Wabash National Corp (WNC) 2008 Q3 法說會逐字稿

Greetings and welcome to the Wabash National Corporation Third Quarter 2008 Earnings Results Conference Call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

(Operating 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 for Wabash National Corporation. Thank you. You may begin.

Thanks, Diego. Good morning. Before we begin I would 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 conditions 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 & Exchange Commission.

Welcome to Wabash National's Third Quarter Earnings Call. I am 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 would like to welcome all the listeners on today's telephone conference call as well as those listening live via the Wabash National internet site webcast.

We have much to cover today and will 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. Overall, our third quarter results effectively matched the expectations that we shared with you in our second quarter call. We met and exceeded our projection for unit sales with nearly 9,700 units being shipped during the quarter and we continue to make meaningful progress on our cost containment initiatives.

In addition, as projected and discussed during our last call, gross margins came in precisely where we indicated at 3.7%. Despite the third quarter's higher volumes, gross margins were affected in large part by the combination of a significant run up of raw material costs during the first half of the year that impacted our third quarter results, and the more challenging competitive pricing environment.

As you well know, we're operating on one of the more challenging economic environments in our history and our industry is suffering from multiple head winds as the depth of the broader financial crisis and economic recession continues to widen. These are tough times and we've tried to be very open and forthright throughout this industry downturn.

Since early in 2007, we shared our concerns regarding the slowdown in the residential housing sector, the impact it would have on our business and our industry and our subsequent concerns related to the subprime implosion. We all know how the story has transpired since then. I assure you, though, regardless of the economic climate, we will continue to take a candid and transparent approach to communicating with our investors.

Our challenging times like this also presents opportunity. We continue to be well positioned in our industry with our strong customer relationships and market share, solid financial position, streamlined manufacturing footprint, innovative leadership, and an unmatched suite of products. These important differentiators will help distance Wabash National from the competition. We will continue to successfully implement cost control and efficiency improvements while we size the business to match demand.

We certainly had no way of predicting the depth of the economic crisis at the time we introduced our new strategic plan focused on operational optimization, diversification and growth. But we believed it was important to be prepared for prolonged macroeconomic head winds in the near-term while continuing our efforts of building a stronger, more profitable company for the long-term.

In retrospect, the rollout of these improvement and cost reduction initiatives appear well timed. But bear in mind, our intention is to make permanent improvements to our business that will allow us to deliver sustainable profitability over the long-term. Many of these enhancement initiatives are underway and I will update you on our progress in just a moment.

Importantly, given the current economic landscape where credit has become increasingly scarce, we are well positioned from a financing and liquidity standpoint. As of September 30th of this year, we had approximately $113 million of liquidity comprised of some $12 million in cash and the remainder in available capacity under our credit revolver.

While we remain hopeful that 2009 will be improved as compared to 2008, we are operating under the assumption that much of the same head winds will persist into next year. Recent events in the economy would certainly support that belief. We are therefore focused in the near-term on effectively managing our cost structure and working capital to drive optimal cash flow performance. The fourth quarter will be a challenge, as I will discuss in a moment, and we are still evaluating what 2009 will bring.

Before I get into more details on our outlook, let me spend a few minutes discussing the current industry environment and our performance during the quarter. As I mentioned earlier, the most significant impact on our third quarter results was the continued escalation of raw material prices that had occurred during the first half of the year. If you look at the commodity market over the last two months, prices have declined, but the benefit to us will not be realized until early 2009 as we work through the lag effect of our supplier contracts for both steel and aluminum.

As some of you know, our steel contracts are structured such that they lag price increases and decreases on both the upside and the downside of commodity fluctuations. For aluminum we lock in positions for future quarters on a structured basis that benefits us when costs are on the upswing but just the opposite when prices turn down, as they appear to be trending as of late.

This raw material cost lag issue coupled with the challenging pricing environment has limited our ability to be as aggressive as we'd like in passing all of these cost increases on to customers at this time. As a result, unrecovered raw material cost increases are monitored some $7 million during the third quarter, impacting what was otherwise a solid performance period and will face even greater challenges in the fourth quarter.

From an industry standpoint, truckers continue to feel the pinch from an ever softening economy. Declining imports and exports, a reduction in automotive sales and a persistently challenged housing sector have been the main factors negatively impacting carrier profitability. Declining fuel costs did provide some relief for most carriers over the last few months as the adjustment lag of fuel surcharge recoveries turn more positive, but that may soon disappear as fuel prices stabilize.

