Mike Pettit - Vice President, Finance and IR Dick Giromini - Chief Executive Officer Jeff Taylor - Chief Financial Officer.

Mike Shlisky - Seaport Global Securities Alex Potter - Piper Jaffray Brad Delco - Stephens John Mims - FBR Capital Markets Steve Dyer - Craig-Hallum Jeff Kauffman - Buckingham Research.

Welcome to the Wabash National Third Quarter Earnings Call. My name is Paula, and I will be 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 Mike Pettit. Mike, you may begin..

Thank you, Paula, and good morning. Welcome everyone to the Wabash National Corporation 2015 third quarter earnings call. This is Mike Pettit, Vice President of Finance and Investor Relations.

Following this introduction, you’ll hear from Dick Giromini, Chief Executive Officer of Wabash National on the highlights for the third quarter, the current operating environment and our outlook for the remainder of 2015. After Dick, Jeff Taylor, our Chief Financial Officer, will provide a detailed description of our financial results.

At the conclusion of the prepared remarks, we'll open the call for questions from the listening audience. Before we begin, I'd like to cover two quick 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, the industry outlook, backlog information, financial conditions and other matters.

As you know, actual results could differ materially than 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, President and CEO..

Thank Mike. Let me start by saying, we are extremely pleased with the continue progress we are making with the overall business and the ongoing execution of our strategic plan. The third quarter was without question the strongest quarter in the company's 30-year history.

Our team achieved all-time record for any quarter in revenue, gross profit and margin, operating income and margin, in addition to operating EBITDA. These outstanding results truly demonstrate the transformative nature of our corporate strategy and our numerous diversification initiatives.

We continue to establish new records for company performance during each of the past six quarters, as a result of specific strategic actions and productivity improvements executed during the past three years. Leveraging these strategic initiatives, all three segments contributed significantly to our record breaking results during the third quarter.

First, our Commercial Trailer Products strategic commitment and focus on favoring margin over volume, along with continued productivity improvement have been key contributors to our recent performance.

Second, the establishment of the Diversified Products Group which is a combination of strategic and organic growth initiatives as a significant contributor to overall company results has enhanced our business stability and reduced our cyclicality.

Third, the addition of tank trailer parts and service into our Retail business has not only improved the overall profitability, but had operating stability and growth opportunities to this segment.

Finally, our commitment to grow our end markets, while leveraging our scale to drive supply chain efficiencies has provided a solid foundation for continued margin improvement. We look to further leverage these actions that we -- as we move through the remainder of 2015 and into 2016.

Turning to third quarter results, trailer shipments remained strong for the quarter at 16,500 units just within the range of our shipment guidance of 16,500 and 17,500 units, albeit at the low-end that some customers were unable to pick up during the quarter.

Additionally, strong productivity driven by our ongoing continuous improvement activities led to exceptional operational performance for third quarter build levels that totaled approximately 16,500 trailers, exceeding third quarter 2014 production by 1,150 trailers.

Consolidated net sales for the quarter were a record $531 million, representing a $40 million or 8.1% increase, compared to third quarter of 2014.

Operating income for the third quarter was an all-time company record at $56.4 million, representing a $21.5 million or 61.4% increase year-over-year, driven by strong performance in all areas of the business.

Operating margin also set a new company record at 10.6% and exceeded the 10% threshold for the first time, a level which we establish as a long-term objective at our Investor Day in August.

Operating EBITDA, which we believe remains an important metric to highlight the company's overall performance increased by 45.9% or $21.4 million to $68 million in the third quarter and represents another company record.

Overall, we are successful in delivering record financial results driven by strong execution from all three business segments, which translated to overall growth in revenue, profitability and operating EBITDA.

The third quarter represented the most profitable in the history of Wabash National with nice momentum to continue to build on as we move through the rest of the year and into 2016. Let’s now spend some time discussing the results of our individual business segments.

So let’s start with the Diversified Products Group reporting segment or DPG, which includes our composites, tank trailer, aviation and truck equipment and process systems businesses. As expected and guided, DPG delivered a much stronger third quarter than what we have seen in the first half of 2015.

Sequentially, revenues increased $22 million and operating increased by $7.8 million or 87%. Gross margin for this segment grew to a very strong 24%, surpassed only by the record 24.7% in the third quarter of 2013.

This was driven in large part by exceptionally strong shipment and margin levels within the tank trailer business to some delayed second quarter shipments were made during the quarter along with excellent execution at the factory level.

As a result, we would expect fourth quarter revenue and margin to pullback somewhat, as we anticipate lower tank trailer shipments along with the normal seasonal decrease in the Composites business. I’d like to provide a few updates on key initiatives that are driving present and future growth within DPG.

We continue to be very encouraged with the progress of DPG’s two major facility projects.

First, the expansion of our food grade silo capabilities into Mexico provides necessary capacity to support cost effective production and delivery of stationary silos for the global food, dairy and beverage market as we leverage efforts to expand this product line internationally.

This expansion is a nice complement to our existing domestic silo business and provides a cost effective platform for further growth one of our world-class Mexico facility. Second, we continue to progress nicely with the ramp-up of our new Wabash Composites manufacturing facility in Frankfurt, Indiana.

This facility lease to provide needed floor space to support the expanding product line and continued growth of our Composites business came online at beginning of year with production capability expanding throughout the year.

In addition to the relocation of the assembly lines for the core DuraPlate AeroSkirt products, the new suite of aerodynamic offerings are now commercialize and in production at the facility, including the AeroSkirt CX, the industry-leading Ventix Drag Reduction system or DRS and the AeroFin tail device.

The Composites business is also realizing nice growth in its LTL Truck Box business, including international expansion of this important new product offering.

Now that the relocation to the new facility is complete, the new offerings are production ready and available to marketplace, and the work force is in place and capable, we firmly expect that the Composites business is once again poised for growth in 2016.

