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Text: A couple of items before we get started.
I'll now hand it off to Brent.
We have a number of exciting updates to share with you.
Upon becoming CEO, our team began this journey of repositioning Wabash as an innovation leader of engineered solutions for the transportation, logistics and distribution markets with a unifying purpose of changing how the world reaches you.
We have made deliberate organizational and structural changes over the last few years to further enable and accelerate the deployment of our strategy.
First, we built a portfolio of first to final mile equipment which positions us to have the most complete set of solutions for our customers as they respond to changing logistics environments, primarily driven by the growth of e-commerce.
Second, we implemented the Wabash Management System, a lean-based and enterprise-focused process development effort that drives breakthrough and scalable business capabilities.
Lastly, we introduced the One Wabash approach to focus all aspects of our business, our processes and our people to create and deliver value to our customers.
These significant advances to our company's structure and culture have been made with the goal of enhancing collaboration, innovation and customer centricity across the enterprise.
We now go to market as One Wabash which provides our customers with an improved experience as they continue to increase purchasing from across our product and service portfolio.
Our innovation, product development and manufacturing capabilities from across all businesses are overseen by 1 centralized team which enables our talent to focus on solving the most pressing needs for our customers, focusing on deployment of resources, while driving the highest levels of innovation within our markets.
This structure enables the Wabash Management System, the foundation of how we do things to drive connected thinking, problem solving and alignment so that we can create breakthroughs at an increasingly rapid pace.
These changes have not only enabled a better customer experience but also allowed Wabash to be more productive as evidenced by our $20 million of structural cost efficiencies achieved during 2020.
This enhanced platform for growth positions Wabash to seize the opportunities created by an increasingly disruptive logistics landscape.
The Wabash Management System has also enabled the company to focus on the growing opportunities within the transportation, logistics and distribution markets.
Our team has worked hard to align our portfolio of businesses with a new strategy.
And as a result, we have adjusted 3 noncore businesses: Garsite, Beall and Extract.
These decisions all follow the principles of our system such as assuring resources are focused on deployment of the strategy, powerful redeployment of capital and focus is critical to our success.
The outstanding efforts of our extended leadership team and all of our employees to the accept and drive chain has strategically repositioned Wabash to execute the next phase of our growth strategy.
Cold Chain, the growth in e-commerce and parts and services offer numerous secular growth opportunities within the transportation, logistics and distribution markets and we intend to leverage our people, our technologies and our existing and growing capabilities in order to foster profitable growth in these attractive markets.
Our Cold Chain initiative leverages new technologies to add value within the rapidly growing refrigerated transportation and logistics space.
The e-commerce space has been experiencing dynamic growth and our product portfolio is expanding to better serve that market from first to final mile.
And our parts and service platform initiative is one where we are excited to build upon existing revenue streams to target growth of higher margins, more recurrent sales as we deliver to our customers' changing needs.
We will deliver on this growth from a market leadership position, while continuing to innovate and deliver industry-leading customer service.
The opportunities for profitable growth over the next decade have never been as significant in the company's history and Wabash is positioned to seize this moment.
This moment is special; transportation, logistics and distribution markets are going through a momentous transition as they adapt to a compilation of forces.
We see a different future reality than our competition in the context of social, technological and logistic changes and we've chosen to go down a substantially different pattern to reshape the industry and pull that future forward for our customers.
It is time to be bold and send a message to all of our stakeholders that we choose to take the next step forward in our maturity as a company, as a solution provider and as part of a greater contributor to the sustainability and social awakening of the world.
The decision to drop national from our name, while on the surface may seem insignificant, it is, in fact, a powerful change and symbolic for the significant strategic changes that we have made as One Wabash and will continue to make on our growth journey.
We are redefining and reimagining our identity with customers, dealers, suppliers, employees and shareholders.
Wabash has become a more dynamic place to work.
We are reshaped to grow beyond our traditional markets and we have a visionary mindset and the capacity to prosper in a changing world.
So today, we are announcing our name change and in the near future, we will outline our plans to adapt our brand strategy to reflect our vision of the future.
In addition to changing our identity, we are changing our segment reporting structure to align with how we operate the business and how we go to market.
Given we now have 1 face to the customer for our first to final mile portfolio of equipment, we will now have 2 reportable segments.
