Wabash National Corp (WNC) 2009 Q2 法說會逐字稿

Greetings and welcome to the Wabash National Corporation's second quarter 2009 earnings 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 CEO for Wabash National Corporation. Thank you. Mr. Giromini, you may now begin.

Thank you, Jackie. Good morning.

Before we begin, I would like to make an important announcement. As with all of these types of presentations this morning's contain 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 and Exchange Commission.

Welcome to Wabash National's second 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 would like to welcome all of 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 we'll try to provide as much information as possible. At the conclusion of the prepared portion of our presentation, we'll open the call for questions from the listening audience.

Before we get into our results for the quarter, I'd lake to briefly highlight the recent actions we've taken to improve our liquidity position and enhance our financial flexibility. On August 3 of this year, we finalized our agreement with Lincolnshire Management Under the terms of the agreement, Trailer Investments LLC, an entity formed for this purpose invested, $35 million into the Company for which it received warrants immediately exercisable at $0.01 per share for approximately 25 million newly issued shares of common stock. This represents 44.21% of the issued and outstanding common stock of the Company. Importantly, this agreement also helped to facilitate the completion of an amendment to our revolving credit facility. We are now in compliance with all of our covenants and have access of up to $100 million in borrowings. Additionally, as part of the investment by Lincolnshire, we have increased the size of our board to 12 members and appointed the following designees of Lincolnshire Management; Thomas Maloney, Michael Lyons, [Deneath] Purdy, James Bench and Andrew Boynton. We are excited to welcome the new directors and look forward to benefiting from their experience, expertise and insight. Bob will provide additional financial details of the agreement during his prepared remarks.

Now I would like to discuss the current industry environment, highlight certain developments during the second quarter and provide our outlook for our business going forward. During the second quarter, we shipped 3,200 units bringing our first half of 2009 total to 5,900 units. These results are somewhat lower than our earlier estimates and indicative of a demand environment that remains significantly depressed. Fleets continue to be challenged by an oversupply of equipment and reduced freight loads. In its July issue of North American Commercial Truck and Trailer Outlook, FTR estimated truck utilization at approximately 75%. Utilization has declined each month for the past four months, but FTR expects this to reach a bottom in the third quarter of this year.

While overall fleets are benefiting from lower fuel costs and reduced overhead, many have been reducing freight rates either to capture market share in some cases and/or to supply - - to simply survive in others. The intense rate cut environment is expected to continue and will put pressure on all but the best-run fleets. We would expect this to lead to more failures and consolidations particularly among the smaller carriers. In addition, carriers continue to delay new equipment purchases and extend equipment replacement cycles. Even those with aging trailer fleets are choosing to refurbish older trailers for the time being, an effort to extend the life of their assets. In addition, larger fleets are expected to time new trailer purchases with an upturn in the economy so that they have the best equipment when freight volumes return to more normalized levels.

This challenging environment is reflected in recent ACT estimates. Total trailer shipments for 2009 are expected to be down 48% from 2008 to approximately 76,000 units. By product type, ACT is estimating that van trailer shipments will be down approximately 51%, platform trailer shipments will decline approximately 39% and dump trailer shipments will fall approximately 40% during this year. While a sales environment remains challenged, we continue to maintain our leadership in our industry with relevant and timely new product innovation. Recently, the DuraPlate products group introduced the DuraPlate Aero Skirt, and aerodynamic accessory for semi trailers that addresses the needs of fleet operators for ease of installation, high reliability and adaptability for use on almost all trailer designs. This product is not only less prone to damage than competitive products, leveraging the strength and durability of the DuraPlate composite technology, it also reduces drag, improving fuel efficiency and reducing operating costs. Testing is verified that trailers equiped with the Aero Skirt, improved fuel efficiency by nearly 6%. Initial feedback from customers has been encouraging given the height and focus on fuel efficiency and cost savings.

In addition, we continue to prudently manage the business and execute well in the areas within our control. During the second quarter we took further actions to improve our overhead expense structure and continue to implement both temporary and permanent cost actions to help manage through the current economic climate. As a result of our cost restructuring actions, gross profit improved significantly by nearly 14 percentage points in the second quarter 2009 to a negative 6.1% as compared to the first quarter of the year in negative 19.9%. This was accomplished at volume levels only slightly greater than those experienced in the first quarter. While pleased with the amount of improvement versus the first quarter, gross margin remains unfavorable as compared to the 5.3% in the second quarter of last year primarily as a result of significantly lower volumes, under-absorbed overheads and historically high raw material cost carryover from 2008 that have not declined at nearly the same pace as our volumes.

