Wabash National Corp (WNC) Q3 2021 Earnings Call Transcript

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Wabash National Corp (WNC -1.72%)
Q3 2021 Earnings Call
Nov 9, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to Wabash National Corporation Third Quarter 2021 Earnings Call. [Operator Instructions]

I would now like to hand the call over to your speaker today, Mr. Ryan Reed. Please go ahead.

Ryan Reed -- Director of Investor Relations

Thank you. 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 in our earnings deck for the company's safe harbor disclosure addressing forward-looking statements.

I'll now hand it off to Brent.

Brent Yeagy -- President, Chief Executive Officer & Director

Thank you, Ryan. Good morning, everyone and thank you for joining us today. We have a number of exciting updates to share with you. Upon becoming CEO, our team began this journey of repositioning Wabash as an innovation leader of engineered solutions for the transportation, logistics and distribution markets with a unifying purpose of changing how the world reaches you. We have made deliberate organizational and structural changes over the last few years to further enable and accelerate the deployment of our strategy.

First, we built a portfolio of first to final mile equipment which positions us to have the most complete set of solutions for our customers as they respond to changing logistics environments, primarily driven by the growth of e-commerce. Second, we implemented the Wabash Management System, a lean-based and enterprise-focused process development effort that drives breakthrough and scalable business capabilities. Lastly, we introduced the One Wabash approach to focus all aspects of our business, our processes and our people to create and deliver value to our customers. These significant advances to our company's structure and culture have been made with the goal of enhancing collaboration, innovation and customer centricity across the enterprise. We now go to market as One Wabash which provides our customers with an improved experience as they continue to increase purchasing from across our product and service portfolio.

Our innovation, product development and manufacturing capabilities from across all businesses are overseen by 1 centralized team which enables our talent to focus on solving the most pressing needs for our customers, focusing on deployment of resources, while driving the highest levels of innovation within our markets. This structure enables the Wabash Management System, the foundation of how we do things to drive connected thinking, problem solving and alignment so that we can create breakthroughs at an increasingly rapid pace. These changes have not only enabled a better customer experience but also allowed Wabash to be more productive as evidenced by our $20 million of structural cost efficiencies achieved during 2020. This enhanced platform for growth positions Wabash to seize the opportunities created by an increasingly disruptive logistics landscape.

The Wabash Management System has also enabled the company to focus on the growing opportunities within the transportation, logistics and distribution markets. Our team has worked hard to align our portfolio of businesses with a new strategy. And as a result, we have adjusted 3 noncore businesses: Garsite, Beall and Extract. These decisions all follow the principles of our system such as assuring resources are focused on deployment of the strategy, powerful redeployment of capital and focus is critical to our success.

The outstanding efforts of our extended leadership team and all of our employees to the accept and drive chain has strategically repositioned Wabash to execute the next phase of our growth strategy. Cold Chain, the growth in e-commerce and parts and services offer numerous secular growth opportunities within the transportation, logistics and distribution markets and we intend to leverage our people, our technologies and our existing and growing capabilities in order to foster profitable growth in these attractive markets. Our Cold Chain initiative leverages new technologies to add value within the rapidly growing refrigerated transportation and logistics space.

The e-commerce space has been experiencing dynamic growth and our product portfolio is expanding to better serve that market from first to final mile. And our parts and service platform initiative is one where we are excited to build upon existing revenue streams to target growth of higher margins, more recurrent sales as we deliver to our customers' changing needs. We will deliver on this growth from a market leadership position, while continuing to innovate and deliver industry-leading customer service. The opportunities for profitable growth over the next decade have never been as significant in the company's history and Wabash is positioned to seize this moment. This moment is special; transportation, logistics and distribution markets are going through a momentous transition as they adapt to a compilation of forces.

