Wabash National Corp (WNC) 2012 Q4 法說會逐字稿

Welcome to the fourth-quarter and year-end earnings call. My name is Lorraine and I will be your operator for today's call. (Operator Instructions). Please note that this conference is being recorded.

I would now turn the call over to Mr. Jeff Taylor, Vice President of Finance and Investor Relations. Mr. Taylor, you may begin.

Thank you, Lorraine, and good morning. Welcome, everyone, to the Wabash National Corporation 2012 fourth-quarter and full-year earnings call. This is Jeff Taylor.

Following this introduction, you will hear from Dick Giromini, Chief Executive Officer of Wabash National, on the highlights for the fourth-quarter and the full-year 2012, the current operating environment, and our outlook. After Dick, Mark Webber, our Chief Financial Officer, will 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.

Before I begin, I'd like to cover two quick items. First, please note that this call may be recorded. Second, 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 than those projected in the forward-looking statements. These statements should be viewed via the cautionary statements and risk factors set forth from time to time in the Company's filings with the Securities and Exchange Commission.

With that, it is my pleasure to turn the call over to Dick Giromini, Chief Executive Officer.

Thanks, Jeff. Good morning, everyone.

As you saw in last evening's earnings release, 2012 was a very positive year for Wabash. We continue to build on the considerable momentum we had heading into the year by remaining focused on our strategic plan and commitment to transform the Company. I will start today's discussion with some comments regarding the execution of our strategic plan, followed by the highlights of the fourth quarter, full year, and our 2013 outlook.

As many of you know, we developed our long-term strategic plan in 2007 with the goal to transform Wabash National into a diversified industrial manufacturer and to diversify products and revenue away from concentrated dependence on the highly cyclical dry van trailer market. Key objectives of the plan include, first, to profitably grow and diversify the business organically by leveraging existing assets and capabilities. Secondly, to offset cyclicality in our core trailer business by diversifying the business through selective acquisition. And third, to continue driving cost optimization through operational excellence and supply-chain initiatives and, more recently, driving pricing initiatives in the core trailer business to increase margins and overall profitability.

These core tenets of our strategy remain critical to us today, and despite considerable industry and macroeconomic headwinds throughout 2009 and 2010 that certainly slowed early progress, I can now confidently say that we are delivering on our promises and continue to demonstrate progress against each element of our plan.

Let's quickly review some of those key ingredients of the strategy. First, to profitably grow and diversify the Company organically by utilizing a low-cost and capital business model that leverages existing assets, capabilities, and technology into higher-margin products and markets. Initially launched with a small dedicated team charged with the mandate to increase and expand the penetration and use of our DuraPlate technology into other markets, our efforts have now far exceeded our early expectations, as the seemingly small initiative in early 2008 ultimately proved to be the foundational block that eventually led to the formation of the diversified products group, which includes that first effort, now named Wabash Composites; our newer organic-growth initiative, Energy Environmental Solutions; and, of course, the addition of the more recently acquired Walker Group business.

Second, to profitably grow and diversify the business through selective acquisition. Clearly, we made significant progress in this arena in 2012 with that acquisition of the Walker Group this past May. Now with the recently announced purchase of certain tank and trailer assets from Beall Corp., we look forward to further growth of that business.

As a result of bringing the high-performing Walker Group into the fold, our diversified products segment delivered 69% of operating income in the fourth quarter of 2012, while comprising 34% of total Company revenue. This acquisition brought the added benefit of greatly broadening our customer profile and reach outside of the more core or traditional semi trailer market.

Third, improve our manufacturing and supply-chain operations through continuous improvement and operational efficiencies to enhance profitability. Since 2010, we again ramped up our emphasis on lean manufacturing efforts, completing the Lafayette transformation initiative, which served to streamline our production processes and further improve our van manufacturing efficiencies. Last year, significant focus was placed on stabilization of the new workforce, following the post-recession ramp up, to improve proficiency, capability, and productivity of the Lafayette plant, along with further investment in our Cadiz, Kentucky, platform manufacturing facility to increase its capabilities and capacity.

Additionally, as discussed throughout the year, we began 2012 with a focused commitment to significantly enhance margins in the core trailer business by intentionally favoring price over volume, exhibiting a willingness to sacrifice less attractive orders as we drove pricing initiatives to recapture lost margin experienced during the downturn.

As we all know, the economic environment and the trailer industry, specifically, have been challenging for the past several years, which makes these achievements in 2012 all the more rewarding. In fact, as you will see, 2012 was a record year in many areas, and these results clearly validate our long-term strategic plan and demonstrate the progress we continue to make in executing that plan to profitably grow and diversify the business. As clearly evidenced by these most recent results, the process of transforming Wabash National from a singularly focused van trailer manufacturer to a diversified industrial manufacturer is on track.

Now let's discuss the fourth-quarter results. The Company experienced year-over-year and sequential improvement across a number of financial and operating metrics during the quarter. Net sales for the quarter were a record $416 million, or up 22% year over year, driven by the second full quarter of Walker Group results and pricing improvements in the core trailer business.

