Wabash National Corporation (WNC) Q4 2013 Earnings Report, Transcript and Summary

Good morning and welcome to the fourth quarter and full year 2013 earnings call. My name is John, 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 Dick Giromini. You may begin.

Thank you, John, and good morning. Welcome to the Wabash National Corporation 2013 fourth quarter and full year earnings call. This is Dick Giromini, President and Chief Executive Officer. Joining me today is Jeff Taylor, Senior Vice President and Chief Financial Officer. Following this introduction, I will provide highlights for the fourth quarter and full year 2013, followed by a look at the current operating environment and our outlook for 2014, after which, Jeff will provide a detailed description of our financial results. At the conclusion of our prepared remarks, we will open the call for questions from the listening audience. Before we begin, I would like to cover 2 items. First, 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 condition and other matters. As you know, actual results could differ materially from those projected in forward-looking statements. These statements should be viewed in light of the cautionary statements and risk factors set forth from time-to-time in the company’s filings with the Securities and Exchange Commission. Second, please note that this call is being recorded. I'll begin by saying that 2013 was truly a transformational and record setting year for Wabash National. Growth initiatives driven by our long-term strategic plan to evolve the company into a diversified industrial manufacturer continued to gain traction and momentum throughout 2013. We are now beginning to realize the full benefits of the strategic actions we’ve taken in the financial operating performance being delivered by all segments of the business. Overall, the success of our long-term strategy to transform the company has exceeded our expectations. For the full year 2013, revenue increased 12%, gross margin improved by 200 basis points, and operating income increased 46% over the prior year. We have achieved a more favorable mix in top line growth among our 3 business segments. Before addressing fourth quarter and full year 2000 (sic) [2013] results in detail, I'd like to highlight a few key drivers that contributed to our record setting year and further validated our ability to execute on the long-term strategic plan to grow and diversify the business. To begin, 2013 was the first year the company experienced the full financial impact of the Walker acquisition, which provided top line growth as well as considerable improvement in our overall profitability and margin profile. And as expected, we made significant progress with the Walker integration and exceeded $9 million in cost savings for the enterprise. In follow-up, we acquired certain assets of the tank and trailer business of Beall Corporation in February of 2013. This acquisition provided our Walker Group business with access to new markets through addition of the 406 refined fuel and dry bulk pneumatic trailers, creating the broadest product portfolio in the tank industry. Additionally, with deals production capabilities in Portland, Oregon, we gained strategic access to the Western trailer market and expanded our manufacturing footprint in the process. Through our accelerated integration and ramp-up efforts, the Beall business began contributing to company profitability in the second quarter and continues to add top and bottom line improvements. Lastly, we gained leverage for our manufacturing facilities in Wisconsin, Indiana and Mexico to sell the Beall products east of the Rockies. Another key driver for full year 2013 performance was our determined focus on margin growth across the enterprise. We experienced year-over-year gross margin improvement from all segments most notably achieving a much welcomed 60-basis point improvement in our core commercial trailer products business. Obviously, more work needs to be done. With that said, let’s discuss fourth quarter results. On a quarterly basis, net sales were the highest in the company’s 28-year history, totaling approximately $458 million on shipments of 14,200 units across all of our businesses. Nonetheless, certain factors impacted our ability to deliver full leverage from this record revenue. Consistent with our previous guidance regarding the impact of normalized seasonality and in line with our internal expectations, sequential gross margins were indeed pressured during the quarter, declining by 250 basis points sequentially from the third quarter, primarily influenced by a combination of mix and seasonal factors including the higher mix of commercial trailer product shipments and revenue in the quarter resulting in a lower weighted average gross margin overall. Additionally, the strong shipment volume delivered by the Commercial Trailer Products Group was compromised somewhat by a less favorable mix of both production and shipments as higher volume, slightly lower margin customers made up a higher percentage of the total than the previous quarter. Seasonal factors included seasonally lower overhead absorption tied to the decreased number of operating days and resultant build volumes, seasonally higher operating costs related to utilities along with the increased number of holidays and vacation and normal seasonal demand decrease tied to our Wabash Composites business. Finally, profitability within our wood products business was impacted by successive increases in wood cost throughout the latter part of the year. On a year-over-year basis, gross margin for the quarter declined by 160 basis points with the most significant impact tied to the higher mix of commercial trailer product revenue accounting for 66% of total revenue in fourth quarter of '13 as compared to 55% fourth quarter of 2012. Overall, despite these headwinds, the fourth quarter nonetheless was a solid quarter with strong trailer shipments and record quarterly revenue. Our task now is to continue our efforts to smooth out the seasonality effects in an effort to minimize the quarter-over-quarter fluctuations wherever possible. With that, I’ll provide some more color around our record-setting year. Revenue for the full year of 2013 was $1.64 billion, which is the highest in our company's history and represents a 12% year-over-year increase. As well, we achieved an all-time record in operating income of $103 million, representing a $33 million or 46% increase over 2012, shattering the previous record of $81 million set in 1999 with a demand environment that paled in comparison to that era. We generated record gross profit of $215 million, an improvement of more than $51 million or 31% as compared to 2012. This translated to a record gross margin of 13.2%, representing a year-over-year improvement of 200 basis points and exceeding our previous best of 12.1% set back in 2004. Consistent with our commitment to place a priority on paying down debt and reducing our leverage, we made a third voluntary prepayment in the amount of $20 million against our term loan in the fourth quarter for a total paydown of $63 million for the year. We have a strong balance sheet, ending 2013 with approximately $113 million in cash. These results clearly validate our long-term strategic plan and demonstrate the progress we continue to make in executing that plan to profitably grow and diversify the business. We’ve fundamentally changed our business from one whose profit or success were strictly tied to a narrow product line to one that now derives its earnings from a broad array of products, customers, end markets and geographies. That all said, we continue to be well positioned 2014 to deliver another year of top line and bottom line growth with a strong and growing backlog, a demand environment that is solid and gaining momentum in a number of new products nearing launch status. On a segment basis, each business was able to achieve several noteworthy achievements during the course of the year. Jeff will follow with additional details regarding each segment's financial performance later in the call. We’ll begin with the Commercial Trailer Products segment, consisting of our dry and refrigerated van products, platform trailers and fleet trade used trailer sales. This segment has continued to effectively execute its optimization strategy with a commitment to margin improvement, manufacturing excellence and product innovation leadership. The team expanded gross margin by 60 basis points year-over-year, driven by their continuing pricing strategy to favor margin over volume as well as improve productivity. We continue to focus on achieving double-digit gross margins at some point during this cycle over the next 1 to 2 years. We expect trailer demand to remain strong in 2014 with both industry forecasters expecting total demand significantly above replacement levels and stronger than 2013. In fact, a recent survey by Transport Capital Partners indicates strong intentions by fleets to increase capacity to offset the impact of hours of service, which confirms what we’ve been hearing from customers over the last 2 quarters. More about this a little later. I'd like to take a moment to recognize this group’s efforts in driving margin growth in their business over the past 3 years. Faced with considerable margin compression coming out of the worst downturn in the trucking industry's history, the team has improved gross margins by 360 basis points or 100% since 2011. Nice job. Obviously, we need the same kind of effort and progress to continue to get to that 10% goal level. A combination of further pricing, continued productivity and cost optimization and materials cost reduction through purchasing efforts can get us there. Finally, Commercial Trailer Products extended their product innovation leadership position during the year, introducing a number of new products that help fleets lower operating costs and enhance productivity including the MaxClearance Overhead Door System. They also achieved a new milestone in December, producing the 500,000th DuraPlate trailer since the product's introduction in 1996, which reflects the well-established fleet preference for Wabash National products. Moving on to the Diversified Products segment, which includes the Walker group, Wabash Composites and Wabash Wood Products. This segment achieved strong performance, eclipsing the $500 million revenue level for the year in addition to expanding its gross margin. The year was highlighted by the acquisition of the Beall assets, continued solid performance of the Walker Group business and growth