Hello and welcome to the First Quarter 2017 Wabash National Earnings Conference Call. My name is Erik and I will be your 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. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Mike Pettit. Please go ahead, sir.

Thank you, Erik and good morning. Welcome everyone to Wabash National Corporation 2017 first quarter 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 first quarter, current operating environment and our outlook for the remainder of 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 the first quarter proved to be an excellent start to 2017 and we feel well-positioned to deliver and exceed on the full-year commitments outlined three months ago during our 2016 year end call. Commercial trailer products demand activity remains strong and the DuraPlate products group recovery is beginning to take hold in the markets that had demonstrated weakness over the past 18 months. Overall in the first quarter, we continue to generate very strong margins in the business accompanied by record first quarter operating cash flow and further strengthening our balance sheet. We remain solely positioned with ample resources to; one, fund our internal capital needs to support both organic growth and productivity improvements; second, to assure continued reduction of our debt obligations; third, to return capital to shareholders and finally, selectively but more actively pursue strategic acquisitions, truly a great position to be in. On the growth and capital allocation front, we are excited to announce the acquisition of our fully equipped manufacturing facility in Little Falls, Minnesota to service the primary site per production of our proprietary molded structural composite panels, as well as service of flexible launch facility for final assembly of molded structural composite truck bodies and MSC thermal refrigerated trailers. I again welcome our new Little Falls Associates to the Wabash National team. We closed down the facility transaction earlier this month and have already begun the process to convert mobile capabilities to our needs. By years-end we anticipate further investment of approximately $7 million in the operation to expand panel manufacturing capacity, bringing our total capital investment to $10 million in Little Falls. We also had the opportunity to showcase the latest product technology in our expanding line of final-mile and home delivery product offerings at the…

Thank you, Dick. First I'd like to congratulate the team of some key milestones and our growth and diversification efforts in the first quarter. Our acquisition for Little Falls manufacturing facility and the introduction of our honeycomb DuraPlate truck body at the NTEA show both highlight the progress we continue to make on our innovative material technologies, and the step we’re taking to diversify into a more stable higher margin earning streams. We continue to enhance collaboration across the enterprise and prioritizing opportunities for accelerated cost reduction in many areas of the business. These include expansion of shared services, further supply chain efficiencies, and manufacturing process optimization by leveraging our Wabash management system as we continue to target operating overhead and SG&A savings of $10 million annually at current revenue levels over the next two years. With that, let me get into some business specifics for the first quarter. I'll start with Diversified Products Group or DPG which includes our tank trailer business, aviation and truck equipment, process systems, and our composite business. Overall results in the segment continue to reflect soft and improving market conditions and mainly the end market served by DPG. Q1 revenues were $90 million, an increase in both year-over-year and sequential comparisons while delivering operating income of $4.6 million. Margins for the first quarter were generally in line with expectations with gross margin at 19.6% and demonstrating a solid level of improvement from the fourth quarter. As stated, the tank trailer business is beginning to experience somewhat stronger demand in certain end markets while the food dairy beverage markets within our tank trailer business have continued to see reasonable stable demand. We're beginning to see an uptick connectivity in chemical and oil and gas market, resulting in slightly higher backlogs for both liquid and dry…

Thanks Brent, and good morning, everyone. We are very pleased with the overall performance of the business in the first quarter including the improving margins delivered by diversified products group as compared to the fourth quarter. We continue to strive to grow and diversify the company 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 manufacturer. Before discussing the results for the quarter in more detail, I'd like to comment on recent capital allocation activities, specifically, our return of capital to shareholders. We announced in February an additional two-year $100 million share repurchase authorization that demonstrates our continued commitment to return capital to shareholders. To that end, in the first quarter we repurchased approximately 700,000 shares of stock for $12.4 million or about $18 a share. Additionally, we returned approximately 3.9 million of capital to shareholders through the dividend payment in the first quarter. Also in the spirit of continuous improvement of our capital structure, we successfully completed an amendment to reprice our senior secured term loan credit agreement and as a result of this amendment, the term loan will be priced at LIBOR plus 275 basis point with no LIBOR floor. This compares to the previous pricing of LIBOR plus 325 basis points subject to a minimum LIBOR floor of 100 basis points. We presently have approximately $189 million of outstanding debt on the term loan. At current interest rates and borrowing levels, this repricing will reduce our annualized cash interest cost by approximately $1 million. In terms of our efforts to maintain the return of invested capital of greater than 20%, we once again had a very strong quarter…

