Wabash National Corporation (WNC) Q2 2015 Earnings Report, Transcript and Summary

Good day everyone and welcome to your Wabash National Corporation Second Quarter Earnings Call. At this time all participants on the phone lines have been placed on mute. Later we will conduct the question and answer session and the instructions will be given at that time. [Operator Instructions]. Please do note today’s program is being recorded. I’d like to now introduce your host for today’s program Mr. Mike Pettit, Vice President of Finance and Investor Relations.

Thank you, Roland [ph] and good morning. Welcome everyone to the Wabash National Corporation 2015 Second Quarter Earnings Call. This is Mike Pettit, Vice President of Finance and Investor Relations. Following this introduction, you’ll hear from Dick Giromini, Chief Executive Officer of Wabash National on the highlights of the second quarter and current operating environment and our outlook for the remainder of 2015. After Dick, Jeff Taylor, our Chief Financial Officer will provide a detailed description of our financial results. At the conclusion of the prepared remarks, we'll open the call for questions from the listening audience. As a reminder of upcoming events Wabash National will be hosting an Investor Day on August 18th, at Lafayette, Indiana Headquarters. Attendees of the event will go get a first time look at our new facilities supporting key growth initiatives as well as our updated five-year corporate goal. You can register for the event from the Investor Relations page on wabashnational.com or you can send me an email and I’ll provide you with additional information. Before we begin, I'd like to cover two quick items. First, please note that this call is being recorded. Second, as with all of these types of presentations, this morning's call contains certain forward-looking information including statements about the company's prospects, the industry outlook, backlog information, financial conditions and other matters. As you know, actual results could differ materially than those projected in the forward-looking statements. These statements should be viewed being the cautionary statements and risk factors set forth from time-to-time in the company's filings with the Securities and Exchange Commission. With that, it is my pleasure to turn the call over to Dick Giromini, President and CEO.

