Welcome to the Fourth Quarter 2016 Wabash National Earnings Conference Call. My name is Christine and I will be the operator for today’s call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mike Pettit. You may begin.

Thank you, Christine and good morning. Welcome everyone to the Wabash National Corporation 2016 fourth quarter and full year earnings call. This is Mike Pettit, Vice President of Finance and Investor Relations. Following this introduction you will hear from Dick Giromini, Chief Executive Officer of Wabash National; and Brent Yeagy, our President and Chief Operating Officer on results for the fourth quarter and full year 2016 in addition to the current operating environment and our outlook for 2017. In addition, Jeff Taylor, our Chief Financial Officer will provide an overview of our financial results. At the conclusion of the prepared remarks we will open the call for questions from the listening audience. Before we begin I would like to cover two brief 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, our earnings per share guidance, the industry outlook, backlog information, financial condition and other matters. As you know, actual results could differ materially than those projected in the forward-looking statements. These statements should be viewed via the cautionary statements and risk factors set forth from time to time in the company’s filings with the Securities and Exchange Commission. With that, it’s my pleasure to turn the call over to Dick Giromini, CEO.

Thanks Mike. I’ll begin by saying that we are extremely pleased with the company’s 2016 performance as it marks the fifth consecutive year, a record profitability. 2016 proved to be a year of outstanding performance and a year that helped set the stage for the future with some new and exciting growth initiatives that further diversify the company. Before addressing financial results in detail I like to share a few highlights and initiatives that contributed to this record setting year. In 2016 following the year of record industry demand we experienced the softer but still historically strong overall demand environment for van trailers with total industry shipments overall of 286,900 units representing the third strongest year ever surpassed only by 1999 and 2015. The commercial trailer products business stay true to form by leveraging this favorable demand environment through continued focus and execution on their three near-term drivers for success; margin growth through improved pricing, operational efficiency and supply chain optimization. This focus and commitment to excellence led to significant margin improvement in CTP that we’ll discuss more in a few minutes. Overall we generated record margins, record cash flow, and we once again significantly improved our balance sheet during the year. We’ve clearly positioned ourselves with ample resources to; one, fund our internal capital needs to support both organic growth and productivity improvements. Second, to assure continue reduction of our debt obligations. Third, to return capital to shareholders; and fourth, selectively but more actively pursued strategic acquisitions. On the growth front we continue our efforts to identify both near-term and long-term organic growth opportunities that leverage our engineering and market analytics expertise evidenced by our new line of truck body products expansion of CTP’s indirect sales channel and an exciting new material technology in molded structural composites or MSC.…

Thank you, Dick. Before discussing the business performance for 2016 in more detail, I want to highlight a few points and emphasis as we move forward into our 2017, I mean 2017. While I’m stepping into my current role in October I was challenged with the task to assure that we are getting the highest level performance from all areas of our operating segments by leveraging our talents and skill across the business. This includes top line growth, organic diversification and operational excellence at the factory level. First, I’d like to point out the commitment we are making to further diversify revenue streams in all of our businesses. Often times the external views that our non-trailer revenue enhancing strategies only exist in diversified product segment, which is not accurate. It is important to recognize the new sources of revenue are consistently being pursued throughout CTP and DPG. Additionally growth efforts within our Diversified Products Group can offer revenue expansion opportunities within commercial trailer products and vice versa. Key examples include the recent announcement of our license ThermHex honeycomb core technology from EconCore that provides non-trailer growth opportunities for diversified products along with new material application opportunities for commercial trailer products. Other examples being pursued by commercial trailer products include our initiative to growth, our aftermarket parts business, other new material technologies such as our proprietary molded structural composites and expanded use of high-strength steels and adhesives and new products like truck bodies. These initiatives will generate revenue opportunities for both business segments, thus ensuring a more stable, higher margin earning streams for Wabash National into the future. To assure that we are truly leveraging our best and brightest, we have enhanced business collaboration across the enterprise, identified best practices and we’re now prioritizing opportunities for accelerated cost reduction in many…

