Wabash National Corp (WNC) 2007 Q3 法說會逐字稿

Greetings, and welcome to the Wabash National Corporation Third Quarter 2007 Earnings Results Conference Call.

At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Dick Giromini, President and Chief Executive Officer of Wabash National Corporation.

Thank you. You may begin.

Thank you, Diego. Good morning.

Before we begin, I'd like to make an important announcement. As with all of these types of presentations, this morning's contains certain forward-looking information, including statements about the company's prospects, the industry outlook, backlog information, financial condition, and the like.

As you know, actual results could differ materially from those projected in the forward-looking statements. These statements should be viewed in light of the cautionary statements and risk factors set forth from time to time in the company's filings with the Securities and Exchange Commission.

Welcome to Wabash National's Third Quarter Earnings Call. I'm Dick Giromini, Chief Executive Officer.

In the conference room with me this morning is Bob Smith, our Chief Financial Officer, who will discuss the company's financials.

I'd like to welcome all the listeners on today's telephone conference call, as well as those listening live via the Wabash National internet site web cast.

We have much to cover today, and we'll try to provide as much information as possible. At the conclusion of the prepared portion of our presentation, we will open the call for questions from the listening audience.

Let me start this morning by saying that in spite of a very challenging market environment, our third-quarter results came in just slightly below our previously discussed expectations.

Following last quarter, in which we achieved gross margins of 9.4%, the highest level that we had enjoyed since first quarter of 2006, our third quarter gross margins came in at a respectable 8.5%. Keep in mind we achieved this margin on below average volume. This was accomplished in large part by the continued execution of our strategic pricing initiative, our strategic sourcing initiatives, and our continued focus on cost management throughout our organization.

However, the continuing slowdown in the residential construction markets, especially new home starts, has created significant headwinds that have offset our recent operational achievements. We continue to take the steps necessary to not only sustain a viable business throughout this down cycle, but to also prepare for the eventual upturn demand by building a business model suitable for long-term growth.

I'll talk more about that later.

As I shared on our last call, we announced a number of strategic initiatives undertaken to right-size our business to reflect the current demand environment. During the second quarter, we completed the announced staffing reductions, which included the immediate freeze on all new hiring and the elimination of all temp salaried positions.

Additionally, we have significantly adjusted all discretionary spending throughout the business. Given our focus on these initiatives, we've made nice progress toward our target of $10 million in indirect spending reductions for the year, but are now facing challenges in other cost areas such as medical insurance that Bob will speak to later.

Since our last call, we took the additional step of idling our Mount Sterling, Kentucky facility that produces flatbeds for our Transcraft platform business. We will evaluate platform trailer demand and order placement levels when considering the timing and need for reopening the facility.

Although these initiatives have helped us contain our costs, it's clear that even these actions are not enough to provide the near term levels of gross margin performance that we would like to see. Sub prime mortgage prices, continued high energy costs, and the further deterioration of the housing markets have continued to adversely impact the overall economy, and our industry, in particular.

As a result, our customers have been slow to take the liberty of their purchased trailers, and are more and more reluctant to invest in new products, to upgrade their current trailer fleets, despite the higher maintenance costs they face in the near term.

Additionally, we are seeing more customers deferring the build of their ordered product into early next year, and even delaying repairs and service to existing fleets, as evidenced by the continued softness at our retail outlets for parts and service.

All these factors will put downward pressure on volumes and margins in the near term. We will speak to all of this in more detail later.

I'd like to now spend a few minutes discussing the current environment affecting the industry, and our outlook for orders for the balance of the year.

As stated, it's now very clear that we are operating in a softer economic environment than we had hoped for or expected. While GDP came in ahead of expectations at 3.9% during this past quarter, homebuilders slashed investment in housing projects by 20.1% on an annualized basis in the third quarter, the largest drop in a year.

Construction of new homes and apartments dropped to a 14-year low in September, while the National Association of Homebuilders survey of builder confidence plunged in early October to the lowest level ever recorded in the 22-year history of the survey.

Lastly housing inventories continued to rise to near record levels. As you know, the housing sector, particularly residential construction, is a strong forward indicator for trailer demand.