Thank Mike. Let me start off by saying we're extremely pleased with the continued progress we’re making with the overall business and the ongoing execution of our strategic plan. At the midpoint of 2015 our pace of improvement has surpass that of 2014 and we’re well on our way to another record breaking year. During the second we achieved all time records for any quarter in the company's 30-year history in gross profit, operating income and operating EBITDA. These results truly demonstrate and validate the transformative nature of our strategic growth and diversification initiatives. Specifically we’ve continually set new records for company performance over each of the past five quarters as a result of specific strategic actions executed over the last three years. I’ve discussed these actions many times only highlight the key factors driving a record performance. First our commercial trailer products commitment and focus on favoring marginal volume has been our key contributor to our recent performance along with the continued commitments of productivity improvement. Second the establishment of the Diversified Products Group segment which is a combination of strategic and organic growth initiatives has a significant contributor to overall company results has enhanced our business stability and reduced our cyclicality. Third, the inclusion of tank trailer parts and service into our retail business has added stability and aftermarket growth opportunities to this segment. Finally our commitment to grow our end markets by leveraging our scale to drive supply chain efficiencies has provided a solid foundation for continued margin improvement. We plan to further leverage these actions as we move through the second half of 2015 and into next year. Turning to second quarter results, trailer shipments for the quarter were strong 16,900 units coming in at the top-end of our previous guidance of 16,000 to 17,000 trailers. Additionally, strong productivity driven by our ongoing continuous improvement activities led to exceptional second quarter build levels that also totaled approximately 16,900 trailers exceeding second quarter 2014 production by 2350 trailers. Net sales for the quarter were $515 million representing a $29 million or 5.9% increase compared to the second quarter of 2014. Consolidated gross profit of $72.4 million set an all time company record exceeding second quarter of 2014 by $10.8 million. Our gross margin increased 140 basis points sequentially to a strong 14.1% for the quarter. Operating margin hit an 11-year high at 8.2%, up 120 basis points year-over-year. Operating income for the second quarter was $42.1 million representing an $8.2 million or 24.2% increase year-over-year largely driven by significantly strides made in the commercial trailer product segment partially offset by softness in Diversified Products tied largely to timing of shipments and orders. Operating EBITDA, which we believe is an important metric to highlight the company's overall performance, increased by 17.5% or $8 million to $53.7 million in the second quarter and represents another company record. Overall, we were successful in delivering record financial results driven by strong trailer shipments and excellent execution which translated to overall growth in revenue, profitability and operating EBITDA. The second quarter represented the most profitable in the history of Wabash National with nice momentum to build on as we move through the rest of the year. Let’s now spend some time discussing the results of our business segments. Let’s start by looking at our Diversified Products Group reporting segment or DPG, which includes our Wabash Composites, tank trailer, aviation and truck equipment and our engineered products businesses. All in DPG deliver a quarter effectively in line with the guidance we provided during last quarter’s call, with net sales at $98 million, while revenues were down approximately $21 in year-over-year comparisons and $6 million sequentially. The DPG team nonetheless maintained healthy gross margins at 22.1% overall executing effectively and overcoming the reduced overhead absorption related to this lower revenue. As discussed last quarter patience is needed near term as we launched several new growth initiatives within the segment and ramp up new facilities with the Wabash Composites business and in Mexico. While certainly not in any way satisfied with the second quarter sales levels, we recognize the somewhat unpredictable nature of a timing of order intake for these businesses that impacted the quarter and are pleased with the team’s ability to manage cost effectively and to deliver solid gross margins. That said, the DPG business enter the current quarter with the strongest backlog in the past 12 months, nice progress and the ramp up with the Wabash Composites facility in Frankfurt and the beginning of shipments of food grade stationary silos from our recently expanded San Jose Iturbide facility in Mexico. We are pleased with the progress seen on DPG’s two major facility projects. First the expansion of our food grade silo operations in Mexico provides necessary capacity to support cost effective production and delivery of stationary silos for the global food dairy and beverage market and to begin efforts to expand this product line internationally. This expansion is a nice complement to our existing domestic business and provides an effective platform for further out of our world-class Mexico facility. Second, we continue to progress nicely with the ramp up of our new manufacturing facility in Frankfurt, Indiana. This facility lease to provide needed floor space to support the continued growth of the Wabash Composites business came online at the beginning of the year and the production schedule has been accelerating throughout the quarter. Frankfurt operations saw their workforce expand and the second quarter’s increased demand for its industry leading, innovative aero dynamic solutions accelerates and to support production requirements to fulfill recently received orders for its unique truck box product. In addition to the transfer of assembly operations for the core DuraPlate AeroSkirt products new offering that have been developed that are in ramp up phase at the facility include the recently introduced AeroSkirt CX, develop to provide a cost effective choice for those customers who decisions are more cost driven and fuel efficiency driven. At the high performance and targeting customers who want the very highest and product performance, the Ventix Drag Reduction system or DRS and the AeroFin tail device provide industry-leading fuel economy improvement and performance. Combining the DRS and AeroFin tail certifies a trailer for SmartWay Elite status without any additional equipment. Our Frankfurt facility is already solidly profitable and as the new products begin to take hold is poised for a strong second half of 2015. To summarize, we’re pleased with the margin recovery and sustainability we’ve seen over the past few quarters in DPG with continued excellent execution within the tank trailer operations and remained very excited with the investments we’ve made in the new facilities and the new products that have been launched in those locations. All this progress and a solid backlog bringing us to a point that we can now assure significant sequential increases in both top-line and bottom-line for the DPG business for the second quarter – excuse me, for the current quarter. Moving on to retail, this segment showed a nice year-over-year improvement in same-store revenue and profitability. Net sales of approximately $45 million represented a $2 million or 5% increase year-over-year on a same-store basis when adjusting for the transition of the three West Coast branch locations to the independent dealership model that occurred in the second quarter of last year. Gross margin dollars rose in the quarter to $5.3 million, while gross margin percent increased 60 basis points and year-over-year comparison to 11.7%. We remained focused on executing our retail strategy to further enhanced margins and profitably grow this segment by increasing our presence in the tank repair and service business through expansion of the number of legacy, Wabash National trailer center locations with the capability to perform these services, expanding our mobile fleet services and growth the number of customer site service locations that we operate. Second quarter profitability was significantly aided by these initiatives and year-over-year comparisons and are expected to continue to mature and contribute significantly to another record year for retail operations. Finally let’s discuss our commercial trailer product segment consisting of our dry and refrigerated van products, platform trailers, fleet-trade used trailer sales and our wood flooring operations. This segment continues to perform very well in executing its optimization strategy with an ongoing commitment to margin improvement, manufacturing excellence and leadership and product innovation. Second quarter delivered best ever quarterly revenues of $395 million with a gross margin of 11.7% that reach its highest levels since 2005 as it was constituted previously as well significantly surpassing the previous stated objective of achieving a double-digit gross margin quarter. With that initial goal achieved we now expect the CTP business to achieve its remaining margin goal of double-digit margin sustainment by completing the current full calendar with double-digit gross margins achieving this objective of full year of our internal expectations. The improvement seen in the second quarter was driven by the team's continued execution of a pricing strategy, committed to favoring margin over volume as well as continued improvement in productivity and material cost optimization through design and sourcing. In evidence of this superior execution achieved during the second quarter our CTP operations were able to