Thanks Jeff. Let me give you some views on the market and the prospects for the remainder of 2017. We certainly remain confident that overall demand for van trailers and commercial trailer products business will be historically strong throughout the year and possibly beyond. This belief is based on a number of factors that continue to be positive trailer demand drivers and remain consistent with what I've been stating for the past several years. These factors include an excessively age dry van population remaining from the significant industry under by during the period of 2008 through 2010. Our regulatory environment including CSA and hours of service influencing both driver and carrier behaviors and leading to the continue need and desire to refresh equipment, and finally load capacity that is expected to tighten in the second half of 2017 as freight rebounds and regulatory drivers such as ELDs constrict industry capacity providing further support for 2018. On the order front of 2017, order season has shown continued strength in trailer orders. Our backlog is at a seasonally strong 863 million overall as of the end of the first quarter and up $61 million sequentially from the fourth quarter and represents the strongest backlog level since first quarter of last year and the third strongest first quarter in the past 15 years only surpassed by the prior two years. This backlog represents approximately seven months of build volume overall on average. While very strong backlog levels remain for dry and refrigerated van trailers, other product lines including tank and platform trailers have continued to experience shorter than desired but improving backlog. Our 2017 will likely reflect a pullback in overall demand from the record level of 2015 and the historically strong 2016. We nonetheless continue to expect another strong year overall for…

[Operator Instructions] Our first question comes from Steve Dyer from Craig-Hallum. Steve, your line is now open.

Thanks good morning guys. You touched a little bit on M&A at the beginning of the call, I was wondering if you could give a little bit more color about sort of some of the things you're looking at least general areas and heights that you’ve done a good job of sort of reposition the company away from dry vans but any color there as to maybe timing or general areas you're looking at or focusing on.

Sure, great question, Steve. As we continue to look at expanding and diversifying the business, what we want to do is assure that we have critical mass in the areas of the business that can truly make a difference for us. So our efforts in the final-mile arena where we certainly are excited about that area in answering that market, growing that market and seeing that market opportunity continue to grow. So we'll continue to look at that as an opportunity to expand and grow the business. We also see our Wabash composite businesses an area that has tremendous upside opportunity it’s been very successful for us. We've done it all organically to this point but we see that as an opportunity to mind the fields if you will and see if there are opportunities to expand that more quickly. And then the third area is in our process systems business and we see opportunities there to expand there. So those will be the three general areas other than that, we’re not at a position to be able to provide any other specifics at this point in time.

Yes, that’s helpful and understood. And can you remind us maybe I guess last cycle what you're sort of peer exposure to dry vans was versus where it is now?

The dry van business, in 2016 we ended up because of the strong year that we had on volume relative to it, it actually ended up back in 2005 timeframe it was around 77% approaching 80% and I believe we ended up last year because of the strong disproportionate percentage about 64%. The prior year we got it down to 52%, but because of the strong demand in volume it’s just the mix issue but its moving in the right direction. As I stated in some of our earlier discussions, we'd like to get - I’ll call it the dependency on the dry van segment to approximately one-third of our business somewhere in that, call it 35% even if it’s a 40% we’re very happy, it decreases the narrow dependency on it. So that's what some of the acquisition efforts will help to affect.

Yes, okay. And then lastly from me and I'll jump back in the queue. Can you remind us a little bit about your exposure to commodities I think they've been at various points headwinds and tailwinds and sort of where are we now and I'm assuming there is some certain assumptions baked in your guidance as to what they’ll mean this year?

