Welcome to the Third Quarter 2017 Wabash National Earnings Conference Call. My name is Allen 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. Mr. Pettit, you may begin.

Thank you, Allen, and good morning. Welcome everyone to the Wabash National Corporation 2017 Third 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; and Brent Yeagy, our President and Chief Operating Officer, on results for the third quarter, the current operating environment and our outlook for the remainder of 2017 as well as an early look at 2018. In addition, Jeff Taylor, Chief Financial Officer will provide a detail overview of the financial results. At the conclusion of the prepared remarks, we’ll open the call for questions from listening audience. Before we begin, I’d like to cover two brief items. First, please note that this call is being recorded. Second, as with all these types of presentations, this morning’s call contains certain forward-looking information, including statements about the Company’s prospects, earnings per share guidance, the industry outlook, backlog information, financial condition and other matters. As you know, actual results could differ materially from 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 is my pleasure to turn the call over to Dick Giromini, CEO.

Thanks Mike. As stated in our press release, following prior year record performance is never easy especially when operating in a somewhat more challenging environment. Through in an acquisition, and the headlines get even more muddied. That said, we’re nonetheless pleased to have delivered a historically strong performance in the third quarter, but not up to the lofty standards that we’ve become accustomed to in the past couple of years. Looking forward, we are encourage by recent market demand trends and excited about what next year will bring as we integrate and leverage our newest addition Supreme Industries to our family. Facing a combination of factors in the third quarter including shipment pick-up delays impacted by the recent hurricanes, ongoing investment in our molded structural composite initiative and a tighter labor market along with cost associated with our acquisition of Supreme Industries, all combined to create a veil over all the good things that are going on in the business that set us up for a strong 2018. With backlog totaling $670 million excluding Supreme, as of September 30, 2017, we are in a solid position as the 2018 order season has now entered its strongest period. Our Diversified Products Group segment has finally start to see the pace of market demand improve and its businesses that we have been anticipating since early this year, but too late to favorably impact fourth quarter. As we discussed during last quarter’s call, this has prompted us to accelerate the efforts needed to improve profitability in the segment and we place a greater emphasis and urgency on cost optimization activities over the past four months. I’m encouraged by the actions already implemented today along with other improvement opportunities that will be implemented throughout the balance of the year. Brent will provide more specifics…

Thanks, Dick. With the addition of Supreme to the Wabash family late in the quarter, we have expanded the gross functional collaboration across the business to assure that we identify and leverage best practice within all segments. Rightsizing of the operations has been ongoing to ensure that staffing is in line with current demand levels while concurrently developing opportunities for revenue growth. We will continue to leverage our Wabash Management System or WMS, to optimize our manufacturing, supply chain and sales effectiveness across the organization. Real progress is visible with SG&A cost on pace to be down in excess of $5 million in 2017 from 2016 levels, excluding acquisition related cost. A fully detailed action plan is in place to ensure that we will achieve our $10 million savings goal by year end 2018 and I will continue to update you on the progress on subsequent calls. With that, let me get into some business specifics from the third quarter. I will start with the Diversified Products Group or DPG which includes our tank trailer, aviation and truck equipment, process systems and composite businesses. Revenue for the segment has been steady over the past three quarters with third quarter revenues of $89 million, up slightly year-over-year at 1.6% and down sequentially about 2.2%. Despite flat revenue in the segment, actions implemented help to deliver improve bottom line results as third quarter operating income of $5.2 million, achieving the highest levels since Q3 of 2016. Gross margins for the third quarter also increased sequentially to 19.6%, an improvement of 70 basis points. The tank trailer business continue to experience improved -- improving demand levels in the market that serves with backlogs now at the highest levels in two years as of the end of the third quarter. As we have previously…

Thanks, Brent. Good morning everyone. I will echo the comments from Dick and Brent that the third quarter results were strong overall with CTP delivering solid results especially from a historic perspective, despite a challenging environment. And DPG has stabilized with strong positive indicators in all of its businesses. That said, we now have higher expectations after the strong performance Wabash has delivered during the past couple of record years. We will continue to proactively address the areas that need improvement by continuing to invest in automation and productivity projects that will improve our operating efficiencies and lower the overall labor content of our products. In addition to continuing to address our overhead and SG&A costs to ensure the appropriate level of costs to support the business and future growth while being cognizant of the current business environment and performance. Before discussing the results for the quarter in more detail, I’d like to comment on recent capital allocation activities, specifically, on our return of capital to shareholders. In the third quarter, we returned approximately 7.6 million of capital to shareholders through our regular quarterly dividend and share repurchase. In terms of our capital efficiency efforts, we remain focused on the efficient deployment of capital, the areas with the highest returns and strategic importance, in support of our corporate goal to meet or exceed 20% return on invested capital annually. As we previously announced, we completed the transition of our Texas, Wabash National Trailer Center branch location to an independent dealer in the third quarter. Lastly and most notable change to our capital structure for the quarter, we completed the Supreme acquisition late in the third quarter for a purchase price of approximately $360 million and financed the portion of the purchase with the new high-yield debt offering of $325 million.…