produced 2,200 more trailers than in the same period during 2014, 15% year-over-year volume increased while utilization the same of manufacturing line shifts and staffing levels. This long time focus on waste elimination and velocity optimization continues to deliver increased operating leverage for the business. Additionally the business delivered almost to $500 increase in net pricing for the second quarter and year-over-year comparisons and we expect to continue to see year-over-year net pricing gains throughout the remainder of the year. Now let’s discuss our strategic initiatives within CTP. In the third quarter CTP will launch a production facility on its Lafayette campus in support of a new key strategic initiative related to final mile delivery. This repurpose production space has been retool to support future production of the LTL trailers that will both 28 foot and 33 feet approved specially design truck bodies and other product line that specifically benefit from increasing demand in final mile and home delivery shipping trends. This investment demonstrates the commercial trailer products intension to continue to grow their business organically like expending their focus into adjacent transportation markets from those we presently serve. We believe that continued strong growth in online sales, home deliver and re-urbanization will continue to redefine the logistical footprint for our customers. We’ll be providing tours of this new facility and explaining our growth plans in more detail at our upcoming Investor Day on August here in Lafayette. We look forward to seeing many of you here. With both momentum and our historically strong demand environment on their side we’re more confident than ever that the CTP team will can deliver record performance for the full year. Before I discuss Wabash National’s specific expectations for the third quarter and for the full year of 2015 let me comment on our few economic indicators and industry dynamics that we monitor which provide boarder context for our expectations. Volume decline of 0.2% in the first quarter, the economy expanded and estimated 2.9% annual rate in the second quarter. Most analysts anticipate the U.S. economy to grow moderately at close to 3% annual rate in the remaining two quarters of 2015. Although the general economy continues to produce some mix signals while reflecting modest growth rates, key indicators overall within the trucking industry point to continue strong demand and signal a positive outlook. ATA’s truck tonnage index declined by 0.5% in June to a still strong 131.1 following a 0.8% increase in the prior month and representing the 12th consecutive month above the rating of 130. The index was 1.8% higher than in the same month last year. Year to-date through June tonnage was up 3.4% compared to the same period in 2014. The July report from ACT Research forecast 2015 trailer shipments at 307,900 units, up 14.6% year-over-year and a strong 297,000 trailers in 2016. FDR now anticipates 299,200 trailers to be produced for 2015, an increase of 12.8% year-over-year and projects 267,800 units to be produced in 2016. From a regulatory and legislative standpoint the Environmental Protection Agency and the National Highway Traffic Safety Administration proposed regulations last month in an effort to further reduce fuel consumption and production of carbon dioxide and other greenhouse gases. The proposal focuses mainly on van trailers that will require a fuel saving technologies such as trailer side skirts, low rolling resistance tires and automatic tire inflation systems to become standard equipment starting in 2018. Additional regulations would be implemented in 2021, 2024 and 2027. In addition, we all are still waiting to see the increase in pup trailer length to 33 foot, a provision that is part of a proposed fiscal 2016 funding Bill that pass the U.S. House and the Senate appropriation committee in June will pass by the Senate and sign in to law. And so this legislation will provide tailwinds to the strength and longevity of the current trailer equipment replacement cycle. And as I discussed on our last call the suspension of restrictions to the 34 hour restart provision of the Hours of Service rule until September 30th of this year has provided some temporary relief for fleets related to required nighttime break periods. According to FDR Class 8 truck utilization decreased to an estimated 95.3% at the end of May of this year from 97.5% at the end of 2014. However industry analysts caution that if the hours of service restock provision suspension should not be extended, capacity utilization would rise to peak utilization levels almost immediately leading to significant capacity limitations in last quarter of 2015 and into 2016. In the light of that economic and industry backdrop, let’s now discuss Wabash’s due for the second half of 2015 and a first glimpse of 2016. Our backlog remained extremely strong finishing the second quarter at $1.1 billion as compared to 12 months ago at $842 million at this time and representing approximately seven months of production at a consolidated level. This backlog level demonstrates a continuingly healthy and strong demand environment and in contrast to some who maybe calling the end of the trailer demand cycle we see it differently and anticipate a continuance of the strong demand environment supporting revenue and margin growth. As a result, in response to increasing interest in customers, we opened the 2016 order book in late June and began accepting orders for 2016 build slots. We are presently experiencing a much stronger demand for these build slots than what is typical for this time of the year and believe that this activity further supports our view that 2016 will be another strong year for the trailer industry. In addition the quarter [Indiscernible] activity key industry driver such as continued strong freight demand supporting carrier efforts to increase rates and improve profitability, excessive fleet age, regulatory compliance requirements along with increased residual value of used trailers all support our view for continued strong demand for new trailers and an extended trailer cycle. A favorable demand environment coupled with record production levels and an extremely strong backlog provides a solid environment to finish off the year on a strong note. As a result, we expect third quarter consolidated shipments to be between 16,500 and 17,500 units with total build levels for the quarter within the same range. Our expectation for full year shipments is now 63,000 to 66,000 units. This puts our forecasted year-over-year growth in shipments at 12% to 13% or effectively in line with industry projections. In terms of earnings, we are raising our full year EPS guidance by $0.10 per share to a range of $1.25 to $1.35 earnings per share. This will represent a 46% improvement year-over-year at the midpoint of the range. Furthermore, continuing on our strength of improved year-over-year comparisons, we expect the remaining two quarters of the year these show nice year-over-year EPS growth. Looking ahead to 2016 we see another solid year for the industry and we fully expect continued growth from our strategic initiatives. As our 2016 order book grows, we will update our guidance, but at this time assuming global and economic growth remains in line with where it has been over the past couple of years, we would expect 2016 to be at least comparable to 2015 in terms of full year earnings per share. Overall, based on the current demand environment our strong backlog and the disciplined execution being delivered by the total team we fully expect 2015 to be our fourth consecutive record year with continued strong cash generation coupled with a very strong balance sheet. In summary, we're obviously pleased to have delivered a very strong record breaking second quarter and to have continued the string of strong quarterly results in CTP. We’re also encouraged that DPG gross margins held about 22% for the second quarter and largely maintaining the improvement recorded in the first quarter. I am extremely pleased with our position there remains more opportunity and work to be done. In the commercial trailer product segment we will continue our focus to accelerate our efforts to introduce more attractive higher margin growth opportunity to drive its topline and bottom line. We are now clearly seeing the margin improvements in this business, but we need to ensure the business consistently delivers double-digits [ph] and then grow from there. We need to effectively execute the introduction and ramp up of our exciting new product offerings in our diversified products business as well as consistently maintain our improved margin performance. We also need our new products to deliver on expectations to grow in their respective markets and contribute to DPGs topline in the second half of 2015. Furthermore we need to leverage the higher margin tank parts and service opportunities for margin expansion and growth of our retail segment and continue to execute on commitments made with the expansion of customer site service locations. So while much has been done there remain other opportunities to improve. We will continue to be strategic but selective and pursuing opportunities to grow our business in addition to the organic growth initiatives already underway. We'll continue to be responsible stewards of the business to assure that the proper balance between risk and reward is considered in all decisions. In closing we are extremely well positioned this year to deliver our fourth consecutive year of record revenues in profitability with the strong backlog of demand environment that remains favorable and a number of new products either already launched or nearing launch status as well as operations that are performing at a very high level. With that I will turn the call over to Jeff Taylor, Chief Financial Officer to review in detail our financial results. Jeff?

