Wabash National Corp (WNC) 2016 Q1 法說會逐字稿

Welcome to the first quarter earnings call. My name is Richard and I will be your Operator for today's call. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the call over to Mike Pettit Vice President of Finance and Investor Relations. You may begin.

Thank you, Richard and good morning. Welcome everyone to the Wabash National Corporation 2016 first quarter earnings call. This is Mike Pettit Vice President of Finance and Investor Relations. Following this introduction you will hear from Dick Giromini, Vice President and Chief Executive Officer of Wabash National on the highlights of the first quarter, the current operating environment and our outlook for the rest of 2016. After Dick, Jeff Taylor our Chief Financial Officer, will provide a detailed description of our financial results. At the conclusion of the prepared remarks we will open the call for questions from the listening audience.

Before we begin I would like to cover two brief items. First please note that this call is being 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, adjusted earnings guidance, industry outlook, backlog information, financial condition and other matters. As you know, actual results could differ materially from those projected in the forward-looking statements. These statements should be viewed via cautionary statements and risk factors set forth from time to time with the Company's filings with the Securities and Exchange Commission. With that it is my pleasure to turn the call over to Dick Giromini, President and CEO.

Thanks, Mike. Overall it was another record quarter for the Company and a great start to the year. Actually I should say it was the best first quarter in the Company's history and as such we are on pace for 2016 to be another record year. We remain focused on executing our corporate strategy profitably grow and diversify the Company for organic and strategic growth as well as through prudent management of our capital structure. Having said that, we are now a more diverse business than we have ever been. Today we are far more than just a van trailer company and as a result we have businesses realizing strong demand while others face demand headwinds. One thing consistent across all businesses is strong execution and effective management of the opportunities or challenges that each have been dealt.

Within CTP effective management of a strong demand environment combined with exceptional operational execution led to outstanding overall results. At the same time the DPG team saddled with a much weaker demand environment was able to deliver strong gross margins through effective cost management decision making. Our first quarter results continue to validate our long-term strategic plan first developed back in 2007 and demonstrate the progress we continue to make in executing that plan to profitably grow and diversify the business. We have changed the fundamental composition of our business and continue to strive to make additional improvements to grow margins, ensure more stable earning stream and take advantage of macro growth trends. With this focus we put ourselves into a position to take advantage of a very strong balance sheet, diverse businesses and world-class operations as we continue to execute these strategic moves.

With that let's get down to specifics. On a quarterly basis consolidated net sales were $448 million, on shipments of 14,500 units. Significantly stronger than our prior guidance supported by accelerated customer pickups and favorable weather conditions during the quarter. The business also delivered strong first quarter build results totaling approximately 16,200 units, up approximately 100 units from the first quarter of 2015 and surpassing our internal bill plan. Operating income for the first quarter was $48.2 million representing a 77% year-over-year improvement driven by excellent operational execution across all areas of our business and significantly supported by a strong demand environment in the Commercial Trailer Products business. Operating margin came in at 10.8% marking the third consecutive quarter of operating margins exceeding 10%, a target that we had established mid-last year as a long-term corporate objective.

Our trailing 12-month operating margin was 9.9%, far out pacing any level the Company has ever achieved. It is certainly clear that we have made significant progress toward transforming ourselves into a higher margin diversified manufacturer and we intend to continue this effort. Overall, we delivered an exceptional first quarter with strong trailer shipments, builds and revenue which translated into increased profitability and operating EBITDA as well as another quarter of very strong cash generation and a continually strengthening balance sheet.

Total backlog decreased slightly sequentially as expected, and remains at a healthy $1.1 billion as of the end of the first quarter and represents approximately 7 months to 8 months of build volume on average with both dry and refrigerated van trailer build slots now essentially booked for the full year. In fact, quote demand for van trailers was such that build requests for 2016 slots far exceeded our 2016 capacity and led to discussions on opening 2017 build slots early to allow acceptance of these orders now, to lock those slots for the customers. To add further clarity current backlog does include some multi-year orders that flow over into 2017 along with overage from 2016 demand while other product lines including aluminum and stainless tank trailers had experienced weaker demand and shorter backlogs until recently.

Now let's take a look at our individual reporting segments. We'll start with the Diversified Products Group reporting segment or DPG which includes our composites, tank trailers, aviation and truck equipment and Process Systems businesses. As expected and guided the overall DPG financial results were lower though sequentially year-over-year in the first quarter. Despite revenues decreasing year-over-year by $25 million in operating income down $4 million gross margin for the quarter remained a healthy 23.3% driven in large part by outstanding execution at the factory level within the business as our lean six sigma initiatives continue to pay dividends. As discussed in the fourth quarter, DPG continues to experience some softness in certain product segments that is creating some topline pressure in the business. We would expect the second quarter to be better sequentially. Furthermore, we still expect the second half to be materially stronger than the first half for this business segment. Let me now discuss some of the business specifics and growth initiatives within DPG.

Our tank trailer business continues to see pockets of reasonably stable demand in the food/dairy/beverage markets, offset by continued weakness for products related to the oil and gas and chemical markets resulting in shorter than desired backlogs. Despite these challenges the tank trailer team has been proactive in taking necessary actions to mostly offset the weaker demand environment which is allowed them to deliver strong gross margins and solid profit contribution. I compliment the whole team on their efforts to address the cost structure of the business effectively right-sizing to current demand levels. Now with quote and order activity having picked up nicely since the end of the year driving backlog increases the past two months we may have already seen the bottom of the tank trailer cycle and as such we could see continued growth from these levels as we move forward through the year. If that proves true, the tank trailer business could actually provide an uplift for the Company at a point down the road when and if other parts of our business are impacted by a weaker demand environment.

