Wabash National Corporation (WNC) Q2 2020 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Q2 2020 Wabash National Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] as a reminder this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Ryan Reed, Director of Investor Relations.

Thank you, Ashley. Good morning, everyone. Thanks for joining us on this call. With me today are Brent Yeagy, President and Chief Executive Officer; and Mike Pettit, Chief Financial Officer. Couple items before we get started. First, 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 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. Good morning, everybody and thank you for joining us today. Let me begin by saying that we hope that you and your families are all well. With COVID-19 having a meaningful impact on all of lives over the past several months, I will by addressing our approach to occupational health, as well as the impact of COVID-19 on our operations. As the COVID-19 pandemic began to impact North America in early March, we quickly assembled a pandemic response team to oversee and deploy our countermeasures to this highly transmittable disease. That team had three objectives, to mount a risk based defense to protect our employees, to ensure continuity of operations and to stay ahead of the facts on the ground and the emerging science. In can say with certainty, that this team has performed magnificently over this trying time. Within our factories we have launched a risk based assessment of our jobs within the company, continued to priority engineering controls first and foremost, redesigned how work is performed, implemented best in class contact tracing and deployed medical management practices such as testing protocols and daily health monitoring. We remain diligent in applying our proven methods to protect our employees. We continue to educate and lead our people to stay home if they feel even the slightest symptom or have any potential known exposure to a positive COVID contact. No organization is immune to the risk of COVID-19 transmission in the workplace regardless of the defense mounted. However, we have been highly successful at preventing workplace transmission and ensuring the ongoing continuity of our operations. I am pleased to say that COVID-19 did not significantly impact Wabash National's operational capability during this period. As an essential business, our workforce by and large understand the important role our products have in keeping goods moving during this challenging time for our nation and the world. I'd like to take this opportunity to thank all of our employees for their dedication throughout these unprecedented times and for their commitment to adhering to health protocols that have helped us to continue to operate effectively, efficiently without interruption in the second quarter. Overall, the mindset that we've employed during the past 120 days has been simply to stay healthy and stay smart. The same applies not only to everyone's physical health, but also to the business. Within every short term decision that needs to be made as a result of the current environment, we are applying a long term lens in order to position ourselves for future outperformance while ensuring that we also make the necessary adjustments to ride out near term challenges. As we talk to the quarter, I believe this theme of stay healthy and stay smart will be apparent in making the decision you will hear about. Let's move on to an update of the landscape to our suppliers and our customers. Our supply chain performed well in the second quarter and continued to strengthen as we entered into the third quarter. We have been successfully working with our Tier 1 suppliers to proactively manage potential supply threats within our supply chain. However, we still have residual risk with chassis supply. We were able to avoid meaningful unplanned chassis disruption in Q2, but extended chassis OEM shutdowns are likely to have some impact on chassis availability during the second half of the year. This is a situation we are monitoring closely and working with our OEM partners and customers to reduce risk accordingly. In terms of our customers, I would like to personally commend their efforts and resolve of their employees. Drivers, dockworkers, dispatchers, and mechanics, all worked together to keep transporting goods across the country and to the home. They have braved uncertainty and unknowns in those early days of March and April to ensure the continued flow of goods throughout the country. During the quarter, we saw several extremes within the transportation market. Clearly, April was very weak from a trade market perspective. Conditions steadily improved throughout the quarter to the point where spot rates started to look relatively healthy during the end of the period and that has continued into July. While all companies are closely managing capital expenditures, we see an appreciation to wanting to maintain average equipment ages at reasonable levels. This is evidenced by a lack of meaningful cancellation activity and a continued robustness in our backlog. We also continue to see a resilience in our customers as they have continued to stay the course in 2020 and are looking forward to an interesting contract season and topline growth in 2021. As a result, we've begun the process of discussing the 2021 order season with our customers and all indications at this time remain positive. Let's now move to customer orders and backlog. I'll start by level setting because the second quarter is normally a seasonally weak period for order intake and this year has continued to follow that pattern. Wabash National's backlog ended the second quarter at approximately $750 million after registering a $1 billion backlog at the end of Q1. The reduction in backlog and requisite commercial activity was in line with our expectations. As the third quarter began, meaningful increases in customer commercial activity are visible and encouraging. We continue to feel good about what these industry figures