With the housing industry continuing to deteriorate, we have yet to see the bottom of this slowdown. Recently both Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke warned that the housing crisis was likely to last longer than initially expected. Both acknowledged that the continuing slump in the housing markets pose a risk to the economy. Mr. Bernanke went on to add that the housing industry will be, and I quote, "a significant drag on growth into next year."

Current freight demand levels reflect this environment. The ATA's Truck Tonnage Index, last reading, was at a level 8% lower than the high point of 120.8 in January of 2005, and it's 2% lower year-to-date in 2006.

ACT research has once again lowered its trailer projections for the year from the already adjusted 234,000 total trailer units last time we talked to 223,000 units now, which represents a 20% year-over-year decrease.

Vans-only units are now projected at 155,000 for the year, which also represents a 20% year-over-year decrease. Due to the continued softness in housing, and the overall economy, ACT now expects further slowdown for 2008, particularly in the first half of the year, with the total year being off about 1% from 2007, at 220,000 units industry-wide.

Going forward it is expected that the second half of 2008 will start to see economic and housing growth, and the trailer market should follow.

Based on our backlog and some specific opportunities, we've been optimistic about reaching our forecast for the year. While we did a close a number of these opportunities, with additional awards coming in after the quarter closed, the actual volumes have continued to come in lower than initially expected. Customers repeatedly tell us that due to the slower freight environment, the number of trailers required has decreased.

With that all said, our current expectation is for fourth-quarter shipments of approximately 11,000 units, and we are adjusting our full-year expectation from our previous plan total of 48,000 units to our new expectation of just north of 46,000 units.

While we have reduced our expectations for 2007, we remain optimistic that 2008 should see a return to growth in the trailer market, but not until the latter part of the year. At this time it's too early to project volumes for next year, but we certainly intend to at least maintain our position in the market, and will be continually looking for opportunities to gain share.

Let me now shift gears and update you on some of the initiatives that we continue to work on to build a stronger more profitable foundation from which to grow and leverage longer term.

And beginning with our manufacturing process improvement area, in the area of safety, our safety performance and our factories and branches continue to show incremental improvement with our main manufacturing operations in Lafayette just completing the best performance per total recordable incident rate in the history of our company and are consistently performing at a level well less than half of the industry norm.

The quality, fit, and finish of our products today is considerably improved, and our customers have certainly taken notice. Process yields are now achieving levels once thought to be unachievable, and for the fourth consecutive quarter, having attained all-time highs.

Doing the job right the first time has become a source of pride for all associates of Wabash National.

Our productivity as measured in labor hours per unit continues to show month-over-month improvement and at rates far superior than at the times prior to our ERP launch last year.

Speaking of our ERP system, it continues to operate extremely well, providing significant enhancement to the overall efficiencies of our business. We continue to gain more and more benefit from the system, as we learn to extract and leverage information that allows us to gain a better understanding of our business than ever before.

And while difficult to quantify, these benefits will continue to grow over the coming months and years. We've seen direct improvement in our turn-around time of quotes, improved accuracy of our bills and materials, improved accuracy in communication with our suppliers, all of this leading to improved availability of product and components in the factory floor, providing for those higher process yields and improved productivity and improved customer schedule compliance.

Our Alpha line continues to perform well with both unit costs and quality, the best of all assembly lines, but, again, at reduced daily rates due to decreased demand environments.

Finally, both our flooring operations, Wabash Wood Products and our flat-bed business, Transcraft, continue to perform extremely well delivering results better than what had been expected.

In addition to our successful execution on the manufacturing side of the business, we've continued to make meaningful progress on our margin-enhancement initiatives. The aggressive strategic pricing initiative that we had set in place late last year, geared to attain pricing levels that capture all previous commodity and components parts cost increases, has been effective, despite a very challenging pricing environment.

While we have had to manage our expectations as the market has continued to soften and competitive pricing has sharpened, I'm pleased with the progress we've made as ASP's have outpaced materials by over 230 basis points thus far this year.

Finally, our strategic sourcing initiative to offset the impact of rising raw materials costs through effective price negotiations, resourcing and off shoring, are paying off, with year-to-date savings of nearly $14 million and projected full-year savings of approximately $16 million.

For 2008 we expect to gain additional savings of approximately $12 million. However, these efforts are continually challenged by commodity cost pressures. The strategic sourcing team continues to seek alternative supply sources, both domestically and internationally, in their pursuit of lower cost opportunities.

