Wabash National Corporation (WNC) Q1 2013 Earnings Report, Transcript and Summary

Welcome to the First Quarter Earnings Call. My name is Sandra, and I will be your operator for today’s call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Jeff Taylor. Mr. Taylor, you may begin.

Thank you, Sandra, and good morning. Welcome to the Wabash National Corporation 2013 first quarter earnings call. I’m Jeff Taylor. Following this introduction, you will hear from Dick Giromini, Chief Executive Officer of Wabash National on the highlights for the first quarter, the current operating environment, and our outlook. After Dick, Mark Weber, 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 would like to cover two items. First, as with all of these types of presentations, this morning’s call contains certain forward-looking information, including statements about the company’s prospects, the industry outlook, backlog information, financial condition and other matters. As you know, actual results could differ materially from those projected in forward-looking statements. These statements should be viewed in light of the cautionary statements and risk factors set forth from time-to-time in the company’s filings with the Securities and Exchange Commission. Second, please note that this call may be recorded. With that, it is my pleasure to turn the call over to Dick Giromini, Chief Executive Officer.

Thanks, Jeff. Let me start by saying, we continue to be pleased with the ongoing progress that we are making with the business and the execution of our strategic plan. And once again be able to say that we did what we said we would do. The first quarter results demonstrates the benefit of our diversification strategy as we have created more balance from a top line and bottom line perspective and remain focused on maximizing the value of our three segments. The first quarter was a good start to the year especially considering the late timing of many orders that were pushed into the latter portion of the normal quote and order season which we discussed during our last call. Trailer shipments for the quarter were approximately 8,600 units consistent with our previous guidance of 8,000 to 9,000 units. Additionally, trailer shipments increased sequentially throughout the first quarter, which provides nice momentum as we move through the current quarter. Net sales for the quarter were $324 million representing a $47 million increase compared to first quarter of 2012. While adjusted earnings decreased by less then $1 million year-over-year, we must remember that last year’s adjusted earnings are not tax affected, whereas this year’s adjusted earnings reflect the tax rate of approximately 40%. Operating EBITDA maybe up more appropriate metric to highlight the year-over-year improvement in the company reflecting an increase of $14.8 million to $27.1 million in the current quarter. Said differently, operating EBITDA more than doubled year-over-year for the first quarter, which is reflective of the significantly improved operating performance in our core trailer business, in addition to the benefits of executing our diversification strategy, primarily the acquisition of the Walker business. Consolidated gross margin was 13.0% for the quarter, an improvement by 590 basis points compared to the prior year period. Sequentially, gross margin was comparable to the fourth quarter’s 13.1% down just slightly despite the lower Commercial Trailer Product segment trailer shipments during the first quarter as expected, which were partially offset by the favorable impact of the Diversified Product segment. Operating income, excluding the impact of certain acquisition related expenses for the first quarter of 2013, was $15.5 million, representing 117% increase over the first quarter of 2012 of $7.1 million. Overall, we feel very good about the first quarter results and represented one of the best first quarter performances in the company’s history in both gross margin and operating EBITDA providing a solid base line to build upon as we move through the second quarter with seasonally stronger trailer volumes to leverage. Quote and order activity throughout the first quarter remain healthy and in line with seasonal demand trends with March quote volumes reaching the second highest level for a month since 2007. Backlog further increased during the quarter reaching a healthy $674 million representing approximately six months of production. Looking forward, we continue to believe the overall demand environment for trailers will remain strong, key drivers such as excessive fleet age, customer profitability, regulatory compliance requirements, along with residential value of used trailers and improve access to financing all support continued strong demand for new trailers. And as you will hear in a moment, this sentiment is support by forecasts from both ACT and FTR. With that let’s shift focus to some highlights regarding the performance of each reporting segment and Mark will follow with additional details regarding our financial performance. We’ll start with a Commercial Trailer Product segment consisting of our dry and refrigerated van products and platforms along with fleet trade sales. This segment continues to perform well in executing their strategy with a focus on margin, over volume, operational improvement and innovation. Similar to 2012, the key thing in this segment is the expansion of margins which were significantly compressed due to the length and depth of the recession in our industry. That focus continues in 2013 where gross margin have further increased by 110 basis points compared to the year ago quarter, despite new trailer shipments that were approximately 23% lower. This margin increases the direct result of stronger trailer pricing combined with the favorable impact of productivity and efficiency improvements being delivered via now stable and more experienced workforce, as well the Group introduced the number of innovations in the first quarter designed to enhance fleet productivity, reduce maintenance costs, and improve fuel economy. Included is the new revolutionary and game-changing max clearance overhead door system, which provides a vertical door opening clearance comparable to that of swing door models providing for increased fleet flexibility and productivity. The group also introduced the high-strength bonding technology being used in pup trailer sidewalls and the new DuraPlate roof system by continuing to reduce the total cost of ownership of our fleet customers’ equipment, we will further differentiate our product offerings and enhance our competitive advantage in the markets commercial trailer product serves. Moving on to the Diversified Products segment, which includes Wabash Composites, Wabash Wood Products, and the Walker business, which now includes the Energy and Environmental Solutions business consistent with the theme for the overall company, this segment delivered a solid first quarter. Net sales of $112 million represent an increase of $80 million over the prior year period with the addition of the Walker businesses adding a net $88 million during the quarter, with the offset tied mostly to slow sales out of the Energy and Environmental Solutions business related to the continued slowness in fracking activity along with lower sales of portable storage containers in the Wabash Composites business. In addition, backlog for the segment increased during the quarter with solid Quote activity point to healthy demand levels in most of the markets served. As you know, we closed the Beall asset purchase on February 4. The acquisition of the Beall assets and brand name strategically complement our Walker business by creating the broadest product portfolio in the tank industry and expanding the Walker geographic footprint to better serve and supply customers from coast to coast. Operationally, we continue ramping up production at the Portland, Oregon manufacturing location and have been extremely pleased with the enthusiasm and capability of the associates and the overall progress to-date. In fact, our early expectations are being exceeded. Our Wabash Composites business had a strong first quarter and is on phase to yet again have a record year. AeroSkirts sales continue to grow with after-market demand for this product at record levels during the quarter. We expect that to continue especially when considering the compliance requirements for California operations. The team remains focused on developing new products for their customers and new applications for the DuraPlate composite material. With the introduction adoption of the new DuraPlate base decking system for LTL applications, we will see further top line and profit contribution from this business during the current