Welcome to the third quarter earnings call. My name is Richard, and I'll be your operator for today's call. (Operator Instructions) I'll now turn the call over to Mr. Dick Giromini. Mr. Giromini, you may begin.

Thank you, Richard, and good morning. Welcome to the Wabash National Corporation 2014 third quarter 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'll provide highlights for the third quarter, followed by a look at the current operating environment and our outlook for the remainder of the year, after which Jeff will provide an overview of our financial results. At the conclusion of our prepared remarks, we'll open the call for questions from the listening audience. Before we begin, I'd like to cover two 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 we're pleased with the company's overall third quarter performance, including the ongoing financial and operational improvements we're experiencing in most areas of the business, particularly the Commercial Trailer Products segment. On the other hand, we're disappointed with the results in the Diversified Products group for this past quarter. While our consolidating results again set records in revenue, operating income and operating EBITDA, the performance in Diversified Products fell short of our internal expectations. We do however anticipate better days ahead, as the actions that we have put in place to address some previously reported headwinds related to lumber procurement costs have taken hold and are now completely behind…

Thanks, Dick, and good morning. In addition to the press release, we filed the 10-Q after the market closed yesterday as well. So I plan to hit the highlights. With that, let's get begin. Consolidated revenue for the quarter was $492 million, an increase of $52 million or 12% compared to the third quarter of last year. This year-over-year improvement in revenue is attributable to strong demand in our Commercial Trailer Products segment. As Dick mentioned, total revenue for the company is an all-time record for any quarter. Sequentially, total company revenue increased $6 million or 1% on higher new trailer shipments from Commercial Trailer Products. From a segment standpoint, Commercial Trailer Products net sales were $352 million, which represents a $58 million increase or 20% on a year-over-year basis, due to higher new trailer shipments of 3,000 units. Trailer average selling price or ASP declined by approximately $500 per unit, due to customer and product mix, in addition to a higher incidence of customer supply components such as tires, as we discussed last quarter. On a sequential basis, net sales for Commercial Trailer Products increased $16 million or 5% on 800 additional new trailer shipments. Trailer ASP increased sequentially, as a result of favorable customer and product mix, in addition to reflecting a stable, if not slightly improving pricing environment, in combination with our continued strategy to be selective in order acceptance and prioritize margin over volume. Diversified Products net sales were flat year-over-year, as a result of steady new liquid tank trailer sales, strong demand for wood flooring, offset by a seasonally weaker quarter for Wabash Composites. Wabash Composites revenue was down in the third quarter of 2014, due primarily to a large one-time LTL aftermarket skirt order in the third quarter of 2013, which obviously did not…

(Operator Instructions) Our first question on line comes from Mr. Joe O'dea.

So on Diversified Products and the trajectory to seeing the gross margin come back up over the next several quarters, could you give just a little bit of an outline for measures that you're taking in 4Q? And then into next year what we should expect for 4Q margin? Is this kind of a hockey stick in terms of not seeing the margin really come back until middle of next year or is there some pretty strong progress based on the lumber correction in 4Q. But just to get a better sense of how we should see those margins now sort of respond to actions you're taking?

In regard to the DPG performance and kind of the outlook and the turnaround plan there, it's definitely multifaceted, because as you heard, there are multiple factors that have contributed to the performance in this quarter. And so obviously, the biggest contributor there was the impact from Wabash Wood Products. So what I would tell you is that of the $2.8 million impact of Wabash Wood in this quarter, about half of that was pricing, about half of that was operational. We took actions earlier this year to respond to the pricing issues that we were seeing. So those are effectively behind us as we move through the fourth quarter here. The operational issues, as Dick laid out in his conversation there was that that's something we're going to be working on for the next couple of quarters. I think similar to what you saw, as we faced a similar type of challenge in Commercial Trailer Products in 2011 and 2012. We would expect to make some incremental gains as we go through the next couple of quarters. So it's not all going to come back in that component of it immediately, but over time. As we look at the composites business and the performance there, there is a normal seasonal decline that we typically see there. Having said that, this business faced some really tough comps this quarter compared to the last quarter of this year and the third quarter of last year, both of those quarters had big aftermarket LTL skirt orders that were one-time orders and weren't repeating. So that's one that's going to recover over time as well. Obviously, the new product launches will contribute once we start launching those new products in the first half of next year, first and second quarter of next year, and we should see that impact come through that business as well. And obviously, the investments we make, and that's how we view them, the money we spend preparing the new facility and preparing for launch readiness of these new products is something that we'll continue certainly in the fourth quarter and then hopefully as we start launching new products in the first quarter, we get the benefit of that. So it's not all going to comeback immediately in Q4, but we do expect to make incremental gains in each of the components as we move through the next couple of quarters.