That said, these factors have had a more pronounced impact on smaller carriers, who continue to struggle to find enough freight at a reasonable price to offset increased fuel cost. In fact, during the first and second quarters of this year, the industry recorded some 1,900 small freight hauler bankruptcies and it's likely this trend continued during the third quarter.

Fortunately our exposure to the smaller freight haulers is limited and mitigated by our more diverse customer base led by strong relationships with the larger carriers. Historically speaking, larger carriers have shown the ability to better manage through difficult industry cycles due to their scale and capitalization structure.

Despite the challenging environment, we have benefited from these relationships as our backlog remains at a reasonable $283 million as compared to $393 million for the second quarter. This sequential decrease in backlog is not uncommon as we typically build a strong backlog early in the year and then draw down on that backlog during the third and into the fourth quarter.

Looking ahead to the fourth quarter, we expect it will be the most difficult quarter of the year for Wabash National as a confluence of factors will continue to adversely affect and impact our results. Specifically, we expect the imbalance between raw material costs and selling prices to reach its peak in the fourth quarter before moderating early in 2009. In addition, as is typical for us in the fourth quarter, we will be dealing with fewer production days as a result of the holiday season and our annual year-end shutdown.

Additionally, ACT has recently decreased its volume expectations for trailer production to 144,000 units in 2008 and 138,000 units for 2009. This compares to previous forecasts in June of this year of 153,000 and 185,000 respectively. Needless to say in just three short months, based on the latest ACT forecast, the prospects for both 2008 and 2009 have taken a dramatic turn downward.

Despite these reduced estimates for the industry, we remain confident with our previously announced expectation of 32,000 to 33,000 units shipped for all of 2008, which represents 8,000 to 9,000 units shipped during the fourth quarter.

Our value proposition and the quality of our products are the key drivers behind the affirmation of our expected trailer sales. As carrier profitability increases, capacity further decreases and the replacement cycle on aging trailers reignites, we should see a return to growth in early 2010. While disappointing, I'm sure, we must remain realistic and acknowledge that 2009 will be another challenging year for trailer demand.

Now I'd like to shift gears and provide a few highlights of our progress in executing our key strategic initiatives. As a reminder, these initiatives are expected to produce near and long-term results and support strong financial growth and shareholder value.

First, we made significant progress with the Lafayette facility transformation initiative during this quarter. As a reminder, the initiative is designed to streamline production and improve our manufacturing facilities and processes. By doing so, we expect to drive margin improvement and create additional floor space to facilitate new business opportunities.

During the third quarter, we completed the ramp up of the pup trailer production thereby consolidating all pup production into the high speed DuraPlate line. This was accomplished within budget, experiencing no material interruptions and I'm pleased to report the line is currently running smoothly. Also we began the integration of our high spec DuraPlate line into the high speed DuraPlate line on September 25th and the full consolidation is now expected to be completed by November 1st.

We're pleased with our progress on this front and importantly we're on track to hit and exceed our previously stated goal of $1 million margin improvement in 2009. Per our previous commentary, the planned construction of the new drive in manufacturing facility in Kentucky remains on hold. While the long-term benefits of producing trailers in a lower cost manufacturing facility remain attractive, the current demand environment does not warrant going forward yet and construction of the facility will commence when the leading market indicators dictate.

On a very positive note, I'm pleased to report that our purchasing consortium is now up and running with all four external participants signed up and on board. While taking somewhat longer to launch than we had originally hoped, the consortium is on its way, having completed its initial leverage supply agreement this past week. For this initial contract alone the consortium will yield projected full year 2009 savings to its members of approximately $400,000 while also providing an economic benefit to Wabash.

As a reminder, we're initially targeting 3% annual savings for the consortium on an estimated $350 million we spend during 2009 with additional savings opportunities longer-term as the consortium matures and additional participants are added. Again, just to clarify, the purchasing will utilize a strategic sourcing approach to identify and increase efficiencies in economies of scale gaining through the aggregated purchasing volume of the consortium participants in the procurement of raw materials, components, parts and services with Wabash capturing a portion of all participants' cost savings.

Our DuraPlate products group formed in February continues to develop new opportunities to grow and leverage our unique DuraPlate technology. We are moving closer to a finalized formal contract with a leading portable storage container company here in the US. We have been identified as their partner of choice and are working through the final structure of the working relationship between our two companies. If all goes as currently planned, Wabash will provide all product design, development, manufacturing logistics and after sales services both domestically and abroad.

And this is just one of the number of exciting opportunities for the group that we now need to get across the finish line. Additionally, the DuraPlate products group has launched a website specifically focused on DuraPlate composite panel technology to provide an additional medium to reach both current and potential DuraPlate customers. The website features information on the innovative composite material, various application solutions, and technical data. You can check it out at www.duraplateproducts.com.

