Wabash National - Q1 2023
April 26, 2023
Transcript
Ryan Reed (Director of Investor Relations)
Thank you and good morning, everyone. We appreciate you joining us on this call. With me today are Brent Yeagy, President and Chief Executive Officer, and Mike Pettit, Chief Financial Officer. Before we get started, please note that this call is being recorded. I'd also like to point out that our earnings release, the slide presentation supplementing today's call, and any non-GAAP reconciliations are available at ir.onewabash.com. Please refer to slide two 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 (President and CEO)
Thanks, Ryan. Good morning, everyone, thanks for joining us today. We are extremely pleased with our record first quarter results. Importantly, these results highlight the last four years of hard work we've undertaken to affect structural improvement in our business in the lead up to this moment in time. Customer portfolio reshaping, a significant redesign of our organization and reporting structure, a new customer-centric go-to-market approach, including an improved pricing construct and long-term customer agreements, matched on the sourcing side with retooled and relationship-based strategic agreements with key suppliers. We have reimagined our production capacity and are also acting to increase our recurring revenue exposure by achieving our rightful share in Parts and Services, having already laid the groundwork through our parts and distribution joint venture.
All managed through a purposely crafted lean-based management system and a strategic deployment process that mutually act on the business each and every day to drive execution and bring our strategy to a measurable reality. My team and I believe strongly that the changes made to date have significantly brightened the future prospects of our company. Our way of managing the business does not rest, and we have more work to do and opportunities to harvest. While progress is easily indicated by our first quarter performance, what really drives long-term value is the fact that our management system works to benefit customers, suppliers, employees, and communities and shareholders together. During the first quarter, we continued our steady pace of execution against our strategy. As I've mentioned before, we see our industry-leading dealer network as a meaningful competitive advantage that is unique in our industry.
Our dealer network is also a key enabler to the success of our Parts and Services initiative. Ultimately, we succeed by facilitating our dealer success, and in order to ensure optimal alignment of our collective incentives, we launched our Ambassador program for our dealer partners during the first quarter. We believe this is a foundational step to sustaining the impressive rates of growth we've shown in our recurring revenue Parts and Services business. During the first quarter, we continued to advance our Trailers as a Service program by launching a subscription service with Loadsmith, a digital broker founded by a team with significant shipping and transportation industry experience. This relationship builds on our initial Trailers as a Service relationship with FreightVana, which was our initial Trailers as a Service customer, and their relationship has provided a great learning and market exploration opportunity.
We believe we can continue to help remove waste from the logistics system with Trailers as a Service while also building a flywheel that pulls on many areas of Parts and Services offerings. trailers as a service is an excellent example of how our dealer network helps us with national scale to provide service support within this program while we create new opportunities for our dealers to help them broaden their revenue base. Finally, following considerable heavy lifting by our employees and partners, our Lafayette-based south plant is now ready to begin initial production of dry van trailers. Production is beginning at low levels as we run off and validate all processes and as we develop the workforce on the new and exciting equipment in the facility.
Having personally walked the new line and reviewed the new processes several times over the last 30 days, I'm pleased to say that this will be our most modern plant and certainly our most efficient capacity. What is also very clear is that this new dry van capacity provides us with the opportunity to upgrade our legacy dry van manufacturing assets for both capacity and efficiency. Meaningful upgrades were not previously possible given the year-end and year-out burden our legacy facility felt, running three shifts even at mid-cycle levels. This is a key reason we decided to make this capacity investment, and we're very pleased with the outcome. Our backlog has served as another proof point of our strategic progress, making a step change during the fourth quarter of last year as long-term customer agreements entered the picture.
Our backlog remained very strong at $3.1 billion during the first quarter. Strong shipment activity modestly outpaced new orders in Q1, which was not a surprise. While we have somewhat limited visibility on real-time demand conditions given the strength of our backlog fill, we follow macro conditions like everyone else and certainly pay attention to the commentary of our customers. With a backdrop of an aggressive Fed and recent banking issues complicating the macro picture, I believe the consensus view has shifted somewhat from a freight market rebound during the second half of 2023 to a view where most are hoping to see some positive trajectory return by year-end. Clearly, spot rates have been under pressure since the beginning of 2022. That said, the vast majority of our customers, both direct and indirect, are tied to contract rates, which tend to be more stable.
