Mike Pettit - VP, Finance and IR Richard Giromini - CEO and Director Brent Yeagy - President, COO and Director.

Jeffrey Kauffman - Aegis Capital Corporation Albert Delco - Stephens Inc..

Welcome to the Q2 2017 Wabash National Earnings Conference Call. My name is Christine and I will be your operator for today's call. [Operator Instructions]. Please note that this conference is being recorded. I will now turn the call over to Mike Pettit. You may begin..

Thank you, Christine and good morning. Welcome everyone to the Wabash National Corporation 2017 Second 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; and Brent Yeagy, our President and Chief Operating Officer, on results for the second quarter, the current operating environment and our outlook for the remainder of 2017.

In addition, I will provide an overview of our financial results as Jeff Taylor is suffering from laryngitis. At the conclusion of the prepared remarks, we'll open the call for questions from listening audience. Before we begin, I'd like to cover 2 brief items. Please note that this call is been recorded.

Second, as with all these types of presentations, this morning's call contains certain forward-looking information, including statements about the company's prospects, earnings per share guidance, the industry outlook, backlog information, financial condition 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, CEO..

Thanks, Mike. Let we start off by saying that we're pleased that we delivered another solid performance overall in the second quarter. However, not up to recent standards and we know that we can do much better and will.

Diversified Products Group suffer -- continued to suffer from market softness in certain end markets, requiring us to reevaluate the pace of methods needed to improve the profitability of this segment, placing a greater emphasis and urgency on cost optimization activities.

I'm both pleased and encouraged by the actions already implemented to date, along with other improvement opportunities already identified that are currently in process of implementation or will be implemented throughout the balance of the year. Brent will provide more specifics on these actions in his remarks.

Despite the recent challenges faced within some parts of our DPG segment, we're confident that we remain well positioned to deliver another stolid full year performance and are even more encouraged by what we now see for 2018.

While demand for some business units within the DPG segment have continued to be weaker than anticipated, the Commercial Trailer Products segment demand activity and execution remains strong, delivering in line with our expectations from earlier in the year.

Overall, in the second quarter, we continued to generate historically strong margins and profitability in the overall business.

These results position us with ample resources to fund our internal capital needs to support both organic growth and productivity improvements; secondly, to assure contingent servicing and/or reduction of any debt obligations and return capital to shareholders; and finally, to selectively but more actively pursue strategic acquisitions.

On the growth front, now approximately 3 months after closing on the Little Falls property acquisition, we continue ramping up the workforce there with significant activity underway as we install the necessary machinery and tooling in the Little Falls facility to support production of our proprietary molded structural composite panels or MSC.

As stated previously, this site will serve as the primary manufacturing site for MSC, as well as a flexible launch facility for the final assembly of MSC truck bodies and the MSCT refrigerated trailers.

Concurrently, our product design team continues to refine designs to optimize performance and weight as we progress through the commercialization process. We're pleased with the overall progress made in just 1 quarter since acquisition.

Our final-mile initiative featuring new truck body models continues to experience growing acceptance in the marketplace. May and June proved to be the 2 largest order intake months in the short history of this initiative.

As expected, final mile is an ever evolving space where we can be a formidable player and one where we see substantial growth over the next several years, with a continued rapid expansion in e-commerce.

We plan to continue leveraging our industry leadership in material science developments and application as we deliver best-in-class product offerings into the final mile and truck body space. Additionally, we continue our proactive efforts to identify key strategic acquisition targets that we believe can create sizable shareholder value.

We remain committed to this objective and are confident we will successfully identify assets that will allow us to utilize our strong financial position to accelerate our growth and diversification efforts, while leveraging our strong competencies in manufacturing execution, sourcing and innovative engineering leadership, to assure strong long term value creation.

Lastly, as we continue to generate free cash flow comfortably in excess of our organic capital requirements, I want to note that we repurchased over 1.2 million shares of stock in the quarter, continue our focus on return of capital to shareholders, in addition to declaration of a second quarter dividend that will be paid on July 27.

Now let's look specifically at second quarter results. Net sales for the second quarter were $436 million on shipments of 14,150 units, in line with prior guidance. Second quarter build levels once again exceeded shipments and totaled approximately 14,500 units, setting up -- setting us up for a stronger second half of the year.