of the Wabash Composites business which achieved nearly $75 million in revenue for the year. The growth at Beall continues with the ramp-up at the Portland facility and the expansion of the Beall tank trailer product line to our Midwest manufacturing facilities. We initiated production of the Beall 406 Petroleum tank trailer at our Fond du Lac location in the second quarter and the dry bulk tank trailer is now being produced at our new Lisbon facility. The Wabash Composites business continue to focus on providing innovative solutions that solve customers' unmet needs, particularly in aerodynamic product development as fleets realize the fuel economy benefits in their operations. This group achieved a milestone in the fourth quarter as well, producing its 100,000th DuraPlate AeroSkirt since its introduction in 2009. They have recently expanded the broader line to include aerodynamic solutions for tank trailers. The business continues its drive to grow its top line by expanding its offerings with 2 new products to be introduced later this year with a determined focus on addressing and offsetting the seasonality of their current offerings. Overall, all businesses in this segment continue to perform well and execute their respective strategies. Finally, let's look at our retail segment. For the full year 2013, retail's net sales increased by $24 million or nearly 15% along with gross margin improvement to 11.1%, driven largely by the full year impact of the higher margin Brenner Tank services operations. Further top line and profit growth are expected longer term as we focus on expanding the tank repair and services business to better serve our customers, increasing the number of legacy Wabash National trailer centers that are certified to perform tank repair services, expanding our mobile service fleet and increasing the number of customer site service support locations. As you would expect, growth does not come free as some short-term deterioration in gross margin was experienced in the fourth quarter as investment in these initiatives was taking place. Before I discuss Wabash National’s expectations for the first quarter and full year of 2014, let’s first examine a few key economic indicators and industry dynamics we monitor closely that provide broader context for our expectations. Real GDP advanced by 3.2% during the fourth quarter, following the third quarter at 4.1%, driven by increases in personal and business spending offset somewhat by decreases in federal government spending. This marks the 11th consecutive quarter of growth. Blue chip analysts predict an increase in GDP to 2.8% in 2014 as compared to 2013 at 1.9%. The Institute of Supply Management January Purchasing Managers’ Index decreased 5.2 percentage points to 51.3%, still indicating continued expansion in manufacturing activity, now for the eighth consecutive month. Industrial production increased 0.3% in December, the fifth consecutive monthly increase. In year-over-year comparison, industrial production was 3.7% higher. In the past quarter, industrial production rose at an annual rate of 6.8%, the largest quarterly increase since the second quarter of 2010. The housing sector recovery continues with an estimated 923,000 homes started in 2013, 18% more than the prior year and the Conference Board's Consumer Confidence Index climbed from 77.5% in December to 80.7% in January, reflecting renewed confidence in business conditions and earnings. Within the trucking industry, APA’s Truck Tonnage Index increased 0.3% in December to 131.3%, the highest level on record. The tonnage was a strong 7.9% higher than in the same month last year and 6.2% higher year-to-date, the best year-over-year growth rate since 1998. Industry-wide, trailer shipments in 2013 totaled 238,500 units, an increase of 1700 units or 1% over 2012. Near-term, the latest report from ACT forecast 2014 shipments at 242,050 units, up 1.5% year-over-year and 241,700 trailers in 2015, with the belief that potential legislation to permit 33-foot doubles is gaining support and would push even stronger demand to the 2016, 2018 time frame. Also FTR has adjusted their projections upward, now forecasting 240,000 trailers to be produced for 2014, an increase of 2.2% year-over-year and projecting 230,000 units to be produced in 2015. Further supporting year-over-year growth expectations is a survey conducted recently by Transport Capital Partners in which 73% of participating fleets reported that they plan to add incremental capacity in 2014 in effort to offset the productivity loss impact of the new hours-of-service rules that took effect on July 1, 2013. So the combination of a strengthening economy, truck tonnage at record levels and improving rate environments and industry survey data that indicate strong fleet intentions to grow capacity, all support the potential for increased demand overall for our industry. From a regulatory standpoint, the new hours-of-service rules went into effect in July last year. The regulation limits drivers to a 70-hour work week versus previous limit of 82 hours, which means drivers may resume driving once reaching 70 hours only following a rest period of 34 consecutive hours. Numerous trucking industry associations and groups now promote HR3414, the true Safety Act bill introduced by Representative Richard Hanna of New York in October. The bill would stay the restart provision of the hours-of-service rule pending 2 independent analyses of the 34-hour restart. At this time, Hanna’s legislation has 60 co-sponsors. The ongoing hours-of-service regulation has been reported to be causing productivity losses that may lead to increased demand for additional drivers and equipment to fill the gap. As I recently mentioned, a study by Transport Capital Partners confirms this belief. The survey results reported that 78% of fleets who had participated in the survey had lost capacity due to hours of service. In addition, 73% reported a plan to add capacity in 2014 to offset the impact of hours of service. Let me now share Wabash National’s expectation for 2014 and the first quarter. Our view at this time is that demand for trailers will remain solid and well above replacement levels in 2014, consistent with ACT and FTR projections, as key drivers all remain positive. Fleet age, customer profitability, used trailer values, regulatory compliance and access to financing all support the continued strong longer term demand environment. As I had mentioned previously, truck tonnage is strong, reaching its highest level on record in December and the leading industry forecasters project continued growth in the trailer market. On a full year basis, we expect our total new trailer shipment volumes to be between 47,000 and 50,000 units. From a revenue perspective, we now expect consolidated revenue for 2014 to be in the range of $1.65 billion to $1.8 billion. With our Commercial Trailer Products segment expected to deliver 5% to 7% year-over-year top line growth, our diversified products business and our retail products business expected and looking to grow 4% to 6% year-over-year, gross margins within the commercial trailer products business should rise slightly while diversified products and retail margins will be mostly flat or stable on a full year basis. Obviously, all segments will see some seasonal variability as we progress through the year. In support of our full year guidance, the current backlog of $711 million represents an increase of 7% as compared to the same time frame 1 year ago and represents approximately 6.5 months of production at our current operating levels. For the current quarter, we expect the normal seasonal headwinds as a result of lower builds and absorption and higher operating costs related to the colder weather, utilities, et cetera. Additionally, we expect a typical post-holiday season customer hangover, in other words the lag in trailer pickups by customers impacting revenue recognition. All in with lower builds, lower shipments and higher operating costs, gross margin and profit will feel pressure during the quarter as expected and not unlike what we experienced in the first quarter of 2013. So please keep that in mind. That all said, we would expect shipment levels within a range of 9,000 units to 10,000 units in total with bill levels of 10,000 units to 11,000 units. In summary, we are obviously pleased to have delivered on our promise of a record-setting year in 2013. Progress was made throughout our business -- in all businesses. Much was accomplished but much remains to be done. We still need to break the code to leveling out the current seasonality in numerous parts of our business that cause concern for external stakeholders and operational efficiencies for those within. Those efforts are underway. We need to further improve gross margins in our commercial trailer products business and find more attractive higher margin growth opportunities to drive its top line. Those efforts are also underway. We need to accelerate the top line growth rate of our diversified products business to leverage the attractive margins inherent within its offerings, again well underway and we need to leverage the higher margin tank parts and services opportunities for growth of our retail segment, same here, underway. So while much has been done, plenty of work remains. We will continue to look at opportunities to strategically but selectively 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. We have proven our ability to not only acquire a business with the size and complexity of Walker, but to seamlessly absorb it and deliver results that exceed anything done previously. We are now far more diverse with a product portfolio -- with a broad portfolio of products and end markets that provide stability and opportunities for growth. This is certainly not the Wabash National of yesterday and should not be viewed as such. Historical comparisons are becoming less and less meaningful as each day passes. This is truly the new Wabash National in structure, in performance, in execution. We will continue to manage for the long-term to build value and sustainability and are rightfully proud of the recognition of being named as one of the 50 best U.S. manufacturing companies by Industry Week. In closing, we are well positioned 2014 to deliver another year of top line and bottom line growth with a strong and growing backlog, a demand environment that is solid and gaining momentum and a number of new products nearing launch status. With that, I’ll turn the call over to Jeff Taylor, Chief Financial Officer, to provide more detail around the numbers. Jeff?

