Wabash National Corporation (WNC) Q1 2021 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the Wabash National Corporation Q1 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today Ryan Reed, Director of Investor Relations. Please go ahead.

Thank you, Lindsay. Good morning, everyone. 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 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 all available at ir.wabashnational.com. Please refer to Slide 2 on our earnings deck for the Company's safe harbor disclosure statement, addressing forward-looking statements. I'll now hand it over to Brent for his highlights.

Thanks, Ryan. Good morning everyone. Thank you for joining us today. I would like to start by mentioning how pleased we were with our first quarter results. The broader operating environment has been unusual to say the least. But we'll touch more on that in a minute, I'd like to highlight the dedication and intense focus our team demonstrated in delivering solid quarterly performance. First quarter operating profit and earnings per share came in above our expectations as we executed on the manufacturing side while continuing to tightly manage our overall cost structure. Indicators for our core transportation, logistics and distribution markets continue to be remarkably strong. Record spot rates and expectations for continued increases and contract rates are indicative of a robust consumer demand and capital spending paired with already strained industry capacity. All types of transportation solutions are in high demand as we begin 2021. And I'll call out our Final Mile truck body business because the core correction in S&P markets during 2020 was more severe than we would have expected during non-pandemic circumstances and we're optimistic that the bounce back is going to be really strong. Indications from our large leasing customers is that demand has returned from small and medium sized business segments of the market that they serve so effectively. Their rental businesses have also benefited as fleet scramble for equipment as well. We believe these trends have staying power as the pandemic as proved clearly accelerated changes that were already underway in transportation, logistics and distribution and we feel good about the demand environment as we look forward to this year and beyond. We will now talk about the labor and supply chain situation. Robust industrial and consumer demand across the broader manufacturing landscape has created imbalances throughout an array of manufacturing supply chains, leading to aggressive increases in the price of materials as well as further compounding labor availability across the country. I'm not aware of any manufacturer that's been immune to these issues and although we have introduced effective countermeasures to mitigate the impact within Wabash, we also feel the result in headwinds rising from those labor availability and material cost increases. Hiring remains a challenge and after a relatively successful fourth quarter, our intake of new team members was less than desired during the first quarter and reflective of the general reality of the U.S. labor market. We will continue to pursue additional manufacturing talent throughout 2021, as we work to meet our 2021 customer demand and prepare for our 2022 market reality. In our guidance is the reality that integrating additional manufacturing talent impacts overall productivity in the near term. This is just a simple reality of the situation. The other reality is that the bulk of this impact will not carry over into 2022. It is fair to say that supply chains were already stressed heading into this year and we had some unique quarter one weather events to say the least that compounded supply chain issues and heavy winter storms impacted production both with ourselves and our suppliers. This did impact our Final Mile manufacturing in Texas, disrupted basic flow of commerce for an extended period of time, and significantly impacted chemical related production across many industries; all adding to the stress supply chain, which we feel in terms of increased disruption and further increases in material costs. The cost of commodities and semi-finished components has reacted strongly to the current manufacturing environment, constraints and basic feedstock and lack of labor availability already elevated heading into the year, cost of un-hedged inputs have continued to run us, which is why despite our EPS beat in Q1, we have maintained our prior EPS guidance. As I mentioned when referencing market conditions, our products remain high in demand with our customers. In particular, our mode of structural composite technology is entering a new phase of market adoption and we're moving into our next phase of modest MSC for the structural composite technology capacity additions for 2022. As we mentioned on a prior call, continued high demand for our current dry and refrigerated products coupled with product innovation opportunities being brought forward by the structural changes made to our product innovation and technology team means that we are in need of manufacturing capacity to capture the full value of innovation in these traditional product markets. Our forward looking innovation team has done excellent work to identify interesting new technologies that we can leverage across our integrated portfolio of transportation solutions and other logistics and distribution markets. In support we will be committing new and additional resources into our product development and launch team that further scaling accelerates the introduction of new engineering solutions and our entry into new product and customer markets. As we have now organized our commercial organization around our dynamic customer base, we're in the early stages of creating the appropriate conditions to leverage new technologies across our industry leading first to Final Mile product portfolio to extend our competitive advantage with key customers. With this evolving landscape, we see a real opportunity to grow in our markets and grow the shared value created with our employees, our customers and our shareholders. Given the opportunity ahead of us being facilitated by strategic changes to our organizational structure and the ability to leverage flexible manufacturing across product lines, I can think of few opportunities more beneficial to our long term shareholders than reinvesting in our business to support our future organic growth. Case in point as our backlog through the first quarter, it's typical for Q1 backlog declined sequentially after we book large deals in the fourth quarter of the previous year. This year new orders kept pace with our shipment activity during the quarter as we saw strong demand for our non-band business, which again, is sold out for 2021 and honestly unable to book new orders for the year. This level of demand for diversified products and Final Mile was expected given our customer conversations heading into the year. But it's always nice to see the committed customer orders come through. As we look to the future, demand for Wabash engineered solutions continues to grow in a manner that requires us to act on our ability to satisfy them. As I previously mentioned we are maintaining our prior guidance. We're very pleased with our demand environment has taken shape in 2021 and its extension into 2022 and beyond. We expected labor to be a challenge and we were not disappointed on that. We remain on track to ramp our total man capacity to enter 2022 and a very strong manner. However, I would say the rise in material cost has been greater than anything we could have reasonably expected given that we are in uncharted territory with an all time highs in a number of commodities. What I'm pleased to see is that we have taken immediate decisive action to recover a large portion of those costs and manage another ways to mitigate the impact far beyond Wabash's performance of the past. As the world begins to return to something that resembles normalcy, we are optimistic that the labor and supply chain challenges of 2021 will normalize over time and leave us with a less challenging operating environment in 2022, while freight growth remains strong and customer demand continues to be robust. We are therefore excited about what the future holds as many of the structural and process based changes that we made to our organization and having the intended outcome of synergistically furthering our ability to execute on our strategy. Our improved ability to operate and the growing reality of the established vision of enabling our customers to succeed with breakthrough ideas and solutions that help them move everything the first Final Mile is now an active play. We are executing the plan and with that I'll hand it over to Mike for his comments.