quarter. We’re excited about this new product along with other new innovative composite-based solutions that the group has nearing commercialization. Finally, our Retail segment experienced significant improvement on a year-over-year in sequential basis. Net sales of $41 million represents a $16 million increase year-over-year, due in part to the realignment and inclusion of the former Walker parts and service network Brenner Tank Services into the Wabash National Trailer Centers business, a move made to facilitate capture of inherent synergies between these similar entities. Additionally and related to this realignment, gross margin for the quarter of 11.9% represents an al- time high for the segment driven by the higher margin liquid tank trailer parts and service and was 200 basis points higher than the prior year period. Top line and profit growth for this segment are expected going forward as the balance of the legacy Wabash National trailer center sites become certified as tank repair service centers. Before I discuss Wabash National’s expectations for the second quarter and remainder 2013, let’s first examine a few economic indicators and industry dynamics that we monitor closely and provide broader context for our expectations. Overall, The Conference Board Leading Economic Index declined 0.1% in March to 94.7 following a 0.5% increase in February and a 0.5% increase in January. In the past six months, the Index increased 1.6%, up from the 0.1% growth during the prior six months implying continued modest economic growth ahead. In March, the ISM Manufacturing Index came in at 51.3 indicating expansion in manufacturing activity for the fourth consecutive month, yet at a lower rate. And as we now all know, following the week fourth quarter 2012, increase of 0.4%. GDP in the first quarter of 2013 increased 2.5% reflecting stronger consumer spending, inventory investment, as well as exports. This marks the 15th consecutive month in which GDP has increased. The housing sector recovery continues its momentum as March housing starts of 1,36,000 units, were up a strong 47% year-over-year and above the 1 million units for the first time since 2008. March billing permits of 902,000 units were 17% higher year-over-year. Both these readings imply strength in demand for platform and dry van trailers as we look forward. Finally, the U.S. Census Bureau reported the U.S. retail and food services sales were $418.3 billion in March, down 0.4% month-over-month, but up 2.8% year-over-year. Much of the year-over-year increase came from a 13.5% rise in sales at non-store retailers and a 7.4% increase at auto dealers. Total sales for the January through March 2013 period were up 3.7% for the same period one year ago. Within the trucking industry, the story is similar. With a general economy, ATA’s Truck Tonnage Index increased 0.9% in March to 123.5, the fourth increase in the last five months after decreasing 0.7% in February. The March tonnage was 3.8% higher than in the same month last year. In addition, FTR’s Truck Loading Index for February increased 0.5% over January and 3.7% year-over-year. Near-term the latest report from ACT forecast 2013 trailer shipment are just under 252,000 units, up 5% year-over-year and just under 262,000 trailers in 2014, up an additional 4% year-over-year. Also, FTR made their latest support adjustments to their forecast for total trailer production in 2013 and 2014 with total adjustments since year end of some 28,000 units now projecting a healthier 236,000 trailers for 2013, an increase of 1.6% in [Beall’s] year-over-year and projecting a further increase to 237,000 units produced in 2014. While there remains a nearly 16,000 unit difference between the two primary industry forecasters, the GAAP has certainly narrowed in recent months as expected. First, both groups of forecasting trailer demand in 2013, well with our replacement levels with ACT expecting shipments to exceed replacement demand by more than 50,000 units. And as expected, FTR has continued to adjust their forecast upward with this past week’s latest bump up by another 6,000 units to the current 236,000 units stating that consumer spending, business investment, and housing recovery will add meaningfully to grow this year. In fact in both groups, we expect trailer demands 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. Our view for 2013 remains as previously communicated. Based on a multitude of factors including age of the fleet, CSA and Hours of Service impact, overall tonnage demand and discussions with our customers, we continue to believe that trailer demand will remain strong at levels equal to or great – slightly greater than 2012. From a regulatory standpoint, the new Hours of Service rules are scheduled to take effect on July 1 of this year. The Federal Motor Carrier Safety Administration rule proposal has been challenged by the American Trucking Association and is currently under review by the U.S. Court of Appeals for the District of Columbia Circuit. FMCSA Administrator, Anne Ferro recently announced that there would be no delays to the July 1st effective date of the rule. Despite request from numerous law makers to postpone its implementation until the Court makes a decision. According to ATT Research the new Hours of Service rule will likely constraint fleet capacity by 2% to 3%. However, numerous key customers had commented that the impact is more likely to range from 5% to 12% productivity loss impact based on type and length of haul among other factors. Even small productivity losses may likely lead to increased demand for additional equipment to fill the gap. The new Highway Bill, MAP-21 signed by President Obama last July requires DOT to complete a study analyzing potential impact of increased truck trailer size, and weight limits by August 2014. The Federal Highway Administration which is part of the Department of Transportation took the first step in April toward completing the study by awarding a $2.3 million contract to CDM Smith to assist with the study. The study will evaluate alternative truck trailer configurations including the six-axle 97,000 pound vehicle, safety risk factors, cause of enforcement, the impact on payments in bridges, and the impact on the rail industry. All that considered, let me now share Wabash National’s expectation for the second quarter 2013 and the full-year beginning with trailer shipments. As we stated last quarter, first quarter would be a light quarter and trailer shipments would pickup in the following three quarters of the year. That’s precisely how that quarter transpired, shipments of some 8,600 units are consistent with our earlier guidance and based on production and inventory build levels along with backlog growth we are well positioned to achieve our forecasts for the current quarter and full-year with the second quarter expectations to ship between 11,000 and 12,000 units in total. Our view of full-year trailer industry volumes is consistent with the latest ACT and FTR forecast that I previously commented on. We continue to believe that full-year industry shipments will be similar to 2012 if not higher and as such based on our current full-year guidance on the assumptions that the industry will ship approximately 240,000 trailers this year. In addition, we anticipate shipments of new trailers to be higher in the remaining quarters of 2013 and our full-year guidance for new trailer shipments of 45,000 to 48,000 units remains unchanged. In summary, we did what we said we would do this past quarter, year-over-year performance in both operating income and operating EBITDA more than doubled and gross margins are near record levels for any quarter. Our Core Commercial Trailer Products business is executing on their promise to drive margin growth both at the top line and through activities on the manufacturing floor. Our Wabash Composites business continues to grow adding new product offerings and are poised to have another record year, and our Retail business is setting new standards for excellence in operating performance. We remain true to our commitment to continue to further diversify and grow the business from one who is prospects for success were tied to a narrow product line to one that now spreads that risk across a broader array of products, end markets, and geographies. Our Walker business continues to excel. In the addition, this past quarter of certain Beall assets and product offerings further emphasized the commitment to this effort expanding our presence for our tank equipment business coast to coast. We are clearly well positioned to take advantage of a continuing favorable demand environment for the industries we serve as we progress through the balance of the year. With that, let me turn it over to Mark.