Thanks, Dick, and good morning. everyone. Let's begin with the fourth quarter results. Let me start by saying that the fourth quarter results were consistent with our internal projections and many of the seasonal factors we discussed last quarter impacted the results. On a consolidated basis, revenue for the quarter was $458 million, an increase of $42.5 million or 10.2% compared to the fourth quarter of last year. This represents an all-time record for quarterly consolidated revenue. This year-over-year improvement in revenue is attributable to strong demands in our Commercial Trailer Products segment offset by a decrease in our Diversified Product segment and relatively flat results in the retail segment. As expected, new trailer shipments were 14,200 units during the quarter, consistent with our prior guidance and actually in the top half of the guidance range. Sequentially, consolidated revenue increased $18 million or approximately 4.2% as a result of higher new trailer shipments in our Commercial Trailer Products segment partially offset by decreased components parts and service sales in the Diversified Products segment. Commercial Trailer Product segments net sales were $324 million, which represents a $66 million or 25.5% increase year-over-year. This improvement is primarily due to an increase in new trailer shipments as approximately 13,500 trailers shipped in the fourth quarter of 2013 compared to 10,200 trailers shipped in the prior year period. Average new trailer selling prices decreased approximately 6.1% as a result of customer and product mix. This is not a price decrease in the industry; rather it is attributable to a heavier mix of direct channel shipments in the current quarter which were lower spec and therefore lower priced, in addition to a heavier mix of products with lower ASP such as dry vans and LTL trailers, which has the effect of lowering overall ASP. On a sequential basis, net sales for Commercial Trailer Products increased $30 million or 10.3% on approximately 1800 new trailer shipments. Diversified Products net sales on a year-over-year basis decreased $21 million or 14.7% to $122 million, primarily related to a more normalized mix of products in the Walker business, lower sales of non-trailer truck-mounted equipment and slightly lower sales of liquid tank trailers, partially offset by increased demand and higher sales for composite products and wood products. On a sequential basis, Diversified Products net sales declined $10 million or 7.4%, primarily due to anticipated seasonally lower demand for our composite product offerings. Sales for our retail segment remain consistent with the same period last year as higher sales of components, parts and service offset the lower demand for new trailers. Sequentially, net sales from our retail segment increased less than $1 million or 1.1%, driven by favorable customer and product mix which resulted in increased new trailer average selling prices. Looking at our various product lines, new trailer sales increased $54 million or 17.5% from the prior year on 14,200 units including approximately 800 liquid tank trailers in our Diversified Products segment. This year-over-year increase is due to higher van trailer shipments in our Commercial Trailer Products segment. Used trailer revenue came in at approximately $17 million on 2200 units, an increase of approximately $6 million from the same quarter a year ago. Components parts and service revenue was approximately $38 million in the quarter, an improvement of approximately $6 million or 18.3% from a year ago, driven primarily by stronger demand for Walker and Composite products as well as parts and service through our retail branch locations. In addition, equipment and other revenue on a year-over-year basis decreased by $24 million to $39 million in the quarter. This decrease was primarily driven by lower sales for non-trailer truck-mounted equipment within the Diversified Products segment. In terms of operating results, consolidated gross profit for the quarter was $52.6 million or 11.5% of sales compared to $54.3 million or 13.1% of sales in the same period last year. This represents a $1.8 million or a 160-basis point decrease year-over-year. The decrease in gross profit and gross margin was primarily driven by the mix shift between the operating segments with commercial trailer products our lowest margin segment, representing a higher percentage of the overall company, in addition to all segments posting lower margins in the current quarter. On a full year basis, gross profit for 2013 was $215.1 million or 13.2%, an increase of $51.3 million or 200 basis points. This significant year-over-year improvement truly highlights the progress we have made in executing our strategic plan to profitably grow and strengthen the company. With that, let’s look at the segments in more detail. Commercial Trailer Products gross profit improved by $2.2 million or 11.8% compared to the prior year period due to a higher new trailer shipments. Gross margin decreased 80 basis points compared to the prior year period due to unfavorable customer and product mix. In the current quarter, we experienced a higher mix of direct channel, lower price and low spec trailers in addition to a higher mix of dry van trailers. Sequentially, gross margin decreased by 150 basis points or $2.7 million as a result of lower production on fewer operating days, in addition to a less favorable trailer model mix. Additionally, we experienced higher operating costs due to the fourth quarter holidays, vacation time and colder weather which translates into higher utility cost. Production during the quarter was 10,900 units, down by approximately 900 units compared to the prior quarter. On a full year basis, Commercial Trailer Products gross profit increased $7.7 million or 60 basis points on essentially flat new trailer shipments as a result of operational improvements, which more than offset the normal inflationary pressures. Diversified Products gross profit decreased $4.7 million or 15.3% compared to the prior year period due to a decline in new trailer shipments by approximately 60 units and reduced demand for truck-mounted equipment. Sequentially, gross profit was down 240 basis points or $5.2 million, primarily due to the normal seasonal decline for our Wabash Composites product offerings in addition to lower new trailer shipments by the Walker Group. For the full year, gross profit from this segment was $115.1 million, an increase of $37.1 million or 100 basis points, as a result of the full year impact of the Walker Group; specifically, the continued strong demand for liquid tank trailers and engineered products in the Walker Group, in addition to the continued growth of composite products and pull-through demand for wood products. Lastly, the retail segment's gross margin in the quarter decreased $0.4 million or 80 basis points year-over-year due to higher operating cost. Sequentially, gross margin declined $0.7 million or 170 basis points due to a larger percentage of revenue being generated from new trailer sales, which generally carry a lower margin than our other retail product offerings. For the full year, gross profit is up $3.4 million or 20.1%, largely due to the full year impact of the realignment of Brenner Tank Services within the legacy Wabash National Trailer Centers. On a consolidated basis, the company generated operating income of $24.1 million compared to $29.2 million on a comparable basis last year. At 5.2% of sales, operating margin was approximately 180 basis points lower than the prior year's performance, driven by the lower gross margin in the current quarter coupled with higher SGA and intangible