Thanks Brent. I would like to start off by giving us some color on our first quarter financial results. On a consolidated basis, first quarter revenue was $392 million, with consolidated new trailer shipments of 9,670 units during the quarter. Gross margin was 12% of sales during the quarter while operating margin came in at 2.9%. As Brent mentioned these margins were somewhat above our expectations for the quarter as a result of continued strong cost control. Additionally, I like to reference the 2020 initiatives to lower our cost structure by $20 million, of which $15 million was SG&A because after the first quarter, clean SG&A comparisons from last year as furloughs and other temporary cost control measures were implemented beginning in the second quarter of 2020. SG&A was lower year-over-year in Q1 by $4.7 million. Additionally, about 25% of our savings initiatives are being realized as reductions in cost of goods sold. So we are pleased that these structural savings are more than holding during a significant ramp in volumes. Operating EBITDA for the first quarter was $26 million, or 6.7% of sales. Finally, for the quarter net income was $3.2 million, or $0.06 per diluted share. From a segment perspective, commercial trailer products generated revenue of $240 million and operating income of $20.9 million. Average selling price for new trailers within CTP is roughly $26,000 this represents a 7.5% decrease versus Q1 of 2020, as a result of meaningfully higher mix of trailers where prices tend to be significantly lower at 53 foot driving trailers. Diversified products group generated $74 million of revenue in the quarter with operating income of $6.1 million and segment EBITDA margin that hit 14.3%, which was the best level since 2016. Average selling price for new trailers within DPG was roughly $72,000, which represents a 4% increase versus Q1 of 2020. Final Mile products generated $77 million of revenue as this business ran to meet stronger market demand. FMP experienced an operating loss of $4 million which was expected in our prior quarterly guidance because of FMP’s heavy and increasing amortization burden, EBITDA provided a more stable measure of progress and more relevant measure of impact on operating cash generation. We were encouraged that FMP’s EBITDA moved back to positive territory during the first quarter with a gain of $621,000 as improved volumes allowed us to better leverage our fixed costs during the quarter. We expect FMP’s EBITDA generation to improve in the second half of 2021 as the business installed additional capacity to continue meeting customer demand through the on-boarding of new employees. Year-to-date operating cash flow was negative $22 million. We invested roughly $4 million via capital expenditures leaving negative $27 million of free cash flow. Although our payables wiped out considerably receivables and inventory combined to have a meaningful impact on working capital as was expected during the quarter. We continue to show working capital efficiency in Q1 as part of our one Wabash transformation, and we are well on our way to achieving a capital efficient ramp in 2020. We continue to target $35 million to $40 million in capital spending for 2021. With regard to our balance sheet, our liquidity, our cash plus available borrowings as of March 31 was $337 million with $169 million of cash and $168 million of availability on our revolving credit facility which is fully untapped. With capital allocation during the first quarter, we utilized $18.2 million to repurchase shares, paid our quarterly dividend of $4.3 million and invested $4.2 million in capital projects. Furthermore in April, we made voluntary $15 million payment on our term loan. Our capital allocation focus continues to prioritize reinvestment of business through growth CapEx while also maintaining our dividend and valuing opportunities for net reduction and share repurchase. Moving onto the outlook for 2021, we expect revenue of approximately $1.95 billion to $2.05 billion. CTP is right back to bumping up against capacity constraints while SMP is still in demand as labor being the primary gating factor. DPG’s backlog is also building nicely. So I would like to remind you that we do have a quarterly headwind of about $6 million per quarter versus year ago level as a result of the absence of divested revenue. SG&A as a percent of revenue is expected to be in the low pursuit range for the full year and we remain on track to sustain the reduction in our cost structure by $20 million relative to 2019 with around 15 million of that cost out residing within SG&A. Operating margins are expected to be in the high 3% range at the midpoint. Turning to the second quarter, we expect revenue in the range of $450 million to $480 million, up 17% at the midpoint sequentially versus Q1 with new trailer shipments of 10,500 to 11,500 as we look to keep increasing production throughout the year. Given our expectations for operating margins in the low 3% range in Q2 this implies EPS in the range of $0.10 to $0.15 for the quarter. In closing, I'm pleased with our results to start the year. Ramping manufacturing is never easy and this year certainly comes with unique challenges for ourselves and other manufacturers. But what we see is a great opportunity to scale out and ensure that we're firing on all cylinders as customers increasingly become focused on 2022 and what we expect to be a smoother operating environment that will allow us to return the company revenues to levels approaching that was reported in 2018 and 2019. The company is just beginning to enter into these exciting times as the structure of our organization is in the early days of achieving its intended purpose of advancing our strategy, which emphasizes organic growth leveraging our industry leading first to Final Mile Portfolio. With that I will turn the call back to Lindsay to open up for questions.