Operating income for the second quarter was $38.7 million, with operating margin at 8.9%, reflecting a decrease year-over-year of $20.2 million due to decreased trailer shipments and margin levels in CTP as well as continued demand weakness in the DPG business.

While lower than what we became accustomed to these past 2 years of record and near record demand, operating margins in the second quarter for stronger than the previous 2 quarters and continue to remain at levels never before seen in our company's 32-year history prior to 2015.

So while we're not satisfied with the results registered in the second quarter, we remain committed to our long term -- long-range growth plans and the results did not change our view on the progress we've made with the company or confidence in our immediate and long term future.

With that, I'll ask Brent to provide some detail on results of each of our reporting segments.

Brent?.

Thanks, Dick. We continue to strengthen collaboration across the enterprise in the second quarter and have maintained an intense focus on identifying opportunities for cost reduction in many areas of our business.

With the recent leadership changes announced in the Diversified Products Group, we have committed to improve the pace and breadth of our activities, as we right-size operations to be more in line with present market realities, as well as developing a keener focus on opportunities for revenue growth.

We will continue to leverage our Wabash Management System or WMS, to optimize our manufacturing supply chain and sales effectiveness across the total enterprise. These actions will enable acceleration of our initiatives, contained within our $10 million overhead and SG&A savings we have targeted to achieve from the next 2 years.

With that, let me get into some business specifics from the second quarter. I will start with Diversified Product Group or DPG which includes our tank trailer, aviation and truck equipment, process systems and composites business.

Overall, results in the segment improved slightly with an increase in both revenue and operating income as compared to the first quarter.

Second quarter revenues were $91 million with operating income of $5.1 million, better but not up to our expectation as gross margins for the second quarter were lower than projected at 18.9%, impacted by lower-than-projected sales and pricing, most notably, with our tank trailer business.

The tank trailer business experienced an unexpected downshift in markets during the course of the second quarter. While the business continues to realize slightly improving demand levels order placement has not turned out to be as strong as quote activity was indicating earlier in the year.

While the food, diary, beverage markets within our tank trailer business have continued to see stable demand, some of the chemical tank trailer activity has slowed since the March-April time frame.

To be clear, tank trailer demand is improving from what have been experienced during the previous year, with backlogs rising to the highest level in over 14 months. However, not at the pace previously expected, as we're no longer seeing the quote activity in the chemical tank market that we were explaining earlier in the year.

This phenomenon is consistent with conclusion that ACT Research has made in adjusting their liquid tank trailer forecast down from higher levels in the February through May forecast periods. So we have shifted the team's efforts from preparing for growth to adjusting to the industry's near term demand reality.

This includes aggressively evaluating cost optimization actions at all sites, to assure that staffing levels, operating shift patterns and overheads are appropriately aligned to deliver best possible results. Lean improvement actions are currently underway at our Fond du Lac, Wisconsin and our San Jose Iturbide, Mexico operations.

My team will engage with tank trailer readership to expand the use of Wabash Management System, specifically in the areas of go-to-market and supporting business processes.

Based on a slightly improving demand environment and early-stage optimization efforts, we do expect slightly improved operating results from the business unit for the back half of the year. In our aviation and truck equipment business or AVTE, actions including facility rationalization can be completed in Q1.

Labor optimization efforts and ongoing implementation of lean principles have continued to deliver improvement, with the business now solidly cash flow positive through the first half of the year.

We have now successfully reduced over $2.5 million of annualized cost in AVTE, but more work remains on the commercial front to bring this business to acceptable levels of performance.

In our process systems business which produces isolators, downflow booths and mobile clean rooms for the pharmaceutical energy -- industry, along with stationary silos and mixers for the food, dairy and beverage industry, we have continued to see stronger quote activity and very healthy backlog levels.

We continue to explore growth opportunities as we believe the markets served by process systems are poised for long term growth. The business is now experiencing significant velocity and inventory improvements, as they have deployed additional Lean Manufacturing elements of the WMS within their domestic operations.