Yes, I’ll just give you some framework for it. We go out into the market and take forward positions on aluminum and on steel. So we mitigate risk up or down once we get firm orders from customers is when we go out and take those positions. In total when we look at what the exposure we cover and protect about 70% of the input costs on materials for build. So we do have some exposure to variability in the market pricing on certain commodities, but the aluminum and steel are the ones that we have the best protection on. Brent would you like to add anything.

I think that pretty much sums up Dick. There's a small amount of our backlog that still open to commodity fluctuations. It continues to decrease and right now when we look at materials, we’re seeing may be a tipping point where it may actually recede somewhat throughout the year so maybe with deductions and tailwinds there.

All right great. Thanks guys.

And our next question comes from Jeff Kauffman from Aegis Capital. Jeff, your line is now open.

Thank you very much and congratulations on a very solid quarter. You answered a little bit of my question with respect to acquisition candidates, but I guess at the end of the day having too much cash could be almost as much an issue is having too little. The cash balance is growing and it looks as if more cash is going to be generated for giving back more than adequately to shareholders. But give us a sense if there is a pretty good use for this build cash flow?

Yes, well as we shared in the comments and as we announced previously, one of the opportunities that we saw was to increase the share repurchase opportunities and as you know we announced an expansion of our share repurchase by another $100 million authorization from our Board and of course the initiation at the end of this past year with a dividend. So those are two opportunities and then the third we do have more capital investment in the business going on with a lot of productivity improvement initiatives. We’ve talked about those in the past and that’s why the projections for CapEx spend is higher this year than it has been in any of the previous years in recent times. So that's going to help the business from performance and productivity standpoint. And finally the whole what I discussed with Steve and shared just a few moments ago is the focus on trying to find worthwhile candidates that would make good additions to the business that can add value both near-term and long-term for our shareholders.

Let me just kind of compliment Dick’s comments there to with a couple of my comments around uses of cash. As you know we have increased our CapEx spending for our organic growth initiatives within the company. We’re very excited about those initiatives and in particular the acquisition in Little Falls and the manufacturing capacity we’re going to have there for more structural composite panels though. So that's also going to be a use for cash and I guess the other thing I have to remind you is in terms of the balance sheet within the next 13 months the convertible notes will come due and we certainly want to be in a position to retire those convertible bonds either before or at maturity. And so that will be a significant cash flow within the next 13 months for the company as well.

Assuming that's the change in the current debt due is the movement of those convertible notes into current debt.

It is. They were reclassified as current this past quarter as a result actually of triggering the convert options. So those bonds are now convertible at the holders election. That move those into current, they would have moved naturally into the current status in May of this year anyway.

Okay. And then just one follow-up question. You mentioned you were starting to see some green shoots in some areas of tank trailer demand. We have been hearing that that actually been a pretty rapid tightening in refrigerated where temperature control trailing demand with some of the new food safety requirements that went in, in early April. Have any of your customers in the refrigerated area spoken to you about that? And do you sense any tightening in that market could that be an opportunity for Wabash?

Hi Jeff, this is Brent Yeagy. What I’d say right now is no, I don't believe we are hearing anything from our customer relative to a tightening market relative to the food safety. That's actually something that we’ve been monitoring over the last three to six months to better understand that. I don't necessarily believe that that’s a large opportunity for us going forward.

Okay, great. Well guys congratulations and thank you.

And our next question comes from Brad Delco from Stephens. Brad, your line is now open.

Good morning Dick, good morning, gentlemen. Brent, this maybe for you or Dick. I know you guys have commented on seeing about 200 basis points of margin degradation in CTP gross margins. First quarter probably seem like it would be one of the toughest comps because I know you had some road work impacting margins a year ago. And you performed better than in the first quarter. So can you just remind us why you think you'd see 200 basis points of margin degradation this year?

This is Brent. I think a couple of things. One, when we look at year-over-year comps in Q2 and Q3, we had a significantly higher volume in 2016. That's one. Two, we are seeing the flow through of some material cost inflation relative to where we quoted trailers late in 2016. Those are two of the primary reason. So there’ll be some lumpiness in the mid-summer months, and then as we kind of move throughout the year, we’ll see some of that begin to trail off.