Additionally, adjusted earnings were $21.7 million, or $0.32 per share, compared to $7.5 million, or $0.11 per share, for the fourth quarter last year, representing a threefold year-over-year improvement. Gross margin was 13.1% for the quarter, representing a sequential improvement of 80 basis points, the fifth consecutive quarter of improvement and a 710 basis-point improvement compared to the fourth quarter of 2011, or a 118% improvement.

The gross margin improvement is in great part a result of our strategic focus on driving margin, pricing, and operational improvements in the core trailer business, in addition to the full-quarter benefit of the higher-margin Walker Group business.

Operating income for the fourth quarter of 2012 was $29.2 million, compared to $8.4 million in the previous-year period and $27.2 million in the third quarter of 2012. This also represents our second-best quarter ever, only surpassed by the fourth quarter of 2005. Operating EBITDA totaled $38.8 million, which represents an increase of $25.2 million compared to third quarter of 2011 and $1.1 million sequentially.

Overall, the fourth quarter was a strong quarter with more to come.

Now let's discuss the full-year results. Net sales for the year were $1.46 billion, which is the highest in our Company's 27-year history, representing a 23% increase over 2011 and surpassing the previous record set in 1999. The year-over-year increase is primarily due to the addition of the Walker business beginning in May of 2012, along with pricing-led margin improvement in the core trailer business.

Adjusted earnings were $64.8 million, or $0.95 per diluted share, compared to $15.7 million, or $0.23 per share, for 2011. Gross margin was 11.2% for 2012, representing a 560 basis-point, or 100%, year-over-year improvement. Operating income for the full year of 2012 was $70.5 million, compared to $19.8 million in 2011, representing a 256% increase year over year. Operating EBITDA for the year was $118.5 million, representing another record for the Company and a $79.7 million year-over-year improvement.

Full-year shipments of 45,600 new trailers across all of our businesses, including Walker, was slightly lower than our prior guidance of 46,000 to 48,000 units for the year, as delays in order placement in the weeks leading up to the presidential election, along with fiscal cliff concerns, impacted some production slot fill late in the year, combined with some slower than expected pickups by some customers late in the quarter. Additionally, our unwavering focus and commitment to place higher margins over volume admittedly may have had some impact on that.

Obviously, we firmly believe this strategy has proven its merit, as evidenced by the significant increase in gross margin, operating income, and operating EBITDA.

On a segment basis, each business was able to complete many noteworthy achievements as well. To name just a few, in our commercial trailer products group, in addition to the success achieved in expanding gross margins year over year by nearly 300 basis points, the team also earned ISO (technical difficulty) at its Lafayette operations and completed a major expansion at its Cadiz, Kentucky, facility, providing for further growth going forward.

Our diversified product segment experienced the most impactful change of the year, with the addition of Walker adding over $250 million to the top line this year. Additionally, this segment, which is focused on innovation and customer expansion, brought several new products to market (technical difficulty) and the development of an LTL version of our highly successful AeroSkirt for those less-than-truckload applications.

Our retail segment also delivered impressive year-over-year improvement with an increase in operating income of over $3.2 million as it successfully expanded its reach and level of services. And earlier this year, our Dallas branch received special recognition as Schneider National's maintenance partner of the quarter.

Overall, I'm very pleased with the results in 2012. It was a record year of revenue, gross margin, and operating EBITDA.

Before I discuss Wabash National's expectations for the first quarter and full year of 2013, let's first examine a few key economic indicators and industry dynamics we monitor closely that provide broader context for our expectations. Overall, the Conference Board Leading Economic Index rose 0.5% in December to 93.9%, following no change in November and a 0.3% increase in October. In the past six months, the Index increased 1.3%, up from a 0.5% growth rate during the prior six months, implying continued modest economic growth ahead. The ISM index increased 2.9 points to 53.1% in January, once again indicating expansion in manufacturing activity, following mixed signals the prior two months.

As we now all know, following a surprisingly strong third-quarter increase of 3.1%, GDP in the fourth quarter declined 0.1%, reflecting negative contributions from private inventory investment, federal government spending, and exports. The decrease followed 13 consecutive quarters of growth.

The housing sector recovery continues its momentum as December housing starts of 954,000 units were up a strong 37% year over year. In December, building permits of 903,000 units were 29% higher year over year. Both readings were the best since the summer of 2008 and imply strengthening demand for both platform and dry van trailers.

The US Census Bureau reported that US retail and food services sales were $415.7 billion in December, up 0.5% month over month and 4.7% year over year. Much of the increase came from a 1.8% rise in sales at auto dealers. The total of 2012 retail and food services sales were up 5.2% for 2011, with auto sales reaching the highest level in five years, also supporting strengthening demand for platform and dry van equipment.

Within the trucking industry, the story is similar to the general economy. ATA's truck tonnage index increased at an annual average rate of 2.3% in 2012, lower than the strong 5.8% rates in each of the prior two years. The index in December came in at a seasonally adjusted level of 121.6, reflecting a 2.3% decrease as compared to the all-time high recorded in December 2011, but still represented the strongest month of the year.