The first new segment, Transportation Solutions comprises of vans, platforms, tank trailers and truck bodies and accounts for about 90% of our year-to-date sales.
We continue to provide disclosure of new trailer unit shipment volumes and we have added disclosure on unit shipment volumes for truck bodies, provide visibility to what we anticipate will be a strong growth trajectory for that business going forward.
The second new segment is parts and services, a higher margin, more repeatable business that is poised to benefit from a changing logistics landscape, new and emerging customer needs and the rise of the digital marketplace.
While we currently generate a small portion of our company's total revenue from parts and service businesses, we appreciate the cyclicality dampening effects in the margin uplift that parts and services can create for OEMs. As such, we have shifted significant talent to lead our parts and service team and they are focused on executing aggressive plans that now underpin our growth initiatives in this space, aftermarket parts, repair and maintenance services and upfitting as well as equipment services all present compelling opportunities for revenue growth and margin expansion.
We expect parts and services to benefit from our planned capital allocation activities to drive both organic and inorganic growth enabled by significant free cash flow generation by our Transportation Solutions segment.
With a mature strategic deployment process as one of our many new capabilities installed under the Wabash Management System, this will be an area of extreme focus and will benefit from our enhanced ability to create scalable and profitable growth in both OEM and aftermarket parts, focused service and update offerings as well as other service offerings.
Our new segmentation structure reflects our enhanced focus on new growth opportunities as well as aligns how we discuss the business with how we operate the business.
This will create enhanced transparency and a more simplified discussion of how and where value is created at Wabash for our employees, our customers and our shareholders.
I will now discuss our plans of shifting capacity from traditional refrigerated vans to dry vans and the scale growth of our composite refrigerated products which includes mode structural composite technology.
I'm pleased to report that our progress remains on track for additional dry van production to begin in early 2023.
As we discuss these capacity changes with the investment community over the last quarter, I'd like to read those at a few points that I believe are helpful in explaining our rationale for these changes and the forthcoming benefits.
Going to market as One Wabash allows a portfolio selling approach that leverages the unrivaled breadth of our products.
That capability to meet this new customer demand more fully for our flagship dry van product is tremendously important in supporting our portfolio selling approach.
Additionally, our enhanced dry van capacity will allow us to more adequately supply product to our Wabash exclusive and industry-leading dealer network.
This added capacity is also necessary to supply logistics market that continues to drive changes in the way trailers are utilized.
Drop and hook is a strategy carriers use to maximize drivers' time on the road.
Driver shortages are a persistent problem but have become more severe since 2020 with little clarity on how or when this situation will materially improve.
Overall, our customers' incremental economics of adding a trailer to a tractor have meaningfully increased and represent a compelling value proposition in the marketplace.
Additionally, incremental demand for dry van trailers is being generated by customers that did not consume trailer supply to 10 years ago.
Private fleet and freight brokers are building trailer pools to ensure consistent access to capacity and more effectively leverage our only capacity.
Given our efforts to grow dry van production, we have also planned several steps ahead to ensure stability of component supply.
As 1 example, our management team has spent time with our supply partners at Hydro, a global leader in aluminum extrusions which have historically been in high demand during times of elevated trailer industry build rates.
The Hydro team appreciates the vision that Wabash is working to bring to life and Hydro has agreed to be a key supplier for Wabash over the life of a 10-year supply agreement which is a meaningful development, increasing supply certainty for both our existing and new dry van capacity.
When considering the differentiation facilitated by our industry-leading lightweight panel technology, we believe this capacity expansion creates an incredible long-term opportunity for Wabash.
We also remain on track with our plan to scale our innovative molded structural composite technology within refrigerated vans, truck bodies and other transportation logistics and distribution-related products.
We believe we have a unique technology and operational capability that has the ability to disrupt the broad Cold Chain product market as well as change operating models for carriers and shippers.
These composite technologies facilitate improved operating efficiency for our customers, changes the model of asset usage and life while also supporting a customer base that is increasingly focused on sustainability and reducing their carbon footprint.
We now have over 25 million miles logged to date and we are excited to scale this opportunity as we move into full commercialization of this product technology.
Finally, we believe long-term investors will be rewarded in the near term by our dry van capacity project as our converted traditional refrigerated van facility will produce 10,000 units post conversion which is twice as many dry vans as compared to the reefers that were previously manufactured.
