Wabash National Corp (WNC) 2010 Q2 法說會逐字稿

Greetings, and welcome to the Wabash National Corporation's second quarter 2010 earnings results conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Dick Giromini, Chief Executive Officer for Wabash National Corporation. Thank you. You may now begin.

Thank you, and 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 our 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 2010 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.

Overall, we are pleased with our financial results and operational improvements achieved during the second quarter. Importantly, our performance sustains the positive momentum experienced over the past few quarters. Specifically, order rates and backlog continue to improve, and on an ongoing operational basis, we effectively achieved our revised goal of reaching break even operating EBITDA for the quarter. This compares favorably to the $6 million operating EBITDA loss generated during the first quarter, and further reflects more than a $10 million improvement over the same period last year.

This was achieved despite absorbing the duplicate costs related to the increased factory staffing and training as we prepared for the start up of additional line shifts to support our growing backlog, along with the integration ramp-up in our Transcraft business. While admittedly adversely impacting our incremental volume leverage near term, the result and benefits and leverage of these actions should begin to be reflected throughout our second half performance and results. We'll provide more commentary around that in a few moments. We strongly believe that the worst is certainly now behind us and that we are primed for an extended period of improving demand. Although the broader macroeconomic environment remains uncertain, our industry is continuing to experience moderate growth after a prolonged period of deterioration.

During the second quarter, we shipped some 5,400 trailers, exceeding our guidance of 5,000 units. Although this remains far from levels we've enjoyed during up cycles historically, it does reflect our highest quarterly shipment level in six quarters, in another quarter of positive momentum. As production increased during the second quarter, we began to see early signs of the leverage in our business, driven by our previously enacted cost actions and ongoing operational efficiency initiatives. Consolidated gross margins of 3.5%, our best quarter since the third quarter of 2008, is evidence of this and bodes well for future quarters, as we continue to gain further leverage through increased volumes, the benefits of our consolidation efforts within our Transcraft business and continued progress throughout our retail branches.

Then, longer term as we enter 2011, we will begin to recapture pricing margin as industry demand continues to strengthen. In addition, we consumed the balance of any remaining 2008 aluminum hedges during the quarter, allowing us to now realize a more reflective market based price on the aluminum used in our products. As shared in previous calls, we revised our overall commodity hedging policy to better reflect and manage the volatility of commodity prices. Current practice today is to take full positions against our backlog, wherever possible, to ensure that we are protected from rising raw material prices. We believe this is a more prudent strategy and eliminates any potential for unintended speculation.

So let me now share a few comments about our operations that are really responsible for delivering these improved results. In Lafayette, in response to increased demand and production needs, by quarter end we had expanded our temporary status hourly work force to over 700 associates, along with an incremental 150 full-time hourly associates, and we now have our two high speed lines running two ships each at our Lafayette drive in facility, along with two operating shifts in our refrigerated facility. This additional work force and the added line shifts were necessary to support the projected build requirements throughout the third and fourth quarters. This level of added staffing and shift alignment will support annualized run rate of some 35,000 units, depending on mix. Although most indicators suggest industry demand will continue to improve throughout the second half of the year, and certainly in 2011, we continue to take a prudent approach to the staffing, and will further ramp up our hourly work force, only as growth and backlog dictates. We believe this strategy allows us to meet our production needs while enabling us to respond quickly if macroeconomic conditions were to deteriorate.

That said, our outlook remains upbeat and our lower cost base and improved operating leverage provide us with a clear path to sustainable positive operating EBITDA performance in the third and fourth quarters and greater earnings leverage over the long-term. As in all businesses, opportunities do remain. This past quarter, we experienced some growing pains in our Transcraft business, as we continue our efforts to finalize the integration of the Anna, Illinois operations into those of Cadiz, Kentucky. These challenges, while normal with these types of integrations, have resulted in some operational bottlenecks, ramp up difficulties as we train new hires, and some result and delivery delays on some product. We're working through these challenges, which are similar to starting up a new facility, and expect to make continued progress throughout the balance of the year.

While difficult in the near term, once behind us, we will yield the financial benefits and leverage of an optimized footprint, improved process flow, higher productivity, and lower per unit costs, which we have estimated approximately $1 million on an annualized basis. As we noted last quarter, our DuraPlate products group had begun to gain nice momentum, having set internal records for sales and profits in the first quarter. That trend continued this past quarter with new internal records once again set for sales and profitability. All the DuraPlate product lines are contributing, with significant improvement in orders for portable storage containers, truck body components and our AeroSkirt product, leading to an increase in revenue of 119% for the quarter.