[Operator Instructions] Our first question comes from Justin Long of Stephens. Your line is open.

Thanks and good morning. I wanted to start with the question on margin, so I think about your operating margin guidance it seems like that the slight reduction there was mainly a function of gross margins; SG&A actually came down a little bit versus the prior forecast. So can you give a little bit more color on gross margin expectations by segment today versus where they were at the start of the year and where are you seeing the biggest changes?

Yes. I don't think that segment levels change that much but the headwinds that we're facing that would require that slight margin compression is similar across the businesses. So you've obviously got a commodity run up and you've got labor. So those are the two things obviously that both would compress gross margins here. We would expect, we're expecting actually a little bit better levels of SG&A. So it's all coming through the gross margin line. I would say for the most part probably CTP and FMP see a little bit more acutely than DPG just given there some of their geographies and their input costs but they're all feeling those basic input cost pressures.

And the color on the second quarter was helpful. But any thoughts around the cadence of earnings and operating margins in the back half of the year, mainly, just curious how you expect it to exit this year? You made the point a couple of times that setup for 2022 is pretty compelling just given the demand environment and some of these cost pressures starting to fade. So curious if you could give us some color on that on the back half?

Yes. I think for the most part, yes, this is [Indiscernible] our Q1 actuals and Q2 guide is that we expect the second half to be meaningfully above the first half and that's largely because of the ramp. As we continue to ramp up, we would expect sequential improvement every quarter as we’re building from Q1 to Q2 we guided to that and we'd expect improvement into Q3 and Q4. So our come out rates into 2022 are something that approach where we've been in a company's very recent history of 2018 and 2019 that I talked about in my comments. So you would expect that, you would see that improvement throughout the year and we're doing that. Obviously our guide for Q2 show that we did have a little bit of a slowdown and some of the hiring that Brent mentioned that causes Q2 to maybe be a little bit more challenging about three months ago, but still well on our way to having a sequential improvement every quarter of 2021.

