Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2020 Wabash National Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your first speaker for today, Mr. Ryan Reed, Director of Investor Relations. Thank you. Please go ahead.

Thank you, Ann. Good morning, everyone. Thanks for joining us on this call. With me today are Brent Yeagy, President and Chief Executive Officer; and Mike Pettit, Chief Financial Officer. A couple of items before we get started. First, please note that this call is being recorded. I'd also like to point out that our earnings release, the slide presentation supplementing today's call and any non-GAAP reconciliations are all available at ir.wabashnational.com. Please refer to slide two in our earnings deck for the company's Safe Harbor disclosure addressing forward-looking statements. I'll now hand it off to Brent to get us started with his highlights.

Thanks, Ryan. Good morning, everyone, and thank you for joining us today. I'd like to start by giving some high level perspective on the last eight months and highlight why within Wabash National we are so positive about what we've been able to demonstrate through this challenging time, and why we feel confident about the company's prospects going forward. From the beginning of the COVID pandemic, I've watched our people come together to embrace the deliberate changes necessary to adapt to the new environment we find ourselves in. Our people have worked tirelessly across our operations to continue safely producing equipment to satisfy customer demand, while also adapting the organizational and operational changes necessary to align our internal structure to our revised strategy. This process comes down to the dedication and talent of our people, which speaks to the positive and collaborative culture we work to foster every day. As I previously mentioned, the health and safety of our people is our top priority. And on that front, we're very pleased with the incidents of workplace spread of COVID, which has been extremely limited. At the onset of COVID, we are faced with multiple unknowns. Our team has methodically worked through to keep our people safe and then ready for the company for the growth as inevitably coming following a trough year. Thanks to our product portfolio diversification, customer conditioning and improved business processes, we have achieved financial performance across a broad array of metrics that is night and day different from previous trough period performance for Wabash National. The three quarters of 2020, we have limited detrimental margins to the mid-teens, generated positive EPS and produced meaningful free cash flow. We have leveraged the natural disruption during COVID to rapidly reorganize our business to be more -- to be…

Thanks, Brent. I'd like to start off by giving you some color on our third quarter financial results. On a consolidated basis, third quarter revenue was $352 million with consolidated new trailer shipments of approximately 8,450 units during the quarter. Revenue was fairly steady with the prior quarter and improved as the quarter progressed. Third quarter gross margin was 12.3% of sales during the quarter, while operating margin came in at 2.4% on a GAAP basis or 2.7% on a non-GAAP adjusted basis. Third quarter gross and operating margins were the strongest since the fourth quarter of 2019. The improvement in operating margin was made possible by our cost savings efforts that have structurally reduced our SG&A footprint. Compared to -- compared to the third quarter of last year, SG&A expense was reduced by about $6.2 million or about 18% when adjusting for expenses associated with our new term loan debt facility, which we closed in Q3. Although some of the year-over-year reduction in SG&A was achieved through reduced incentive compensation and other one-time actions. We would still expect 2021 SG&A to be $15 million less in 2019. I'll address that more, in more detail in a minute. Consolidated decremental margins in the third quarter was very good at 13%. Operating EBITDA for the third quarter was $24 million or 6.8% of sales. Finally, for the quarter, GAAP net income was $3.9 million or $0.07 per diluted share. Non-GAAP adjusted net income was $4.7 million or $0.09 per diluted share. From a segment perspective, commercial trailer products performed very well with revenues of $227 million and operating income of $19.7 million. CTP's decremental margin during the third quarter was about 11%, which is a phenomenal result achieved through purposeful cost control. Average selling price for new trailers within CTP was…

Thank you. [Operator Instructions] Our first question comes from the line of Justin Long from Stephens. Your line is now open.

Thanks. Good morning and congrats on the quarter.

Thank you, Justin.

So Mike all the commentary on 2021 was really helpful. I wanted to circle back to what you said on incremental margin. So it sounds like next year, they will be in that mid to high teens range just because of the COVID-related comps. But beyond that has the framework for 25% incremental margins changed at all, given some of the structural initiatives that you've implemented this year?