Brad, this is Jeff. I think what you saw in Q1 was actually the layering then of those commodity prices and the effect of timing of some of the hedges we have in place. They were able to protect us some in Q4. You’ll see a little more of that flow through in Q2. And that’s the premise of some of the guidance as well.

Okay. And maybe just to clarify. So margins were 130 bps worse in the first quarter. I think your outlook for volumes probably gets better throughout the remainder of the year which means on a year-over-year basis - I think your trailer volumes were down 25% in the first quarter. I don't imagine you'll see another quarter with that kind of down volumes. So seems like most of it would be material then as opposed to fewer volumes being the driver of gross margins.

It's both, Brad. I mean, if you go back and look at last year's volumes in the second and third quarter, those were very strong volume quarters for us. And you've heard our guidance for Q2 this year. So you can see the margin pull back that we’ll experience there, and then obviously the commodity pieces, the rest of it.

Okay. And then maybe Dick for you. Can you talk about or give us an update on where Twin-33 stand? I feel like there’s more talk about it, and what opportunity that may have for you.

Yes, as Brent shared in his comments, we do not expect to see anything in the near-term regarding 33s. There’s still a lot of opposition for 33s out there. DCA has a group that they are opposed to the 33's, for myriad reasons. One, they do believe that - they play the safety concern but they also believe that it could cause customers to expect to pay the same amount per mile and for increased loads. And so they would not get any return from investment in India in the longer equipment. So it's a complicated matter. Obviously FedEx, UPS, Amazon is now part of it. All in favor of going to the 33s. We have not changed our belief that it certainly is a positive for the industry, for just about everybody involved. It reduces congestion in the highway. Environmental should be happy. It reduces greenhouse gas emissions because you reduce the number of power units that would be required to haul the same amount of goods. A lot of factors. And it should actually help consumers on price inflation for actually transporting those goods. So there’s a lot of good factors. Testing up 33s has shown that they actually haul better. So it makes them actually safer to pull because of the longer wheelbase. So a lot of positives. But from an actual approval to go to 33s through Washington, I don't think you'll be seeing anything in the near term and that's why we have not put anything into our plans in 2017 for it, nor do we expect anything, any impact from it in 2018.

Okay, great. That was good color. Thanks Dick and thanks for the time today, this morning guys.

And our next question comes from Joel Tiss from BMO Capital Market. Joel, your line is now open.

Any reason to raise your corporate objective of 10% operating margins? Sounds like the direction you're going in is all higher than where we are now.

Longer term we certainly will be revisiting. We've had to revisit goals and objectives that we’ve set over time on a number of occasions because of performance from the businesses. So we’ll - obviously we’ll be taking a look at that as we go forward at some point.

And then can you give us a little sense of what's going on in the competitive landscape? What kind of pricing discussions you're having with your customers? And maybe the pricing that's baked into the backlog. Just a little sense of what’s happening there.

This is Brent. Jeff alluded to that ASP specifically in the van business have been relatively flat. We've been able to handle from a net pricing basis a portion of the material cost inflation. We’re seeing, what I’d call competitive pressures that are in line with the guidance that we've given in terms of our financial output of the company. We’re not seeing anything different. I don’t think it’s changing really at this point. It needs to try to falls within our expectations. Within the chemical segment of tankers, we're in a little bit more pressure within there, with some of the moves that our competitors are making. But again still generally falls within the expectations that we have within our financial outlook.

That’s great. Thank you very much.

We have no further questions at this time. And I would now like to turn the call over back to Mr. Dick Giromini for closing remarks.

Thank you, Erik. Well, so while we’ve certainly come a long way as a company, but we’ve certainly not exhausted our opportunities. 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 will continue to seek out ways to increase returns and value for all shareholders while assuring that the proper balance between risk and reward is considered in all decisions. In closing, we are pleased to have delivered another strong quarter with strong margins, supported demand environment and a continued focus on execution. Thank you for your interest and support of Wabash National Corporation. Mike, Brent, Jeff, and I look forward to speaking with all of 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.