Notably, dry vans carry a higher margin compared with our conventional refrigerated product.
All told, we expect to realize $0.15 to $0.20 of annual earnings per share accretion in 2023 and beyond as a result of this near-term capacity move.
This capacity project will also enable us to further create shareholder value as we fully commercialize our breakthrough all composite refrigerated technology over the next several years.
Moving to market conditions; demand for freight remains robust and supply continues to be constrained by a multitude of factors, strong business investment and consumer spending paired with persistently low inventory levels continue to propagate robust levels of freight activity.
We see the overall freight environment remaining positive through 2022 and well into 2023.
Coupled with structural changes, as previously discussed, in terms of e-commerce related logistics disruption, the entry of new customers and the emergence of large trailer pools, we see demand remaining robust for an extended period of time, possibly the strongest period of demand we have seen in history.
As a reminder, the trailer industry has a strong seasonal pattern of ordering activity in which OEM backlogs built during the second half of the calendar year.
The strength within our customer businesses from First to Final Mile has been well reflected in our backlog which increased by $600 million sequentially in Q3 to a total of $1.9 billion.
This represents an 87% increase versus the same period last year.
$1.9 billion in backlog also establishes a new record for our order book which is a testament to our new commercial structure and market strength as well as changing dynamics of how the market utilizes trailers.
The strength in our backlog creates the visibility necessary to offer an initial earnings per share outlook for 2022 $1.70, assuming no improvement in supply chain conditions.
In closing, we're excited to announce our identity change and the realignment of our external reporting with our operating structure, our growth initiatives and our strategy going forward.
Our portfolio of transportation solutions positions us to leverage unmatched product breadth as a competitive advantage, shored up by unified commercial structure and go-to-market strategy.
We expect our increased dry van capacity to be a linchpin to many new and expanded customer relationships and our shift to all composite refrigerated technology to drive growth well into the future.
Driving focus in our parts and service business enhances visibility to our higher margin, more repeatable business that features ample potential for growth.
These reporting changes are the culmination of modifications to our organization.
to facilitate our refreshed strategy and we're eager to share our progress with you as the new reporting structure enables more effective communication.
We believe a story that started with a change in vision and a deep desire by so many of Wabash to be different, to be better.
Ultimately, we are living our purpose with action to change how the world reaches you.
With that, I'll hand it over to Mike for his comments.
I'd like to start by offering some brief thoughts on the announcement Brent just discussed.
Following our strategic, organizational and capacity update, today's company branding and segmentation refreshes are the culmination of work that has been going on behind the scenes for the last 2 years.
Our decision to narrow our strategic focus to transportation, logistics and distribution markets comes at a time of dramatic and exciting changes within the industry and we are tremendously excited with how the following moves have positioned us to leverage our commercial organization and innovation and product development capabilities to lead our markets forward.
Turning to a review of our third quarter financial results.
Consolidated third quarter revenue was $483 million with new trailer and truck body shipments of approximately 12,455 units and 3,780 units, respectively.
Gross margin was 10.6% of sales during the quarter, while operating margin came in at 3.8%.
Operating EBITDA for the third quarter was $33 million or 6.8% of sales.
Finally, for the quarter, net income was $11 million or $0.22 per diluted share.
From a segment perspective, Transportation Solutions generated revenue of $443 million and operating income of $26 million.
Parts and Service generated revenue of $42 million and operating income of $4.1 million.
Year-to-date operating cash flow was negative $74 million.
Shipments that were skewed very late in the quarter caused our receivables to increase significantly from Q2.
We have also increased inventory in certain areas of our business to help buffer supply chain interruptions.
We would expect Q4 to have a significant amount of free cash generation.
Our current target for 2021 capital spending is approximately $50 million which is higher than normal as we catch up on projects that were deferred during COVID and prepared for our strategic capacity expansion and the conversion of our Laveya-base south plant from reefer capacity to drive an capacity.
With regard to our balance sheet, our liquidity or cash plus available borrowings as of September 30 was $259 million with $49 million of cash and cash equivalents and approximately $220 million of availability on our revolving credit facility.
In late September and early October, we upsized our revolving credit facility by $50 million to $225 million and closed an issuance of $400 million in senior notes, respectively.
