Welcome to the Fourth Quarter 2017 Wabash National Earnings Conference Call. My name is Vanessa 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. [Operator Instructions] Please note that this conference is being recorded. And I will now turn the call over to Mr. Jeff Taylor. Sir, you may begin.

Thank you, Vanessa, and good morning. Welcome everyone to the Wabash National Corporation 2017 fourth quarter and year-end earnings call. This is Jeff Taylor, Chief Financial Officer. Following this introduction, you will hear from Dick Giromini, Chief Executive Officer; and Brent Yeagy, President and Chief Operating Officer, on the results for the full year and fourth quarter, the current operating environment, and our outlook for 2018. In addition, I will provide an overview of the financial results. At the conclusion of the prepared remarks, we will open the call for questions from the listening audience. Before we begin, I’d 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, earnings per share guidance, the industry outlook, backlog information, financial conditions, 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 the cautionary statements and Risk Factors set forth from time-to-time in the company’s filings with the Securities and Exchange Commission. With that, it is my pleasure to turn the call over to Dick Giromini, CEO.

Thanks Jeff. I’ll begin by saying that we’re pleased overall with the company’s 2017 performance as we successfully established a new stronger foundation for further growth for the current year and beyond. The addition of the Supreme truck body business was a key accomplishment as it not only adds immediate revenue and profit opportunity, but also provides significant diversification into a high-growth segment driven by the ever-increasing adoption of e-commerce. To say that we’re excited about our future prospects would be an understatement. Operationally, following our fifth consecutive record year of profitability in 2016, a small reset was seemingly inevitable at some point. That said, despite a somewhat more challenging year for parts of our core businesses, we are nonetheless proud of the team’s efforts in overcoming many of the headwinds faced throughout the year, leading us to the strong finish in the fourth quarter that positioned us for new levels of success in 2018. Based with the much lower backlog entering the year, due in most part to hesitancy by customers to place orders leading up to the 2016 Presidential election, we got off to a slower start than originally anticipated and planned for. However, despite a few headwinds such as a somewhat tighter and more competitive landscape, higher material cost, and a tighter labor market we successfully delivered a year of historically solid financial performance. As we progress through the year, order conversion increased for vans, while recovery of the tank trailer market remains somewhat muted in contrast to what we have expected at the beginning of the year. The impact of commodities was a headwind for most of the year as raw material pricing for our base commodities increased greater than anticipated as we progressed through 2017. If I step back to tally both sides of the…

Thanks Dick and good morning everyone. As Dick highlighted, it was a solid year for the company. I am pleased to say that all three of our business segments are making progress and executing their strategic and operational plans. We remain focused on enterprise-wide deployment of the Wabash Management System to accelerate improvements within Diversified Products and Final Mile Products, as well as continue to further optimize Commercial Trailer Products. With that, let me get into the business specifics for both full-year and the fourth quarter. Let’s start with our Diversified Products Group or DPG, which includes our composites, tank trailers, process systems, and aviation and truck equipment businesses. New trailer shipments for the full-year were approximately 2,250 units, up approximately 150 units over the prior year, despite the continued soft demand environment for tank trailers. Full-year DPG revenue was $361 million, up approximately 2.5% over the prior year. Full-year gross margin was 19.4%, down approximately 210 basis points from the prior year, impacted primarily by higher commodity costs. Operating income and operating margin were $20.4 million and 5.6% respectively for the year. In the fourth quarter, DPG welcomed Kevin Page to the team as its Group President. I’m excited with what Kevin has accomplished with the DPG team in a short time, as he drives greater level of accountability and sustained execution. Within DPG, we continue to see small incremental improvement each quarter in this segment as a result of slowly improving market conditions, along with the impact of actions we took during the past 12 months to align cost structure with marketing conditions. In the fourth quarter, DPG generated revenue of $92 million, the strongest since the second quarter of 2016 with a gross margin of 19.7%. Operating income of $5.5 million, representing an improvement of $4.4 million…

