Good day, ladies and gentlemen, and welcome to the Q3 2019 Wabash National Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ryan Reed, Director of Investor Relations, please go ahead.

Thank you, Lorie. Good morning, everyone, and thanks for joining us on this call. With me today are Brent Yeagy, President and Chief Executive Officer; and Jeff Taylor, Chief Financial Officer. A couple of items before we get started. Please note that this call is being recorded. I'd also like to point out that our earnings release, the slide presentation supplementing today's call and any non-GAAP reconciliations, are all available at ir.wabashnational.com. Please refer to Slide 2 in our earnings deck for the company's Safe Harbor disclosure statement addressing forward-looking statements. I'll now hand it over and ask that you please refer to Slide 3, as Brent gets us started with his highlights.

Thanks, Ryan. I'd like to begin by saying that we're pleased to report our strong 2019 performance continued through the third quarter. Sales reached the third quarter record of $581 million that represents 5% topline growth as compared to the previous year’s third quarter with each business unit providing strong topline contribution. Wabash achieved operating margins of 6.6% during the third quarter which represents a 140 basis point improvement versus the same quarter just one year ago. Our commercial organization has done exceptional job of recovering the cost pressures we felt last year as evidenced by average selling prices that were up in excess of $2,000 per trailer. Within operations we continued to work across our supply chain to improve overall network stability and on-time delivery performance. In addition, we continue to improve our internal management system to drive enhanced tracking and visibility paired with enhanced sales and operations planning process to create better overall execution of our business. Our focus has helped to mitigate the impact created by continued stress supply chain and we will continue to drive ongoing improvement in Wabash operational performance as we become even more responsive to our customer. At the same time we’ve been focused on embedding the Wabash Management System into our culture and utilizing a growing set of enterprise lean tools in new business systems to drive breakthrough improvement across the company. We’re engaged in value stream mapping in [Indiscernible] of the business that further drives profitable growth. At this time, we’ve teams deployed in multiple truck body manufacturing locations, our tank manufacturing sites in Mexico and Wisconsin as well as several areas in our front office. I’m encouraged by the progress we’ve made since the beginning of our Wabash Management System journey in mid 2018. I’d like to thank our employees…

Thanks Brent and good morning everyone. Turning to slide 4, on a consolidated basis, third quarter revenue was $581 million, an increase of $28 million or 5% year-over-year. Consolidated new trailer shipments were approximately 14,450 units during the quarter. In terms of operating results, consolidated gross profit for the quarter was $78 million or 13.4% of sales. Gross margin increased by 160 basis points year-over-year as a result of successful efforts to drive process improvements to address operational challenges during the second half of last year as well as execution of the Wabash Management System for larger term structural improvements. The company generated operating income of $38 million and operating margin of 6.6% during the third quarter. Selling, general and administrative or SG&A for the quarter excluding amortization was $34 million or 5.9% of sales. Operating EBITDA for the third quarter was $51 million or 8.7% of sales. Intangible amortization for the third quarter was $5.1 million. Interest expense for the quarter totaled $6.7 million, a modest decrease over the prior year as a result of our continued debt reduction activities. We recognized income tax expense of $7.4 million in the third quarter. The effective tax rate for the quarter was 22.6% lower than our ongoing rate of 26% to 27% as a result of an R&D tax credit taken during the quarter. Finally, GAAP net income was $25.5 million or $0.46 per diluted share. This compares to third quarter of 2018 adjusted earnings per share of $0.29 per diluted share and represents an increase of 59% over the prior year quarter. With that let's move on to look at the segments beginning with CTP or Commercial Trailer Products on slide 5. Commercial Trailer Products third quarter net sales were $380 million which represents a 12 million or 3.3% increase…

[Operator Instructions] We have a question from the line of Justin Long from Stephens. Please ask you a question.

Thanks. Good morning. So, maybe start with the question on 2020. I know you are not giving specific guidance today, but obviously it seems like we'll be facing a tougher end market environment. How should we think about the relative performance of your CTP segments topline to industry trailer production based on how you are thinking about the market strategically, I'd love to get your thoughts around to be in line with the market, should you be better, Should you be worse, any help on that front would be appreciated?

Yes, I mean, as we said, we'll give further guidance at the year end call. I think, I'll start with the market itself and as we said earlier, where CTP sets right now from a deal closure standpoint, productivity level, again is indicative of the forecasted production levels without significant changes to our direct labor content. Meaning that we can collect with over time accordingly without making real structural changes to our operating environment. So, we work pretty linear and how we'll manage variable cost going into this next period. So, I think we're pretty well-positioned there.