Over the course of the next 2 to 3 quarters, we expect to translate these improvements in the bottom line impact. The Wabash Composites business continues to perform well, as it advances the development of new material technologies that will be key to their future growth as well as for CTP's van and truck body growth.

Product sales into the final-mile space continue to be robust, as demand for truck body panels and decking systems remain strong.

An exciting extension of both the Wabash management system and our strategic growth focus is the recent kickoff in Q3 -- for Q3 of a $2-plus million capital investment that will continue our pursuit to optimize manufacturing costs, increase overall capacity of our DuraPlate manufacturing processes as well as lay the groundwork for high-volume production steel skin and honeycomb panels, all intended to position Wabash Composites as a leading global supplier of various technologies of structural panel products.

To summarize, for DPG, we're taking aggressive actions to increase the pace of cost reductions, position the business to serve their markets more efficiently and improve the focus of leadership to execute on their organic growth initiatives, all to return this segment to acceptable levels of performance.

We expect profitability for this segment in the second half of 2017 to be slightly better than the first half, as we experience modest improvement in order flow as well as implementation of our aforementioned cost-reduction actions.

That said, pricing and overall demand is at a little that will keep gross margins closer to 20% through the balance of the year as opposed to returning to our historical norm of 21% to 24%.

Now, let's discuss the results of our Commercial Trailer Products segment or CTP, consisting of our dry and refrigerated van products, platform trailers, dry and refrigerated truck bodies, retail parts and service and wood flooring operations.

This segment continues to successfully execute its optimization strategy with an ongoing commitment to deliver strong profitability, operational excellence and leadership in product innovation. The second quarter proved to be another strong quarter for CTP.

Revenue was solid at $348 million and the profitability delivered in the segment was, again, impressive. Gross and operating margins of 14.6% and 12.1%, respectively, represented the second-highest quarter margins in this segment's history and drove $42.2 million of operating income.

We expect another very strong year for Commercial Trailer Products in 2017. As previously discussed, we expect Commercial Trailer Products to deliver very healthy gross margins and operating margins in 2017.

For the full year, CTP now expects to see approximately 200 to 250 basis points compression in gross and operating margin from the 2016 record levels on a full year basis. Let's discuss some updates on CTP's strategic initiatives.

The CTP team's entry into the truck body market established to take advantage of future growth in final mile and home delivery space continues to grow in whole. As Dick mentioned, the second quarter was a strong quarter as orders for this business reflect an 80% improvement over the first quarter.

While this remains a relatively small piece of the overall CTP business, we're experiencing tangible growth, with revenues growing to over $10 million this year and fully expect the truck body business to grow to the levels previously communicated.

The CTP team continues actively developing its patent pending, proprietary, molded structural composite technology that we believe will have broad applications in both dry and refrigerated truck body markets as well as our refrigerated van trailer space.

Our recent acquisition of the Little Falls manufacturing facility provides needed capacity and capabilities required to take the next step forward in increasing the scale of our molded structural composites commercialization efforts in both truck bodies and refrigerated trailers.

As CTP continues to deploy ever advancing elements of the Wabash Management System, team is implementing several large productivity and quality improvement projects that will further decrease manufacturing costs by over $2 million annually, as well as reduce process variation in our refrigerated and dry van assembly lines.

These projects are a continuation of the efforts over the past several years that have allowed Commercial Trailer Products to grow and maintain healthy margin levels over a wide range of demand environment.

On our strategic initiative to continue developing our indirect channel within CTP, we continue to demonstrate progress in improving our already best-in-class indirect channel. Purposeful and targeted expansion has led to this channel growth.

As a next step, we're pleased to have recently announced the addition of Summit Truck Group to our growing list of strong dealer partners. These actions will continue to provide both revenue and profitability tailwinds for this business. Now I'd like to provide an update on some regulatory items that pertain to Wabash National.

As previously discussed, the greenhouse gas regulations introduced in 2016 are presently under review within Congress, the EPA and NHTSA. And they ultimately determine whether this rule can actually go into effect. The Truck Trailer Manufacturing Association has filed a petition in the U.S.

Court of Appeals seeking to review the rule as it relates to the authority of the agencies to regulate trailers under the Clean Air Act. While we prepare for compliance with the new greenhouse gas rule, we will also continue to monitor these activities.