To summarize, we are encouraged by the overall margin performance of the DPG business during these past few quarters, along with the strong potential presented by the new product offerings already developed or in development within the group.

With the tank trailer business performing exceedingly well, opportunity remains to further improve overall performance within our aviation and truck equipment business, along with improving order intake consistency within our Composites and our Process System businesses to assure more predictable top and bottomline performance quarter-over-quarter.

Moving on, let’s discussed the result of our Commercial Trailer Products segment or CTP, consisting of our dry and refrigerated van products, platform trailers, fleet-trade used trailer sales, wood flooring operations and now truck bodies.

This segment continues to successfully execute its optimization strategy with an ongoing commitment to margin improvement, manufacturing excellence and leadership and product innovation. Third quarter revenues were very strong at $387 million within 2% of the second quarters record level of $395 million.

Gross margin of 13.6% was an all-time best for this segment as currently constituted, along with the record operating income of $45.6 million, which exceeded the prior year's performance by an impressive 81%.

The outstanding performance delivered in third quarter was driven by the team's continued execution of a pricing strategy committed to favoring margin over volume, a support of workforce focused on continuous improvement in productivity and material cost optimization through design and sourcing.

These margin enhancing strategies were on full display during the quarter as operating income improved by nearly 17% sequentially, despite 2% lower volumes.

And further evidence of this superior execution achieved during the third quarter, our CTP operations were able to produce 1,200 more trailers than in the same period during 2014, an 8% year-over-year volume increased, while utilizing the same number of manufacturing line shifts and staffing levels.

This long time focus on waste elimination and velocity optimization continues to deliver increased operating leverage for the business. Additionally, the business delivered approximately a 3% increase in net pricing for the third quarter and year-over-year comparisons. Now let’s discuss CTP’s strategic initiatives.

In the third quarter, CTP launched the production facility on its Lafayette at North Campus in support of a new key strategic initiative related to final mile delivery. We recently hosted tours of this facility, as well as displayed a new product entry during our Investor Day in August.

This repurpose production space has been retool to support future production of LTL trailers both 28 foot and 33 foot if approved, specially design truck bodies and other product lines that specifically benefit from increasing demand in final mile and home delivery shipping trends.

This investment demonstrates commercial trailer products intention continue to grow the business organically like expending their focus into adjacent transportation markets from those we presently serve.

This week as we speak, CTP is introducing a new patent pending refrigerated truck body product at the International Foodservice Distributors Association Show that not only highlights our commitment to this market but also introduces proprietary technologies focused on providing a superior product for our customers that will have applications in the final mile and traditional trailer market spaces.

Moving on, the retail segment also had a strong quarter delivering year-over-year improvement in same-store profitability. Net sales of approximately $42 million generated operating income of $1.3 million, an increase of $500,000 year-over-year. Retail also delivered its best ever gross margin at 12.7%.

As stated previously, we remain focused on executing our retail strategy to further enhance margins and profitably grow this segment by increasing our presence in the tank repair and service business through expansion of the number of legacy WNTC locations within -- with the capability to perform these services, expanding our mobile fleet services and growing the number of customer site service locations that we operate.

Third quarter profitability was significantly aided by these initiatives and year-over-year comparisons which are expected to grow and contribute significantly to another record year for our retail operations.

Before I discuss Wabash National's specific expectations for the remainder 2015, let me comment on a few key economic indicators and industry dynamics that we monitor which provide broader context to our expectations.

Although the general economy continues to produce mix singles while reflecting modest growth rates and the Class 8 tractor market appears to have soften, the key indicators supporting the Class 8 trailer market remain strong. ATA's truck tonnage index increased 0.7% in September to 135.1 continuing an up and down trend in 2015.

The index was 3.1% higher than in the same month last year. Year-to-date through September, tonnage was up 3.3% compared with the same period in 2014. ACT Research reported that trailer net orders for September were strong 36,000 units while FTR reported orders of 34,700 represented the strongest order month of the year.

The October report from Act Research forecast 2015 trailer shipments at 307,500 units, up 14.4% year-over-year and 291,100 trailers for 2016. FTR now anticipates 307,100 trailers to be produced for 2015, an increase of 15.8% year-over-year and projects 276,000 units to be produced in 2016.

From a regulatory and legislative standpoint, the Environmental Protection Agency and the National Highway Traffic Safety Administration proposed new regulations in July in an effort to further reduce fuel consumption and production of carbon dioxide and other greenhouse gases.

The proposal focuses mainly on van trailers and will require fuel saving technology such as trailer side skirts, low rolling resistant tires and automatic tire inflation systems to become standard equipment starting in 2018. Additional regulations will be implemented in 2021, 2024 and 2027.

In addition, we all are still waiting to see if the increase in pup trailer length to 33 feet, a provision as part of the proposed fiscal 2016 funding bill that passed the U.S. House and Senate Appropriation’s Committee in June will be passed by the Senate and sign in to law.

If so, this legislation will provide a tailwind to the strength and longevity of the current trailer equipment replacement cycle. In light of that economic and industry backdrop, let's now discuss Wabash National's view of the remainder 2015 and a glimpse of 2016.

Despite what normally would be a seasonally weak quarter for order intake leading to backlog contraction, our third quarter backlog remained extremely strong finishing the third quarter at $1.1 billion and $300 million higher than 2014 levels.

In contrast to some who have long been calling the ends of the current trailer demand cycle, we continue to see a strong demand environment for new trailers with quote and order conversion activity remaining robust providing further support for continued revenue and margin growth.

We are presently experiencing seasonally stronger demand than normal for 2016 build slots and believe that this order activity further supports our view that 2016 will be another strong year for the trailer industry.

In addition, the quote and order activity, key industry driver such as freight demand, carrier profitability, excessive fleet age and regulatory compliance requirements remain favorable for strong trailer demand.