Thanks Dick and good morning, everyone. In addition to the press release, we filed the 10-Q after the market closed yesterday, so I’ll cover the key points. Overall, it was a very strong second quarter which is reflective in the financial results. All three segments contributed to our record breaking performance, albeit at different levels, nevertheless our record trading performance demonstrates the benefits from the improvement in our operational execution during the quarter and our strategic diversification efforts. With that, let’s get into some of the second quarter financial highlights. Consolidated revenue for the quarter was $515 million, an increase of $29 million or 6% compared to the second quarter of last year. Total new trailer shipments were 16,900 units near the top of our guidance range at 16,000 to 17,000 and 1,950 units higher year-over-year. Sequentially, consolidated revenue increased $77 million or approximately 18%. Commercial Trailer products net sales were $395 million, an all time record for this segment is currently constituted which represents a $59 million or 17% increase on a year-over-year basis due to higher new trailer shipments of approximately 2,250 units. New trailer average sales price or ASP increased approximately $500 per unit primarily resulting from improved pricing and a lower mix of customer [Indiscernible] partially offset by a product mix that was biased towards lower price products such as converted dollies. Diversified Products net sales decreased 18% or $21 million on a year-over-year basis to $98 million. DPG revenue was down year-over-year substantially due to lower sales within the Wabash Composites and engineered products business, both significantly impacted by the timing of orders and shipments. Retail segment net sales on a same-store basis adjusting for the transition of three West Coast branch locations in the second quarter of 2014 increased approximately $2 million or 5% on a year-over-year basis. Looking at various product lines, new trailer sales of approximately $436 million on 16,900 units increased $51 million or 13% year-over-year. This year-over-year increase is largely due to the increased new trailer shipments and improved pricing in Commercial Trailer Products. Used trailer revenue was approximately $11 million on 650 units, a decrease of approximately $4 million from the same quarter a year ago, as a result of continued tightness in the used trailer market specifically used drive vans and fewer fleet trades. Components, parts and service revenue was approximately $43 million in the quarter down $9 million from a year ago primarily as a result of the large LTL AeroSkirt Retrofit project in last year’s results which did not repeat this year. Finally equipment and other revenues on a year-over-year basis decreased by $9 million to $25 million for the quarter. This decrease was primarily driven by lower sales from non-trailer equipment within Diversified Products In terms of operating results, consolidated gross profit for the quarter was an all time record for the company at $72.4 million or 14.1% of sales compared to $61.6 million or 12.7% in the same period last year. This represents a $10.8 million or 17.5% improvement year-over-year. Commercial Trailer Products was the primary driver of the gross profit increase which was partially offset by declines in Diversified Products and retail. Let's look at the segment margins in more detail. Commercial Trailer Products gross margin improved 340 basis points over last year, resulting in a 65% increase in gross profit or $18.2 million. This year-over-year profitability improvement in Commercial Trailer Products was driven by manufacturing efficiencies and operating leverage gained from increased volume and addition to improved pricing. Production during the quarter was 15,950 units, up by approximately 2,200 unit’s year-over-year due to strong order intake and productivity. Diversified products gross profit decreased $4.7 million compared to the prior year period primarily due to lower volume and revenue within Wabash Composites and engineered products. However, the segment maintained it gross margin at 22.1% Moving onto retail. On the same store basis when adjusting for the transition of three West Coast branch locations, the gross profit in this segment increased in the quarter by $0.4 million or 7% year-over-year due to the increase of new trailer pricing as well as continued growth in customer site service. On a consolidated basis, the company generated operating income of $42.1 million in the quarter, an increase of $8.2 million or 24% year-over-year, driven primarily by improvements in commercial trailer products. At 8.2% of sales operating margin was approximately 120 basis points higher than the prior year quarter and 200 basis points higher than the first quarter of this year. Sequentially, operating income was higher by $14.8 million, primarily driven by seasonally higher shipments of new trailers in the Commercial trailer products business and a strong demand environment. Operating EBITDA for the second quarter was $53.7 million, a year-over-year increase of $8 million or 17.5%. Sequentially, operating EBITDA improved by $14.5 million on seasonally higher new trailer sales. On a trailing 12-month basis, revenue was approximately $2.0 billion with operating EBITDA approximately $186 million or 9.4% of revenue. Cash flow from operating activities was strong in the second quarter and was approximately $51 million higher through the first six months of the year than the same period last year due to increased net income and effective management of working capital As typical, we expect cash flow from operations to be stronger in the second half of 2015 than what was experienced in the first half. Selling, general and administrative expense excluding amortization for the quarter was $25 million or 4.9% of revenue. SG&A as a percent of revenue excluding amortization is expected to be approximately 5% for the full year. Intangible amortization for the quarter was $5.3 million, and is expected to continue at this level for the remainder of 2015, with a four-year expectation of approximately $21 million. Interest expense consisting primarily of borrowing cost totaled approximately $4.8 million in the second quarter, a year-over-year decrease of $0.9 million primarily related to the impact from the voluntary term loan prepayments in 2014 as well as lower interest expense due to refinancing of our term loan. We anticipate interest expense will be relatively stable throughout the remainder of this year. Approximately $1.3 million of our reported quarterly interest expense is non-cash and primarily relates to the accretion charges associated with the convertible notes. We recognized income tax expense of $16.7 million in the quarter. The effective tax rate for the quarter was 36.8% in line with our guidance for a full year income tax rate of approximately 37%. Finally for the quarter, net income was $28.6 million or $0.41 per diluted share. On a non-GAAP adjusted basis and after excluding $8.3 million of gains from the sale of two former retail branch properties and a 0.3 million charges incurred in connection with the amendment of our revolving credit facility during the quarter, net income was $23.6 million or $0.33 per diluted share. In comparison, the non-GAAP adjusted earnings for the second quarter of 2014 were $16.9 million or $0.24 per diluted share, which included the impact of early extinguishment of debt charges and the transition of three retail branch locations to independent dealer facilities. This represents a year-over-year increase of 38% in adjusted earnings per diluted share. With that, let’s move to the balance sheet and liquidity. Net working capital decreased slightly by $8 million from the first quarter. We expect networking capital to continue to be relatively stable during the third quarter with the potential for a small increase as we hit our peak production months during the summer. Capital spending was approximately $2 million for the quarter and we continue to expect full year 2015 capital spending to be up to $25 million. Our liquidity or cash plus available borrowings as of June 30, was approximately $308 million, an increase of $39 million from the first quarter including the $25 million increase and the borrowing capacity from the asset based revolver which occurred in the second quarter and inclusion of approximately 22 million of share repurchases completed in the second quarter. Our total and net debt leverage ratios were 1.9 times and 1.1 times respectively at the end of the quarter. As I wrap up this section, I would like to highlight the significant progress we made executing our share buyback program. We repurchased almost 1.6 million shares or $21.7 million in the second quarter bringing our 2015 repurchase total to 2.9 million shares or $40 million against our 60 million shares repurchase authorization or approximately two thirds of the program completed in the first half of this year. We are pleased with this progress as it provides us with additional flexibility for the remainder of this year and next year as we evaluate all of our capital deployments, alternatives including investing in the business, debt reduction, return of capital to shareholders through share repurchase or dividends and of course strategically growing the business either organically or through acquisitions. In summary, the company delivered a record second quarter, and the strongest first half performance in our 30-year history. We gained momentum in the second quarter and are well positioned to make further gains in the second half of this year. All three business segments posted solid results and contributed to the record quarterly performance. The balance sheet is strong and expected to strengthen further. We finished the quarter with strong liquidity and approximately $140 million of cash on the balance sheet. Our leverage ratios remain in comfortable territory and we have no significant debt maturities until May 2018. Lastly, we look forward to leveraging the success we have had to date and delivering strong results for the balance of the year all the while remaining committed to being good stewards of the company’s capital and managing the company for long-term value creation. Thank you. And I will now turn the call back to Roland and we will take any questions that you have.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from the line of Mike Shlisky. Your line is open, your question please.