Yes. Yes. Just to reaffirm the first part of your comment or question is, yes. They will be lower in 2021 because of the furlough activities and one-time actions. And because we have a structural cost reduction, I would expect them to improve, as you look at 2022 compared to 2021 and I don't want to break out exactly how much that would be. We'll continue to give guidance, as we go forward. But you would expect to see what we've talked about 20%, 20% plus incrementals because of the saving should be achievable, as we go into 2022.

Yes. And the one thing, I would say is, we've got to $20 million savings run rate. It goes into '21 -- 2021 before far from done working on our business as we move into 2022 and 2023. And we'll talk more about that in the calls, as we continue to execute on that plan.

Okay. Great. And then I wanted to circle back to final mile as well. And I was wondering if you could help unpack some of the commentary in the prepared remarks on the customer mix there. Anyway to help us think through, how much of that business is tied to a central customers versus non-essential. And any thoughts about the revenue that we need to see in that segment in order to get that business to breakeven?

Yes. Justin, I will take the first half of the question, Mike will follow-up. So when we look at the -- the call general customer groupings that we serve, well over 50% of the total customers fall into that non-professional carrier grouping, whether they run through a lease or rental group or whether they buy direct from Wabash National or through a dealer, the vast majority is by far impacted by COVID. And bluntly, the majority that move through the -- so for our -- call our big lease channel, whether it would be Ryder or Penske are also going to be impacted primarily by COVID as well. So it is -- it is a significant -- it is a very significant portion of the final mile group. And it somewhat goes when we put the companies together that we've acquired since 2012 from a diversification standpoint, I think we're having things play out somewhat like we should have. And what I mean by that is -- in this specific set of situation, the dry van business has been relatively steady. We've been able to perform based on the conditions on the ground. In this case, the final mile group may impacted by an out of the blue black swan pandemic has a disproportional impact, right. That it -- it sounds like it's a negative, but really it goes to diversification going forward. So I don't expect the next trough to have a pandemic attached to it. It's just the reality of what we have today so.

Yes. In terms of breakeven, Justin, I think it kind of depends on which line of the income statement you want to look at, but we were real close to breakeven EBITDA in Q3 at $55 million of revenue and SMP. I would expect that it would take about $20 million more than that, call it $75 million a quarter, $300 million a year to get to breakeven on the OI line. But at that level, we would have pretty solid positive EBITDA and that's because we run quite a bit of amortization from the acquisition through that P&L. So you could see a situation, where it's generating cash even if it's not while with [ph] profitable on the OI line.

Okay, that helps. And then just one last quick one. Mike, you mentioned the working capital changes you anticipate next year, but in the fourth quarter, do you anticipate any major changes in working cap?

Yes. We're going to start ramping in Q4 for 2021. So you would expect to see probably use our working capital in Q4. I would say it would be in the $20 million to $30 million range would be a good general thumb [ph] in Q4 as we ramp into 2021.

Okay, great. I'll leave it at that. Congrats, again.

Thank you.

Thank you, Justin.

Thank you. Our next question comes from the line of Ryan Sigdahl from Craig-Hallum. Your line is now open.

Good morning, guys, and congrats on the nice bounce back in the business and recovery results.

Thank you, Ryan. Good morning.

Anything -- so we've seen a very nice recovery in orders, anything you can comment on backlog order trends, customer conversations etcetera in October kind of post quarter?

Well, I mean, we finished the -- the end of the third quarter with -- was approximately $1 billion in backlog. You've seen the order intake, as represented by ACT and FTR for the month of September. The -- what I would say is that the internal activity in October, the discussions that we're having -- continue to have with customers are, I would say generally in line with what September represented. And I think if you draw a connection to the working capital increase that you see in the fourth quarter, I think we're going to look at 2021 absolutely being a relatively significantly improved year from 2020. The only caveat I have got to that is, we're all going to play through the supply chain and labor constraints that we will -- we'll all work through as a group of manufacturers during the first half of the year. And that's -- that's one of the reasons we want to not give guidance until we somewhat see, where we're at in the next three months.