With the current offshore buy of only 5% of our total annual purchases, we have a significant opportunity to continue to drive down our costs through this sourcing initiative.

That's the near term. For the long term we remain focused on identifying opportunities to grow our business by leveraging our core strengths in ways that we have not yet recognized. We've recently completed the development of a comprehensive strategic plan that we began working on earlier this year. This plan has been reviewed with, and endorsed, by our Board of Directors, and will serve as our road map during these next five years.

Some key elements include significant expansion of our DuraPlate product sales efforts into other markets within the transportation segment, both OEM and after market.

Expanding our relationship with our components and composite products partner Alcoa should greatly enhance both our growth opportunities within our respective markets.

Leveraging our innovative heritage and strength could develop the next great dry van and refrigerated trailers, designed to meet the growing global challenges to our domestic industry, increasing our exposure to additional (bin) market accounts, and the refrigerated van segment.

And of course we will continue to leverage our cost structure throughout all of our business areas, which includes additional strategic sourcing opportunities, advanced inventory management, and improved pricing power.

Finally, an important component of this strategic plan will be to diversify our business model to counter the cyclical nature of the trailer industry, thereby providing the platform to deliver more consistent, reliable results to our shareholders.

These actions are all designed to deliver consistent shareholder value throughout all industry cycles, something that we have not been able to deliver in the past. These initiatives will take time, but we are committed to making them happen.

I'll stop here at this point and let Bob Smith, our Chief Financial Officer, fill you in on the details behind the numbers. Bob.

Thanks, Dick. Good morning. We'll take a few minutes and walk through the financials for the quarter.

Sales were $291 million in Q3, on 12,100 new trailer units. That's approximately 11,100 van trailers, and 1,000 flatbed trailers.

For the quarter we had net income of $3.8 million, or $0.12 a share on a fully diluted basis. Equivalent shares were approximately 36.9 million. The share count includes the effective options in our convertible notes. The press release provides the details on this.

During the quarter we repurchased 210,000 shares at a cost of roughly $3 million or approximately $14.32 a share.

Under our $50 million repurchase program, we purchased 1.6 million shares at a cost of just over $24 million or approximately $14.95 each.

The current authorization was recently extended and has an additional year before it expires in September of '08.

Sales for the quarter, again, were $291 million on 12,100 new trailer units. This compares to $294.8 million on 12,500 new units in the second quarter of '07, and $362 million on 16,600 units in the third quarter of '06.

By segment, manufacturing had sales of $270 million on, again, the 12,100 new units. The retail and distribution segment sales were $34.7 million, roughly 600 new trailer unit sales there, and eliminations amounting to just under $14 million, approximately 600 new units.

When we look at it by product line, new trailer revenues amounted to $265 million, the ASP on the new trailer sales, approximately $21,900. This compares to $265 million or approximately an ASP of $21,200 during the second quarter of '07. And the ASP as we've talked about, Dick mentioned, up significantly compared to where we were a year ago when it was just under $20,000 a unit.

Units shipped decreased about 100 units, or 1% from the second quarter, but down about 27% from the third quarter. The van trailer ASP in the third quarter again increased about $800 per trailer and improved approximately 12% from the third quarter of '06. Again, we are seeing the impacts of the push to improve prices and a slightly higher percentage of refrigerated trailer sales.

On a units basis, sales to our core historic partner-type customers amounted to roughly 32% in both this quarter and the second quarter of this year.

Our used trailer sales, we did about $8 million of used trailers, about 1,000 units, $8,000 apiece. Used trailer sales decreased approximately 500 units from the second quarter of this year. As I've mentioned in the past, availability of large trade packages has not been available to us, although we expect to see an increase in this going into 2008. On an ASP basis, the product type and age are the main influences of the selling price of the used trailers.

Parts and service revenues were approximately $15 million in this quarter. That's about the same as we saw in the second quarter of this year, and not terribly dissimilar from the third quarter of '06. Parts and service revenue at the retail level remain very sluggish as truckers have parked equipment and are foregoing repairing this equipment due to the reduced demand for freight.

Other revenues is primarily freight on delivering trailers to the customers, and it's running about $3 million a quarter.