In addition, FTR's truck loading index for December increased 1.0% over November and 2.9% year over year. For the year, the index grew at an annualized average rate of 2.9% in 2012, somewhat slower than the 3.6% rate of 2011.

Industrywide, ACT reported that trailer shipments in 2012 totaled 240,000 units, an increase of 27,400, or 12.9%, versus 2011, while industry backlog increased by 25% since last quarter to a seasonally healthy 98,000 units. Industry orders in the fourth quarter totaled 76,500 units, approximately 4,200, or 5.8%, higher than the fourth quarter of 2011.

Nearer term, the latest report from ACT estimates 2013 trailer shipments at 254,500 units, up 7% year over year, and 265,300 trailers for 2014, up an additional 4% year over year. FTR recently increased their forecast for total trailer production in 2013 by 8,500 units, now projecting 216,500 trailers, a surprising decrease of 6% year over year, but projecting a stronger 225,000 units in 2014.

While there remain significant divergence between the two primary industry forecasters, the gap has narrowed in recent months. First, both groups are forecasting trailer demand in 2013 well above replacement levels with ACT expecting shipments to exceed replacement demand by some 60,000 to 70,000 units. Even FTR's more conservative view places production demand exceeding replacement level by 20,000 to 30,000 units for the year.

Secondly, both groups expect trailer demand to remain reasonably or well above replacement demand levels each year through 2016, reinforcing our belief that this cycle has the potential to be one of the longest and strongest in our industry's history.

Finally, our internal view for 2013, based on discussions with our customers and an evaluation of myriad demand drivers such as the age of fleets, pent-up demand, and a regulatory compliance needs, is that trailer demand will be equal to or slightly stronger than 2012.

All that considered, let me now share Wabash National's expectation for the first quarter of 2013 and the full year, beginning with trailer shipments. Our view of overall industry trailer demand trends is fairly consistent with ACT and FTR forecasts and those of most economists who project softer demand early in the year, with strength increasing as we move past the first quarter and beyond.

Internally, we expect 2013 first-quarter shipments to be lower than 2012 first-quarter shipments, due mainly to the late timing of customer quotes converting into firm orders, discussed earlier, exacerbated by the normal seasonal pattern of many customers preferring to take delivery beginning later in the quarter during each fiscal year. In addition, we remain selective in order acceptance, consistent with our year-long focus to drive margin improvement. As a result, we now expect first-quarter shipments to be between 8,000 and 9,000 trailers with strong improvement throughout the year.

On a full-year basis, with strong recent order activity in which industry net orders during fourth quarter of 2012 of 76,540 units exceeded orders in fourth quarter of 2011 by nearly 6% and despite disparity between industry forecasters, we are very confident 2013 will be another strong year in demand, similar to 2012, if not better. In fact, we continue to believe that trailer demand will remain at strong levels for an extended period, driven by an excessively aged fleet; unprecedented pent-up demand following the recession; regulatory drivers, including CSA, hours of service, CARB; and a stable but slow growing economic environment that is continuing to drive year-over-year truck tonnage growth.

Taking into account the structural industry drivers and a stable but improving economy, along with our own early order intake, we expect 2013 trailer shipments to range between 45,000 to 48,000 units for the full year.

In support of our full-year guidance, the current backlog of $666 million represents approximately six months of production at our current operating level. And we expect this backlog to continue to increase through the first quarter. And as touched on earlier, with a workforce that has now reached a level of greater experience, proficiency, and capability, that is now better equipped to handle the more diverse mix of products that our stronger pricing strategy bring, we look to deliver continued improvement in productivity and variable cost per unit within our core van business as we progress through the year.

With respect to diversified products, we expect this segment to grow significantly as a result of a full year of the Walker business, in addition to the benefit of acquiring the tank and trailer assets of Beall Corporation. Beall trailers have a reputation for being one of the highest quality tank trailers in the industry, and this product is a natural fit with the Walker liquid tank product lines, which include Walker Transport, Brenner Tank, and Bulk Tank. The addition of the Beall tank and trailer products, specifically the 406 petroleum tank trailer and the dry bulk product line, completes the Walker product line and provides us with the broadest product portfolio in the tank industry.

Additionally, the addition of the Portland, Oregon, manufacturing facility provides us with a West Coast presence and a nationwide footprint, which opens new markets and opportunities for all of our liquid tank trailer product lines.

That all said, we do need to ramp up the Beall operation from the very low levels of production that it was operating while under bankruptcy, so we will see the benefit of it as we progress later through the year.

Furthermore, we expect growth in Wabash Composites from further market acceptance of existing products, the introduction of new products, and the attraction of new customers. The business is well positioned to continue its track record of growth.

On the resale side of our business, we expect to continue the momentum of improving performance in the legacy business, while the addition of the six tank trailer parts and service retail locations will provide the opportunity to leverage a broader network and expanded customer base, from which to grow.