As we continue to build momentum in this group, we're even more confident in our longer term opportunity to generate north of $80 million in annual revenue contribution to our business at some point within these next five years. Although the base is currently small relative to our trailer business, the growth expectations are significant and these products deliver attractive margins that will move the dial over time. Moreover, this group underscores our strategy to diversify our revenue base and build relationships with a new and expanded set of customers in a broader array of industries.

Finally, our retail segment continues their progress from the first quarter, delivering the highest gross profits since the second quarter of 2008, and the highest gross margin percent in over three years, at 8.0%. These improved results were driven by increased volumes in parts of service along with stronger pricing and new and used trailer sales. We are pleased with the progress they have made in a tough market environment.

Before discussing our outlook for the second half of the year, I would like to touch on our secondary offering that we announced on May 19 and completed on May 28. This recapitalization was a transforming event for our company that allowed for the elimination of our high cost preferred shares and the pay down of our revolving credit line. A special note, however, is our increased liquidity, which stands at a healthy $67.7 million, up from $29 million at the end of the first quarter. This offering has provided the added liquidity to support both our growing working capital needs for our core businesses during this cyclic up swing, along with supporting our other organic diversification growth efforts.

Now let me switch gears to our outlook, starting first with an overview of some of the key economic indicators we monitor closely that provide a broader context for our expectations. While there continues to be challenges in some sectors, most notably housing, there are a number of areas that give us confidence that the recovery remains on solid footing, albeit advancing at a slower rate than the previous two quart quarters. The conference board Leading Economic Indicators Index remains strong at 109.8, as reported for the month of June, just 0.2 off the high, recorded in May.

Following a jump in April, to its highest level since July 2004 at 60.4 the ISM manufacturing index slowed somewhat since then, but to a still positive reading of 55.5 for the month of July, in marking the twelfth consecutive month above 50. Industrial production came in at 92.5, as compared to 85.5 one year ago, or an 8.2% improvement year-over-year. And, as reported on Friday, by the Bureau of Economic Analysis, we now know that the real GDP actually advanced an impressive 3.7% during the first quarter, as compared to the previously recorded 2.7%. That strong performance has been followed by an advance estimate released this past Friday of 2.4% for the second quarter.

Marking the fourth consecutive quarter of growth, although slower than the previous two quarters. Within the freight industry, indicators remain positive with the FTR Truck Loadings Index reflecting second quarter month over month increases of 1.1%, 0.8% and 0.6% respectively with year-over-year increases of 5.6%. And the ATA Truck Tonnage Index of 108.5 for June reflects a 7.6% improvement from one year ago.

Finally, within the trailer industry, following net orders for May of some 13,300 units that reflected the strongest net order month since February of 2008, June came in at a still strong 12,200 units, with cancellation rates remaining muted at levels that are some of the lowest on record. So while some economic indicators may have shown signs of slowing, industry forecasters continue to believe that positive freight data reports and ongoing backlog growth suggest that the step up in trailer demand is sustainable and as such, maintain their previous expectations that demand will strengthen further through the second half of 2010 and accelerate quite rapidly in 2011 and 2012.

In fact, FTR has just recently adjusted their projections for 2010, upward by some 7000 units, now projecting production of some 112,800 units or a 44% increase year-over-year, followed by a year-over-year growth of 31% for 2012, at 148,000 units and a further year-over-year growth and demand of 42% for 2013, at 210,300 units produced. ACT expects year-over-year growth in unit shipments of 37% to 107,500 trailers for 2010, an incremental 59% to 170,700 trailers in 2011 and a further growth of 32% to 225,200 trailers for 2012. Within these projections is a heavy weighting toward drive in growth year-over-year throughout the forecast period.

Recall, drive in and demand was disproportionately hit during the downturn, and as a result our overall market share was impacted last year. Now drive in demand is projected to be the highest growth segment in units year-over-year during the next three years. Our leadership position in dry vans, driven by our DuraPlate technology, positions us well to leverage this projected growth in dry van demand and recapture our market position. While still too early to claim victory, reported results for the first half of the year certainly would indicate that we have already been successful in recapturing any and all lost share.