After repaying our previous senior notes and term loan, our improved debt structure will result in $3 million of annual interest expense savings and more importantly, create a reasonably priced patient debt structure that allows us to invest in our business and enhances our opportunities to create value with a lower cost of capital.
With regard to capital allocation during the third quarter, we utilized $14 million to repurchase shares and our quarterly dividend of $4 million and invested $9 million in capital projects.
Our capital allocation focus continues to prioritize reinvestment in the business through growth CapEx while also maintaining our dividend and evaluate opportunities for share repurchase alongside bolt-on M&A opportunities.
Thinking about the next 3 to 5 years, I expect our capital allocation to continue to support our internal opportunities for organic growth.
We have exciting opportunities to generate rates of return well in excess of our cost of capital as we progress with initiatives on our Transportation Solutions and Parts and Services segment.
Our dividend also remains an important element of returning capital to shareholders.
Given that we expect our future free cash flow profile to remain robust, we will continue to provide an opportunity to repurchase shares when we consider that to the under value.
While we will continue to evaluate smaller acquisition opportunities that would easily fold into our existing operations, I believe any large deal will be a lesser priority compared to the internal opportunities we have in front of us.
Moving on to our outlook for 2021.
We do expect Q4 to represent peak pain for estimate margin perspective.
This will be the quarter while the price cost most heavily works against us as we produce for orders that were booked in late 2020, after which material costs have run substantially.
We expect revenue in the range of $490 million to $520 million and earnings per share of $0.10 to $0.15 for the quarter.
As Brent mentioned, our record backlog allows us to offer an initial outlook for 2022 of $1.70 per share.
I'd like to be clear about the assumptions behind our 2022 outlook.
Pricing recovery from commodity headwinds experienced in 2021 have been effective and we expect average selling prices for trailers to increase in the range of $5,000 to $6,000 year-over-year.
This would represent a $0.60 tailwind in the bridge from our anticipated $0.52 of earnings per share in 2021 to our guide of $1.70 in 2022.
I'd like to emphasize a modification to our pricing construct for 2022, where we have implemented pass-through commodity pricing with many trailer customers.
We have targeted a certain margin and have agreed to pass through commodity costs.
We feel this provides more certainty around our forward financial expectations and we hope to continue with this framework in future years.
We're also assuming over $0.90 from improved build rates which are based on the ramp in factory floor associate count we've been able to achieve to date.
We expect to gain a total of $0.10 from the combination of reduced year-over-year share count as well as lower interest expense.
Fixed overhead and SG&A will partially offset the significant gains as a result of the impact from the current inflationary environment.
We are assuming no improvement in supply chain in our guidance.
Clearly, we hope that as time goes on, the supply chain situation improves but we're not building that level of optimism into our outlook.
However, this clearly would provide upside opportunity should the present state of supply chain improve.
Operating margins are expected to be approximately 6% at the midpoint and we are well on our way to achieving our 8% operating margin target by 2023.
We are excited about our opportunity to meaningfully expand the company's profitability and earnings per share year-over-year and about the strong underpinning of the demand for our products driven by both strong demand conditions and structural changes in the market.
In conclusion, the announcements we've made today are the culmination of work that has been going on behind the scenes for the last 3 years.
Our strategic focus is well set to leverage the company's strength as our organizational structure improvements proactively position us to drive innovation at a time when the market most needs it.
Additionally, while our new segment structure provides visibility to our important parts and service business, I'd like to reinforce that our parts and services team is working on initiatives meant to holistically benefit Wabash which means we're thoroughly flowing through the lifetime value of our equipment for customers, further enhancing Wabash's value to our industry-leading dealer network and effectively leveraging our carefully curated supplier partnerships.
We are building something exciting by filling in the white space around our traditional first to final mile portfolio of transportation solutions.
All told, nearing our strategy to focus on transportation, logistics and distribution restructuring our organization around these customers and going to market as One Wabash to most effectively leverage the breadth of our portfolio of solutions as building a new identity for our company.
This new identity is underlined by the modification of our company's name.
Our ticker will remain WNC but Wabash will stand for changing how the world reaches you.

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q3 non-gaap earnings per share $0.22.
sees fy earnings per share $0.60 to $0.65.
q3 earnings per share $0.22.

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