Thanks Brent. I will echo the previous comments that we’re pleased with the performance of the company in 2017, as it was another strong year with significant progress toward our long-term strategic goals. Fourth quarter results were strong and shipments were at the top end of our previous guidance. In Diversified Products Group's, performance continue to improve with operating income increasing for the fourth consecutive quarter. Continued execution in our operations and business functions across the company is reflected in our overall results again for this year. Before discussing the results for the quarter in more detail, I’d like to comment on our capital allocation activities. We continue to prioritize return of capital to our shareholders. Specifically, in the fourth quarter, we returned approximately $4 million of capital to shareholders through our regular quarterly dividend payment and we repurchased approximately 1.4 million shares of stock for $28 million. For the full year, we continue to execute our balance capital allocation strategy as we opportunistically paid down $4 million of convertible bond debt, paid a full-year of regular quarterly dividend in excess of $15 million, funded productivity in growth projects in both CTP and DPG, repurchased 70 million of common stock, and accelerated our corporate growth strategy by completing the acquisition of Supreme, all while maintaining liquidity levels at $300 million for the majority of the year. We continue to remain focused on the efficient deployment of capital to areas with highest returns and strategic importance. In support of our corporate target to meet or exceed 20% return on invested capital annually. To that end, we recently transitioned two of our Wabash National Trailer Center retail branches to an independent dealer. With that, let’s turn to the financial results for the quarter. On a consolidated basis, revenue was $543 million, an…

Thank you, sir. [Operator Instructions] And we have our first question from Brad Delco with Stephens.

Hi guys, good afternoon - good morning, I mean.

Good morning, Brad.

Dick, if you could - great backlog here obviously, to the extent you can, can you give us some color on the make-up of that backlog, is this large fleet coming in and placing big orders of these smaller customers, any kind of detail you could give would be helpful?

Well, as normal during the fourth quarter, we typically see a lot of the large fleet orders coming in and that certainly was true in the fourth quarter, very strong order intake. Brent would you like to add any color to that?

Sure Dick. Dick is absolutely right. The order season was front end loaded with our larger direct counts as we would normally expect. I think what we would have seen or what we saw was a relatively robust first level indirect pool, sorry direct pool, but what we have been pleasantly surprised with is that the indirect channel, specifically within the van business has also presented us with some nice order opportunities, as well as robust quote flows. So, yes really a good balance between all the channels within Commercial Trailer Products.

Okay, great. And then another one, can you remind us, I think we’re seeing some improvement in DPG, but to the extent you can comment, how much exposure do you have to the energy market and what are you seeing there, if anything?

As we said in the past, we do have a small amount of exposure to the energy market, but it is not a truly significant part of our channel design or the products that we produce. What we are generally more exposed to is the sanitary - the food, dairy, and beverage market, which is a major part of our business. The other part is more of the general chemical. Now that has some relative exposure to oil and gas on the fringe, but we’re really limited to what our exposure is on that front.

Yes, just to put a little number around that it Brad, when we first acquired the Walker businesses, which are part of DPG that number would range between 2% and 3% of the total business. So, with the addition of Supreme to the family now that number is even a little lower. So, 1.5% to 2% is the likely range. So, very minimal impact. If the market really sparks and get stronger than we play a little bit in it because of the excess demand, but it’s not something that we’re depended on.

Okay, great. For some reason I had in my head it was closer to 10%, but appreciate you refreshing me. And then, maybe for Jeff, can you tell us what tax rate you are using previously for the earnings guidance you gave last quarter versus what you are using today? I am assuming you are using the midpoint of the 25 to 27 range, but just curious.

Yes, Brad the prior tax rate - the prior guidance would have been using a 36% effective tax rate for the corporation, and so the current guidance you can use, the mid-point of the range at 26% and consider that 26% plus or minus 1% on either side and that’s the 25% to 27% guidance.