Great and last quick question on free cash flow I think you talked about being positive for the full year. Is that still the expectation?

Yes right now with our capital plans that we guided to and our EBITDA generation we would expect positive free cash flow.

I'll leave it at that. Thanks for the time.

Our next question comes from Joel Tiss with BMO. Your line is open.

Hi guys. How you doing?

Well.

So can you talk a little bit about like peak gross margins, if we look out maybe peak is the wrong word, but sort of normalized like as we look out to 23 or 24 when we get through all these sort of shorter term issues and just to give us a sense of how things are coming together and what you guys are looking at? Thank you.

Yes. So nothing's changed our view of we discussed at the last call that we think in the next two, three years we can get back to an 8% operating margin, which is still our goal. We still think that's very doable. Nothing we're seeing today at all would preclude us from continuing to hit that whether that's 22, 23 or 24 it's difficult to say right now so I'm not giving guidance to what year. But what we're seeing is we ran the facilities back up and the conversations we're having with our customers and the products are coming to market really make us believe those are still a very realistic goal as we get some of the near-term pressures from commodities and labor behind us. We think 22 and 23 will really open up and be really-really positive years for us.

Yes. I guess, I'd be just a slight more bold than that barring the -- I will call headwinds that we see right now I would just say we are highly optimistic that 8% is a doable number. We obviously are putting in plans to work to exceed that but it's very confident in saying 8% is a doable number and I think the way the world is lining up regardless of calling a year, I would say that the opportunity for that to be sooner than later is becoming more evident in the way the world is shaping up.

Yes. It's great because I sense that sort of some of the cost reductions and the structural changes even on the mix and all that kind of stuff seem a little bit more positive than how things were before. Can you also talk a little bit about your customers sort of like the conversations you're having in terms of pushing pricing through and just any sense it seems like the customers really need the products badly and they're not as worried about the cost side of it, but maybe that's not exactly right. Can you just give us a little sense of how the conversations are going?

Well, first off let me say this is strictly the cost price conversation. We can talk about the more interesting conversations that we're having in terms of growth and innovation in a separate question. When it comes to managing the cost realities that we have right now what I would say what is different is that we have literally had this conversation with every customer within Wabash National and it doesn't matter what product market or which segment you belong within at Wabash we're having a conversation with you. That has not always been how Wabash handled it and the level of success and the scale at which we are acting on the portfolio is much larger than what we've seen in the past. Why can we do that? Well, we have increasing confidence and what I would call just empirical understanding that the implicit demand for our product exceeds our ability to deliver based on the world that we live in right now. we're creating our own reality because of the demand for our product that gives us opportunities to be bolder, more confident in the way that we talk to our customers and that's the way we've approached it not in an arrogant sort of way, but in a matter fact sort of way and when you've got steel prices that have gone up, when you're bumping against a $1,400 per ton spot market those are just real and transparent conversations that you're going to have with the customer in order to maintain a viable business. And that's what we've done and so far no one likes it or anyone who said thank you may I have another. I'm taking another I'll say that but that's the way we approach it.

And then can you spend another minute on your more interesting or two minutes or whatever and then I don't want to take up too much time. Thank you.

Yes. I would just say the last 90 days have been some of the most interesting conversations and levels of output from some of the most interesting names in logistics transportation and distribution that I have had the pleasure of dealing with in my career and we're just and it feels like we're just touching the tip of the iceberg and they all deal with problems that are just endemic within how these customers want to act on their markets over the next two, three, four, five years and how Wabash could uniquely provide them solutions that no one else is talking to them about. And in many ways we're having that in the context of innovation that's coming from, we'll call it a widened ecosystem that we're pulling from that they've never been exposed to and that creates a different type of conversation than I believe our competitors have the capability of doing and this is why we talk about that as we have these and we touch the tip of this iceberg, it gives us reason to invest accordingly in the ability of making that real and bringing that to the customer's doorstep in the near term. So we're pretty jazzed up with that type of conversation and what we're getting so far.

That's great. Thank you very much. I'll get back in the queue.

Thanks Joel.

Our next question comes from Ryan Sigdahl with Craig-Hallum Capital. Your line is open.

Good morning guys.

Morning.