Yes Justin, on the G&A side, we do have levers that we can manage there. I would tell you that as we said here today and look forward into 2020. I think we have these in visibility into the first half of the year but we're in a more normal order season there that's going to be really pick-up in Q4 and then extent into Q1. So, we're in a little better as we get into the year-end call, maybe what more of a full-year is going to look like. On a G&A perspective well I would say that I talked about that we're going to move some cost out of COGS into G&A, I think that will drive G&A as a percent of revenue up slightly next year. And that we'll manage that overall spend in the context that the environment we're in making sure that we're also investing for the long-term growth of the business. And probably have more guidance on that on the next call.

Okay. And one last kind of final question on free cash flow conversion. You were in the mid-70s this quarter I guess year-to-date. Any update on how we should be thinking about that metric going forward?

Yes. I think and what you see as historically performing were 76% this quarter. We've been up 100% or just about a 100% for some period of time. That's a pretty reasonable range for us. I think in the fourth quarter, typically we do generate a little extra free cash flow in that quarter as working capital tends to come down at year-end. And so, I think in general it should be in that range.

Okay great, I'll leave it at that. Thanks for the time.

Thank you.

Thanks, Justin.

Your next question comes from the line of Steve Dyer from Craig-Hallum Capital. Please ask your question.

Hey guys, Ryan Sigdahl on for Steve.

Hi, Ryan.

Hi, Ryan.

You've talked some about 2020 and expecting similar toward the industry forecast, ACT and FTR forecasting. What is their current expectations for both in 2020?

Well yes, they reconcile, one's doing shipments, the other one's doing well but general industry is somewhere in the 265 to 275 range as we sit here right now, kind of on a relative level and then it also it breaks down by the various product segments accordingly.

It was kind of asked earlier but do you think you can maintain or take market share in that environment given kind of your pre-planning and what you see?

Yes. The way we going all the way back to our Investor Day this previous February. We were positioning all the businesses to look to grow better than the market, right. So, we are going to and have position the business to look execute that in 2020. Remains would be seeing what the price to volume relationship will be. And we start to work through the remainder of this voter season, really understand how we'll be positioned to do that. But in general, yes, I mean we're looking to execute on the enhanced product commercialization that we have going on, what we're doing with advanced materials. And then ultimately trying to drive the business towards profitable growth. We'll look to do that within the market that we're giving.

Yes. I think it's maybe it's important to make this point here at this time when you ask about ACT and FTR and their numbers. And obviously, we're coming off a record year this year and really the industry itself is moving to more normalized and sustainable levels and while it's down year-over-year, they're not down to a level that is really unattractive for the industry. The strong volume in the industry overall should be a good market overall for the trailer industry in that 265,000 to 275,000 total trailers. And so, just wanted to make that point on the call.

And just one final question on that and then I'll move on. But as you mentioned expecting to take market share and still kind of be determined on priceless volume. Previously it seem like you guys were more focused on margins and that was the bigger focus now. Has that shifted a little bit kind of within enhanced products and trying to go after small market share here or is it still somewhat to what it was before?

Yes, it's always a balance, right. And we've it's no surprise based on what we've been saying for last three to four years that we've continue to position the business to be stronger to really invest in innovation, the differentiate products. And as we move into this stage of the cycle, we're actually we're obviously going to look to flex that as we move into this next market period. Now, we're going to do that smartly and we're going to maintain price leader status as we do that. So, it is a dynamic balance but that is the game plan trying to maximize that relationship and utilize the investments that we made at last three to four years to go out and grow our business.

Great. Moving along to Final Mile, FMP segment. Now they're really strong quarter there. Congrats on that. Given kind of your current capacity, what's the utilization today and then do you think you have enough existing capacity today to support similar type growth rates over the next few quarters and years?

Yes. So, as we look at the growth rates that, that FMP is has seen right, I mean and we've seen 30%, 40%, 50% growth rates on various quarters. And we've said that exceeds our expectations. It does and we think that relative to the markets that we will be given, we can continue a relative level of growth through the period. The capacity that we have is really untapped and that's when we talked about deploying the Wabash Management system. That's really what we're talking about and it's in the original basis when we purchased the Supreme assets back in 2017, is that there was ample capacity within the existing five locations that we had. They were effectively working on a suboptimal one-shift orientation. We are still predominantly working in a one-shift orientation with 30% 40% or 50% growth across the business with only limited second-shift capacity utilization at this time. So yes, we have the physical brick and mortar to grow this business at the rates that we would see over the next several years.