Good. And then just on final mile for 2021 expectations. You mentioned trailer production kind of the industry forecast versus low teens to low 20s good kind of mid-point there. Directionally, is that a decent benchmark for FMT, you're going to have an easier comp, but also it sounds like some greater headwinds and longer headwinds there. So just to put stakes [ph] directionally if you can comment there would be great?

Okay. Yes, I think that's -- I think the general range that we gave for the trailer industry is going to be similar for truck body bodies, year-over-year, we. Will see as you mentioned, we'll have favorable comps on 2020. But we also have -- we'll have a lot better flow of chassis in that business in 2021 than we had in 2020. So nice -- nice improvement in that business and the top line is certainly expected.

Good. Last one for me, then I'll turn it over. Just in FMP, you commented kind of on the non-professional customer mix being little over 50%. Can you breakout that segment what is. And I know it's difficult, but kind of partial e-commerce delivery, which maybe some of the smaller classes have a bigger mix of. But what percent of truck bodies goes to that versus whether it would be flowers or dry cleaners or the other kind of mix of customer base there? Thanks.

That is -- that's a little bit more difficult to do because we don't necessarily know exactly what's going to be moving through our large leasing and rental channels that fall into that. It would be a -- it would be a [indiscernible]; and there is a lot of moving pieces that go into it. The only analogy or experience that I can give you, give you to the complexity of it is just on personal experience and some of our research is that we're seeing a significant portion of Ryder, Penske pence related equipment showing up in e-commerce related deliveries to fill voids that are present today with existing assets. So whether it would be Amazon, XPO or whatever big and bulky you're trying to get delivered. We're seeing that equipment moving into that space that we -- when that order came in, we built for it that it necessarily have an e-commerce ticker on the side of it? Absolutely not. So it's difficult to say, but it's probably higher than might any estimate, I would give you.

Fair enough. Difficult question. I appreciate the commentary guys. Good luck.

Yes. Thanks, Ryan.

Thank you. Our next question comes from the line of Jeff Kauffman from Loop Capital Market. Your line is now open.

Thank you. Good morning and congratulations, everyone.

Thanks, Jeff.

Thank you..

So just a couple nuance things. You talked about the SG&A savings yet, there was a sequential jump of almost $5 million in SG&A on only about $13 million or $14 million total sales jump. I understand there might have been some debt financing costs in that number. But can you help me back into that sequential increase a little bit?

Yes. Sure. The sequential increase. Jeff is almost 100% driven by all of the furlough activity we had in Q2. So we had a significant number of one-timers in Q2 on the SG&A line. As a reminder we took the whole company down for four weeks most of that was in Q2. The last week was the last week of June -- sorry, in June 29th, some of that spilled into Q3, but that's a big difference. And that's why we tried to -- we've really tried to lay out how much of this, we think is structural versus one time actions. I would estimate in our total business, they are is somewhere in the $25 million range or one-time cost reduction actions that we saw in '20 -- on the operating cost savings that will flow between some between SG&A, and some in operating cost that would -- hit in 2020 that won't repeat in 2021, which is why we try to kind of breakout how much we think structural versus one-time.

Okay. And when you gave the guidance of $125 million to $130 million in SG&A in 2021; you're talking about both line items, right, the selling expenses line and the G&A line?

Yes, yes.

Okay. Okay. So the consolidated number you're forecasting $125 million to $130 million next year based on what you know today.

That is correct.

Okay. Can I kind of walk through the thoughts and I know it's too early to forecast, but I just want to follow the math here on 2021. So you said there is a range of improvement from the mid-teens to the mid 20% range you'd kind of take the middle of that, just for argument sake. So if I take the ACT data and bump it up 20% that's implying about 230,000, 235,000 units, give or take. If I take a look at your normal market share of the total, it would be about 18% of that give or take, little less than that right now, which would imply something between 41,000 and 42,000 units to the company next year. Is that sound like too big a number because that would imply you're raising production from about 8,000 units a quarter right now to probably in the 10,000 to 11,000 unit range for next year?

