Good day, ladies and gentlemen, and welcome to the Q4 2018 Wabash National Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Ryan Reed, Director of Investor Relations. Mr. Reed, you may begin.

Thank you, Josh. Good morning, everyone and thanks for joining us on this call. With me today are Brent Yeagy, President and Chief Executive Officer and Jeff Taylor, Chief Financial Officer. Before we begin I would like to mention that Wabash National's 2019 Investor Day will be held in New York on February 28. Looking forward to seeing many of you there for a morning of update on the company's strategy and deep dives into our business units. Couple of items before we get started. Please note that this call is being recorded; I would also like to point out that our earnings release, the slide presentation supplementing today's call and any non-GAAP reconciliations are available at ir.wabashnational.com Please refer to Slide 2 in our earnings slide for the company's Safe Harbor Disclosure statement addressing forward looking statements. I will now hand it over and ask that you please refer to Slide 3 as Brent gets started with his highlight.

Thanks, Ryan. I would like to begin by saying that 2018 has been an important year for Wabash National's progressions for becoming a stronger, more resilient and more profitable company. We continue to act on our priorities. Our strengthening the human capital required to lead this company into the future. We acted on the position-- acted to position the company for ROIC expansion while improving organizational focus by exiting a non-core business. Simultaneously, we made significant progress in integrating the Supreme acquisition into our Final Mile business unit and positioning that business on a platform for continued growth. All are running very hard to meet the needs of our customers in a strong demand environment where revenue grew 28% to a record $2.27 billion. Continuing to meet the demand of our customers through this exceptionally busy time has allowed us to further strengthen those industry-leading relationships. While the challenge of new growth in such a dynamic environment has also provided insight and opportunity, which we will use to benefit and strengthen the company over the long term. Additionally, I'd like to thank our associates for their dedication and hard work during the year that made these achievements possible. As always the outstanding effort offered by our associates to meet the needs of our customers is without question. With that said, we're focusing on improving the execution required to tackle the operating challenges experienced during the second half of 2018. Supplier disruptions, but specifically chassis availability issues as well as continued labor market tightness and material inflation flow through that continue to pressure margins in Q4 impacted our gross margins by 50 basis points sequentially. We are fully committed to resolving these issues in a timely manner and focus the entire organization accordingly. Despite those headwinds, Wabash National generated $78 million…

Thank you, Brent. Good morning, everyone. I'll start with Slide 5. On a consolidated basis, fourth quarter revenue was $610 million, an increase of $67 million or 12% year-over-year. Net sales increased in all of our business compared to the prior year quarter as a result of strong customer demand in each segment. Consolidated new trailer shipments were 17,500 units during the quarter at the high end of our shipment guidance range on strong customer pickups. Fourth quarter build levels totaled 14,950 units. In terms of operating results, consolidated gross profit for the quarter was $69.1 million or 11.3% of sales. Gross margin decreased by 210 basis points year-over-year as all businesses experienced operating pressures including supplier disruptions in addition to higher material and labor costs. To add some color on the 210 basis point decline in gross margin, approximately 50% of the change was related to increased raw material and component cost inflation; the other 50% was related to labor and productivity costs including the labor constraint and supplier disruptions. The company generated adjusted operating income of $36.4 million and adjusted operating margin of 6% during the fourth quarter. For the full year, adjusted operating margin was 6.1%. Selling, General and Administrative or SG&A for the quarter excluding amortization was $28.6 million or 4.7% of revenue primarily due to lower compensation expense. For the full year, SG&A finished at 5.7% of revenue roughly flat with the prior year. Operating EBITDA for the fourth quarter was $47.6 million or 7.8% of sales. This brings 2018 full year operating EBITDA to a $187 million or 8.2% of revenue. Intangible amortization for the fourth quarter was $4.6 million, up about $0.3 million from the prior year period and was $19.5 million for the full year. Interest expense for the quarter totaled approximately…

[Operator Instructions] Our first question comes from Brad Delco from Stephens. You may proceed with your question.

Hey, good morning, guys. I want to dig into the, kind of gross margin challenges in-- when we look to 2019; do you have more control over your labor challenges or raw material challenges? And chassis may be separate, but, the question I have is, is the chassis problem causing the labor problems, I would imagine with, strong production or flatter production throughout 2019, that shouldn't be as much of an issue and then you got $800 of ASP in the fourth quarter to address raw material, but just help us get some color about how we can get comfortable around - seeing the improvements in 2019 on the gross margin front.