Moving on, we continue to generate considerable interest in our RoadRailer inter-modal trailers, particularly from international customers. In the Japanese market, we continue to collaborate with a top tier trucking company as they work to establish a consortium to develop a RoadRailer transportation network throughout the country.

Recall that we built production units early this year for their use in a demonstration symposium in June to exhibit the functionality and benefits of our technology. While not a quick hitter project, we remain excited about the longer-term prospects of this relationship. We also continue to foster our relationships in the South African and Indian markets. In India, for example, our licensee, Kirloskar Pneumatic Company Limited, continues to test prototypes of their new units. Once completed, they will move into the production phase for that market.

Additionally, more recently, this industry leading technology has garnered interest from a number of Columbia-based corporations. Although these relationships are in the early development stages, we are excited about the long-term potential for growth and profit contribution.

Lastly, following the acquisition of certain assets from Benson International in late July, we are pleased to report that both aluminum flat bed and dump trailer production at the Cadiz, Kentucky facility is ramping up having resumed production on September 3rd. Since the acquisition, we've been in the process of reestablishing dealer and customer relationships and have made considerable progress in this regard. Benson has served the transportation industry for over 45 years and the quality of the brand fits well within the Wabash family of products.

Before I turn the floor over to Bob Smith to review our financials, I want to sum up my comments in this way. It's a tough operating environment out there, likely the toughest that our industry has ever faced. We are in it for the long haul. We're not going anywhere. We've taken numerous actions to ensure we remain viable throughout this extended downturn and we have continued and will proactively continue to take additional actions as we view necessary.

Recall that we announced a formal reduction in force in August of 2007 that eliminated some 50 salaried positions among other cost reduction and cost containment actions that reduced our annual overhead spend by some $10 million, 2008. We have since proactively continued optimizing our cost structure such that we now have 105 less salaried associates handling far more focused initiatives than we had running our business less than two years ago.

Our salaried associates are not only carrying a larger share of the load than ever before, but they all readily accepted a decreased 401K match, elimination of any match for non-qualified plan participants, and a freeze on merit increases for this year, actions we took this past quarter. And I'm proud and thankful of each and every one of them for their understanding support of these actions as we work to manage our cash flow during these challenging times. With that, I'll turn -- turn the call over to Bob Smith, our Chief Financial Officer, who will provide details behind our financials. Bob?

Thanks, Dick. Good morning out there. I'll take a few minutes and cover the third quarter financial results. For the quarter sales were $243 million on 9,700 new units, 9,100 of them vans, the remaining 600 flatbed trailers. For the quarter we had a net loss of $4.3 million or $0.14 a share. Equivalent shares amounted to approximately $30 million; the press release contains the details. No share repurchased occurred during the quarter as our authorization expired in September of this year.

In the quarter, we retired the last of the convertible notes, $26 million on August 1st. We used our revolving credit facility to manage the refinancing. Again, sales for the quarter, $243 million, 9,700 units. This compares to $201.5 million on 8,000 units in the second quarter of this year and compared to the prior year quarter it was $291 million on 12,100 units.

By segment, manufacturing sales were $226 million on a total of 9,600 units. The retail and distribution segment had sales of just over $43 million, 900 new trailer units. Eliminations amounted just under $26 million or approximately 800 units.

When you look at the sales by product line, new trailer revenues for the quarter were $216 million on 9,700 units, this equated to an ASP of approximately $22,300. By comparison, we had $175 million of sales on 8,000 units and an ASP of $21,900 during the second quarter of '08. And in the third quarter of 2007, we reported sales of $265 million on 12,100 units with an ASP of $21,900.

Units shipped during the quarter was an increase of 21% over the second quarter, but significantly down 18% from the third quarter of last year. The van trailer ASPs in the third quarter increased roughly $500 compared to Q2 and we were -- it's mostly a function of product mix as we sold slightly more long vans than pups. Compared to a year ago, we were looking at increases that picked up the commodity cost changes and again we had relatively more pups than we did in the prior year.

In the quarter, our sales to our core customer partners amounted to almost 37%, a significant jump from the 20% that we did in the second quarter of this year. On the used trailer front, we sold 2,200 units in the third quarter, about a 200 unit increase from the second quarter of this year and up almost more than double from what was sold in the third quarter of '07.

The increase in the volume reflects both an increase in availability and profitable access to the scrap market for some of the older units. Recently with the fall off in commodity prices, the scrap market window will be closed -- effectively closed for the foreseeable future. ASP for the period was roughly $5,100 on the used trailers, and that's down a bit from what we saw in the second quarter and this is largely influenced by the mix, product type and age of these trailers.