amortization expenses. Sequentially operating income was lower by $9.8 million, primarily driven by lower gross profit, which I previously discussed, and increased G&A expense. For the year, operating income was $104.1 million excluding acquisition-related cost, an increase of $19.2 million or 22.6%. This represents a new record for operating income and highlights the improvement the company has achieved in the core trailer business in addition to the benefits of the Walker Group and Beall acquisitions. SG&A excluding amortization for the quarter was $23.0 million, an increase of $1.7 million from the fourth quarter of last year. This year-over-year increase is primarily attributable to higher employee-related cost, which we expect to leverage as we grow the business. Sequentially, SGA expense for the quarter increased by $0.8 million, which combined with higher net sales resulted in SGA expense as a percent of revenue of 5.0% for the quarter. For the full year, SGA expense was 5.5% of revenue, consistent with our target. Intangible amortization for the quarter was $5.5 million, essentially flat with the prior quarter, and $2.1 million higher compared to the prior year period. The intangible amortization in the fourth quarter was consistent with our guidance provided last quarter. Full year intangible amortization for 2014 is anticipated to be approximately $22 million. Interest expense consists primarily of borrowing costs totaling approximately $5.9 million, a year-over-year decrease of $1.8 million, primarily related to refinancing the term loan in May of 2013, effectively reducing our interest rate by 150 basis points, and the voluntary term loan prepayments we’ve made this year, which I’ll come back to in a minute. Approximately $1.5 million of our reported interest expense is non-cash and primarily relates to the accretion charges associated with the convertible notes. For the third consecutive quarter, we made a $20 million voluntary -- $20 million voluntary prepayment against the principal of the term loan. The fourth quarter payment, which occurred in December in addition to the mandatory quarterly payments, results in a total debt reduction of $63 million for the year. As a result, the outstanding balance of the term loan is approximately $235 million at the end of the fourth quarter. Other expense for the quarter total $0.6 million and primarily relates to the one-time charge incurred in connection with the voluntary term loan prepayment previously discussed. We recognized an income tax expense of $7.1 million for the fourth quarter, representing an increase of $66.1 million year-over-year and a decrease of $3.6 million sequentially. The effective tax rate for the quarter was 40.6% and we estimate the effective tax rate for 2014 to be approximately 40%. At December 31, 2013 we have an estimated $28 million of remaining U.S. federal income tax net operating loss carry forwards, which begin to expire in 2029 if unused and we currently estimate that all of our U.S. federal NOLs are available for utilization during 2014, subject to pretax earnings. As a result, the company does anticipate cash taxes to increase significantly upon utilization of the remaining NOLs and our cash tax rate to be similar to our reported tax rate. Finally, for the quarter, net income was $10.4 million or $0.15 per diluted share. On a non-GAAP adjusted basis after adjusting for expenses related to the early extinguishment of debt, net income was $10.8 million or $0.15 per diluted share. In comparison, the non-GAAP adjusted earnings for the fourth quarter of 2012 were $21.7 million or $0.32 per diluted share excluding the $59 million income tax benefit from the reversal of the valuation allowance of the NOLs. However, the non-GAAP adjusted earnings of $0.32 per share in the fourth quarter of 2012 were not tax affected. If the correct tax rate of 40% were applied to the prior period results, the resulting non-GAAP earnings per share would have been $0.19 per diluted share. For the full year, the company reported net income of $46.5 million or $0.67 per diluted share for 2013. On a non-GAAP adjusted basis after adjusting for acquisition-related charges and expenses related to the early extinguishment of debt, net income was $48.2 million or $0.70 per diluted share, as compared to $64.8 million or $0.95 per diluted share in 2012. Once again, the full year 2012 non-GAAP adjusted earnings were not tax affected and, if tax affected consistent with the 2013 tax rate of 40%, non-GAAP adjusted earnings per diluted share would have been $0.57 per share. Operating income for the fourth quarter was $35.6 million, a year-over-year decrease of $3.2 million. Sequentially, operating EBITDA decreased by $9.2 million. Both comparisons declined primarily due to lower income from operations in the current quarter. For the full year, operating EBITDA reached record levels for the company at $149.9 million, a 26.5% increase over 2012. With that, let’s move to the balance sheet and liquidity. Net working capital improved from the third quarter by approximately $38 million, with decreases in inventory and accounts receivable partially offset by a decrease in accounts payable. Capital spending was $6.8 million for the fourth quarter and $18.4 million for the full year. We expect full year 2014 capital spending to be approximately $20 million. Our liquidity or cash plus available borrowings as of December 31, was approximately $254 million, an increase of approximately $46 million from the prior quarter, inclusive of another $20 million term loan debt payment made in December. As a result, our pro forma total and net debt leverage ratios were 2.6x and 1.9x, respectively. In addition, our senior secured leverage ratio under the term loan credit agreement was 0.9x, significantly below the current government -- covenant requirements. In summary, the company’s fourth quarter results were in line with our expectations, given the seasonal nature of the business. We established new 4-year financial records for revenue, gross profit, operating income and operating EBITDA. All business segments posted solid results in 2013 with consolidated gross margin at 13.2%, 200 basis points better than last year and very close to our best ever. We strengthened our balance sheet during the year by increasing the liquidity, paying down the term loan and decreasing our leverage consistent with our commitments and being overall good stewards of the company’s capital. Looking forward, we expect first quarter shipments will be lower sequentially, consistent with normal seasonality, but stronger than the first quarter of 2013. As a result, we currently estimate first quarter total trailer shipments to be between 9,000 units and 10,000 units. Furthermore, the non-trailer portions of the company are expected to perform in a similar fashion with the most notable being the composite products, which typically are seasonally weaker during the fourth and first quarters. As we enter 2014, we are confident that the demand environment across our businesses remain strong and we are well positioned to start the year. We have a healthy backlog of $711 million, which is $45 million higher than this time last year. As a result, we anticipate 2014 new trailer shipments to be between 47,000 units and 50,000 units. Lastly, the industry forecasters are both projecting strong demand, significantly above replacement levels in 2014. We believe that the core trailer business is still in the first half of potentially the strongest and longest trailer cycle the industry has experienced. Thank you. And I will now turn the call back to the operator and we can take any questions that you have.