I just want to start and you touched on some but just the confidence and visibility to the ramp in the second half I guess revenue came in weaker Q1, expectations for Q2 also weaker. So it's pushing more to the back half here despite some labor issues or challenges, etc. So I guess what's giving you that confidence given all of the headwinds out there that you can make that up in the back half. I know demand is there, but on the production side primarily.

Yes. I would just say the remainder of what I call labor ramp that we have the I will call it we're over the basic hump of what that looks like and the time span at which we need to fill out the labor is extended. We have a, we'll call it less steep of a ramp over the course of the year. We also have a set of actions which I will not get into that also begin to impact that labor availability in terms of, I'll just say internal things that we're doing to attract and retain employees that we're seeing a level of traction on. The other thing that we'll say is just basic productivity gains with the labor that we've installed that we're just now starting to see that, I will call very straightforwardly materialize in Q3 and Q4. That's on the labor side of it. On the material cost standpoint it's a couple things. First off, in most cases the backlog is set and that allows us to have very straightforward and clean visibility as to what the material cost challenges are on a customer by customer basis. Most if not all the actions that we've taken to-date and will still take our Q3 and Q4 materializing just based on where the backlog how early you can act and when those mitigation factors come into play. And so that's primarily three and four that's pretty straightforward calculable things that we can bake into our guidance and our sequential margin improvement. And then the other thing where we do have open backlog we've already priced which is primarily Q3 and Q4 primarily Q4 and a few of the product markets that we serve. Those prices increases have already been put in place in real time and those backlog slots are being filled effectively putting in the full impact of materials that's a level of risk. So that's why we are confident and why we can continue to improve throughout the year.

Yes. I'll just add one thing that's always a nuance for Wabash National and that is in the first quarter we actually produce significantly more trailers than what we shipped and the ship number is what shows up in revenue. So there's always that timing nuance. So the actual manufacturing throughput would be a little bit greater than what the revenue line would show and that that gives us confidence for Q2 and just to add a little more color to Brent's commentary there is going to be some material margin hit in the second half of the year but it's implied in our guidance and we can see it at this point because it's in the backlog and it'll be somewhat offset by our fixed cost absorption that we'll have as we ramp up the facility go in the second half facilities.

Yes. And I wouldn't worry too much about some implied where did CTP fall in terms of shipment. The order, everything that was produced has never been paid for or ready to ship as Mike talks about the other piece of it just from a revenue recognition standpoint the winter storm that we had was almost a week of literally a 7 day period of disruption and outbound shipment tailed off someone at the end of that week, but that was something that really impacted that specific business segment's ability to ship product and recognize revenue in the period.

That's great. Then just on Final Mile specifically sounds like some more upbeat kind of commentary from the fleet customers, etc. or the rental fleet I should say. Curious, operating margin I guess is negative again this quarter. Some labor challenges there but I guess any way to frame up kind of timeline on when we can expect that to inflect back to profitability? Is that going to be Q2 or is it second half or is it 2022 or several years just any general kind of commentary on the path to back to profitability there?

Yes. So as we as I said in my remarks we expected to generate pretty significant EBITDA in 2021 and that will give us our path to profitability on the operating income line. It won't it in Q2 most likely because we still have the ramp to do. Second half of the year will be meaningful better than the first half of the year that's kind of pointed to that but by next year I think 2022 that business should not only be generating significant EBITDA but it should also be positive on the operating income line as well.

Thanks guys. Good luck.

Yes. Thanks Ryan.

Our next question comes from Jeff Kauffman with [Indiscernible] Research. Your line is open.

Good morning everybody. Yes, terrific results in a real challenging quarter. Just a couple quick hitters here. On the JB Hunt earnings call they talked about an increase in their container order of 6,000 units and their trailer order of 3,000 and that incremental was going to go into their trailer pool, which was kind of an innovative solution as you might have mentioned to conditions in the marketplace. I'm wondering if that kind of thing is what you're alluding to and just without naming customers what types of solutions people are considering given the fundamentals in the trucking market right now?

You always ask these very interesting questions Jeff. absolutely what JB Hunt is doing and how it's acting on the overall logistics market is part of how Wabash National views the future things that are happening with brokerage/asset enabled brokerage solutions is something that we are very keyed into going forward and JB Hunt is one of those customers that is acting on the market in a way that aligns with where Wabash National sees the world going and as an extension of our strategy as well.