We see a different future reality than our competition in the context of social, technological and logistic changes and we've chosen to go down a substantially different pattern to reshape the industry and pull that future forward for our customers. It is time to be bold and send a message to all of our stakeholders that we choose to take the next step forward in our maturity as a company, as a solution provider and as part of a greater contributor to the sustainability and social awakening of the world. The decision to drop national from our name, while on the surface may seem insignificant, it is, in fact, a powerful change and symbolic for the significant strategic changes that we have made as One Wabash and will continue to make on our growth journey. We are redefining and reimagining our identity with customers, dealers, suppliers, employees and shareholders. Wabash has become a more dynamic place to work. We are reshaped to grow beyond our traditional markets and we have a visionary mindset and the capacity to prosper in a changing world. So today, we are announcing our name change and in the near future, we will outline our plans to adapt our brand strategy to reflect our vision of the future.

In addition to changing our identity, we are changing our segment reporting structure to align with how we operate the business and how we go to market. Given we now have 1 face to the customer for our first to final mile portfolio of equipment, we will now have 2 reportable segments. The first new segment, Transportation Solutions comprises of vans, platforms, tank trailers and truck bodies and accounts for about 90% of our year-to-date sales. We continue to provide disclosure of new trailer unit shipment volumes and we have added disclosure on unit shipment volumes for truck bodies, provide visibility to what we anticipate will be a strong growth trajectory for that business going forward.

The second new segment is parts and services, a higher margin, more repeatable business that is poised to benefit from a changing logistics landscape, new and emerging customer needs and the rise of the digital marketplace. While we currently generate a small portion of our company's total revenue from parts and service businesses, we appreciate the cyclicality dampening effects in the margin uplift that parts and services can create for OEMs. As such, we have shifted significant talent to lead our parts and service team and they are focused on executing aggressive plans that now underpin our growth initiatives in this space, aftermarket parts, repair and maintenance services and upfitting as well as equipment services all present compelling opportunities for revenue growth and margin expansion. We expect parts and services to benefit from our planned capital allocation activities to drive both organic and inorganic growth enabled by significant free cash flow generation by our Transportation Solutions segment.

With a mature strategic deployment process as one of our many new capabilities installed under the Wabash Management System, this will be an area of extreme focus and will benefit from our enhanced ability to create scalable and profitable growth in both OEM and aftermarket parts, focused service and update offerings as well as other service offerings. Our new segmentation structure reflects our enhanced focus on new growth opportunities as well as aligns how we discuss the business with how we operate the business. This will create enhanced transparency and a more simplified discussion of how and where value is created at Wabash for our employees, our customers and our shareholders.

I will now discuss our plans of shifting capacity from traditional refrigerated vans to dry vans and the scale growth of our composite refrigerated products which includes mode structural composite technology. I'm pleased to report that our progress remains on track for additional dry van production to begin in early 2023. As we discuss these capacity changes with the investment community over the last quarter, I'd like to read those at a few points that I believe are helpful in explaining our rationale for these changes and the forthcoming benefits.

Going to market as One Wabash allows a portfolio selling approach that leverages the unrivaled breadth of our products. That capability to meet this new customer demand more fully for our flagship dry van product is tremendously important in supporting our portfolio selling approach. Additionally, our enhanced dry van capacity will allow us to more adequately supply product to our Wabash exclusive and industry-leading dealer network. This added capacity is also necessary to supply logistics market that continues to drive changes in the way trailers are utilized. Drop and hook is a strategy carriers use to maximize drivers' time on the road. Driver shortages are a persistent problem but have become more severe since 2020 with little clarity on how or when this situation will materially improve. Overall, our customers' incremental economics of adding a trailer to a tractor have meaningfully increased and represent a compelling value proposition in the marketplace.

Additionally, incremental demand for dry van trailers is being generated by customers that did not consume trailer supply to 10 years ago. Private fleet and freight brokers are building trailer pools to ensure consistent access to capacity and more effectively leverage our only capacity. Given our efforts to grow dry van production, we have also planned several steps ahead to ensure stability of component supply. As 1 example, our management team has spent time with our supply partners at Hydro, a global leader in aluminum extrusions which have historically been in high demand during times of elevated trailer industry build rates. The Hydro team appreciates the vision that Wabash is working to bring to life and Hydro has agreed to be a key supplier for Wabash over the life of a 10-year supply agreement which is a meaningful development, increasing supply certainty for both our existing and new dry van capacity.

