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Text: Couple of items before we get started.
I'll now hand it over to Brent for his highlights.
I'd like to start by mentioning how pleased we were with our second quarter results.
The manufacturing environment continues to be challenging for everyone involved, but I feel Wabash National has navigated well through this environment.
Second quarter operating profit and earnings per share came in above our expectations as we executed on the manufacturing side, while controlling our cost structure.
I now want to step back and discuss our ability to execute in this environment.
We are witnessing a new and heightened level of collaboration and coordination among our employees as we navigate possibly the most difficult external environment I've seen in my career.
With our new organizational structure, our supply chain, manufacturing and sales teams now work across our businesses to disseminate information and direction more effectively and with higher velocity than ever before.
We are delighted, but not surprised, because it was our intent to drive this level of management system improvement when we realigned our organization to drive functional excellence as well as a higher level of focus on our customers to expand our entire portfolio of First to Final Mile.
Speaking of our portfolio, I'd also like to congratulate our team on successfully divesting the Extract technology business at the end of the second quarter.
Wabash's acquisition of Walker Group Holdings in 2012 brought a handful of businesses into our portfolio, most notably tank trailers and process systems.
Extract was also included in that deal and as a leading provider of containment and aseptic systems for the pharmaceutical, healthcare, biotech and chemical markets.
Although Extract is an excellent business, our strategy is now squarely focused on the transportation, logistics and distribution industries.
As such, our best owner review concluded that we should look to monetize the asset and we believe Extract is very well situated for the future under the new ownership of Dietrich Engineering Consultants.
Also on the strategy for us, I'm very pleased that Dustin Smith has accepted the position of Chief Strategy Officer.
This is a new role for Wabash that is designed to accelerate our pursuit of innovative technologies, expand and increase the velocity of our product development activities as we identify and investigate emerging market opportunities within the changing landscape of transportation, logistics and distribution.
Dustin has been with Wabash National for 14 years and brings with him broad leadership experience across the areas of finance, manufacturing and supply chain from roles at Wabash and Ford Motor Company.
Most of all he brings with him the trust of this leadership team and the rank and file of this organization.
Dustin's primary responsibilities will be two-folds.
Firstly, he will work directly with Mike Pettit and I, as we generally chart [Phonetic] an evolving course to drive profitable growth for our shareholders over the next five years.
Second, he will drive the deployment of current strategic growth initiatives including cold chain and the portfolio expansion of our molded structural composite technology, leveraging the impact of e-commerce and overall logistics disruption for growth and profitable expansion with an upfitting, parts and services.
Again, this type of role would not have been possible in the context of prior organizational structure, but given our One Wabash approach, this will now can prioritize high-impact opportunities and marshal resources across the organization to execute our initiatives, achieve our vision and live our purpose of changing how the world reaches you.
Now let's focus on market conditions.
Our market indicators continue to show the underpinnings of a very strong setup for ongoing freight activity.
Elevated retail sales and depressed business inventories are prompting increased manufacturing production, which is driving strong freight activities within a dislocated freight landscape.
As a result, those spot and contract rates reside at very favorable levels for our customers and seem likely to remain well into 2022.
High remained a challenge in seemingly all sectors of the economy and our experience has been no different.
That has enabled to gain in 2021 this perseverance and we continue to make improvement and our progress to increase overall labor capacity in a very challenging environment.
Material costs and supply chain performance remained headwinds, but we are handling those in a manner that is considerably better coordinated than in past cycles due to our ability to see the field much better and react in a more deliberate, agile and time-sensitive manner.
We are also having the difficult but necessary conversations with our customers about recovering cost increases throughout our backlog and we continue to work to mitigate the impact of cost increases in other ways.
As I mentioned, on the supply chain side, we are working as one team to navigate the uneven landscape and are resulted in better than expected, given the amount of volatility in our diverse supply base.
All types of transportation solutions are in high demand for 2021 and labor and supply chain constraints occurring now has only heightened desire for customers to have demand planning conversations that include 2022 and beyond.
That said, our backlog for 2022 has not yet fully been opened.
We remain diligently focused on managing demand in a manner that reflects the reality of the challenges of material cost and labor uncertainty and assuring repriced products in a manner that reflects that environment.
That includes the reality that forthcoming demand will likely exceed the industries and our near-term capacity constraints.
We'll talk more about that in a minute.
Moving on to backlog.
It's very typical for our order backlog declined sequentially from Q1 to Q2 as we fulfill customer orders and gear up for large deals for van trailers later in the year.
Because of backlog strength in our DPG and FMP segments, our order book saw the less than normal seasonality, it would indicate an overall backlog remained up 77% year-over-year.
Moving on to our outlook, we are maintaining our earnings per share guide.
Raw material cost increases have been greater than anticipated.
Our financial performance in Q2 was enough to offset those material cost headwinds.
As such, we are leaving our prior guidance essentially intact.
Because of the Extract divestiture, we will address our outlook to reflect the absence of that business.