Yes, Brad, I'll take that. So let me try to unpack that for you a little bit. Let's specifically talk about FMP and the issue around chassis availability, supplier disruption and how that impacted gross margins. I think the straightforward story is simply that the second half of the year exceeded our expectations relative to demand and honestly the way that we were able to positively execute and getting that demand. We attempted to ramp the business accordingly in improved manner. What we didn't anticipate nor did anyone, the level of chassis disruption that began to plague us in the early period of - we'll call it mid July to early August. And I want to stress that took the industry by surprise within the M&D chassis market. What we wind up getting done is having to navigate a solid backlog for the second half of that year, having to bring in labor accordingly to meet those minimum production requirements, and then constantly working through rolling interruptions and as we, I think, we've alluded to 20% of our production was impacted in terms of loss production in the - during third quarter. And I would argue that we are approaching 50% of our production impacted in the fourth quarter. Now, that's a - in theory, that's a 25% reduction in net chassis-related issues. We saw that continue to reduce as we moved into the December time period, and that's somewhat continued as we moved into the January time period with sequential improvements. I think there's two parts of that. It's somewhat of the actions that we've taken to begin, to moderate those issues and it is literal improved performance by the chassis manufacturers. Right, as that continues to improve that just inherently reduces the disruption and interference; we see with…

Yes, that does and if I could have a quick follow up on that, and then one other question. You said, you took some discrete pricing actions in CTP in September, what was customer acceptance to that and it seems like the latest data we've gotten, cancellations have picked up, do you think that's a - the effect of some of that pricing or discrete pricing action or [Multiple Speakers]

No, we don't see that at all. When we look at industry cancellations, we see relatively very low levels and how we look at it. So industry wide, we don't see cancellations being an issue at all. Internal to Wabash National, we - cancellations have not been an issue for us, while we've executed those pricing actions nor has it been an issue as we went back to the well on a couple of different occasions to gain additional pricing recovery accordingly. So again, from an execution standpoint, we feel pretty good with where we're at. Again, we're setting at record backlog levels, we are - backlog extends well into 2019. So from our standpoint, we feel pretty stable with the actions that we've taken.

Okay. And then a quick follow up for Jeff. You made a comment; you expect margins to improve slightly on a sequential basis. Is that across - are we looking at gross margins, are you looking at operating profit. What kind of was that statement in reference to?

Gross margin is where you should focus in terms of that comment.

And is that for the enterprise or is that across the three business segments?

My comment was in general related to the total Company.

Okay.

So you can think relative to, I mean, we will get a little bit of a boost in the first quarter just because of that segment mix. The first quarter is generally one where commercial trailer products is - shipments are going to be typically the lowest in the year and because of that - their percentage of the total revenue in Company will be lower in Q1 than in other quarters

So should I read into that that Final Mile gross margin should be better than CTP in first quarter?

I did not make that statement.

Just trying, Jeff, just trying. All right. Thanks guys. I'll get back in queue.

Thank you. And our next question comes from Steve Dyer from Craig-Hallum. You may proceed with your question.

Thanks. Good morning, guys. A number of mine, have been, I think, answered as it relates to the puts and takes around margins and so forth, but as it relates to cancellations, obviously an uptick sort of in economic and political uncertainty lately. What's I guess generally the feel among the fleets right now, I mean, you obviously have very good backlog coverage for the first half of the year, but are you seeing any change to order patterns, any change to sort of appetite for getting in that that fleet queue throughout the year?

No. You would think based on some of the unrest that we've seen in the macro environment that something would begin to trickle through with our conversations with our customer base and that just does not seem to be happening. I think really for us right now, it's almost the opposite issue. We're constantly being talked to about can we add additional production, can we ship production forward, what does 2020 look like, and when will your 2020 order book open. It is a different type of conversation; it is a real dichotomy of issues. And it just frames the dynamic environment that we're in right now.

Okay. And then just as it relates to pricing actions, Q3 I think was - was disappointing, and you had indicated on your call at the end of October that you felt like you were on top of a lot of that, and ahead of a lot of that pushed through at least one price increase for cost inflation. But it sounds like maybe some other things reared their head as the quarter went along. Did that - did make it worse or you just not able to institute those things on a dime, maybe a little color there around how it progressed throughout the fourth quarter.