[Operator Instructions] Our first question is from Steve Dyer from Craig-Hallum.

I just want to make sure that I have everything correct. I think you said 47,000 to 50,000 trailers. Diversified Products and retail, each up kind of in the 4% to 6% range for '14. Is that right?

That’s correct.

Okay. And then from a margin standpoint, margins for the trailers may be up a bit and then the other 2 groups kind of flattish. Is that right?

Yes, but going back to the year-over-year on the top line for the different segments. We stated that Commercial Trailer Products would see between 5% to 7% year-over-year top line and then the other 2 segments 4% to 6%.

Yes. Okay. Got you. But then on the margin side, overall it sounds like margins should be -- gross margins should be up kind of slightly in '14. Is that fair?

I think that's a fair statement, yes.

Okay. As you look at Q1, and I know it's seasonally, typically, the slowest quarter. Would you anticipate gross…

Steve, let me go back and clarify the last statement I just made. Within the segments, yes, but the -- again, remember the commercial trailer products business, when you look at things on an overall basis, you get that weighted average mix issue. Commercial trailer products, of the 3 segments, has the lowest gross margin profile. So with a higher growth rate, even with improvement in gross margin, the slight improvement we expect to see there, on a total basis depending on how that all hashes out, it can affect whether the overall gross margin is flat, up or down. I think the important message is we do expect overall top line and overall bottom line improvement year-over-year. How it all hashes out at the end of the year based on those projected growth rates and expected margins, it could be flat, it could go down a tad, it could go up a tad. But remember, the gross margin within Commercial Trailer Products really drives what happens from quarter-to-quarter. I go back to the second quarter of last year versus third quarter of last year where our gross margins went from 14.2% in the second quarter and then 14.0% overall in the third quarter. Yet the gross margins actually went up in Diversified Products group and went up in the Commercial Trailer Products group, but the overall impact was margins went down by 20 basis points because that was the heavier weighting of commercial trailer products in that quarter. So I want to stress that because that sometimes gets missed in the mix when people are thinking about things and they think because gross margin is going up in commercial that means it's going to drive everything up. It can actually pull it down if the volume is up.