We continue to monitor the reaction from fleets and response to the Federal Motor Carrier Safety Administration's mandate that all fleets must install Electronic Logging Devices or ELDs by December of 2017. In June, the U.S.

Supreme Court said that it would not hear a lawsuit brought by the Owner-Operator Independent Drivers Association challenging the DOT, ELD rule. The Supreme Court's decision leaves in place a lower court, court ruling upholding the mandate and December '17 compliance deadline. However, 2 recent developments could affect implementation.

On July 17, the U.S. House Transportation Committee attached a directive to this year's Transportation Housing and Urban Development or THUD, Appropriations bill that directs the Department of Transportation to analyze whether a full or targeted delay in ELD implementation and enforcement would be appropriate.

On July 19, Representative Brian filed the ELD Extension Act of 2017, a bill to delay the compliant state of ELDs for 2 years. Note that the American Trucking Association or ATA has opposed any such delay and sent a letter to the FMCSA last week to that effect. We will continue to monitor the situation over the coming weeks.

But it would seem unlikely that either of these actions would be ultimately passed, especially in light of the Supreme Court ruling. Assuming implementation as originally scheduled, this mandate will result in capacity tightening, improved pricing dynamics within the industry and ultimately lead to stronger demand in new trailers.

The other regulation that warrants mentioning is the potential for renewed interest in adopting a standard for longer pup trailers, increasing the length from 28 feet to 33 feet.

While this change would provide a demand boost for manufacturers of pup trailers and the progress of this initiative -- so the progress of this initiative is worth mentioning. We do not believe that this change will take place in a time frame that would influence 2017 trailer projections.

So to recap, we remain focused as we drive common practices and leverage shared growth opportunities in final mile, advanced composites and distribution. We're also accelerating our efforts to reduce cost and right-size operations in Diversified Products, to return this business to a more acceptable level of performance.

These actions, combined with a long or with a strong demand environment and continued solid execution in Commercial Trailer Products, gives us confidence that the second half of 2017 will be stronger than the first half of the year and will be -- and we will be well positioned heading into 2018.

I will now turn the call over to Mike, to discuss some additional financial details..

Thanks, Brent. We're pleased by the overall solid performance the company has continue to demonstrate, delivering margin and profitability levels believed unachievable in the not-too-distant past. As we continue to benefit from actions taken over the past several years to grow and diversify this business.

That said, we have high expectations for all of our businesses and as you heard from Dick and Brent, we're proactively addressing the areas that need improvement. Before discussing the results for the quarter in more detail, I'd like to comment on recent capital allocation activities, specifically, on our return of capital to shareholders.

In the second quarter, we repurchased approximately 1.2 million shares of stock for $26.1 million. Additionally, we returned approximately $3.9 million of capital to shareholders through the dividend payment in the second quarter. We also successfully repurchased 4 million face value convertible notes to reduce debt and equity dilution.

In terms of our capital efficiency efforts, we continue to remain laser-focused on the efficient deployment of capital, as we not only grow the business but also assess the effectiveness of our existing operations, to maintain a return on invested capital greater than 20%.

We recently announced a deal to transition our Texas WNTC branches to an independent dealer that we expect to close in the third quarter. This action reduces our plant, property and equipment levels as we transition that sales territory to an independent dealer, while also expecting increased profit generation from our new channel partner.

With that, let's turn to the financial results for the quarter. On a consolidated basis, revenue was $436 million, a decrease of $36 million or 8% compared to the second quarter of last year. Consolidated new trailer shipments were 14,150 units during the quarter, in line with our shipment guidance.

Component, parts and service revenue is $42 million in the quarter, down $1 million from 2016 levels, primarily due to sales in Wabash Composites. Equipment and other revenue decreased by less than $1 million on a year-over-year basis. In terms of operating results, consolidated gross profit for the quarter was $57.7 million or 15.5% of sales.

Gross profit was down $23.4 million year-over-year and up $8.3 million sequentially. The company also generated operating income and margin of $38.7 million and 8.9%, respectively. Second quarter operating margin was up over Q1 and Q4 2016 levels.