Yes. And I would add to that that I wouldn’t think that only is just struck by the growth and we talked about the opening of the Tampa facility for upfitting parts and service. And there's opportunity for us to grow into those adjacent markets within Final Mile products as well. And that'll be areas where we will look to grow further in the future also.

And last one for me, then I'll turn it over. So, it looks like the new trailer shipment guidance is reduced by 15,00 units at the midpoint for this year. Can you elaborate on what segment or product category those are related to?

I think for first of all, I'll tell you that we're still within the original range we gave. So, we may have lowered at the midpoint but we're within the overall range that we've been talking about for a few quarters here. So, not in consistent with that, just normal variation in our business. I think that if you think about it by segment, it's going to be relatively close to what the breakout between CTP and DPG is on the trailer side of there.

Yes. That's exactly how I would have found, then it's pretty equally spread across all the businesses and there is not one single one that's dragging that down. In any way sheer performance and reiterate, it's within our or it's kind of stated guidance, we're just tightening it up a little bit and taking into account kind of the market conditions that we got, what right activity is and being prudent in what we think that's to be.

Great, thanks. Good luck.

Thanks, Ryan.

Thanks, Ryan.

[Operator Instructions] We have a question from the line of Jeff Kauffman from Loop Capital Markets. Please ask your question.

Thank you, very much. Good morning and congratulations.

Thank you, Jeff.

So, a quick question for Jeff. It looks like inventories are up relative to the direction of receivables here. is that just the timing between new order flow versus current production and we should see working capital get a little bit better as the or more of a source of cash and use of cash as we normalize in the industry.

That's exactly right, Jeff. I would say that the inventory is within normal variation of what we see relative to production and shipments. Production in the quarter was 14,900 units. So, we produced a couple of 100 units more than we shipped and obviously as we move into the fourth quarter, usually we'll pull inventory down by the end of the year. And that inventory will I think inventory levels will represent that. So, nothing outside of normal variation happened in there and in any of the three components of networking capital.

Okay. And then, sometimes in third quarter it's just busy and customers can't pick up the trailer units. I saw the guidance on the trailer shipments changing a little bit but did we have that any of that issue with pickup and timing of units?

Yes. So, when you look back to freight dynamics, there were some headwinds relative to freight availability going into the July timeframe end of June, beginning of July continued to the first couple of weeks of August. And when that occurs, you because our customers pickup and you are from 70% 80% of the product, trailers that we produce. When they're not moving and makes it hard for them to come up in pickup trailers. So, we saw a little bit of lag during that period. And then, as we saw freights continue to lag and walk in late August going into September and continuing into October. We've seen shipment rates pickup accordingly right in line with what we'll expect.

Okay. You gave unit guidance on CTP and the units in DPG. Can we think about kind of where the unit count is for Final Mile if we look at it may be on an annual basis instead of the quarterly. Kind of where we looking to comment that on Final Mile units for 2019 at this point?

Yes, Jeff. We haven’t given that guidance there at this point in time, so I don’t have the number in front of me to give on the call here today. We'll certainly take that into consideration in terms of making sure that we can communicate and help this tree to understand the performance and the investors on that business unit. But I think as we continue to grow and diversify that business, truck bought is a component and then but also there are fitting parts and service will grow there as well. And so, revenue maybe up a better way to look at that business overall, when you think about modelling that and obviously we gave total company revenue guidance for the fourth quarter or so.

Okay. Last question. Pricing was up a lot this year on units but a lot of that was following a big increase in raw materials we saw about a year ago. Could you give us an update on where raw material costs are trending as we close this year heading into 2020 and your hope on industry pricing as we begin to I guess we use the term "normalize" in terms of industry demand.

Sure. And you know Jeff, as you know we're hedged out through the backlog that we have really through the end of 2019 and hedge partially for what we've committed to are already in the backlog for 2020. When we look at the overall materials curve, we see steel and aluminum I think there is a lot more softness as we're really into the entering into that period right now. We'll see it really go through mid-2020 and they sort of cover a little bit in 2000 -- I'm sorry, the second-half of 2020, long past the closing of the order season for 2020. So yes, it provides us somewhat of an opportunity from a material margin standpoint. We'll look to execute that and lock it in with our existing hedging practices accordingly. The market will define how much of that we're going to be able to capture accordingly and we're at the early stages of backlog. Then will know a lot more at the year-end call.

Okay. And well, thank you very much and congratulations.

Thank you.

Thanks, Jeff.

We have no further questions at this time. I will turn the call over back to Ryan Reed for his closing remarks.

Thanks, Laurie. And thanks everyone for joining us today. Look forward to following-up with you during the quarter.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.