Thanks, Dick, and good morning. In addition to the press release, we filed our 10-Q yesterday afternoon as well, so I will plan to hit the highlights. With that let’s begin; revenue for the quarter improved year-over-year by 17% to $324 million. The improvement in revenue this quarter reflects the benefit of Walker, which was completed during the second quarter of last year, as well as the continued improvement in a Trailer Asp and our Commercial Trailer Products segment, which increased to 23,800 per unit. The year-over-year increase in ASP of $1,100 or 4.7% is due primarily to price increases implemented to recover component, commodity cost inflation, in addition to trailer mix, which reflects a higher spec and complexity due to our continued strategy to be selective on order acceptance and improved margins. Looking at our various product lines; new trailer sales in the quarter totaled 8,600 units including 600 trailers related to Walker or $235 million, essentially flat from the first quarter of last year. Used trailer revenue came in at approximately $8.6 million on 1,000 units and was up approximately $1 million from the same quarter a year ago, as the used trailer market continues to demonstrate firm demand and pricing. Part service and other component revenue was approximately $41 million in the quarter, an improvement of approximately $15 million from a year ago driven primarily by the addition of Walker service location. In addition, revenue from equipment and other sales of $39 million increased $31 million year-over-year driven primarily by the addition of Walker’s Engineered Products business and non-trailer truck managed equipment. All told, the addition of Walker contributed approximately $95 million of the current quarter’s net sales for the total business. In terms of operating results, consolidated gross profit for the quarter was $42.2 million or 13%, compared to $19.7 million in the same period last year. This represents a $22.5 million or 590 basis point improvement year-over-year. As expected, the addition of Walker’s higher margin business was a significant contributor to the year-over-year improvement in addition to the significant margin improvement in the core trailer business. As a result, gross margins versus the fourth quarter of last year were flat in spite of new trailer shipments which were down 2,500 trailers. By segment, Commercial Trailer Products saw revenues decreased approximately $45 million compared to the prior year period reflecting lower trailers shipments in the current quarter, which as we discussed during our year-end call, was a result of the quote and order season being delayed this year due to uncertainty around the Presidential Election, fiscal cliff, and general macroeconomic uncertainty in addition to our continued strategy to be selecting on orders. More importantly, however, the results of the strategy which is focused on improving gross margins are evident this quarter as gross margin showed a 110 basis point improvement from a year ago effectively offsetting the impact of reduced shipments of 2,400 trailers. On a sequential basis, gross margin decreased by 140 basis points to 5.9% primarily due to the decrease in new trailer shipments of 2,200 units, which we expect to reverse course, as we move through the second quarter and to a seasonally higher shipment period. Production during the quarter was essentially flat with the fourth quarter at 9,500 trailers. However, we continue to experience improved productivity in a higher level of capability as the workforce stabilizes and continues to gain valuable experience. From a segment perspective, the most significant year-over-year improvements occurred in the Diversified Product segment. This segment demonstrated significant top line growth improving revenues almost $80 million versus the year ago. The addition of Walker with $88 million in revenue accounts for this large increase partially offset by lower revenue in our composite product offerings. Sequentially, revenue was lower by $31 million due to a decrease in new trailer shipments attributable to late order season. Normal seasonality and lower non-trailer equipment sales, while gross profit declined by $4.9 million to $25.9 million on the lower sales gross margin improved by 170 basis points as a result of a more favorable product mix with margins in this segment typically over 20% diversified product is now a significant contributor to the total company and highlights the benefit of our diversification strategy. The Retail segment experienced another strong quarter, top line revenue increased approximately $16 million or 63% while gross margins increased 200 basis points driven by the combined favorable impact of the addition of the Walker parts and service locations which added $8 million of revenue and an increase in new trailer sales of $7 million resulting from shipping 300 additional trailers as compared to the same quarter of last year. Gross profit of $4.9 million is flat sequentially while revenue is lower by $5.9 million as a result of lower new trailer sales compared to the fourth quarter. Gross margin increased to 140 basis points to 11.9%, attributable to the contribution from the Walker parts and service locations and a higher mix of parts and service revenue in general. On a consolidated basis, the company generated operating income of $15.5 million, excluding acquisition related costs during the quarter compared to $7.1 million on a comparable basis last year. This represents the year-over-year increase of 117% and demonstrates the benefit of the diversification actions we have executed over the past year. Sequentially, operating income excluding acquisition related costs during the quarter was lower by $14.1 million primarily driven by the lower shipments of new trailers as previously discussed. However, 4.8% operating margin excluding acquisition costs has nearly doubled the prior year’s performance and expected to improve further as volumes in both the Commercial Trailer Products and Diversified Products segment trend higher this quarter. SG&A for the quarter was $21.3 million an increase of $9.5 million from the first quarter of last year. The year-over-year increase is largely attributable to the inclusion of Walker, which contributed approximately $7 million to the increase combined with increased employee related expenses. While the SG&A