In addition, operating EBITDA for the second quarter was $49.5 million, bringing trailing 12 months operating EBITDA to $211.8 million or 12.3% of revenue. At the segment level, Diversified Products Group produced net sales of $91 million in the quarter, a decrease year-over-year of $2 million and an increase sequentially of $1 million.

DPG gross margin was 18.9%, down on both year-over-year and sequential comparisons, driven in roughly equal parts by tighter pricing and commodity cost increases. Commercial Trailer Products or CTP net sales were $348 million for the quarter which represents a $34 million or 9% decrease year-over-year on new trailer shipments of 13,600 units.

New trailer average selling price or ASP of $24,300 was up significantly year-over-year, driven by a shipment mix, favoring fewer 28-foot trailers and converter dollars -- and converter dollies that carry a lower average selling price.

Commercial Trailer Products once again recorded very strong margins with gross and operating margins of 14.6% and 12.1%, respectively. Down in year-over-year comparisons due primarily to higher commodity costs and lower production volumes.

Nevertheless, CTP delivered their second highest ever second quarter in terms of gross and operating margin which resulted in operating income of $42.2 million. SG&A, excluding amortization for the quarter, was $24.9 million or 5.7% of revenue.

For the full year, we expect SG&A spending levels to be down slightly, year-over-year as we actively implement cost optimization initiatives throughout the business, SG&A is expected to finish below 6% of revenue on a full year basis. Intangible amortization for the quarter was $4.1 million, down $0.9 million from the prior year.

Interest expense for the quarter totaled $2.9 million, a year-over-year decrease of $1 million, primarily due to the lower amount of convertible notes outstanding. $0.5 million of our reported interest expense is noncash and primarily relates to accretion charges associated with the convertible notes.

We recognized income tax expense of $13.2 million in the second quarter. The effective tax rate for the quarter was 36.4%. We expect the third and fourth quarters to have an effective tax rate of approximate 36% to 36.5%, resulting in a full year tax of approximately -- tax rate of approximately 30% to 30.5% -- 35% to 35.5%.

Finally, for the quarter, net income was $22.9 million or $0.36 per diluted share. On a non-GAAP adjusted basis, our adjusted earnings were $23.2 million or $0.37 per diluted share after adjusting for charges related to the early extinguishment of debt, branch transition costs as well as severance expenses.

In comparison, GAAP and adjusted earnings for the second quarter of 2016 were 35.5% and $36.6 million, respectively. GAAP and adjusted EPS for the second quarter of 2016 were $0.53 and $0.55 per share, respectively. Let's move on to the balance sheet and liquidity.

Net working capital finished the second quarter up $17 million from the first quarter due to timing of shipments but down $28 million from prior year. The year-over-year improvement is driven largely by our AVTE consolidation efforts and branch transition activities but also impacted by lower revenue and year-over-year comparisons.

We expect working capital to exhibit normal seasonal patterns for the remainder of the year. Capital spending was $8 million in the second quarter, bringing our year-to-date capital spending to $11 million. We project full year capital spending to be between $30 million and $35 million, depending on timing of project implementation.

Our $10 million investment in the Little Falls manufacturing facility, to ramp up the supply of our molded structural composite material and to take the next step in this important growth initiative represents the primary driver to the year-over-year capital spending increase.

Our liquidity or cash plus available borrowings as of June 30 was $348 million or over 20% of trailing 12 months revenue. Our free cash flow through the first half of the year was -- has allowed us to maintain liquidity at a very healthy level, our first priority for capital allocation.

In addition to funding our organic initiatives, such as the Little Falls acquisition, as well as other capital allocation priorities, such as dividend payment, debt reduction and share repurchase. We finished the second quarter with leverage ratios of gross and net debt at 1.1x and 0.3x, respectively.

In summary, the overall performance of the company continues to be strong. However, we know we can do better in particular areas. We continue to generate strong levels of gross profit and operating income and we've generated $67.5 million of free cash flow year-to-date.

We strengthened our balance sheet, again, by repurchasing some convertible notes as well as returning capital to shareholders through our reinvested dividend and share repurchase activities. The company will continue to push into new product and new markets in order to advance our transformation into a more diversified industrial manufacturer.

