Wabash National Corp (WNC) 2011 Q1 法說會逐字稿

Welcome to the Wabash National first quarter 2011 financial results conference call and webcast. 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, Dick Giromini, President and Chief Executive Officer. Thank you Mr. Giromini, you may begin.

Thank you, Rob. Good morning. Before we begin, I would like to make an important announcement.

As with all these types of presentations, this morning's call contains certain forward-looking information including the 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 first quarter 2011 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 will try to provide as much information as possible. I will first comment on several key highlights for the quarter, discuss the broader operating environment and provide expectations for the coming quarter and fiscal year. Then I will ask Mark to provide a detailed description of the financial results. At the conclusion of the prepared portion of our presentation, we will open the call for questions from the listening audience.

With that, let's discuss the first quarter results. We are pleased with the ongoing progress we are making with the business, both in our financial results and our Company's overall performance during the quarter. Effective execution of our strategic plan, combined with continued cost optimization actions and manufacturing process enhancements first implemented during the downturn, have enabled us to continue to capitalize on the more recent sustained growth in trucking demand and subsequent strong order volume for trailer products.

During the quarter, we generated positive net income of $3.2 million or $0.05 per share, with operating EBITDA of $8.8 million. Most notably in the quarter, we delivered a gross profit margin of 7.4%, or $16.5 million, which is the highest since 2007. This also represents five sequential quarters of consistent margin growth for the business, and the best in 13 quarters.

While there are a number of factors contributing to these margin gains, increased production levels, focused efforts on raw material cost management and an improved pricing environment were the primary drivers in the quarter. Mark will comment more on this later in the call.

Shipments totaled 8,900 new trailers in the quarter, coming in at the high end of our guidance for the period and approximately 6,300 more than in the first quarter of 2010, reflecting an improved operating environment and more consistent trailer pickup performance by our customers.

At the same time, despite a strong build during the quarter -- some 9,500 units -- we saw our backlog continue to grow by over $250 million, to a decade-high level in excess of $730 million at quarter end.

At the business unit level, we are pleased with the way in which our manufacturing segment continues to execute and manage through the ramp up to meet growing order and unit volumes in our core trailer business unit. In addition, they have also been successful in advancing the execution of our business diversification strategy. In February, we announced an agreement to produce frac tanks on behalf of Sabre Manufacturing, thereby providing us with a entry point in to the energy and environmental services Market.

This agreement provides for a targeted 2,500 units to be produced over five years, with 300 units to be built yet this year. To support this new growth initiative we are installing a dedicated fabrication and assembly line in previously unutilized space in our south campus in here in Lafayette.

This initiative was commercialized as part of our internal Allied Products Group business unit, a focus within our manufacturing segment to identify opportunities to leverage our industrial expertise in welding, forming, fabrication and assembly into products outside of our traditional trailer business.

Similar to the experience of our DuraPlate Products Group business unit, which has demonstrated significant year-over-year growth since its start up in 2008, with the initial Pod storage container opportunity, generating revenues of approximately $10 million in '09, $24 million last year, and a record $11 million in the first quarter of 2011. The new frac tank venture provides us with yet another foothold in to new Markets and lines of business as part of our overall business diversification strategy.

By leveraging our core manufacturing strengths and capabilities into new applications and Market sectors, we are becoming a stronger, more balanced company that can deliver greater stability and value to our shareholders over the long haul.

Now let's discuss our outlook for the second quarter, starting first with an overview of some of the key economic indicators we monitor closely and provide a broader context for our expectations. The Conference Board Leading Indicators Index rose in March to 114.1, following a 1% increase in February and 0.2% increase in January.

This index indicates economic growth near term. The ISM Manufacturing Index was at 60.4 in April, indicating standing activity in the manufacturing sector for the twenty-first consecutive month. For the first quarter 2011, total industrial production increased at an annual rate -- annualized rate 6.0%.

And preliminary GDP advanced by 1.8% during the first quarter, following the fourth quarter at 3.1%, undoubtedly impacted by rising food and fuel costs, but still reflecting the seventh consecutive quarter for growth.

Within the freight industry, FTR's March Truck Loading Index was up 0.9% month-over-month, while up 3.5% year-over-year. Looking forward, FTR expects demand to push the index upward by an average 0.4% monthly rate for the remainder of 2011.

The ATA Truck Tonnage Index for March increased to 115.4, up 1.7% month-over-month, and 6.3%, year-over-year, accelerating from the year-over-year 4.4% gain in February.

For the first quarter of 2011, total tonnage showed improvement for the sixteenth consecutive quarter, up 3.8% from the previous quarter, and up 6.1% from the first quarter of 2010. The index is now within 5% of the peak level achieved in early 2005, with projections for continued tonnage growth from 3% to as high as 8% for the balance of the year.

Within the trailer segment, first quarter 2011 net trailer orders rose by 98% from first quarter 2010 levels to 68,400 units, leading to an industry backlog of over 98,000 units. The highest since April of 2007, at just over 100,000. And ACT has reported first quarter 2011 factory shipments for 44,400 units, up 109% year-over-year.