While some key industry drivers have softened somewhat, we believe that they continue to provide sufficient strength to support a solid demand environment for trailers.

Additionally, we believe that the current disconnect between tractor demand and that for trailers will continue for 2016, driven by the unique characteristics of the trailer cycle, including longer trade cycle of trailers, the current age profile, the existing trailer population, the driver shortage leading to increased drop-and-hook activity as well as the impact and response to CSA.

This favorable demand environment coupled with an extremely strong backlog and excellent operational execution provided solid foundation for strong finish to 2015. As a result, we expect full year consolidated shipments to be between 63,000 and 64,000 units. This puts our forecasted year-over-year growth in shipments at solid 11%.

In terms of earnings, we’re again raising our full-year EPS guidance to a range of $1.38 to $1.43 earnings per share representing a 58% improvement year-over-year at the midpoint of the range.

Furthermore, continuing on our string of improved year-over-year comparisons, we expect fourth quarter EPS to be better than 2014 but consistent with past years, we will experience seasonal headwinds in the fourth quarter as we face higher utility cost, additional holidays and fewer production days.

Looking ahead to 2016, we see another strong year for the industry and we fully expect continued growth from our strategic initiatives. As our 2016 order book grows, we will update our guidance but at this time, assuming global and economic growth remains in line with where it has been over the past couple of years.

We would expect full year earnings per share for 2016 to be at least comparable to 2015 or in other words $1.40 per share or better.

Overall, based on the current demand environment, our strong backlog and the disciplined execution being delivered by the entire team, 2014 will be our fourth consecutive record year for profitability with continued strong cash generation coupled with a very strong balance sheet.

I like to reiterate that as we move through the trailer cycle, we remain committed to further diversifying and strengthening the business. And we are better positioned at any time during our company's history to continue to drive growth independent of the trailer cycle.

As a reminder in 2005 at the peak of the last trailer cycle, we derived approximately 75% of total company revenue from dry van trailers. Today that figure is just over 50% even though we will ship more dry van trailers in 2015 than we did in 2005.

We will continue to optimize our dry van operations but as the rest of the business grows, our reliance on that revenue stream will continue to moderate. In summary, we’re obviously pleased to deliver a very strong record-breaking third quarter and to have continued the string of strong quarterly results.

We’re also encouraged by the breath of strength and third quarters’ all three segments delivered nice financial results. While extremely pleased with our position, there remains more opportunity and work to be done.

In the commercial trailer products business, we’ll continue to focus to accelerate our efforts to introduce more attractive higher margin growth opportunities to drive its topline and bottomline.

We’re now clearly seeing the margin and productivity improvements in this business but we need to ensure the business consistently delivers double-digit margins and then grow it from there. The entry into the truck body market is step toward meeting those goals.

We need to effectively execute the introduction and ramp up of our exciting new product offerings in our diversified products segment. We also need our new products to deliver on expectations to grow in their respective markets and contribute to DPGs profitability in 2016.

Furthermore, we need to leverage the higher margin tank parts and service opportunities for margin expansion and growth of our retail segment and continue to execute on commitments made with the expansion of customer site service locations. So while much has been done, there remain other opportunities to improve.

We’ll continue to be strategic but selective in pursuing opportunities to grow our business in addition to the organic growth initiatives already underway. We will continue to be responsible stewards of the business to assure that the proper balance between risk and reward is considered in all decisions.

In closing, we’re extremely well positioned this year and we’ll deliver our fourth consecutive year of record revenues and profitability with a strong backlog of demand environment that remains favorable and a number of new products either already launched or nearing launch status as well as operations that are performing at a very high level.

With that, I'll turn the call over to Jeff Taylor, Chief Financial Officer, to review in detail our financial results. Jeff..

Thanks Dick and good morning everyone. In addition to the earnings release, we filed the 10-Q after the market closed yesterday. So let’s get started. Overall, it was an outstanding third quarter which is reflected in the results.

All three segments contributed measurably to our record-breaking quarterly performance, which demonstrates the benefits of our strategic diversification efforts as well as the continued improvement in our operational execution. With that, let’s look at the third quarter financial highlights.

Consolidated revenue for the quarter was $531 million on total new trailer shipment of 16,500 units. Just within our guidance range, a 16,500 to 17,500 units and 900 units higher year-over-year. Sequentially, consolidated revenue increased $17 million or approximately 3%.

Commercial Trailer Products’ net sales were $387 million, which represents a $35 million, or 10% increase on a year-over-year basis due to higher new trailer shipments of approximately 800 units.

New trailer average sales price, or ASP increased approximately 3%, primarily resulting from improved pricing and an improved product mix that was biased towards higher products such as refrigerated trailers and higher spec driving trailers. Diversified Products net sales improved 4%, or $4 million on a year-over-year basis to $120 million.

Diversified Products’ Group revenue improved year-over-year due to increased tank trailer shipments and improved composite products sales, partially offset by a decrease in aviation and truck equipment and process systems business unit sales.

Retail segment net sales decreased approximately $3 million, or 7% on a year-over-year basis and lower new and used trailer sales, partially offset by higher sales from parts and service. Overall, the Retail segment experienced improved margins and bottom-line performance.

Looking at our various revenue streams, new trailer sales of approximately $442 million on 16,500 units increased $41 million, or 10% year-over-year. This year-over-year increase is due to increased new trailer shipments and improved pricing in both Commercial Trailer Products and Diversified Products.

Used trailer revenue was approximately $9 million on 500 units sold, an increase of $2 million from a year ago. The lower unit sales, is a result of the ongoing tightness in the used trailer market and supports our belief that there is still pent-up demand in the trailer market.

Component, parts and service revenue was approximately $46 million in the quarter, up $5 million from a year ago, primarily as a result of stronger sales in the composites business and in our retail operations through customer site service locations.