In our Aviation and Truck Equipment Business unit or AVTE, we're continuing our work to optimize the cost structure an footprint of this business most notably through our recent decision to consolidate our two manufacturing facilities in the Kansas City area. This effort will also enable us to more quickly adapt to customer needs with a flexible manufacturing lay out and improved margins by leveraging an optimized footprint. Now nearing completion of the physical consolidation phase, focus can soon shift to direct labor productivity optimization efforts. We firmly believe the AVTE business offers significant growth potential and this consolidation while ongoing at this time, is expected to provide noticeable improvements in this business later this year.

Our Process Systems business in which we produce isolators, downflow booths and mobile clean rooms for the farm industry along with stationary silos and mixers for the food, dairy and beverage industry, is now seeing an increase in quote activity after a year-long period of deferred quotes and order conversion. March saw some of the highest quote activity we have seen in two years and we continue to leverage the growth potential of our manufacturing facility in Mexico. In our Wabash Composites business the efforts the past two years to increase new product development pipeline and accelerate the commercialization of these offerings is paying off. As the business is now positioned to have their strongest year on record in 2016. Now armed with a full suite of aerodynamic and mobile solution product offering including truck boxes and portable storage containers, the Wabash composite team delivered their strongest results in any quarter since 2012. In addition the business unit continues to experience favorable order trends for truck body composite panels and LTL deck systems along with the recent international growth of our mobile solutions products with prospects for further growth opportunities. To summarize we're encouraged by the overall margin performance of the DPG business during these past few quarters along with the strong potential presented by the new product offerings already developed or in development within the group.

Obviously, we would like to see overall growth at the topline to help drive improvement in operating income but recognize the ebb and flow of this more diversified part of our business. Also, we recognize the significant opportunity to further improve overall performance within our Aviation and Truck Equipment Business to make it a positive contributor to segment performance and are committed to make this happen. Lastly, we need to take advantage of the strong recent quote activity in the Process Systems business with effective and timely order conversion, execution and deliveries.

Now let's discuss the results of the Commercial Trailer Products segment or CTP, consisting of our dry and refrigerated van products, platform trailers, used trailer sales, wood flooring operations and now truck bodies. This segment continues to successfully execute its optimization strategy with an ongoing commitment to margin improvement, manufacturing excellence and leadership and product innovation. First quarter revenues were very strong at $355 million, marking the best first quarter for CTP in Company history. Gross margin of 16.8% was an automatic all-time best for the segment, along with a record operating income of $52.1 million, up 129% year-over-year. The outstanding performance delivered in the first quarter was driven by the team's continued execution of a pricing strategy committed to favoring margin over volume, a capable and engaged workforce focused on continuous improvement and productivity and material cost optimization aided significantly by design improvements. These margin enhancing strategies were fully realized during the quarter with operating income more than doubling year-over-year on only a 13% increase in revenues. Our CTP operations produced 450 more trailers than in the same period during 2015 and exceeded our internal bill plan. Our Lafayette van operation produced over 3400 more units in the first quarter of 2016 than we did just two years ago in 2014 representing a 30% improvement, with roughly the same direct staffing levels. This long time focus on velocity optimization and waste elimination continues to deliver increased operating leverage for the business.

The strong volume in the first quarter will also help the team get ahead of the previously-announced road construction project that kicked off in early April here in our Lafayette dry van facility and help to mitigate potential unanticipated disruptions during the remainder of the year. To top it off ,the business delivered solid pricing gains as ASP increased by $1,700 in the first quarter in year-over-year comparisons aided by favorable mix and price increases. CTP has seen a steady increase in gross margins over the past three years and while we will continue to drive improvement in the business for the near-term we would not expect to see margin levels rise materially above where we finished in Q1 as most of the favorable pricing has already been recognized. Now let's discuss CTP's strategic initiatives. As discussed previously, CTP launched the production facility on our Lafayette north campus in support of a new key strategic initiative related to final mile delivery. This repurpose production space has been retooled to support future production of LTL trailers, specially designed truck bodies and other product lines that specifically benefit from increasing demand in final mile and home delivery shipping trends. The CTP group remains very excited about the entry into the truck body space.

The reception we received on our new truck body products at the American Trucking Association's technology and maintenance council meetings in February, reinforced our belief that not only is this going to be a growth market over the next five years, but our new products will find success in this market space. We plan to sell approximately 500 truck bodies in 2016 and believe that our patent pending refrigerated truck body product introduces proprietary technologies that will provide a superior product for our customers. As mentioned on the fourth quarter call, we believe truck bodies can be in excess of $100 million revenue business for us by 2020. With medium duty truck demand projected to grow by 20% over the next five year period timing is optimal for our entry into this arena. In our more traditional trailer space we were also very pleased with the reaction we received with the unveiling of our new prototype refrigerated trailer that utilizes our molded structural composite technology. We believe that this technology may ultimately transform the refrigerated trailer market that we're optimistic about the growth opportunity it provides for CTP over the next five years. And following nearly two years of development we're also rightfully proud of the introduction of our new rear impact guard design option for our dry van trailers.

This new patent pending design is constructed of advanced high strength steel, features two additional vertical posts and a longer reinforced bumper tube, all of which are engineered to work together to absorb energy more effectively and deflect rear impact at any point along the bumper. The CTP team also remains focused on their other important strategic growth initiatives, namely more fully developing an already strong indirect channel by growing in under served geographies, increasing their market presence in transportation aftermarket parts and continually improving product offerings through next-generation designs utilizing the latest material technologies. All these efforts will support our objective to further decrease dependency on the more cyclical core dry van space, thus reducing performance risk during the next down cycle. Moving on to our retail segment, I'll simply say that it was a disappointing first quarter in which they reported their first operating loss in several years, driven largely by shortfall in new trailer shipments and decreases in parts and service revenue. We're clearly not satisfied with these results and are reviewing all areas of the retail business including profit streams and markets to determine how best to improve this performance.