With strong demand evident, both ACT and FTR have recently increased their projections for 2011, with ACT now at 200,000 units shipped and FTR at a projection of 192,000 units produced for the full year.

From a regulatory stand point, as promised, I will now provide some updates on key legislation that impacts the industry we serve. Again, the extent of this impact will become clearer in the coming months, but could continue to fuel increased trailer demand over time.

Federal Motor Carrier Safety Administration's CSA 2010 program, which measures carriers and their drivers on seven safety-related criteria, continues down its implementation path with minimal changes.

Enforcement actions have been targeted for implementation on a state-by-state basis beginning in June this year. But most (inaudible) are already anticipating impact and have taken necessary steps to solidify or improve the future score potential.

A final ruling on the FMCSA's proposal for changes to the hours of service rule, released last December, is expected to be published by the end of July. Still under consideration as a reduction in driver hours, from 11 to 10 hours per day, as well as extending the restart requirement from 34 to as much as 48 hours.

Industry estimates suggest these changes, along with other language in the bill, could negatively impact carrier productivity by 5% to 7%. Given this impact and considering the strong safety performance of the industry under current hours of service rules, the proposal is meeting strong resistance from a number of fleets and the American Trucking Association.

In January, the FMCSA issued a notice of proposed rule-making to require the installation and use of electronic on-board recorders for over the road trucks and buses which would be used to monitor and enforce hours of service rules. Last month the National Private Truck Council joined the American Trucking Association and the Truckload Carriers Association in publicly endorsing the proposal. A final ruling on the proposed legislation is not due until June of 2012.

And last month, the Safe and Efficient Transportation Act, or SETA, was introduced in the Senate that would put an end to the Federal freeze on changes in truck sizes and weight, authorizing states to allow 97,000-pound six-axle rigs on their highways. Pilot programs allowing the increased GVWR were introduced in Maine and Vermont in 2009.

Now, just released this morning, a bill was introduced in the US Senate on Tuesday that would prohibit states from increasing truck and weight limits on the national highway system.

This bill, the Safe Highways and Infrastructure Protection Act, would apply federal weight limit of 80,000 pounds GVW, which currently applies only to the interstate highway system, would also be applied to the NHS. So let the debate begin.

In summary, the operating environment for motor carriers continues to evolve as legislation moves through the process. We will continue to monitor these developments and keep you informed as new developments occur.

So now let's move on and discuss expectations for the second quarter and the full year. During the quarter our backlog again increased to $730 million, as of March 31st, which is reflective of the strong recovery and the demand environment, and the traditionally high quote-and-order season during this quarter.

Given the continued strong trailer demand, significant growth in our backlog, and industry order run rates, which have reached mid-2007 levels, it has become clear that 2011 will be a stronger year than previously believed. We now expect second quarter shipments of between 11,500 and 12,500 units, and full year shipments for Wabash National to be between 45,000 and 47,000 units.

As a result, we continue the process of adding to our work force, and increasing staff production capacity to support the significant backlog growth. As we discussed previously, during the quarter we restarted production on our alpha semi-automated production line, which was idled during the downturn.

We have been pleased with the progress thus far and expect to have the alpha line running at targeted levels on a two-ship basis by the end of this quarter. Additionally, we are increasing staffing to add additional ship crews to our existing drive and production lines throughout the balance of this quarter in to the early part of the third quarter.

By year end, we expect to have added some 1,200 new associates since the beginning of the year and anticipate staff production capacity in place to support annualized run rate exceeding 52,000 units annually.

While certainly not as drastic as the doubling of our work force in 2010, the additional duplicative training cost and proficiency ramp up necessary to support these staffing additions serve to limit incremental margin growth as we work to fully absorb and integrate these folks into the organization during the next couple of quarters.

While demand order volume in the current pricing environment for new quotes certainly appear to be in our favor, we do anticipate some near term headwinds that will impact productivity and cost of goods sold.

In addition to the costs associated with the increased hiring and training required to support the current backlog volume, we continue to manage through the rising commodity cost environment that has proven to be a moving target at best.

With tire costs at their all time high and continuing to rise, and steel costs reaching near-2008 levels, some of the gains that we began to realize through pricing actions may come under some short-term pressure mostly related to some of the early orders that we received in late 2010, and early 2011.

However, to counteract this, we have been taking a number of strategic actions for sometime now to mitigate as much of this risk as possible and manage through the volatility. As discussed on previous calls, we gain a measure of protection through aluminum hedge positions taken upon order receipt, along with fixed pricing from some component suppliers to support those large key account trailer orders that we received late last year, early into this year.

In addition we have more recently implemented a pricing program to segregate tire pricing from any firm pricing commitments to customers for new quotes. But despite all these actions on our part, we will be realizing some level of supplier material increases, primarily in the second half of the year that may offset some of our gains as suppliers take actions to try to recover the cost increases that they have faced.