Gross margin, as Dick mentioned, came in at a respectable 8.5%. That's down 9/10ths of a point from the 9.4% we reported in the second quarter of this year. If I walk from the 9.4 down to the 8.5 that we achieved in this third quarter, price was a positive of 3/10ths. We're seeing better pricing, as Dick mentioned, as we've continued to push that issue. Volume and mix was a negative for 2/10ths of a percent. Used trailers was a negative of a 10th of a percent.

Material costs, slight negative, 1/10th of a percent, but again, we're covering that with the improved prices. When we look at burden, that's where the big negative comes. It's 8/10ths of a percent in the quarter compared to the second quarter. When you look at it from a cost perspective to spend, it's 5/10ths of that negative. Items like medical costs jumped up from where we had been running in the previous quarters.

Burden was also influenced by production volume. We're down roughly 2,000 units in terms of production from the second quarter, and that would account for 3/10ths of a percent then. There's a rounding of a 10th to go between the 9.4 and 8.5 percent.

SG&A amounted to approximately $17.1 million during the quarter, or 5.9% of sales. This is a little higher than what we saw in the second quarter where SG&A was $16.4 million, or approximately 5.6% of sales.

The increase in SG&A reflects some higher litigation costs, some increase for the allowance for accounts receivable, some timing of when expenses are incurred.

Interest expense amounted to $1.4 million in the quarter, basically it's the cost of the convertible notes, borrowings on the revolver were the (minimists) during the quarter.

Other foreign exchange related items are, again, a non-event.

Taxes in the quarter amounted to $2.3 million, effective tax rate about 38% for book purposes. The difference is, we don't get a benefit for losses incurred with some of our foreign operations.

For the year we expect to be in that 38% to 39% effective tax rate. Again, just as a reminder, we're still using net operating loss carried forward, so cash taxes are very , minimal.

As I mentioned earlier the EPS calculation is in the press release, so you can see the details there.

Depreciation and amortization for the period amounted to just under $5 million, and we would expect approximately $20 million for the full year.

Capital expenditures came in at just over $1 million for the quarter. Year-to-date we've spent just over $5 million, and we would expect spending to be in that $7 to $10 million range for the year, with the majority of it on maintenance-type capital.

Head count at the end of September amounted to 3,400 full-time associates. This is down from about 3,600 full-time folks at the end of June. A lot of that is a function of the attrition that goes on. The full-time equivalent ratio of full-time people to temporary people was 90/10 during the third quarter, and it was running at about 85/15 at the end of the second quarter.

We still have some temporaries in the work force, as you can see, but we've scaled down the number of folks, given the market conditions, and will continue to adjust based on market conditions going forward.

Since June 30th, we've eliminated essentially all temporary or contract salaried non-production type associates and some full-time positions. This probably amounts to about 50 to 60 people. The backlog amounted to $393 million at the end of the quarter, down from the $515 million at the end of June.

Cash, $22 million on the balance sheet at September 30th, liquidity, which is cash, plus available borrowings under our line of credit, just over $200 million as of September 30th.

Accounts receivable, $100 million at September 30th, down just a hair from the 6/30 balance of $92 million.

DSO's roughly 32 days, a modest increase from where we were in June.

Inventories at the end of the quarter amounted to $154 million, compared to $170 million in '06. We're continuing to push to get our inventories by the end of the year down below $133 million, which was where we ended at 12/31/06.

Intangibles, other assets, good will, again, predominately related to the Transcraft acquisition, done last year. Just an item on the convertible notes, they come due August next year and you probably saw the announcement that we have amended our revolving credit facility, increasing the line from $150 to $200 million, subject to a borrowing base calculation, and the revolver has been amended to allow it to fund the repurchase of the senior convertible notes.

Just recently, we updated our appraisals for property, plant, and equipment, which will add another $20 million to our borrowing dates and allow us to have a little bit more capacity under the revolving credit line.

Looking forward into the fourth quarter, as Dick mentioned, we expect to do about 11,000 units in the quarter. ASP's will be comparable to what we're seeing in the third quarter, subject to a degree to mix and the pricing pressures that are out there.

Production volumes will continue to trend down in the fourth quarter. I think most of you realize that the fourth quarter for Wabash is generally the lowest production period in the year as time-out for holidays constricts the number of work days we have available, and this also will put pressure on the burden absorption during this fourth quarter.