Okay. And then I apologize, maybe last one if I could squeeze it in. I think you mentioned that the MSC was putting a little bit of drag on CTP margins, can you quantify to the extent you can what type of drag that put on gross margin in CTP?

I don't want to put a hard number on it Brad, but we continue to invest in the buildout, particularly the ramp up of that facility. And as the production continues to increase there then we will continue to invest in that, but it’s something I’m not prepared to quantify today in a hard number.

Okay. All right guys I’ll jump back in queue. Thanks for the time.

Thanks Brad.

Thanks Brad.

And thank you. Our next question comes from Mike Shlisky with Seaport Global.

Good morning guys.

Good morning Mike.

I guess, I kind of want to follow on Brad's question, I kind of want to ask on a flat out here, it looks like most of the guidance increase is due to the tax rate, can you maybe tell us if you - do you feel substantially better at the end of January then you felt at the end of October, about 2018 or are things solid, but hadn't really changed much since that time?

No, actually, we provided the guidance on the last call getting out in front of it. We felt very good about where the market was, so we came out with a reasonably strong guidance at that point. We have enhanced it as the last three months have come and passed as we’re starting to see the order intake dramatically improve from what it was three months ago and those are the comments that I shared at the time. While there is a good percentage of the increase tied to the tax reform there is increase in the range that we provided over and above what the impact of the tax reform would be, and we increased our unit guidance for the year. Obviously, if the demand continues and orders continue to remain strong and we see continued strength in the tank trailer side of the business there is opportunity to further enhance, but at this point in time we’re comfortable with what we provided, but it certainly does include some element of increase in what our projections are.

Okay, got it. Can we also review the story around market share in 2017, if I’m looking at my numbers right, it looks like share may have been down a little bit, [indiscernible] perhaps some in the fourth quarter, can you comment on whether that is true directionally and what you’ve got planned for 2018 to hopefully make - get some of that share back going forward?

This is Brent Yeagy. Yes, we had a little bit of variation around market share in 2017 as Dick alluded to. The CTP business got somewhat of a slower start that anticipated based on the order make up in the Q3, Q4 time of 2016 for 2017. As we’ve progressed throughout the year, we’ve continued to make inroads relative to market share, but we’re doing that in a purposeful way and as we stated on previous calls, managing margin over volume. Now, as we went into the November, December timeframes, what I will share with you is that we’re well positioned for 2018, relative to our place in the market, we’re taking our fair share and as I’ve alluded to in previous comments we’re in a good position going into 2018.

Okay, got it. One last one from me, just maybe detail on the guidance. Your interest forecast for 2018, and I guess I want to ask about the share count as well on the guidance, does your outlook include any share purchases, and does it include the convert that comes due, I think around the middle of the year?

Let me start with the second part of that first. Yes, it does include the convertible notes maturing in May of 2018, and I think it’s May 1 to be exact, and so we’re anticipating taking those shares or those bonds off the table and retiring them completely. We expect to settle those bonds in cash, and that’s the plan that we have built-in today. So, that obviously will remove some of the dilution that is in the share count today. In terms of the interest expense for the full-year it is just a rollup of all of the debt instruments. So, the new high yield bonds we have, the existing term loan taking the converts out and then rolling all that up.

Okay, got it. Thank you very much guys.

Thank you, Michael.

And our next question comes from Steve Dyer with Craig-Hallum.

Thanks, good morning guys, nice quarter.

Good morning, Steve. Thank you.

You guys have touched on this a little bit I guess in the call and in the Q&A as you noted kind of November, December were enormous order months, couple of the biggest on record, if I’m looking back correctly, how much of that I guess do you feel like was large orders or large fleet orders or pent-up demand, a response to the tax changes in sort of I guess indicative of how things might be going forward, and how much of that do you just feel like is a front end loaded order season, I guess. So, just trying to kind of figure out if the orders are not or are indicative kind of, how you expect Q1 to play out from an order perspective?