As always, we continue to monitor raw material forecasts closely, adjusting our quoting models on a regular basis. And, as in the past, our pricing strategy for 2011 is focused on recovering all material cost increases as they are realized wherever possible.

As a result of all these focused actions to manage this exposure, we have enjoyed some level of success in offsetting much of the impact that many others may have suffered. We will continue to be diligent in these efforts.

Now let me reinforce that the pricing environment has improved significantly in recent weeks, and we have been increasingly raising prices on all new quotes, while the conversion rate to orders has remained surprisingly strong.

The short-term dilemma, however, is that given our large backlog and outstanding customer commitments we will not be able to realize the full impact of these higher margin orders as we fill remaining build slots for the balance of the year, possibly dampening some near term incremental margin expectations.

However, all this bodes well for 2012 builds. Longer term, as we enter the 2012 calendar year quoting season later this year, we regain the opportunity to reset pricing and pricing structure for those large account build requirements in this stronger demand environment.

Finally, with the exceptionally strong demand growth curve that our industry has seen, the strain on supplier capacity for certain components began the materialize. Previously discussed tire capacity, along with strain on loose axle capacity, could limit further growth and build levels across the industry in the near term.

For the most part, our position in the industry has provided us significant protection to date and I commend and thank our suppliers for their excellent support. As we now enter the slower period of quote-and-order activity, combined with our aggressive ramp up of incremental on-line capacity we would expect to see our backlog decrease.

However, it is clear that the industry recovery is fully underway, and we are actively positioning the business, as I discussed, to capitalize on the strong demand environment now and for the next several years.

So, in summary, we are certainly pleased with continued progress that we are making in our performance in all areas of our business. I would like to again thank our leadership team and associates for their dedication and hard work as we continue to grow the organization to meet our customers' equipment needs.

As I mentioned last quarter the keys to our overall success going forward will be volume, pricing and execution. The volume is now there. And execution has been exceptional at the grass roots level. And now we are starting to see the pricing environment solidify to a point to allow for full recovery of all material cost increases and then some.

That all said, we must remain highly focused to take advantage of this and continue to execute affectively in all areas. I am certainly confident that our team will do just that.

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

Thanks, Dick. Good morning to everyone.

In addition to the earnings release we also filed a 10-Q yesterday, so I will focus my prepared comments on the key performance drivers in the quarter and our outlook for volumes and other factors for 2011. Let's begin.

Sales for the quarter were $222 million, the highest first quarter performance since 2007. New trailer sales represented $194 million of the total on 8,900 new trailer units, which was at the high end of our guidance of 8,000 to 9,000 trailers for the quarter and represents a 242% increase from the first quarter of last year.

The ASP for Q1 was down slightly from Q4 by approximately $200 coming in at $21,700 per unit. Decrease in trailer ASP is due to product mix, as prices on a model-by-model basis were up across the board to compensate for recent increases in raw material costs.

Looking at other revenue components, used trailer revenue remained consistent with prior quarters coming in at approximately $5 million on 700 units. In general the used trailer Market continues to demonstrate strong demand and firm pricing. However, availability of equipment, particularly late model trailers, remains limited.

Parts service and other revenue was approximately $23 million in the quarter, an improvement of approximately $9 million from a year ago, and $6 million from the fourth quarter. In fact, after adjusting for divested businesses, Q1's parts service and other revenue represents a record performance for the Company.

Again, as in recent quarters the improvement was primarily driven by our focus to expand DuraPlate product sales, which improved revenue to approximately $11 million in the quarter, an increase of over $6 million versus a year ago. As a reminder revenue from DuraPlate products is included in our manufacturing segment.

And as Dick mentioned we look forward to expanding our non-trailer revenues further as sales of our Allied products begin to materialize in the second quarter and more significantly in the second half of the year as part of the recent agreement announced manufacture frac tanks.

As a reminder, our contract calls for production of approximately 300 frac tanks this year, with upwards of 2,500 units over the next five years. As a point of reference, the ASP for frac tank is more similar to our refrigerated trailer products at approximately $30,000 per unit.

Let me quickly recap the breakdown of our sales by major product category for the quarter. New trailers $194.2 million on 8,900 units, with an ASP of $21,700. Used trailer revenue of $5 million on 700 units, and part service and other revenue of $22.9 million.

In terms of operating results, the first quarter continued to trend a sequential improvement in gross margin driven by continued improvement in production volumes, which have increased steadily for the last year, as well as pricing, which has improved as the demand environment begun to recover.

Gross profit for the quarter was $16.5 million, or 7.4%, and represents an improvement from the first quarter of 2010's gross margin, of negative 1.2%, due to increased shipments of approximately 6,300 new trailer sales.

Excluding the warranty benefit experienced in the fourth quarter last year, the current quarter's results represents the sequential improvement in gross profit of approximately $2 million, and an improvement in gross margin of 140 basis points, achieved on approximately 1,200 fewer new trailer shipments.

