Wabash National Corp (WNC) 2009 Q4 法說會逐字稿

Greetings and welcome to the Wabash National Corporation fourth quarter 2009 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 my now pleasure to introduce your host, Mr. Dick Giromini, President and Chief Executive Officer of Wabash National Corporation. Thank you, Mr. Giromini, you may begin.

Thanks, good morning.

Before we begin, I would like to make an important announcement. As with all of these types of presentations, this morning's call contains certain forward looking information, including statements about the Company's prospects, the industry outlook, backlog information, financial condition and other matters. As you know, actual results could differ materially from those projected in 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 fourth quarter and fiscal 2009 earnings call. I'm Dick Giromini, Chief Executive Officer. In the conference room with me this morning is Mark Weber, our Chief Financial Officer. We have much to cover today, and we'll try to provide as much information as possible.

I'll first comment on several key highlights for the quarter, discuss the broader operating environment, and provide our expectations for the coming quarters. Then I'll ask Mark to provide a detailed description of our financial results. At the conclusion of the prepared portion of our presentation, we will open the call for questions from the listening audience.

It goes without saying that fiscal 2009 proved to be one of the most difficult periods that our industry has seen in decades. The economy continued to slip deeper into a recession, consumer confidence hit lows not seen in decades, and freight haulers were forced to right-size due to a depressed tonnage environment. All things told, trailer sales for the industry hit its lowest level in decades. Recognizing these extraordinary circumstances, I can't help being proud of the Wabash team for responding decisively and delivering noteworthy operational improvements throughout the year. We took bold steps to reduce costs and improve profitability that not only helped us navigate a challenging 2009, but also provides us with a stronger, more efficient foundation from which to deliver shareholder value over the long-term.

Let me take a few moments to recap the actions we've season to optimize our cost structure and enhance our operational efficiency. During the year, we further reduced salary headcount by an incremental 30%, now totaling 40% or over 250 positions eliminated since 2006, reduced salaries across-the-board and total compensation awards to executives and other eligible participants, suspended the Company's match for 401K contributions and non-qualified plan participants. Secondly, we completed the transformation of our Lafayette facility, which served to stream line our production processes and further improve our manufacturing efficiency. We consolidated the Pup, DuraPlate and FreightPro production lines in a number of warehouses. Amazingly, these consolidation efforts provided for the reduction of transport distance on a per shift basis for materials by some 153 miles.

Additionally, we announced our initiative to consolidate our Transcraft manufacturing operations. We're in the process of closing on the sale of our Anna, Illinois manufacturing plant, and will be moving operations to our Cadiz, Kentucky facility. Platform production at our Anna, Illinois plant will cease by mid-2010, at which time the new production lines at the Cadiz facility are expected to be fully operational. Collectively, these actions are expected to generate annualized cost savings of at least $35 million. Importantly, we expect over 50% of these cost savings to be permanent in nature, which provides incremental operating leverage when the demand environment improves.

Moving on to the fourth quarter, we shipped 3,300 units, which was at the high end of our estimates. This brought our full year 2009 total to some 12,800 units. As we discussed last quarter, the first and fourth quarters are seasonally slower periods, and bear seasonally higher production costs, tied to less operating days, holidays, and utility costs. So, we believe we have one more challenging quarter from a seasonality prospective. That said, we believe the worst is behind us. We continue to see signs that our industry is stabilizing, and the overall economy is poised for recovery.

In addition, leading economic indicators continue to trend in the right direction. For example, the Conference Board Leading Indicators Index has increased for nine consecutive months. October was up 0.3%, November up 1%, and December was up another 1.1%. Of note, this index has grown some 5.2% for the period June to December. The ISM Manufacturing Index continued to improve, and was at a reading of 54.9 for December. Additionally the index jumped to 58.4 in January, it's highest level since August of 2004. This certainly is a positive thing, though, that supply chain managers are much more optimistic for the future.

The housing sector continues to stabilize, and even improve in some sectors. While home sales pulled back a bit in December, new home permits actually increased by some 10.9% over November, or 16% higher than a year ago. This is a leading indicator by about a month for housing starts. While still remaining at low levels when compared to the peak periods of 2006, it's nonetheless encouraging to see the sector stabilizing and improving.