That's a great question. Obviously it's a mix of all of that. We absolutely did address pricing moving in the fourth quarter. I think obviously we saw material inflationary pressures continue to flow through at a rate that exceeded what we had thought it would be. That's one of the reasons we began to rolling additional pricing adjustments within the backlog as we learned and understood more deeply how the - that inflationary structure was coming about. And I think we've caught up with that at that point. This point, we continue to do material margin checks, we've increased the robustness of our material input process accordingly, so we feel good where we're at right now. When we think about the - we'll call it the operational aspects impacting gross margin, we were absolutely taking action to address the labor conversion issues and labor productivity issues. I think we, the - specifically on the chassis side of it based on feedback that we are getting from chassis manufacturers. There was an indication of that that this would be - subside as it moved throughout the year. While it did moderate and change in its dynamic, it did moderate at a level that was being projected and so that added headwinds in the fourth - accordingly and that affected our performance as well. We're not at a stage right now where we will anticipate and how we plan our business, we'll call it further moderation. We are tackling what we control in a much more aggressive way and factoring our forecast based on what we know we can do. And then as those issues subside on their own that would be potential upside for how we see our business operating.

Okay, great. That's helpful. And then lastly, for me, 2019 should be another very good free cash flow year. You've been as you've noted pretty balanced on the capital allocation. Just - we're arguably another year into the cycle. Are you still looking at it, I mean, you're still comfortable with the leverage. Are you still thinking in terms of balance or does the stock price or other factors sort of impact the way you think about deployment of capital?

Steve, this is Jeff. I'll take that one. So in terms of capital allocation in regards to the strategy and thinking about 2019 and how we set up, obviously, we did the acquisition of Supreme in late 2017. And we do want to pay down debt relative to that acquisition as we move forward. So I think, it's fair for you to expect us to prioritize de-leveraging a little bit and some debts pay down in 2019 as we move forward. Otherwise, I think, in general, it's going to remain pretty close to what you've seen. Liquidity is always our number one priority in the Company and we will always protect our liquidity. Obviously, we're going to fund the dividend. That's a commitment we've made to our shareholders and we expect to maintain that commitment. Debt reduction I talked about. And then we will do some level of capital expenditure in order to continue to invest in the new products and bring those products to market. And then obviously the lowest priority and the most flexible one is share repurchase and to the extent that we have available free cash flow and we'll return capital to the shareholders through that as well as the dividend. So hopefully that helps you think about how we're approaching 2019.

Yes, very good.

Yes, just I was to reiterate. We're sticking to the plan that we've laid out of multiple years. It's a formula that works for Wabash National and we are fully committed to it.

Our next question comes from Jeff Kauffman from Loop Capital Markets. You may proceed with your question.

Thank you very much. Good morning, guys. I'm going to take a step back and ask some bigger picture questions here, maybe more Analyst Day stuff. First question, shorter question, we're seeing a lot of new people enter the Final Mile business, more on the delivery performance side. Can you talk about whether you're seeing a change in the type of customer that's coming into FMP and if so is this kind of changing your thoughts about the types of vehicles or the types of opportunities in FMP?

That's a great question. What I would say is that the changing customer dynamics that we see are in line with how we look at this Final Mile space, two and three years ago. We anticipated that both at the Class 1, Class 2, Class 3 level as well as Class 4 and Class 5, we would see players begin to change. Truckload carriers would begin to move in to the Class 5, Class 6, Class 7 space, we'd see larger players begin to consolidate in the lower class space and Amazon would fall into that category. As well as you would see that big box retailers and others try to grow their own FMP presence. All those things are happening just as we anticipated; we see it coming through our customer mix today. Now how does - does it change our outlook? Does it change our strategy? Absolutely not. It reinforces it. So our product development efforts are very geared to - continuing to expand while we have great strength in our Class 2, Class 3 and Class 4 segments of our FMP business. We can serve a wealth of opportunity to expand the portfolio within that point of strength. Coupled with that, we can also and it's bearing out, we have long term relationships with some of the largest transportation carriers in the country and as they move into FMP, we are leveraging that accordingly from a long term perspective, just as we thought it would be.