However, we do believe that a continued focus on an asset- light and higher margin strategy is presently delivered in tank parts and service and customer site service locations, will be key to profitable growth in this segment as these areas continue to develop and have demonstrated nice profitability over the past few years. However, in the near-term we do expect to return to profitability for this segment in the current quarter as new trailer shipments return to more expected levels. Before we discuss our specific guidance for the remainder of 2016, I would like to highlight some economic industry and regulatory drivers that will impact, or can have impact on our business. The US economy continued advancing slowly in the first quarter of 2016. On the bright side the housing and auto sectors have remained strong while job growth has continued at a high pace. Conversely, manufacturing activity and industrial production have continued to be subdued. Most analysis now anticipate the US economy to continue growing moderately at approximately 2.0% rate in 2016. Although the general economy continues to reflect modest growth rates key indicators within the trucking industry point to continued steady trailer demand and signal a positive outlook.

ATA's truck tonnage increase did decrease 4.5% in March to 137.6 from the all-time record of 144.0 in February. The index was 2.2% higher year-over-year and 3.9% higher year-to-date versus the same time period last year. The latest report from A.C.T. research now forecasts 2016 trailer shipments at 297,550 units with strength in both dry and refrigerated vans and 2017 shipments at 276,200 units, both strong years for the trailer industry. FDR is now forecasting 280,000 trailers to be produced in 2016 and 250,000 trailers in 2017. And according to FTR the class VIII active truck utilization has been running at 95% rate so far in 2016 will likely rise to 96% by the end of this year and projected to be at 99% by the end of 2017, resulting in a tight market supporting stronger rates for carriers. From a regulatory standpoint the environmental protection agency and the National Highway Traffic Safety Administration proposed new regulations last July, in an effort to further reduce fuel consumption and carbon dioxide and other greenhouse gas emissions, the proposal will require fuel saving technologies such as trailer side skirts, low rolling resistance tires and automatic tire inflation systems to become standard equipment starting in 2018. Additional regulations will be implemented in 2021, 2024 and 2027.

While that's nationally officially submitted comments on the proposed regulations in October. We continue to work with the EPA and NTS to ensure that this rule will not be overly burdensome to the industry or our customers and it will truly provide the fuel savings benefits expected. The EPA and NTS are currently evaluating the comments from various stakeholders and we expect to see a final version of the regulation by the end of July or some time in August. Also on the regulatory front the FMCSA issued a mandate on December 10, 2015 that all carriers must install electronic logging devices or ELDs by December 2017. Industry estimates on carrier productivity losses as a result of ELDs range from 3% to 10%. However, in conversations with some of our customers who have recently deployed ELDs we have heard productivity losses exceeding 10%. We believe this ruling is likely to have a more significant impact on capacity than anticipated and may ultimately drive increased demand for new equipment and surviving carriers attempt to recover lost productivity. With that let me update you on Wabash National's expectations for full year 2016.

We believe overall demand for trailers and commercial trailer products will remain strong and significantly above replacement levels for the rest of 2016 and into 2017 consistent with A.C.T. and FTR projections. While there's been some pockets of softness in the transportation sector overall, several key drivers trailer demand remain relatively strong. Weak trailer age, fleet utilization, customer profitability, used trailer values, regulatory compliance and access to financing, all support a continued strong longer-term demand environment for trailers. As stated backlog levels remain strong in CTP's dry and refrigerated van businesses are essentially full for the remainder of 2016. Given the stack we're confident with our internal projections for strong full year industry and Company shipments. As a reminder our largest manufacturing facility in Lafayette which produces dry vans and componentry for refrigerated trailers will be impacted but a road construction project that kicked off in early April and is expected to last throughout the remainder of 2016. As discussed on our last call, this project creates a logistics challenge that could limit our effective build capacity for the year by up to 3,000 units.

We were, however, successful in building and subsequently shipping more units in the first quarter than originally modeled in our plan in anticipation of this construction project. So while we exceeded shipment projections for Q1 we are maintaining our full year shipment projection of 60,000 to 62,000 total trailers at this time, as we do anticipate some impact to operational efficiencies and CTP margins, in the second half of the year during the heaviest days of the project. We should be in a much better position to provide a more meaningful update on the progress of the construction project and its impact on our Lafayette production on the second quarter conference call. In terms of earnings recognizing the productivity and cost optimization momentum by the businesses we now expect full year 2016 EPS to be in the range of $1.65 to $1.75 earnings-per-share, up $0.15 or 10% from our previous guidance taking into account a very strong first quarter and a backlog that is essentially rounded out for CTP for 2016. For the second quarter we expect to continue our nine quarter string of improved year-over-year bottom line performance as the quarter's highly likely to exceed the performance of the second quarter of 2015 in terms of EPS. Furthermore, we would expect total shipments to be between 15,500 and 16,500 units.

Overall ,2016 is expected to be another record year for Wabash. Strong cash generation coupled with a healthy balance sheet makes us very comfortable that we have ample resources to one, fund our capital expenditures, supporting both organic growth and productivity improvements, secondly, continue to reduce our debt and leverage, third, to return capital to shareholders as appropriate, and finally, to selectively continue to pursue strategic acquisitions. In summary, we're certainly pleased to have delivered another in a long string of strong quarters driven by continued exceptional results from CTP that led to an all-time record for any first quarter in our Company's 31 year history. Going forward our Commercial Trailer Products business needs to continue to identify additional attractive high margin growth opportunities to further drive its topline and further mitigate the inherent cyclically the dry van and these efforts are well under way and we're excited about our progress to-date with our medium duty entry into truck bodies and our growth into aftermarket parts.

