustainability of our execution, as well as the repeatability of this level of financial performance.
We are showing higher levels of financial performance through all phases of the cycle and we are confident that when the market conditions strengthen for our customers, we will achieve financial performance that exceeds 2023. Turning our attention to market conditions and backlog, new order activity during the fourth quarter allowed our 12-month backlog to increase sequentially to $1.6 billion. During more normalized mid-cycle environments, it's typical to see new order activity stretch into the first quarter of the year, as we expect to see in 2024. With freight rates having contracted for now 24 months, we're watching capacity exit the transportation space. Moreover, as macro destocking activity abates, this has historically alleviated pressure that we've seen on the manufacturing sector.
In addition to these corrective factors, the combination of a relatively strong labor market, sustained consumer spending and cooling inflation supports the likelihood of an economic soft landing, particularly considering potential interest rate cuts on the horizon. It seems clear that the transportation space has already experienced a lengthy recession. And although industry participants will likely be shy about making bold predictions about the timing of a rebound, the freight downcycle seems unlikely to last through the entire year 2024. Wabash is well prepared to accelerate as the winds of the market shift to our back and drive us forward. Moving on to our financial outlook, we're initiating 2024 guidance with revenue in the range of $2.2 billion to $2.4 billion with EPS of $2.00 to $2.50.
While this outlook is a moderation from our 2023 performance, it's important to note that the midpoint of our 2024 EPS guidance is in line with our results from 2022 and will be tied to the second best annual financial performance in the company's history which will easily be the best results achieved during a period of declining revenue. At no time in Wabash's history have we had the balance sheet strength, the strategic vision and the collective will to decisively continue our programmatic march through the headwinds of a difficult market. In closing, 2023 has been a year of both record financial achievement and strategic advancements for Wabash. This progress has readied us to deploy enhanced operational and manufacturing capabilities to support organic growth generated by the multitude of connections Wabash can make through our ecosystem, most immediately, leveraging digital transformation to connect the footprint of 78 dealer locations to create greater ease of customer access across the network to equipment, parts and services.
In the more immediate term, we expect to leverage our steady backlog to demonstrate our ability to post record downturn financial performance. As the freight market downturn transitions into an upswing, we are well prepared to capitalize on the potential market improvements anticipated in 2025 and beyond. With that, I'll hand it over to Mike for his comments.
Mike Pettit: Thanks, Brent. Beginning with a review of our quarterly financial results, in the fourth quarter, consolidated revenue was $596 million. During the quarter, we shipped approximately 10,075 new trailers and 4,075 truck bodies. Gross margin was 18.2% of sales during the quarter, while operating margin came in at 10.3%. This represents year-over-year improvement of 380 basis points and 150 basis points, respectively. Operating EBITDA for the fourth quarter was $76.8 million, or 12.9% of sales which was a 230 basis point improvement versus the fourth quarter of the prior year. Finally, for the quarter, net income was $50.4 million or $1.07 per diluted share. From a segment perspective, Transportation Solutions generated revenue of $547 million and operating income of $74.6 million, or 13.6% of sales.
Parts and Service generated revenue of $55.2 million and operating income of $10.1 million, or 18.4% of sales. Year-to-date, operating cash flow was $319 million, reflecting our strong financial performance. For the fourth quarter, $115 million of operating cash flow compared to $13 million of CapEx and $2 million of expenditures for revenue-generating assets, resulting in free cash flow generation of $100 million during the quarter. I'd also like to call out that full year free cash flow generation amounted to $216 million, even in a year when we invested a record of over $100 million of capital in our business. Net leverage on trailing 12-month operating EBITDA was 0.6x. And during the fourth quarter, our credit rating was upgraded by Moody's which followed another upgrade by S&P earlier in the year.
Turning to capital allocation during the fourth quarter, we utilized $20 million to repurchase shares, invested $13 million in capital expenditures and $2 million of expenditures for revenue-generating assets and paid our quarterly dividend of $4 million. For the full year, we invested $98 million in capital expenditures, $6 million in expenditures for revenue-generating assets and allocated $67 million to repurchase shares, while returning $16 million to shareholders via our dividend. Stepping back on share repurchases specifically, I'd like to call out that we've reduced our share count by approximately 25 million shares from the high watermark on share count in 2014. This equates to a reduction of about 35% of our share count since 2014.
Looking over the last 5-year period, we've repurchased 8.5 million shares, or about 15% of shares over that time period. Our capital allocation focus continues to prioritize capital expenditures above 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 repurchases, as we have demonstrated in the past 5 years and M&A. Moving on to our outlook for 2024, we expect revenue of $2.2 billion to $2.4 billion with a midpoint of $2.3 billion. This outlook is supported by a meaningful 12-month backlog that continued to see new order activity in January. We continue to expect truck body, tank trailers and Parts and Services to serve as stabilizing forces in 2024 as market conditions remain stronger in those businesses relative to dry vans.
Additionally, these businesses have and will continue to benefit from organizational focus and execution. Tank trailers and truck bodies have both experienced improved volumes as we act on the business through our Wabash Management System. Additionally, Parts and Services is receiving considerable organizational strategic focus as we seek to grow the segment's revenue by 20% in 2024 to continue building a broader base of recurring revenue and, of course, pull through the accretive margins that come with it. From an operating income perspective, we expect to generate $163 million at the midpoint, or approximately 7%. This results in an EPS outlook of $2.00 to $2.50 per share with a midpoint of $2.25 per share. I'd like to mention that in 2024, we expect to see about $6.5 million of expenses for our Wabash Marketplace joint venture run below operating income.
Since we announced this JV with Fernweh Group on our Q3 call, we have named Sid Sarangi as Managing Director of the Wabash Marketplace. Sid comes with a diverse leadership background, scaling tech within large businesses and we're thrilled to have him lead an entity charged with rapid growth and digitally-enabled recurring revenue. Moving on to capital deployment expectations for 2024, we anticipate traditional capital investment to be between $70 million and $80 million in 2024 as a result of planned expenditures to support our strategic growth initiatives. We also expect to invest in CapEx that will be immediately revenue generating through our Trailers as a Service program. As a reminder, we do break out investment in TAAS separately and will continue to give visibility to our capital allocation to that program as it grows.
At this point, we expect our investment in that program to grow year-over-year and we'll give more specific guidance as the anticipated full year figure comes into focus. As a reminder, it's typical for Q1 to be our lowest quarter in terms of revenue and EPS generation. Our expectation is for first quarter revenue to come in between $500 million and $550 million and for EPS to be between $0.45 and $0.50 a share. In summary, I'm extremely proud of our Wabash team for generating 2023 results that exceeded our 2025 financial plan 2 years ahead of schedule. This achievement is a testament to our team's dedication and strategic execution. Looking ahead, we expect to maintain this momentum with improved financial performance at all phases of the cycle as we focus on our strategic growth initiatives to provide more sticky revenue in verticals that reinforce and complement our core equipment business.
As we enter 2024 which we expect to be a year of transition, we're poised to demonstrate our resilience through the less robust market conditions and continue pushing forward with strategic growth to position the company to surpass 2023's financial performance as the freight market inevitably recovers. I'll now turn the call back to the operator and we'll open it up for questions.
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