GDP growth continued during the quarter, increasing 5.7%, and business inventories are beginning to show signs of life, as the extensive inventory reduction activity that we saw since the beginning of 2009 has now reversed itself, with November inventories increasing 0.4%, marking two consecutive months of increase.

Importantly, industry forecasters remain confident in their previous expectations that demand will increase, beginning in the second half 2010 and continuing for the foreseeable future. In fact, ACT expects an increase of 31% to 103,000 units in 2010, a 71% improvement in 2011 to 175,000 units, and reaching some 225,000 units of total demand by 2012. Similarly, FTR expects an increase of 19% to 93,000 units for 2010, a 62% improvement in 2011 to 144,000 units, and reaching 210,000 units by 2012.

An important note to point out in these forecasts is that dry vans are expected to grow even faster than these impressive industry growth rates. ACT projects that dry vans will increase by 41% in 2010 and 114% in 2011. Given our market leadership and industry-leading product offering in the dry van segment, we're encouraged by this outlook.

Overall, we believe demand in 2010 will certainly outpace 2009 levels, with the second half of the year stronger than the first. As I've said, the first quarter 2010 will be challenging from a seasonality perspective, and pricing competition will continue to adversely impact our margins as all manufacturers seek to fill underutilized capacity. We therefore maintain our stance of cautious optimism. Fleets are seeing a pick-up in demand which will help them regain some pricing power, which in turn will support their appetite to acquire new equipment. In addition, truck loadings and tonnage levels continue to improve as of late. While it's still early in 2010, this improving environment has translated into some early successes here at Wabash. We're encouraged to see quote and order activity pick up, with a strong list of open opportunities, and our backlog, which as of the end of the year was $137 million, is up from $96 million in September and $110 million as of a year ago. In fact, if we were to include order commitments received since year-end to date, the backlog at 12/31/09 would have exceeded $200 million. So we're feeling pretty good about the backlog build thus far.

In addition our DuraPlate products group has made some noteworthy progress on the business development front. Order rates for each of its key product offerings are up, including pods, truck body orders for DuraPlate panels, and the new aerodynamic AeroSkirt product. Others active opportunities are gaining traction, and we will announce those as they are realized.

In conclusion, we're pleased to put 2009 behind us. We survived one of the worst periods in our history, and are stronger for it. We will continue to manage our business carefully in the near term by continuing to reduce costs, improve efficiencies and protecting our liquidity position. Importantly, the actions we have taken to reduce operating costs and improve our operational efficiency are largely permanent improvements in our business, and we expect to deliver significant operating leverage when the market conditions improve. While we still have a lot of work ahead of us, we remain committed to the future of Wabash National. We have a proud history and strong heritage that give us confidence we will emerge from this period a stronger, more focused company, positioned for long-term growth and value creation.

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

Thanks, Dick, and good morning.

As the 10-K is not yet available, I will try to provide more detail on the numbers, and focus my comments primarily on the fourth quarter results and the progress made this year. The sales breakout by segment is included in the Press Release details, but by product line sales for the quarter break down as follows. New trailers of $71 million on 3,300 units, which is down about 300 units from the third quarter, with an average ASP of $21,200. Used trailers came in at $4 million on 700 units, down slightly 100 units from the third quarter, with an average of ASP of $5,400 per unit. And parts and service, finally, came in at $11 million.

From an operating results prospective, the fourth quarter was generally in line with our expectations, as we entered the seasonally low period of the year, as well as one of the higher cost quarters from a production prospective. Similar to Q3, the fourth quarter showed significant improvement from the first half of 2009, as well as on a year-over-year basis. The improvement again was primarily driven by decreased raw material and component costs throughout the year, savings in labor and overhead costs achieved from cost actions implemented early in the year, and improvements made to operations through our productivity efforts that Dick touched on previously. I would again like to point out that these initiatives have helped us to not only navigate the current market environment, but will enhance our value proposition and improve operating results when volumes begin to return to more normal levels.

During the quarter, material costs were stable to down, with material costs representing 72.7% of sales versus the third quarter's 73.3%. However, our aluminum hedge position versus the spot market continued to impact results in the quarter by an estimated $1 million, and over $8 million for the full year. At this point, while subject to our production rates, we estimate that it will take us through the first half of 2010 to fully utilize the balance of our hedges.