I would say, Jeff on the numbers that you have linked together there that math probably holds true and the way that you described it.

Okay. And it's not your forecast, I'm just thinking out loud with what's out there?

Yes. It's a logical flow of numbers.

Okay. Great. Can you give us an update on your progress with the new products we can talk about the new product up in Minnesota, we could talk about the implementation of some of the new DuraPlate products bringing into market. Could you just kind of give an update on where you're with that? Did COVID delay any of that? And where are we on the roll out of some of these new products?

Yes. So we have fully commercialized launched our Cell Core product in 2020, and we have substantially penetrated and changed over from standard we'll call DuraPlate sidewalls into the enhanced Cell Core panel through a large portion of our customer base and that -- that was a fairly easy pull through and it's met our expectations accordingly. There is a host of other small improvements within the van business itself that I won't go into, but we're generally pleased with what went on there. When we look at molded structural composites, the technology, I would say COVID has had some impact on, we'll call it innovation pull through on the reefer van standpoint, two reasons. One, just -- it's just a generally depressed reefer market and not necessarily in the middle of a pandemic that asset managers are looking to call, put their neck out there with new and innovative technology. The discussions and the pilots continue to be present. We are approaching 6 million miles on the road. So we are exponentially growing exposure. So the interest is still there. The market doesn't necessarily give us the absolute best situation right now. We think that's going to improve going forward specifically with the drive towards sustainability within the -- the reefer space, we're getting a substantial amount of inquiries really coming off of the zero-emission MSC product van that we put out in California, which I think is generally people are aware of it. That has kicked off a flurry of activity both within the van business and within final mile products about our ability to provide truly sustainable and innovative refrigerated products using a combination of technologies. So we're pretty excited about that, and I can't get into the customers that we're talking to, but it is exciting on where we're at with that. The other thing that we're doing is we are more fully moving the molded structural composites technology into a final mile products platform to serve that space, as we look to strategically grow cold chain market share/revenue over the next couple of years. So that has been generally well received. We think that's going to be an easier place to conquest and convert accordingly, and we're kind of moving some assets there. We think that's the I'll call the soft underbelly of where we can kind of grow exposure to product.

Yes. I'll just add and Brent mentioned it there, but the introduction of that technology into our new customer centric organization design is a nice pairing there because you've got a technology that plays across our whole portfolio first to final mile products. Now, you have a sales organization that's designed to sell across that whole portfolio of products.

Yes. It's -- it is the -- one of the premier examples of when you take the -- we'll call the invisible communication carriers that exist in a segmented organizational design, and you -- I'll call it, modernize it to look at it for the customer. All of a sudden those technologies now become truly capable of being scaled and talked about in every aspect of our customer portfolio. So it is really exciting about the feedback we're getting right now in terms of zero emission, sustainability, molded structural composites, cell core panel, just -- it's just keep going, right. And it is -- we're pretty pleased with where we're at right now.

Okay. Thank you for that answer. One last question. Mike, you talked a little bit about CapEx, working capital change, dividends kind of the focus on net debt next year and then you kind of threw out treasury stock again and we haven't had any of that since first quarter. I guess just kind of thinking through after all that you mentioned, it's kind of implying about $30 million to $35 million in cash for debt pay down and treasury stock next year. Do you look at the targeted net debt level on an absolute dollar basis? Do you look at it more as a function of debt to EBITDA in deciding where you want to be and kind of I'm thinking more about treasury stock here. Is your thought just to get back to more of an anti-dilutive purchase or do you think maybe a little bit more aggressive like you were in the previous years.