Thanks, Brent and good morning, everyone. I’d like to echo the previous comment, that we are very pleased with the overall performance of the business in 2016, as we delivered record margins and profitability, despite the buckets of demand weakness that we are experiencing in certain markets within diversified products. While fourth quarter results were weaker than anticipated in diversified products that remains a high level of execution in our operations and business functions across the company, which is reflected in our overall results for the year. We continue to strive to grow and diversify the company and we’re benefiting from actions taken over the past several years with this aim in mind. The company will continue to push into new products and new markets in order to continue the transformation into a more diversified industrial manufacture. Before discussing results for the quarter in more detail, I’d like to comment on our recent capital allocation activities where we were able to take advantage of some favorable market conditions and execute against our capital allocation plan. Specifically on return of capital to shareholders, we ramped up our share repurchase activity in the fourth quarter by taking advantage of an attractive stock price with a total investment of approximately $39 million to repurchase just over 2.7 million shares. Since reinitiating share repurchase in early 2015, we have repurchased approximately 10.2 million shares. Additionally we reduced our total debt again by purchasing $47 million face value of convertible notes in the fourth quarter. Aside from taking advantage of the favorable market conditions early in the quarter retiring the convertible notes is attractive. Because it decreases our total debt, reduces our earnings per share dilution, in addition to decreasing the short interest on the stock. At an average share price of $16 per share…

Thanks Jeff. So looking forward, we’re confident that overall demand for van trailers and our commercial trailer products business will remain historically strong throughout the year, and possibly beyond. This is based on a number of factors that continue to be positive trailer demand drivers, and remain consistent with what I’ve stated for several years now. First and most importantly is the excessively aged nature of the van trailer population. While the overall average age of trailers has come down in recent years, there continues to be a significant number of excessively age dry vans that have remained in use as a result of the significant industry under buy during the period 2008 through 2010, resulting in lower reliability and availability, higher maintenance and operating cost per mile and decreased performance. Second, the regulatory environment including CSA, and hours of service has influenced both driver and carrier behaviors leading to the continue need and desire to refresh equipment or to add equipment to increase drop and hook opportunities. Third, carriers while currently feeling the impact of periodic softness in load availability and pricing, still remain profitable and traditional look to invest that cash flow into new equipment to optimize operating costs. Last, while so much choppy in 2016, load capacity is expected to tighten in 2017 as freight rebounds and regulatory drivers such as ELDs constrict industry capacity. We also believe that electronic logging devices or ELDs are likely to have a more significant impact on capacity than some anticipate and may ultimately drive increase demand for new equipment as stronger carriers attempt to recover lost productivity. On the order front following two years of unusually early seasonal order placement that drove backlog to historically high levels is clear that the 2017 order season is a return to normal for…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Mike Shlisky from Seaport Global. Please go ahead.

Good morning guys.

Hi Mike. Good morning.

So may want to touch first on some of the broader numbers out here. Just checking out back to your 2020 goals that you put out a couple of years back, we’re now three years away. The big ones that are not absolute numbers, you’ve already gotten those, you really got the operating margin goal of 10% plus and it looks like you’ll probably get in 2017 as well even in a down market in most scenarios what you’ve regarded to, and you’re already about 20% on the ROIC line. But I guess – I think there is probably still some pretty big step to get to that $3 billion top line goal and that $250 EPS goal, and it is only about three years away. So perhaps it is a bit more of a M&A question, but is that long-term goals still intact today and what can you do beyond just organic growth trying to push further towards those goals at this point on? Is it getting outside of the trailer and positive market? Is it something totally different or at this point if you’re not going to buy anybody in the trailer, well, can you actually buy somebody in an entirely different business?

Yes, Mike. We – excuse me, this is Dick Giromini. We have stated in the past that our focus is to continue to diversify our business so that we’re less dependent on the dry van segment in particular, not walking away at all from the dry van segment, just diversifying in other areas. That was indicated or exhibited by our acquisition of the Walker Group Holdings business back in May of 2012. We want to grow and continue to diversify, leverage many of the existing non-trailer businesses that we have and build on those. So obviously undefined at this point at least publicly, but as I stated in my earlier comments, we have an extensive effort going on at this time, identifying target opportunities that would continue to drive that strategy. So we’ve got work to do ahead of us over these next four years through 2020 to achieve that target, but it will be a split in some ways between organic growth opportunities and acquisition targets.

Okay, great. Just switching gears here, I also wanted asked about the dairy market. Can I ask your kind of last thoughts as to what you might be seeing here on your order books today and kind of your outlook for dairy in 2017, both in stationary and the trailers?

Yes, Mike. This is Brent Yeagy. I think on the dairy front right now we’re seeing stable demand as compared to 2016, maybe just a slight uptick on the silo base businesses within our process system group, but generally in line with 2016 demand levels.