Okay. That's helpful color. As you look at the commercial trailer group pricing down a little bit year-over-year and I think you distributed that mostly to mix of dry vans, particularly to the large fleets who have maybe a little bit more pricing power, given the volume, is there anything structural in pricing at all that you’re seeing that is changing, topping out, is it getting more competitive or it’s 100% kind of mix?

Yes, we have not seen anything that is alarming going on in the marketplace. As I've said in past calls, you’re always going to have those individual opportunities that somebody wants to go at more aggressively than other opportunities. So you’re always going to have some of those anomalies out there, but what we have been seeing is the ability to consistently maintain and in most cases push pricing. As I’ve said in the past, nibbling around the edges. We’ve had success in all cases either getting equal or greater pricing on all orders that we’ve taken in for this 2014 environment in our commercial trailer products which tends to be the most sensitive.

Okay, perfect. And then the last question from me, not to beat the margin horse to death, but as you look at Q1 would you anticipate gross margins will be kind of in the range of last year’s Q1 or closer to kind of the Q4 number?

I think sequentially that they will show a little bit of improvement. Having said that, Q1 is seasonally one of the lower quarters we have and I think to Dick’s comments a minute ago around mix, obviously the shipments in Commercial Trailer Products are going to be lower in Q1 than they will in Q4, so there could be some mix effects that plays in there. Once again, want to stress that we will continue to see the Wabash Composites or the composite products line in a seasonally lower quarter as well and that impacts the Diversified Products segment.

Next question is from Joe O'Dea from Vertical Research.

First question is just on market share. When you look at the strength of the CTP shipments in the quarter, it does look like you might have outpaced what was going on in the market and so any color behind what might have driven that? As well as in your '14 outlook, sort of the growth you’re looking for in CTP, kind of a split between how much of that is industry and how much of that is market share for you?

Yes, we have not seen the -- obviously, not seen the final numbers for the full year on breakdowns and what the market share numbers will be. We think that, based on the size of the overall market, based on what we have done in the market and those numbers are still being finalized, of course, we believe that our share from a shipment standpoint was up slightly from the prior year. So it’s not appreciable share impact, it’s a mix impact more than share, but we think that there is continuing desirability of the Wabash product over some competitive products. I’ve talked about in some past calls that we had customers that have come back to us that had left us before, they have come back at more acceptable pricing levels, albeit lower ASP because they’re larger fleets, they have simpler specs in many cases, because they generally buy in large quantity of the same product, simpler design, so it just brings down the ASP because it's more -- I'll liken it to the automotive industry. Your base model product is going to have a large -- a lower margin profile than one that has a lot of options, because the options add margin. So we’ve got some of that mix that went on in the fourth quarter, but overall the demand environment remains solid, we see signs and anecdotals of it strengthening in the recent study that I commented on earlier about Transport Capital Partners and the results they were able to get from their survey, certainly would imply or infer that there's some upward potential, upside potential, on demand as we go forward.

Okay, and then just one other one on backlog. Obviously, very strong order quarter for you. Could you just talk a little bit about composition of those orders, how the mix of those orders compares to say 4Q mix versus full year mix? Does it look it improves a little bit with your order activity in the quarter and help you out as you go into the year?

Yes, sure can, this is Jeff. in terms of the backlog, first of all, the back log is strong, you can see that it's up on a year-over-year basis and so that indicates that we're in a -- we're certainly in a healthy spot in the environment here. In terms of the composition of the backlog, I think Q1 of 2014, as we look at that, it looks similar to what Q4 was and then as we move into the seasonally stronger middle part of the year, that will improve some as we pick up more indirect channel-type customers. So that’s what we're seeing in the backlog, but it look good.

Next question is from John Mims from FBR Capital Markets.

Jeff, let me ask you first and then just as a point of clarity, I know there has been a lot of questions about mix and stuff already. But it seemed at the end of the third quarter and actually in the last call, you said that the mix impact, which is a benefit in third quarter, what you had seen so far is that same mix benefit was carrying over into fourth quarter. So as you look at some of these lower spec, lower priced units that made up the pricing in fourth quarter, when did that actually happen, did you know that the order book was going to be full of these kind of lower price units going into the fourth quarter or did that happen as the quarter developed?

Yes, that actually -- this is Dick. That actually took place as we progressed through the quarter. There's a couple of factors that come in. Late orders of needs by customers that come in late in quarter, in October, past the third quarter is my comment. And then also the mix of what actually gets shipped is always -- while we try and analyze by customer, by the product that’s on the ground and in the schedule we build, it's always a little bit of a crap shoot from quarter-to-quarter on which ones actually go out and what the mix of the product that actually gets picked up by customers at the end of the day. We had an extremely strong pickup quarter. We presume that a lot of that was driven by the expiration of the bonus depreciation that customers could get. So we believe that, that helped drive a little stronger quarter than what we had even anticipated ourselves and the mix of it is the big guys who had the resources to pull those things in and want to take advantage of it. So we believe that, that had some impact on the little bit heavier mix than what maybe we had anticipated and previously implied.

I guess just where I’m confused on that and I appreciate giving more color on the guidance for 2014, but the comment that the results were exactly in line with your internal forecast, but the internal forecasts don’t really seem to be consistent with the comments that you provided on the third quarter call, I mean as it relates to mix. I mean you did say there was headwinds, et cetera, and I appreciate that. But if that mix dynamic was changing over the course of the quarter, when or how that could have been communicated better?

Yes, John, I think if you -- first of all, I think we just have a difference of opinion on this one. We did know that the fourth quarter was going to be lower than the third. I think we made a very strong attempt at communicating that in the call last quarter. And I think if you go back and read the transcript you will see that I did cite that commercial trailer products would be a larger percentage of the overall mix. I did cite that we would have a heavier mix of dry van trailers in the quarter. And so if somehow that was misinterpreted, that’s something we'll work to improve in the future, but we felt like we were giving strong indicators that the quarter was going to be down.