Parts and service revenues were approximately $14 million in Q3, which is essentially the same as what we saw in the second quarter of this year and down roughly $1 million from the third quarter of '07. The business of parts and service business remains sluggish again as truckers have reduced the equipment running. Other revenues amounted to approximately $2 million in the quarter and this is primarily freight related to delivery of trailers.

Sequentially the gross margin performance declined $1.5 million due to the increase in raw material and components cost, as Dick mentioned, roughly $7 million. This was partially offset by a volume increase for new trailers and the favorable performance of our labor and overhead costs, including roughly $1 million related to reduced medical and Workers' Compensation costs. As a percentage of sales, gross profit margins were 3.7% in the quarter compared to 8.5% last year. The decrease is primarily driven by the volume change that we've talked about.

Just to reiterate Dick's comments, the fourth quarter will be the most difficult one we have to work through for the year. Sequentially, we expect to see an imbalance of selling prices to raw material costs in the $4 million to $5 million range and the effects of the volume and burden will swing from a positive to a negative of again roughly $4 million to $5 million.

Again the units will be fewer, production days will be fewer and the favorable from the medical and Workers' Comp won't repeat in the fourth quarter. SG&A was approximately $13.5 million, down slightly from the second quarter this year. Compared to last year SG&A decreased $3.6 million due to reductions we've made in professional service and employee related costs and some bad debt expense.

Interest costs in the quarter amounted to approximately $1.2 million. Currently our average borrowings on the revolver are running about $80 million. Just as a reminder, the borrowings are predominantly LIBOR based and we pay a spread of about 1.75 over LIBOR. All told, it's roughly a low 5%. Taxes, we recorded a $1.3 million benefit in the quarter and the tax rate was approximately 23%.

NOLs we have roughly $54 million net of reserves in NOLs at this point in time. The calculation of EPS is released and you can see the details there. Depreciation and amortization was $5.2 million for the quarter and again we expect roughly $20 million to $21 million for the year. CapEx amounted to a spend of $8 million so far this year and that includes approximately $2.8 million to acquire the assets of Benson International. We're looking at roughly $11 million of CapEx spend for this -- for the year.

Head count at September 30th was 2,900 full time people and approximately 450 temps. The ratio of full time to temps 85, 15. The balance sheet at September 30th had cash of just over $12 million and revolving credit borrowings of $79 million. As Dick mentioned, the cash plus the available borrowings, of which we refer to as the liquidity, $113 million. Receivables just under $76 million at September 30th. This is up almost $27 million since June and it reflects the timing of sales. DSO approximately 29 days.

Inventory at the end of the quarter amounted to $133 million. This is up from, again, $113 million that we had at December of last year, '07. The change comes in raw materials where we're up about $12 million, work in process where we're up about $5 million, and in the used trailer inventory, where we are up approximately $4 million.

Our objective, as we've talked about before, is to bring that inventory back down into the $110 million to $115 million range, so it is very comparable with where we ended last year. [Turns] amounted to roughly six times. So at this point, I'll turn it back to Dick for a few closing comments.

(Operating Instructions)

Our first question comes from Rhem Wood with Stephens Inc. Please speak your question.

Good morning, Dick and Bob.

Good morning, Rhem.

A couple of questions here. I assume that you're kind of at the point of where historically orders have started to come in, you know, in the fourth quarter and into the first quarter. Can you just talk a little bit about what you're hearing from your customers into October?

Yes, customers -- it -- it's mixed out there. Customers actually are not -- are not talking doom and gloom. They're actually saying that they're doing okay and that they have adjusted and it really is a tribute to their -- their flexibility and creative management of their businesses. They've done a lot of things to -- to weather the storm with the less demand.

They've taken some of their power units out, as you know. In previous quarters they sold some of their tractors to bring their capacities down. They have implemented a number of changes, they've decreased the operating speeds in some cases down to 65 miles per hour and in other cases down to 62 miles an hour, so that's conserved fuel and saved money for them. They've -- they've implemented tighter practices around the drivers taking the vehicles off -- off the main track, you know, taking them home. They've limited some of those types of things so the miles on the -- on the power units are decreased relative to the miles they get paid for.

So they've been pretty smart about their business and they're looking at this as -- as really an opportunity for the most part. And I'm speaking mainly of the larger carriers, the ones that we -- we have a strong presence with. That they actually look at this as an opportunity as the months passed to pick up volume as -- as some of the other capacity leaves the industry, they can take advantage of that.