Thanks, Jeff. As we’ve outlined and detailed today, as we close out 2017, we’re facing some near-term factors impacting the headline numbers including a tighter labor market, some commodity cost pressure and necessary investments expenses associated with continued development of our molded structural composite technology in Little Falls, numerous manufacturing productivity projects and the Supreme acquisition integration. Looking forward to 2018, however, we see far more positive tailwinds to our longer-term performance than headwinds. Market demand drivers in our favor with strong truck tonnage and freight rate numbers, the recently increased projections for 2018 trailer production and shipments from FTR and ACT, the ELD implementation that will constrain capacity and drive demand and strengthening tank, trailer and platform markets. In addition, investments in our CTP automation initiatives come on line to help offset the labor market tightness, improve yields and productivity. The commodity outlook is much more stable. Our Little Falls ramp up will turn income positive by mid 2018 and top it off Supreme provides a full year positive impact of the business while also positioning us well to take advantage of the growing final mile and home delivery markets. So while our third quarter results were not in line with our high expectations for the business, we see significant opportunities as we head into 2018. I’m extremely confident that we'll be successful as we close out 2017 and continue to implement our existing growth plans. We’ll also continue to be strategic to selective in pursuing additional opportunities to grow our business and 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 in all decisions. With that, I’ll turn the call over the operator and we’ll take any questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Brad Delco with Stephens.

I don’t know that if this for you or Brent or Jeff, but I just kind of wanted to get a little bit of more color on the adjustments for 2017 guidance and 2018. Big picture at least when I think about 2017, it looks like you have a little bit of an issue with customers picking up trailers so that should be a net benefit to fourth quarter. You also have the Supreme acquisition and so. How do those two things play into fourth quarter -- sorry, your fourth quarter guidance and then your 2018 guidance? I mean I guess -- sorry to simplify the question. What are you expecting accretion wise from Supreme in fourth quarter and in 2018?

Yes, Bret. Let me talk first about the adjustments to 2017 EPS and how we’ve -- obviously, the third quarter performance was about half of the overall adjustments. As you’ve seen, we have some labor constraints in the quarter that were significant factor in the third quarter performance certainly relative to the prior guidance that we gave. As we look at the impact of commodities as well, there will be some continued commodity impact there, not a significant in the quarter relative to prior guidance as the labor issue was, but we are seen the impact of commodities as more pronounced in the second half of 2017 than it was in the first half of 2017. That will continue to flow through. And then thirdly as I mentioned in my comments, we have seen a higher mix of lower margins, lower spec trailers in the quarter, third quarter and that will -- that mix we expect will be consistent as we move into the fourth quarter as well. So, those are some of the significant factors that are impacting the overall results or the overall adjustments to guidance we’ve made in 2017. In terms of the impact of Supreme for the fourth quarter, what I would say is that, as you know when we do an acquisition from a GAAP perspective, you're required to write-up all of the inventory and assets that are required. And so for that perspective, a lot of the shipments that will occur in the fourth quarter from Supreme or have that stepped up basis on our books. And therefore, we’ll certainly show a lower margin in the fourth quarter until we clear out that inventory that we acquired. Obviously, going forward, we expect that margin to return to normal and potentially grow as we capture synergies overtime. In terms of 2018, we haven’t broken out the specific guidance for Supreme in the individual business units, which you’ve got as our full year estimate at this point in time. We’ll bring more clarity to that in the next quarter as we go through early part of 2018.

Okay, that’s helpful. But just to be clear in terms of the -- I guess the labor issue for the commodity cost issue. These are things that I guess weren't anticipated at the end of July, when you updated guidance or what kind of change quickly the costs labor issue or the raw material costs sort of get you by surprised?

This is Brent. I think what we saw in the August and September timeframe was not necessarily an issue with attrition. We really saw just in the overall tightness of the labor market in order to replenish our ranks. So what we -- as a result, we had to work the overtime to be able to make up and provide the total hours required to produce the units. Coupled with -- with the hurricane is coming and the effects on the Southeast, we saw a run out in HDPE prices, which affected us in Q3 and we’ll continue affect us in Q4. And there was a portion of the backlog that was open at that time, as we re-price those trailers with general rising commodities. We were unable to recover that costs to impact.