In DPG we're pleased with the team's effort in managing costs within the business while dealing with demand softness in some sectors providing margin consistency and opportunity for future margin growth as we continue our progress with our lean Six Sigma implementation throughout those businesses. However, we need to accelerate our initiatives to grow aluminum tank market share, accelerate the development and introduction of new products out of Wabash Composites and continue our expansion in the growing food storage and processing area as well as life sciences end-markets to once again drive topline growth in our Diversified Products business. After retail we need to continue to leverage the higher margin and asset light opportunities in our tank parts and service and customer site service locations and return the segment to profitability. With that I'll turn the call over to Jeff Taylor, our Chief Executive Officer, to provide more detail around the numbers. Jeff?

Thanks Dick, and good morning everyone. Let me start by saying that we are obviously pleased with the first quarter results. Our results truly reflect the high level of execution we have demonstrated over the past several years, but particularly during the last six quarters as well as the progress we have made to grow and diversify the Company. Before discussing the results for the quarter I would like to comment on our recent capital allocation activities. As you know, we are executing a balanced capital allocation strategy where we are able to pay down debt and reduce our leverage, funds our corporate growth initiatives and return capital to shareholders. In the first quarter we allocated approximately $6.3 million to repurchase just under 500,000 shares of stock as part of our existing $100 million two-year share repurchase program. This activity highlights our commitment to increase shareholder value through return of capital and demonstrates our continued confidence that Wabash has a sustainable earnings stream and future cash flows. We also purchased $35 million in principal value of convertible notes reducing the outstanding balance to $96 million at the end of the quarter. The convertible notes which mature in May of 2018 represent our only significant debt maturity for the next six years and further highlight the strength of our balance sheet driven by the performance and stability of the business.

We continue to believe that our balanced capital allocation strategy will reward our shareholders by driving long term value creation and derisk the Company all while providing flexibility to proactively grow our business into new and existing markets both organically and strategically. With that let's turn to the financial results. On a consolidated basis revenue for the quarter was $448 million, an increase of $10 million or 2% compared to the first quarter of last year. This represents an all-time record for consolidated first quarter revenue. This year-over-year improvement in revenue is attributable to continued strong demand in our Commercial Trailer Products segment. Consolidated new trailer shipments were 14,500 units during the first quarter, above our trailer guidance on stronger than expected customer pickups supported by favorable weather conditions and outstanding operational execution. At the segment level Commercial Trailer Products or CTPs net sales were $355 million, which represents a $40 million or 13% increase year-over-year. This growth was driven by an increase in new trailer shipments as 14,300 trailers shipped in the first quarter of 2016 compared to 13,600 trailers shipped in the prior-year period. As well as increased selling prices. New trailer average selling price or ASP, increased by approximately $1,700 per unit.

The ASP change was attributed to a higher value product mix which included a smaller percentage of lower price converter dollies, a higher percentage of indirect channel trailers and favorable pricing year-over-year. For the remainder of the year we expect the product and channel mix to return to levels more consistent with historical norms resulting in the first quarter potentially being the highest ASP quarter for the year in CTP. As expected net sales for Commercial Trailer Products decreased productivity fourth quarter due to normal seasonal variation. Diversified Products net sales of $75 million decreased on a year-over-year basis by $25 million and sequentially by $26 million. Both primarily driven by fewer tank trailer shipments. Sales for our retail segment at $34 million decreased year-over-year and sequentially by 21% and 7% respectively. Retail revenue was negatively impacted in the first quarter by lower new trailer sales with some customer pickups late at the in of the quarter which we expect to recover in the second quarter. Looking at our various product lines new trailer sales increased $11 million or 3% from the prior year of 14,500 units shipped.

The year-over-year previous was driven primarily by higher van trailer shipments as well as improved pricing and mix within our Commercial Trailer Products segment. Components parts and service revenue was $39 million in the quarter, a decrease of $3 million or 7% from a year ago driven primarily by lower parts sales in the Process Systems area. Equipment and other revenue on a year-over-year basis increased slightly by $3 million to $32 million in the quarter. The increase was driven by higher equipment sales in the Process Systems business units within Diversified Products. Finally, used trailer revenue came in at approximately $5 million on 300 units. A decrease of $1 million from the same quarter a year-ago. Used trailer sales remain lower than historical levels due to continued tight supply in the used dry van trailer market. In terms of operating results consolidated growth profit for the quarter was $79.5 million or 17.8% of sales which represents a $22.3 million or 470 basis point increase year-over-year. This increase in gross profit and gross margin was primarily driven by improved margins in commercial trailer products.

Commercial trailer products gross profit improved by $30 million in the first quarter compared to the prior-year period driven by higher new trailer shipments and an improved margin profile. Gross margin increased 740 basis points compared to the prior-year period due to pricing, productivity and volume gain. Production during the quarter was 15,550 units, up approximately 450 units compared to the prior-year quarter. Sequentially gross margin increased by 260 basis points primarily as a result of improved mix and pricing. Diversified products gross profit decreased $4.9 million in the first quarter or 21% compared to the prior-year period driven by a decrease in new trailer shipments of approximately 350 units. Gross margin, however, improved by 80 basis points highlighting the focus and effort from the DPG team to manage costs and maintain margins in a demand environment exhibiting some headwinds. Sequentially gross profit was down $6.4 million primarily as a result of lower tank trailer shipments. Lastly, the retail segment's gross profit in the quarter decreased $1.1 million on lower new trailer shipments.