imply for our commercial execution, share position and what it indicates about the strength of our customer portfolio. Now we'll move on to financial results for the second quarter. I don't seek to lead the company to breakeven quarters, but given the situation the world was in during the start of the second quarter I'm pleased with our financial performance during this historically difficult time. We managed 15% decremental margins at the operating income line, which shows very nimble execution during the quarter and supports the guidance given on our last call. Our spending control in the second quarter was exceptional and testament to how our people have responded to leadership's direction while navigating unprecedented challenges in the quarter. Flat net income during the quarter provided a level of stability. It allowed us to increase our overall liquidity by creating important capital. Additionally, our execution in the quarter enabled us to continue to invest in our company to fund our dividend and repay our previous poll on our revolving line of credit, which was executed as a precaution during late Q1. Our balance sheet remains in great shape and we continue to expect to generate positive free cash flow in 2020. Moving to Slide 4, we discussed the short-term leverage we pulled during the quarter as part of the tactical moves the need to be made during uncertain times. Thinking about longer-term initiatives, I'd also like to provide an update on the continued actions we are taking to align our organizational structure with our long-term strategic plan for continued growth that we've been executing through the last two years. As the saying goes, never let a crisis go to waste and this pandemic has afforded us the opportunity to move faster with these planned changes to our organizational structure. In late March we announced that Dustin Smith, formerly Senior Vice President and Group President of Commercial Trailer Products was appointed Senior Vice President of Operations. Kevin Page, formerly Senior Vice President and Group President of Diversified Products and recently Final Mile Products was appointed Senior Vice President of Customer Value Creation. These assignments capitalize on each of their backgrounds and strengths, while aligning the organization to meet our key business priorities of serving dynamic customers that span across our broad business landscape within the transportation, logistics and distribution industries in a way that no other company can. We expect these changes to enhance our operating effectiveness, speed of action, and improved alignment as silos between businesses are replaced with a One Wabash approach to both problem solving and value creation. Now best practices can migrate more easily across and throughout the business as talent ideas are able to flow without the barriers present in the prior structure. At the same time, we expect to achieve a greater level of intimacy with our customers, while allowing our sales force to work with customers to understand their diverse equipment and solution needs across our broad and innovative product portfolio that spans from the first to the final mile. We see these enhanced relationships and deeper levels of intimacy has appeal that will drive greater level of customer value creating innovation going forward. We expect that breaking down these business unit barriers will not only provide improved operating performance and better customer experience, but also a more efficient organizational structure. Once these changes are fully implemented, we anticipate annualized cost savings in the range of $20 million by the beginning of 2021 and the ability to outperform the given markets in the future. Staying with our long-term strategy, please reference Slide 5, as we circle back to our refreshed vision, mission and values that we have laid out on prior calls, and spend a moment to explain how our company's culture relates to social issues that recently have been at the forefront and center for all of us. If you focus on our leadership principles, our first principle is to embrace diversity and inclusion. However, every one of our leadership principles in one way or another references the inclusive culture that we are building at Wabash National. Recent protests and civil unrest have been driven by deep pain and highlight so much that we must work on to improve the fabric of this great country, so that every citizen feels safe and equal. No human being should live in fear of those entrusted to keep them safe and no American should rest until we've accomplished that objective. We make our impact where we can, so I'd emphasize to all our employees in the strongest manner possible that there is zero room for racism, bigotry, or hatred in all these mini manifestations at Wabash National. The diversity of the people that make up this company makes us stronger and it is those differences that build the diversity of thought and experience that we will use to drive our improvement and our innovation. We all have a choice to either say something or to say nothing, but in this important social discussion and I believe it's essential how we share our stance on this matter as it relates to our culture and our values. So in closing, we aim to control what we're able to control during this extraordinary time. Our focus has been to stay healthy and stay smart and we have executed in that manner. Strength and stability in our backlog, excellent decremental margins, a strong balance sheet coupled with a leaner and more strategic organizational structure, all provide us the ability and the confidence to continue to demonstrate that Wabash National is structurally improved as compared to prior cycles. We continue to push forward with strategic improvement that will benefit our company and our shareholders in the years to come as we work to change how the world reaches you. Today we are proving that we are different and that we are ready to accelerate as we all move forward. With that, I'll turn it over to Mike for his comments.