expense for the fourth quarter on an absolute basis is flat sequentially, it did increase to 6.6% of revenue due to the lower top line sales this quarter. We expect the SG&A percentage to be lower in subsequent quarters as revenue ramps up consistent with our trailer guidance with a target for SG&A as a percent of revenue of approximately 5% for the full year. Additionally, intangible amortization is shown separately in income statement. Intangible amortization for the quarter was $5.4 million, an increase of $2 million over the prior quarter and $4.6 million over the prior year period. The intangible amortization in current quarter is consistent with our guidance provided last quarter and is expected to continue at this level for the remainder of 2013. Acquisition costs of $0.6 million for the quarter are related to the recent purchase of Beall assets and the Walker acquisition. Net other expense consists primarily of borrowing costs totaling approximately $7.5 million a year-over-year increase of $6.8 million primarily related to our $300 million term loan credit agreement and $150 million convertible senior notes, which were issued in the second quarter of last quarter to fund the Walker acquisition. It’s worth noting that approximately $1.4 million of this non-cash and primarily relates to accretion charges associated with the convertible notes. Other income for the quarter totaled $2.2 million and primarily relates to a favorable recovery of interest income charge on past due account receivable. On taxes as we indicated in the prior quarter, we recognized income tax expense of $3.8 million in the first quarter representing an increase of $4.2 million year-over-year and $62.8 million sequentially. However, you will recall that we reversed the majority of our tax valuation allowance during the fourth quarter of 2012, resulting in the increase to our effective income tax rate. The effective income tax rate for the quarter was 40% compared to negative 7.5% in the prior year period. We estimate the effective tax rate for the remainder of the year to be approximately 40%. At December 31, we had $111 million of remaining U.S. Federal income tax net operating loss carryforwards, which begin to expire in 2028 if unused. For 2013, we currently estimate approximately $92 million of NOL’s are available for utilization subject to pre-tax earnings. As a result, the company does not anticipate cash tax to differ materially from those paid in 2012, which were less than $1 million. Please refer to the 10-K for more detail on our annual limitations of our NOLs. Finally, for the quarter, net income was $5.7 million or $0.8 per diluted share. On a non-GAAP adjusted basis after adjusting for acquisition related charges, net income was $6.1 million or $0.9 per share. In addition, our operating EBITDA increased to 121% from a year ago to $27.1 million or 8.4% of sales. On a trailing 12-month basis, revenue has now increased to $1.5 billion with operating EBITDA reaching over $133 million. With that, let’s move to the balance sheet quickly. At the end of the quarter, net working capital increased by $13 million as we ramped up production in the quarter and for the first half of the year, but it’s still expected to level off and reduce by year end. Capital spending for the quarter was approximately $2.6 million and we anticipate full-year 2013 spending to be approximately $20 million consistent with our previous guidance. Our liquidity or cash plus available borrowings as of March 31, was approximately $200 million. As a result, our pro forma total and net debt leverage were 3.5 times and 3.1 times respectively. In addition, our senior secured leverage covenant under our term loan credit agreement was 1.9 times, well below the required 4.5 times. More importantly, as we announced earlier this week, the company entered into an amendment for the senior secured term loan, which becomes effective on May 9, and reduces the effective interest rate by up to 150 basis points. In addition, concurrent with the closing of the amendment term loan, the company will prepay $20 million of the outstanding balance of the term loan bringing the outstanding balance to approximately $277 million. As we stated in recent quarters paying down our debt and manage our capital structure are a priority for 2013, and this debt prepayment demonstrates our commitment to do just that. As a result of the repricing and the $20 million prepayment, the company’s annual cash interest cost will be reduced by over $5 million. In addition, it is estimated that the company will incur a non-cash charge in the second quarter of approximately $0.6 million associated with this early extinguishment of debt. In summary, the first quarter performance demonstrates the benefit of our diversification strategy and the actions we took over the past year to acquire the Walker business and more recently the purchase of Beall assets. The consolidated gross margin was a healthy 13% and consistent with the prior quarter in spite of lower new trailer shipments. We are well positioned going into the second quarter with a solid backlog of $674 million and more experiencing capable workforce and industry fundamentals, which support a healthy level of demand for our products into the foreseeable future. We anticipate new trailer shipments in the second quarter to be in the range of 11,000 to 12,000 units for the total company, which is a significant step-up from the first quarter, but more in line with our expectations for the current level of industry demand. Additionally, new trailer shipments for the full-year are anticipated to be between 45,000 and 48,000 units consistent with our previous guidance. The company is larger but more importantly no longer dependant on a singular business or product, stronger as a result of the enhanced earnings and cash flow potential resulting from the growth of the Diversified Products segment and more profitable with the combined gross margins in the double-digits for the past four quarter. We will look to build upon our recent performance as we continue to improve margins in our Commercial Trailer Products business and grow the Diversified Products and Retail segments which we will discuss further during the Wabash National Analyst and Investor Day next week. I will now turn the call back to the operator, and we’ll take any questions you may have. Thanks.