And we've discussed that in the past and so in some cases there -- there is some bullishness in some of their thinking that over the next two, three, four years could be some of their -- their best years as we come out of this downturn in the economy as a result of some of this, you know, cleaning up of the -- of the industry.

Okay. Thanks. And with regards to the new ACT forecast, I noticed for next year they put out 138,000, I've seen another one that's closer to 100,000. With regards to kind of a break even for you guys, I mean if trailer production is under 150,000 or so for any given year, do you think you can make money in any given quarter? And at under just say 150,000, do you think that your market share will remain the same?

You asked a number of questions in that one, but market share is -- is really independent of -- of the volume projections for the industry. It really has to do with the individual carriers and what their needs are and -- and of course the value proposition associated with the product and our ability to -- to sell our product into the markets. We're having good success currently. You know, that can change from year to year depending on what an -- what a particular customer's needs are for the year for -- for trailers.

Relative to -- to volume levels, we continue to look at our business and continually find ways and I'm speaking specifically of the trailer segment of our business. As you know, we're trying to diversify into other areas. But relative to the trailer segment of our business, we continue to look at ways to -- to refine our costs, improve our cost structure as we've demonstrated over the last year and a half or so and we continue to take costs out of the business.

So the -- the effective break even for us continues to drop. Now that's offset somewhat by some of these other head winds that we face with the -- with the turbulent raw materials cost that we've been facing, mainly in the steel and aluminum markets and also with the competitive pricing environment. With the low demand that's out there currently, it's kind of a moving target when you try and talk about break even volumes because the margins that are attainable in a very low demand type market are not as attractive as they are in a -- in a stronger market.

So I know I'm not giving you a direct answer, but I really can't give you anything firm at this point. We just continue to work the business, we're watching cash very closely to manage through this, and we're working on ways to continue to increase opportunities for the business in other areas to bring revenue and profit stream to the business, as I referenced the DuraPlate products group example and some of our global RoadRailer activities.

Okay. So -- so you don't feel like you need to go at your market share necessarily and you know given the weak demand environment?

We don't try to play that game because, I mean, all -- when your -- there's an incumbent out there with that business and if -- if our trailer from a value proposition isn't strong enough for -- for a customer to switch to -- to our product, then all you end up doing is playing a price game and you just continue, you try and buy business by trying to get market share.

And with margins as -- as tight as they are today, that's just not a smart approach. So we look at it and we try and sell on the -- on the basis of the value proposition of our product versus our competitor's product and if we're fortunate enough to pick up the market share as a result of that -- pick up those new customers, then -- then we're very pleased.

But we try not to get into just going after volume or after market share for market share sake. It's a -- in an industry that has the kind of capacity this one has, all it does is just drives -- drives margins down even further.

Okay. Thanks. And then for -- just so I understand the commodity prices, I assume that you've kind of locked in some of these higher priced commodities at this point and you said that it would probably be early '09 before you can take kind of advantage of the prices coming down? I mean, are you looking to lock in prices now? I mean, how far out can you go? Into 2009? Into 2010?

Well you can -- you can go out -- in the aluminum market, you can go out basically as far as about two years if -- if you elect to. There's a cost penalty to doing that and it gets very speculative the further out you go because you really don't know what your -- what your market demand is going to be. And we run on a policy of non-speculation, so we have to feel very confident that demand side will be there for us to take positions that far out.

But we have a very disciplined approach that -- that we go out in subsequent quarters and we take decreasing percentages of positions. And as I stated earlier that -- you know that protects you if in the -- in the time that prices are going up, but when they're coming down of course you've already locked and while you've had the upside protection you do -- you do pay somewhat of a penalty on the downside and you just have to work through that.

Okay. Thanks. And lastly, I just have a few modeling questions, but I assume you're going to publish your Q after the call or sometime before noon. Is that right?

It'll be out either later today or first tomorrow.

Okay. Thanks so much for the time. I appreciate it.

Thanks, Rhem.

Our next question comes from John Barnes with BB&T Capital Markets. Please state your question.

Hey, good morning, guys.

Hi, John.

Good morning.

I want -- I want to kind of go back and just talk a little bit about the '09 and even into 2010 and you know just hear me out and I'm just trying to understand when the end demand might accelerate. There's been no Class A purchases, those numbers are down pretty sharply. You know, I understand that miles on the trucks are down, but the average age of fleets is starting to creep up.

You know, I don't think there's going to be much of a pre-buy, but at some point when they do begin to invest in equipment again, it's probably going to be on the tractor side first. We've heard from a number of carriers, you know, talking about running the trailers longer. You make a really good product that tends to last a long time, so you're just not seeing them turn over as much.