Contract rates have certainly experienced some pressure due to the overarching imbalance in freight demand and capacity as the ongoing inventory correction plays out. In this environment, it's natural that customers will diligently manage their capital spending, while we believe trailers will remain a relative priority as carriers and shippers know the long-term pain it creates to allow their fleet age to step up. Between trends like power only, nearshoring, persistent driver shortages, and so on, we feel that our space is structurally very well situated. We also know that our carefully selected customer base is well capitalized, remains profitable, and is positioning for long-term growth. As we progress through the year, we will continue to provide candid commentary on what we see from market conditions. In particular, our line of sight to a strong 2023 remains clear.
With a very strong Q1 on our books, we are raising our 2023 earnings per share to a range of $4.00-$4.50. Whether you're a member of the investment community that has followed Wabash for many years or maybe only a few quarters, I hope you recognize our underlying pace of strategic progress and improvement in overall execution all the same. We are acting on this company to strengthen its business fundamentals, and those changes have become increasingly clear through the strategic milestones we've achieved, as well as the strength of our financial results over the last couple of years. The acceleration of results from our strategic efforts is the key takeaway I hope you are left with when evaluating our first quarter and future prospects.
I think it's fair to say that most financial models do not have Wabash generating our 2023 EPS guidance of $4.25, even at peak levels. I also think it's important to point out that the implied trailer production and our financial outlook remains in the range of 20% below our maximum capacity, suggesting peak earnings levels that are significantly in excess of our current guidance. That's before we figure in any accretion from continued execution of known as well as upcoming strategic improvements in our business. I'd like to close by thanking our team members who have not only underpinned our quarterly execution, but more importantly, their belief in our strategic direction has and continues to push the impressive rate of change seen within Wabash. With that, I'll hand it over to Mike for his comments.
Mike Pettit (CFO)
Thanks, Brent. Starting off with a review of our quarterly financial results, consolidated first quarter revenue was $621 million with new trailer and truck body shipments of approximately 11,780 and 3,815 respectively. Shipment activity fell within our expected range as Q1 tends to experience the weakest shipment seasonality for trailers of any quarter during the year. Gross margin was 18.7% of sales during the quarter, while operating margin came in at 11.3%. These figures exceed our expectations due to the combination of material cost surprises in the downside and operational efficiency in the form of improved labor cost per unit and lower variable conversion cost per unit.
A previously anticipated contributor to some of the margin improvement comes from the ramp-down of our conventional refrigerated van production, paired with our previously communicated expectations for strong performance within our tank trailer business. Tank trailer production was up 29% year-over-year in Q1. Operating EBITDA for the first quarter was $82 million, or 13.3% of sales, which amounts to a doubling of EBITDA margin relative to the first quarter of last year. We're clearly very pleased with our ability to demonstrate this level of both EBITDA generation as well as underlying improvements relative to our margin history. For the quarter, net income attributable to common shareholders was $51.2 million, or $1.04 per diluted share.
From a segment perspective, Transportation Solutions generated revenue of $578 million and operating income of $87 million. Parts and Services generated revenue of $47 million and operating income of $9.2 million. Year-to-date operating cash flow was $69 million. Even in the context of significant capital expenditures of $31 million, the company still generated $38 million of free cash flow during the first quarter. With respect to our balance sheet, our liquidity, which comprises both cash and available borrowings, was $410 million as of March 31st. We finished Q1 with a net debt leverage ratio of 1.2x. With regard to our capital allocation during the first quarter, we invested $31 million in capital projects, utilized $14 million to repurchase shares, and paid quarterly dividends of $4.6 million.
Our capital allocation focus continues to prioritize organic growth via capital spending while also maintaining our dividends and evaluating opportunities for share repurchase alongside of bolt-on M&A opportunities. Moving on to our outlook for 2023. I'm very proud of how our team has executed to begin the year as we achieved a record quarter and are already able to pull through a guidance increase due to our strong financial performance during the first quarter and continued robust backlogs. We expect revenue of $2.9 billion. We are increasing our outlook for EPS to $4.00-$4.50 per share from a midpoint of $2.85 previously.
As I mentioned on the last call, we continue to expect to see strong growth out of our Parts and Services strategic initiative as we fully anticipate to achieve greater than 20% growth for the third consecutive year in 2023. Combined with the sustainable strength we're seeing in our tank trailer business, which we expect will set an all-time record this year and improving chassis flows to feed our truck body business, I believe our portfolio is well situated to sustain the strong financial performance we're in the process of demonstrating this year. Our One Wabash First to Final Mile portfolio has more levers than it's ever had previously in an uncertain freight environment. Thinking about the quarterly cadence of our outlook, assumed in this guidance is that Q2 strengthened sequentially from Q1 to a range of $1.30-$1.50 per share.