Thank you. We will now begin the question-and-answer session (Operator Instructions) And the first question is from Rob Wertheimer from Vertical Research. Please go ahead. Joe O’Dea – Vertical Research Partners: Hi, good morning. It’s Joe O’Dea on for Rob. First question, you talked about order activity maybe being a little bit later than normal, just curious if that’s all worked out at this point? Looking at sort of legacy orders, it looks like ex-Walker, those are down year-over-year and backlog a little bit lower year-over-year. So just trying to get a sense of an outlook for a little bit better trailer shipment activity this year, kind of what your visibility is on that, maybe where inquiry levels are? And if any kind of order activity you would have expected in 1Q has maybe spilled into 2Q?

Yeah, the quote inquiry activity as I made – stated in my comments, picked up significantly during this quarter. Especially in March, we saw big tick up and that’s continued into the second quarter. I think the overall environment is very solid. Customers are actually engaging more seriously in dialogue than just asking for inquires. So we feel very good about where we are in our backlog fill thus far and the mix of product that we are getting which will support the margin objectives that we’ve been going after and we feel very good about the total year going forward. Joe O’Dea – Vertical Research Partners: Okay. And then just second question on hours of service, does your outlook bake in any expectation of kind of benefit three is improved demand related to hours of service or would that be maybe upside at this point?