Yes, Mike. As we’ve commented in the past too, that’s a very stable market that food dairy beverage market is. Typically going to grow slowly close to economic growth and our population growth and I think we see that overall in the market over the long-term and you obviously can have ups and downs in any short periods. It’s a nice market.

Okay, great. On the road construction project, I just wanted to confirm that’s totally done, and in 2017 do you kind of see any improvement in your day-to-day operations with maybe different light timing or patterns of traffic outside your office facility that we should be aware of that might be helpful for the margins this year?

Mike, this is Brent again. We don’t anticipate any headwinds in 2017 related to any ongoing road construction within the city in which we operate here in Lafayette, Indiana. We’ve taken some optimization efforts through capitalizing on some the road construction, but nothing I would say is material for the purposes of your call.

Let me just add Mike. There is another phase of the projects. So if you come visit us, it is highly, likely that as we get into the spring time and summer, there you’ll see construction going on. But it’s to the North side of our property which is far less disruptive and concern than it was when we were dealing with all of the construction that was on the South of our property. So there is construction to be planned for this year, but we don’t anticipate it to be a negative impact on the business.

Okay, great. One last one from me, there’s some news out from Amazon the last couple days looking to build out a giant sortation hub in Cincinnati that there’s going to be a few thousand trailers that they need as well as I would assume some final mile type vehicles. I was wondering if you can give us your thoughts as to what your positioning is with Amazon today in their current trailer business. And when do you think you’ll be in the running for any of their final mile products going forward?

When they first started – this is Dick. When they first began the process of getting into their own – managing their own transportation operations I shared on one of the calls that we had looked at potential opportunities there and they – it did not fit the criteria for what we felt was an acceptable proposal, and elected not to participate at that time. We will certainly entertain any opportunity, we’ll evaluate it. But if it doesn’t meet our criteria we’re not chasing volume as you know we want to run a very effective business and that may not meet what our expectations or requirements are.

Got you. All right guys, thanks so much.

Thank you, Michael.

Thank you. Our next question comes from Jeff Kauffman from Aegis Capital. Please go ahead.

Thank you very much. Hey congratulations everybody terrific results.

Thank you, Jeff.

Thanks Jeff.

Dick, just a question the doubles are little bit in the details here and I was looking at the new ACT forecast. And it looks like they are starting the year with about 72,000 to 73,000 industry shipments dropping to a number closer to 58 toward the end of the year. That’s a pretty steep drop as the year continues on. In terms of your forecasting, how are you thinking that progression of the 250 to 260 plays out during the year. And it just seems like based on those numbers your forecast of 11,000 to 12,000 units seems like a little less share the market than you would normally do. Do you think it’s more an issue of the ACT numbers starting high and kind of coming down during the year? I am just trying to figure out how to model as we go through the year and try to figure out what you’re expecting production to look like.

As we’ve said consistently in the past, the first quarter always has – it has less operating days, effectively coming out of the holidays. You have lower customer pickups because of the holiday season haven’t passed so there’s a little bit of a lag in pickup. So we always start out slower on shipments, production levels generally exceed shipment levels early in the year and then there’s a – so there is some inventory build for customers pickup as we proceed into the second third quarter which are the strongest quarters of the year. Typically there is occasion where fourth quarter messes that up but typically second third quarters are the strongest demand quarters for us from a build and shipment standpoint. And then fourth quarter shipments can generally exceed as they did this past quarter generally exceed builds in the fourth quarter. So you have to look at builds differently from shipments and you have to look at orders differently from builds and shipments because they don’t all align. There’s always going to be that lag from order to build to shipment. So it’s very seasonal on the – versus the builds versus the shipments versus orders. I don’t know if that helps you. But it’s hard to explain over the phone.

Yes, that part of it I get. I just – if I’m following your normal progression seasonally and I match it up against the ACT data, it just looks like your share of the market is unusually low in the first quarter and then unusually high in the fourth quarter. I know, you don’t base your forecast on what ACT says, I’m just, I’m trying to reconcile where that big drop coming up – maybe that’s a better question.

I think what you get in there is you get some mix effects in there, you get some manufacturers who will build a lot of stock units in the early part, move those to dealers. We tend to build based on demand. We don’t build a lot of speculative equipment the vast majority of ours is built to order. We do build some for dealers for their early season stocking. But then we manage that throughout the year. So I think you get some – I hate to say false indicators but maybe misleading indicators when you try to look at what ACT puts out. We provide guidance based on what our – the real world experience we have. As you know two-thirds to 60% – anywhere from 60% to 70% of our builder are direct to large carriers. So there’s timing events with them on when they want to take the equipment and also our mix maybe different than what the overall ACT mix, because they’re talking about all trailer across all types of trailers – in some cases we don’t participate in like the specialty equipment and dumps and those types of things.