We set yet another quarterly EPS record. The second quarter often represents the seasonal height of our financial performance, and the back half of 2023 will likely sequentially step down as some of the cost tailwinds we saw in Q1 normalize. Just to level-set, even with the second half of the year stepping down from the first half, we still expect it to be the strongest second half in the company's history. In conclusion, I'm very pleased to report such a strong quarter on the way to another record year for Wabash. Record financial performance is one thing, but when these achievements are viewed as indicators of strategic progress and business transformation, the results are even more exciting. Great markets continue to seek balance between demand and capacity, and we're monitoring that situation closely.
However, we believe our performance shows a new level of execution during a period of market strength, and we expect to raise the bar on financial performance during any phase of this cycle that we're given. This resiliency, coupled with an exciting growth strategy, enables us to be more confident in our longer term growth and performance than any time in our company's history. I'll now turn the call back to the operator and we'll open it up for questions.
Operator (participant)
The floor is now open for your questions. To ask a question at this time, please press star one on your telephone keypad. If at any point you'd like to withdraw from the queue, please press star one again. You will be provided the opportunity to ask one question and one further follow-up question. We'll now take a moment to compile our roster. Our first question comes from the line of Justin Long from Stephens. Please proceed.
Justin Long (Managing Director of Transportation Equity Research)
Thanks. Good morning, and congrats on the great quarter and outlook.
Mike Pettit (CFO)
Thanks, Justin.
Justin Long (Managing Director of Transportation Equity Research)
Maybe to start on that point, it looks like the upside in the quarter and the outlook really came as a function of a more positive outlook for operating margins. If I go back to the fourth quarter and look at the sequential change in operating margins, there was about a 250 basis points improvement sequentially in the first quarter. Is there any way you can kind of bridge us to the key drivers of that? Because revenue actually came down a little bit sequentially. I'm just curious how much of this is material costs versus, you know, other cost initiatives you've put in or other items.
Mike Pettit (CFO)
Yeah, it's a little bit of all of the above, Justin. We executed really well in the first quarter. One of the things that you don't see in the revenue number is some of our production numbers. We are continuing to see improvement in the supply chain. Our procurement group has done a very good job executing, getting us the parts we need to produce trailers and truck bodies. We're seeing some nice truck body recovery, I mentioned, with tank trailers. All those things have led to sequential and significant year-over-year improvement in our margins. Those improvements, we believe, are sustainable as we look at the rest of 2023, which gave us the confidence to take up our full year guidance.
Brent Yeagy (President and CEO)
Justin, this is Brent. I think we also have to look at it beyond what I think most people think of as a dry van lens, and then apply everything that Mike said across all the other sub-elements of revenue generation. We saw a really nice strength both top side and bottom side of tanks, platforms, truck bodies, aspects, multiple aspects of Parts and Services. It was truly an all-hands-on-deck contribution, which we see that being somewhat not affected by some of the kind of issues that we're seeing on the dry van side, which gives us confidence as we go forward as well.
Justin Long (Managing Director of Transportation Equity Research)
Got it. That's helpful. Is there anything you can share in terms of the operating margin cadence on a quarterly basis that's baked into the guidance as we look ahead to 2Q in the back half?
Ryan Reed (Director of Investor Relations)
Justin, it's Ryan. You know, sequentially, we're gonna look for things to step up in Q2, and then, you know, along with kind of our broader guidance for, you know, one half versus the second half, we'll look for slightly, you know, stepping down operating margins in 2H.
Justin Long (Managing Director of Transportation Equity Research)
Okay. Well, I guess as a follow-up to that, you know, if I look at your second quarter guidance, you know, at the midpoint, you're talking about $1.40 in EPS. And, you know, if I just take the midpoint of the full year guidance and kind of run that through to the back half, it implies closer to $0.90 a quarter in the back half, which is a pretty substantial step down sequentially. Can you just give a little bit more color on what's driving that? Because it feels like you've got a lot of visibility in production, you've got a lot of visibility in price. Obviously, we're seeing margin upside today. So I just wanted to better understand what's causing that deceleration.