Overall, our expectations continue to be that demand in 2010 will out pace 2009 levels with the second half of the year stronger than the first. Moreover, despite the mix of economic trends, our confidence for the balance of the year and into 2011 remain strong. The fleets are seeing more favorable trends regarding truck tonnage and loadings and have now started to evaluate their equipment needs for 2011, which is a much earlier point in their purchasing cycles than we have seen in the past couple of years. But more consistent with previous practice. Additionally, our channel checks would also suggest that carriers continue to see improving demand. In fact, following last quarter, where major carriers began to turn down loads as a result of reduced capacity and equipment, we now see more and more fleets actually increasing their order quantities in effort to support growing demand.

Another trend that is occurring is customers shifting from an earlier intention to simply refurbish current older units, to now focusing on the replacement and updating of their aging fleets. While true that customers continue to look for ways to extend the effective life of their equipment investments, they are recognizing more and more that the best way to accomplish that is to upgrade their specks to design in longer lasting features into their new purchases, instead of investing more dollars into their old equipment. Features such as galvanized rear frames, couplers and other components.

With our flagship DuraPlate trailer and its sister the DuraPlate HD, we are well positioned to leverage our technological leadership and proven reliability in delivering the very best in total cost of ownership, particularly over a longer investment cycle. Lastly, our backlog continues to expand at $377 million as of June 30, up from $295 million at the end of the first quarter and nearly tripling our level at the end of last year. So taking all of this into consideration, we now expect volume shipments to be in the range of 7,000 to 8,000 units for the third quarter.

Also, based on industry forecasts, conversations with our customers regarding the current requirements, and our existing backlog of orders, we are raising our expectations for the full year 2010 from our previously communicated projection of 18,000 to 22,000 units, to a projection of 23,000 to 25,000 units. An increase from 2009 of nearly double. With fourth quarter shipments in the range of 7,000 to 9,000 units ,depending on timing of customer pickups throughout the balance of the year. This back end loading of shipments is not unexpected. As we've discussed on our last call, as is typical during rapid demand up ticks, build is currently outpacing shipments as some customers are hard pressed to free up drivers to pick up a new trailer at the expense of a hot load. However, these are solid, build built to order units and will be picked up or delivered throughout the balance of the year, at which time we will be able to recognize the sale and related revenue.

In summary, let me again say that we're pleased with the progress we've made during the second quarter. The full force of our operational efficiency and cost actions are beginning to take hold. Our financial results are improving and we are experiencing notable momentum in our backlog and order activity, which bodes well for our future. Importantly, we expect to generate even greater operating leverage as the demand environment continues to improve.

With that, let me turn the call over to Mark. Mark?

Thanks, Dick, and good morning.

In addition to our earnings release we did file our 10Q yesterday. So I'll direct my comments to the key drivers of improvement during the quarter and highlight some of the changes as a result of our equity offering completed in May. Sales for the quarter were in line with expectations, coming in at $150 million, including new trailer sales of $122 million on 5,400 new trailer units. In line with our guidance of over 5,000 units for the quarter, and more than double the rate from the first quarter.

The ASP for Q2 was almost flat with the first quarter, coming in at 22,700 per unit. Used trailer revenue was up as well this quarter, coming in at approximately $8 million for the quarter on approximately 100 additional units, and benefiting from a higher mix of refrigerated trailer sales. Even more encouraging however, is the continued improvement realized during the quarter in parts and service revenue. For the quarter, parts, service and other revenue was approximately $20 million, an improvement of nearly $6 million from the first quarter, and more than $8 million higher than the quarterly run rate in 2009.

Again, this quarter, the majority of the improvement was attributable to the sales related to our DuraPlate products group, which is include in our manufacturing segment, versus our traditional parts and service revenues captured from our retail branch network and reported in our retail distribution segment. Examples of revenue for these products include the sales of portable storage containers, penetration of our DuraPlate composite into the truck body market, and DuraPlate panel sales for other industrial applications. Year to date, sales of these products have been in excess of $13 million, and as Dick discussed earlier, bolsters our confidence that sales attributable to our DuraPlate products group can achieve our five year target of $80 million.