Couple that with lower tractor to trailer ratios, coupled with the amount of used equipment on the market coming from some of these failed carriers, I think you can see where I'm going with this. I'm curious as to do you feel like these lower numbers, this 130,000 a year trailer kind of forecast could persist into 2010 as well and, you know, kind of leave you in a situation where maybe you're looking at this for -- for a couple of more years?

I think all of the -- all of the items that you outlined, John, are the way we see it also. You know, with the trailers do last longer, and that's a fact and customers do say that they are looking to extend the life of the trailers and we've been very open about that and I've been very vocal about my belief that we won't see the kinds of total -- total volume -- total trailer demand that we saw in some past cycles. We won't see those peak demands going forward.

But certainly we'll see demand that will get us back into the mid-200s once we get to the next peak. How long this -- this downturn will last, I -- I would suggest is anybody's guess. There's so many -- so many dynamics out there happening, it's very difficult to be talking about 2010. We're still trying to sort out 2009 at this point.

ACT and, of course, FTR who is now reporting separately, they're -- they have a wide disparity between what their assessments are for 2009 and 2010. So we're -- we're continuing the process of evaluating back, getting feedback from customers to determine what that will be. That -- all of those factors that we talked about is the reason that we elected and we saw this a year and a half ago as we -- as we took over in January 2007, we looked at and said, you know, the trailer industry has changed and has changed probably for good and we need to change with it.

And that's why we developed the strategic plan initiatives that we rolled out earlier this year and shared with everyone. And that's one that is surrounded around certainly continuing to develop, enhance and improve the strength and position we have on our trailer products side of our business but to also diversify our business so that we can find other profitable growth opportunities for the business.

The DuraPlate product is -- is one of those taking our technology internationally. As I shared with the RoadRailer product, and there's a number of other initiatives we're working on to offset that. As -- as we go forward and it will take a few years, but we will -- we will likely no longer be known as just a trailer company but a much more diversified business that -- that can get through these types of times.

I can't give you a direct answer on -- on prospects for 2010. My -- my personal belief is that 2010 there has to be a recovery and 2010 will be a much stronger year. The product is aging, as you suggest, and even though customers want to keep product longer, once product gets to about a ten year level they get into a number of other issues and their maintenance costs do increase significantly.

And there's a lot of product that was built, if you think back to '97, '98, '99 and into 2000, that was the last big cycle and that product is getting up there in years and it's going to have to be replaced at some point. So I think that 2010 could end up being a good year for the industry but there's so many wild cards out there to try and firm it up.

Okay. You know, if that plays out and you've got that degree of uncertainty, I mean the industry is experiencing it as well, I'm curious, do you anticipate there being a rationalization of manufacturing capacity? You know, and I'm talking about the outright failure of some of these guys.

We've seen this before. We've seen carriers in these kind of -- or excuse me, producers, manufacturers in this kind of environment go out. You know, do you foresee that or do you think everybody now is strong enough to kind of survive this and there's still going to be the same number of players?

Yes. You know, we've chatted about that on -- on these calls in the past and -- and early on, I -- I was a believer that, you know, the manufacturers in our industry are pretty smart folks and they know how to hunker down and get through these tough times. You know, when I was saying that I certainly didn't anticipate that these tough times would be as -- as deep and as prolonged as what this one looks like.

I also didn't anticipate that -- that raw materials were going to do what they did during the -- during the first, second quarter and early into the third quarter. All of those head winds could -- could create an environment where we could have some -- some folks fall by the wayside regardless of how -- how good and effective they are in running their business.

Some of the smaller players will be very, very challenged from a cash flow standpoint to sustain the business. I don't know that. I have no facts to back that up. But this could be a confluence of factors that could lead to that.

Okay. A couple of more questions. The one, could you just give us an idea from a -- from a head count standpoint? I know you talked about the non -- or of the salaried employees. You know, how many shifts are you running right now? You know, how much has your head count come down in terms of the -- the actual guys on the line?

We are -- we are currently running for the most part two shifts as we continue with the Lafayette transformation project. As you know, that is reducing from three assembly lines -- or excuse me, from six assembly lines down to three. So we will effectively be running two shifts to support all of the needs going forward. On the head count side, in Lafayette I think we're down about --

It's --

-- 400 or 500 folks.

It's pretty much proportional to the change in the volume that we're running, John. We've had some, you know, pretty good success in keeping our hours per unit even though we've consolidated the lines up. So proportionately, we've taken out hourly, whether it's full time or temporary folks, in proportion to the change in the volume.