Despite recent declines in the price of steel, the lower cost has yet to be fully realized in the prices we pay suppliers. The positive news is we began to see raw material cost improvements flow through to our materials margins during the past quarter and will realize even greater benefit during the current quarter and throughout the balance of the year. However, due to continued overhang of higher cost aluminum hedges from late 2008, we do expect our aluminum costs to remain at current levels throughout calendar 2009 with nice incremental improvement costs in early 2010 as we fully deplete these commitments in inventory. We've also continued our attack on operating an overhead costs in every aspect of our business. Some of the actions we've taken already include the aisling of plants in assembly lines, manufacturing process improvements, inventory consolidation, reductions in our salary workforce now totaling 40% since early 2007, reductions in salaries across the board and in total compensation awards to executives and other eligible participants, the suspension of Company matches for 401-K and non-qualified plan participants as well as the suspension of our quarterly dividend. We've stripped out and greatly restricted other spending activities and will continue to do so.

We also completed the transformation of the Lafayette facility during the first quarter and have already begun to recognize the associated benefits in cost savings. This initiative has streamlined our production processes and further improved manufacturing efficiency. During this process, we consolidated the [Pup], DuraPlate and FreightPro production lines and consolidated a number of warehouses resulting in a reduction of an amazing 153 miles of transport distance per shift for materials. The results of our cost restructuring efforts were evident during the second quarter as we're able to improve operating income by 39% or 15.8 percentage points and EBITDA by 47%, improving our run rate by over $10 million.

Importantly, additional actions continue to be implemented with further salary headcount reductions of some 130 having taken place during the quarter bringing our salaried headcount reductions to approximately 250 salaried since the end of 2006. All told, accumulative cost improvement actions will exceed $35 million on an annualized basis. Collectively, these cost actions and process improvements have begun to bear fruit. Although we sold roughly the same number of units in the second quarters compared to the first, our operating loss was reduced by approximately $10 million. We expect these cost reduction initiatives to continue to help offset the current lower volume levels, but more importantly, they will provide a significant operating leverage as market conditions improve. While we've made good progress on reducing the losses and cash burn and fully expect to continue this progress, we are looking for a slight upturn in volume to achieve a consistent cash-neutral operating position.

Looking ahead, the macro economic environment is showing signs of stabilization. In fact, leading economic indicators for our industry are beginning to decline at slower rates and in some cases showing actual improvement on a month-over-month basis. The ISM manufacturing index has improved for seven consecutive months coming in at 48.9 for July. This is a positive signal that supply chain managers are less pessimistic of the future as the index continues to move toward 50 level which would signal expansion. The conference board leading indicators index is increased for three consecutive months with April, May and June up 1%, 1.3% and .7%, respectively. Historically, improvement of more than .5% for three consecutive months for this index signals not only the bottom of the recession but also entering the acceleration stage of recovery.

Housing permits, a leading indicator for housing starts has increased for three consecutive months. Housing starts in June were the strongest since November of 2008. Permits and starts remain at low levels, but the increases are additional signals that the housing sector may now be reaching a bottom. Pending home sales rose in June for the fifth straight month as reported by the National Association of Realtors marking the first time since July of 2003 that this has occurred. Lastly, business inventories fell in May for the ninth consecutive month. Although the current inventory-to-sales ratio of 1.42 months remains higher than the average of 1.28 months in both 2006-2007 it does signal that inventories are approaching equilibrium with demand. As consumer spending improves and inventories our consumed businesses will be encouraged to invest in equipment and human capital to fuel the recovery.

These are all good signs that the US economy is poised for recovery with most economists now suggesting that we will begin to see a turn to positive GDP growth during the second half of this year. Recent ACT estimates reflect this optimism as total trailer industry shipments for 2010 are expected to grow approximately 76% to a total of 134,000 units. Taking into consideration the economic indicators, industry projections, and what we are hearing from our customers, we now expect volume shipments for the total year 2009 to be between 13,000 to 15,000 units. Looking ahead into 2010 while cautiously optimistic that volumes will be stronger based on industry forecasts, we do not currently expect a significant increase in trailer orders until the second half of 2010 as fleets remain cautious and await firm indicators of sustained demand improvement.

In conclusion, we're happy to put the first half of this year behind us. To say the least, the past two or three quarters have been extremely challenging for the Company and for our industry as a whole. We survived the most challenging period in our history and are stronger for it. We have done what was necessary to weather this storm and in opposition, both structurally and financially to take advantage as the economy improves and volumes return to more normal levels. We've made the tough decisions, restructured our business and all have sacrificed to assure that our great Company could survive the worst downturn that our industry has ever experienced.