Joe, let me add a little bit more color on that. Relative to the raw lumber procurement cost issue, as Jeff said, that is now fully behind us. There was a continuing impact in third quarter, as we communicated that there would be for this quarter. Now, it's behind us, so half of that $2.8 million is tied to that element. And so going forward that goes away. Relative to the productivity and proficiency issues, related to the increased demand that the wood flooring operation is taking on, that's going to take couple of quarters to fill out much like what we had had faced two or three years ago in the Commercial Trailer side. The one piece that is a continuing change is really the fact that we no longer have a tailwind that we experienced in early 2013, related to the raw lumber grade that we were able to get, at that time provided a higher yield from that material. That part was a temporary tailwind that we didn't fully appreciate at the time. And now it's a more normalized grade of material that is available and typically used in the market for all wood flooring manufactures. So that one will linger, but it's a smaller piece of the pie. But I did want to clarify that in the explanation for that. As far as the Wabash Composites business, we're really excited about the new facility that will be starting up at the first of the year. There will be a couple of quarters of ramp up impact that they will face as they transition existing product that are tucked into corners within the current facilities. They will be able to lay this out, get an optimized manufacturing flow for the product. And the expectations are that once up and running and through the ramp up period that they'll actually gain productivity, which will actually help optimize the manufacturing cost for existing products. And then gives them an opportunity to launch these new products in a good facility. So we're very hopeful that over the next three quarters or so as we get into midyear next year, we start seeing some nice favorable benefits from moving into that new facility.

And then on CTP, if you could just talk a little bit about the mix, I mean it's been sort of an ongoing stretch now where mix has been more or less a headwind just with the strong demand from the larger fleet side of things. So have you seen, I guess over the course of the third quarter when smaller fleets were tend to be a little bit more active, do you have some of that contribution to the backlog now that should just add some natural mix lift. Do you think that you're sort of fully flushed out exactly? You sort of have reached a floor on how much of a mix headwind you could face because of just such a significant contribution from large fleets or is there something maybe more structural there where you don't get a mix lift on smaller fleets?

The large fleets are the guys that have the most buying power. So I think you're going to continue to see that, we'll call it that, 60%-ish of large fleet in the mix. That's a more normalized level. And with the dynamics that are occurring in the marketplace, the large guys continue to get stronger, more profitable, I think that they're going to continue to have the buying power strength over what the smaller guys would be able to have. So I think that it's a more normalized kind of mix that you can expect and that can range from 55% to 65%, sometimes it goes a little bit higher during certain periods of the year, especially earlier in year we often see that. But I would not look at that as an issue or a headwind. I would say, it's a statement of fact that that's how the business operates. The positive part of this whole thing is that prices are going up across the board. Margin improvement is being recognized whether it's with large fleet opportunities, midsized fleet opportunities or small fleet opportunities. The dynamic that comes into play here that is also considered part of the mix equation is the balance between long vans and doubles or pups. So the 53-footers are obviously going to carry a higher ASP that what a 28-foot pup is going to carry. And I think that gets mixed in it and it's a wildcard as to what quantities certain fleets will need from year-to-year and how that part of the mix equation plays out from year-to-year or quarter-to-quarter. So it's a positive. Again, I want to reinforce it again. Pricing is improving; margins are improving; across all sectors we sell, whether it's direct sales or indirect sales through our indirect channels.

And then just to be clear, Jeff, you said 4Q better than 3Q. I believe revenue line of sight seems pretty good there. Does that include gross margin or you expect the -- a year ago, so you expect 4Q gross margin to be better than 4Q '13?

I think, in general, yes. We expect 4Q of this year to be better on a year-over-year basis. And as we said also, we usually see a 4Q decline sequentially.

So you've got that lower base for 3Q '14, but you do expect the 4Q gross margin to be better than the 4Q '13.

Yes. I think we expect 4Q to be stronger this year than last year. Yes.

Our next question on line comes from Mr. Brad Delco.

I'm going to ask a few quick questions. First, on the backlog, if somebody were to place orders with you today, at what point could you deliver those units? How stretched out is your backlog based on your production?

That's a really tough question, because there is always some opportunity to slot some trailers into the mix. Obviously, for the balance of the year, its effective booked, just because of lead times to do that, but we're booked out. But you get into the early part of the year and you can always slip in some trailers, it really comes down to how large are the quantities of orders. So the backlog that we have, in some cases, stretches out throughout all of next year for specific nameplate customers. But there is open slots just about everywhere that you can take advantage of to leverage, if the price is right.