With that, I will turn it back to Dick for a few closing comments.

Well, at this time we'll open it up to questions. Operator?

We will now be conducting a question and answer session. (OPERATOR INSTRUCTIONS) Our first question comes from John Barnes with BB&T Capital Markets. Please state your question.

Good morning guys.

Good morning John.

As you look at your outlook, could you just give us an idea in terms of facility capacity and I know you have already idled one Transcraft facility, but can you talk a little bit, do you feel like your organization and your manufacturing capacity right now is right sized for the business that you are looking at in '08 and the same things with the labor force. Do you feel like you have right sized the labor force on that?

Well we have taken the necessary steps on the Transcraft side of the business to meet what the market demand is with the idling of the Mt. Sterling, Kentucky plant. We only have the two facilities. So the facility in Anna will continue to operate and will support in the near term all of the expected demand for that business. On the Van side of the business our operations are all here in Lafayette. So we continue to adjust shift schedules and of course as shift schedules are adjusted and the staffing to support those shifts get adjusted and we will make whatever moves necessary and have continued to do so on an ongoing basis based on what the demand looking forward is. So there are no other plant closures or idlings at this point since we don't have multiple facilities all around to have to deal with.

Okay. In terms of the labor force as you look at it today, how many 'too many' do you think you have?

Well, for labor force, we are staffed at where we need to be to support the current demand. We have a very high percentage of direct labor force to fill the trailers. So we adjust as the line rates are adjusted and demand is adjusted. We adjust accordingly. So those actions are taken on a monthly basis. So I think we are in good shape there.

And then given that the outlook does look a little bit weaker here, at least for the next couple of quarters, how concerned are you at this point on price? Is the competition remaining fairly disciplined when it comes to pricing or are you beginning to see material erosion in the pricing power that has been a little bit surprising to me in the last couple of quarters?

Well our sales group has done a great job at continuing to try and execute the strategy and have gone out and tried to capture all of the costs that we had faced that we had not been totally successful in the past. They have done a good job. But addressing your primary question, it is a tough environment out there and it is continuing to get tougher. And I think I made comments in my comments earlier that we are feeling a lot of competitive pricing pressures out there. This does not tend to be a disciplined industry when it comes to pricing. And when the demand levels get low there is a lot of scrambling that goes on in this business. And so we are trying to hold our own but we have had to modify our approach as we get into some head to head deals. So it is a tougher environment out there. And we are doing the best we can to maintain our pricing strategy. But it is tough out there.

Okay, last question and I will turn it over. In terms of your customers delaying production, and more importantly delaying picking up what has already been billed. Is there any incentive? Is there any penalty that you could enforce to induce them? Or does this tough competitive environment kind of preclude you from doing something or delays in pick up and delays in production is just part of doing business right now?

Well it is part of doing business and I don't want to overstate the delays. The customers will end up getting their product. We have had those types of comments and discussions in the past and it really comes down to just a timing issue. And sometimes pick ups that we would expect to come in one quarter end up getting pushed to another quarter. We are actually doing, based on the demand that we have today, we are doing pretty well getting the trailers picked up by our customers. I think Bob shared that we shipped more in this past quarter than what we actually produced. So it has reversed a little bit, it is just that it slowed down at a rate that the pick ups or deliveries have been able to catch up. I don't think that is the issue as much as the reluctance to place orders and in some cases deferring to billed by customers of orders that had already been placed. That is becoming more significant than the actual pick ups once they are billed.

Okay, very good. Alright guys, thanks for your time.

Our next question comes from Peter Nesvold with Bear Stearns. Please state your question.

Good morning guys.

Hi Peter.

Maybe we can dig into the gross margins a bit because I have been getting a little more optimistic; we saw three nice sequential quarters of gross margin improvement. Last quarter you talked about starting to circle the wagons and do some cost cutting in addition to just a hiring freeze. But we did take a bit of a set-back here. So when do you think we will start to see evidence of either heightened cost cutting, the strategic pricing, strategic sourcing? When does that resume in sequential increases in gross margins?