I’m going to try and say some questions for the analyst event but this whole last mile and I think it sounds like it’s going to be doing drillings from now on. I kind of want to touch briefly on the June orders here, it sounds like you are an open book to the very end of the month, the energy orders at least were up, pretty substantially I guess it’s a two part question. First of all what part of the orders [Indiscernible] got in the month might have been pent up from the previous few months when people wanted to order but couldn’t. And secondly were you guys kind of still feel at the end of the quarter still feeling a lot [Indiscernible] all the way through June 30 if folks just trying to get it to the Q4 deliveries in 2015?

The quote board is quite strong. The orders that were ultimately quotes converted to orders in the latter part of June were those that were already in discussion and we had not opened the order book up for 2016 and finally made that decision to do so. So there was a large group of orders that we’re receiving just reflective of the $1.1 billion of backlog that we reported I think pretty much says it all.

Okay. And just a quick follow up on that question, I guess are you giving people a bit higher pricing and these new orders to ensure them early delivery in 2015 or is the pricing environment on these most recent orders fairly normal?

Well it’s not necessarily guaranteeing early delivery in 2016 because the quarter activity that occurs earlier in the process and this year as I stated in my formal comments, it’s earlier than normal. Generally larger fleets or placing orders for the whole year of next year, so that the orders that were received in most part are for quantities of trailers that are spread across the 12-month period. Certainly on the pricing side we try to continue to favor margin over volumes so we’re always trying to look and see how we can optimize the pricing of the trailers relative to the strength of the market.

Great. And trying to squeeze in a second follow up on that question. Is your focus that you kind of mentioned in your prepared comments are both seeing declines in 2015, I think one’s up to 10% decline in 2015. But based on what you said later on in your comments I guess Dick to you, do you disagree with what those forecasters are saying, do you feel like we’ll have it flat up here in 2015 just very broadly speaking.

Well they two distinctly different forecasters and what they look at. One forecast shipments the other forecast production, but that said we tend to agree more closely with what ACT Research says, their analytics are closer to our analytics. FTR on the other hand has been more conservative in their outward view in their outlook and they have been regularly updating and increasing their projections for both 2015 and 2016 as each of the months have passed over the past year or two. So when you look at the ACT Research numbers there is really no significant difference between 300 and 8000 units or 298,000 units. It may quantify it’s about 10,000 units difference but in reality it’s pretty much peak demand, peak capacity utilization for our industry and what can be produced because the dominant number in there is really driven by the drive hand segments. So, those numbers we view as equivalent for the sake argument and what we can do with the business and sustaining margins and continuing to improve profitability for the business.

I just like to add that obviously we haven’t finished 2015 yet, so we’ll see where that number finishes out and then 2016 will play off of that. Having said that, anytime the demand in this industry is significantly above replacement demand, replacement demand being approximately 220,000 units, so when the industry is above 250,000 let’s say that’s very strong capacity utilization and we think a very positive environment for the industry as a whole and certainly we think that support stability is not the improvement in the pricing environment. So at the levels that ACT and FTR are forecasting for next year we view that as a strong very positive environment for us and the industry as a whole.

Okay. Great, makes sense. I’ll pass it along. Thank you.

Thank you. Our next question comes from the line of John Mims. Your line is now open, your question please.

Hi, thank you, good morning Dick, Jeff, Mike great quarter. So let me ask first on the backlog and the $1.1 billion with the 2016 book being open now, how much of that is for production that’s planned for next year versus substitution [ph] still finish out this year.

We haven’t split that out John. So I would not want to try and guess on what that split would be, but we got our fair share of the orders that were reported for the month of June I guess I can say that.

Okay, now that’s fair. But from a build plant standpoint are you totally full for 2015 or could you still – you are tightening the shipment kind of trend, but is there room to move that up around up as the year progresses or are you at maximum capacity?

Yes we from the dry van side of the business we’ve effectively been full. We’ve been able to maneuver here and there for some small orders here and there with overtime but that’s basically where any limitation is now it would be on the overtime side of things to squeeze some orders in here and there which is what we have done. But effectively dry van is full, refrigerated is had some capacity opportunity but it would require them to go and staff and at this stage we are going to see what the 2016 demand is before we would try to add any staffing to support further capacity there. And then the other businesses the lead times are always shorter. So you always have some open capacity to be able to accept orders whether it’s in the platform business or in the tank side of the world.

Okay, that’s helpful. And then Jeff, let me ask you one on the margin improvement this quarter. The 340 basis points and you say that improved operations, operating efficiency as well as pricing if you were to split those out just directionally, how much did pricing impact that improvements for this quarter relatively to just building better.

John it’s relatively evenly split between the two. I mean manufacturing efficiencies and operational execution was a significant contributor to the improvement that we’ve made taking advantage of the operating leverage from the higher volume. And then we did have we have improved pricing certainly year-over-year. So pretty evenly split.

Okay. So what I was trying to figure out we’ve talked about pricing and demand has been strong and my sense is that there is good pricing going into the backlog throughout this, but that’s typically been offset by Merricks [ph] and I think it was somewhat this time but it seemed their pricing was strong enough to sort of push through this quarter. So we are in an environment now where your backlog is starting to weigh more heavily on the more advantageously priced orders such that we can still see this type of pricing positive impact from pricing on margin or if there is still going to be this tendency for the big orders to kind of pull some of that – kind of offset that pricing power for the next several quarters.

I think what we typically see in the back half of the year is some movement towards shift toward more indirect channel business opportunities but it can flow because third quarter is always a very strong quarter for production and shipments and it really has to do when the numbers were all through on how many of the large order lower spec type equipment flows through. So it’s often times very difficult to predict and which ones actually get shipped out and get recognized in revenue. But your general theme is consistent. You do tend in the back half to have more indirect channel orders that flow through the system. But I wouldn’t put any weight on it, what I will say is that we do expect back half margins within CTP to be a stronger, stronger than what we just delivered in the second quarter. I think you can probably bank on that.

Yes thank you and I appreciate the time, but I did have that as a follow up, just a quick one that there is nothing just two second quarter unique to this quarter that would drive that big of an improvement. You say double digit but double digit can mean a lot of things, but this kind of high 11% into the 12% is a decent run rate for the back half of the year.

Yes there no question that there was tremendous execution during the second quarter. So it wasn’t just in pricing, improvement obviously that played a part, but the manufacturing execution on the factory floor was outstanding and that really helped deliver the exceptional result, the 11.7% margin that you saw it got a lot of good flow through as a result of the incremental units and the effective utilization of the staffing that we have to produce those incremental units.

Great. Okay.

Hi, John. In addition to that we get productivity improvements from the capital expenditures we make the portion of capital expenditures we make in our manufacturing facilities and we’re seeing some of those benefits as well. So it’s really nice performance and execution on the manufacturing side of house.

I agree. Thank you so much for the time. We’ll see you in a month. Thanks.