Yes. So on the net debt, we do look at it from net debt to EBITDA. And what I'll tell you is, if you look at where we're at right now, $250 million and put [indiscernible] range of numbers that we've been talking about for 2021, you've got a pretty healthy level of net debt to EBITDA in 2021. So we feel pretty good about our leverage ratios. And then we start looking at -- when we look to buy stock, we look at that from a perspective what we think the valuation of the company is going for including how we think that we can perform in the next several years. And so, we have -- if you look at 2021, as the market starts to firm up, we start to have visibility, we'll evaluate, where we think we stand and how we can grow, continue to grow cash not just in 2021, but in 2022. I think Brent mentioned a lot today about 202 is going to be -- we're still in a COVID world. So manpower becomes a challenge and getting people in to do what we need to do; so we'll continue to evaluate. And as we -- as we -- as we get confidence in our ability to -- to add capacity and look to market in 2022 that will play into our -- into our just kind of math, so to speak of share repurchases and those could become attractive based on what we see over the next 18 months to 36 months.

Yes. Jeff, you don't mind, I'm going to take your question a little bit further and just point out that when you look at the balance sheet, I know you do and how it's relatively constructive at this point and the strength that it possesses, you know, that sort of balance sheet like those coming out of trough has never existed in any recent history with Wabash National; it didn't exist in 2001 and 2002, it didn't exist in 2010, right. And you know how the company has performed. The ability of doing interesting things with the balance sheet that's been constructed very diligently over the last couple of years gives us the ability to accelerate, do things earlier, and we'll call it the cycle and truly look at building the company at a different pace than may be how previous troughs have allowed us to do. We're excited about what that story will be, as we go through the next couple of years, and the way that we'll leverage that balance sheet going forward. Wabash has never been in such an advantageous position as it is right now.

So I guess, loaded for bear is my interpretation. That's a great answer. Thank you. Guys, thank you, and again, congratulations.

Thanks, Jeff.

Thank you. Next question comes from the line of Felix Boeschen from Raymond James. Your line is now open.

Hey, thanks, good morning, everybody.

Good morning, Felix.

Good morning.

Hey, Brent, I was hoping you could flush out the comments around lack of labor availability, may be a little bit more. Can you maybe walk us through how you guys are thinking about it just seeing your capacity into 2021, as it stands right now. And then as you're talking with customers, are carriers are worried at all about locking in build slots at this point. Just -- just any sort of color there would be helpful?

Yes. I'll start with the latter. I think in general, we do see across the industry a concern about the timely availability of product throughout the first three quarters of 2021. I think our customers have been through this type of ramp up multiple times right, whether it's '17, '18, '14 to '15, right '04 to '05, these -- these -- we know what this looks like. Is it -- we are aware that after trough, we see a precipitous climb and high level acceleration in demand. So it is a very delicate balance and making sure that we serve the customers in the best possible way to give them equipment that they need, when they want it. Now for us, it's not a physical capacity issue. And generally, what we're going to find that from a labor standpoint, labor issues for us aren't necessarily as much an internal problem. We'll call it in the first half of the year is much more of labor within the supply base. The supply base has to move first to enable right -- OEM manufacturers, the initial labor influx goes there, and they've been ramping now for, we'll call it six weeks, right. As orders begin to come in, rough -- rough capacity planning begins to change, and they're bringing shifts online, right now. We'll be watching how those shifts come online through the end of this year and through the first quarter of 2021 and that's the constraint that we'll be basing our labor off, right; so that we do manage our costs, right, from a variable cost standpoint to meet what we believe the constraint within the industry will be. For us, we'll be looking to increase capacity roughly through the entire year. The supply chain will get their legs underneath…

Okay. That's very helpful. I really appreciate that. And I was just wondering if we could circle back on final mile for just a second. It sounds like, just from a margin perspective, you guys are improving I'm going to say core efficiency gain sequentially, I know engineering inefficiencies were kind of a problem a few quarters ago. Could you kind of give us an update on where that stands or is it mostly just the volume problem right now kind of being dragged down by the non-professional mix. Just -- just any additional color there would be helpful.

I would say today, what we're looking at is primarily just the COVID impact on the top line right now is probably the predominant factor in FMP performance that will take care of itself. We have very substantially addressed the engineering capacity and through capability within FMP. We have shifted top resources into that group to structurally change. And we have made significant improvement, very measurable improvement in the last two quarters that had -- where we see that occurring primarily is in variable cost reduction enabled manufacturing. That's really the primary measure when we look at the ability of when engineering is working well and on-time and material flows and labor flows more effectively that drops right to the variable cost line, and we see that occurring just as we thought we would.