However, gross margin was down only 10 basis points derivative been a higher mix from parts and service sales as well as customer site service locations. On a consolidated basis for the first quarter the Company generated operating income $48.2 million an increase of $20.9 million or 77% year-over-year. At 10.8% of sales operating margin was 460 basis points higher than the prior year's performance and exceeded our 10% corporate objective driven primarily by significant improvements in CTP. In addition, operating EBITDA for the first quarter was $59.8 million the year-over-year increase of $20.7 million or 53%. In trailing 12 months operating EBITDA was $250 million. Selling general and administrative or SG&A excluding amortization for the quarter was $26.4 million or 5.9% of revenue for the full year SG&A is expected to be approximately 5% of revenue. Intangible amortization for the quarter was $5.0 million, down about $0.3 million from the prior-year period. Interest expense for the quarter consists primarily of borrowing costs totaling approximately $4.1 million a year-over-year decrease of $1.1 million primarily due to the reduction of convertible notes as well as the refinancing of our term loan and revolving credit facilities early in 2015. $0.9 million of our reported interest expense as noncash and primarily relates to accretion charges associated with the convertible notes. Full year interest expense is expected to be approximately $16 million at our current debt levels.

We recognized income tax expense of $16.2 million dollars in the first quarter, the effective tax rate for the quarter was 37%. We estimate that the full year 2016 tax rate will be between 36% to 37%. Finally, for the quarter net income was $27.5 million or $0.42 per diluted share. On a non-GAAP adjusted basis after adjusting for expenses related to the early extinguishment of debt, net income was $27.8 million, also $0.42 per diluted share. In comparison, adjusted earnings for the first quarter 2015 were $13.8 million or $0.19 per diluted share. Representing 121% earnings-per-share growth year-over-year. Let's move to the balance sheet and liquidity. Networking capital finished the first quarter in line with fourth quarter which is notable as we typically see a seasonal increase in the first quarter. Capital spending was $3.0 million in the first quarter and we expect to see a high rate of capital spending as we move through 2016.

We maintain our guidance for full year capital spending to be between $25 million to $30 million. A higher level of capital spending relative to prior years reflects a robust pipeline of growth and productivity projects which are expected to generate an attractive return as well as support growth of the top and bottom line. Our liquidity or cash plus available borrowings as of March 31st was $338 million or 17% of trailing 12 months revenue, an increase of $68 million from prior year levels. Our continued strong free cash flow allowed us to maintain liquidity at a healthy level, our first priority for capital allocation, in addition to funding our organic growth initiatives and other capital allocation priorities. Our leverage ratios for growth and net debt are 1.2 times and 0.5 times respectively.

In summary we are very pleased with the Company's strong performance for the first quarter. In addition to setting several first quarter records we established new automatic all time Company records for gross an operating margin. We further strengthened our balance sheet during the quarter by reducing debt through the purchase of convertible notes. We remain focused further debt reduction when the opportunity presents itself. Additionally, we remain committed to being overall good stewards of the Company's resources by allocating capital to drive long-term value creation including debt pay down which I previously mentioned, growing the Company organically and strategically as well as returning capital to shareholders as appropriate. We have a healthy backlog, a solid outlook as evidenced by our increase in our full year earnings guidance and we demonstrated the ability to execute at a high level. With that I will now turn the call back to Richard and we will take any questions that you have. Thank you.

Thank you. We will now begin the question and answer session. (Operator Instructions). Our first question online comes from Mike Shlisky. Please go ahead.

Good morning. This is (inaudible) in for Mike. Can you give us a sense of how Wabash did for market share perspective in Q1? Were there any categories you felt you did better in or any worse in? Thanks.

No. I think -- I think you would say that it was pretty consistent with where we have modeled and where we have done overall historically. So we generally will have overall market share pretty consistently around the 20% level overall ranging 20%, 21% in any given year. It's pretty consistent.

Thank you.

2015 and 2016 and we expect that to continue.

All righty. Well, thank you. Thank you, George.

Thank you. Alex Potter. Please go ahead.

Hi, guys. First question on gross margins in CTP I mean obviously just a monster quarter in Q1 so congrats there. With the construction project and everything impacting shipments and presumably gross margin over the remainder of the year, you mentioned that Q1 is probably a peak for gross margin there. Just trying to wrap my head around what the cadence of gross margin could be for the remainder of the year because of some of those external impacts.

Yes. The impact will really be more notable in the second half of the year. That's when the project gets into its heaviest phase. So from a modeling standpoint we would expect for your sake we would expect second quarter to have some level of consistency with what -- what was able to be delivered in the first quarter. The construction project won't change dramatically until we get into -- early into the third quarter and that's when -- the third quarter will have likely the -- the most impact and that will carry through the balance of the year.

Okay.

We would estimate -- we would estimate at this time that we could see in the second half relative to CTP and relative to the -- the business here in the Lafayette area maybe a 1% to 1.5% impact in gross margin in the second half for -- for the CTP business related to the van trailer segment.

Okay. Excellent. Thank you. That's -- that's very helpful. And I was wondering if you could also comment a bit on some of the non-trailer products in DPG so non-tank trailers. You mentioned there that it looks like quoting activity for the tank trailers themselves has picked up and that seems like it has positive implications for what could be happening in the remainder of the year and over the next several quarters, which is great. Just wondering if you can give some additional color on when you expect some of these other new products that are in the hopper to start inflecting, if you have any visibility on that. Thanks.