In summary, we introduced our strategy in early 2008 to profitably grow and diversify the business, while simultaneously implementing a relentless focus on managing and reducing costs. We experienced a significant setback in 2008 through 2010 with the worst downturn in the trailer industry's history. If nothing else, the experience we gained during the downturn only reinforced the merit of our strategy, and we have delivered on those commitments.

We have permanently removed more than $15 million of overhead costs annually. We improved gross margins by 560 basis points in the past year alone. Operating income has improved by more than $50 million from 2011 to 2012, and we have fundamentally changed our business from one whose prospects for success were strictly tied to a narrow product line to one that now spreads that risk across a broad array of products and markets and geographies. As a result of our enhanced business model, each segment of the Company is well positioned to grow while navigating through any challenges that could arise from an uncertain macroeconomic environment.

Clearly, 2012 has been a transformational and record-setting year for Wabash National. We've made tremendous progress towards reinventing Wabash National as a diversified industrial manufacturer with an increased depth and breadth of products, customers, and geographic reach. We've become a stronger Company through the continued execution of our strategic plan, which has resulted in a solid foundation for enhanced financial performance and future growth.

And while I'm very pleased with our accomplishments and progress in 2012, I believe that records are made to be broken. We are far from slowing our efforts to further improve our operations, grow our top line through both organic and strategic diversification opportunities, and drive full-year profitability to all-time record levels. I look forward to the opportunities that lie ahead in 2013.

With that, I will turn it over to Mark to discuss specific highlights from Wabash National's fourth-quarter financial performance. Mark?

Thanks, Dick, and good morning. Let's begin.

Revenue for the quarter improved year over year approximately 22% to $416 million, bringing the full year to $1.5 billion, which represents the best full-year revenue in the Company's history, surpassing the previous record from 1999. The improvement in revenue for the quarter reflects the impact of the Walker acquisition, in addition to the continued improvement in trailer ASP in the commercial trailer products segment, which increased $400 sequentially to $24,300 per unit.

Year over year, ASP increased approximately $2,300 per unit, or 11%. The increase in ASP is largely due to price increases implemented to recover commodity and component cost inflation, in addition to higher costs associated with more complex trailer mix, as we continue our strategy to be selective regarding order acceptance.

New trailer sales in the quarter totaled 11,100 units, including 800 units from Walker, or $310 million, compared to 13,600 units and $302 million in the prior-year period. While our legacy trailer volume was down approximately 3,300 units year over year, the significant favorable impact of our strategy to pursue margin over volume is very evident in our results, and I will comment further on that in a minute.

In our other product lines, used trailer revenue came in at approximately $11 million on 1,300 units and was up approximately $3.5 million from the same quarter a year ago as the used trailer market continues to demonstrate firm demand in pricing. Parts, service, and other component revenue was approximately $32 million in the quarter, an improvement of approximately $7 million from a year ago, driven by the addition of the Walker tank trailer service locations. In addition, net sales from equipment and other was $63 million, representing an increase of $55 million compared to the fourth quarter of the prior year, and this increase is attributed to the addition of Walker's non-trailer truck-mounted equipment and other equipment, in addition to its engineered products sales.

In terms of operating results, gross profit for the quarter was $54.3 million, or 13.1%, and represents the fifth quarter of sequential margin improvement, up from third quarter's gross margin of 12.3% and 6% from a year ago. On a full-year basis, gross profit finished 2012 at $164 million, or 11.2%, an increase of $97 million and 5.6% from 2011. As expected, the addition of Walker's higher-margin business was a significant contributor to the improvement, both sequentially and year-over-year, in addition to the significant improvement of our margins in the core trailer business.

By segment, commercial trailer products revenues decreased approximately $50 million compared to the prior-year period, reflective of our continued strategy to be selective on orders. More importantly, however, the results of this strategy, which is focused on improving gross margins, are evident this quarter as gross margins showed a 330 basis-point improvement from a year ago, more than offsetting the impact of lower trailer shipments.

On a sequential basis, gross margins improved for the fifth consecutive quarter to 7.3%. While production during the quarter was down sequentially approximately 1,000 units at 9,400 trailers, we continued to experience productivity gains across the workforce. On a full-year basis, commercial trailer products revenue was essentially flat at $1.1 billion on 4,000 fewer new trailer shipments, while gross profit increased by $31.2 million, or 300 basis points.

Diversified products experienced significant improvements in the fourth quarter and full year. Fourth-quarter revenue was $143 million, representing a $28 million improvement sequentially and a $111 million improvement year over year. The additional of Walker with $123 million in revenue in the quarter accounts for this large increase. On a full-year basis, revenues increased 234%, or $250 million, due to the additional of Walker, which added $252 million of revenue in 2012.

This segment is now contributing equally to our commercial trailer products segment and highlights the benefits of the diversification strategy. While revenues from this segment are generally half of the commercial trailer products segment, with gross margins typically over 20%, the diversification and balance this segment provides is evident. For the quarter, operating income from this segment was $20.3 million, raising the full-year total to $49.8 million, with year-over-year improvements of $15.3 million and $35.2 million, respectively.