During the quarter, as Dick discussed a few minutes ago, material costs experienced continued inflationary pressure. However, due to the structure of our supply agreements, the majority of the commodity increases, which occurred during the quarter in the Market will be realized by the Company throughout the balance of the year.

Again, while manufacturing material cost as a percent of selling price remains at historically high levels, it did trend down during the quarter from 75.2% of sales in Q4 to 73.3% of sales in Q1.

The improvement in material cost is twofold. One, better performance from our parts service and other revenues, which typically carry higher margins than our core trailer business. And two, and more significantly, price improvements achieved on 2011 trailer orders due to improved demand environment, which allowed us to recapture the commodity inflation experienced in the latter part of 2010.

The first quarter, again generated positive operating income and reflects an improvement of $15.2 million from last year and an improvement of $1.1 million over the fourth quarter results, excluding the warranty benefit.

This significant year-over-year improvement from operating loss of $11.2 million to operating income of $4 million again highlights the rapid improvement in volumes in our industry, reflecting production levels, which reached approximately 9,500 units in the quarter, higher than last year's production by approximately 6,200 units.

In addition, we entered the first quarter with established work force in place to support production of approximately 35,000 units annually. Our shift structure and staffing remain relatively stable for the majority of the first quarter, allowing continued productivity improvements as the work force gained valuable experience. The productivity gain achieved this quarter allowed us to mitigate the impact of seasonally higher operating costs associated with the first quarter.

SG&A for the quarter was approximately $12.5 million, up almost $1 million from the prior quarter, primarily due to partial restoration of compensation, which was previously reduced during 2009. In addition, higher costs associated with the completion of several legal matters impacted the quarter by approximately $400,000.

However, at 5.6% of revenue the fist quarter represents a significant improvement over recent years and a position that will continue to improve throughout the year as revenues move higher. For the balance of the year we expect SG&A to remain at approximately this same level on absolute basis, however improving as a percent of revenue below 5% as volumes increase.

Net other expense of approximately $800,000 related primarily to borrowings and financing costs under our revolving credit facility. In addition during the quarter initiated a process that analyzed various asset based financing alternatives for our existing revolving credit facility, which may result in a refinancing decision during the second quarter.

In terms of taxes, at December 31, we have a US Federal NOL carryforward of approximately $181 million. However, we have a full valuation allowance recorded against our net deferred tax asset. The Federal NOL carryforward begins to expire in 2022. However, please refer to our 10-K for more details on the annual limitations for our NOL utilization.

Finally for the quarter, net income and EPS were $3.2 million and $0.05 per share respectively. On an adjusted EPS, basis excluding trailer warranty benefit, this represents improvement of $0.02 per share from the fourth quarter last year. The details of the EPS and share count are included in the press release and the 10-Q filing.

In regards to the balance sheet and cash flow statement, let me provide a little more detail on some specifics. Total inventory increased approximately $35 million from year-end, primarily related to increases in raw materials of approximately the $233 million in the quarter as production startup resumed after our year-end shut down and reached higher levels later in the quarter as alpha line production and productivity improved.

As of March 31, inventories of $145 million consist of the following. Raw materials $51 million; WIP of $5 million, finished goods of $79 million, parts inventories of $5 million, and used trailer inventory of approximately $6 million.

Capital spending in the quarter remained low at $300,000 but is projected to increase throughout the year as production levels increase and the business continues to execute its strategic plan. Considering the recent announcement on the frac tank production we anticipate full year 2011 spending to be approximately $6 million to $8 million.

On liquidity, or cash plus available borrowing as of March 31 it was $57.1 million, a slight decrease of approximately $3 million from year end.

Let's spend a few minutes on the balance of 2011. As Dick discussed, with industry forecasts now at 200,000 and a backlog at 731 million, which is one of the highest in recent history, we currently expect 2011 new trailer volumes to be in the range of 45,000 to 47,000 units, or approximately 15% higher than previously anticipated.

In regards to the second quarter, we expect Q2 shipments to be in the range of 11,500 to 12,500 or approximately 35% higher than the first quarter. With an extremely strong order book position, and a demand environment that continues to improve, the challenge for the balance of the year primarily relates to one, production execution, required to increase staff capacity, an activity that will primarily occur in Q2 and Q3, similar to last year.

And two, the ability to maintain an increased pricing as we manage through the inflationary commodity environment, primarily an impact in the second half of the year. Having said that, we expect higher volumes and the continued diversification of the business to mitigate most factors and enable us to maintain our gross margin similar to the first quarter's performance, or potentially better, as we move throughout the rest of the year.

While these items impact our cost and incremental gross margin performance below our recent and targeted levels, this is a short-term event.

Overall we are pleased with the continued improvement in our industry and the position the Company will be in by year end, the ability to operate at near peak level volumes as we enter 2012, an industry environment that is forecasted at proximately 250,000 trailers, the highest level since the last peak in 2006.