Yeah, that would be upside. The – none of forecasters include assumptions for that in their near-term forecasts. So and we talked at some points in the past that in the event that the hours of service rules are remain as they had been proposed in going to effect. There is likely to be a favorable impact for demand, how soon that impact occurs will remain to be seen, of course. But certainly a number of customers have talked about going to more drop-and-hook activities in an effort to make up productivity losses that they would experience. And so based on some of the commentary we are hearing from some customers, that impact is greater than what the forecasters have modeled. And it’s because the – obviously customers understand the uniqueness of the routes that they run and the length of runs and how it impacts the productivity. And as I said in my formal comments, we’ve heard ranges from 5% to 12% productivity impact. They’ll have to respond to that to be able to continue to providing the kind of service and delivery that they have – that their customers have been enjoying. So we do expect to see some level of favorable demand impact that has not been built into forecasters numbers, nor into ours and we’ll be prepared to take advantage if that comes through. Joe O’Dea – Vertical Research Partners: Great. Thanks very much.

Thank you. And the next question is from Brad Delco from Stephens. Please go ahead.

Good morning, Dick, good morning, Mark, how are you guys?

Good. Good morning.

Dick, kind of a add-on to the last question, but in terms of quote and order activity, can you comment on kind of what type of customers you are seeing, the strong quote and order activity that you had mentioned, and I guess what I’m trying to focus on a little bit to is looking at market share, it looks like you guys clearly are being more disciplined in terms of the margin profile of the customer you are dealing with. But how do you ultimately expect your overall market share to change with this new strategy and just trying to understand that’s more a function of your customers or just more a function of your discipline?

Clearly, it’s tied to the discipline that we’ve been taking. And as we’ve discussed in the past, we walked away from some customers last year as we were starting the process of really pushing margin recapture efforts, and that’s continued into this year, but we’ve actually seen some of those customers come back to us. So we feel very good that we will see some market share recapture, but that’s not where the focus, the focus is on improving the margins. I think the quality of the product and reputation of the product for performance durability and lower cost – total cost of ownership will bring us back customers, which will help us recapture market share, but the primary focus has and we’ll continue to be on improving the margins.

Gotcha. And then in terms of the customers where you are seeing strong in quote and order activity?

Yeah.

…large fleets or smaller mid-sized carriers?

It’s really across the board. I mean, obviously the large fleets, many of them have already placed orders for this year and now when you get into the – a lot of the mid market folks, but there is more nameplates that are active this year than were active last year and more last year than were active a year before. So we continue to see more and more customer names getting back into the game that may not have been purchasing trailers over the last few years, and that gives – that makes us feel really good about it, and that’s one of the reasons we’re seeing a big step up in the numbers of actual quotes or inquiries that are coming in, but it’s across the board. It’s no one segment that’s dominating at this point.