Okay, fair enough. And we can talk about it more offline, but just one more. When you talk about, Dick, in the comments about minimizing fluctuations is the task from here on out, what do we need to see, like what still has to happen? Like how does the order book need to evolve? Is that a 3-, 4-quarter period of time it takes to get there or is that more a couple of years? Can you help us kind of see like what we can visually use as benchmarks as to when the first and fourth quarters start to balance out a little bit more with the middle of the year?

Yes, it comes in a number of fashions. But one is trying to get more level load on the commercial trailer product side on the build levels for the business. That can drive a lot of the internal costs, the absorption of overheads. So if we can bring more builds into the first quarter, that will help significantly. This year we’ve made a little bit of progress in that regard. Builds are higher this year than last or at least anticipated to be higher in the first quarter. And that, of course, breaking that code of getting customers to pick up trailers on a more normalized regular basis and that drives the revenue recognition side of things. So we’ve got both those factors that we are continuing to work on and we'll see how that progresses. On the other side of it, we talked in our formal comments about finding ways in the Diversified Product side of the business, with our Wabash composites business more specifically, to level them out, the seasonality that they have, where 60%, 65% of what they produce is done in the second and third quarter and they have weaker volumes, that because of the type of products they currently produce and provide to the market, weaker volumes in the first and fourth quarters and we had that big drop off from third quarter to fourth quarter. They’re working on products that would have less of a seasonality and maybe be able to push a lot more of that into those quarters that are running shy today, and get that. So one is product driven to address seasonality, the other is taking the product we have and just getting it built across the full year, and that's working specifically with customers. It's not different product, it’s just working with customers to accept builds spread out more evenly throughout the year.

Sure, no, that's really helpful. Just one little add-on and then I'll leave it to someone else. But pick-ups in first quarter as it relates to weather. Have you seen an impact in this quarter versus -- that's significantly different than other first quarters?

Yes, that's a great question, John. We actually here in the Midwest as folks -- and not just in the Midwest, but the East Coast and all, have been subjected to much harsher weather conditions this year already than what we experienced at any time last winter. We have actually had 3 different days that we have taken down early in January, and then with the second wave, a storm, another day was taken out. We've made those days up, the production related to those days, with weekend overtime. But it has been a much more challenging environment, and it's been a slower start to the year than what any of us would have liked to see. So we've had some impact. We’ve worked through it, and we’ll have to see how the rest of it plays out for us. But we have tried to take that into account in our projections.

Sure. How big does that overtime component show up in SG&A?

Minimally.

Next question is from Jeff Kauffman from Buckingham Research.

Couple of quick questions. Dick, you had talked about going to this 10% margin, hopefully within 2 years or so in Commercial Products. You did about a 7% this year, give or take. So if you're right and we're getting to that 10% margin and your guidance was margin should be a little bit better next year. Should I think of it as to get there we need about 100 basis points a year of improvement or should I think of it as maybe 50 basis points this year, and then it’s kind of back-end loaded for some reason?

Yes, it’s a work in progress. It's going to come from a number of initiatives and I commented on those. Certainly, one is on the pricing side. And we continue to push pricing. As the market continues to strengthen, that gives us a little bit more opportunity there. It’s going to come with some operational productivity improvements, continuing velocity, line velocity and all. And then the third element, of course, is through our purchasing efforts and our material cost components. So it’s 3 sizes that are being worked at all times. The real driver for it is the strengthening market. We'll get the most leverage from that and, with what we're seeing right now, it does give us some confidence to be able to push it and I clarified in the last call when I talked about getting to the 10%, was more on a quarter basis rather than on a full year basis. We still have to -- we need to get to the 10% for a quarter or 2 first before we can even think about it for a full year. And the third quarters tend to be our strongest both on production volumes, build volumes and on shipments being strong. Weather conditions are generally in our favor so you don’t have those cost, operating cost, headwinds. So we want to look for having made some strides in that regard this third quarter and then, of course, a year from now third quarter would be a good target for trying to get close to or achieving that level. That’s kind of what we’re looking -- and then after that, what does it take to sustain that level on a go-forward basis across a full year. Does that help you?

Yes, a little bit. So I guess, follow-up to questions here. Number one, you have a pretty good idea of what your 2014 pricing is at this point because you've been selling those trailers in your backlog. What is -- when we look at your pricing and I know ASP is going to differ a little bit, are you pricing at higher margin in your 2014 book than your 2013 book?

Yes, the answer is yes. We have been successful, as I stated earlier, we've been successful in our pricing of continuing to push price. The wildcard is how things turn out at the time we actually bill. So it’s an order-by-order effort. Some pricing and margins had been flat. In other cases, pricing and margins have increased. So directionally overall, margins are up. And then you’ve got the mix effect of the business that we have. So I’m not trying to be evasive on the response, it’s a mix-affected benefit to the business. There's an upward bias to it but it really comes down to the market again, the market demand, the ability to continue to fill out the year and be able to take advantage of the stronger market and continue to push the pricing.

Okay, just one follow-up on gross margin, then one quick balance sheet question for Jeff. The only thing I’m scratching my head on here, Dick, is if I understand with Walker the business is different seasonally, but if I look back to last year, your fourth quarter consolidated gross margin was only about 50 basis points below your third quarter. If I look back previous to that this is pre-Walker. In 2011 it was up 180 basis points. Now if I want to go back to the mid-2000s and say, "Well, we were in a recovery cycle," your traditional fourth quarter gross margin was about 40 basis points to 60 basis points above the third quarter gross margin. So fourth quarter gross margins this year being down 250 basis points, I get the comment that it's mixed, but it just seems to be bigger than that. So can you help me understand it because, to Mims's point, this doesn’t feel like normal seasonality or maybe there was just a communication issue where you guys were thinking this is seasonality, but the rest of us looking at historicals wouldn’t come up with that. I was just surprised at the magnitude of the pullback sequentially.