Thanks Brent. Please turn to Slide 6 and I'll start off by giving some color on our second quarter financial results. On a consolidated basis, second quarter revenue is 330 million with consolidated new trailer shipments of approximately 8400 during the quarter. Revenue is somewhat stronger than expected driven by our ability to continue normal operations during most of the second quarter. As discussed in the first quarter call, we experienced some delays in customer pickups of toward the end of the first quarter as the pandemic was accelerating. Those pickups pushed into the second quarter, which enhanced revenue recognition during Q2. To provide some granularity on our revenue generation during the quarter, I would say that April and May were a little weaker in terms of our shipments, but we did experience and uptick in revenues in June. Some of the in monthly trends also stems from the timing of when we had implemented furloughs. As previously discussed, we did make a decision to take a mandatory two weeks furlough across the company in April with an additional two weeks of furlough scattered throughout the rest of the quarter, depending on location and function. Second quarter gross margin was 10.1% of sales while operating margin came in at 1.8% during the quarter. Compared to Q2 of last year, SG&A expense was reduced by more than $10 million or approximately 30%. About one third of that decline is due to permanent reductions, while two thirds was achieved through temporary furloughs. We will however continue to see a year-over-year benefit as we go through 2020 as we get the full quarterly impacts of some of our efficiency actions taken during the second quarter. Operating EBITDA for the second quarter was $17.2 million or 5.1% of sales. Finally, for the quarter, GAAP net loss was $0.1 million or zero cents per diluted share. From a segment perspective, Commercial Trailer Products outperformed our expectations with revenues of $232 million by continuing to produce relatively efficiently, while also benefiting from delayed first quarter shipments that pushed into the second quarter. We were pleased to achieve operating margin of 8% in CTP during the quarter. Diversified Products Group was able to continue production at reasonable run rates at its facilities and generated $64 million of revenue in the quarter. Operating margin of 3.5% exceeded our expectations. As we discussed on our last earnings call, Final Mile Products was expected to see an operating loss during the second quarter as the pandemic not only impacted operating conditions, but also constrained customers from picking up equipment. FMP generated $51 million of revenue during the quarter with an operating loss of $6.6 million. While Final Mile has shown less cyclicality in past recessions, the environment during COVID-19 has impacted this business differently. As we developed production plans for Q2, we took into account the important needs of our employees, customers and suppliers, including projected availability of chassis supply. As such, we had a lower Q2 production plan, especially earlier in the quarter than what our backlog might have suggested. Due to this, revenue levels in the second quarter had this business operating below its expected. Gross profit however, returned to positive territory during a difficult operating quarter, indicating that the underlying operating performance in FMP had improved as we have worked hard to correct operating efficiencies that weighed on profitability around the turn of the calendar year. To that point, our manufacturing costs, as measured by the difference between material margin and gross margin improved about 400 basis points from Q1 to Q2. Margin expansion between those two items shows the operational improvements that are somewhat obscured by the COVID-19 induced low volumes in this business. Going forward, we are excited as we've ever been for the opportunity for growth in home delivering Final Mile equipment. The pandemic appears to have accelerated the trend that will benefit this business as this crisis has pushed our business and consumers to enhance the use and acceptance of ecommerce and home delivery as an option that has allowed many businesses to survive while expanding their customer base. This will allow consumers to prioritize safety while experiencing the convenience there is in driving home delivery trends over the longer term. We expect that the need for equipment in this space has ample room for improvement in the years ahead. Now moving to Slide 7. Year-to-date operating cash flow was $23 million with roughly $11 million has been invested to be a capital expenditure, leaving $12 million of free cash