Gotcha. And then, Mark, a question I had on the makeup or the breakup of your SG&A cost. I was trying to understand with trailer sales down a little bit greater than 20% on a sequential basis, what’s the driver to selling expenses being up about $200,000, what’s the makeup of that line item?

Most of the – most of our selling that we have is a pretty sticky big fixed component. So I think, in any given month or quarter, it’s going to be driven on employee costs associated with whatever events or customer functions or training is going on for that, so nothing too much to read into that on a quarter-by-quarter basis. I think the bigger story on selling is with volumes, and if you look at our volume guidance for Q2 and you used the midpoint, you’re looking at almost a 3,000 unit increase in trailer sale. A lion share of that’s Commercial Trailer Products and there really isn’t going to be a big movement in the SG&A side. So for a 35% movement in selling in top line units, you’re not going to really see that movement at all. So I think the bigger story in SG&A is, on an absolute basis plus or minus million bucks or so is what you should expect to see for SG&A in total kind of quarter-in and quarter-out for this year.

Yeah, that’s a great color, I appreciate that. And then final question, with the NOLs and I think you even mentioned in your release, likely been a shield on most of your tax liability. Do you expect to pay down more debt throughout the year or just $20 million you feel what you’re comfortable with at this point?

No, I think, the first point is do we expect to have good free cash flow for the balance of the year, absolutely. Working capital is going to level off here this quarter from our kind of ramp up at the end of the year. CapEx is as we said modest at $20 million for this year, and on a cash tax basis, we’re probably going to pay less than $1 million in cash taxes. So definitely have additional free cash flow in the back half of the year to evaluate the additional paydowns that still remains a top priority for us. So, I wouldn’t be surprised if you see additional paydown, kind of similar size to what we just – to what we’re planning to do actually next week.

Thanks, guys, great. Thanks for the color.

Thanks, Brad.

Thank you. And the next question is from Steve Dyer from Craig-Hallum. Please go ahead. Steve Dyer – Craig-Hallum Capital Group LLC: Thanks. Good morning, gentlemen.

Hi, Steve.

Hi, Steve. Steve Dyer – Craig-Hallum Capital Group LLC: As it relates to pricing, how should we think about the rest of the year obviously, a nice improvement year-over-year. Is that sort of a step function change that is now pretty fully reflected or would you anticipate that ASP kind of ticks higher throughout the year?

The big improvements in year-over-year is kind of Q1 is the last of that, if you remember, a year ago, we still had some of that legacy backlog that carried over from 2011. And as we got into Q2 of last year, it was a much cleaner backlog in pricing environment. So certainly there is some, as we go through the year, mix will impact that based on what we are able to capture, but the significant year-over-year improvement kind of runs out here in the first quarter, but there is still the opportunity as Dick said, be select even and push it out in certain areas as we can. Steve Dyer – Craig-Hallum Capital Group LLC: Okay. And then I’m wondering if you can help me figure out, I guess try to reconcile the difference between at the end of the first quarter, your backlog was down year-over-year, your shipments in Q1, shipment guidance for Q2 down a touch year-over-year, but inventory was up and since everything is sort of made to order, how do we think about those different factors?

It’s part of the one we have which is, we don’t necessarily control the timing of the pickup or shipment for our customer base. So you’re correct. The inventory there was built for almost all built for customer orders. And as production came off of the year end kind of slowdown and ramp up throughout the quarter, it’s just a matter of shipments picking up to match that, which we started to see here in April. So the orders are there, the backlog is there, I’d say on an absolute basis, you’re right, the (inaudible) are down slightly, but it’s still in that $400 million to $600 million range gives good visibility. We have over 5 months of backlog in that particular segment and for all intensive purposes have – don’t have a lot of slots left until Q4 at this point. Steve Dyer – Craig-Hallum Capital Group LLC: Okay. Last question, commodity seem relatively benign, are you pretty comfortable with tires and everything you’re seeing in that front?

Yes, we’re actually seeing, excuse me, a much more favorable environment on tires. Tire pricing, tire availability, I think a lot of it is tied to softness overseas, both in Europe and a relative softness in China has made tire availability and tire pricing much more reasonable. We’ve seen all of the major tire manufacturers lower pricing as we’ve entered this year. So that’s been a nice change. On the aluminum front, aluminum has – is operating at the lowest level it’s been in the last couple of years. So that’s been favorable. And as you know, we – once we get a signed, confirmed order from the customer and get the bill dates locked in with the customer, we actually go out and lock in those forward pricing on the material. So we’re advantage of the favorable pricing environment there. So it’s a better environment than what we faced a few years ago, so we feel pretty good about it. Steve Dyer – Craig-Hallum Capital Group LLC: Okay. Thanks, guys.