Okay that’s fair. Just one follow-up bigger picture. Dry vans really been driving a lot of the strength over the last year, year and a half. I think you noted the rig counts are up and you are starting to see some green shoots on the energy side maybe we get some construction related stimulus from the new administration. Does this generally portend that even though your volumes maybe kind of taking a breather year in 2017 that the mix impact as we go through the year should get more and more favorable in terms of trying to figure out in ASP or something like that.

Yes you’re going to have – excuse me, you should expect some mix shift as a result of the dynamics that you just talked about. When the dry van segment decreases obviously the ASPs on a dry van are significantly lower than ASP on any tank trailers. So you’re going to get some mix effect relative to the aggregated ASP. So you do get some of that. It’s a much smaller influence because the volumes are so much lower on tank products then they are on the dry van segment. Notably, however the dry vans were the single – when you look at the ACT detail numbers the 21,000 unit increase that they made from their previous forecast to now was notably mostly in the dry van segment. So they did increase it. So there’s expectation and we agree with that that strength in dry van will be stronger than what the forecasters were thinking – excuse me forecaster were thinking just a couple months ago.

All right. Well, thank you for the dividend and congratulations on a great year.

Okay. Jeff thanks.

Thank you. Our next question comes from Scott Schoenhaus from Stephens. Please go ahead.

Hey, guys. Good morning.

Hey, Scott. Good morning.

Hey, Brent I just want to dig in a little bit on your first quarter DPG gross margin guidance. I believe you said you’ve put out a 20% figure for this quarter coming up. And I think you said also that you’re seeing some – the pricing move up on the tank trailer side or you’re seeing some improvement, but you also mentioned about cost cuts. Can you give us the biggest driver on achieving those much stronger margins for the first quarter? Is it mostly cost cuts or is there some pricing inflation baked into that guidance?

Yes. Thanks, Scott. First off we’re going to – I think we’ll be approaching 20% in the first quarter. I want to make sure that we’re clear on that.

Okay.

I think it’s pretty much an equal spread between the cost optimization efforts as well as some additional overhead spread that will get from improving volumes. And we hope to recover pricing throughout the quarter. And we’ll see that progress sequentially throughout the year. So I’d say it’s third at this point.

And Scott…

Understood. And I guess my last question – I know you guys always say that you can pass pretty effectively based on the contract, any inflationary commodity pricing, I guess. First one is: are you seeing inflationary commodity pricing currently, and are you expecting that to continue throughout 2017. And if you’re having increased competition from capacity is coming on throughout the year. Does that hinder any ability to pass along those extra costs to your customers?

There’s a lot of question there.

Yes, sorry.

I think I would start with yes, we’re anticipating specifically within our steel and aluminum, stainless steel commodity groupings some level of continued inflation throughout 2017. For the majority of our CTP business specifically dry vans, a large portion of our backlog is already committed – its already seen through our numbers. There is limited potential to recover pricing on that front. On our other product lines platforms, truck bodies, tank trailers in general, we have much more flexibility of pricing and inflationary pressures into our pricing. And we factor that into our numbers accordingly, we’re generally pretty good at being able to recover those costs.

Well, that’s it for me. I’ll hop off. Thanks guys.

Scott just to emphasize, we have built into our – taken that into consideration material cost inflation into our projections on EPS for the year. So it’s all been baked in.

Thanks, very helpful.

Yes. Scott, this is Jeff Taylor. Just want to make one final comment on your first question around DPG margins. I just want to remind you that that segment has multiple businesses in it and there is some mix impact that will occur sequentially quarter-to-quarter. And as you know, Wabash Composites generally pulls back some in the fourth quarter and then starts to pick up in the first half of the year as some of their end markets will pick up. And so that will also drive some of the improvement sequentially you’ll see in DPG margins as well.

Thanks, Jeff.

You’re welcome. Thank you.

Thank you. Our next question comes from Alex Potter from Piper Jaffray. Please go ahead.

Hi, guys. Congrats on the good results.

Thank you, Alex.