When considering the differentiation facilitated by our industry-leading lightweight panel technology, we believe this capacity expansion creates an incredible long-term opportunity for Wabash. We also remain on track with our plan to scale our innovative molded structural composite technology within refrigerated vans, truck bodies and other transportation logistics and distribution-related products. We believe we have a unique technology and operational capability that has the ability to disrupt the broad Cold Chain product market as well as change operating models for carriers and shippers. These composite technologies facilitate improved operating efficiency for our customers, changes the model of asset usage and life while also supporting a customer base that is increasingly focused on sustainability and reducing their carbon footprint. We now have over 25 million miles logged to date and we are excited to scale this opportunity as we move into full commercialization of this product technology.

Finally, we believe long-term investors will be rewarded in the near term by our dry van capacity project as our converted traditional refrigerated van facility will produce 10,000 units post conversion which is twice as many dry vans as compared to the reefers that were previously manufactured. Notably, dry vans carry a higher margin compared with our conventional refrigerated product. All told, we expect to realize $0.15 to $0.20 of annual EPS accretion in 2023 and beyond as a result of this near-term capacity move. This capacity project will also enable us to further create shareholder value as we fully commercialize our breakthrough all composite refrigerated technology over the next several years.

Moving to market conditions; demand for freight remains robust and supply continues to be constrained by a multitude of factors, strong business investment and consumer spending paired with persistently low inventory levels continue to propagate robust levels of freight activity. We see the overall freight environment remaining positive through 2022 and well into 2023. Coupled with structural changes, as previously discussed, in terms of e-commerce related logistics disruption, the entry of new customers and the emergence of large trailer pools, we see demand remaining robust for an extended period of time, possibly the strongest period of demand we have seen in history.

As a reminder, the trailer industry has a strong seasonal pattern of ordering activity in which OEM backlogs built during the second half of the calendar year. The strength within our customer businesses from First to Final Mile has been well reflected in our backlog which increased by $600 million sequentially in Q3 to a total of $1.9 billion. This represents an 87% increase versus the same period last year. $1.9 billion in backlog also establishes a new record for our order book which is a testament to our new commercial structure and market strength as well as changing dynamics of how the market utilizes trailers. The strength in our backlog creates the visibility necessary to offer an initial EPS outlook for 2022 $1.70, assuming no improvement in supply chain conditions.

In closing, we're excited to announce our identity change and the realignment of our external reporting with our operating structure, our growth initiatives and our strategy going forward. Our portfolio of transportation solutions positions us to leverage unmatched product breadth as a competitive advantage, shored up by unified commercial structure and go-to-market strategy. We expect our increased dry van capacity to be a linchpin to many new and expanded customer relationships and our shift to all composite refrigerated technology to drive growth well into the future.

Driving focus in our parts and service business enhances visibility to our higher margin, more repeatable business that features ample potential for growth. These reporting changes are the culmination of modifications to our organization. to facilitate our refreshed strategy and we're eager to share our progress with you as the new reporting structure enables more effective communication. We believe a story that started with a change in vision and a deep desire by so many of Wabash to be different, to be better. Ultimately, we are living our purpose with action to change how the world reaches you.

With that, I'll hand it over to Mike for his comments.

Michael Pettit -- Senior Vice President & Chief Financial Officer

Thanks, Brent. I'd like to start by offering some brief thoughts on the announcement Brent just discussed. Following our strategic, organizational and capacity update, today's company branding and segmentation refreshes are the culmination of work that has been going on behind the scenes for the last 2 years. Our decision to narrow our strategic focus to transportation, logistics and distribution markets comes at a time of dramatic and exciting changes within the industry and we are tremendously excited with how the following moves have positioned us to leverage our commercial organization and innovation and product development capabilities to lead our markets forward.