Finally, equipment and other revenue, on a year-over-year basis decreased by $9 million to $34 million for the quarter. This decrease was primarily driven by lower sales from non-trailer equipment within Diversified Products from aviation and truck equipment and process systems. Moving onto operating results.

For the second consecutive quarter, the company achieved a new record for consolidated gross profit. Consolidated gross profit was $86.0 million, or 16.2% of sales, compared to $61.6 million and 12% in the same period last year. This represents a $24.4 million, or 39.6% improvement year-over-year.

All three segments of the business were solid contributors to this record-breaking success in the third quarter. Let’s look at the segment margins in more detail. Commercial Trailer Products’ gross margin improved 480 basis points over the prior year period, resulting in a 69% increase in gross profit or $21.5 million.

This year-over-year profitability improvement in Commercial Trailer Products was driven by manufacturing efficiencies and operating leverage gained from increased volume in addition to improved pricing.

Production during the quarter was 15,650 units, up by approximately 1,200 units, year-over-year due to strong demand and continued productivity improvement.

Diversified Products’ gross profit increased $4.2 million compared to the prior year, primarily due to higher quarterly shipments of tank trailers and composite products while improving this gross margin, 270 basis points to 24%. Let’s move onto Retail.

The gross profit in this segment increased in the quarter by $0.4 million, or 8.5% year-over-year, driven by increased new trailer pricing as well as continued growth in customer site service and tank trailer parts. This growth in customers’ tank service and tank trailer parts led to the margin improvement of 180 basis points in the quarter.

On a consolidated basis, the company generated operating income of $56.4 million in the quarter, an increase of $21.5 million or 61.4% year-over-year, driven by improvements in all three segments. At 10.6% of sales, operating margin was approximately 350 basis points higher than the prior year period and 240 basis points higher sequentially.

Additionally, this is the first quarter with operating margin above the 10% goal we established at our investor day in August. Sequentially, operating income was higher by $14.3 million, primarily driven by improved productivity and pricing in Commercial Trailer Products and stronger tank trailer shipments in the Diversified Products Group.

Operating EBITDA for the third quarter was $68 million, a year-over-year increase of $21.4 million or 45.9%. Sequentially, operating EBITDA improved by $14.4 million on stronger performance from both CTP and DPG. On a trailing 12-month basis, revenue was approximately $2 billion with operating EBITDA approximately $207 million, or 10.3% of revenue.

Cash flow from operating activities was strong in the third quarter and is approximately $90 million higher through the first nine months of 2015 as compared to the first nine months of 2014, primarily due to increased net income and aggressive effective management of working capital.

As typical, we expect cash conversion to remain strong in the fourth quarter. Selling, general and administrative expense, excluding amortization for the quarter was $24.3 million or 4.6% of revenue. We expect SGA as a percent of revenue, excluding amortization to be approximately 5% for the full year.

Intangible amortization for the quarter was $5.3 million and is expected to continue at this level for the remainder of 2015, with a full year expectation of approximately $21 million.

Interest expense, consisting primarily of borrowing costs totaled approximately $4.8 million in the third quarter, a year-over-year decrease of $0.7 million, primarily related to the impact of voluntary term loan prepayments in 2014, as well as the refinancing of both our term loans and revolving credit facility.

We anticipate interest expense to be relatively stable at this level into the fourth quarter. Approximately, $1.2 million of our reported quarterly interest expense is non-cash and primarily relates to the accretion charges associated with the convertible notes. We recognized an income tax expense of $19.5 million in the quarter.

The effective tax rate for the quarter was 38.0%. We now expect our full year tax rate to be closer to 37.5%. Finally, for the quarter, net income was $31.9 million, or $0.47 per diluted share. And with no adjustments in the third quarter, our adjusted EPS was also $0.47 per diluted share.

In comparison, non-GAAP adjusted earnings for the third quarter of 2014 was $18.6 million, or $0.26 per diluted share. This represents a year-over-year increase of 81% in adjusted earnings per diluted share. With that, let’s move to the balance sheet and liquidity.

Net working capital showed a nice step down in the third quarter while decreasing 413 million from the second quarter. We expect net working capital to decrease slightly in the fourth quarter as we reduced total inventory around year-end, consistent with our normal seasonal pattern. Capital spending was approximately $7 million for the quarter.

We now expect full year 2015 capital spending to be approximately $23 million. And liquidity or cash plus available borrowings as of September 30th, was $366 million, an increase of $58 million from the second quarter. As a result, our total and net debt leverage ratios were 1.7 times and 0.7 times respectively at the end of the quarter.

In regards to return of capital to shareholders, we have repurchased almost 3 million shares for $41.4 million year-to-date.

We're pleased with the continued strengthening of the balance sheet and the company is well positioned with significant financial flexibility, as we evaluate all of our capital deployment options including investing in the business through capital expenditure, further debt reduction, return of capital to shareholders and of course, strategically growing the business through acquisition.

In summary, the company delivered a record third quarter that was the strongest financial performance of any quarter in our 30-year history. We're well-positioned as we close out this year and head into 2016. All three business segments posted solid results and contributed to the record quarterly performance.

The backlog is strong and industry fundamentals support a solid outlook for the foreseeable future. The balance sheet is strong and the leverage ratios remain in comfortable territory. We have no significant debt maturities until May 2018.

Lastly, we're looking forward to continuing the success we have had today and delivering strong results for the balance of this year and into 2016, all while remaining committed to being good stewards of the company's capital and managing the company for long-term value creation. Thank you.

And I will turn the call back to Paula and we will take questions which asked..

Thank you. [Operator Instructions] And our first question comes from Mike Shlisky from Seaport Global Securities. Mike, please go ahead..

Good morning, guys. I wanted to maybe….