Thank you. Our next question comes from the line of Alex Potter. Your line is now open, your question please

Yes thanks very much guys. I was hoping you could chat a bit about new product introductions in DPG obviously the revenue there if you can find one week path in the quarter with the revenue there seem to unravel a bit in DPG specifically in non trailer products but it also sounds like in your comments you’ve got a pretty healthy backlog growing and some increasing confidence in the new products. So I was just hoping you could maybe shed additional light on what you are seeing there where the confidence comes from and what your expectations are looking out into the back half of 2015?

Yes I tried to just share a little bit in my formal comments, but it was a good quarter for order intake as we were leaving the quarter and as we entered into the current third quarter both on the Wabash composite side and on the engineered product side. Those were the two businesses that were really trailing on getting orders in a timely way. Some of it is just the way these orders fall in. Last year in the second quarter there was a very large order for Wabash Composites for AeroSkirt for a significant customer that’s in the curve this year, so it hurt their revenue line. They have since gotten some nice orders in. I mentioned about the specialty truck box that they have produced for LTL. They received finally a significant order for those that’s going to really help them in this quarter and the balance of the year. On the engineered product side, they received a nice order for some stationary silos to help support the backlog for the new expanded Mexican operation for the food grade stationary silos down there that we that new initiative down there and also received orders for mobile cleaning rooms which has really helped will help them on the back half of the year. So those are the most significant items that stand out that helped increase the backlog for the DPG group.

Okay, it’s not necessarily some of the kind of these brand new leading edge product that you’ve talked about, you still expect the ramp up for those that will be coming in potentially first half of 2015?

Well I’ve got someone that’s not coming through the aerodynamic products. They have got some of that coming through, but I was giving you their most notable ones. But yes, we expect that as they gain traction on the manufacturer and getting those new products out in front of customers and putting those products into trial for customers so that they can see the benefits of them, then we’ll see that as a continuing growth opportunity for the Wabash Composites business. On the engineered product side, both comments that I made, the foodgrade stationary silos in the Mexican market that’s a growth opportunity. We never penetrated or serviced the Mexican market previously. So that’s all new growth for the business. And then the MCR or Mobile Clean Room opportunity that was one we had just gotten into about a year and a half ago maybe seven quarters ago and that’s an opportunity that we see growth opportunity going forward. So both of those are new initiatives, either brand new in the case of the stationary silo opportunity in Mexico or in the Mobile Clean Room example in the last year and a half that has some nice growth opportunity for that business.

Okay. Great. Thanks a lot, that’s very helpful. I was wondering also if you could shed a little bit about retail and obviously not as bigger contributor to the P&L but if you can get some margin leverage there as a result some of these new initiatives that you’ve been talking about tank repair, tank service and things of that nature then potentially that could end up being a bigger type of operating income and it seems like in the quarter both from the numbers and also from your commentary that you are starting to get some traction with that. So I was just wondering if you could maybe elaborate that a bit.

Yes, it’s a slower process there just because it is a smaller business. There is going to be a period of time on a year-over-year comparison basis where the numbers have been impacted with the transition of the West Coast locations over to an independent dealer. So there’s some play there. What I was extremely pleased with is that despite that the business was actually able to deliver higher operating income this year with the three less locations than they did a year ago in the second quarter. So the business really executed well and then – that’s proved positive of the benefits of some of the growth initiatives with increasing the mobile service opportunities that we have and also the customer side service opportunities. And we continue to work on gaining our stamp approval at the traditional WNTC locations so that more of them can actually do tank service work which provides higher margin opportunities also. Those are the three initiatives that are going on in the business and we are just pleased to see the consistency coming out of it and the dependability on delivering profitable bottom line. We had not seen that over the years out of the retail segments. So it is to your point Alex becoming a contributor and we expect it to become more and more of a contributor as we go forward.

Okay, very quickly if I could just squeeze one additional follow up on that. Do you think greeting kind of between the lines of your comments there that the operating margin that we saw coming out of retail in the quarter is a good base line and continue or potentially continue moving higher into the next couple of years, couple of quarters to a couple of years.

Well that certainly is what our expectation is. It is to continue to drive those initiatives that can further enhance the margin profile for the business, so it’s difficult to say are we going to have every single quarter that performs a lot of that has to do with how many new trailers or so because that new trailers can really shift the number quite a bit, because out of the -- when they are sold through retail outlet there is a lower margin associated because they get transferred to or sold if you will to the retail business just like they get sold to dealers. And then the retail business puts a margin on top of it, but it certainly is much lower than what the consolidated margin is for the retail business. So it’s a hard one to say depending on how many new trailers sales they get in any quarter.

Yes, Alex we’ve made some investments upfront to position that business to grow in the areas and initiatives that they had talked about. And those areas and initiatives we are working on a higher margin opportunities in the core business, so if we are successful and as they grow then I would say we do expect the margins to increase their gross margins and operating margins. Don’t want to comment really on kind of the pace or the timing of when that’s going to enter [ph] but certainly it’s our expectation that it doesn’t improve overtime.

Okay. Great quarter guys, thanks a lot.

Thanks Alex.

Thank you. Our next question comes from the line of Brad Delco. Your line is now open, your question please.

Good morning, Dick, good morning, Jeff

Hey, Brad.

Good morning.

Jeff, if you made response to an earlier comment about kind of the margin, the strong margin performance in CTP and some of it was related to just efficiencies with higher volumes and then also pricing. Look you commented all about the impact on just commodity cost because it seems like commodity markets been hit pretty hard here and just wondering if we saw some of that benefit in the current quarter or could we see further benefit in the quarters to come as a result of that?

Well, Brad, the commodities have been in a good spot. They’ve been relatively stable, if not slightly down for the past couple of quarters. What I would say is that as you know we had our raw material cost when we take orders, so effectively we’re locking in the material price for those orders at the time that we take the order. We’re protecting the margin at the time we take the order when we do that and we give some potential upside to protect the downside. So, I would say that overall is kind of a material position we’re in. And the biggest contributors to the margin improvement in the quarter were truly the factors we talked about there in terms of the manufacturing efficiencies and the operational execution and improved pricing.

Okay, great. And then Dick you made a comment and you may address this -- some of these questions earlier, you expected significant top-line growth in DPG in the third quarter, can you kind of give us ballpark as to how much acceleration we could see in top-line in DPG for the third quarter?