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

Thank you. We will now be conducting the question-and-answer session.

(Operator Instructions)

Steve Dyer, Craig-Hallum.

Thanks. Good morning, guys, and congratulations on the results.

Good morning, Steve.

Just quickly, Mark, if you could go back, I just want to clarify something you said there right at the end. Did you say that incremental margins you would expect to be in Q2 slightly the same or a little bit better than they were in Q1? Is that right? Or are we talking kind of overall gross margin?

The comment was, that we expect for the outlook for the balance of the year to be able to maintain our absolute gross margin, which would imply a low incremental or an incremental similar to the gross margin in the first quarter.

Which really is -- the good news, Steve, for that, is that we will get lift out of the higher volume outlook in the balance of the year and the continued growth both in the DuraPlate products and the Allied products, through the Frac tank through the balance of the year, and offsetting some of the headwinds that Dick went into detail on in terms of the ramp up in staffing on the productivity side and the inflationary impacts that we are seeing in the Marketplace.

And, the potential is certainly for that to be better, and it comes down to the execution piece, and we will see how that plays out over next couple of quarters.

Okay. So you don't expect a lot of improvement in the gross margin over the balance of this year?

I would say that at this point we think it's -- the opportunities are pretty well balanced with the risk. But, as we get later in the year, based on the ability to increase capacity and create slots, particularly late in the year, as Dick mentioned, pricing is going up, demand remains strong and, to the extent we have slots available, I think those that we can create through additional staffing, those orders will be placed at good healthy margins that would create some upside. But, we've got a couple of quarters here to see how that plays out.

Okay. How do you feel about getting your overall corporate margins back to where they were in previous cycles?

We feel very good about it over the long term. As we've been -- as Mark and I have stated consistently over the past several quarters, we look at this journey as a 2011 and 2012 effort.

We certainly, with the demand environment where it stands today, we feel very good about going into 2012. As we enter later this year -- enter the 2012 calendar year build quote period -- it gives us a great opportunity to reset pricing and pricing structures going forward for the builds we will be doing in 2012. So we feel very good about it as we enter 2012 and get through that year.

Okay. So it's just a matter of -- you're just not going to see a lot of incremental lift throughout the rest of this year and then you'd expect it to continue next year?

Yes, we're doing -- as Mark tried to outline, and I made in the some of comments that I shared earlier, we are doing everything we can to mitigate as much of what's happening out there with raw materials. To offset those and then some of the near-term duplicate cost challenges we have as we bring on the added staffing to be able to support the volume.

We are making extensive efforts to mitigate all of those; and, as Mark said, the better we execute the better chance we get of covering those challenges. We will see how it plays out over the next couple of quarters. We expect some dampening of some of the positive impacts we get from the pricing on these additional slots we are filling.

The challenge we have there is that we've done such a great job of filling backlog, that there is not as many slots as we would love to have with the pricing environment the way it is for the balance of the year. We are going to take advantage of it and fill those slots with some attractively priced product. We are just not quite sure at this point how much that impact will be as we go through the balance of the year.

Okay. I guess I'm struggling to figure out here -- I get that you are adding people and so forth, but I'm struggling to see here given the massive ramp in production, the top line, et cetera, how you don't get relatively significant bump in gross margins throughout the year.

Certainly, there is a lift in the volume. To the extent that we get additional capacity, Dick's point, there is the opportunity to get some nice incremental margins later in the year if we can free up slots.

But the challenge is, that we do have a relatively large number that Dick commented on in terms of the additional heads coming in, that creates noise primarily in the second quarter here, a little bit into the third quarter, which is similar to what you saw last year, it was a similar type of head count ramp up, although proportionately this is -- call it a third instead of a doubling in the work force.

A lot of the large volumes that came in, in the fourth quarter of last year and the early in the first quarter with some of our key partners, they committed to large volumes. We committed to fixed pricing for those that go out over 12 months, and we are in an environment where there is a lot of inflation and our ability to adjust pricing on those contracts is limited. Our standard terms do allow us to do that.

We will be actively going out and raising prices and adjusting pricing where our contracts allow; and, for new orders we are certainly pricing them in the demand environment, which is better, but it is a headwind for us heading into the back half of the year primarily.

Don't get us wrong. We think the first quarter -- we are optimistic. We're very optimistic based on the execution we demonstrated in the first quarter, around peak level margins. I think if anything we are more bullish based on what we demonstrated here in the first quarter, and the industry continues to grow strong, and probably be ahead of our expectation where it's heading.

So, if anything, the position we're going to be in at the end of the year, both from the short-term pains of putting in the capacity as well as where the industry is going to be, I think are -- really match up well for 2012.

Thanks.

Brad Delco, Stephens Inc. .

Good morning, Dick. Good morning, Mark.

Hey, Brad.

Wanted to follow up on a little bit of the backlog. Seems like you guys would have a pretty good idea in terms of the mix and the pricing on that.