Mike Pettit (CFO)
I think we're taking a pragmatic view of the second half of the year, Justin. We have great visibility to Q2, and as you mentioned, we have a really good backlog. We're just, we're in an environment that's evolving quickly, and we're just taking a view to say we have a opportunity to light up there in the second half. We, we've put guidance out there for the full year that we feel confident we can hit. We'll, we'll see how the second half unfolds as we get through Q2. We, we broke out Q2 guidance specifically to kind of show what we can see most clearly. Then we would expect the operating margin improvements that we talked about from a throughput perspective, build rate to continue into the second half.
there's other variables, including input costs that we're continuing to watch, and we'll update Q2 or, excuse me, second half as we get to through Q2.
Brent Yeagy (President and CEO)
I would just reiterate, this Brent, I reiterate that we have great visibility of the second quarter. We have very good visibility of Q3 and Q4. We'll have a substantially improved visibility in just the next, what I would say 60 to 90 days. That's gonna give us the opportunity to address kind of that pragmatic nature of how we've guided in the second half of the year. You can interpret that as you will.
Justin Long (Managing Director of Transportation Equity Research)
Understood. Thanks for the time, congrats again.
Brent Yeagy (President and CEO)
Thanks.
Mike Pettit (CFO)
Thanks, Justin.
Operator (participant)
Our next question comes from the line of Michael Shlisky from D.A. Davidson. Please proceed.
Michael Shlisky (Managing Director and Senior Equity Research Analyst)
Good morning, and thanks for taking my question. Can you maybe give us a sense, maybe the last month or so, Brent, kind of what have the order trends been from your core customers, I guess from two perspectives? Have you gotten any additional large kind of multi-orders that you've been talking about that you've already booked with J.B. Hunt and a few others? Also just kind of regular everyday orders, how has that been going? Kind of curious if anyone's taken a real pause on even calling people back at this, at this point.
Brent Yeagy (President and CEO)
From a long-term agreement perspective, we're exactly where we expected to be at this point in time. We have met kind of our initial tranche of long-term agreements. We're working on our second, call it group for the 2024, 2025 period. We'll be entering into the 2025 extension, so people that signed up for 2023, 2024, we'll be adding the 2025 extension here in the next 90 to 120 days, exactly per the plan. Our long-term customers are still remain extremely positive when you think about a 2024-2025 period, especially those that are aligned with substantial growth on their part. We see no letback on that.
Bluntly, we have substantial interest that we won't necessarily take into account in signing up for long-term agreements because we have a very tight strategic filter, which we use. We have more demand than we're gonna allocate capacity for that. Great place to be. From a general demand standpoint, just like we said, it's across the business, we have some really stable aspects, tank trailer, truck bodies. We see that actually being extremely stable, if not increasing as we look at outer quarters. When we think about refrigerated, that's a market for us to make with the products that we're bringing to bear, so we're somewhat insulated from that. On the dry van side, I would say we are where we should be in a normal cycle.
At this point, you're not gonna have a lot of order intake because these are not for long-term agreements. It's typically to a 12-month cycle, and you're full. There's not a lot of conversations that we're having at this point, and we remain full. That order season will open up, you know, when we get into the late summer, early fall, and then we'll look at 2024 at that time.
Michael Shlisky (Managing Director and Senior Equity Research Analyst)
Okay. Okay. Another question has to do with margins and some of your comments there, Brent. I think actually, it was you. Actually, it was Brent, yeah. Looking at 10% margins, 10.5% margins this year, and you said that you're basically not really at your full capacity. In other words, you could go higher where you could build more, and of course, lower if things were to go lower from here. I'm kind of curious, is the 10.5% a new kind of midpoint range going forward? You feel like in a future average year, you know, the 10% plus margin level is kind of where you should be, and we can adjust up or down from there based on the, on the, on the broader cycle?
Is there some aspect where you've gotten some temporary pricing for a couple of quarters here and that might be kind of pushing things a bit on the higher than normal end?
Brent Yeagy (President and CEO)
Great question. I'll start it off, Mike, and fill in the blanks. When I think about operating margin potential going forward, let me just kind of start at the top. The performance that we see right now is truly based off of the changes that we've made at Wabash pulling through, right? We have processed validation in the work that we've done very clearly. It's not just taking advantage of a moment in time, it is the purposeful output of a lot of things working together. That's one of the reasons we could as we look forward, we can confidently say that we have accelerated the pace of change and output within the business.