Turning to a review of our third quarter financial results. Consolidated third quarter revenue was $483 million with new trailer and truck body shipments of approximately 12,455 units and 3,780 units, respectively. Gross margin was 10.6% of sales during the quarter, while operating margin came in at 3.8%. Operating EBITDA for the third quarter was $33 million or 6.8% of sales. Finally, for the quarter, net income was $11 million or $0.22 per diluted share.

From a segment perspective, Transportation Solutions generated revenue of $443 million and operating income of $26 million. Parts and Service generated revenue of $42 million and operating income of $4.1 million. Year-to-date operating cash flow was negative $74 million. Shipments that were skewed very late in the quarter caused our receivables to increase significantly from Q2. We have also increased inventory in certain areas of our business to help buffer supply chain interruptions. We would expect Q4 to have a significant amount of free cash generation. Our current target for 2021 capital spending is approximately $50 million which is higher than normal as we catch up on projects that were deferred during COVID and prepared for our strategic capacity expansion and the conversion of our Laveya-base south plant from reefer capacity to drive an capacity.

With regard to our balance sheet, our liquidity or cash plus available borrowings as of September 30 was $259 million with $49 million of cash and cash equivalents and approximately $220 million of availability on our revolving credit facility. In late September and early October, we upsized our revolving credit facility by $50 million to $225 million and closed an issuance of $400 million in senior notes, respectively. After repaying our previous senior notes and term loan, our improved debt structure will result in $3 million of annual interest expense savings and more importantly, create a reasonably priced patient debt structure that allows us to invest in our business and enhances our opportunities to create value with a lower cost of capital.

With regard to capital allocation during the third quarter, we utilized $14 million to repurchase shares and our quarterly dividend of $4 million and invested $9 million in capital projects. Our capital allocation focus continues to prioritize reinvestment in the business through growth CapEx while also maintaining our dividend and evaluate opportunities for share repurchase alongside bolt-on M&A opportunities.

Thinking about the next 3 to 5 years, I expect our capital allocation to continue to support our internal opportunities for organic growth. We have exciting opportunities to generate rates of return well in excess of our cost of capital as we progress with initiatives on our Transportation Solutions and Parts and Services segment. Our dividend also remains an important element of returning capital to shareholders. Given that we expect our future free cash flow profile to remain robust, we will continue to provide an opportunity to repurchase shares when we consider that to the under value. While we will continue to evaluate smaller acquisition opportunities that would easily fold into our existing operations, I believe any large deal will be a lesser priority compared to the internal opportunities we have in front of us.

Moving on to our outlook for 2021. We do expect Q4 to represent peak pain for estimate margin perspective. This will be the quarter while the price cost most heavily works against us as we produce for orders that were booked in late 2020, after which material costs have run substantially. We expect revenue in the range of $490 million to $520 million and EPS of $0.10 to $0.15 for the quarter. As Brent mentioned, our record backlog allows us to offer an initial outlook for 2022 of $1.70 per share.

I'd like to be clear about the assumptions behind our 2022 outlook. Pricing recovery from commodity headwinds experienced in 2021 have been effective and we expect average selling prices for trailers to increase in the range of $5,000 to $6,000 year-over-year. This would represent a $0.60 tailwind in the bridge from our anticipated $0.52 of EPS in 2021 to our guide of $1.70 in 2022. I'd like to emphasize a modification to our pricing construct for 2022, where we have implemented pass-through commodity pricing with many trailer customers. We have targeted a certain margin and have agreed to pass through commodity costs. We feel this provides more certainty around our forward financial expectations and we hope to continue with this framework in future years. We're also assuming over $0.90 from improved build rates which are based on the ramp in factory floor associate count we've been able to achieve to date. We expect to gain a total of $0.10 from the combination of reduced year-over-year share count as well as lower interest expense.