Okay. Thank you. And that leads me into question two. When I go back to the Analyst Day, couple of years ago, there were some goals laid out of $3 billion in revenue and $2.50 of earnings by 2020. I looked at what you've done over the last few years and I would say, do nothing different. You position the Company brilliantly; you've gotten into some businesses with some high attractive growth potential. But clearly, we're falling short on both metrics and I would argue the financial returns just haven't been there, the way we would have hoped the last two years and all these shorter term issues like raw material pricing, chassis availability. These are things that normally happen when we're running at 300 plus thousand units in the industry. So I guess my question is where do you think we fell short along the path to get to where we wanted to be and when you look at where the Company is today and the businesses that you're in. And again, I want to highlight here, I think you've done everything right as an analyst following the Company; you're in some great businesses. Was - why did we fall short, was the issue that it just required more investment than anticipated; you can't say that the macro market was difficult. I was just kind of curious, broader stroke, how you think about the metrics and maybe this is leading into what you're going to discuss Analyst Day. But I thought, I'd ask.

Sure. Great job for shadowing the Investor Day, Jeff. I appreciate it. But we count on you. So when we think about that $3 billion target obviously that was an aspirational level and it help point the Company in a direction that drove action to allow us to diversify and grow to the point we are today. And in no way shape or form do I look at those targets whether we exceeded or fell short and say that they did not provide the catalyst to change who we are and what we're going to be in the future. Now, why are we short relatively? Obviously, a large part of that $3 billion target was deployment of capital around acquisitions, okay. Those acquisitions have to fit. They have to be available, they have to be actionable. Sometimes it doesn't pan out that way. I think when you look at the or get - well I know when we look at the organic initiatives that we've put forth in the Company that we've executed over the last several years, we are very happy with that aspect of our growth and where we positioned the Company going forward. When we talk about Analyst Day, we will talk about what are the future opportunities for growth in the business. How do we continually leverage where we're at today. How do we grow and expand additional technology. At the same time, we're going to talk about, how do we do and position the Company for improved ROIC such as divesting underperforming core bidding businesses to Wabash National and you can see, we've already started to take action. We can continue to provide shareholder value in many different ways than just top line growth. So we're going to show a much more rounded view of how we do that and optimizing our business while growing, it will be a key aspect of what we talk about.

On the organic growth initiatives then, did it - has it taken you longer to get to where you want to be either because you wanted to test molding structural composite, we needed to build out Final Mile a certain way. Do you still feel that the returns of those businesses are what you thought they were a year or two ago, when you started deploying capital in them.

So let's go with FMP, first, absolutely. There is nothing from a growth dynamic standpoint and what this market prevents or presents to Wabash National that has made us back up in any way shape or form. We're actually in the opposite position, which is trying to understand how can we better execute in the near-term while growing dynamically. And let's just be honest, that's a tough thing to do for any business at any time, right? And then you put a challenging operating environment on top of it. So we're going to get better at it. We're going to put an extreme amount of resources and talent into it, and we're going to harvest the huge potential that we see within that business segment, and that's our mission to do that. So and that is at the - from a long-term perspective that is the pinnacle of how we are positioning the Company. When we think about technology plays like molded structural composites. Anytime you move into, we'll call it a very disruptive type of technology; you have to move through an adoption curve that is different than just say evolutionary change. And while we are hitting on all cylinders relative to the promise of that technology, we also have customers that have to digest that level of change. This is the type of innovation that creates business model change, not just incremental operational improvement, and for them to understand the economic value presented, they have to continually work through the path of understanding that. And that is an uncertain, non-linear path. So are we short to where we would like to be? That would be fair. Are we disappointed with where we're at? No. I think we're understanding more and more about just the dynamic nature of doing something this incredibly impactful to the industry, and we feel ultimately, it's going to meet all the expectations that we've laid out. The only question would be, what the exact time frame is, and that's just a difficult thing to say.

Thank you. And our next question comes from Mike Baudendistel from Stifel. You may proceed with your question.

Thank you. I just wanted to ask you, does this EPS outlook, does that assume that production stays at a fairly consistent level throughout the year or some of the companies in the industry - talked about maybe 4Q declining some but I wanted to get your perspective there.

So let me digest that for a second. So when we think about production levels, we'll call it on a daily build rate basis. We see for specifically which is CTP which is obviously a lion's share of your question. We see those to be relatively stable throughout the year. We've got a backlog. We have a backlog that allows us to do that. We feel comfortable with that and that's been a conversation that we've had internally. We may see some of our competitors drop build rate in the fourth quarter. We don't necessarily feel that's going to happen to us right now. And so we feel pretty good with where we're at and our plan to execute it that way. Now we have some level of ramp in some small aspects of our business but that's not material as compared to what CTP and tank trailer has to do in 2019.