flow year-to-date. With regard to our balance sheet, our liquidity or cash plus available borrowings at June 30th was $304 million with $136 million of cash and $106 million of availability on our revolving credit facility. In March of this year, we proactively drew $45 million from the revolver to bolster our cash balance. After carefully considering both the credit and the business environments, we decided to fore-repay this cash during the second quarter and our revolving credit facility is now fully untapped. Moving on to capital expenditures, we continue to target about $20 million in spend for 2020. Most of these projects are critical to the maintenance of our existing operations, while a handful of projects are important to continuing to support our future growth initiatives, such as our Molded Structural Composite Technology. As expected, working capital serves the benefits of free cash flow in the second quarter, with $35 million freed up during the quarter, driven primarily by reduction in inventory. It's also important to mention that from cash enablement perspective, as we continue to analyze the efficiency and strategic intent of all our corporate assets, we believe there are further opportunities to raise some additional cash. That said, we have multiple projects in motion internally aimed at freeing some of these resources from non-core assets, which may be in the form of businesses, real estate or even equipment. While it's difficult to predict the timing of when we might exit some of these assets, I'd like to emphasize that the driving force behind this asset review and cash enablement strategy is the management team's focus on improving asset efficiency and ensuring all of our businesses are meeting our return thresholds. Moving to Slide 8, with regard to capital allocation during the second quarter, we paid back $45 million of revolver, invested $4.6 million in capital projects and paid our quarterly dividend of $4.3 million. For the near-term, our approach to capital allocation continues to center around preservation of cash while maintaining our dividend and assessing further opportunities for debt reduction. We did not expect to resume share repurchases in the near-term, as we continue to assess the macroeconomic landscape. As a reminder, our nearest debt maturity is the term loan and that is not until March of 2022. That balance stands at just $135 million and we expect to refinance this instrument in the next year. Overall, we are covenant light with no material financial covenants on any of our debt instruments. Net debt into Q2 at $325 million or $31 million less than this time last year. We're very encouraged by the company's performance during the second quarter. That said, we do remain vigilant about the actions that we may need to take, if the pandemic or the macroeconomic conditions worsen. If the outlook were to deteriorate further, we stand ready to take the necessary reductions to align operating costs with volumes in order to maintain positive free cash flow for the year. We believe we demonstrated strong performance on this front in Q2. And we continue to expect that given our highly variable cost structure, we should be able to achieve in the range of 20% decremental margins on a go forward basis. Given that uncertainty remains high, we're not going to reinstate forward guidance at this time. However, we do believe that our backlog of approximately $750 million should provide a relevant anchor plate to base forward looking expectations around. Additionally, we continue to expect to achieve our target of generating positive free cash flow in 2020 and we are well on our way after a strong A2. Finally on Slide 9, and in summary, we feel good about our company's performance through a very challenging period of time. Our second quarter decremental margins were excellent and with the stability, we were able to achieve a net income; we supplemented cash with the release of working capital that allowed our overall liquidity situation to improve materially from Q1. We continue to pull levers to improve our cash balance in ways that complement, our long-term strategy while maintaining our dividend and assessing opportunities for debt reduction. Most importantly, over the longer term, we're excited about the opportunity to drive growth and innovation through our organizational redesign. Not only have we stayed financially healthy during this pandemic, but we have also strengthened the foundation of the company through our restructuring efforts, which will lead to a more rapid recovery and a more consistent growth profile in the years ahead. I'll now turn the call back to Ashley and we'll open up for questions.