Fixed overhead and SG&A will partially offset the significant gains as a result of the impact from the current inflationary environment. We are assuming no improvement in supply chain in our guidance. Clearly, we hope that as time goes on, the supply chain situation improves but we're not building that level of optimism into our outlook. However, this clearly would provide upside opportunity should the present state of supply chain improve. Operating margins are expected to be approximately 6% at the midpoint and we are well on our way to achieving our 8% operating margin target by 2023. We are excited about our opportunity to meaningfully expand the company's profitability and earnings per share year-over-year and about the strong underpinning of the demand for our products driven by both strong demand conditions and structural changes in the market.

In conclusion, the announcements we've made today are the culmination of work that has been going on behind the scenes for the last 3 years. Our strategic focus is well set to leverage the company's strength as our organizational structure improvements proactively position us to drive innovation at a time when the market most needs it. Additionally, while our new segment structure provides visibility to our important parts and service business, I'd like to reinforce that our parts and services team is working on initiatives meant to holistically benefit Wabash which means we're thoroughly flowing through the lifetime value of our equipment for customers, further enhancing Wabash's value to our industry-leading dealer network and effectively leveraging our carefully curated supplier partnerships. We are building something exciting by filling in the white space around our traditional first to final mile portfolio of transportation solutions.

All told, nearing our strategy to focus on transportation, logistics and distribution restructuring our organization around these customers and going to market as One Wabash to most effectively leverage the breadth of our portfolio of solutions as building a new identity for our company. This new identity is underlined by the modification of our company's name. Our ticker will remain WNC but Wabash will stand for changing how the world reaches you.

I'll now turn the call back to the operator and we'll open it up for questions.

Questions and Answers:

Operator

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

Justin Long -- Stephens Inc. -- Analyst

Thanks and good morning. So I wanted to start with a question around trailer delivery expectations going forward. I didn't see anything and I could have missed it on trailer delivery expectations for the fourth quarter. And then as we think about next year in this bridge that you just walked through, Mike, it's a pretty significant tailwind from increased volume despite the clear capacity constraints that we're seeing in the market today. So can you just kind of help us think through what level of trailer deliveries is needed to achieve the 2022 guidance and just your comfort and visibility in seeing that ramp?

Michael Pettit -- Senior Vice President & Chief Financial Officer

Yes, sure. So we didn't give a specific unit guidance for Q4, we did get a revenue range which is slightly a slight uptick from Q3. If you look at going in the run rate, what's important to note is we have clearly been able to man our installed capacity to be able to come out of the gate in Q1 of 2022 and hit the guidance that we laid out. And we are running faster today than we were earlier in the year. If you just allocate out and normalize where we were first half, step it up in the second half and then take it into Q1 of 2022, you'll see we've done some of the hard work already. But there's obviously in our implied guidance we gave for 2022, we're nowhere near some of the run rates we would have seen in 2018 and 2019 from a unit count perspective and that's the upside that still exists if the supply chain improved. So we are basically baking in. We have visibility, obviously, on the demand side with our backlog of $1.9 billion. We have the demand and backlog surety to hit the rates. And we've maintained some conservatives around the supply chain. But I think the other point is that we do have the installed manpower to do what we need to do at those run rates in 2022.

Brent Yeagy -- President, Chief Executive Officer & Director

Yes. I think another point of optimism as we go into the fourth quarter and we start thinking about the first quarter of 2022 that we have been very successful over the last 45 to 60 days with onboarding new associates. We really saw that change in the middle of September. And the other good piece is we're hearing similar output throughout our supply base as well. That is capacity and resilience that will come into the supply base really in the first quarter of 2022. That gives us a much better feeling in the stability of the supply base going forward which gives us a very nice jumping off point with the labor that we've been able to bring in to at a minimum maintain but more than likely able to incrementally do better from a general production standpoint going into the first of the year.