And, you know, as all of you know, we're at levels now that, you know, basically are already at or above what we guided to in 2025. There is a step change improvement that we believe is solid. If we look at the outer quarters, the qualitative answer is yes, we are making a step permanent change in the relative operating margin that we would experience at any point in a given cycle, substantially better than any past cycle that Wabash has performed within. You can adjust, you know, that based off of where you're at or where you believe we're at in the cycle and the rebound.
Wherever we're at, we're gonna outperform any previous expectations that are on the books, and I would say in a very measurable way. That'd be my qualitative answer. Mike, anything else you would add to that?
Mike Pettit (CFO)
No, I think you hit on it pretty well, Brent. I would add and Brent said in his prepared remarks, and you alluded to it, Mike, and that is that
I think one of the things that people miss is we are still somewhat below, relatively significantly below our peak output, from pre-pandemic levels before you add in full capabilities of surge.
Brent Yeagy (President and CEO)
Yeah.
Mike Pettit (CFO)
That will obviously give us some additional margin expansion opportunity as well as tailwinds we think we'll get in truck body. As we mentioned, with the chassis flows improving, we'll get sequential and year-over-year improvement. There's obviously some operating performance, operating leverage that we can drive to the bottom line. There's a lot more to it than just that, obviously, from pricing and cost that comes from materials. We do believe that we have the setup to perform better at any point in the cycle than Wabash has ever done in its history.
Brent Yeagy (President and CEO)
Yeah. The entire strategic framework that we're working under is purposely designed to not have this thing, leaning on a one-legged stool called pricing. We know that is entirely too variable, you know, cycle to cycle, period to period. Everyone's got to take into account that as we go through the next four to five quarters, we're going to have other aspects of the business continue to grow in their, call it revenue contribution, and they all effectively add to the operating margin of the business, based off of how they perform today and expectations going forward. We have a lot of things that are gonna be additive, at an increasing pace as we move into the next two years of performance.
Michael Shlisky (Managing Director and Senior Equity Research Analyst)
Outstanding. Brent, Mike, I'll leave it there. I appreciate the discussion.
Mike Pettit (CFO)
Thanks, Mike.
Brent Yeagy (President and CEO)
Thanks, Mike.
Operator (participant)
Our next question comes from the line of John Joyner from BMO Capital Markets. Please proceed.
John Joyner (VP and Senior Equity Analyst of Machinery and Multi-Industrials)
Thank you. Thank you for squeezing me in, which I guess is better than getting squeezed out. First, how are you thinking? Because Brent, you just kind of touched on this a little bit, right, in terms of the operating margins in your 2025 goal. How are you thinking about those long-term targets now that 2023 EPS and profitability is comfortably above that, you know, those objectives for 2025?
Brent Yeagy (President and CEO)
Well, pretty bluntly, I'm drawing up new ones, at this point in time, and we're socializing them across the company right now as part of the, you know, we have a rolling strategy process. We, I would say we have a pretty good eye on what we think those revisions will be. What we'll see probably, I'll say in the next couple quarters, or, we're probably gonna come out with additional guidance relative to 2026, to make sure the street is fully aware of what those are. At that point, we'll expand the contribution of the various elements, that are gonna lead into that. We're gonna give 2024 a little bit more time to settle, so we make sure we get a good starting point.
There was a question a couple of calls ago where someone said, you know, "How does 2024 fit into the strategic plan? What if there's a downturn?" The answer is even more, can be more strongly said today, regardless of what happens in 2024, based on what we see, we are in an outstanding position to beat our 2025 targets, even look at that as just where we're standing right now and build upon it. We're in pretty good place right now.
John Joyner (VP and Senior Equity Analyst of Machinery and Multi-Industrials)
Okay, excellent. Maybe just one more, quick one, I think here. In the release, you called out the strength in tank trailers and truck bodies. Maybe could you offer some more color around these product lines and what you're referring to?
Brent Yeagy (President and CEO)
Well, without giving like total specifics, our tank trailer business has basically hit an all-time volume level in production, in the context of the last five years. A substantial improvement. I think, Mike, what's the actual for tank trailers?
Mike Pettit (CFO)
It was up 29% year-over-year.