Yes, that is the tough question. We continue to look for opportunities to reduce cost. We have not stopped; it wasn't a one-time event that we made cuts. We are continuing to look at opportunities. We continue to push our pricing initiatives. As I just shared with John and everyone, it is getting tougher and tougher out there and it is more difficult to be as aggressive as we were earlier in the year as the demand environment continues to soften. We also continue to work from a strategic sourcing standpoint, working with both current suppliers and talking to potential new suppliers on better pricing opportunities and that includes offshore sources.

The problem we are facing is that the market is softening faster than what the positive effect of those actions are. And that is why in this past quarter it is partially the reason you saw a slowdown or a pullback in the gross margin improvement efforts. And it is going to continue to be tough these next two or three quarters. I would expect some significant challenges and downward pressure on our abilities to deliver the kind of margins we want.

Would it be a fair characterization maybe to, I think about the West Lafayette facility, I think it is like a million square feet. We do the vast majority of production in one plant. So throughput and manufacturing utilization, [fast] utilization, significant leverage to gross margins, meanwhile you have competitors who are privately held and discounting in order to move inventories and things like [higher] prices still keep going up. So is it feasible that we don't really see any kind of stepwise improvement in the gross margins until the top-line and production capacity starts to really fill in.

It is going to be a challenge to achieve that Peter just because when the volumes are heading up you pick up significant leverage, and when the volumes are heading down it is hard to lever the costs as quickly as the volume catches up to you. So we are going to have a couple of difficult quarters ahead with conceivably low production volumes which will impact the burden that each individual trailer ends up carrying. But again, the biggest lever we have is material costs. And that is the one we have to work the hardest. The others we will take everything out that we can take out that makes sense to do to improve that margin leverage from the plants, but it is a tough nut to crack.

And as you guys are having your usual year end dialogues with truckload carriers, LTLs, other buyers of equipment, does this environment seem more like in '01, '02 or '04? And by that, back in '01/'02, especially going into kind of March '02 was a recessionary environment, we had an emissions change coming up and we saw prioritization of CapEx, revenue CapEx towards tractors and a deferral of trailers. But in '04 it seemed like both were going up, [plastic] was going up a little faster, but both were rising. So eventually, cause freight will come back at some point, no one knows when, but do you get a sense yet is there going to be a prioritization of revenue CapEx to focus first on Class A ahead of January 1, 2010, or is sort of too early to tell? Or do you think it will be equally balanced?

I think it is too early at this point Peter. There have been a number of mix signals in our conversations with customers. Some are fully intending to purchase trailers or at least that is what their thinking is at this point. What we have seen though is there may be a higher desire and a little bit lower reality when it comes to the value that a number of customers end up finding out what they can afford to do. So it is a real mixed environment for our customers and they are trying to determine what is the best course of action for them as they go forward.

I would just add, a couple or three years ago when we were looking at the last emissions change we were all saying, well trailers will be put on hold because people will prioritize and then you see the freight volumes that provided the carriers with a fair amount of financial resource to go do both and again, we were all talking about 2007 being the recovery year for trailers and we have the complete opposite going on.

When you look at your historical core customer base, based on our own work there only seems to be one guy out of that install base of maybe 200,000 to 250,000 units that has done any kind of meaningful replacement of its DuraPlates that were purchased from '96 to '05 or so. At what point do you expect to see those coming up for renewal? Or is it all just going to come down to freight? People buy trailers to move freight and that is really what is going to drive the top line and the timing of replacement is going to be more discretionary?

Well, there is no question that the DuraPlate product lasts longer than the previous and competitive sheet and post products. So we do have that factor that is built in. A lot of the earlier adopters of the DuraPlates are getting up into the 8, 9, 10 year time life and those decisions by those customers, whether they continue running them or start replacing them are coming up. It is a difficult call. I think the main thing is in this soft environment is customers first initial reaction is to hang on to the product they have and continue putting the monies into repair the asset before they would replace. So I think that the biggest driver to this whole thing is just going to be improvement in the truck tonnage demand levels and that will drive the replacements and new product more than anything.

And Bob, I guess a two-part question for you and then I am all set. If demand remains at this level throughout '08 do you expect that you would continue to be cash flow positive, number 1 on a free cash flow basis? And number 2, how do I try to estimate when you become a cash tax payer again?