Justin Long -- Stephens Inc. -- Analyst

Okay, that's helpful. And maybe another way to ask it is when you look at the ACT Research forecast for industry trailer production in 2022. I think they're up just under 20% next year. So here's the message that you would at least expect to be kind of in line with that level of growth, maybe a bit above?

Brent Yeagy -- President, Chief Executive Officer & Director

I think that's a fair assessment.

Justin Long -- Stephens Inc. -- Analyst

Okay. And then, Mike, maybe just following up on the EPS guidance for 2022. So for the fourth quarter, we're going to be at $0.10 to $0.15 of EPS. You kind of run the math on where we're headed next year and it's a pretty significant step up. So I was wondering if you could help us think through the cadence of earnings you're expecting next year, even if it's just kind of high level first half versus second half as we think about how things should ramp over the course of next year.

Michael Pettit -- Senior Vice President & Chief Financial Officer

Absolutely. So you would expect Q1 to be the lowest quarter of the year from an EPS generation perspective. But that's normal for Wabash National. If you look back over the last 7 to 8 years prepandemic. It was very normal for Q1 based on how equipment is picked up from our customers at Q1 the lowest. So you would see -- you also see a little bit of overhang from Q4 units that pushed into Q1 from the supply disruptions that we'll work through in the first part of the quarter. And then you'll see Q2, it will be we should be off to the races at that point with a repriced backlog from 2022 order season, a fully staffed manufacturing facilities and we would hope to see at that point even more stability from the supply chain. So Q2, I think, is where you're going to see a meaningful step up from Q1. And then I would say Q2, Q3 and Q4 should could all be relatively similar in terms of EPS generation after a big step up in Q1.

Justin Long -- Stephens Inc. -- Analyst

Okay, that's really helpful. And last one for me. When you just look at what the guidance implies for the step-up in SG&A next year, it's around $40 million. Can you kind of help us unpack the key drivers to that increase? And does that include any kind of temporary operating expense associated with adding capacity before you actually see that revenue play out in 2023?

Michael Pettit -- Senior Vice President & Chief Financial Officer

Yes, there's a lot that goes into that when we talk about the step-up in SG&A. But obviously, we are going to have to add some SG&A for our ramp facility that we've got, both Little Falls for MSC and with surge. But a big part of that actually is just some of the normalization inflation you see throughout the business and from low levels in 2020 and 2021 in some areas, incentive comp and other areas of the business that are returned to more normal levels in 2022.

Justin Long -- Stephens Inc. -- Analyst

Okay, that's helpful. I appreciate the time. Thank you.

Operator

Next up, we have Joel Tiss from BMO. Your line is open.

Joel Tiss -- BMO Capital Markets -- Analyst

I wonder if you could talk a little bit about any signs I know well, everyone's disrupted out there. And I wondered if there's any sign that you guys are seeing about gaining share in the market in some of your new targeted areas.

Brent Yeagy -- President, Chief Executive Officer & Director

Yes. What I would say is that -- where do you want to start? So when we think about the various trailer segments that we have and we'll start there, we have a -- you can see by our backlog that we've been very successful of leaning into the beginning of the order season. And that really illustrates the amount of demand we had for our product really since the beginning of the year. What I can tell you is that we are specifically targeting customers for the purposes of building out our portfolio. We're also targeting customers that understand the value proposition of our product and that's maybe a more important way of thinking about how we go forward in building out our portfolio. Now we're also setting up to your explicit point of market share, purposely building and expanding market share slightly in 2022. But what will be more interesting is how we talk about the mix of what that customer portfolio is as we've come out of the first quarter. And we're excited about talking about what that is. And it goes hand in hand with having a very robust and a pragmatic view of the pricing that we're getting as we go into 2022. I think that's probably the most important thing to take away from it. Now, if I want to expand out of trailers; I think about MSC reefers, while it may not be necessarily a market share gain today, I want to talk about where we're at with that. This year, we'll build somewhere between 220 and 250 based on the limited amount of capacity that we had in pre-commercialization phase of launch. As we move into 2022, we're looking at scaling that up to approximately 1,000 units only factoring in phone availability as a mitigating factor which we'll look to resolve. And we're approximately already at 50% booked as we sit here today for that product. We're already doubled the amount of MSC booked orders today and still are processing and have had 0 concern of filling out that backlog to approximately 1,000 for 2022. That's almost a 400% improvement from where we are. We are investing in our product -- I'm sorry, our platform business to increase specifically aluminum-related trailers and that business is effectively booked for the year at full capacity based on labor availability today. And our truck body business is just beginning to open up. And I think what we would see there is relatively same, same market share, just an expanding market. So that would be the color I would give right now.