So do you think that the raw material headwind was more related to HDPE versus I guess what you guys have historically been able to hedge with Ford contracts with steel and wood and aluminum?

Absolutely.

So HDPE was a bigger factor than the other two -- the other three raw materials?

It would be in general Brad because we don’t -- we haven’t hedged HDPE, but we’re able to hedge, as we’ve discussed previously at least a percentage of our exposure to aluminum and steel. And wood as you know entirely both put into our contract language to effectively be a pass-through on the majority of our customers.

We know that. Yes, that makes sense. I just wanted to make sure I understood what we were really talking about with raw material inflation.

Back to my original comment, I think labor was a bigger issue in terms of the impact of Q3 relative to prior guidance than commodities were, but they both contributed in the quarter.

So just to add to that Brad, in my comments earlier that number of productivity improvement initiatives and these are significant capital investment projects that are automation related in the CTP business for the van lines. Those come up -- start to come online and we’ll offset some of that labor hour demand that we faced. So, that’s important for us as we progress through 2018 and beyond because those savings will continue -- they’re not one-time savings, they’re ongoing savings as those automation initiatives go in place.

Yes, and thanks, that leaves me remind the next question. And Brent, I think I heard you correctly, you said the improvements you’re making in Harrison will cut out 5% of overall material cost or just wood cost? And 30 people, is that -- what you also mentioned in Harrison? And then also, if you can provide that data on Lafayette as well, I think you said 560 hours per day, but we put a bigger number to that in terms of what we would expect to see from a savings perspective?

Sure. So, relative to Wabash Wood Products, we talked about a 5% yield improvement in the conversion of wood and the wood flooring which resulted in a $5 million material savings. That kind of buckets what it is for WWP. In terms of manned operations, yes, we’re talking about effectively equivalent of 30 associates that would be reflective there. But in most case, we’re going to redeploy those associates. Again, a relief of the labor tightness issues we have within that portion of the business. Similar situation with then Commercial Trailer Products, yes, it’s a 560 hour of production requirements on a daily basis. We then take that not only we can get the productivity savings we then redeploy those workers to reduce overtime within the business.

Next, we have Joel Tiss from BMO Capital Markets.

Dick, you gave us a bunch of the positive sort of tailwinds for 2018. I just wonder if you could balance it out with a couple of things you’re worried about because I’m just looking at how wide the guidance is for 2018. And I just wanted to get a more of the balanced view of what both sides that as you look on?

Yes, that certainly fair. The reason there is a wide range is we’re so early in the process, but I want to everyone to recognize and understand how confident we are that 2018 will be a step up from where we’re at today. Truly 2017 is as I stated earlier an inflection point. We've taken on a lot of initiatives this year and many of those come to fruition as we enter 2018, many of the productivity improvement initiatives and some of the near-term issues past. As a result of the productivity issues like some of the labor constraint issues that we face. We also have on the positive side obviously a full year worth of impact from Supreme be in part of our business now. We have a very, very strong market demand environment right now. Truck tonnage is up at new record levels. All the economic indicators are very strong. So, it could very well be that 2018 turns out to be even stronger in a trailer demand than what we are suggesting it would be. So, there could be upward bias going forward as we get more clarity and we get through this, the heavy order intake period, which is the fourth quarter and early into the first quarter. We know on an overall trailer demand, September orders were very, very strong, October orders look very, very strong. We’ll have to see how it all turns out when everything is consolidated for the industry. But when conversations with customers, we are hearing some customers will buy somewhat less, some customers will buy somewhat more. So on balance, it’s feeling a lot like this past year from a demand standpoint and that’s a good think. If the demand comes in at the levels that it's come in this year, it will be very similar to what FTR is suggesting for next year. That’s very strong and that could put upward bias on projections. And that’s what we left a wider range at this early stage. We’ll get more clarity as we proceed forward obviously next quarter and as we go through the year.

And then just last. Can you talk a little bit about pricing? So I know it’s early, but just what are the indications and it sounds like supply demands pretty tight and you get a lot of new product introductions and a lot of enhancements on your existing products. Can you just give us a sense, if there is going to be enough pricing to be able to cover the raw material costs or if you can get a little bit of extra margin out of that side of the equation?

Yes. I think with the price environment that we’re saying right now, I think is generally positive, as we look at 2018 and I think we should be in a position to begin to offset the commodity and material costs headwinds that we saw in 2017. I’m not going to go as far as I tell you what that exactly is other than to say it’s generally positive.

Next, we have Steve Dyer with Craig-Hallum Capital.