Is that why we are getting some commentary that, I guess, you know where pricing in that mix is and what impact that will have in your gross margin. What really is the thing that you are identifying that shows the margin pressure going forward?

The -- I guess if you look at the mix within the increase in the backlog, certainly it's skewed towards our, one, product base, which is primarily driving; two, it's skewed towards our strength with the large guys. You saw a good portion of that increase be attributable to a couple of the LTA agreements that we put in place at the beginning of last year in terms of the growth.

A portion of that increase is due to our other core long-standing partner accounts, which came in early in the year. That's probably two-thirds of it. One-third of it is what I consider more of the small mid-market stuff that came through the indirect channels that we have.

It's nothing I guess, new, I think it's more reflective of our strength and our customer base as to what is driving that. In a lot of cases those are areas where the pricing in general is less because they're larger volume type accounts. And, in some cases, they're accounts where the build is over a 12-month period and the pricing commitment up front is a fixed pricing commitment.

That certainly is part of the headwinds that we are talking about when we talk about material costs going up in the second half of the year and having had a -- made commitment late last year or early this year on volume and price.

Got you. Then, I guess, the way to read into your increased guidance for shipments for the year, that takes into account -- or in order to hit those numbers, you have to be on schedule with the capacity you talked about bringing back on line, is that correct?

Sure.

So, I guess, where I'm getting at is, are there things you could do, for instance, if industry demand stays fairly robust, that you guys could potentially have additional capacity to deliver more units than what you suggested in your guidance? Or is that topping out on what you think you guys could ramp up for this year?

No, we are not capped out. We've stated that, across the business on a mix adjusted basis, we could do upwards of 75,000 trailers across our whole system in a full year. This, as I stated in my comments, this staffing that we are going for now will get us so we have a staff capacity in excess of 52,000 annualized units. But that's based on a straight time basis.

We do have opportunity to also increase line speeds by some additional incremental hires that could also get it higher. So, we're not capped out.

It's just that's the staffing level that we determined at this point based on backlog and when the build slots are required and what the peak periods are for the balance of the year, what we feel comfortable with at this point.

Got you, and I think, in maybe Mark's comments, he made a comment about exiting this year with sort of expectations for peak volumes. I guess I'm trying to get a sense, are you guys going to have the capacity by the end of the year for that 75,000 for 2012, and is that the way we should think about that?

It won't, to Dick's point, it will be over 52,000, which, during the last peak we did 60,000, so it's pretty close. It would be a pretty good base, to get to low 50,000s, to 60,000s incrementally would require some additional -- potentially some additional staffing or line feed adjustments. But that would be modest relative to the increases that have happened the last 2 years. I think it's well within reach, is the point. Closing out the year, we will be in a good position.

We certainly will know more as we enter the 2012 calendar year quoting period, which is late in the third quarter and picks up steam in the fourth quarter of this year. You start seeing what the demand environment looks like on a go-forward basis.

If the forecasters are right -- and we know how challenging that is, forecasting anything -- they are suggesting it could be looking at overall industry volumes of some 250,000 units for next year. If that carries out to be true, then we probably would be looking at doing some additional actions to increase what our staff capacity would be to support that. It's too early to make those judgments at this point.

Got you. I will leave it there and let someone else get in. Appreciate the time, guys.

(Operator Instructions)

Thom Albrecht, BB&T Capital Markets.

Hey, Dick and Mark, and everybody else. I know it sounds like I'm beating a dead horse here, but I think there is a little bit of confusion because your stock was up really big, and now it's down. I think I want to make sure I understand what you are saying.

First of all, of the 45,000 to 47,000 projected shipments for this year, how much of that have you already sold out? You sold out all of that, or is 10,000 units to go, and that's the pricing opportunity?

It is certainly not all sold out. You know, the backlog of 730, it's predominantly a 2011 backlog, probably 90% of that. So, using our current ASP, gets you close to 30,000 there, plus the 9,000 that we did in the first quarter will get you close to 40,000 that of that capacity that's either been shipped or in the backlog so to speak.

There is still some additional slots to be filled, primarily late in the fourth quarter. To the earlier comments, to the extent where you execute on the ramp up that's going to be happening here better, there is some upside to that. It's not in the magnitude of 5,000 or something, but potentially there is 1,000 or 2,000 additional slots that could be created if we are operating as the -- at a good clip here.

Okay. Then I think this is what I'm trying to reconcile, because early in the call, Dick, you talked about how pricing has really improved in recent weeks, and then pricing seems to be trending in a way where you cannot only cover your material costs, but then, and some, I think was your statement.

And then 5 or 6 minutes later there was a little bit more sober commentary on the cost pressures. If pricing is going that way, are you primarily saying that pricing is going to be appropriate for next year, late this year, next year? Are we worried about commodity costs this year, or are you worried more about the build out of labor this year?