Thank you. Yes, no I got seeing trailer pools and all kinds of interesting solutions that different companies are adopting out there, but when you use that terminology you think of Hunt's commentary. Thank you. Just a couple quick hitters. Mike working capital big drain this quarter. I think you alluded to a little bit of that but I'd like to get a little more color and also the tax rate was a lot higher than I would have expected at 36%. Can you just address those two real quick?

Absolutely. So the working capital was a drain but I did hit that commentary at the end of the year. We expected it, in fact it was it was less than we expected. We had some really nice working capital efficiency in Q1. We always use working capital in the first quarter as we ramped the business, but we were happy with where it came in and I think I said it could be upwards of $50 million of working capital in the first half of the year. I feel a little bit more in Q2 but we're at a good pace. We're better than we typically are in a ramp as far as being efficient with our use of working capital.

Let me just say one thing on that and that I mean obviously that is not a by chance exercise with reorganization with the added kind of one Wabash approach to manufacturing syncing up our NPNL group in our sourcing production procurement group. We are just doing a better job and managing inventories from a lean management perspective and it's something that we are purposely looking for these results going forward and leveraging them year-over-year.

Yes which is one of the reasons we've been able to be aggressive with our capital employment and things like paying $15 million on the term loan was because we feel really good about how we're using cash in this ramp and we're going to put some of that capital to work.

Yes. People just segue people think lean manufacturing is all about just simple operating results. Well no it's about allocating resources in a more effective and value-added way and that's where it goes. What we try to translate internally was we can work working capital it allows us to do things for the shareholders that other companies may or may not be able to do.

Yes. Exactly and then the tax rate Jeff was a one-time book to tax true up for some incentive-based compensation that won't repeat throughout the rest of the year.

Thank you. Last follow up and Brent this is going to be another one of those interesting questions. MSC, I think it sounds like a real game changer. I think it's unique maybe in the way Duraplate might have been unique at the time to the dry business. We're now a few years into it. You've made a large investment in it. Kind of what's come out better than you thought? What's been a little frustrating about it and how is your view on the role of MSC changing within the company?

Well, first off I'd say we are at a very unique point in time where I'll just call it assembly of factors have increased the adoption potential for the technology across a wide array of products and so when we think about MSC while we originally talked about it in the context of [Indiscernible] we now talk about it in the context of acting within not only refrigerated advance space the refrigerated truck body space. We think it is being actively researched and prototyped in spaces outside of our current portfolio transportation related solutions in an active and very scalable way. That's all in what I would call early prototype phase and so the amount of activity that we have around the idea of MSC technology is at a scale that's significantly above how we thought about it 24 months ago. When you think about the value proposition, when you think about that this product is not tied to material costs like steel and aluminum you start to understand that the material cost delta can begin to be, would be a value-added feature itself. You start to go away wait a minute sustainability and the active value of that for publicly traded companies is growing at an extensive rate. So there's value that is being created that wasn't in existence 24 months ago. Tangible, capital meaningful value that goes right into executive compensation programs makes it a different sale. Those are some of the things that have come to bear and as a result the amount of door knocking to us to explain how this could impact their business has gone up I would just say significantly just in the last six months. So that leaves us in a place where not only from the manufacturing standpoint but from a total business standpoint we are now entering into a phase where everything from how we sell it, how do we engineer it, how do we turn it into a we'll call it a scalable bill of material so that we can produce this at scale we've entered into that phase as we look forward to the next three to five years.

That's awesome. Thank you.

Thanks Jeff.

Our next question comes from Felix Boeschen with Raymond James. Your line is now open.

Good morning everybody.

Morning Felix.

Maybe just a bigger picture question on final mile but if we go back to the 4Q, 17 acquisition, I'm just curious have you guys seen any changes to the customer mix within the business or put another way if there are certain type of customers whether that's more on the lightweight body side or on the larger side that you're increasingly targeting within that business?