Yes. The tank trailer business, you know, you always have lead time from the time you receive -- you know, you quote and then you receive the orders and then you have to engineer the product, you have got the lead time to procure the materials, the componentry, you know, suspension systems and the like. So there generally is a couple month delay from the time of order receipt to the time you can actually start building. So we do have some of that, but we will -- we will start to see some benefit in the second quarter on the tank trailer side with some of those orders that we're starting to flow in. In the -- in the composites business that was a strong quarter. They have seen some -- some good order intake. So we would expect the next couple quarters in that business to be very solid. It's always a fourth quarter problem for the composites business infilling backlog that tends to be their seasonally weakest quarter in that segment. In the Process Systems part of the business my comments were really directed at the -- now that we have seen some significant quote activity pickup we have got to get -- we have got to get many of those converted to orders and then start to process of getting them into the backlog. That one is a little more difficult to predict.

We expect improvement in it as it continues, but it's difficult to -- to time phase that for you as -- as that business tends to be larger, longer lead time type componentry. It's pharmaceutical down flow booth and isolator booth, high hour content, mobile clean rooms those type of products even the stationary silos a little more difficult to -- they don't have a line process flow that you have good predictability like you do with trailer products. So that gives you pretty much a high -- high level insight into -- they're very diverse and that's the -- it is truly a of Diversified Products business and that's why we have this ebb and flow in those businesses that we're still working to not only better understand and make more predictable but how to -- how to get better balance between those. We like the fact that -- that they're diversified because it gives us some being up, some being down it gives you that -- that confidence that you're going to continue generating nice cash flow through the business, but -- but there's still periods of softness that we're having to deal with and most notably in the tank trailer side of it, which looks like it may be recovering now.

Okay. Excellent. Thanks very much for the color. Great quarter obviously, guys.

Thank you.

Thank you. Our next question on line comes from Steve Dyer. Please go ahead.

Thanks, good morning, Dick. Morning, Jeff.

Hi Steve.

Good morning.

A couple questions. You had talked about considering maybe opening some build slots for next year. It was unclear to me if you actually had done that. I know there's some other capacity coming online this year so is there any thought to -- to doing that and trying to lock in some price on things like that earlier than you normally would?

Yes. My comments on that, Steve, were in some cases we have some multi-year agreements where we have -- we have accepted some -- taken some build slots that would be 2017 build slots and filled those, based on some multi-year agreements with some customers and in other cases we had customers who wanted slots in 2016. We were not able to provide them the number of slots that they would have liked. They need the equipment so we have some roll over I guess you can call slots that we filled in 2017 to help accommodate those customers. So I -- I don't want to say that we have officially opened the 2017 build slots, but we have effectively in some cases, to deal with some specific instances. There's no question that the -- the demand environment remains very strong despite what we're seeing in the more recent order rates that are reported by the -- the forecasting firms.

We are seeing a lot of interest in product. It's in some cases orders just can't be accepted by -- by many folks and so we have been very selective in what we have accepted to put in. My -- my belief is that we will have a similar expectation from customers this year that we had last year for officially opening the 2017 calendar year product build slots early in the cycle than we had last year. It is a little unique that we -- that we put some orders in. This is really an exceptional year. It's just the -- the excessively heavy demand throughout 2015 and into 2016 that have caused these special circumstances. And the reason I'm -- I sounds like I'm hedging a little bit is we try not to get too far out in front because of the -- the problem you have with projecting what the input costs will be the further down the the road that you get. So we try and hold off opening slots so we can get a little bit more clarity on what the input costs would be for both commodity and for converted components and we try and mitigate any risks as much as we can and we have shared on these calls in the past that about 70% of the input costs -- is mitigated through agreements with suppliers of components that we use and the -- the forward contract positions we take on certain commodities, but there is always that element of risk on what it will be.

We build our cost models based on the best forecasts that are out there on what will happen with materials costs, but as we all know, it's -- it's not an exact science. So we -- we update those on a quarterly basis as we quote and so we try and mitigate as much risk as we can, but that's why we hold off as long as we can, but the pressure -- the pressure comes onto -- to fill the slots because customers these last couple years have been locked out of getting slots because the demand has been so strong and we believe that that will continue. One other element that gives us that confidence is the -- I think I shared this in the last call. That there is -- there remains so many pieces of equipment in the active population of trailers that are out there in the fleets that there are 16, 17, 18 years old going back to the 1998-2000 time frame which was the record three years of demand for the industry at the time and a lot of that equipment had never gotten replaced because of the timing and depth and protracted nature of the -- of the last recession in 2008 through 2010. So there's still equipment out there running that is costing the fleets a lot of costs from an operating cost per model, maintenance cost per mile availability because of breakdowns where they have them in the shop repairing them they still need to get that equipment out. A recent analysis that was done by -- by A.C.T. Research was that only 22% of the -- of the active population of trailers are between six years an 10 years old.

I mean 78% of them either younger than that or older than that and when we look at the -- the numbers of equipment build and replaced during the time, we had estimated that about 45% of the equipment is older than 10 years. So those are all subject to replacement at some point and the very oldest of those really need to get off the highway. So that's why it gives us great confidence that the -- the needs by customers and some customers really only recently getting back into the market and ordering trailers that phenomenon will continue to drive demand for a good period of time more.

That's very helpful. That kind of touched on my next question, which is March looked a little bit softer on the dry van side and I'm just wondering if that's a function of pull forward maybe into Q4 last year or if it's just a function of you can't accept the orders because you're booked and would that lead to sort of another couple month that on their face look softer because you can't take the business?