Thank you. And the next question is from Walt Liptak from Global Hunter Securities. Please go ahead. Walt Liptak – Global Hunter Securities: Hi. Thanks. Good morning, everyone.

Hey, Walt. Walt Liptak – Global Hunter Securities: I wanted to ask about the pricing question and you kind of alluded to this during another question and your presentation, but could you talk about the sequential pricing environment, and any differences from the fourth quarter to the first quarter?

I would say it’s fairly consistent on how we are going to market, where we continue to look for opportunities to tweak the pricing and try and capture as much as we can. The – just the earlier question about the commodity environment that’s actually working in our favor for the near-term gives us some advantage on being able to price and capture a good margin, but you won’t see the big step-ups that you are seeing from year a ago as Mark said, it pretty much this quarter for a year-over-year comparison, you see the more significant step-ups now is going to be tied to sustaining, price in sustained margins, tweaking here and there where we can maybe a 0.25% to 0.50% here and there, and then driving the continued performance improvements on the manufacturing floor, which will give us further margin leverage. Walt Liptak – Global Hunter Securities: Okay. Yeah, that’s sound good. We like the pricing discipline, but the – it’s kind of a choppy environment out there as you kind of alluded to in some of your overview, what’s the industry pricing looking like?

It’s looking much better. I mean, you’re always going to have in our industry, you’re always going to have some folks that tend to be a little bit unpredictable or irrational from a – from opportunity-to-opportunity, where you kind of pump yourself in the head and say what were they thinking. But for the most part the tide has risen on pricing across the board. The competitors all recognized that during the stronger periods of the cycle is when you have to make your money, you have to fill the till and they always did – they’ve always done that during the cycle. So it took a little while early last year for the messaging to really sink in that, Wabash was serious about the pricing discipline that we set out to have. And once folks recognized that we were serious, they started following soon and we saw the gap between where we were pricing and where others were pricing narrow significantly. And that seems to have sustained itself out there. So the demand is strong enough now. We’re talking 240,000 plus kind of demand across the industry, strong dry demand, refrigerated, some strength in flat and of course, tank equipment is a whole different ball game, they enjoy a much stronger margins in that side of the world. But with the demand where it is for the ones I just mentioned, we feel very good about the sustainability of pricing and the ability to retain good margins on the products we won. Walt Liptak – Global Hunter Securities: Okay, great. Thank you for the answer.

(Operator Instructions) And the next question will be from Jeff Kauffman from Sterne, Agee. Please go ahead.

Hi, this is Brian on for Jeff, good morning. I just had a quick question about, you mentioned the range – the backlog range of 400 to 600 has been a healthy range. And I was just curious with the backlog reaching 674, if you could talk a little bit about why the range is 400 to 600 and then with the 674 being above that. What kind of production capacity constraints are there? I guess, I was just trying to understand what it means going forward for production?

Yeah, Mark’s comments on the 400 to 600 were really focused on the Commercial Trailer Products segment, and in total it’s $674 million, which includes all of the Walker paying products business, so which is in our Diversified Products segment, so closer to $500 million for the Commercial Trailer Products.

Yeah, Commercial Trailer Products.

It’s right in the fair way of that.

Okay.

So from a – certainly from a productive capacity, we talked about this in the past, we’re going to dealt capacity for up to 75,000 trailers in our core business. We really manned at a lower level in that right now, and it really depends on the mix. But we’ve seen with the manning we have in place run rates that would put us in the low 50,000 range for our core business.

Okay, great. Thank you.

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

Thank you, Sandra. In conclusion, the first quarter was a good quarter consistent with our prior guidance and expectations. And as I previously stated, it was one of the best first quarters in the company’s history. We entered the second quarter with strong momentum and expect continued progress across all of the segments throughout the year. I will end with one last reminder that we’re hosting an Analyst Investor Day on Wednesday, May 8. The event will be held in Lafayette, Indiana at our Ehrlich Innovation Center. Through the day, we will share with you our vision and our growth plans, showcase the depths of product lines and our product innovations, and provide you a chance to interact with the senior leaders of Wabash. I certainly hope that you can join us and look forward to seeing you there. Thank you for your interest in and support of Wabash National Corporation. Mark, Jeff, and I look forward to speaking with you – 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.