Yes. There is a, I will call it a short and long-term component to that answer. What we've got in the near term, we saw it somewhat in 20 we're seeing it in 2021 we're trying to understand what it looks like in 22. The larger product we'll just call it 18 feet longer doesn't have the exact same demand characteristics primarily based on the pandemic and kind of economic reality that also tends to come through the leasing arm of our product channels. We don't see that as strong as what we've historically seeing going all the way back to 2017 and that seems to be, we believe, a more near-term economic reality. Now what we're are wanting to understand is how that manifests itself going forward in the 22, 23, and 24 and how that shifts back and the speed at which it doesn't we believe it will the understanding is this going to be a, what I would call a rubber band snapback, is it gradual, was it going to be right now it feels more like a rubber band snapback. That's one side of it. I think on the longer term we obviously see a growth in what I will call the class for us class one through four solution set within the space as we see, we'll say Final Mile, but it's bigger than just what do I deliver to the home. We want to get past and probably we need to talk better about positioning this that the e-commerce reality affects so much more than just do I have a product that can carry cardboard boxes to the home and that is affecting products all the way up the FMP portfolio or even potential portfolio. So we see change happening there in that space that is generally smaller products compared to an 18-footer or greater. So we are dedicating, we'll call it product development mindshare in that space as a result. So short answer is, we think lease is going to come back which is going to pressure us on the longer more traditional at the same time we've got ample opportunity for where the market's going in more solutions being required in that smaller e-com commerce disrupted space.

I think the other thing that we're seeing that's important to note is from 2017's we're clearly seeing more pull across our whole portfolio from legacy CTP customers wanting to buy final mile product and vice versa. FMP customers want to buy CTP. It really is becoming we talked about omni-channel, but it's becoming an omni-channel equipment by two and which is one of the reasons we've made the strategic organizational changes we've made because it really is pulling through the whole product and that I see.

That’s cold chain and goes back to a question previous that does tails into this, when we now talk about cold chain solutions for customers to be named at a later date we're not talking to them about just the refrigerated van. We're talking about to them about the two to three different types of we'll call it smaller vehicle solutions to solve a multi-problem set of how you deliver and distribute, redistribute and move within a full logistics chain, a logistics cold chain and we're asking what is the full technology solution set to be able to do that. And so that's a shift in not only how we sell, how we engineer but it also is going to impact the mix of what we produce going forward.

Right. That's super helpful. I appreciate all the color. I guess the follow-up to that is just on Final Mile margins. If we think about it from a higher level conceptually just kind of looking at what supreme used to run, I know we have to add back a couple of points of amortization. But then also looking at what you used to run in 2019 that was before some of the structural initiatives you guys have undertaken like in the past couple of years or months I should say knowing or understand that demand is on the upswing. Can you help us walk through some of the puts and takes of maybe 2022 operating margins for that business as you see it now? What are some of the key sort of KPIs that you guys are looking at?

Yes. For 2022, obviously on the margin side of FMP specifically, we really are looking to get back to a more stable position from the labor, installed labor base. That will provide a significant tailwind from 21 to 22 which we feel very confident we'll have and I would say that's one of our big KPIs and being able to see the labor that's coming on and stability in that. And we also think another part of that that will help is we believe we'll have a better Q3, Q4 demand profile in that business, which is something that's over time over decades has been a little weaker I think we can that demand improvement in the second half of the year will propel us into 2022.

Yes. I think the other piece that will be a new set of KPIs for FMP and it's somewhat leveraging what we did within commercial trailer products to change the portfolio to a better margin producing portfolio is being able to have a more discriminate view of the relative margin potential actual and realized by a different segmentation grouping than maybe how FMP had historically looked at its business to drive through our commercial reorganization, a different we'll call quality of revenue within that business. So picture second and third level KPIs that we'll call it inform and encourage different demand inputs as we go forward with this business.

No that makes sense. And I just had to follow up on the trailer pricing commentary. I know you talked about ASP being down but I think it was quite a bit of mixture of it. Is there any way to quantify sort of a core price metric you guys are getting out in the market right now or anybody just kind of normalized for the mix impact?

I would just say I will just put it this way for a standard Wabash dry van refrigerated trailer, since we're primarily talking about CTP and the way I think you framed that I would just say that there, we are on that product we are thousands of dollars higher on a standard 53-foot moderate option product. We are thousands of dollars higher in the way we price the product and realize that sale right now than where we were 120 days ago.

Got it. Very helpful. I will leave it there.

Thanks Felix.

There are no further questions in the queue at this time. I will turn the call over to Ryan Reed for any closing comments.

Thank you Lindsay. 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. You may now disconnect.