On a sequential basis, the fourth quarter loss from operations and operating EBITDA were both down slightly from the third quarter by approximately $1.6 million. This decrease was primarily attributable to lower trailer volumes of 300 units, both built and shipped; higher seasonal costs; higher period costs associated with severance; and our flat bed consolidation initiative. As a reminder, we remain confident that improving demand in the second half of 2010, as well as our lower cost structure, will allow us to achieve EBITDA break even during the second half of the year. SG&A for the quarter was approximately $10 million, and nearly flat with the third quarter of $9.9 million, and again reflects the cost reductions made across multiple expense categories. For the year now, SG&A came in at $43.2 million or over $15 million below 2008 levels. The third and fourth quarter annualized run rate of approximately $40 million is more indicative of our expectations for 2010.

As discussed last quarter, the fair value accounting for the warrants will continue to impact the other and expense category. This quarter, however, the non-cash change in the fair value of the warrant resulted in an income item of $20.5 million. So for the year, we're a net $33.4 million of expense.

On the tax line for the quarter you will have noticed a tax benefit of $3 million, reflecting a refund claim made for prior year AMT taxes paid during 2004 to 2006. The claim became available under the Worker, Homeowner and Business Assistance Act of 2009 that was signed into law during the fourth quarter. At December 31st, we now have a U.S. Federal NOL carry forward of approximately $167 million; however, we have a full valuation allowance recorded against our net deferred tax assets. The federal NOL carry forward begins to expire in 2022.

As a reminder, the utilization of the NOL carry forwards could be limited under IRS rules in the effect of a change in ownership; and with the warrants we issued to [trail our] investments as part of the capital raise early last year, we do have an increased risk of potential ownership change. In essence, our NOLs could be limited in the event of a change in an existing 5% stockholder, or the acquisition of greater than 5% of our stock by an individual or entity. On the preferred stock dividends line of approximately $2 million this quarter, they were accrued and unpaid. Our current plan for 2010 will be to accrue these dividends unpaid as well.

On the balance sheet, inventories at December 31st were down $41 million from year-end 2008, and are comprised of the following. Raw materials of $15 million, or down $9 million; finished goods of $27 million, or down $22 million; parts of $4 million, down $2 million; and used trailers of $5 million, down $8 million. I believe the balance sheet included in the Press Release will provide you with the other necessary comparables.

On liquidity, or cash plus available borrowings, we finished the year at $21 million, which is down from $36 million at September. In addition to cash requirements during the quarter and the seasonality of our working capital, the decrease is also attributable to updated inventory appraisals completed at year-end under our revolving credit facility, which impacted the borrowing capacity by approximately $5 million. Not yet factored into our liquidity, however, at year-end are the expected proceeds related to the tax refund I mentioned earlier, and proceeds from the the sale of our Anna, Illinois flat bed facility, both targeted for completion this quarter. Combined, we expect this to provide approximately $3.5 million of cash. In addition, we plan to update our inventory appraisals in early 2010, as general economic conditions continue to improve. Also, while liquidity maybe under pressure in the first half of the year as volumes recover, we believe our liquidity is adequate to meet our business needs, and we believe -- what we also believe to be a stronger second half of the year.

Looking forward, in the short term, the first quarter of 2010 will face similar pressures as the fourth quarter, with a seasonally low production period as well as a higher cost production quarter. Shipments for the quarter are expected to be similar to a year ago period of approximately 2,700 units. For the balance of the year, we anticipate volume sequentially improving in line with the current market estimates from ACT and FTR, and providing significantly improved year-over-year comparable results throughout.

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

(Operator Instructions). Our first question comes from the line of Jeff Kauffman with Sterne, Agee. Please proceed with your question.

Thank you very much. Guys, congratulations. A question on the makeup of the backlog. To the extent you're comfortable, can you discuss and give us more of a feel for where the orders are coming from? Whether kind of the larger fleet core customers, smaller fleet customers? How much will be dry van refer, flat bed? Just kind of give a feel for -- Dick you said this is how the economy is improving, this is where we see it. Can you look at your backlog and give us any kind of read like that?