Good morning, Michael..

Good morning. I wanted to maybe touch first briefly on the 2016 review that some of the forecasters are putting out there. They both are saying down a little bit. In some cases maybe missing digits here.

I was kind of wondering if you can maybe just sketch out for us what you mean by -- having EPS at $1.40 or even higher than that given that kind of declining environment for your core market, do you have any significant market share gains planned or will you have perhaps a little bit more leaving room in your production lines is where the margin is there? Can just give us a little bit of color there, I would appreciate it?.

Yeah. The decreases that the ACT Research and FTR are looking at the two main forecasting arms, are looking at our slight when you look relatively at a strong demand that we've been experiencing throughout this year.

It’s really stressing the system and actually a little bit of lightning and demand can actually help suppliers and help manufacturers become even more cost effective and more efficient in their operations as they depend less on overtime to produce and optimize their business to be able to produce the product.

So we don't see much of a difference between numbers of 305,000 and numbers of 295,000. Even though you calculate there is a few percent decrease, it really actually helps manufacturers in getting consistency and cost effectiveness in the operation.

So from that standpoint, it's plenty of volume, plenty of demand on the trailer side to sustain the success that we and other manufacturers are having during this time..

So maybe just -- maybe add a little follow-up to that question then. It sounds like in a slightly down environment, you will have the same or if not better margins than you had sort of a 4. Obviously things aren’t going to be at least on '16 as bad as they were about when things turned maybe the prior cycle.

I guess my kind of question is what would be a more normalized margin run rate if we were to see things eventually return back to normal, not necessarily next year but in any future year? Can you give us kind of a sense for how much higher you think your company's margins have come between this cycle and the prior cycle?.

Well, I don’t know if we want to -- the prior cycle was such an anomaly, I don’t know if you want to use that as any kind of a baseline and our business is so much different than what we experienced back then. Back in the 2008-'09 timeframe, we were predominately a dry van business, with also having refrigerated trailers and platform trailers.

But our dependency on the dry van segment that was most affected by the downturn was significant as we stated in the formal comments in excess of 75% of our business was really dependent on that segment and it went down about 80% in demand.

So a whole different environment today, we’re just over 50% dependent on the cycle, we continue to grow other parts of our business to decrease that dependency and we’re much stronger in that business than we were even previously. So all-in, we’re much different business and comparisons to last cycle are almost meaningless.

What I can assure you is that we will be successful no matter what the crazy global economy and domestic economy can throw at us..

I was going to say what I think we take into the -- when we see the next downturn Michael is all of the improvements we’ve made in our operations we will maintain those and we will get the benefit of those when and if that next slowdown occurs. And so that’s one thing.

And then secondly as Dick pointed out, we’re a different company today than we were in the last downturn. The Diversified Products Group is significantly bigger portion of the overall company. It’s going to contribute nicely.

In that environment, it’s a much more stable business, weathered the last downturns much better than the core trailer business did. So overall, I think the whole company we expect it to perform well when we face those types of challenges..

Okay. Great. I think just squeezing one last one here.

Your backlog is $1.1 billion, are you booked to reduce say well into let’s say 2Q of next year, do you still pretty confident that your next two quarters at the very least are I want to say in the bag but looking awfully good right now already?.

The bulk of the $1.1 billion obviously falls in the dry van refrigeration van space where we get the most forward view of the market. That’s where the largest customers are. They are the ones who get into their coating process earlier and any year for the following year. So the majority of it is in that dry van refrigerated van segment.

So yes in that part of the business, there is good visibility into mid and second half of next year and other parts of the business, you don’t get those kind of backlogs and customers don’t order quite that early in the process.

So we will see what happens over the next several months as we build the backlog in the rest of the business, but certainly for the CTP business the dry and refrigerated earned a good position..

Okay. Great. I will hop back in queue. Thanks, guys..

Thank you..

And our next question comes from Alex Potter from Piper Jaffray. Please go ahead..

Hi, guys, very nice job this quarter. I was wondering if you could talk about non-trailer revenue in Diversified Products.

It looks like obviously DPG overall did a really nice job, a lot of tank trailer deliveries freeze there, but if you feel that way and just look at the non-trailer revenue, it looks like we’re still comping down versus last year, obviously waiting to get some contribution from the new products that you mentioned, also some silos I guess.

So basically, I guess the question here is when do you expect that specific sub within DPG to start posting some positive growth?.

Yeah, those are a little tougher, my comments, my formal comments, that’s one of the challenges that we continue to have is getting consistency and more stability in the flow of order input into the businesses, the non-trailer side.

They come in bunches, in some quarters you just don’t get orders in place, in other quarters you do, and that’s true of the Composites business and the Process Systems business both. They both seem to have those challenges.

In the Process Systems business there were some delays as a result of weather early in the year caused delays in placement of orders, decision making by some customers there. And in the Composites business, it really is I don’t want to say a crapshoot, but very unpredictable as to when orders end up getting placed.

In the third quarter the Composites business had a good quarter. They had some good solid orders that they were able to execute on. Typically for them fourth quarter tends to be a little bit softer. Conversely Process Systems fourth quarter looks like their order book is stronger and finally starting to may be catch up a little bit.

So I wish I had a better response for you on that. We certainly expect with all of the initiatives that we have in place the Frankfurt facility with all the new aerodynamic offerings, the truck box offering, and then on the Process Systems would be the silo initiatives for our Mexican operation.

We do expect 2016 to return to growth for that side of the business, but right now it’s just going through a little bit of choppiness..

Okay. Very good. That’s very helpful. Also I guess you mentioned there was some benefit when we’re looking at pricing for the trailers themselves, you had a year-over-year increase. Some of that sounds like it was just general across the board price increases because of the strong market. Some of it sounds like it was mix.