The retail segment continued the improvement trend. Topline revenue in the quarter increased $14 million year over year, due to the addition of six Walker tank trailer parts and service retail locations and an increase of new trailer sales. Correspondingly, gross margin improved 300 basis points, due to the higher mix of parts and service revenue from the addition of the tank trailer retail locations. The six retail locations contributed approximately $7.5 million in revenue in the fourth quarter.

For the full year, the retail segment reported $158 million, an increase of $33 million, or 26%, over 2011. The addition of the tank trailer locations accounted for approximately $20 million of this increase. As a result, on a consolidated basis, Q4 matched the prior quarter's record operating income, coming in at $29.7 million, excluding the acquisition-related costs. This represents the ninth consecutive quarter of positive operating income and the 13th consecutive quarter of year-over-year improvement. The Q4 improvement of $21.3 million represents an increase of more than 250% versus the quarter a year ago.

In terms of margins, at 7.1%, operating income was essentially flat with the prior quarter and consistent with our guidance. For the year, operating income was $88.7 million, excluding acquisition-related costs, an increase of $68.9 million, or approximately 4.5 times 2011.

Additionally, the improvement in operating income demonstrates the effectiveness of our pricing strategy, our operational effectiveness, the leverage from our investment in SG&A, and the enhanced earnings potential from our current portfolio of businesses.

SG&A for the quarter increased $1.7 million from the third quarter to $21.4 million. This represents approximately 5.1% of revenue. We will continue to leverage our SG&A investment as volumes move higher and our diversification initiatives take hold with an annual target for SG&A as a percent of revenue of approximately 5%.

As we noted last quarter, we are now showing intangible amortization separately on the face of the income statement. Intangible amortization of $3.4 million and acquisition cost of $0.3 million for the quarter primarily relate to our acquisition of Walker Group Holdings, which closed on May 8.

Please note, the impact of intangible amortization will increase further to approximately $5.2 million per quarter for 2013. While the impact of this non-cash charge will not affect the Company's operating EBITDA, it will have an impact to future reported earnings. And given the nature of these long-lived assets, this is not an item included in our adjusted EPS reporting.

Net other expense consists primarily of borrowing costs totaling approximately $7.8 million, primarily related to our $300 million term loan credit agreement and $150 million convertible senior notes, which were issued in the second quarter to fund the Walker acquisition. It is worth noting that approximately $1.4 million of this is non-cash and primarily relates to accretion of charges associated with the convertible notes.

During the fourth quarter of 2012, the Company determined it was more likely than not that it will be able to utilize deferred tax assets, consisting primarily of net operating loss carryforwards, which had previously been offset by valuation allowances. As a result, the Company recognized an income tax benefit of $59 million related to the reversal of valuation allowance against its US federal deferred tax assets and a portion of its state deferred tax assets. The Company's federal NOL position, as of December 31, 2012, was approximately $111 million, of which $92 million is available for utilization in 2013, subject to pretax earnings. The federal NOL carryforward begins to expire in 2028.

So as a result of this change, the Company does not expect cash taxes to change materially in 2013, as compared to 2012, which were less than $1 million. However, for 2013, the Company will begin to record income tax expense on its income with an estimated effective tax rate of approximately 40%.

Finally for the quarter, net income was $80.2 million, or $1.16 per diluted share, including the $59 million, or 86% (sic -- see Press Release -- $0.86) diluted per share, income tax benefit for the current quarter. Excluding the impact of taxes and other one-time items, adjusted earnings for the fourth quarter was $21.7 million, or $0.32 per diluted share, as compared to net income of $7.5 million, or $0.11 per diluted share, for the fourth quarter of 2011.

For the full year, the Company reported $105.6 million, or $1.53 per share for 2012. Excluding the impact of taxes and other one-time acquisition costs, adjusted earnings were $64.8 million, or $0.95 per diluted share, as compared to $15.7 million, or $0.23 per diluted share, in 2011.

In addition, operating EBITDA, which takes into account many of the other non-cash charges associated with the Walker acquisition and Beall asset purchase, increased nearly 3 times from a year ago to $38.8 million, or 9.3% of sales. For the full year, operating EBITDA reached record levels for the Company at $118.5 million.

Now, moving to the balance sheet and cash flow statement, let me provide a little more detail on some key metrics. Net working capital improved from the third quarter by approximately $17 million, due to the decreases in inventory and accounts receivable net of deposits of $42 million and $29 million, respectively. The inventory decline was primarily driven by reductions in finished goods and raw materials in the quarter.

Capital spending for the full year came in at $14.9 million, consistent with our prior guidance. We anticipate full-year 2013 spending to be approximately $20 million. The year-over-year increase is a result of capital spending for Walker Group for the full year and additional capital demands for Wabash National as a result of operating at higher rates than in prior years.