Yes, hi, Jeff. It is all over the map, as far as the types of orders coming in, but it certainly is slanted more towards larger fleet demand and stronger, as I stated in my comments earlier, stronger on the dry van side, and that is consistent with what the forecasters, ACT, are saying, and what they're projecting for improvement year-over-year is most heavily weighted in the dry van segment, and we're seeing that based on quote activity and the order intake.

Can you give us -- you said about flat year-on-year shipments, yet your backlog is up pretty substantially. Will we see more of this in the second quarter? Is this going to be more a second half type of impact in the backlog?

Are you saying will with we continue to see the type of order intake? Did I understand your question?

I guess I'm saying kind of when will this backlog be produced relative to -- your backlog is up almost $20 million year-on-year, and you said almost 200 -- if you look at what has happened post the close of the first quarter, should we assume the majority of this backlog is back-end loaded or could we see second quarter production up almost 50%, 60%?

No, it's throughout the course of the year. As you know in our business, since we tend to deal with a lot of the larger fleets, both mid-market and large end fleets, their orders tend to be for the year, and they're typically -- the builds and ships are spread out throughout the course of the year. So it will be spread throughout the year. But certainly more front-end loading on it, as we fill open production slots. There is an immediate impact as we continue to fill slots, but the requirements are spread throughout the year.

Okay, guys, thank you.

(Operator Instructions). Thank you, our next question comes from the line of Kristine Kubacki with Avondale Partners. Please proceed with your question.

Good morning.

Hi, Kristine.

I was wondering if you could talk a little bit about the used trailer market, and maybe a little bit more from an industry perspective? Can you talk about what the used trailer pricing is, and kind of what the inventory is out there? And is there a little bit of a headwind that we have to absorb in the amount of capacity out there, or do you think that the trailers that are out there are so old that there will be a pent-up demand as the cycle starts to happen?

Certainly, the age of some of the equipment that's out there is very dated, and doesn't have a lot of value in the marketplace, and it's really caused a lot of compression on what the used trailer values are. Later-model trailers, though, are moving quite well. The problem is availability of those late-model trailers, but folks who have those are moving them pretty well. So in responding to your question, yes, there's a glut of trailers in the market. There's an excessive amount of them that are very aged and very difficult to move. In fact, a lot of the product that we ended up with, we've taken continued writedowns on as we're trying to move some of that older equipment. But the late-model stuff is moving well, and if folks have any late-model refrigerator trailers out there, they're the hottest commodities out there right now, so those are very easy to move.

Okay. Do you think that the notion of perhaps, as you guys are more tied to the larger fleets, do you think notion that we're going to see some increase in trucking fleet failures here in the first half is driving some opportunistic buying, especially in the second half of the year, as they expect some of their peers to head for the exits?

It's purely conjecture, Kristine, but while none of our customers or contacts have actually made that statement, or implied that, certainly just purely conjecture that I'm sure some are looking at it that way in anticipation of opportunities to pick up and consolidate, or pick up some lanes that they're preparing themselves and positioning for that. That's just a gut feel, but I've not had anybody confirm that that's their strategy.

Okay. Thank you very much.

Thank you. Our next question comes from the line of [Konshana Paretti] with Sterne, Agee. Please proceed with your question.

I wanted to know if you could talk a little bit about the pricing of your backlog relative to last year's backlog?

I think that we've continued throughout 2009, continued to see pricing pressure, margin pressure. It's a very difficult marketplace out there right now, with demand being at some -- the lowest level since, I believe, 1975 or further back. All of the manufacturers have been scrambling to try and fill some capacity, so pricing pressure has continued without any abatement.

So I'm sure that as you look at some of the average pricing from 2009 to 2010, there's probably been some compression as a result of the weighted average kind of thing. Early 2009 was better than the latter part of 2009. I will say it seems to have stabilized. It got to a point where it -- pretty much everything that could be done has been done. Everybody is on just about every deal out there. So a very difficult environment that we're managing through.

Got it, thank you very much.

(Operator Instructions). Thank you. Our next question comes from the line of Dan Moore with Scopus. Please proceed with your question.

Good morning, gentlemen.

Hey Dan, how are you?