In terms of operating results, the second quarter was generally in line with our expectations based on the improved volumes and was a significant transition quarter on a number of fronts. Gross margin for the quarter was 3.5% and positive for the first time since the third quarter of 2008, but on approximately 4,300 fewer new trailer sales. The Q2 operating loss of $5.7 million reflects an improvement of $11 million from last year, and an improvement from the first quarter of $5.5 million. The significant year-over-year improvement in operating loss highlights the volume leverage we have achieved through our cost and production optimization actions as it was primarily driven by increased production levels, which reached 5,900 units in the quarter. Higher than last years production by 3,200 units. In addition, decreases in raw material costs and savings in labor and overhead costs help contribute to the improvement year-over-year results.

During the quarter, material costs trended up slightly from the beginning of the year. Again, material costs as a percent of selling price remains at historically high levels and was 74% of sales in the quarter, which was essentially flat with the first quarter ratio. As planned, we fully utilized the remainder of our 2008 aluminum hedges during the quarter. These positions versus the spot market during the quarter impacted results unfavorably by approximately $600,000. As Dick outlined, we have modified our hedging process and are now placing new hedges, as required, to secure margins on confirmed customer orders. As you know, we initiated the consolidation of our Transcraft flatbed production into our Cadiz, Kentucky facility earlier this year. In addition, during Q2, we staffed up a second production shift on two of our van lines and recently added a second shift to our other high volume dry van line. While these activities have impacted production efficiencies in the quarter and will have some continuing effect in the current quarter heading into 2011, we expect the results of these actions to improve margins by more than $1.5 million per quarter.

SG&A for the quarter was approximately $11 million and was up from the first quarter rate of $10.3 million, but still down from last year by approximately $400,000. The sequential increase in SG&A was primarily attributable to higher legal costs due to the timing of specific cases in the quarter. Looking forward, we expect SG&A to remain roughly at this level, however, the split will be more skewed toward selling related costs to support the higher annual volumes we now anticipate. The fair value accounting for the warrants as the primary item impacting other income and expense, this quarter's a non-cash change in the fair value of the warrant, resulted in a benefit of $1.9 million. This reflects an increase in our share price during the quarter, of $0.10 per share, as well as the impact of the 16.1 million warrants exercised during the quarter, and the additional 750,000 warrants issued as part of the equity offering on May 28.

A couple other minor, but one time items included here, include a non-cash asset impairment of $400,000, related to our Mount Sterling, Kentucky facility that was idled in 2007 and is planned for sale later this quarter. Also included here is a $200,000 charge as part of our proposed settlement with the EPA, stemming from a 2003 super fund site claim. Lastly, interest expense, primarily related to revolving credit facility for the quarter was $1 million. Looking forward, with the pay down from the equity offering, but considering working capital requirements, we expect this to trend down to approximately $800,000 on a quarterly basis for the balance of the year.

Let's spend a few minutes and review our current tax situation. At June 30, we have a US Federal NOL carry forward of approximately $184 million. However, we have a full evaluation allowance reported against our net deferred tax asset. The Federal NOL carry forward begins to expire in 2022. Also, as you may be aware, as a result of our equity offering on May 28, a change in ownership under section 382 of the IRS rule occurred. The change in ownership triggered a limitation on the maximum amount of NOL that may be utilized in future years. Our NOLs, at May 28, were $181 million, and have been currently estimated to be limited to the following amounts. For the remainder of 2010, $21 million; 2011, $48 million; 2012, $41 million; 2013, $40 million; 2014, $31 million.

To the extent there is not sufficient taxable income in a given year to utilize the limitation amount, the unused portion can be carried forward. In addition, the company has $3 million of post ownership change NOLs, which are unlimited and can be utilized as needed. As an example, for 2010, the company has available $21 million of limited NOLs, and $3 million of unlimited NOLs for $24 million in total available to offset taxable income for the balance of this year. To the extent the Company does not fully utilize the $24 million, the unused portion will be available for 2011 and added to the 2011 limitation amount of $48 million. As a result, we do not believe the NOL limitations have a material impact on the Company's ability to use them in the future. You can refer to the 10Q for more details.

The preferred stock dividends and early extinguishment costs of approximately $23.5 million reflects the redemption of 100% of the outstanding preferred shares. Going forward, this eliminates approximately $2 million per quarter of dividend related expenses. The details for EPS are included in the 10Q, and reflect the impact of the equity offering with weighted shares outstanding during the quarter of approximately $40.6 million. Shares currently outstanding for the third quarter are approximately 59 million shares. In addition, there are approximately 9.4 million warrants remaining that would be included in the dilution share calculation in a situation where the Company has positive net income. The balance sheet details are included in the 10Q as well.