We would expect to continue to be cash positive through this period assuming demand doesn't just crater. But at the levels that ACT is looking at we should be cash positive and profitability will be impacted but I don't think we should see anything that would go back and harkens back to where we were the last time around.

Not to cut you off, but I guess I will. Putting aside the ACT forecast, because that just seems high, it is just my humble opinion. If demand continues to trend at these levels?

Yes, we will be cash positive, Peter. The second part of your question, we came into the year with roughly $70 million. We probably have something in the $40-ish million of NOL carry-forwards that we are working our way through. So that is kind of where we are. It isn't going to be until sometime next year that we would consume that.

When do those expire, start to expire?

They will expire long after I am retired Peter. They are 20-year type of events.

Alright, Jake, we got to put a job posting up.

Can you post for that long?

I don't know. Okay, thanks guys.

(OPERATOR INSTRUCTIONS) Our next question comes from Chris McCray with BlackRock. Please state your question.

Good morning. I was wondering if you could just comment on weather you see any increased Chinese competition of sort of a knock-off DuraPlate-like trailers at this point? We are coming back to the market scene.

Well there are no imports on the Vans side from China. We do have a China-owned company now in business for the last three years, VanGuard, who has made some progress in penetrating the market. They have been very aggressive in the market place and they have introduced a composite product that they are also offering. So they are out there and we certainly recognize them in the market place.

I don't think there is any depreciable change in the characteristic of the market place. We have talked about it in the past. We expect the competitors to bring composite into the market as they are capable of doing that. The panels do come in from Taiwan or mainland China. But I think we are the predominant player on the market and I don't think anybody has made any inroads there that is significant.

If you could just detail a little bit more on the strategic side. You mentioned work in getting into new market segments. What do you mean by that? Are we thinking in terms of other Rec vehicles or things of that nature or is it something beyond vehicles?

We are examining what those opportunities will be. In the near term, as I shared with our DuraPlate product, and when I talk about the product I am talking about the composite technology that we have, is expanding the opportunities utilizing that product, DuraPlate panels and such. We have had success in the truck body markets, we want to expand those opportunities, and there are some other related business opportunities that take us outside the traditional van trailer products. And that is really what we are talking about for near term. Longer term we are examining what those opportunities might be and in the past I have talked about looking at considerations of whether or not we should be expanding what we do with flatbeds in the areas of aluminum flatbeds or dumps or refuse containers, things that would leverage the core competencies that we have or have participated in the past and exited years ago. So a lot of opportunities that we continue to examine. But we fully intend to do those things over the course of the next three to five years as we try and diversify this business and try to address the rather painful right now cyclicality of the industry segment that we participate in.

Okay, thanks. And one last thing. Do you think that in a reasonably flat environment, just to take that case as a starting point, that you can continue to see your ASPs increase at all or is the hope that you can hold the line from here in a flat environment?

Well as I stated earlier, it is becoming more and more challenging as the market continues to soften. The amount of opportunities out there are less and less. And everyone in this industry is going after the same smaller pie. So it gets more challenging and competitors are more aggressive. We talked in the past about undisciplined pricing habits and that does happen in these lower demand periods. So we are doing everything we can to maintain the kind of pricing that we have been able to put out there. I would submit that we would certainly be more challenged in this environment to continue to raise prices than we had been with that success early in the year as I shared earlier and we are going to do everything we can to hold on. But we are feeling the pressure on pricing as we get into new opportunities. Those that are already booked and in our backlog are solid, of course. It is the new opportunities as we go forward on what the pricing will need to be to be able to capture the business.

Okay, thanks guys.

(OPERATOR INSTRUCTIONS) There are no further questions at this time. I will turn the conference back over to management for closing comments.

Thank you Diego. Just some final thoughts. While we are pleased with the continued progress we are making on the operational execution side of our business, it is clear that the macro economic factors will continue to adversely affect our operating performance during the remainder of 2007 and into 2008. However as I stated last call, we are all committed to successfully navigating through this very difficult market while continuing to focus on building a stronger, more profitable foundation from which to grow.

We continue to hold a leading industry position. We have maintained and strengthened relationships with the major fleets and have an innovative product line that is unmatched in our industry. We remain focused on the short term tasks to effectively and profitably get through this downturn while successfully implementing for the long term.

Thank you for your participation today. That ends our call. Operator?

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you all for your participation.