Great. I appreciate that. And then maybe just because the backlog here at $1.8 billion is the largest, at least, now that I've seen it. Can you just give us a sense for how long the backlogs are in the various segments at this point just to help us interpret the monthly data that comes out on trailer orders and things?

Sure. So specifically for CTP, remember that's a host of businesses, that's dry van refrigerated and platform trailers accordingly. We are well into the second half of the year. We have some that are substantially longer than that in terms of - on a full year basis and we're talking primarily in straight time equivalents right now. We have and we'll continue to drive opportunities for we'll call it additional throughput and we'll call it production volume assuming that we can get the pricing that we want the supply base can handle and labor continues to remain stable within that business. So some opportunity there but we're trying to execute that in a way to maintain stable build rates right now as best we can, based on the environment that we see. When we think about FMP, FMP is a completely different type of dynamic backlog. It is obviously - well from a backlog perspective for FMP, we are encouraged because we have continued to fill the FMP backlog at a high rate earlier in the year as demand for - from our largest customers continues to grow. That is extended and we have a very solid production understanding through the first half of the year. That is normal. The second half of the year, we'll continue to fill accordingly, just as it always has. So we'll look to execute that as we go forward. On the tank trailer side, we're well past mid-year, from a tank trailer standpoint, specifically well - and for us that's chemical and sanitary. So well ahead of or slightly ahead of where the industry is from a tank trailers' perspective.

Thank you. And our next question comes from Kristine Kubacki from Mizuho Securities. You may proceed with your question.

Good morning, gentlemen. My question is, I was just wondering, when did you open the order boards for 2018, and if I remember correctly, it seems like it was a bit earlier and I was just wondering, how you guys are even thinking about - now you talked to kind of a good set up for my question here, is that as these lead times now extend well out into '19 and you're thinking about 2020 and when those order board start to open. How are you thinking about the trying to [Technical Difficulty]?

Kristine, you cut out there. We lost the very last part of your question, I apologize.

Sorry about that, working on a cell phone out of Chicago, where it's the Frozen Tundra, this morning. So I mean - I'm just wondering a little bit about the order boards and I guess the pricing dynamics within the backlog and making sure that it seems like things got so far out that the pricing couldn't catch up to where the real market is based on raw material's input cost. How are you guys thinking about latter 2019 and protecting that pricing and then thinking about even 2020 as you get to mid-year and start opening up those order boards?

I think you've been in our boardroom a long time talking about how we dynamically manage this. So let me try to explain that. So when we think about the orders flowing in specifically for CTP, and that's really the heart of the question. Yes, absolute. We did see orders beginning to move into the backlog in the mid summer months. The bulk of the backlog was still moving through in the second half of the year, Q3, Q4. We have - we had begun the pricing, we'll call it material cost inflation during those periods. We have also at that time knowing that there was a level of uncertainty, we have increased the use of, we'll call it risk-based commercial pricing. So we have more opportunity for material cost adjustments throughout the year. We did that quite regularly especially in those first orders as they moved in. I've also alluded to - I didn't allude to, I did said, we went to the customers multiple times over the course of last six months to gain additional pricing, in some cases through the use of those commercial constructs and in others just simply saying, we're raising the price because we've had this substantial increase in material costs. As we continued to correct the backlog to hit the material margin targets that we have for CTP. Now, we've continued to raise pricing throughout the last three or four months to stay ahead of - to meet and stay ahead of material cost inflation accordingly, and we're continually evaluating the material margin in the backlog by period, so that we are more dynamic and more real time and any adjustments in pricing that we have to make within the backlog. That is a very set of discrete actions that we're working to execute which is obviously appropriate for the environment that we're in, learning of where our challenges were in 2018. When you think about 2020, the order book is not open for 2020 at this time. We obviously have a level of questions around it as customers are looking at least for the first quarter, second quarter of 2020 to have certainty because there is to an earlier question, the sentiment within the trucking/carrier community is still relatively bullish and how they look at equipment going into next year, even though we are talking about this in January of 2019, relevant. We would be very cautious and hesitant to do anything that will leave us exposed in 2020 in any deal construct that we would put together at this time and we would put adequate protections in or we would just wait until we have more stable commodity footing to make those orders.

Thank you. I'm not showing any further questions at this time, I would now like to turn the call back over to Mr. Reed for any further remarks.

Thanks Josh, and thanks everyone for joining us today. We'll look forward to following up during the quarter.

Thank you, ladies and gentlemen. Thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.