We continue to manage capital spending to required maintenance projects and cost reduction initiatives with year to date spending of approximately $750,000 and anticipated full year 2010 spending of $2 million. Our liquidity or cash plus available borrowings, as of June 30, was $67.7 million, an improvement of $39 million from the first quarter. The main factor for this significant improvement is the approximate $24 million pay down on the revolver provided as part of the equity raise. In addition, working capital continued to improve during the quarter commensurate with production, and we have continued to be diligent in driving improvement from nonoperating sources, including tax refunds, facility sales, and reductions in letters of credit.

As Dick discussed, the backlog improved significantly during the quarter to $377 million. As we described last quarter. At this point the backlog excludes any quantities for the second year volumes associated with the swift and prime, long-term agreements, as those quantities have not been scheduled by month. Looking forward, we anticipate third quarter new trailer sales in the range of 7,000 to 8,000 units and for the full year we expect volumes to be in the range of 23 to 25. As we expect, similar leverage from the additional volume as we experience this quarter, we are excited to be in position to generate positive operating EBITDA for the first time in eight quarters.

With that, I'll turn the call back to the operator, and Dick and I will take any questions you may have. Thanks.

(Operator instructions).

Thank you. Our first question is coming from Steve Dyer with Craig-Hallum. Please proceed with your question.

Thanks and congratulations on a nice quarter guys.

Thanks, Steve.

Thanks, Steve.

Mark, I may have missed this, but did you go over builds versus shipped in the quarter?

Yes, the ship was 5,400 in the quarter. The build was 5,900.

Okay.

So, Dick kind of touched on it in his conversation. You know, shipments have lagged our production, which is kind of typical in this ramp up, as customers are struggling to meet hot loads and -- in lieu of picking up trailers. But we expect that to right to itself in the back half of the year, primarily during the fourth quarter.

Okay, sounds good. And then, your ASP has been trending a little bit higher in the last couple of quarters, you know, relative to historical, I think. More like the 24,000 in change type number. Is that a good number to use going forward? Or has that been a mix that is probably not likely to continue?

Yes, I think it's a reasonable one to be in. The market's been competitive for awhile now. It continues to be that at least, at these industry volume levels. So for the balance of the year, it's a reasonable thought.

Is the current 124 plus?

Yes, so the current for Q2 was 22,700.

Okay. Got you. And then, if the tonnage and some of the other leading indicators, loadings and things like that, if they were to moderate a little bit, as I think some people are indicating that they may in the second half of the year, how does that, what are your customers telling you that that would do, to their demand? Assuming that would happen as opposed to kind of a continued upward march?

Yes, at this point, they have not indicated that they would change their intentions or plans. I guess we would have to see if their feelings would change if there were to be a significant turn about in the demand side. But currently, while we are seeing some moderation, there is still advancement. So they're still feeling very good about the number of loads that they have available and in fact, still seeing additional loads that they're having an opportunity to either turn down or get some very attractive spot rates on.

Okay. And then final question. It sounds like you are ramped, at least from a staffing level right now to something like 35,000 trailers, based on mix. Is that kind of all the staffing you need to do right now? Or is there going to be continued move up there?

We've--we're continuing to fill those openings that we need to fill out the shifts to the level to sustain throughout the balance of the year. But that will depend on what happens with further increases of backlog. My comments earlier, we are trying to be very prudent about any staffing adjustments. We want to be certain that the backlog will remain sustainable. So, what we've done is we have been working overtime, initially, until we are confident that there is enough to support it and then we add folks as we proceed forward. I can't sit here and tell that you we won't add additional staffing. We have added some staffing since the end of the second quarter, to fill out those needs, but we should be at a level that can support that 35,000 unit level.

Okay, great. Nice quarter again. I'll hop back in the queue.

Thanks.

Thank you. Our next question is coming from Jeff Kauffman with Sterne Agee. Please proceed with your question.

Okay, thank you very much. Congratulations this is fantastic with the backlog.

Thanks, Jeff.

Can you talk a little bit about, you talked about how the customer decisions on refurbishment versus buy newer changing. Could you talk to us about whether the flatbed customers are starting to come on with orders? What you are seeing in terms of where something's canceling, is there a particular reason why? And just give me a sense for, despite a backlog that looks like it could fill the entire third and fourth quarter, there's still slots available at this point.