So trying to parse through there and see how much of that ASP increase is going to stick versus being kind of a one-time shot in the arm in the quarter?.

Yeah, Alex, I think in general, the pricing -- you hit it right on the head in terms of the contributing factors there. I mean, there is a net price increase in the quarter. Based on the strong backlog and the strong order activity that we’re seeing, we expect that’s certainly to continue.

There is an element there of some higher price product and some mix in it. It’s a smaller component. That’s one that we take the mix that we get from our customers. But overall the pricing environment continues to be a very favorable and we expect it to continue based on the activity and the backlog we have..

Yeah.

So just breaking that down a little bit Alex, the net pricing improvement that I commented on of about 3% was real pricing related, net of all of the other mix and product and all so, and that’s really been driven by a very strong environment that the team has really taken the opportunity to get good margin recovery for what would had been placed previously to really raise the overall margin for the business..

So about two-thirds of the total year-over-year when we talked about what 480 basis point improvement from….

Gross margin..

Yes. So about 3% of that was tied to the net pricing..

And then there is operational efficiencies in that margin..

Sure. Okay. Very good. Thanks a lot..

Thank you, Alex..

And our next question comes from Brad Delco from Stephens. Please go ahead..

Good morning, Dick. Good morning, Jeff..

Hey, Brad..

Good morning..

Dick, fantastic gross margins on CTP, 13%, it’s even above, I think the range, you’re reporting us towards this cycle of 11% to 12%, can you talk about maybe more specifically the drivers of that and whether or not that’s sustainable, was there any benefits from raw material costs or anything that would maybe suggest to us that’s not sustainable in this type of demand environment?.

It’s certainly sustainable in this kind of demand environment, I mean that’s the opportunity that you always get when you’re facing a very strong demand environment. A lot of it is execution on the factory floor.

The workforce is much more stable, much more mature, much more proficient, they are able to handle and absorb a lot of the velocity optimization test time reduction initiatives that have been going on in my comments 1200 unit, more units produced with the same staffing levels, same operating shifts than what we had previously, and that’s a testament to those efforts.

So, truly that is sustainable now that we’ve got to that point. There is always going to be some influence as the team continues to work to increase the amount of indirect channel that is served rather than just the direct channel said another way.

You have better pricing capability in the indirect channel than in the direct channel with large customers that have somewhat lower spec product, but obviously more pricing influence. So that’s what some of the efforts.

And the material cost side of that from our sourcing, our purchasing group doing an outstanding job of taking advantage of the continued growth of the business and using that to achieve year-over-year improvements in pricing from the supplier community.

I’m certainly not going to deny that that our favorable commodities environment can always play in to an extent. But I would remind everyone that we go out and we forward contract on our aluminum and on our steel pricing.

Once we get assigned order from a customer, we mitigate risk upward down by locking the price and locking those units that are needed to build out that orders. So while some who sit and float with commodity pricing might get even more benefit. We try to mitigate the risk.

So, we are not seeing as much of a commodity play to the numbers as some others who are going out and taking forward positions..

That’s a great color. Thanks for that. And then Dick I think you even mentioned some mix data points in the market and you talked about positive drivers of your demand being overall freight demand and carrier profitability.

I mean, I would you imagine you’ve seen what’s going on in the transportation market and there is a lot of concerns out there about decelerating demand and what that will mean for contract pricing and everything else going into the next year.

I mean do you at all have concerned over what the demand environment may look like? I know today it looks quite unique and things that held a very well for trailers, but anything specifically that you’re keeping a closer eye on or a pulse on or maybe keeping more cash for any particular reason that would maybe give us a sense of what maybe different about the Wabash in this type of cycle versus what we saw last time?.

Yeah. Well, certainly we try and monitor all of the data points that I share of course. We watch what’s going on from an overall GDP, we watch the truck tonnage, we watch the loadings, we watch the carrier profitability.

We are sensitive to all of the same types of things that you all are watching of course and the pricing, year-over-year pricing opportunities for the fleets. We monitored that, we talked to our customers and what their confidence level is and how they are doing in the marketplace.

And based on what we continue to hear from the primary customers that we deal with, they still feel overall pretty good about what's happening. It's not as robust as what they would like. There are pockets of strength and pockets of softness, but overall we have not got an indication that that our key customers are overly concerned.

I am trying to be selective with my words here because I don't want to try and put words in their mouths either. But they seem to be pretty comparable, there's still an expectation that demand will tighten or capacity will tighten, I should say.

As we proceed through the balance of the year, as once the inventory buildup that had occurred earlier in the year is depleted, there is going to have to be more inventory replenishment, that's the belief by many of the fleets, many of the shippers also, who have said that that they would expect capacity tightening.

And that's why you're not seeing a lot of aggressive negotiations going on. And you see the dedicated contracts side still being year-over-year increases and you see the spot market be in the one that is using question. So we still feel very comfortable.

We know the age of the fleet, the age profile of the trailer fleet is still very -- weighted toward very old equipment. Our customers in many cases have even stated that they would like to buy more equipment than they're buying today. If they could do it, they would accelerate some other purchases.

In many cases, customers were shut out for 2015 who wanted to replace equipment, because capacity was gone. All build slots were filled up. So all of those indicators certainly give us assurance that 2016 will be a strong year overall for the trailer industry and for Wabash National.

And I will say that there is going to be pockets of weakness, folks who are very dependent on the energy sector, which we are not. But those folks are feeling a lot more pain and concern as to what's happening going forward there. Our total market there is about 2%.

So it really is not an impact to us, but many others who depend on that are seeing a lot of challenges at mining, same thing there. So, we feel very good overall in our growth initiatives. The organic growth initiatives, we feel very good about. And we’ll continue to look at opportunities to further build on the business..

No. I appreciate that color. You guys have certainly stood out, so congrats on these good numbers and good outlook. Thanks for the time..