Our liquidity, or cash plus available borrowings, at December 31 was approximately $224 million, reflecting an increase from the third quarter of $42 million. As a result, our pro forma total and net debt leverage improved at 3.1 times and 2.5 times, respectively. In addition, our senior secured leverage covenant under our term loan credit agreement improved to 1.5 times and is well below the required 4.5 times.

In addition, last month we announced our intent to acquire certain assets of Beall Corporation, which was closed earlier this week for approximately $15 million in cash. Post-closing on this transaction, the Company's liquidity was approximately $200 million.

Total debt during the quarter was essentially unchanged from the prior quarter at approximately $425 million. However, debt management remains a top priority for the Company, and we continually evaluate the appropriate uses for cash, which reached $81 million at the end of the year.

In summary, the fourth quarter was a solid quarter and an impressive finish to 2012. It was the second full quarter with Walker in the portfolio, and with strong back-to-back quarters, it reinforces the enhanced earnings and cash flow potential of Wabash National. We will look to build upon these performance metrics as we continue to improve margins on our commercial trailer product segment and continue to introduce growth initiatives in our diversified product segment.

As we enter 2013, we are confident that the demand environment across our business remains strong. Quote and order activity for trailers has remained healthy, as evidenced by our backlog at $666 million, which includes Walker backlog of $147 million.

December industry orders were at the highest level since 2006, and both industry forecasters are predicting at or above replacement demand level. More importantly, the long-term demand fundamentals remain intact with the average age of equipment at all-time highs, an increasingly tougher regulatory environment for our customers, and a trailer fleet which has been reduced by over 10%. As a result, we expect the Company's trailer shipments in 2013 to be consistent with 2012 at between 45,000 and 48,000 units.

In regards to the current quarter, we expect Q1 shipments to be the lowest quarter of the year, due to normal seasonality and a delayed conversion of quotes into orders this year, which has pushed some customers later in the year. As such, we estimate Q1 shipments to be approximately 8,000 to 9,000 trailers, a sequential reduction of approximately 23% at the midpoint.

We expect our non-trailer revenues to reduce sequentially as well, but at a lower rate of approximately 10% to 15%. Again, this is driven by normal seasonality, as well as the uncertainty experienced in the fourth quarter and early this quarter which delayed order conversion. However, as Dick discussed, much of this now appears behind us as recent order rates have increased, our backlog has strengthened, and elements of the macro and political uncertainty have been resolved.

Regarding the Beall asset purchase we announced on January 25, that we signed the agreement to acquire certain assets of the tank and trailer division of Beall Corporation, most notably the manufacturing equipment, brand, product designs, and intellectual property, in addition to other miscellaneous assets, the business and operations will be managed and reported through the Walker Group in the diversified products segment, which will allow us to expand our geographic reach, connect with new markets and customers, in addition to sharing best practices across the enterprise.

We closed the transaction on February 4 and are currently in the process of ramping up production and rebuilding this business. Obviously, we purchased these assets through a bankruptcy process, so this is going to be a turnaround story and the impact on the first quarter or two will be nominal. For the full year, we expect to ship a couple hundred Beall trailers. This is an exciting opportunity because the Beall tank trailers have an outstanding reputation in the industry for quality and value, which we intend to match.

I will now turn the call back to the Operator and we will take any questions that you may have. Thank you.

(Operator Instructions). Steve Dyer, Craig-Hallum.

Thank you. Good morning, guys. Nice quarter. (Multiple speakers). Wondering if you could break out unit shipment guidance for 2013, splitting between Walker and the core business.

Yes. I think, directionally, we're looking at a flat market. This is kind of the read that I think you should take overall from the guidance. On a pro forma basis, the full-year results for Walker on the liquid tank side was about 3,000 units. So that's going to move, plus or minus, a couple hundred one way or the other, but that's probably a fair split out of the total.

Okay. That's helpful. And then, I mean, just directionally, does it feel like Walker has flattened out as well, because I know that came into the acquisition with a pretty good head of steam?

Yes, well, they've certainly, I think, showed strength throughout the year, based on the growth we saw in topline. It kind of varies by end market really for them, and what's been nice is to see them, as certain areas soften, such as oil and gas, which soften during the summer, see them take advantage of strength in other markets, such as chemical or even on their engineered products. Non-trailer applications grew.

So yes, I think maybe it's leveled off because, while some things have softened, they've seen strength. But in total, it's been a nice growth story throughout the year. They have a little bit of seasonality in January through the first quarter, just as we do, but it's just not as cyclical, or seasonal, I guess I should say, as the commercial trailer products.

Okay. That's great. And then, as it relates to gross margins, I would assume they would come down somewhat meaningfully in Q1, just on the lower volume. But just in general, how is pricing and how would you expect margins to hold throughout the year?

Yes, I think the comment to the market is probably the more relevant one. We've remained disciplined, one, on favoring pricing over volume. And in total, I think that is still playing out similar to how you saw it play out last year. We're happy with the pricing that we're receiving on the product and being disciplined in that approach.

So from that perspective, I think that theme kind of continues through in our core trailer business. Certainly, Q1 will have a margin compression just from the fixed-cost coverage that we won't get by sequentially seeing the volumes go down.