Yes, just to -- just to add to -- to Bob's comment there. The manufacturing team and -- and all the support groups have done an absolutely outstanding job of being able to -- to leverage the improvements that we're making and being able to take -- adjust the work force levels almost linearly to what the demand side of the business is and have -- have been able to really keep the [cost].

And that's why Bob will comment about the -- the favorable performance on the labor and burden side because they've really done a good job with that. It's probably something we couldn't have done four or five years ago. We weren't that sophisticated in our understanding of -- of the business.

Okay. All right. You know, in terms of -- do you publish the hours per unit? Do you -- have you provided that information historically?

No, no we do not.

Is it possible to get it? I mean, we just like to -- to be able to track. I mean, with the head count reduction that you have, you know, that you're picking it up on productivity. Is it possible to get that?

We -- we don't share that detail of information relative to that for competitive reasons.

All right. All right. All right. Last question, and, you know, this is kind of two part. One, you know what percentage -- or could you just give me some ideal of you, know how, much revenue you generated in the quarter from sale -- from the sale of just the DuraPlate product?

And then, you know, the example I want to ask you about in terms of -- all right, so Conway buys CFI. My understanding was CFI was a decent sized customer for you guys. Conway has had a in-house trailer manufacturing operation for a while. They're now talking about producing their own truckload trailers as well. And -- and you know have indicated that they might buy some DuraPlate product from you in order to do that.

Could you give me an idea, loss of a customer like that from the trailer standpoint versus selling them just the raw DuraPlate product? Now how much of an impact is that from a, you know, top line standpoint? You know, is it kind of one for one? Or how much are you making up?

And, you know, same thing on margins? I mean is it a big margin hit or do you make a little bit more margin selling just the pure DuraPlate versus selling the trailer?

Well as I've shared in the past, the -- the DuraPlate products group initiatives bring with them a higher margin from a percentage standpoint for the DuraPlate product than an actual trailer sale itself, even in the best of -- of times for demand on trailer side.

Obviously on a -- on the revenue side the -- the top line decreases a lot on, you know, on an equivalent trailer basis, if you will. It -- it decreases significantly but on the margin dollar side we -- we do have some nice margin percent that we're able to capture as a result of selling the panels directly. But no, there's no question it's not a one for one.

Okay. And you know -- you know, in terms of that specific example, I mean, is that the way to look at it? That you might lose -- you might lose a couple hundred trailer order or 500 trailer orders a year but you'll make up part of that at least on the sale? Is that a -- is that a, you know, a scenario that's likely to play out?

Yes, we recover -- we'll use the example that you shared with -- with the Conway CFI. You're referring to RSI as their internal trailer manufacturing operation.

Correct.

We have licensed the use of our technology to them to build those trailers internally. So we supply the product and get a royalty for the use of the design and the -- and the trailer technology. So we are -- we are generating a profit for the sales of those panels.

They don't show up in the -- in the trailer count so, you know, from a pure trailer count standpoint we don't show those, but we still have a strong relationship with -- with Conway or the Conway freight folks -- truckload folks. And so yes -- so there is some -- some decrease on the top line and some adjustment at the -- at the margin dollar area, but we still participate and we're pleased with the relationship.

All right. Very good. Thanks for your time, guys.

Thank you. Our next question comes from Kristine Kubacki with Avondale Partners. Please state your question.

Good morning.

Good morning, Kristine.

Just a few questions. How long does your backlog go? How far out into 2009 does it extend?

It is -- it's -- for the most part, the backlog is -- I mean, it picks up 18 months but most of what we have identified is -- is 2008. Not a lot of orders have been placed thus far for 2009. And that's a similar pattern to what we saw last year. Customers are holding out, determining what their needs are going to be, a little slow on the trigger in placing orders. Traditionally, or historically, the -- the September, October timeframe was a timeframe when a lot of orders would start coming in. We found that they're coming in later last year and we're seeing the same pattern this year.

Have you seen any with your -- with your backlog now -- have you seen any level of cancellations from customers?

Well we have some cancellations in the -- in the prior period. In July we recognized some cancellations. In some cases we elected to reflect some deferred orders that we said, well, they're just being deferred for too long a period, let's just cancel those because they may or may not turn out to be orders in the long run, instead of just continuing to recognize those. So that's the -- that's the approach that we took. So we were probably the -- the biggest contributor to the spike of cancellations that showed up in the July -- July, August timeframe.

Okay. And then can you comment a little bit on the -- I mean, I saw the step up of receivables and you mentioned that it was reflected on the timing of -- of sales. I was wondering if you could comment a little bit on how you're viewing the quality of those receivables and then comment on any kind of trend in terms of bad debt expense for you?