I guess I had a follow-up question there on DPG gross margin going beyond the first quarter you mentioned steady sort of increase throughout the year getting back towards your normal range in the back half or towards the fourth quarter. I was just wondering if you could comment on, I guess specific levers that you expect to pull in your visibility into your ability to achieve that outlook.

Yes. There’s a couple of different points there. One, we expect to see a stronger demand environment on tank trailers throughout 2017 that will factor in the pricing accordingly. We’ll see the mix effect that Jeff talked to as we continue to see stronger end markets, what we believe in our other non-tank trailer businesses. We’ll see a positive upside there specifically within our Wabash Composites Group which is material and our overall DPG gross margins. We’re also taking actions within our Aviation and Truck Equipment group that will truly fully materialized later within the year and that will fall and grow that overall gross margin contribution.

Okay. Thanks, that’s helpful. And then I was wondering if you could also maybe refresh your thinking regarding the math surrounding the size of that quote, unquote excessively aged van fleet. I know that we’re still coming back to that period of under buying back in 2008 through 2010 presumably that tailwind will eventually be exhausted. But I was just wondering if you could update everyone regarding what you estimate to be the size of that fleet that still requires replacement.

Yes. And this is a really rough estimate. These are not any documented or published numbers. Three years ago, the number was estimated to be north of 3,000 units, a year ago it was estimated that there were still about 200,000 units remaining. So it’s something less than that. But still very aged equipment that are up into the mid-teens in age and that type of equipment needs to get out of the market especially for the large truck load fleets that are still doing some catch up. And the reason it’s taking so long to address those is just the sheer mass number of those pieces of equipment and the ability of even the large profitable fleets to manage through that to be able to get rid of the old ones and acquire the new ones and get them into their system. And that’s where we’re seeing. And in some cases some fleets didn’t get back into buying modes until the last couple years. So they were not getting back in 2011, 2012, 2013 they’ve just gotten back in. So there’s a little bit of a carryover effect for them before they can get to purge their system of the very, very aged equipment. So over the next couple years we should see, you probably hear me talk less about the excessively aged side of things, then what you’ve heard from me for the last three or four years or so. As this diminishes but we’re still seeing aged equipment out there – some of the large customers continue to operate and just going to take some more time for them to get them out of their system.

Okay. Thanks a lot.

Thank you.

Thank you. Our next question comes from Kristine Kubacki from CLSA. Please go ahead.

Hey, guys. Good morning. Just a question on the pricing environment out there. I guess it’s coming in a little weaker than I expected I guess though we’ve added capacity in the industry not yourself. I guess from a pricing standpoint and capacity standpoint, do you think that we’ve kind of added all the capacity that’s out there at this point that was on the drawing board or is there still stuff that still suppose to come online?

The majority of the capacity is online clearly with some of the more recent capacity additions there is always a ramp up phase that any new manufacture gets into the growing pains of hiring, training and then ramping up capabilities to be able to take orders. So that’s why we say that now in 2017, we probably start seeing some impact from this. We did not see an impact up until this point. So we built that into our models also. But the offsetting that is a little bit stronger market than what some were expecting. So that can help offset some of that and put a little upside push to it. So we’re still thinking in FY – Brent mentioned in his comments somewhere upwards in the 200 basis point range of margin compression that we see a combination from material inflation and maybe some downward pressure on margins as a result of some of the adding capacity.

Fair enough. And then just one question on your supply chain. How much of your supply chain is sourced within the United States?

Yes. I’m assuming that question’s going to heading towards border tax adjustment.

Correct.

Right now we look at it as a percentage of material cost roughly about 15% of our total sourced componentry and some other materials roughly about 15% at this time and that doesn’t begin to account any mitigating actions and then we would have.

So that’s total around the world. So outside of the U.S. and then we have the opportunity to obviously mitigate much of that by in sourcing that if the financials make sense to do that depending on what type of border tax ends up coming in, if it does and what it is.

Okay. Fair enough. You’re in a better position than most. I appreciate it. Thank you.

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

Thank you, Christine. So, while much has certainly been done opportunities continue to be available to us in the future. We’ll continue to be strategic but selective in pursuing opportunities to grow our business in addition to the organic growth initiatives already underway. We’ll continue to seek out ways to increase returns and value for all shareholders while assuring that the proper balance between risk and reward is considered all decisions. In closing, we’re proud to have delivered another record year of profitability in 2016 with strong margins, continuing support of demand environment and a continued focus on execution. Thank you for your interest and support of Wabash National. Mike, Brent, Jeff and I look forward to speaking with all you again on our next call. Thank you.

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