Good. A quick question for you. I was hoping, and I wasn't able to get on the call as quickly as I would have liked to, so I apologize if this has been addressed in any way, but you had discussed a lower break-even, given some of the the cost initiatives that you have implemented. Can you give us a little bit more granularity on that? And then I would like to know, as it relates to the $200 million backlog, is there any refurbishment associated with that backlog, or are those all new orders?

Dan, this is Mark. I'll take the EBITDA one, and turn it over to Dick for the backlog. In terms of the EBITDA, I guess just reaffirming the first piece of that which is, one, we think in the second half of the year is really our expectations of break-even EBITDA, and it's driven by a few factors. One is obviously the pick-up that we've seen in the backlog, and what we expect to continue to see in terms of realization of orders. That's going to drive higher volumes in Q3 and Q4, very similar to what ACT and FTR are forecasting for the balance of the year. We still have some aluminum hedges in place; the past couple of quarters, that's impacted us by about $1 million a quarter. So we still have that hanging around, and we expect to get rid of that during the first half of this year.

And then probably the third one is what we announced last quarter, which was the consolidation of our flat bed business. We expect that have that completed in the first half of the year. Even in a depressed market, that's a $1 million benefit to us on an annualized basis. So continued managing on the cost side of things, a few things falling off, and the volumes in line with what ACT is forecasting for Q2 and Q3 puts us in that break-even EBITDA perspective for that time period.

Great. And as it relates to the backlog and refurbishment representation in there?

Yes, the backlog that we have is predominantly new trailer build. Refurbishment, while there has been in discussion with a number of customers, I think they are continuing to evaluate that approach and determine what's best for their business. We have done what we referred to as [re-mack] activities, where we will build a complete new box and put a refurbished bogey or suspension under it. That's considered a new trailer, since it is a complete new box with the suspension under it. But as far as a refurbishment, and our definition, where you take an existing trailer and purely extend the life of it, none of that is in the backlog.

Fair enough. And I guess the last question I would ask, and I don't know if this is a fair question altogether, but could you give me a sense for, very generally, how many units that $200 million in backlog would represent?

I mean, I think you can use our average ASP for the fourth quarter as a proxy for that, and calculate what that would imply.

And I'm sorry, unfortunately --

We were around $21,000 for the fourth quarter.

Great. Guys, thanks so much.

No problem.

Have a good afternoon.

Thanks.

Thank you. Our next question comes from the line of Chris Gillespie with Schneider Capital Management. Please proceed with your question.

Hi, Chris.

I was calling to see if you could talk a little bit more about industry capacity, in terms of how much capacity has left the industry in this downturn? I know GreatDane and Utility have seemingly permanently closed some facilities, so I just wondered if you could give an estimate, maybe on a percentage basis on how much capacity has left the industry in the last two years?

Yes, that's difficult to tie down to a percentage. Just to clarify your statement, Utility had initially announced some time ago that they were going to suspend operations at facilities in Virginia. I believe that they actually have not done that, with some of the improvements in orders that they received. So I think that capacity has technically not left the industry.

Now GreatDane did in fact announce the permanent closure of their Savannah operations, and prior to that their Greenville, Mississippi operation, and they have since suspended, or announced suspension of operations in their Jonesboro, Arkansas facility, but that would be temporary, and I'm sure they're ready and capable of bringing that back on line very quickly. All told, Trailmobile left the industry in the early part of 2009. They were the -- probably the most notable name to actually leave the industry, but those -- while the facilities have been idled, Manac actually acquired some of the tooling it and UltraPlate technology that they had to produce that product here in the States. So there hasn't been much of a shaking out. The barrier to entry is relatively low, so it's difficult to get capacity permanently out of the industry, but other than the couple of announcements by GreatDane, with the two plants I mentioned, there really hasn't been a lot other than idling of lines and shifts by some folks, and that's relative to the van side of the market.

Thank you. (Operator Instructions). Thank you, but we have no further questions at this time. I would like to turn the floor back to management.

Thanks, operator.

Just in wrapping up, I'd just like to say that the efforts of our talented associates to streamline our cost structure and improve our operational efficiency during the year certainly has helped us navigate one of the worst periods in our history. However, these improvements to our business are largely permanent in nature, which positions us for significant operational leverage and shareholder value creation over the long term.

I would like to thank all for your participation today. Mark and I look forward to speaking with all of you again on our next call. Thanks.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.