And our next question comes from John Mims from FBR Capital Markets. Please go ahead..

All right. Thank you. Good morning, guys..

Good morning..

Dick or Jeff, could you repeat or just walk through what you said in prepared comments about DPG softening going into fourth quarter.

Is that more of a revenue, or is that a margin comment?.

I think -- it could end up being both top and bottom line. Just because of the tremendous strength in the third quarter of trailer shipments that they are able to make. So, we know that as I stated little earlier in the Q&A, the process systems, we did get orders coming in through that are going to help them in the fourth quarter.

So that’s a plus but typically the composites business tails off a little bit in the fourth quarter. So, we expect that again this quarter and we certainly don't expect the tank trailer business to be able to ship as many units as they did. So, we could see slight falloff on the topline.

But I would think that the margins and the contribution would be more significantly impacted. More or like, maybe what we are seeing for the most part of last year..

Yeah. John, the margin in Diversified Products this quarter was the highest it’s been expense in the last three to four years as Dick pointed out in his comments. So, I think we would expect the margin to be in that normal range that we’ve talked about in the past and it is going to be based on the mix profile that we ship in the quarter..

Sure. But those are other two slightly different things because the comps from last year were difficult because you are working through some of those issues. So, when you finish last -- fourth quarter of last year, sub 20%.

Even though we would expect some normalization from third quarter that still within the 20s, or is a teens type of number normal fourth quarter?.

Yeah. John, when we moved the wood products I'll put it under the Commercial Trailer Products business beginning the year. We pro form out all those numbers. So the business was running more in the 21%, 22% gross margin when you pro forma out the wood products. So that's -- my comments are referencing those pro forma published numbers..

Perfect. No. No, fair enough. Fair enough. Then let me ask you. So when I look at the tightened shipment guidance and as some of that shows out in what we just discussed. But still earnings -- your EPS estimate, I mean your guidance is obviously points to a very strong EPS quarter in fourth quarter.

But shipment numbers going down, which means good pricing, great margins, limited build slots, all year has helped that. But when we carry that into 2016, are you concerned at all about the competitive response from the industry standpoint in terms of Wabash is putting out these great numbers, we've all had a really good year.

People -- there's more demand than supply. Are people adding build slots that concerned you when you look at the ACT numbers that -- who knows that still end up being, right? But right now there is trending down slightly for the next three years.

So, how sustainable do you think the pricing and margin performance that we've seen in the last couple quarters then we should see in fourth quarter is over the next two years?.

Yeah. You are getting out there, of course. Certainly 2016, we feel very good about the position we are in and the ability to sustain and even improve on what we are already doing. That's consistent with my comments a little earlier, so I won’t go through that again. When you get out into 2017 and beyond, obviously a lot can happen between now and then.

We do know about some additional capacity that some other folks are just starting down the path to put in. So there's going to be some of that out there. But that's still won’t get us back to the capacity that existed in this industry prior to the last downturn where based on our estimates, about 50,000 units of capacity came out of the industry.

And based on the estimates and what we have heard around the industry, it looks like 20,000 to 25,000 units could be added maybe at the lower end of that number to it and that should be over the next, probably year and a half to two years when you think about the time it takes to either retrofit any existing facility or build a greenfield plan to get it facilitate up and running ramped up and all.

So, probably mid to late 2017, you'll start seeing more of an impact of that as the number slow so you’ll have to see how we make out. Our intention is to be able to continue to be less dependent in all of this capacity that I’m referring to that we’re hearing about would be in that primary core space, the driving and refrigerated type product.

So our intention and our focus has been to continue, as I stated earlier, continue to diversify, so that we’re not dependent on any one lever in the business or certainly less dependent on it. So we don't face what we faced during the last downturn.

I think we hinted at that at our Investor Day that we want to continue to decrease the driving and dependency. It’s at just over 50% today in our business. And we’re shooting it getting it down lower into 30%, 35%, 40% dependency over the next two years or so and that will really help us weather any storm..

True. That’s really helpful. Thanks a lot..

And our next question comes from Steve Dyer from Craig-Hallum. Please go ahead..

Thanks. Good morning, guys. I'm wondering as I look at your shipments in backlog growth and the quarter was a little bit less than the overall industry.

And I'm wondering if that sort of combined with the pricing and the margins and so forth would seem to indicate that you're being really pretty selective with what you're taking in at this point, is that fair assessment?.

Yeah. We’ve been on this path since 2012. And as we like to call, we’re favoring margin over volume. So as we look at each and every bit opportunity, we assess the quality of that potential order. And we’re trying to maximize the utilization or optimize utilization of the build slots to get the best we can.

Obviously, we’re going to support our large long-term customers. And we've been successful with getting much more fair pricing for that product. And we’re going to continue to drive our indirect channels to try and fill in as much capacity with that kind of product and we've been successful in this market..

Okay. And then I think you noted that this quarter was on the light end, I guess, of your guided range due to some delays in some customer pickups. But then you guided the full year, you narrowed that to the low end of the range, which would seem to indicate that nothing really is going to slip into Q4.

Can you just kind of talk through how you see Q4 playing out?.

Yeah. I mean, we think it’s going to be a very solid quarter.

It just really comes down to the ability of certain key customers who have large quantities of equipment and their ability to be able to pick those trailers up during the fourth quarter, which is always a little bit trickier in the fourth quarter than in the third and tied to weather conditions.

We know in these past two years, it became two years ago very, very difficult and challenging for customers. The last year, not quite the challenge, so it's a little unpredictable, even with good intentions for customer. So our numbers that we provided are the numbers that we feel most confident that it can be achieved for the year..

Okay. Two more quick ones for me, you noted that tractors have soften some and I think are anticipated to a little bit more in the next year. With at least, according to what we’re looking at the average number of trailers per tractor ratio, sort of at a recent high, typically these two never devoured for long tractors and trailers.