Hi guys. Ryan Sigdahl on for Steve. Thanks for taking my questions. So industry forecasters are expecting the overall trailer market to be approximately flat this year compared to last, but your shipment guidance has implied something down like 10% year-over-year. Any additional color there on what’s causing the deviation?

Yes, I think what we’ve look at it in an environment with increasing commodity costs or intent to try to drive margin over volume, we'd have to make choices in 2017 to try to maintain as advantageous an environment for Wabash as we possibly can. In some cases that resulted in somewhat of a drop in the market share. But in general, we feel positive in 2018 as not only can we begin to regain parts of that market share, but also able to recover some materials.

Yes, it’s also as we’ve commented in the past Ryan. The large customers who we work very well at the large fleets are -- there are significant orders in the industry and they are lumpy, and so if one customer ordered strong in one year and orders are little less the next year then that will impact obviously our market share numbers in the overall industry. Nevertheless, we have maintained strong position with that customer and we feel very good about the relationships we have with our customers and the large fleets and the positions that we have this year. But we do certainly favor margin over volume as Brent discussed for our pricing strategy there.

And we think it as a -- as an industry leader to make sure that we give a certain amount of floor relative to pricing and we’ve try to drive that within 2017. And I think as overall, the industry is benefited from that.

I think just to add a little bit more color to it. We have had some early success with some of that orders that we have been able to gain during this, I called 2018 pricing season that we’re in now. Larger orders that are being priced for larger fleets for next year, we have had some success in getting some reasonable pricing increases with the orders to help offset some of that material cost or commodity cost increases that we experience through the year. So, we feel pretty good about it.

Great. Then transitioning to guidance next year. What does that incorporate from an industry standpoint? How does that compare to ACT and FTR forecast because they have fairly wide expectation deviation I guess between the two? So are you somewhere in between -- are you side with one versus the other? Thanks.

Yes, at this point, we try to take somewhat more conservative view -- as of comments earlier, we’re still early in the heat of the 2018 order season. We’ve encouraged by what we have seen both at the micro level for our industry and order intake that we have seen ourselves, but we will take a harder look at it as we proceed through November, December and January. That will really tell the story of what customers are saying is it true or is it -- is that higher. One of the things that I believe and I’ll clarify, I've said these comments previously, I don’t think I mentioned today, but with the ELD implementation, we believe that the impact will be greater than what some of the forecasters have indicated and have included in their projections on what the impact in demand requirements will be for the industry and the impact on what the capacity constraints will actually turnout to be for the industry. There will be fleets who will simply decide to stop operating. There will be others who will decide to continue operating until they're caught. And in any case, those who do elect to adopt will end up seeing a productivity decrease as a result of the limitations or hours that they can drive. That will end up causing a need for more equipment in the system to be able to make up for that loss productivity. It will not be an immediate impact, it will probably the something that we start to see as we progress through the year, more notably in the second half of 2018. So from a demand standpoint, my believe as you will see customers fleets coming back to second and maybe a third time in ordering incrementally more trailers. So a fleet order 300 today, six months from now they may come back and want to order another 200 to pick up because they picked up leans that have been left demand is not being covered. And then they make impact a third time later in the year and buy another 100 trailers for example and you can -- for larger fleets, those numbers would be even larger increments. That’s the prediction that I am making internally, but it’s too early to really be able to build in any numbers until we see how the base order rates come out over these next three months or so.

Okay. And one final one for me. Just a quick clarification. On the inventory step-up from Supreme, is that going to be included in adjusted EPS in the guidance that you guys have already backed that orders kind of a one-time inventory step-up?

It’s still being discussed, but I think it will be probably adjusted out on an adjusted basis. It will definitely be included in the gap numbers.

Next, we have a follow-up Brad Delco with Stephens.

Just quickly on the acquisition costs. The 8 million or so dollars, it seems like a big number. What’s included in that number?

That’s just all the fees and costs associated with completing an acquisition. We capitalize what we can on the balance sheet and amortize it over a period of time, but some of it is expensed and some of those things would be some of the banker fees, some of the financing costs, the normal costs associated with an acquisition.

So the financing costs in there that seems like it was a lion share of it. Is that’s fair?

A piece of the financing costs is expensed and other piece of it is capitalized, but the 8.7 million has some bankers fees, lawyers fees, accountants fees and then some other financing fees.

This concludes today’s question-and-answer session. I’d like to turn the call back to Dick Giromini for closing remarks.

Thank you, Allen. And thank you all for your interest and support in Wabash National Corporation. Mike, Brent, Jeff and I certainly look forward to speaking with all of you again on our next call. Thank you everyone.

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