Okay. That's helpful. And then just last one for me, maybe for Mike. But you referenced getting back to more growth CapEx levels. Can you clarify sort of what that growth component would -- may be incorporate, is that mostly around new product launches.

Yes. It would -- it could be new product launches. It could be facilitating [ph] in existing locations for new products will probably be the biggest driver of CapEx versus like an R&D developing the products. But some of the products that Brent and I mentioned that are coming to market, if you wanted to build a MSC truck body, it would -- could require some CapEx allocation. So things like that could drive -- that would be a good example of a growth CapEx item that we could be looking at in 2021 and 2022.

Okay. Thank you. I appreciate it.

Thanks, Felix.

Thank you. Next question comes from the line of Joel Tiss from BMO. Your line is now open.

Hi guys, how it's going?

Good. How are you?

All right. So a lot of the questions have been kind of focused on the volume side, and I just wonder if you can give us a couple of the other pieces on the sort of the structural change side. And I'm thinking more like -- like actions that you've been taking to improve your gross margins over time, pricing power, is there a little bit more because you're closer to your customers, is there a little more potential to get more pricing than just wage and raw material cost increases and stuff like that. Can you give us just kind of that side of the equation a little more? Thank you.

Yes. Let me try to put a couple of things together there without giving, what I would call too specific an answer. So with the organizational restructuring that we're doing to create one experience for our customers, right really remove friction, we're looking deeply at both. We've looked at our finance organization in order to enable our commercial group. We're actively involved and working through a revised commercial structure to facilitate a one Wabash approach to selling, specifically around customers that we think we'll provide substantial value, and they provide substantial value to us. So when we do something like that coupled with what we call our Wabash management system, we have in conjunction key initiatives, which we call annual improvement priorities to work on things like pricing -- pricing methodology -- pricing methodology coupled with enhanced demand plan. All of those things specifically in a ramp year go to the maximization of price and the maximization of profit going into any rolling period. So when we restructure we put all those things together to create a better business outcome, right. And you're seeing [ph] early indications, right, in 2020, we'll look to continue that into '21, '22 and beyond, as we wrap it all together. There is no one initiative, it is the -- our system is based on interlocking changes to create impact.

Okay. That makes a lot of sense.

Yes.

All right. Yes, that was -- yes, that was mostly what I was trying to get at. And another one, just can you give a little characterization on the increase in the backlog. I know you said it's normally fourth quarter, this time, it's third quarter is that nervousness from -- from the customers or is that -- that the customers are expecting a lot more demand going forward, and so they want to get a jump on reordering?

Well, I think anytime you see 30% changes in spot rate going -- second quarter to third quarter, you get the attention of the professional carriers, right. So and bluntly we -- our portfolio has been structured to have the most professional of the professional carriers. So when they see that type of environment, and then they look out and believe depending on who you talk to that can last for 18 -- or 18 months to 24 months depending on who you talk to, their buy signal is pretty literal at that point and they can see it early. So when you're sitting there in the July, August timeframe, they are typically doing their cap -- early capital budgeting in July, so they kind of know what they need to do. And with that type of environment, they're willing to pull the buy signal in the August, September timeframe. Is it panic? Is it, no, not necessarily. That is a -- that initial pull is very prudent, very well thought out initial buying decisions. Now what comes later when you get into -- as built slots begin to build in, right, then we start to get a little bit of, oh dear God, I need to get us a slot, right. And we're -- we're starting to experience that a little bit, right. So we're working through that accordingly. But it's a -- that initial September number was real decisions going on.

All right. That's awesome. Thank you so much.

Yes. Thanks, Joel.

Thank you. And now I will turn the call back to Mr. Ryan Reed.

Thanks, Annual. And thanks, everyone, for joining us today. We look forward to following up with you during the quarter. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.