The quality of the receivables remains very good. The customer base that we deal with is, you know, I think, the best out there in the industry. We have, you know, had a couple of pick ups here and there in terms of smaller accounts being delayed.

But there is no -- there is no trend of deterioration in terms of the customer base and really when you -- when you look at what we've provided for bad debt, the last time we made an appreciable increase in the bad debt provision was a year ago second quarter, if memory serves. And we feel pretty comfortable with where we are.

Okay. And my last two questions are in regard to your newer initiatives. Specifically on the -- on the DuraPlate product group initiative, it sounds like you're pretty far down that path. I was wondering kind of when we could expect an announcement there?

I -- I keep asking the same question, Kristine. You know it's -- this is -- this is one of those -- I -- I joked at you know this thing's getting a gestation period of an elephant but it's -- it's almost home and it's a matter of getting it across the finish line. It's the proverbial dot Is and cross Ts and I wish I could -- could say more than that.

I had hoped that we'd have that completed prior -- prior to this call but we've just got a few -- a few other items. You know, anytime you get the -- the legal side of two companies working together, it -- it tends to start parsing words here and there and we're into a little bit of that. But we'll get through it and we're -- we're so excited about it. And I just want to be able to share so many more details but I just can't at this point.

Okay. Fair enough. And then on the purchasing consortium, forgive me if you've said this, but in terms of this -- I believe you said $400,000 in savings, how does that flow in '09? And I know that's amongst the group, I think you said. And then how is the split then amongst -- amongst the group, or your share?

We're -- we're -- we don't intend to share the split portion that we will reflect. We get a percentage of that savings. That $400,000 was for the very first or initial supply agreement that's been negotiated and that will be for the full year and that -- I referred to it as an estimated $400,000 because, of course, it's -- it's tied to the -- what ends up being the result in volume levels that -- that the consortium members will see in 2009.

But directionally that's the number. We share a percentage of that. We will share progress as we get more and more of these supply agreements negotiated under our belt. We'll be able to share what the benefit is in a -- in a cumulative sense that Wabash will realize. But at this point with just one under our belt we -- we just don't feel we -- we want to share what the split is at this point.

Okay. Thank you very much.

Thank you. Our next question comes from [Don Noen] with DN Capital Management. Please state your question.

Good morning. Excuse me. Could you comment on how the rash of bank fees amongst the smaller operators is affecting the used trailer market? Are we seeing a flood of -- of trailers within the used market? And then, if such, how does that affect your -- your mid market and bigger customers bases? Are they active in the used markets?

Yes. The used markets certainly is -- is weak these days. There's -- there's a lot of product out there. The values of used trailers are down. I think Bob may have shared that in his comments. It's -- it is tough on the used trailer side and we are -- we are very selective on the trade packages that we're accepting now.

We -- we recognize what the value in the market place is. Our guys are very good at understanding what current market values are. And we're being very careful on -- on what trade packages we're taking. But yes, the used market, just as you point out, is very difficult right now.

Are you -- are you finding evidence that your -- your customer base is dipping into the used market as opposed to placing new orders? Or is that something that's not -- ?

Oh, no. Generally the -- for the bulk of our customers who are the largest and -- and best financed fleets in the country, their -- their focus is on having the best product out on the highways and they don't typically acquired used trailers. They're the ones who want to trade out their old trailers to replace with new.

You may see some of that activity with some of the smaller fleets who are struggling with their cash position looking for, you know, lower cost alternatives. But typically those are not the customers that we deal with.

Great. Thank you.

Thank you. There are no further questions at this time. I'll turn the conference back over to management for closing comments.

Thank you. Just a few comments. Although we're pleased with the progress that we made during the quarter, we recognize that there is significant work to be done to move the Company towards sustainable, profitable growth and long term shareholder value creation in light of the current challenging macroeconomic environment. We are keenly aware of the challenges facing our company and the industry, yet we are confident in our strategy and our leadership.

We continue to be the best positioned company in our industry with our strong market share, solid financial position, excellent operational efficiency, innovative leadership, our strong customer relationships, and an unmatched suite of products. As we institute our strategic initiatives, we'll continue to get stronger and more profitable over the longer-term. We'll continue to work towards diversifying our product offering and our revenue stream.

But the intrinsic strengths of the Company have not changed and the long-term requirements for new and innovative trailers remain intact. We are keeping focused on the task at hand without losing sight of our long-term strategic transformation goals. Thank you for your participation today. Bob and I look forward to speaking with all of you again on our fourth quarter and fiscal 2008 call. Thank you.

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