Certainly, we’re going to see numbers that are much more representative of what we would expect. If we were to look back year ago at this time in the second quarter numbers more like that or probably to be expected. At the same time when we talk what the flow through to the bottom line would be. We would expect at least as good as what we saw at that time.

Okay. That’s helpful. I just -- I know that seasonally you don’t see second quarter revenue below first quarter and so that kind of caught us by surprise. I just want to make sure would been fair and what we expect for that in the back half of the year. And then another really high class problem that you guys have and this is for your comments Dick your free cash flow generation is typically better in the second half of the year and it hadn’t been that bad so far. Should we expect you guys to renew or reup a share authorization or do you feel like there are other uses of cash at this point that are more worth the time and dollars?

Well, we examine all of that stuff on a regular basis. We have those dialogues with our Board. And we’ll be determining what the best opportunities for use of cash is as we continue forward. When we put the share repurchase program in, we felt that was the best opportunity to return capital to our shareholders and we’ve delivered on that promise. But it’s always an opportunity to look at as we continue and improve the business, it actually gives us that much more flexibility, look at how we want to continue to invest in the business, continue to grow and increase value and return to shareholders.

That makes sense. Since one of the options is share repurchases that you’ve gone through it so quickly, I didn’t know what we should expect to see a greater authorization just to keep that option open? And then last quick question just to make sure, the updated guidance $1.25 to $1.35, is that assume your adjusted $0.33 number for the quarter or the GAAP number?

That’s a non-GAAP adjusted EPS guidance.

Right.

So I assume 33.

All right. Perfect. Thanks guys for the time. Appreciate that. Congrats on a quarter.

Thanks, Brad.

Thank you. Our next question comes from the line of Joel Tiss. Your line is now open. Your question, please.

Hi, guys. How are you doing?

Hi, Joel.

Good morning, Joel.

I think you may have just answered this, but I wondered that you talk the lot on Diversified Products about the growth side of it, but I just wondered if you could talk a little more about the cost-cutting and the efficiencies you put in place. And the [Indiscernible] of my question is you think by 2017 you could get the operating margins back toward that 14% where you were prior?

So, Joel, since we completed the acquisition in May of 2012, we’ve been working on a process to capture synergies from that business and from that acquisition. Obviously early on the first piece of that was really on the procurement side through purchasing materials and that was extremely successful. Since then we’ve been looking at some other opportunities for effectively managing the cost there, and we have transition some of their back office programs whether its HR benefit programs into the Wabash National programs. We’ve transition some of the tax and financial planning functions into the corporate functions and we continue to evaluate opportunities to continue that type of integration to further gain those synergies. One of the bigger ones that we’re still working on is really on the IT and the ERP side, and that’s one is going to take – it’s going to be a multiyear project that we’re working on. And we do expect as we complete that project that it will provide some cost benefits as well. But it’s going to take a little more time than other ones that were well hanging fruit. Just in addition to that they continuously work on lean manufacturing and operational excellence to take cost out of their manufacturing processes. They’ve made gains there as well during this quarter and throughout this year and they will continue to do that. So, certainly one of our goals is to continue to grow and expand the operating margin of that business and I think certainly at a high level we don’t see any reason that we shouldn’t be able to get it back to operating margins consistent with what you’re seeing in the past.

Okay. And then on the free cash flow side, is there any chance, you think you could generate enough cash between the end of this year and the end of 2016 to be almost net debt free or is that a little too aggressive?

Well, the business is performing at a very high level and so in cash generation is extremely strong, obviously my net debt right now is 1.1 times, so I think it’s a pretty high class problem to have in terms of what you’re going to do with the cash, you’re going generate and there was big talk about, we have tremendous flexibility in evaluating further debt reduction which would continue to lower that net debt number that you’re referencing potentially return capital to shareholders either through share repurchase or dividend at some point in the future. But also more importantly, we do want to continue to grow and diversify this company and evaluate those opportunities continuously and obviously if something that we don’t comment on until we have something that’s actionable, but all three of those are certainly viable alternatives for the use to cash.

Okay. Thanks very much.

Thank you.

Thank you. Our next question comes from the line of Jeff Kauffman. Your line is now open. Your question, please. Jeff Kauffman please check you mute button.

Hey, can you hear me now? Hello.

Hi, Jeff.

Very good. Sorry, I had you on mute. Hey, Jeff you kind of hinted this in our last discussion but you kind of look at different ways we can spend capital, obviously growing the business is a priority, but has the board had discussions about how many new shareholders we could potentially put in to plate to own the company shares if you were to initiate just a small one percentage kind of dividend or something like that. You’re in the luxurious position of having more cash than you need over the near term, I guess, how much if you went that direction do you think it would take to establish something that would be relevant enough maybe to draw another 10% or 15% potential shareholders into the stock?

Jeff, thanks for the question. What I will say is that we have an ongoing dialogue with the board around capital deployment in uses of cash. And dividend is one of the topics that discovered during their conversation. So it’s something we talk about with the Board of Directors and Dick and I have talked about as well. And specifically you point about dividend paying stocks do open up a percentage of the investor base that you probably can’t invest if you don’t pay a dividend. So it’s something we’re cognizant enough. I think something that is part of the discussion with the Board of Directors won’t comment in terms of how big of a change we think that would make it in investor base if we put something in place probably until we get to the point where it something we’ve decided to pursue, but it’s certainly part of the conversation.

Okay. And just one brief follow-up, you mentioned that you were sold out for the rest of this year on dry, you were trying to evaluate whether or not to bring on more people for additional refrigerated business. How many shifts are you running right now? How much could you potentially extend production capacity if you maxed out your shifts and in light of the terrific earnings at what point would you evaluate incentive compensation accruals, are they already built in to the numbers or is that something that we would look at in the second half of this year?

Jeff, let me take the second piece of that first which is incentive compensation accruals. We make accruals every quarter for incentive compensation based upon our current performance and our forecast for the rest of the year, so those are baked into the existing numbers and also included in our any kind of guidance we give around earnings as well.