Okay flatbed is still very, very soft. There was a little bit of spurt earlier in the year with some steel demand, but it's certainly not in a strong recovery mode at this point. Relative to the refurbishment site, customers are recognizing it, as I stated in my comments, that it-- it just may not work as a good model. That trailers continue to get older and after you put in money to refurbish, you still have an old trailer that has little value remaining. So, that trend seems to be changing. I won't say it's universal. But certainly, a couple key customers who had previously indicated their intentions to do an extensive refurbishment turn around and change their approach. And, are going with new trailer replacements to update their fleets. The third question was?

Slots available and the orders that are being cancelled, what are the reasons why?

Cancellations remain extremely low. Almost to the level of record levels of low cancellation. So, we've had very, very little of that. We've had an occasional customer, who has needed to move them a quarter. But, not enough in the cancellation side to really even speak to. So, it's very, very firm out there. Customers are placing orders because they need these-- need these new equipments.

Okay and finally if a customer comes to you in the third or fourth quarter and says "Guys, I need a trailer now," how many available slots do you have for this year still left at this point?

You know, I don't have those figures-- right in my hand here. But, we do have some available slots that we're continuing to fill out for the fourth quarter.

Okay, well again guys, congratulations and thank you.

Yes.

Thank you. Our next question is coming from Tom Albrecht with BB&T Capital Markets. Please proceed with your question.

Hello guys. Congratulations on a very nice quarter.

Dick,I just wanted to ask you, at what point do you shift an employee from a part timer to more of a full-time? What's the decision behind that?

Yes, part of it is the skill sets that are required. We have tended to the 150 full-time factory staff that we have added are really more in the, where there's some special skill sets. Welders, is the best example. We have tended as we, as we're able to bring on a certified welder, we tend to bring them on as, as a full-time. Relative to the balance of the work force, we will slowly make those decisions to transition as we see further and further backlog build. We have not established a solid trigger point for that. It's kind of a feel type of thing. When we feel comfortable, we'll talking amongst ourselves and make those decisions to evaluate transitioning more folks to full-time.

And Dick, the additions of 700 part-timers and 150 full-timers, is that since the beginning of the year? And then, what is the entire work force at this point, whatever the mix is of part-time and full-time?

Yes, that is since the beginning of the year, Tom. Do you have the numbers there?

Yes. Our headcount at the end of June, Tom, is 1,700. And, company wide, we've got temps, I guess, whether they're full or part-time, of about 1,300.

Okay. That's helpful. And then Mark, on the SG&A, you indicated the combination of all that would be about the same, but with an increase in the selling. How sustainable would an $11 million to $11.5 million SG&A number be? I kind of picture that as only being sustainable for perhaps another quarter or two. But I'm curious as to your commentary.

Yes. I mean, we haven't evaluated a lot of the cost out actions that we've taken. At this point, we haven't put in a firm date for that. As we get closer to the end of the year, have visibility to the backlog going into next year, we're going to evaluate those for 2011. So, that guidance is really for the balance of this year, but we are going to start looking at restoration, I guess, of at least a portion of the cost out actions heading into 2011.

Okay. Lastly, I just want to make sure I've got the production correct. You've got, within the dry van production, you've got two high speed lines now that each have a second shift, and then you've got a reefer line with two shifts, and then you've got the one shift in Kentucky for flatbed, is that correct?

Yes, that would be accurate, yes.

Collectively, all of that is 35,000. But if you had to breakdown the mix between production capability between van and reefer, I'm going to set aside flatbed because I know that is smaller, but what's sort of the mix there? Two-thirds van, one-third reefer capability?

Probably high on the reefer, you can probably--. I'm trying to think myself now. Probably 75-25. Yes.

Okay. And, do you have -- the latest estimate that you have of the reefer market, I mean you were always the third leg, you've had some notable wins, some of the best reefer carriers in the country. Do you have an approximate estimate of your market share within the reefer trailer market?

Yes. Again, it's too early, my statement earlier, was too early to claim victory. But, it appears that we're approaching the refrigerated market share that we enjoyed two, three years ago. We had, we lost, we lost some shared there also, when one of our large customers didn't buy trailers. So it gets pretty lumpy. But, we tend to be in the low to mid-teens, from a market share on the reefer side.

Okay. That's helpful. Keep up the good work. Thank you.

Thanks.

Thank you. Our next question is coming from Kristine Kubacki with Avondale Partners.