My comments were, I mean, right on in the way we believe things are going. What we are seeing today, with the demand environment as strong as it's gotten as we progressed throughout the year. We are seeing now some great opportunities on new quotes to price where we think we should be.

What that means is, covering all projected material costs increases along with resetting margins on these new quotes. We feel very good about those. Assuming that that continues, we feel very good going into the 2012 calendar year quoting period with the same kind of feeling. That's why my comments earlier were very positive relative to 2012 and the ability to get back to the kinds of gross margins that we saw during last peak period.

So that all said, in the near term, both my comments and Mark's that are a little bit more muted is that we are bringing on some 1,200 folks as we are ramping up to support not only the additional shifts for -- to support the increased drive and demand for the balance of the year, but also to bring on and start up the Frac tank project and other increases in the DuraPlate products group and so forth, and across our whole business -- parts and service have increased, there's been additions.

The near-term impact is that we've got the duplicative costs, because when we are bringing on these additional folks, they are being trained alongside someone else. So there are strictly add-on costs for a short period of time as they learn the process and then they get released to go to the ship that they are going to operate under their own guidance.

That's when they start building up proficiency, and productivity will improve. So, for the next couple of quarters, we are going to be seeing that kind of an impact. That's largely a part of the, I guess you could say, moderated confidence that we have as we are going forward on being able to deliver incremental margin as the volumes increase.

As Mark said, we expect to at least maintain, or possibly do better, but we know we've got some of these challenges bringing on, basically, half-again as much of our work force as we had coming in to the year -- so, those challenges.

Then we do know that there are some challenges that we have been taking extensive actions to mitigate, relative to what has happened with raw materials and components out there. And we do expect and know that there are increases that are flowing through from the supply side -- we talked openly about tires and how tire pricing has continued to increase.

We know we got some of those. We are not trying to be alarmists. We are just trying to put this thing in balance, that we've made some progress, we were able to take advantage in this first quarter of some pricing, some of the mitigation actions that we have put in place relative to hedging and relative to some fixed-price commitments that we'd gotten from many suppliers.

But we see going forward that we got some headwinds that we are dealing with that are not huge, but we do want to get those out there so folks understand not to expect this slope of incremental margin improvement to continue. And we do see it improving as we get into the latter part of the year, but we got a couple of quarters we want to be a little bit cautionary on.

And we're going to do the best we can, and continue to remain focused, as I stated, on these mitigation actions; but, at this point, we are not sure how that is all going to pan out because it's a moving target.

That's -- for us to sit here and make firm commitments one way or the other would be very difficult. We are trying to lay that out so folks have a fair understanding of what is happening in the business.

I appreciate that. I guess 1 follow up, then. Are you concerned that the pricing quotes or orders that you have already booked over the last 4 or 5 months, that the pricing would be insufficient relative to the commodity inflation?

It seems like you've been very diligent on that front. I understand the labor build out and the training and things like that, but I'm just trying to understand that pricing comment relative to cost.

Yes. Let me try and help and make that --. The earliest of quotes are always the ones that, in any quoting period -- the ones from the fourth quarter, 2010, the ones in the early part of the first quarter of this year -- are the ones that are going to be most subject to, we will use the term loosely, risk, relative to pricing, as it stands relative to what is happening in the commodities and raw materials side of things.

We -- in our quote model, as we have shared previously, we are always projecting forward based on the best information we can gather from the marketplace, what is happening with raw materials. We build that into our quote model.

So when we are quoting something in, say, January this year, and it's planned for a May build, we are reflecting what we believe those costs. We believe we got that pricing protection built into that, into the model.

Quotes that were done, say, in October/ November, when the marketplace was a little different, those may have more risks associated with them than the ones that were quoted in February or March. It's just logical that they are going to have more risk because we're pricing an environment.

It's mainly limited to those larger contracts where we have quoted a fixed price for the balance of the year. The smaller contracts that are under a standard terms and condition that allow us to go in and make adjustments prior to build as inflationary pressures occur, we go in, and we do have a process in place that we go in and make those adjustments.

So we try and mitigate. It's just there is an element of orders that are out there that, as we get through the course of the year, will be subject to more of the inflationary pressures than others.

Okay, that's been very helpful. I will jump off the queue. So you are saying that there's more of those fixed contracts for the balance of the year versus the variable.

Thom, that's probably historically how we always play out. Anywhere from 40% to 60% of our business is with large direct partner accounts. Not all of them are on a fixed. Some of those have adjustment in the pricing structure, in the agreement structure with them, whether it's on a quarterly basis or on an annual basis to make adjustments. So it's not every one of them that's on just a fixed price for the year. There are some of those are in that case.

Okay. Thank you guys very much.

Kristin Kubacki, Avondale Partners.

Good morning. I guess I'm a little bit confused, and I'm probably not the only one here. But, talking about the orders that you took in the first quarter, you took about $250 million in the orders. And I guess on those particular -- we've already seen raw material costs and you knew you were going to be hiring this many people.