Second question, you talked about seeing the normal sequential decline in earnings, but is there any commentary you can give specifically about Commercial Trailer gross margins. What do you typically see on a sequential basis from Q3 to Q4?

I think for Commercial Trailer Products, I mean that's the biggest business we have. So the comments we made relative to the company are pretty much a reflection of the Commercial Trailer Products business, and that is that that business will be impacted by the factors we suggested in the fourth quarter and that that put some pressure on that business and their margins in Q4. Having said that, the market is still strong for trailer demand in Commercial Trailer Products. And as we look at where the demand is in the current environment, we see that as supportive of pricing and we have been successful at achieving price increases. So you balance those two factors, but the higher utilities, the weather, the lower operating days does have an impact on Q4 for that business.

The reason why I asked is, if you look over the last three years, you saw a 150 basis point decline last year, relatively flat in '12, and you actually saw a 100 basis point improvement in '11. So there's not a really consistent trend. So I was just trying to get maybe some more color on what your expectation would be for sequential margins in that business?

I don't particularly want to quantify it, but I think last year is more reflective of the current environment we're in this year. And obviously, in '11 we were making big price increases year-over-year, which impacts the margin line there. So I don't see '11 as a very good comp.

And then last question, maybe for you Dick. You mentioned some specific competitive pressures you're seeing on the tank side. I was curious, would you mind commenting on maybe what specific end-market those products are going to?

We've not broken those down, but it was minor relative to the majority of impact that we saw in the Diversified Products. That was the least of the impacts. The wood flooring operations issues, the Wabash Composite issues were the dominant players in that piece. But we did want to just make the statement that there is some competitive pressure, as at least one of the key competitors is out there trying to fill some backlog that they were not as successful in dealing with. So we are seeing some noise out there. But it's not the significant issues that we saw in the other two areas.

But you couldn't say whether or not this is sort of an energy-related project or your dairy business or your refuelers in better serving the airlines?

No.

Our next question on line comes from Nicole DeBlase.

So I was just hoping maybe you could elaborate a little bit on the competitive issues that you cited within Diversified Products. Is it a pricing issue? Who's cutting pricing? And how are you responding to the competitive pressure?

As I just shared with Brad, we won't get into the details within the Walker side of the business. But within the Wabash Composites piece, one of the natural evolutions of any product is with the growth and adoption of the aerodynamic side skirts. That space is seeing increased pressure on the pricing in the market, as more and more folks have entered the market, more and more fleets have adopted it both, for OEM manufacture installation and also aftermarket installation. So that's the area that the Wabash Composites business is seeing the most pressure is on the skirt business.

And then, the second thing is more of a tick the box item. Your selling expenses just looked a little bit low this quarter, would you expect that to step back up to $7 million to $8 million range in the next quarter or is it sustainable where it was this quarter?

I think it's going to be fairly consistent quarter-over-quarter, Nicole.

And then just a last one on tax rate. Are you guys still forecasting 39% to 39.5% for the full year?

I would say 39% for the full year is the current estimate.

Our next question on line comes from Alex Potter.

This is Winnie in for Alex. First question is on the CTP segment margins. Do you guys still think that the 10% gross margin is achievable in the near future?

Absolutely. We would expect that sometime next year. First quarter is not likely as we've shared in the past, that's always a very challenging quarter both on the produced unit side, the shipped unit side and also the course of the winter headwinds that we talked about earlier in the call. But as we progress into the second and third quarter of the year, that would be the likely timeframe to be able to break that barrier.

And then just another question with the raised new trailer shipment guidance, I think you guys are implying 18% year-over-year increase over 2013. And that is forecasting about 12% increase for the total trailer shipment. So how should we, I guess, interpret the delta, is it shaking or some other reasons?

Winnie, I think the discrepancy that you're seeing there is that you have to look at the specific segments. So if you look at dry vans, which is our strongest segment than that segment is going to show I think year-over-year increases that are stronger than the average for the total trailers. And obviously, our guidance is a reflection of strong dry van, refrigerated van, flatbed and liquid tank trailers all combined.

Our next question comes from Steve Dyer.

I am not sure I completely understand sort of what's changed in the DPG segment. So last quarter on the call, we were a month into the quarter and you guided to the low end of that kind of 21% to 24% gross margin range, and primarily siding wood costs, and you missed that number obviously. And now it sounds like, it's a few quarters before that's remotely on the table again and we're hearing about productivity issues and so forth. I guess to me it feels a little bit like whack-a-mole in this segment? And I'm just trying to understand maybe what has changed in three months that that really kind of pushes that margin range out, it sounds like two, three, four quarters to ago.