Yes. Steve, I think you have hit on both points. Because of the significant early pull ahead last year where the summer time orders, the June, July, August time frame last year was -- was significantly stronger than -- than historical trends would indicate and customers were getting in as early as they could because the prior year had been so strong and they had gotten locked out and -- and we're seeing that phenomenon again and I think we came into the year effectively fully booked on the dry van side and not far off on the -- on the refrigerated side and now we're essentially full on both. It's -- it's an interesting anomaly that we're all dealing with in the industry. I'm confident we have heard -- you know, some competitors have actually been taking orders for 2017, but I don't think that's excessive at this point so I do believe we'll see normal -- as we get to the middle of the year you're going to see -- should see a significant pickup in order rates and maybe get a little bit more normalized in the second half of the year so, we're -- we're expecting based on everything talking with customers and what their intentions are it would seem that 2017 will be another strong year and that's why we say -- we are consistency with where A.C.T. Research really is on this year and next year from a demand standpoint.

Thank you. Our next question comes from Jeff Kauffman. Please go ahead.

Thank you. Hey, guys. Congratulations.---

Thanks.

Pardon me. It looks like his line has dropped from the queue. Our next question comes from Mike Baudendistel. Please go ahead.

Thank you. Last quarter you said that there is something like 35,000 to 50,000 units of capacity that you're competitors added now we're a couple of months after that is that still true or any more or fewer units?

Yes. We -- yes. Our -- our position was that we could only get to around 30,000. When you really read into any press releases or commentary that you hear through the -- the proverbial grapevine and all would be more in that possibly 30,000. Impact would be more of a 2017 rather than 2016 as these facilities or expansions are completed. There's some misnomers and that's where the 50,000 number comes in. There's misnomers by some folks on what was being reported in the case of one -- one of the competitors who is taking a -- a facility and repurposing it to -- to build dry vans, the likelihood is that that capacity will be transitioned over from a nearby older plant so it's not an effective minor increase rather than what was being reported.

In another case an expansion is really being done for -- and based on the press releases put out for chassis and containers which will not impact van trailer production. There's only a small portion where a line has been added internally on an expanded facilities but a new facility is strictly intended for chassis and containers. So all-in the best we can come up with is something nearing the 30,000 unit increase and effective capacity. And I would add what I shared last quarter, prior to the recession downturn there were about 50,000 more units of van capacity in the industry, leading into the downturn, so coming out of the downturn 50,000 down, now we're talking about potential of 30,000 up. So from -- from a comparison basis we will still be 20,000 units of effective install capacity less than what we had prior to the last downturn and the industry operated pretty effectively even at those levels. I will share there's been some other offsets in the tank trailer side of the industry.

So what we have been talking about right now is more on the van side. Van trailer side. On the tank trailer side the industry there have been some folks who have left the industry, some smaller players it's it's not appreciable in volume, but -- but there actually has been -- been more reductions than there have been additions. Polar announced the closure of two of three facilities that they have so that's going to take some capacity out of the industry Mueller has left the industry building tank trailers. We understand that Mack has repurposed their Billings, Montana plants away from tank trailers to building dumps and other products. So there is going to be a net reduction there. That should help drive opportunities on the tank trailer side of the business. So there's some balancing going on in the industry.

Thank you. Our next question online comes from Joel Tiss. Please go ahead.

Hey, guys. It's Richard Cross in for Joel. Just hoping for a little clarity around the guide. If I look back over the past couple years it looks like your first half is about 40% of the full year so back half is about 60%. Seems like we're implying that's going to be opposite this year and obviously the highway project having a lot trying to figure out -- I know you said it's going to be next quarter before you give us full update, but how much are you baking in for that currently and what are some of the other key pieces that we need to think about when we model this out?

Yes. We're trying to be very prudent in our projections at this point. We're off to a heck of a start for the year. There's some unknowns as we get into the second half on what the impact will truly turn out to be from the highway project. So we -- we are doing everything we can to mitigate any impact working with the city. Weekly meetings, working with the -- with the construction company who is doing the work to make sure we understand everything they're doing. They have been very accommodating and supportive and -- and so far some of the changes we made in -- in access to the property and egress from the property are -- are working out real well. Very smoothly. So we'll have a much better insight into it, so we have great confidence for the year. It could very well be if the impact is not as significant, we could -- we could have the opportunity to even ship more trailers than what we're projecting but what we're -- as my comments stated at this point in time we're sticking with the 60,000 to 62,000 total trailer units because we don't want to over commit and under deliver because of unknowns about this highway project. That's one thing we don't have 100% control over. So if the city and the construction company and working with us can help us mitigate some of the impact that we have modeled in it could be a net plus to us and we'll have a much better idea as we get into that -- the second quarter call because we'll be into that period of time where we're realizing what the impact truly is.

Yes. I mean, Richard, I think if you look back at past years, you would say a much more pronounced seasonal profile. Obviously, Q1 has been the weakest of the quarters historically and in this quarter in particular we had an exceptional very strong first quarter. If you go back one to two years, you you will hear us we were talking about we wanted to get more balance across the four quarters. I think the strong demand environment and some of the actions we have taken have allowed us to do that and -- and so partly what you're seeing is really more of a flatter profile in the current year.

Thank you. Our next question online comes from Kristine Kubacki. Please go ahead.

Hey. Good morning, guys.

Hi Kristine.

Just a question on raw material impacts. We have heard from some of the other suppliers talking about --still off, kind of well off of high levels we have seen but definitely made a move in the quarter, especially aluminum and steel. Just talk little bit about the trends you're seeing and can you remind us if we do see some more significant moves there, how quickly can you pass that through to customers and is there any lag effect?