And on the first part of your question, the dry van segment and we’ve talked about this in prior quarters, we’re running three shifts on the dry van, so really the only opportunities would be through our continued execution of lean principles. So when I talk about the philosophy optimization, I’m really talking about being able to reduce the time which increases velocity line so you can build more trailers per shift and with the same number of shifts, same number of lines operating. We’ve been practitioners lean for the last 13 years. Now that the workforce coming out of the downturn, the workforce has gain proficiency, much more stable, so we’re able to throw more of these opportunities at them and they been accepting them really well, and that’s where this past quarter really show the benefits of the maturity in the proficiency gains that the teams have made. So there would be some opportunity but it’s incremental, it’s not dramatic like adding a full shift. On the refrigerated side we run a two-shift operation, but my comments earlier were that based on where we are in the ordering cycle for refrigerated trailers we would likely not make a decision to add anything for this year, but we would examine that as we proceed through the balance of the year to see if there is merit and adding any more staffing for the refrigerated to support that. And then of course we do have opportunities in the other areas because lead times on whether its platform type equipment or tank equipment tense to vary from product to product and end market to end market and it doesn’t generally get out to 8, 12, 15 months like some of the dry van stuff can.

All right. Hey, guys congratulations and thank you.

Thanks, Jeff.

Thank you. And our next question comes from the line of Mike Baudendistel. Your line is now open. Your question, please.

Just wanted to ask you on the larger 33 foot pup trailers, what are you hearing from customers, I mean, would you expect them to be ordering those aggressively if that were to come to fruition?

Mike, it’s really a little bit all over the map because what you’ve got is there’s always a need for the 28-footers, so you’re not going to have everyone just wholesale transitioning from 28 to 33. So it’s going to be portion of their business that makes good sense. And then there’s going to be other portion they want to maintain 28. The other aspect is they are not going to replace a late model unit, a late model 28-footer with a new 33-footer. What they would end up doing is have that extended or stretch as we tend to refer to it. And we do that work. We can do that work at our retail locations. We may have that work also distributed through select dealers who have capability to do that kind of work. So there’s going to be a mix of that. But certainly the talk of customers is that it’s very beneficial to them to increase their productivity. They get an instant 18% increase in cube capacity. So that can actually have a tremendous benefit for every six setup. It eliminates -- it get denser haul. The 33 footers actually haul smoother than 228 [ph] in combination. So it’s actually an improvement based on studies that fleets have done improvement in safety, because it hauls better for every six setups you eliminate one tractor, so you reduce greenhouse gas emissions because tractor is out of it you reduce congestion on the highway. So you got a lot --- you get safety benefits, environmental benefits, productivity and cost benefits that should help keep future increases to consumers down on transported goods, a lot of good reasons for the legislation to be approved. We’re just hopeful that it does go through. But it’s a mix bag on what will happen as far as implementation in the part of customers. We are even hearing that in some cases you’ll see some of the truck load guys actually deploying some of their network to calling double 33s. So it should have a net benefit to the whole industry on demand.

Great. Thanks for that detail. Also I wanted to ask you about proposed greenhouse gas regulation that include trailers for the first time, how do you see that impacting the industry, will that increase a price of a trailer significantly and do you anticipate any market share changes or rather industrial changes as a result to that?

Yes. it’s a really interesting one, some customers are already do everything that’s included in the 2018 implementation stage with low roll resistant tires, with air inflation systems and with aerodynamic skirting devices which are the three requirement that are in the first phase of this thing in 2018. So it won’t impact those customers at all. Others who have not jumped on that bandwagon would be affected with cost increases of around and our estimates based on what pricing is for those three type of devices out in the marketplace around $1500 impact, someone call it 1$200 to $1500 impact or more for customers who are not already adopters of that technology.

Great. That’s all from me. Thank you.

Thank you. Our next question comes from the line of Steve Dyer. Your line is now open. Your question please.

Thanks guys. Mine have all been answered.

All right. Thanks, Steve.

Thanks, Steve.

Thank you. And we have a question from the line of Kristine Kubacki. Your line is now open.

Hey, good morning, guys. Question on the capacity side, it sounds like your pretty forward and I’m talking dry van here. I guess a question is looking at the industry it sounds like you are getting pricing, it sounds like in terms of requirements for 2016 are starting to fill out. I mean, I guess when were industry add capacity or is it a supply base problem that you can’t add capacity?

I think you may have answered the question yourself. I think the supply chain as far as ability to supply enough axles, enough suspensions, enough extrusions, those tend to be the problem children [ph] in any strong environment historically, so you could see more capacity going, there’s not a huge barrier to entry for assembling a trailer, but there are barrier to entry adding capacity for lot of the more complex engineered converted components that go into to put extrusion lines in and/or to put suspension manufacturing lines and there’s a lot more barrier to entry there to add that. So, suppliers would have to feel very confident that there is long run of very strong demand before we would see them taking a plunge, that’s just my assessment on that at this point.

Okay. That’s helpful. And then just one question on the order cadence, obviously order books open we get the big pop and I just want to make sure I understand, so it seems like there is some confusion earlier in the year when orders fell down. Are you expecting to go back to kind of a normalized order trend maybe we see elevated orders at July but then we kind of go through a little bit on this summer, post summer low and then back into the order season in the fourth quarter, is that how you expect it to play out or am I wrong?

Well, that’s a really excellent question Kristine. It’s always difficult to try and assess what’s in the customer’s mind and what they’re thinking about getting their slots locked. My suspicion is based on the amount of core activity, the amount of dialogue and how early customers were getting in knowing that they were asking for 2016 builds that we’re going to see this continue, but it can’t continue at very, very high rates. It’s not like everything started three months ahead this year and it just going to continue at very high levels. I think at the end of the day the number of trailers ultimately order for 2016 will be consistent with the kind of numbers that ACT is talking and what we’re thinking somewhere in that range, but it can’t – I don’t know that we’re going to see the big 45,000 unit order like we did in December last year, I think it’s starting earlier so it will spread itself out a little bit more.

Okay. That’s extremely helpful. Thank you very much guys.

Thank you.

Thank you. And I’m showing no further questions in the queue at this time. I’d like to hand program back over to Dick Giromini for any concluding remarks.

Thanks, Roland. In conclusion, we’re extremely pleased with the results that we’re able to deliver in the second quarter of this year. That said, we see even further opportunities to accelerate top line growth, expand our product and market breadth and to deliver even greater performance in almost all aspects of our business. And with our hyper 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, Mike and I, all look forward to speaking with you again on our next call and hope to see many of you at our Investor Day in just a few weeks. Thanks all.

Ladies and gentlemen, thank you very much for your participation. This does indeed conclude the program. You may now disconnect. Everyone have a wonderful day.