Steve, I mean that's a great question, because we were somewhat surprised and absolutely embarrassed here to have to be talking about the way we are today. We did not anticipate the level of headwind that was being faced by the wood operation, as they were trying to ramp up to take on the increased volume that they were taking on, as the Commercial Trailer Products business demand increased significantly, as we just talked about increasing range from 15% to 20% over where we were at the end of last year. And I think we underestimated what that task was going to be for the location. And it wasn't clear to us at the call, three months ago. So we missed to bode on that. And as we progress further through the quarter and started seeing the numbers, and asking more questions, and going and visiting, we understood that the challenge -- it's a highly manual operation and the challenge in bringing new folks in to ramp up to the higher levels, and to go on to an increased amount of overtime to support the increased levels of demand for the Commercial Trailer Products, that they were taking on more cost than we realized. We had thought that the majority of it was tied strictly to the combination of the raw lumber price increases in the market and also the grade of material that we didn't fully understand the impact of that they were -- the tailwind that they were taking advantage of. So shame on us for not fully understanding that we'd not faced it in the past and didn't quite understand it. Now, we have a full appreciation for it, and that's why we tried to share as much as we could about it today.

And then just hopping over to CTP, what's the right way to think about ASPs, when you kind of balance pricing edging up along this, it sounds like your higher percentage of customers were supplying their own tires and so forth, just directionally that's fairly more than anything. What's the right way to think about ASPs in that segment going forward?

I think we will see more stabilization going forward. The big increase in customers opting to supply their own tires was a huge step up in the prior quarter that we had not seen previously. I don't know that it will get much higher. I think that the players that have adopted that, we may see some smaller increases, but it tripled or quadruples from quarter-to-quarter on the percentage of customers that were opting the tires themselves, the number of tires that were opting to supply tires. And of course when you take the cost or value of the tires out of the equation, it has appreciable impact on what the ASP is. So I would think going forward that adjustment maybe behind us. And then you've always got some quarter-to-quarter mix influence that's very difficult to predict more than a quarter or two ahead, and so that ones a little bit wildcard based on the mix between the long vans and the pulp or double-type product.

And Steve, just to add a little to Dick's comment there on the customer supply tires, obviously that's going to be driven by specific customers. And as you know, in this business that one individual customer can have a significant impact. It can be a lumpy business as we've talked about in the past. And so with the large fleets, kind of leading the recovery in the trailer industry here, we've seen that pick up in customer supply tires driven by specific customers, who have the preference to do that. And so it does have a big impact on ASP and it's at times difficult to understand, but it can be lumpy as well.

And the impact of not having tires as part of the equation on what the selling price is of a long van, it can amount to about 10% of that trailer price. So if you're looking at a dry van that's in, let's just say, $22,000 to $24,000, the tires are in that $2,000 to $2,200 or $2,300 range for eight tires on a trailer going at $250 to $300 a piece. So that's what makes it such a significant influence on ASPs.

Our next question comes from Jeff Kauffman.

Just a quick follow-up here. If the customer is supplying the tires, shouldn't that be an upward bias on the margins as a division. So you talk about the effect on ASPs, but if tires are pass-through and we're taking that out of the equation, shouldn't the reported margins be better?

There is some margin that is in the cost side of the trailer, but the tires himself are taking out for the customer at actual cost. So yes, there is -- I mean it's going to be de minimis in the whole realm of things when you start running numbers. So it could influence by 5 basis points or 10 basis points, but it's not a huge influence.

All right. Well, let me move on to the questions I do have, because it's a little frustrating. I feel like this is the best backdrop we've had in 20 years in this industry, and you guys are kind of watching it walk by with the whack-a-mole issue, something here, something there, something there. I mean, you take a look at it, and I guess what do you think you underestimated? Whether it was a mix issue on a division or this raw material issue we had a year ago, and now we've got a different raw material issue. There's a consistent theme here. What did we not appropriately handicap coming in?

I don't know. I think that some folks have overestimated what the capabilities, even within the current environment are. And I would just remind everyone that we just set another record quarter for performance for the business. So while we have some identified opportunities, I wouldn't consider this a total miss. We tend to be much more open about the opportunities that the business faces than maybe some other companies. And I think that we should feel pretty good about the quarter we just delivered, being a record in topline performance, operating income, and operating EBITDA.

Question for Jeff. Jeff, if I take a look at Walker, I'm going to guess that's about $400 million of revenue give or take with Beall. You said Wood Products group, I think if I heard that right, was about $75 million. That would imply you have about, what $45 million, $50 million in other business in the DPG.