Yes. Okay. I'll hop back in the queue. Thanks, guys.

Brad Delco, Stephens.

Dick, first question for you. You made some comments about this being -- or you're expecting this to be one of the most -- one of the longer, call it, cycles, if you will, in the trailer industry. If you were to kind of take a stab at where you think we are in this cycle compared to previous cycles, does this feel like we are kind of more in the more 2003 to 2004 (technical difficulty), or you think we are kind of closer to the 2004-2005 timeframe? Where do you think we are -- what inning in the cycle?

Yes, I think it's the former. We are still in that earlier section of the cycle.

I do believe that there's a lot more runway ahead of us with potential for some reasonably strong years. I will add, will we see the kind of peaks we saw in 1999 or even in 2006? I'm not going to say that that will happen. It's really going to be limited by what customers can afford to invest in equipment.

But what I do feel is that, based on the pent-up demand and all the -- the age of the fleet that we've talked about and the regulatory environment that our customers are facing these days, that they need to step up and address and replace that very, very aged fleet. So I expect numbers that we've seen over the last couple of years, I expect those kind of numbers to continue or even grow in the next couple of years, as long as the economy stays reasonably stable.

Great. Thanks for the color there. And then, Mark, maybe the second one for you. We've seen huge progress in the core trailer gross margins, 7.3% this quarter. And it sounds like a lot of that was based on some pretty aggressive price and recovering raw material type of initiatives you guys had this year. When you think about 2013, how much better can those margins get based on what's in your backlog today? And if there are any changes in that core trailer margin outlook, what are the drivers to those this year versus maybe last year?

Yes, I think you're right. There was a primary lever in 2012 that was price, and capturing -- trying to capture margin, make sure that we got an appropriate value for our product, we felt was important. And we focused on that and we took a big step forward.

I mean, 10% on average is a big number in our industry. So that's not going to happen again.

I think part of the backdrop begins -- if ACT is right and they've got a [250-plus] type of environment, then you can move the needle a little bit more. In a flattish environment, I think we're going to nibble on the edges and be opportunistic where we can, but the bigger lever in a flat environment is going to switch to productivity and the shop floor, and that's certainly been an impetus for us here in 2012 in terms of maintaining the workforce. They're intact. We didn't go through another surge in adding headcount, so we've seen productivity. We think there's more productivity to be unleashed. And depending on the mix, that could be 50 basis points. It could be maybe up to 100 basis points on productivity.

That's great. I'll get back in the queue, but appreciate the time.

John Mims, FBR Capital Markets.

When you look at the guidance, can we go back and maybe frame a little bit as far as economic assumptions or freight assumptions that you're using to basically commit to being flat year over year, and talk about what pricing assumptions go into that?

Well, the demand environment, if we look at what's happening with truck tonnage and with loadings, they have been consistently strong -- not record level, but reasonably strong. So we have confidence that the environment, the overall demand environment, is stable.

Now that's from a macro sense. When we look at it on a specific to our customers and our customers' needs, we go back to what we commented in our formal comments, and that's regarding the demand drivers that they see. The age of the fleet is excessively aged. It's the oldest in history. It's disproportionately weighted to very, very old equipment. The CSA 2010 regs are really putting a lot of pressure on the fleets to step up and address the age of their equipment because of the road-worthiness part of the CSA rating system.

You combine that with significantly low purchases made during the downturn -- the three-year downturn, you've got tremendous pent-up demand. And the fleets understand that they need to have a younger fleet overall. And just to exacerbate the challenge, with the growing driver shortage, it's becoming more and more important for the fleets to have ways to attract and retain drivers. And one of the ways to do that is to have good equipment for them to haul.

So all those factors play into our assessment, along with just straight head-to-head discussions with customers on what their expectations and directional plans are going forward, give us confidence that this year we should be seeing numbers either equal to or slightly ahead. Early -- when we look at the early order intake for the industry, year over year, orders for the fourth quarter were up 6% over what they were a year-ago period. And even if we look at third and fourth quarter of 2011 versus 2012, that same 6% holds true.

So we've got six consecutive months overall of 6% year-over-year orders placed within our industry. So it continues to give us confidence that we're reading the tea leaves pretty right.

Right. I appreciate that. Well, I guess what I'm having trouble reconciling is all of the things you say, it makes sense and they seem positive. So I don't know if it's then -- I mean, I guess there's not a lot of incentives now to be more bullish on the build guidance until you know a little bit more about how the year progresses. But it would just seem that you're kind of guiding to the low end now, with the potential to be more to the upside than the downside. Is that fair (multiple speakers)

We certainly would like to believe that.

Our reasoning for the range that we've established is that we will remain focused on continuing to place price over volume. We believe that that was very successful for us throughout 2012. It has been successful for us in the recent order intake, as Mark referenced. He's very pleased with the makeup of the backlog that we have in place with the orders received thus far, so we feel very good about it and we don't want to waver from that focus.