Yes. Great question, Kristine. We are seeing commodities start to move up. So I think the bottom has been reached. We're seeing aluminum step up by a few pennies per pound at this point, but certainly a move that -- we monitor it daily and we're seeing several cents per pound move up to in that $0.82, $0.83 per pound it had been running, $0.76, $0.77 per pound for quite some time. On the -- on the steel side we are seeing a move up. It's gotten up into the mid 400s and it had been down probably $50, $60 lower than that at point over the past year. We do go out on both those counts and we do take forward positions. When we quote a customer and receive a firm -- the firm signed order from the customer, we will go out and take a forward position to protect the pricing that's been built into the costs that is built into that trailer order. So we mitigate the risk on that part of it. And then we update our -- on a quarterly basis we will update our cost model going out four quarters, at least and using projections and updating to current trends for the more -- more -- the subsequent quarter to build that into any new quotes that are being provided to customers.

So we're pretty well protected and as I commented a little earlier about 70% of all of the input costs from -- from raw materials converted components end up being protected and then in the case of some large quotes, which tends to be upwards 60% of the business we do in most quarters, is protected because we have agreements with large suppliers to -- to hold price so that we don't have any forward risk on the -- on the margin that we would realize with -- with some of those large longer-term quotes. So we try and do the best we can, but we are seeing some increases in some raw materials. It seems to be a real trend. I think things have bottomed out and not sure where they will settle in. They're not going up at a rapid pace, but we're seeing some upside push to them.

All right. I appreciate that color. And then just real quick on the used units and I know this is pretty small but it quarter-over-quarter and we have heard some of the fleets talk about that they the used market has softened up even on trailer side a little bit. Can you comment there?

Yes. Kristine, I think on the -- on the dry van side it's still a tight market. It may have softened some. I hadn't heard that commentary but what I can tell you is there are not alot of units out there that are available because of -- because of the low number of units that were built and shipped during the last downturn and so that's contributing to the tightness in the market there. On the refrigerated side there are more units out there that are available obviously, so that one as little softer. And as you know, you know, it's like most pieces of our business it can be lumpy at times and it depends on what used units we have, what units we have taken on trade packages and those kinds of things and because of the strong market there haven't been a lot of trade packages that -- that we have taken.

Yes.

In the last couple quarters.

Yes. If I can just add to that in -- in years prior and I should say several years prior in prior to the last downturn, many of our customers would look to us to take their used equipment as part of trades -- trade package when they were -- when they were looking to replace the equipment to buy new. During this cycle what we have seen are more and more customers doing the -- selling the -- their late model equipment on their own and have not made those available as part of trade packages or have not expected us to take those as trade to do the new trailer deal. So it's a different environment. Obviously, it can all turn as things slowdown and then they will want to come to us for that, but that explains a lot why our used trailer volumes have gone down so much from what they were several years ago.

Thank you. Our final question comes from Jeff Kauffman. Please go ahead.

Hey. Back again. I don't know what happened there. Hey, guys. You know, most of my questions have been answered, but, Jeff, let me come back to cash flow. Given the guidance you gave us for CapEx and share repurchase and what we have seen so far in terms of working capital debt reduction, it still looks like based on your earnings guidance there's about $60 million to $70 million of free cash unspoken for at this point. I am going to assume the view is keep it dry in case there's something opportunistic to do on the acquisition side, but can you talk about maybe where you might like to take debt levels if no acquisitions materialize? Would you look to buy back more and convert at these levels or do you think you would just keep the powder dry?

Yes. Thanks, Jeff. I appreciate the question. You know, in terms of our overall capital allocation strategy it remains consistent with what we have talked about in the past and obviously making sure that we, you know, protect the business long-term by having healthy liquidity is without a doubt our first priority and funding capital expenditures, you know, is part of that as well. Beyond that, you know, then it comes down do how do we create the most value and divert that capital to -- to drive the value. Obviously, in the -- you know, in the current environment we have been able to take advantage of opportunities that have come to us to repurchase the convertible notes. That's something that we -- you know, we would like to continue to do when we have the opportunities to do that. Obviously, it would have to be an attractive -- attractive value for us, but it's something we would pursue further this year. That matures in May of 2018 and our goal would be to take that off the table. As soon as we can when it's -- when it's cost-effective to do so. So I don't have -- I don't have specific numbers to guide you to there.

Then obviously after that we do want to continue to look at and evaluate opportunities to grow this business strategically. We have increased the investment we're making on our organic growth initiatives if you have seen the step-up in capital expenditures. That remains something that is still a high priority for us, you but it's also something that as you have seen over the last couple of years we're going to maintain our discipline and we're going to make sure that we're selective as we evaluate those opportunities so that it's -- it's something that we want to continue to do, but we're not going to go out and over pay for any opportunity that gets presented to us. And then obviously we also want to as appropriate take advantage of return of capital to shareholders and as you know we currently have the share repurchase program that's authorized by the Board $100 million over two years that was authorized at the beginning of this year.

Thank you. At this time I see we have no further questions. I would like to turn the call back over to Dick Giromini for closing remarks.

Thank you, Richard. So while much has been done opportunities abound. We'll continue to be strategic but selective in pursuing opportunities to grow our business. In addition to the organic growth initiatives already underway. We'll continue to seek out ways to increase returns and value for all shareholders while ensuring that the proper balance between risk and reward is considered in all decisions. In closing, we're clearly on pace to deliver another record year in 2016 with a strong start, a solid backlog of support and demand environment and a continued focus on execution in 2016. Thank you for your interest in and support of Wabash National Corporation. Mike, Jeff and I all look forward to speaking with all of you again on our next call. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.