The composite business is about $75 million.

In terms of the margins, they're looking to be about 300 some basis points below last year, that's about $17 million in gross profit. How would you allocate the difference in gross profit amongst the three pieces? And I think you talked a little bit about, okay, we've got the Wood Products pricing part of this. Our arms are around that. Productivity continues. We've got pressure on some of the issues at Walker. How would you allocate that $17 million difference between this year and last year among the pieces in DPG?

So Jeff, we're not going to breakout each individual piece. But qualitatively, what we have said is that this year the wood piece of it is by far the largest piece of it. And then as you look at it, I mean I think the order, we went through them in the script is the order of importance that you see there. And so that's going to be the wood issues we faced this quarter and this year. Second to that, for the quarter, is going to be the issues that the composite business faced. And then lastly and to a lesser extent, the issues in liquid tank trailers and the Walker business.

Working capital was a drain this quarter normally in the third quarter, that's a positive item. You talked about some inventory build from some products that might not have in the fourth quarter. How much might that have affected revenues and working capital?

Well, working capital was up based on the strong demand that was primary in accounts receivable. Inventory is up some. That's obviously inventory. Finished good is a large component of that, that's going to be shipped in the fourth quarter. And to a larger extent, the raw material and work-in-process inventory that's on our balance sheet at the end of the quarter will to a larger extent be converted into finished goods and hopefully shift in the quarter.

Final question, and thank you. Monster industry number 36,000 units last week. That's a great start to a new year. In theory, you guys should be in a very good position to change some of these mix issues, change some of these ASP issues. Where are you seeing the new demand as we head into 2015 and kind of how is the customer orders or what the customers are asking for changing with the backlogs at five months heading into the beginning of the order year?

I'll just say the same thing I say at this time every year. It's always the large guys that start the process. They are the ones that are in early with setting up their orders for the following year. And when they order, they're ordering for their needs for all of the following year. So the majority of orders placed are from large customers for their 2015 needs.

So maybe, just guys ordering a little bit more early to get a spot in line this year.

I mean, you're always going to have, and I talked about it before, you're always going to have a one, two, maybe even three-month change from year-to-year on specific customers when they get their process completed, when they actually end up placing orders. But in most cases we're seeing good healthy needs out of customers in what the order patterns that we have seen thus far, and I expect across the industry the same thing. It's a good operating environment for the fleets. It's a good pricing environment for the fleets. They're getting their increases push through. We're hearing significant increases 4%, 5%, and more for dedicated contracts. We're hearing double-digit increases on the spot side. So it's a good environment for them and they're putting that money to work and trying to refresh their equipment and the whole industry will benefit. And all the manufacturer will benefit from that by having good early backlog builds that they can then set their businesses around.

Our last question comes from Mr. Joel Tiss.

Just to clarify, I guess you've probably given all the pieces, but just to try to sharpen it up. What's left between here and double-digit operating margins in the Commercial segment?

It's the same approach that they have been taking over this last couple of years now. They're going to continue to push pricing. It's a strong market. It gives them opportunities to continue, as we shared in the call and in our previous calls. We've been getting some nice improvement in margin tied to pricing increases in the last quarter, when we did the comparisons and analysis. It was a net gain of $200 in pricing, net pricing gain, during the quarter that was a really strong performance by the team. They continue to gain on the factory floor with productivity and velocity improvement on the line, which spreads the cost, lower cost per unit across all of the trailers. And then the other work is being done by the strategic sourcing team. The purchasing and procurement team that is out there getting leverage as the business continues to grow and getting new contracts that are more favorable to us. So all three of those activities have been going on, continuing to go on, and will continue double-digit target and more.

We have no further questions at this time. I'd like to turn the call over to Mr. Giromini for closing remark.

Thank you, Richard. Three quarters to the year and it's shaping up to what could be the third consecutive record setting year for the company. While true that we've had experienced some challenges in certain parts of our business this year, our ability to produce consecutive record setting quarters, despite these headwinds, demonstrate the effectiveness of our growth and diversification strategy. Additionally, I'm confident we have the people, processes and technology in place to address and correct any issue that we may face. Even more encouraging that our current year performance is the strong start to the quote and order season for 2015, which suggest that next year has the potential to be even better. Having said that, I don't want to get ahead of myself. It's still early in the 2015 quote and order season. We have considerable work yet to complete in 2014 in all of our businesses and across the company. With that, we remain focused on executing against our goals and I'm confident that we will do just that. Thank you for your interest and support of Wabash National Corporation. Jeff and I look forward to speaking with all of you again on our next call.

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