Well, what I would say right now is - this is Brent Yeagy - is, I think as we entered into the 2018 order season we obviously picked up momentum from what our first signals were in the September timeframe to national orders were coming in and we call it the start of the November timeframe. Did proposed tax really have a part to play in that? Absolutely, I believe it did, but what I would tell you is, we are seeing quote and order quote activities that support something greater than just a front-end loaded order season. So, we are optimistic as to how orders will continue to flow in over the course of the next few months of the general trailer orders cycle.

Thanks. That’s very helpful color. I guess looking at the cost side, you talked about raw materials being a headwind over the last year looks likely will be again this year, can you maybe remind us a little bit about your ability to hedge it, and sort of how your contracts look like and what you feel like your opportunity to pass along price increases kind of as the year goes on or may be even and this order season looks like?

Yes, good morning Steve, this is Jeff. In terms of our hedging program, it’s consistent with what it’s been for some time now. As you know, we hedge when we get a firm order into the backlog and so a signed order where the customer will go in and hedge the raw materials, the commodity raw materials for that order, for the duration of the agreement. In terms of the ability to protect all raw materials, 70% of our cost of goods is materials and we can protect about little more than half of that overall raw material exposure. So, we got about 70% of the materials are hedged in the backlogs. So, we do have some exposure there in terms of some of the components, which have commodity material content in them, and making sure that we can manage through that. And we will work out with our suppliers to get protection on that piece as well to the extent that we can.

And just to add a little color to the other part of your question on what the environment is to go all out and be able to cover those costs in the marketplace with pricing. With the very, very strong backlog that always presents much better opportunity to go out and recapture any inflationary pressures related to materials. So, the significant increase in backlog that goes out much further than what we've faced last year at this point in time provides a much better opportunity for Brent and his team to be able to go out and be successful in covering that and more. Brent, do you want to add anything to that?

No, I would just echo that the pricing and demand environment that we have, gives us a different playing field than where we sit at this time last year and our ability to recover materials. We've aligned the team to be able to act on that and we feel generally positive that we’re going to be successful recovering - we’ll call it a portion, preferably a larger portion of that material cost inflation throughout the year.

Okay, great. And then lastly from me, you guys talked about a big increase, a fairly big increase in CapEx and using a lot of your savings to sort of accelerate growth opportunities, do you have the ability to be a little bit more specific on what you guys are thinking about just in terms of the CapEx increase this year?

We are not going to quantify it necessarily by project, but I would tell you that there is - a significant amount of that is investing in new product technologies as we talked about with the new panel development and commercialization within DuraPlate. We’re continuing to invest within our molded structural composites facility, and then we've got multiple line specific productivity improvements that we have between Commercial Trailer Products, process systems, and now within the tank trailer business that we’ve enlarged our ability to deploy and execute a more aggressive productivity-based capital deployment.

And let’s not forget Final Mile Products as well.

And within Final Mile Products [indiscernible].

Got it. Okay. Thanks guys.

And thank you. Our next question is from Brady Cox with Stifel.

Thanks guys for taking the question. I wanted to dig into Supreme a little bit, I know you mentioned you're on track or maybe ahead of pace for the integration, can you just talk about what major items you're working on right now in the process and after digging into the business little more or what you think maybe the biggest opportunities or for where you can add value sort of immediately or quickly to the business?

Within the integration that we really do with within Wabash National material cost synergy is really the number one issue on our list. It is, we will call it a significant scale and falls within our unique capabilities as an organization. So that’s first and foremost and we’re on track and in some cases ahead of schedule on that front. Next is going to be just simple, I say simple, but it’s going in and understanding the velocity and manufacturing constraints at the line level, so we've got talent deployed to optimize that concurrently with material cost savings. And then you’ve got the next level of relatively certain public company costs that we’re able to take out of the business. So, those line-up the first three areas that we’re tackling first.