We remain on track to ramp our capacity utilization to enter 2022 in a strong manner.
I am now going to shift the conversation to discuss how we'll better meet the implicit demand for our products and services into the future.
As we think about the past, present and future of our manufacturing footprint, we have found ourselves that demand has exceeded physical capacity for the production of dry vans.
As a result, we have asked a lot of our workforce in 2018 and 2019 to work significant over time in many weekends, so that we could fulfill as much customer demand as possible and even then we'll have customers wanting.
Profitable demand for our dry vans has continued to grow over the past decade as we have strengthened our indirect channel, utilized innovative materials to create by far the lightest dry van in the industry and now reorganized our salesforce to increase the effectiveness of our commercial efforts.
Couple that with a changing logistics landscape, knowing that our customers are uniquely positioned to grow capacity and 10 years of continued growth and overall trailer demand and it's time for Wabash National to move to increase our ability to capitalize on this profitable opportunity.
Therefore, we are announcing the transition of existing manufacturing floor space to produce dry vans beginning in 2023 and we expect to be able to produce incremental 10,000 dry vans annually.
To put these numbers in context that is roughly a 20% increase in our dry van capacity, but only a 5% increase for the industry.
This is obviously a small change for the industry, but a considerable boost to Wabash National's ability to serve our direct customers and supply our indirect channel.
To facilitate this move, we will be ramping down manufacturing of our conventional refrigerated van product and converting that floor space to dry van production over the next 18 months.
The transition of this existing floor space and this existing highly skilled labor force create significant and sustainable financial benefit for Wabash as it provides both top line growth and accretive margin potential.
When considering the strategic impact of our cold chain growth targets, this aligns with our intent to transition our traditional conventional refrigerated product technology, the far superior and industry leading Molded Structural Composite technology coupled with a more efficient and innovative future refrigerated van production capability.
Molded structural composite technology refrigerated vans have over 10 million miles on the road and show better thermal efficiency combined with its lighter weight design.
With a differentiated approach to refrigerated trailers that addresses our customers growing needs for sustainability and operating efficiency, we expect to follow up with an announcement of additional molded structural composite refrigerated van assembly capacity in the coming quarters.
When we started our journey to disrupt the refrigerated industry several years ago, we did so with a specific intent to jump over the competition with superior technology.
We have now reached the point where conventional reefer design is the past and we are all in, in commercializing the future.
Let me close my portion of the call by saying that I'm extremely proud of our team's performance through these unusual times.
In 2020, we posted the best cycle to trough performance in the company's history by generating over $100 million of free cash flow.
We now continue to raise the bar on our performance at a different phase of the cycle as we manage through unprecedented labor and supply chain environments, while generating strong operating income.
This very obvious improvement doesn't happen by trying harder.
These improvements are the result of a refreshed strategy and an organization has now structured to execute that strategy.
All of these exciting changes have happened at a precisely the right time as we look forward to continuing this cadence of improved execution paired with the ability to move more thoroughly and more dynamically serving customers in the coming years.
With that, I'll hand it over to Mike for his comments.
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 $12.3 million or $0.24 per diluted share.
On a non-GAAP adjusted basis, earnings per share was $0.21.
From a segment perspective, Commercial Trailer Products generated revenues of $296 million and operating income of $32.3 million.
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 remains considerably stronger than industry production would show.
While labor challenges have been part for the course in this business, supply disruptions have been greater as Chassis OEMs have taken unplanned downtime to adjust our capacity to chip shortages and we would expect these chip related chassis headwinds to continue for the rest of 2021.
FMP experienced an operating loss of $3.2 million but a gain of $1.3 million in EBITDA.
because of FMPs 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 continue 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 [Phonetic] 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 our 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'll be reviewing our portfolio of businesses for fit.
Since that time, we have divested Extract, Beall tank trailers and sold our last remaining Wabash branch location.
These actions come after the divestiture in 2019 at 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 flip from divestitures to building a pipeline of potential acquisitions.
The second quarter was a very active on 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 of cash on the balance sheet and net debt leverage of only 2.6 times.
Our capital allocation focus continue to prioritize reinvestment in the business through growth capex, while also maintaining our dividend and evaluate 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.
SG&A as 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 resulted in an earnings per share midpoint of $0.72 with a range of $0.67 to $0.77.
Again the updates are earnings per share midpoint is 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 will intensify as we move through the remainder of this year, we expect operating margins in the high 3% range in Q3.
This implied Q3 earnings per share 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 and 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 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 and will strengthen our push toward 8% operating margin, which is a target we continue to expect to achieve by 2023.

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wabash national q2 gaap earnings per share $0.24.
q2 adjusted non-gaap earnings per share $0.21.
q2 gaap earnings per share $0.24.
quarter-end backlog of $1.3 billion, up 77% yoy.
quarter end backlog of $1.3 billion up 77% yoy.
2021 earnings per share outlook maintained, updated for divestiture impact at $0.72 per diluted share; range of $0.67 to $0.77.

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