If the opportunities exist going forward, we will remain selective, but opportunistic. If they're attractive, we will take those. And if the market ends up becoming stronger in the latter half of the year, as some economists seem to think will happen, then we'll be there to be opportunistic and take advantage of that.

Right. Okay. That makes sense. One last question on the backlog. The first quarter got into -- obviously, the outlook is pretty limited on a year-over-year basis, which makes sense. But can you talk about the timing, the spacing of the rest of the backlog? So backlog is growing. I assume most of that came in in December, but where over the course of the year those deliveries will take place.

Yes, I think you can expect that as we progress through the year, you'll see continued increase. Typically and traditionally, our third quarter is the largest production and shipment quarter, with fourth quarter also typically being a strong shipment quarter. So I think that's the kind of expectation you should see as we continue through the year.

Okay. Fair enough. Thanks for the time.

Jeff Kauffman, Sterne, Agee.

Thank you very much. Hey, guys. Congratulations.

Hey, Jeff. How you doing?

Good, good, good. A couple of detail questions. Mark, you know, in the past we've spoken about materials cost as a percentage of cost or as a percentage of revenue. I think you've given a range of 68% to 71% is normal. And when we were back in the material inflation period a year and a half ago, it was up in the 74% range. Where is that number today?

Yes, it's -- I think the 68% to 71% is probably kind of industry best. If you go back a decade or so, you saw it in that range. And we'd like to target a low 70%. It's been as high for us as 79% and we've been working that down as we've been driving pricing.

So it improved a couple of tenths from the third quarter. We were at -- around 75%. I think a hair under that, though.

Okay. So even though you've recaptured some pricing, that number is still high by historical standards.

It is. Yes. So, yes, I have -- I think the fourth quarter, we got it to 73.5% (multiple speakers)

Okay. The other good news is it looks like you should be throwing off a fair amount of free cash, if all goes well this year. Mark, you talked a little bit about the debt priorities, but it seems like your leverage is getting a little more reasonable. Should we assume that most all of the free cash this year continues to go to debt reduction or are we getting to a point toward the end of the year where we might consider other uses, like, say, a shareholder-friendly dividend or share repurchase program or something like that?

I think certainly the deference is going to made initially to debt reduction. Debt was flat. We paid off the revolver in Q3 and debt was flat end of fourth quarter, and really, we just felt from a prudent perspective it made sense to let the cash build, get through the uncertainty around the election and fiscal cliff items, and certainly get through the first quarter where we typically are a consumer of working capital as we ramp production up.

But we would expect to see some debt reductions here later in the first half of the year and as we go throughout the year, based on free cash flow.

I think certainly if we make some good progress on that, the topics you talked about in terms of other ways to return capital will be items that we'll discuss with the Board. Whether that's a this year or 2014 event, it's still yet to be determined.

Okay. And given the shipment guidance that you've given, can we assume working capital should be fairly neutral on the year, in theory?

On the year end? Yes. Yes.

Okay. I guess one last question, then, for you and Dick. I think you mentioned that year to date the orders were tracking about 6% above last year, yet if you look at the forecast and just take the midpoint between ACT and FTR, they are not expecting the industry to be that high for the year. And you'd also expressed to us that you thought some customer orders were a little delayed in being placed, so maybe that there were more orders on the COM. Is this kind of implying that, based on what you are seeing, the run rate could be ahead of the forecasters?

Well, I think -- I'll address the diversity between the two forecasters. ACT certainly is -- they are above the last year's 240,000. They are at that 254,000, 255,000 projection.

The anomaly here is FTR, and we believe that they're probably a little ultraconservative on what expectation should be for the year, based on the demand drivers that we see.

So we feel good about that 240,000 or something above that for the total for the year, as far as industrywide demand. We could go on and on and talk about some of the questions around where FTR is. They are already starting to make adjustments, as I shared in my formal comments. They increased this past report by some 8,500 units increased.

So I think I would expect to see, as we progress through the year, them making adjustments. Based on what we are seeing in orders from customers, December, as we all know, was a very, very strong month. It was stronger than normal as a result of delayed conversion of quotes to orders, was part of the impact. But based on discussions with customers and what we've seen with those early orders, we feel very good about the kind of numbers we saw last year, that 240,000. It may be somewhat north of that for the full year.

Okay, guys. Wonderful. Thank you and congratulations.

Thank you. I will now turn the call over to Mr. Giromini for closing remarks.

Thank you, Lorraine. We can't help but be proud of what we achieved in 2012. The momentum generated is a result of having the right strategy, being laser focused on execution, and being fortunate enough to have such hard-working, dedicated associates who deliver each and every day. I want to personally thank these associates for their commitment and for what they do every day to make this Company better.

Lastly, I want to thank our dedicated and loyal customers who provide the opportunity for us to make the best trailers in the industry and further our leadership in innovation. I'm confident that our strategic plan is the right plan, and we will continue to grow the Company profitably as we enter new markets and introduce new products.

Thank you for your time today. Mark, Jeff, and I look forward to speaking with all of you again on our next call. Thank you.

Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation. You may now disconnect.