However, we will continue to manage our business carefully in the near term by continuing our efforts and reducing costs, improving efficiency and protecting our liquidity position. We will continue to take the steps necessary to successfully navigate through the current economic climate. While we still have a lot of work ahead of us, we remain committed to and confident for the future of Wabash National. We wish to thank all of our associates for their understanding and patience as we have worked diligently to bring this capital raise effort to a close so that the future of Wabash National remains secure. We also wish to extend our appreciation to the many suppliers who were gracious in accommodating our needs during these past several months which helped us tremendously. Finally, thanks to our many customers who have stuck with us throughout, we're proud to serve you.

With that, I'll turn the call over to Bob for a review of our financial results.

Thanks, Dick. Good morning.

I'll keep my remarks fairly short this morning as most of you probably know we've filed our 10-Q last night so the detail is out there and available to you all. I'll just talk a little bit about the progress since Q1 and the Lincolnshire investment and bank amendment which was just completed. Looking at the progress since Q1, we made a good degree of progress in the gross margin area where it improved $10 million. The improvement is really attributable to the decrease in raw material and component costs amounting to approximately $5 million, and reduced burden costs of almost $9 million. In the second quarter, production was up almost 20% over the first quarter. These improvements, however, were offset by a little bit lower average selling price. As Dick mentioned,- - we took the gross profit percentage improved from 19.9 in Q1 to 6.1% in Q2.

We would expect that Q3 will continue to show an improving trend because of the impact of raw materials and the flow through effect of the cost reduction actions that were taken earlier in this year and the continuing effort to contain costs. On the SG&A front, the quarter was about $11.4 million, which is down 0.4 from the first quarter, primarily reflecting reduction in salaries, benefits and professional fees, partially offset by a 0.4 increase in the allowance for receivables. You do'nt see as much progress quarter to quarter here, but I think we need to look at where we were in the fourth quarter of last year. We've come down almost $4 million since the fourth quarter. So we're on the SG&A side of the house early and got a lot of that behind us very quickly.

Just a quick recap on the Lincolnshire investment. We issued three series of preferred stock for a total of $35 million. The weighted-average dividend rate on those series is 16%. This is a redeemable offering that the Company can redeem at a premium after the first year. In years two and three, the premium is 20%. In years four and five, the premium is 15%, thereafter there is no premium. The provisions also include a change of control provision. That is if more than 50% of the voting power changes hands, the preferred stock becomes immediately redeemable at the election of the holder, and that would be at a 200% premium. The change of control is also subject to a 12 month look-back provision. As part of the transaction, we issued warrants that are immediately exercisable at $0.01per share for 24.8 million shares of the common stock of the Company representing about 44.21% of the total issue and outstanding shares of the Company as of August 3.

The shares of the warrants can be subject to upward adjustment up to 49.99% of the Company. And that is really tied to the ability of the Company to utilize our net operating loss carry-forwards. And what we are trying to protect against is having a shareholder acquire more than 5% of the outstanding shares of the Company. This isn't very important to us because at June 30, the NNL's amounted to approximately $137 million and don't begin to expire until 2022. The warrant also contains customary anti-dilution provisions.

I think with respect to both the preferred stock and the warrant, you should read through the 8-K's that were filed gives you the particulars on those transactions. You should also look at the risk factor section of the 10-Q. Coincident with the consummation of the Lincolnshire investment, we were able to amend our facility. As Dick mentioned it provides for borrowings of up to $100 million. It's subject to a borrowing base similar to our prior facility or the prior arrangement. It's tied to accounts receivable inventory property plant and equipment. It contains requirements for some reserves. So it's very similar to what we had in the past. The interest rate on the amended facility is LIBOR plus 4.25%. The Company also has a requirement to pay unused line fees of 0.375% and the normal customary fees and expenses. Also as Dick mentioned, we were - - all of the previous events of default were removed.

At this point I will turn it back to the operator and open the call up for any questions that you might have.

Thank you. We will now be conducting a question and answer session. (Operator Instructions). One moment please while we poll for questions. (Operator Instructions).

Thank you. There are no questions at this time. I'd like to hand the floor back over to management.

Thank you. We're pleased to have a stronger liquidity position and more financial flexibility as we enter the second half of the year. And we'll continue to take the steps necessary to successfully navigate through the current economic climate. While we still have a lot of work ahead of us, we remain confident for future of Wabash National.

Thank you for your participation today. Bob and I look forward to speaking with all of you again on our next call. Thank you.

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