Yes, Jeff, this is Jeff Taylor. So on a year-over-year basis when we evaluated this year’s results, about 75% of the drop in gross margin is attributable to the change in the segment mix, so that’s by far the largest component of it. The rest of it is, as we talked, some of the higher cost that we’ve experienced in the quarter. I think when you look back at diversified products in the Walker business last year, we had some year -- some artifacts from the year 1, it being the first year of the acquisition where we got some equipment pushed through the year that you can't sustain on a year-over-year basis. We certainly think that this fourth quarter is a more normalized type of year and indicative of the type of seasonality we would expect to see.

But you wouldn’t tell me that the mix you saw this quarter was indicative of your normal mix the rest of the year?

Talking about in relation to the Commercial Trailer products piece, that's correct.

Okay, all right and then final question on the balance sheet and thank you. You're looking like you're about 1.6x net debt to your 2014 projected EBITDA here. You got the most cash I’ve ever seen in the history of the company on the balance sheet. I mean 2 years ago you had $20 million, now you got $113 million. How much more do we have to go before we come back to shareholders and say it’s time for the dividend, it’s time for the share repurchase?

So I think the way to answer that, Jeff, is, is that we remain steadfast in how we evaluate the uses of cash and uses of capital. First and foremost, protecting the business and maintaining a sufficient amount of liquidity is important. So we finish the year end with a nice strong positive cash balance. But remember, we're going into the first half of the year, where we generally are users of working capital during the first half of the year. So from that regard, we're going to be conservative in managing the balance sheet. Paying down debt will continue to be our priority as we go forward. But we're also going to evaluate opportunities for growth, continuing to grow, strengthen and diversify the company. We do continue to have internal dialog and dialog with the Board of Directors in regards to what are the appropriate uses of cash. And so that’s a dialog that continues but as to where we sit today, we're going to make sure that we are certainly managing liquidity and continuing to focus on paying down some additional debt.

And we have a question from Mike Baudendistel from Stifel.

I wanted to ask a question on the new product introductions that you referenced. What markets are you targeting with those products? And, just high level, what's the objective? Is it to reduce the cyclicality or seasonality or how should we think about the strategy?

Mike, we -- for competitive reasons we won’t disclose that at this time.

Okay and one other question is the -- it seems like you had a good order season and I noticed the other day that Heartland announced that they're purchasing some trailers from you. Have the orders been overwhelmingly placed by the large sort of I'd call well-capitalized carriers that are similar to Heartland or have you also seen the smaller mid-size companies come in?

We certainly have seen a lot of energy out of those large well-capitalized guys getting back in, getting out in front of it and making some nice orders during the course of the last 3-, 4-month period.

Okay, and just one last one.

[indiscernible]

That makes sense and then just one last one on the cost components that you referenced as having some impact on margins. Was it just the wood flooring or were there other components there too and is there any thought of hedging those [indiscernible] costs a little bit more heavily and could you remind us what portion of the raw material component costs you end up hedging?

Yes, with aluminum, we take forward positions on aluminum upon receipt of order, so we have upside, downside protection on that. So we take the risk out of the aluminum. On the steel, we're doing more and more forward contracting there. That’s been growing for us over the last 1.5 years or so, when we started doing that. As you recall, we, back in early 2012, we took tires out of the equation as a risk by actually quoting those separately when we quote our trailers to customers and they have the option of providing the tires or accepting any adjustment in pricing that may occur going forward. And then on the component side of it, so I should also add, that about 50% is the raw material-type stuff and 50% of the input material cost is converted components. So on the component side in many cases, we have fixed price arrangements with our suppliers for all of those large fleet orders and then for the smaller orders we have, in our terms and conditions, actually have the flexibility to adjust pricing based on what’s happening to the market on material cost, to make adjustments on a quarterly basis prior to the build of the product. So overall, we have calculated that about 70% of the input cost ends up getting protected, so there is some exposure, but it’s reduced significantly on what we used to experience years ago.

Our next question is from Brad Delco from Stephens Inc.

It’s actually Ben on for Brad. I guess, first, can you kind of give us some color on how we should think about the longer term growth rates in the Diversified Products division? I know it’s a GDP-plus type of growth business, but what are the key end markets that drive that business?

Well, it’s diversified. So that makes it a little difficult. In the Wabash Composites, it’s really taking our composites material and growing it to other markets. We commented about how they've really put a lot of focus on aerodynamics and producing and developing products to expand in that space. We've looked at what are the end uses are for the material. So there's a number of products and, as I commented, certain things that are sensitive that we don’t want to share that they're growing in there. But it's using that type of structural material to solve other areas. We did talk in last quarter about the mobile clean room initiative that Diversified Products has within their engineered products business that is also using our DuraPlate panel material as part of that solution. So that’s a new area of growth for us and that’s in the pharmaceutical side of the world. So there are so many different growth initiatives that it’s really difficult to point to anyone. It’s a lot of small pieces that will add up over time to some sustainable year-over-year growth. That’s certainly our hope and expectation.

Okay. So GDP-plus is kind of how we should think about it?

Yes, I think that’s fair.

Okay. And then on the SG&A line, what kind of inflationary cost pressure should we expect there for this year?

You should expect the normal types of inflationary cost related to employee-related costs that we’re going to see there. I think probably the other place that we’re tracking and monitoring fairly closely is the impact of health care related to the Affordable Care Act and how that will potentially impact us.

And that was our final question. I’ll turn it back over to you, Dick, for any final remarks.

Thank you, John. In conclusion, we're extremely pleased with the record setting performance that we were able to deliver in 2013. That said, we see even further opportunities to accelerate top line growth, expand product and market breadth and to deliver even greater performance in almost all aspects of our business. With a key focus on execution and delivering results, I'm confident that we'll do just that. Thank you for your interest in and support of Wabash National Corporation. Jeff and I look forward to speaking with all of you again on our next call. Thank you.

Thank you, ladies and gentlemen. That concludes today's teleconference. Thank you for participating. You may all disconnect at this time.