I guess on pricing for those particular orders, are those things that you think that those are going to be produced in the fourth quarter of '11 and the first part of '12, and that's what gives you the confidence that we are going to get the incrementals at that point?

Or are these orders that -- I'm confused that we are giving a -- more of a cautious outlook here and that we've seen such a bullish uptake in terms of the incoming order rate in '11 and we've already known the surroundings here with raw material prices and employees coming on line.

The $250 million of incremental backlog is a mix. The build for those are spread throughout the balance of the year, depending on slots that may have been available in the latter part of the second quarter, then into the third, and then into the fourth quarter.

Most customers who place orders certainly want the equipment as soon as they can get it. And we fill those slots accordingly. In some cases customers will want them spread over several months. In the most -- in the largest orders, of course, it's spread across the whole year. It's a mix.

I can't tell you, Kristin, whether it's all third quarter, fourth quarter. It's pretty much spread throughout the balance of the year. There is some impact in each quarter, likely, mostly as we get toward the end of the year, because that's where the slot fills -- the majority of the open slots to fill remain available. The majority of it would be latter part of the year rather than the near term.

That's helpful. I guess question is, then, you talked about the number of employees you are bringing on line and it sounds like a huge chunk.

Maybe you can -- are they going to be coming on here early part of the year and you would expect them -- ? What is the normal ramp up time for them to be more productive into your work force, and then we can start to see your work force stabilize and start to get the operating leverage there?

Yes. A good percentage of them have already been brought on and they are currently in training, working alongside the experiences employees. So they are getting that training now and they will be over the next several weeks, there will be a slow transition where they get then deployed to the shifts where -- as we go active on these additional shifts, actually starting that process in the next week. And that will take place over the next several weeks, into the middle of June, before they get transitioned over to the shifts. And then, actually, we will be doing that with our alpha line into August where an additional shift goes on there. Over the next two, two-and-a-half months we will be seeing this transition.

We will start seeing the duplicate cost part of it go away, but that will take several weeks until they get assigned permanently to the shifts they will be on. And then the proficiency gains as they gain more experience will take place throughout the balance of the quarter and likely through the third quarter also.

Okay. So let me --

So, Kristin, the timing of it and phase in is very similar to what we went through last year. The bulk of it is Q2, some carry over into Q3, and by the time we got into the fourth quarter last year, remember, we did see an uptick in productivity based on the workforce being stable and becoming more seasoned.

And then that continued -- that was the start of it -- and that continued again really into the first quarter of this year. So, we would expect to have similar trend with the ramp up that we are seeing this year -- that by the fourth quarter you actually see that reverse and see productivity improvements coming out of the work force and a good foundation heading into 2012.

My question is, and I'll piggyback this off of Thom's question. If I say -- be contrary in view here and say that raw material costs stabilize from here, or even start to recede slightly, are we still going to see a headwind with the productivity hit in the third quarter? Or, if raw materials stabilize or even pull back, could actually we see -- maybe it's not as far out as 4Q, that we get some of the incremental benefits?

Yes, based on your scenario, certainly. The risk that we built into our thinking is based on continued, I will call it strength, in the commodities market. If we see a pull back there, of course, it's going to help us.

Because we've got the cost built into our modeling, at current or projected higher levels, based on what projections are in the marketplace. Any pull back is going to be a benefit to us.

Okay. Thank you very much.

Sasha Kostadinov, Shaker Investments.

Yes. Hi guys. Are you going to be paying any taxes this year?

No. We have an NOL with limitations for the pre-tax. So for -- likely this year it's at around $70 million. So, our effective tax rate is zero and cash tax requirement will be zero.

Okay. What is going to happen with your interest expense line over the course of the year, should it come down further?

Well, as I mentioned, we are evaluating a new revolving facility potentially. We certainly think that the market rates versus -- today versus when our current facility was placed are favorable. That would help interest; but, certainly, as we go forward and fund additional working capital requirements, as we meet the ramp up we described, you are going to have some higher funded debt throughout the middle part of the year. So a little bit of a wash in that.

A wash. Okay. All right. Thanks.

Rhem Wood, BB&T Capital Markets.

Good morning, guys. Just 1 quick question. Could you give me the actual head count number, maybe full-time employees and temps for maybe March 31 and then what it is right now?

I have it, Rhem, for March -- at the end of March the full time head count was 2,000; temps were approximately 1,600, so that represented almost a 50/50 ratio of our hourly versus the contract labor. It has gone up since the end of March, about 4,200 in total.

Great. Thanks so much.

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

Thanks, Rob. As emphasized with our recently announced Frac tank contract manufacturing initiative, we remain committed to our long-term strategy, which we believe will continue to transform Wabash National into a stronger, more consistent and more profitable business. ¶ We will continue to seek out other growth-oriented opportunities that will leverage our core strengths and capabilities to assure long-term success and viability.

At the same time we will remain focused on leveraging our core business to deliver top performance in all areas. The operating environment is currently there, and we commit to deliver.

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.