Good morning.

Hi Kristine.

I was just wondering, you touched a little bit on it about the shift from refurbishment to new trailers. Specifically I guess, I wanted to, if you could talk a little bit about the CARB rules in California. And, I know that by the end of this year they have to have 5% of the fleets have to be the big fleets, have to have skirts installed on these trailers. I was just wondering, are you seeing any signs that the trucking fleets are simply turning to buying new trailers instead of retrofitting them. And, I guess, are you seeing more trailers go out the door with skirts on them? And, are people replacing the bottom end of their fleet and then just to meet this mandate?

A simple answer is yes, that is occurring. Many customers are now selectively having skirts installed on their new trailers, as they're built. We are installing a number of skirts on the new trailer build. There are also skirts being purchased in the after market, to install on, on existing units. So, there is a mix out there. But, the simple answer to your question, yes, we are seeing more and more customers putting them on new trailers. But, it's all over the map.

Some customers are trying to be very selective, depending on which regions of the country they service. If they're mostly east region and don't go into the west and have that fear of going into California, then they're not taking any action at this point. Others are trying to make sure they've got enough of their fleet covered so that they don't get into issues with CARB. But that whole CARB legislation is still continues to be under review with a lot of questions, as to how it will effectively be implemented and then, more importantly, enforced. So there is a lot of questions still open on that. But fleets are trying to take actions, so that they are prepared for meeting that 5% requirement.

And, it steps up again next year to 15%, is that correct?

Yes, I don't have the exact numbers in front of me. But, over a three or four year period, they have to have the complete fleet converted for any trailers that would go into California.

Okay. Then moving on to kind of the order cycles, it kind of throws our industry for a loop when we see a step down, as we did in tractor numbers yesterday, but seasonally, it is a weaker period. I was just wondering, so far we have seen the strength in trailer orders month to month have held up really well. Are we expecting maybe we could see a lull here and then perhaps, are you expecting to get back into the normal ordering patterns of the fall for next year, or do you think we could see customers waiting and there's still a drop that we'll see some next year for the same model year in 2011?

I think we are starting to, since there was such a prolonged down turn, and so many fleets sat on the sidelines. I do believe with the age of their fleets being that much older, they are now getting back into looking and saying I need to get back on my replacement schedule. And, we're starting to get a lot more customers actually talking about, even at this early stage, talking about what their needs may be for 2011. The last couple of years, that kind of discussion wasn't occurring.

We're also seeing a sustained level on the number of new quotes that are coming into the system. They have not dropped off, as they would have been expected during this third quarter, which is typically a low quote period. They are holding up pretty well. And the conversion on the quotes is holding up quite well. So, it may very well be that, due to the length of the down turn, that customers finally are at the point saying "I really do need to update my equipment, and I really do need to take advantage of getting equipment into the cycle, get those slots set up, so I can take advantage of the growth and demand".

That's helpful. Thank you. Then my last question was a little bit on pricing, I know the pricing environment is still difficult. I was just wondering if you could help us understand. Is it a function of the industry backlog or production slots getting filled up or what would be the level that starts to push the industry to start pushing back on pricing in orders?

Yes, the backlog and slots getting filled both they tie into each other. And just like in any uptick, it comes down to the supply and demand kind of thing, and then the need for those, that equipment. Certainly you gain some level of pricing leverage when customers need equipment in a short time frame and the backlog has extended out several months. While there is plenty of installed capacity, within the industry, a lot of us, Wabash included, have taken some level of capacity out of the system, or have idled capacity, and would have to bring that capacity back online in order to support the demand. The near term is that everyone wants to get as much filled up in the capacity that they have remaining online, which tends to extend backlog. On at least a temporary basis.

That gives you some level of pricing power. I don't think we're at that level yet. We're starting to see some opportunities to nibble at it, but we've consistently believed and have stated that pricing leverage will be more of a 2011 event, as we work through the current backlogs that take us through the balance of 2010. You start getting into new contracts for 2011, and as we get into the fourth quarter, and those will be the opportunity with-- if the projections by FTR, and ACT are accurate and based on our channel checks, then we should be in much better position to start recapturing some of that compressed margin as a result of pricing.

Okay. That's helpful. Thank you very much, I appreciate it.

Thank you. Our last question is coming from Jared Rosenstein with Woodhollow Capital. Please proceed with your question.