I'll now turn the call back to Dick, where he'll give some detailed commentary on our outlook for the remainder of 2017..

Thanks, Mike. Let me give you our views on the market and prospects for the remainder of 2017. We remain confident that overall demand for van trailers in the Commercial Trailer Products business will remain historically strong throughout the year and beyond.

This belief is based on a number of factors that continue to be positive trailer demand drivers and remain consistent with what I've stated for several years now.

Factors include an excessively aged driving population remaining for the significant industry under buy of 2008 to 2010, increased use of drop-and-hook strategies and a most stringent regulatory environment, including CSA and hours-of-service, influencing both driver and carrier behaviors and leading to the continued need and desire to refresh equipment.

Load ports have tightened recently as freight rebounds, driving up spot rates in June to 11% above 2016 levels. Looking forward, in the event that ELD implementation is upheld for December of this year, additional capacity will be removed from the market, creating continued upward pressure on trailer demand.

On the order front, the 2017 order season has shown continued strength in trailer orders. Our backlog is at a seasonally strong $762 million overall as of the end of the second quarter. While down sequentially, this drop is seasonally typical as bill levels ramp up in the second quarter, while customer order placements slow until late fall.

This backlog level represents a healthy 6-plus months of build volume overall an average, weighted more heavily in dry and refrigerated vans with shorter backlogs for other product lines. We continue to expect another strong year overall for our industry with order levels well above replacement demand.

The 2 primary industry forecasters continue to make adjustments to their projections, now reflecting very similar views as to the relative strength of 2017. ACT is now forecasting trailer shipments of 276,200 units, while FTR projects trailer builds of 279,900 units for this year.

We maintain our long-held view that overall demand will be solid for the rest of this year, driven by the factors mentioned earlier.

Based on direct customer feedback, continued strong quote and order activity and strong productivity performance from the CTP team, we now expect to see Wabash National trailer shipments in the 53,000 to 56,000 unit range or an increase of 500 units from our prior guidance at the midpoint of the range.

In light of the stronger demand environment for vans than early anticipated, we will continue to seek additional opportunities to further improve our full year shipment projections, as we take additional orders for late 2017 production.

So in terms of earnings, taking into account our revised shipment guidance as well as a slower recovery in specific DPG markets, we're now adjusting full year 2017 EPS guidance to a range of $1.44 to $1.50 earnings per share.

Furthermore, given the mix of anticipated shipments and the calendarized impact of cost reductions in DPG, we expect fourth quarter profitability to be slightly better than Q3. Also, Q4 should prove to be the point when year-over-year EPS comparisons become favorable.

Specifically, for the third quarter, we will anticipate slightly stronger shipments in the third quarter than what was seen in Q2 and we're expecting total shipments to be between 14,000 and 15,000 for the third quarter. In summary, Q2 results were solid overall, but not up to the high standards that we've come to expect these past couple of years.

However, we have a talented team working to address and correct these shortcomings as we progress through the balance of the year and I'm absolutely confident that they -- and we'll be successful. Concurrently, we continue to be committed to our growth plans, including boulder structural composites and expansion within the final-mile space.

The continued historically strong execution in the CTP segment as well as our renewed focus on DPG operating performance will lead to a stronger second half of Wabash National and sets us up for another solid year in 2018. With that, I'll turn the call back over to the operator and we'll take any questions..

[Operator Instructions]. And our first question is from Jeff Kauffman of Aegis Capital..

Well, congratulations. I know shares are down a little today on the print. But I mean, it sounds like there's a lot of good things going on beneath the hood, particularly with some of these new initiatives. So congratulations. I wanted to ask a little bit because I think the big surprise to everybody was the gross margin generation this quarter.

And Brent, you gave a really good idea of how we're going to fix that in DPG.

But I was just wondering, all these investments you're making in Little Falls, in the Honeycomb product are these weighing more on the manufacturing cost level or is the cost of these facilities showing up in G&A? And kind of where is the cost of investment showing up in your P&L right now, I guess is what I'm asking..

Thanks, Jeff. It's primarily within the COGS element of our P&L. And it's still on a relative basis, a fairly minor impact at this time..

But the point is that some of the weight on COGS is coming from this investment in new products and eventually there will be revenues to offset some of this..