Joel Tiss -- BMO Capital Markets -- Analyst

Okay, that's beautiful. And then, can you give us a sense like I don't know how to measure, are you gaining your fares? Do you have your fair share in parts and service? Or maybe the better way to ask it is, where do you think this business could be in 5 years or 10 years, whatever longer-term time frame you want to put on it?

Brent Yeagy -- President, Chief Executive Officer & Director

No, the reality of it, Joel, is that we at Wabash National have really underserved the Parts and Service segment of our business for the last 20-plus years. We see this as a tremendous growth opportunity, something that can easily double in terms of revenue and probably with some level of margin improvement along the board as we grow scale. The environment is clamoring for a -- what we'll call it some business innovation in the way parts and services are delivered today with the changing logistics marketplace. So we really feel we approach it in a more innovative manner, more modern manner that sky is the limit on where we can go with this. As Mike talked about, we also see it as a destination for deployed capital to be very specific and aggressive in the way that we grow that. So between organic and inorganic opportunities. I will today say I have no concern in doubling it and we'll see where we go from there.

Joel Tiss -- BMO Capital Markets -- Analyst

Okay, that's great. And then, the last one for me is can you just talk a little bit about acquisitions? Would -- in your view, do you think we would be a little more technology focused or more capacity focused or more spreading out the product line? Just a little bit of color in that direction. And then I'm done.

Brent Yeagy -- President, Chief Executive Officer & Director

So when I think about capital allocation in terms of acquisitions, technology is absolutely an area of capital deployment that would be useful, assuming that it fits into our innovative -- innovation pathway as we target our portfolio of customers. Second, I think there are opportunities from a capital deployment standpoint to shore up our supply chain, whether that's a level of vertical integration or expanding our ability to buffer those concerns over the next several years, let's just say, for the next half decade. I think that's an opportunity. And we absolutely are going to look at capital deployment for the purposes of capability enhancement for our Parts and Service business to round out a very extensive, what I want to say, worldly portfolio of service capabilities, business capabilities and in some cases, I'd say capacity but it's much more about organic capability that we want to put on.

Michael Pettit -- Senior Vice President & Chief Financial Officer

Yes. And I think there's a lot of opportunities as Brent mentioned, in parts and services do for corporate development. It may not be pure M&A, that's capital-light with partnerships and other ventures that could really help us round out that initiative. And we'll be talking more about that over the coming weeks of orders.

Joel Tiss -- BMO Capital Markets -- Analyst

Great, thank you.

Operator

And your next question comes from the line of Jeff Kauffman from Vertical Research. Your line is open.

Jeffrey Kauffman -- Vertical Research Partners -- Analyst

Thank you very much. Well, this sounds exciting. Could I ask just a couple of detail notes? With the new reporting structure, I know we're blending everything together but can you break out where your volumes were between, say, dry reefer and tank in the quarter?

Brent Yeagy -- President, Chief Executive Officer & Director

We've never broken out that dry and reefer tank step suberinPG. I would say the mix between tank and classic volume was similar in Q3 as it was traditional mix of volume really from a historical standpoint for years.

Jeffrey Kauffman -- Vertical Research Partners -- Analyst

Okay. And then, you said when you break out the 10,000 new capacity for dry, that's almost double what you were doing before. I'm assuming the implication is about 5,000 for reefer?