Great. That’s helpful and then you talked about revenue synergies as well in the prepared remarks, can you just elucidate a little bit and tell us maybe what your strategy is and how you might bring your scale or customer relationships or quality reputation to bear to help grow the Supreme business?

Sure. So, from a revenue synergy standpoint we are contacting all the major customers within Supreme. We’ve been able to complete that, and articulating a message of how we bring new levels of innovation and technology to bear to solve their problems and create value within their business. That’s being received very favorably and concurrently to our normal or our base, we'll call it operational synergies, we’re putting together parallel plans to take advantage of that deployment of innovation within our product. We’re not necessarily out of position to articulate what those revenue synergies would be in terms of amount or calendarization, part of that is just discovery process of how far, how fast we can move as we move through the integration. So, first and foremost it’s really about the deployment of innovation and technology that we’ve leveraged from our Commercial Trailer Products business or Wabash components into their product. And then ultimately, we’ll look at other areas within the broader Final Mile space that we can inquisitively investigate and then deploy resources and plans to be able to grow using Supreme as a platform as we build-out Final Mile Products.

Got it. And maybe just sort of a more tactical question, on the outlook for that business, you guys guided the 22,000 to 24,000 units, can you just help us a little bit with what that means maybe roughly in revenue terms or what that - how that compares to their shipment total for last year maybe?

Yes, Brady, what we said around revenue in general is that, if you look at the medium duty truck forecast it’s supposed to grow 4% to 5% year-over-year. e-commerce or home delivery growth rates, final amount of growth rates are in the double digits 10% plus and we certainly over time see that business growing certainly above what you would have for the medium duty and in between that and e-commerce growth rates and as we attain leverage in revenue synergies longer term than we potentially see upside from there.

Okay. And then I'm just going to sneak one more in on capital allocation, obviously you guys, you've initiated a regular dividend, you’ve been buying shares more aggressively, you just completed an acquisition, and I know you’re increasing CapEx pretty significantly at least for 2018, longer term, how do you view as your priorities for capital allocation and where may be the best investments are for Wabash considering what should be really strong free cash flow in the next couple of years?

Yes, so you're absolutely right about the strong free cash flow. The free cash flow yield is I think 9.4%, and typically I think that’s on a high-end of our peer comparison group. So, the cash flow generation continues to be very strong as we look at - and our balance capital allocation plan is consistent with what we have talked about before and obviously we say liquidity as I remember one priority there. Liquidity is very healthy, and we’re well positioned to be able to pay off the convertible note, which will be a significant use of cash in the second quarter of this year. And that really plays into as we look at the other priorities for capital allocation of debt reduction, funding the dividend, strategic growth within the company, and investment both through organic initiatives and potentially other strategic growth or acquisition opportunities, and then share repurchase. So, we feel like the company is very strong generating extremely strong cash flow, and then we have the ability to continue to impact each of those areas and we’ll get that balance worked out as we go through the year, but obviously with the [indiscernible] debt reduction will be something that will play a bigger role this year. Obviously, we will continue to fund the dividend and then we will evaluate the bottom two strategic growth and share repurchase as we go.

Great, thank you very much.

And thank you. I see no further questions in queue. I will now turn the call over to Dick Giromini for closing remarks.

Thank you, Vanessa. In closing, I like to again complement our whole team for their efforts during this past year. It proved to be an intensely busy year navigating an erratic and unpredictable market, while taking on the added task to bring the Supreme acquisition across the finish line, resulting in establishing a new stronger foundation for further growth and success in the current year and beyond. As always, we will continue to be strategic, but selective in pursuing additional opportunities to grow our business, and to seek out ways to increase returns and value for all shareholders, while assuring that the proper balance between risk and reward is considered in all decisions. Thank you all for your interest and continued support of Wabash National Corporation. Jeff, Brent, and I look forward to speaking with all of you again on our next call. Thank you.

And thank you ladies and gentlemen. This concludes today's conference. We thank you for participating and you may now disconnect.