Dick, Mark, congratulations on a terrific quarter. Before I get started, I wanted to credit your team for a phenomenal job.

My question relates to sort of as the demand cycle continues to evolve, I was wondering if you could guys could comment where you expect incremental margins to be going forward.

The first step obviously we've seen what some additional volume can do here in the second quarter. There was some ramp up issues that we worked through. You know, put in additional shifts. That we're working through on the consolidation of flat beds. I think we can do better than that, longer term. The biggest lever, probably beyond that, kind of ties into the last question, which is on ASP. And, in the last couple of years, we believe ASPs have been compressed by about at least 5%. So, getting after that's probably the single biggest lever we have to get incremental margins up, kind of above the current run rates.

Okay. Now aside from that, it's terrific we saw your revision on quarter three shipments upwards of 7,000 to 8,000. This is just sort of generally speaking, but out of curiosity, what are your confidence levels in the National ACT trailer output estimates?

We, at this stage, based on everything that we know about the industry, and in talking with customers, our own channel checks, indicate that the-- they're pretty good. We feel very good about them. The fact that the down turn, the trough lasted for so long and the age of equipment has gotten to the point where the fleets really do need to do something in updating their equipment. Certainly would indicate that there was an underbuy, which would say that there is some pent-up demand out there. So, you know, is it, at this juncture, while it's a very significant increase, when you look at ACT's projections from 2010 to 2011, it's not, it's not unprecedented to see that kind of increase. So at this juncture, you know, we believe that they're pretty accurate.

I think Jerry, the way that we've framed it up is that the good news is we've seen a good increase in the backlog. We've talked about the makeup of it and it still is kind of consistent with the past couple of quarters, it's largely drive in space, it's largely the larger carriers, it's largely PL. So, there's a lot of room as the rest of the segments get healthier. We talked about flatbeds building the press. LTL segment really has not been dominant in the backlog. But based on everybody's second quarter results, they are showing nice improvement in both rate and tonnage, which gives us some confidence because their fleets are aging as well, but they'll be able to be buyers here sometime soon. I think, as it trickled down to the smaller mid market guys, those are the ones that probably have had the less ability to buy because of credit restrictions. As that gets better, should get in there, so I think there is a lot of data points. You know it's comfortable. As the fleet ages and we head into 2011 the expansion of the customer base kind of has to happen.

Okay, well thank you guys again for your time. You know, congratulations again on the terrific turn around.

Thanks, we appreciate it.

Our next question is coming from Quentin (inaudible) from Wachovia Capital.

Hi guys.

Hello, Quentin.

Hello, Quentin.

Mark, if we look at 7,500 trailer mid-point shipments for 3Q, that implies the mid-point of the full year of about 8,500 in the fourth quarter. If I used a similar average selling price in retail and parts and service stay about the same, we are looking at $400 million to $450 million in revenue in the second half. Is the algebra right?

Yes, I think you are getting close.

Okay. Now, I'm not sure exactly how to adjust second quarter incrementals. But, using my adjustments, I calculated a 19% incremental in the second quarter. Is that where you are coming up?

I don't want to give you a specific guidance on the incremental. I just think that you can do the algebra on the kind of first quarter to second quarter incremental rates.

Okay.

And for now, I would kind of hold that consistent. Because as we talked about, we are just ramped up a second shift that we are kind of digesting here (inaudible), and we are still working through our consolidation efforts and flatbed. You should get a little bit of lift. But, it's going to be comparable.

So those head winds will be offset by the lack of the aluminum head wind, correct?

A little bit.

Okay. And then just a couple of the nitpicky questions, other expenses, you said $800,000 a quarter is a decent run rate and interest expense roughly $1.25 million run rate.

The guidance was the $800,000 related to interest expense.

Oh it was? Okay. And other? Same $800,000 we have seen if the first two quarters.

It should be smaller than that.

Okay. All right. I thank you for your time.

Yes, thanks Quentin.

There are no further questions at this time. I would now like to turn the floor back over to Mr. Dick Giromini for closing comments.

Thank you. We remain committed to our long-term strategy, which we certainly believe will continue to transform Wabash National to a stronger and more profitable business. I would like to at this time thank our associates for their continued dedication and commitment and hard work during the second quarter and over these last two years. We're now seeing their hard work beginning to pay off, and we're extremely excited about the prospects for our future. Thank you for your participation today. Mark and I look forward to speaking with all of you again on our next call. Thank you.

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