Brent Yeagy -- President, Chief Executive Officer & Director

4,000 to 5,000.

Michael Pettit -- Senior Vice President & Chief Financial Officer

That's correct. yes.

Jeffrey Kauffman -- Vertical Research Partners -- Analyst

Okay. And then, you mentioned that you'll be around 1,000 MSC units next year. So when fully built out and we're going forward in '23 and '24, is MSC going to be around that 4,000 to 5,000 level that reefer was before? Is there kind of a ramp build? Or where do we see that MSC business size wise long term?

Brent Yeagy -- President, Chief Executive Officer & Director

Yes. So when we think about -- let me be very specific when we talk about MSC as a technology and we'll break it into those product applications. Minimum expectation is that we are equal to our conventional historical production, so in that 4,000 to 5,000 range. We obviously have sites to be greater than that based on our commercialization efforts on how those truly and how. The thing that will be directionally around 1,000 in 2022, I think 4,000 to 5,000 is a reasonable target at this time. In addition, we are planning to build at least 900 to 1,000 MSC-related truck bodies which I would cast as primarily market share/new business creation in the way that we're applying it. I think some things that will be giving to The Street in the next several weeks with detail is some output with some very interesting work that we've been doing with multiple players in the area of refrigerated delivery and how we're partnering with them to give them some very unique solutions with MSD. So when we think about MSC in total, while maybe 4,000 to 5,000 refrigerated vans, we may be well over that. We will be low on that in terms of MSC utilization as we lean into the marketplace, Jeff.

Jeffrey Kauffman -- Vertical Research Partners -- Analyst

That was really helpful. Just one last follow-up, if I can. So what you're going to do with the parts business sounds exciting. I was just kind of wondering how do we affect the growth of parts when you've largely gotten out of the dealership business? How do we double parts over time? How do we distribute kind of -- help me understand how that business grows?

Brent Yeagy -- President, Chief Executive Officer & Director

Well, first off, well, Wabash National historically and obviously, you've been covering Wabash for a long time, what you're really referencing is our Wabash-owned service dealerships that we had as part of the Frut acquisition of assets back in 1999. While we have transitioned those, what we did for the most part is transition those into independent dealer entities, right? Those still remain Wabash National independent dealer relationships. And as a result, we have created the most expensive, deepest and most talented group of dealers in the industry. We plan on leveraging that in a very purposeful way. That really hasn't been harnessed in the past 20 years for Wabash National. We're going to do that with enhanced distribution. That will be both, let's just say, partnership like in the way that we look at that. We're going to go further in the way that we digitally enable that beyond what the offerings are to The Street today. And we're going to couple that with bringing together not only truck body parts but also van and tank parts to have, again, a first to final mile total portfolio solution in the way that we do it. No one else can do that, Jeff. So we think we can create the premier. Over time, a premier portal for the distribution of parts across those companies that value going to a one-stop shop.

Jeffrey Kauffman -- Vertical Research Partners -- Analyst

So your point is that even though it's not a Wabash-owned network, your ability to use a distributor network to get out there is still very much intact?

Brent Yeagy -- President, Chief Executive Officer & Director

Absolutely. And we think we can do it in a very capital efficient way as a result.

Jeffrey Kauffman -- Vertical Research Partners -- Analyst

Okay, great. Thank you very much.

Operator

Thank you. Presenters, there are no further questions at this time. I will turn the call over back to Mr. Ryan Reed for any closing remarks. Sir?

Ryan Reed -- Director of Investor Relations

Thanks, Greg. Thanks, everyone, for joining us today. We look forward to following up during the quarter. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Ryan Reed -- Director of Investor Relations

Brent Yeagy -- President, Chief Executive Officer & Director

Michael Pettit -- Senior Vice President & Chief Financial Officer

Justin Long -- Stephens Inc. -- Analyst

Joel Tiss -- BMO Capital Markets -- Analyst

Jeffrey Kauffman -- Vertical Research Partners -- Analyst

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