Absolutely. In future periods they'll more than offset each other..

Okay.

And you mentioned the independent dealer transfer question, how is this going to affect cash flows and working capital in the second half of the year?.

When the -- Jeff, this is Mike. When the deal closes, we would expect to see some cash inflow from the sale of the plant, property and equipment as well as the working capital inventory that is on site in the Dallas and San Antonio. So it would be a positive for working capital in the second half of the year..

Okay. And just one more follow-up on growth initiatives, big headlines Amazon purchased Whole Foods. I know that this was one of the areas we were focusing on a little bit in the last mile.

Is this a positive for you? Is this a negative for you? Is this a no change in our business plan for you? What would this mean for last-mile delivery and some of the molded structural composite customer areas you might be looking at?.

Yes, Jeff, I think anytime that we see mature disruptive players move into the final-mile space, I think weren't working. It continues to bolster our position that Wabash has a place to play with innovative and technology-driven products. So we see it as a positive, as an opportunity..

Our next question is from Brad Delco of Stephens..

Dick, I had 2 calls going on, so I may have missed some of this. But it seems like there is a little bit more conversation or talk around acquisitions. I know, that's always been a part of your kind of capital deployment strategy. Am I reading too much into it, it sounds like there is more of an intense focus here.

And if that's the case, can you put into context the relative size of things you're looking at?.

Yes. Certainly, there is increased focus. We've stated that in recent quarters that with the health of the company, the strength of the balance sheet really provides us an opportunity to increase the focus and effort in that arena. We're taking more targeted approach. Not simply waiting for opportunities to come across the transom.

And we've discussed in the past that we believe there's significant growth opportunities in the composite of our business. We want to grow that as we stated in the call notes that we really look for opportunities to become a global player with composite offerings.

The other area of the business that we're extremely excited about and we talked about this in the past and that's in the final-mile space. It's an area that we have invested in and continue to invest in organically here. And we continue to look at opportunities in that space to grow through strategic acquisition..

But in terms of size of deals, can you....

We don't want to put a limit on the size of deals, we evaluate those deals. We likely would be leaning more toward a larger deal rather than a small tuck-in deal because of creating critical mass for those, the 2 efforts that I talked about.

So I hate to put a framework around it, but probably north of $100 million type opportunities, certainly less than $1 billion opportunities. I know, it's a pretty wide span that you have to navigate between, but I don't want to put anything on it. As we look at opportunities, we want to have open mind to look at those.

If they are nicely accretive to the business, if they create nice synergies for our business, then we want to be open-minded on what they would be. We're not going to do anything crazy. We've always said that we will be -- remain good stewards of the business. We will be strategic but selective in what we do.

So we're going to be prudent as we go forward..

No, that makes sense. And that brings, I guess, to my final question on this topic.

When you say it's accretive, obviously, you are looking at earnings, but does it still sort of fall into the framework of helping you achieve a 20% return on invested capital?.

Yes, long term -- Yes, Brad, long term that would be true. Obviously, any acquisition that you would do in the near term can negatively impact a return on invested capital calculation. So we recognize and understand that. But the overall value for shareholders can increase dramatically with the proper acquisition..

Sure. And then last question, if I could. It seems like the comments were that you've seen some competitive pricing in DPG.

Have there been any changes on the CTP side of the business with the additional capacity that has been widely talked about in the industry that was added this year or over the last 12 months?.

Yes Brad, this is Brent. I think we have seen generally the competitive pricing that we built into our margin compression estimates for CTP back on the Q1 call. So nothing that has dramatically changed in that environment..

Thank you. I will now turn the call back over to Dick Giromini, for a few closing comments..

Thank you, Christine. So while this past quarter certainly was in line with expectations. We certainly come a long way and will continue to push forward. We'll continue to be strategic but selective in pursuing opportunities to grow our business, in addition to organic growth initiatives already underway.

We'll continue to seek out ways to increase returns and value for all shareholders, while assuring that the proper balance between risk and reward is considered in all decisions. Thank you for your interest in and support of Wabash National Corporation. Mike, Brent and I and Jeff look forward to speaking with all of you on our next call. Thank you..

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