Brent Yeagy (President and CEO)
29% year-over-year with room to continue to expand as we go into 2024. We added capacity to our plants in Mexico, continued some improvement in our plants in Fond du Lac and New Lisbon. With extending some of our customer-centric commercial strategy into the tank business with good reward, and we've seen efficiency gains just within the business itself. Truck bodies, you know, we have been working through the chassis constraint for multiple years. We're now at a point where that is beginning to abate. That gives us a runway for, you know, Class 1 through Class 6, primarily, growth over the next two years. We're seeing that begin to pick up, and we're seeing the inefficiency caused by these overall supply chain disruptions diminish.
That's been a significant drain on margins in that business for three years. All that's just at the extreme early innings that gives us a nice tailwind going over the next two, I'll say next couple years.
Mike Pettit (CFO)
Yeah. Truck bodies, you're seeing, you know, mid-teen to almost 20% improvements in production rates. Our production exceeded our shipments for truck bodies in Q1. We're seeing some nice pull-through there that, as Brent mentioned, with some supply chain disruption easing. That gives us a nice tailwind along with tank trailer and also Parts and Services too. All should be a nice benefit to the overall margin profile of the enterprise going forward.
John Joyner (VP and Senior Equity Analyst of Machinery and Multi-Industrials)
Okay. Excellent. That's impressive. Appreciate the time.
Brent Yeagy (President and CEO)
Thanks, John. Glad we could squeeze you in.
Operator (participant)
Our final question comes from the line of Felix Boeschen from Raymond James. Please proceed.
Felix Boeschen (VP of Equity Research)
Hey, good morning, everybody, and congrats on the quarter.
Mike Pettit (CFO)
Thanks, Felix.
Felix Boeschen (VP of Equity Research)
Hey, I was hoping we could follow up on the dry van capacity expansion. I'm just curious if you could comment on, you know, sort of the anticipated build rate increases through the year within that expanded capacity. Just secondly, Mike, I imagine there's just some startup costs associated with ramping capacity. I don't know if you could talk about that, maybe what's in the numbers and how you expect that to track.
Mike Pettit (CFO)
Yeah. There is. Effectively, the line will launch here in Q2. In the next couple of weeks, really, we'll start to see some production. There will be some startup costs in the early first half of the year in Q2, but not anything above what we've guided to. We saw some in Q1, which we talked about at the year-end call. What you'd expect to see is significant improvement in line rates through the end of the year. Still, we finished the year in that facility at, you know, approximately a third to half of what a full output profile would look like for that plant. The full benefit of that capacity will really be felt in 2024.
There's very little output in Q2, pretty good ramp in Q3, and then we'll be close to full line rate in Q4. Still dependent on exactly when we add second shifts and things like that. That will be a decision we make as we get a little bit closer. You'll see a full impact of that facility, which we previously said, you know, it'll be a net improvement to what we did before, 5,000 units from the reefer plant into next year.
Felix Boeschen (VP of Equity Research)
Okay. Got it. That's helpful. Then just I wanted to follow up on the strong gross margins in the quarter. I know you talked about sort of input costs coming down as well as efficiency going up. I don't know if you could size those two buckets for us. My bigger picture question for the second half of the year is, I know you've changed the way that you price your dry van trailers. Could you maybe just talk about how you're thinking about that raw material margin into the back half of the year if maybe things somewhat normalize? Just kinda trying to think through the puts and takes here.
Mike Pettit (CFO)
Generally speaking, we had, you know, we talked about the production, and it was a lot. When you have a quarter like we had, it was a lot of factors that contributed to it. We did see 10%-12% production improvement in our dry van trailers. I alluded to earlier, we had high teens output improvement in truck bodies, a little better supply story. That all really led to the conversion cost increase. We did see some normalization of the price with the material cost. Into the second half of the year, that's one of the reasons we're keeping a keen eye on what the material cost is gonna settle, some of our input costs.
They are coming off of a bit of a high in 2022. We don't think it'll have a huge impact to margins, but it could have an impact to ASPs as material costs come off their highs. That's one of the reasons we've stayed somewhat pragmatic and conservative in our second half commentary to see what that looks like. Generally speaking, we wouldn't expect to see significant margin impact from input costs. That was the whole intent of our variable pricing construct that we launched.
Felix Boeschen (VP of Equity Research)
Got it. I appreciate it. Thanks for the time.
Mike Pettit (CFO)
Thank you.
Operator (participant)
I would now like to turn the call over to Ryan Reed for closing remarks.
Mike Pettit (CFO)
Thanks everyone for joining the call today. We appreciate the participation. Look forward to following up.
Operator (participant)
Thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation. You may now disconnect