So I’m just wondering kind of why you would think trailers will remain strong next year in the face of tractors and some of these other factors?.

Yeah. What’s unique about this versus old history is that the last downturn 2008, ‘09 and I’ll even argue 2010, that period of time only 350,000 trailers were purchased during that time. And generally -- and I'm talking the dry van segment mainly but the numbers I'm using are for the whole industry but the dry van usually are 60%, 65% of the total.

And when you look at the target audience of equipment that would've been targeted for replacement, it would have been equipment that were built 8 to 10 years prior to that. And if you take 10 years as nominal, it's 1998 through 2000 trailers. And there were 863,000 of those trailers, all in total those three years.

So you got over a 500,000 unit delta between the trailers built in the late 90s to the trailers built 2008, ‘09, ‘10. Many of those pieces of equipment are still out on the highways running, especially by the big truck load guys. And they’re ‘15, ‘16, ‘17 years old now. They have to get out of the system.

The customers recognize that and that goes to my earlier comment that a number of customers have said they would be replacing even more, purchasing even more trailers if they could do it. They recognize the challenge that they have in attracting and retaining drivers if they have old equipment.

Remember now that since the advent of CSA, the trailer is important to the driver now. The driver gets measured on the low worthiness of the equipment that he is operating, both the tractor and the trailer. Prior to CSA, the trailer was an afterthought and it was always talked that the tractor attracted and retained drivers.

Now both of them are important. Customers understand that. So they are aggressively trying to make their fleet younger. The other factor is the trade cycle itself. The tractors have already coming out of the downturn have already gone through multiple trade cycles, three to five-year turnaround.

In the trailer industry when you’re talking eight to 12 years typical and you’ve got these excessively old, it hasn’t gone through that whole cycle. And that’s why you still got pent-up demand and ketchup demand that be the fleets are dealing with.

So it’s a numerous factors, but that's the one point that folks typically miss is he can’t just look at the average age of the equipment, you have to look at the age profile of the equipment. How old are each groups of it, how many of them are in each age group and that’s the main tractor..

Great. That’s helpful. And last one for me, obviously, your free cash flow is very, very good. I was just looking at kind of some of your buyback information in the Q and you’re pretty aggressive in Q2 bought back 1.5 million shares.

I’m showing closer to $14 on average and you haven’t bought any stock according to that since July? So I’m just wondering if there's another reason maybe you’re building cash whether it be for acquisitions or what have you? But maybe any color just kind of given the continued strength of the free cash flow, why you took the foot of the gas there?.

Hi. Steve, this is Jeff. Its just one other things where we manage the working capital of the needs based upon the seasonal profile there and so that something we’re going to evaluate each quarter. As we’ve talked about before, it’s an ongoing discussion and dialogue we have with our Board of Directors.

So given the strong outlook, the strong backlog, the fact that we would expect to build some working capital early in 2016, we’re in good position there from our cash balance perspective. In regards to our capital allocation, our approach hasn’t changed. We continue to maintain a balanced approach to capital allocation.

Certainly over the long-term, wouldn't get too caught up with any action in one individual quarter. But, certainly, overtime, we’re going to allocate capital to the four major buckets we’ve talked about, investing in the business, debt reduction, return the capital to shareholders and strategically growing the business.

So I think what I’d say is that, we feel good about what we’ve done year-to-date in terms of shareholder return, return of capital and that something that’s going to -- we’re still committed to, so stay tuned..

Okay. Thanks..

And our last question comes from Jeff Kauffman from Buckingham Research. Please go ahead, Jeff..

Thank you very much. Hi, guys. Yeah. Congratulations. Fantastic, fantastic quarter.

So, Jeff, if I read between the lines when does the dividend start?.

Well, Jeff, as you know, we don’t currently have a dividend authorized by our Board of Directors, but that’s the part of our ongoing conversation around the return the capital to shareholders. So once again stay tuned..

Very good. It’s a quality problem they have for sure.

Dick, I want to come back to some comments you made on the facilities that a number of us did have the opportunity to tour at your Analyst event? Maybe part of the answer to how do you guys feel good about growing when trailers eventually do slowdown as, hey, we got these new products and they can make a difference? Can you give us an idea about how big the end markets are for some of these new products you’re going to be rolling out there and maybe what they might be able to contribute over a period of say, the next two years? And as these new products come into the CTP, are we going to see any kind of cosmetic changes to say, mix via average price or anything like that that may throw the traditional metrics off a bit?.

Yeah. I -- at this juncture, I would not want to try and paint a picture of how big we’re going to play, since we've done a lot of analysis. We believe there are segments of the market that we want to focus on. And the team is continued to evaluate what those opportunities would look like in full.

So, I think it be a little premature to try and respond in any concrete fashion to the question you have, Jeff. We’ll be much better prepared as we get through and get fully ramped up with this to see what the reception is.

As I stated in my formal comments, this product being displayed right now at the IFDA show over in Phoenix and we’re getting a lot of good feedback there and that will give us a lot of better insight to what we can do and what parts of the market we can play in..

Are you comfortable talking about how bigger potentially addressable market it is?.

Not at this juncture..

Okay. Very good, guys. Congratulations and thank you..

Thanks, Jeff..

Thanks, Jeff..

I will now turn the call over to Dick Giromini for closing comments..

Thank you, Paula. In conclusion, we’re obviously, extremely pleased with the results we’re able to deliver in the third quarter 2015. That said, we see even further opportunities to accelerate our topline growth, expand our product and market breadth and delivering greater performance in almost all aspects of our business.

With a hyper-focus on execution and delivering results, I’m certainly confident that we'll do just that. Thank you for your interest in and support of Wabash National Corporation. Jeff, Mike and I, all look forward to speaking with all of you again on our next call. Thank you..

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