[Operator Instructions] And your first question comes from Justin Long with Stephens.

Thanks. Good morning and congrats on the quarter in a tough environment.

Thanks Justin.

So, I wanted to circle back to trailer sales for a moment. I know you had some delayed pickups in the first quarter that ended up occurring in the second quarter. I was wondering if you could maybe put a number around that? And then looking into the back half, based on the backlog that you have today, it sounds like you have decent visibility. So is there any color you can provide on expected trailer sales, even if it's just directionally relative to what we saw in the second quarter?

Yes, in the second quarter, we had about, roughly about 1000 units that we would have expected to ship in the first quarter that moved into the second quarter. And then as Mike had talked about, we saw those sales or shipments begin to pick up as we moved through the second quarter, and we've seen that somewhat maintain as we go into the beginning of the third quarter. So based on the lack of cancellations that we've seen for the environment, the ongoing commercial activity which feels appropriate for the market that we see right now, we have a pretty darn good visibility to a production plan and a shipment plan for the remainder of the year with just a little bit to work through to round out the year from a revenue generation perspective. What's nice about it is, if the market does pick up a little bit, and we all hope it does, we retain the ability to flex some of the variable capacity that we have within the organization. And the other nice thing that we've done through the furlough program and the way we've managed our workforce is that we've effectively retained the majority of our straight time capacity through the period across the business, which gives us a great level of stability and an operating platform to execute, depending on what happens from a commercial standpoint.

Okay, great. And then comment on free cash flow and the expectation to be positive this year, obviously, you are off to a good start in the first half, is the expectation that second half free cash flow will be positive?

We would expect the second half to be in the same range as the first half as far as free cash flow goes, so I would expect second half to be positive. Yes.

Okay. That's great. And then lastly, thinking about the commentary you had on that sequential progression of the business and the pickup in June, just from a high level, looking at the third and fourth quarter, is there anything that would prevent a sequential improvement in operating income and EPS the next two quarters?

Yes, if you think go - if you go from Q2 to Q3, the biggest difference there from a sequential perspective will be the furloughs taken in Q2. So as I mentioned in my commentaries, roughly two thirds of the savings that we saw on the SG&A line, year-over-year will probably be, I’ll call one time action. So it's important to note that as we look at what we're doing, we're doing two things at once, we are managing through a global pandemic with some short-term cost reduction activities, primarily furloughs, but we're also restructuring the company. So there is going to be long-term benefit of that the other one third of the SG&A savings, but you would get some headwinds sequentially from Q2 to Q3 because we do not expect to continue the furlough program into the second half of the year. The backlog is such as Brent mentioned, we maintained our strength [ph] and capacity. And the backlog as such we don't now foresee needing to do furloughs in the second half year.

And that somewhat goes into what we've said that while we executed 15% decremental margins in second quarter, we're really looking at more of like 20% for the reasons that Mike outlined the second half of the year. Because the stability and the customer profile, the need to produce to customer commitments, just doesn't, necessarily necessitate or allow furloughs to occur in the second half of the year, which is a very positive sign for where the market is going.

Okay, so my care - anticipation is that we could actually see a sequential decline in operating income in the third quarter directionally, how are you thinking about it?

I'm not going give specific guidance, but directionally there is a headwind on the SG&A line that I mentioned for furloughs.

Okay, I appreciate all the help today. Thanks, guys.

Thank you, Justin.

Your next question comes from Ryan Sigdahl with Craig-Hallum Group.

Good morning, guys.

Good morning.

So first on the larger customers have been the ones placing more of the orders recently versus the smaller fleets generally remaining on the sidelines, I guess is that true with your customer base, which I know skews larger anyways, but what are you seeing as far as mix of customers ordering and then as far as the 2020-2021 conversations that you said you've been having?

Yes, so when you look at the, I'll say commercial activity throughout the first, we'll call it four to five months of the year. Obviously the larger customers have been where stability has really been. It is where the relative preponderance activity has been at this point in time, a lot of that was seen, out of the negative side of that was seen on the indirect channel. And we saw that with inventories that were high as we entered the year and that they remained high really through the May timeframe. What we're seeing now, which is very positive, is that we're seeing inventory levels drop materially within the indirect channel as we entered into the June timeframe and businesses began to reopen. Right, so now we're starting to see some quote activity and requisite commercial activity starting to break loose within that indirect channel, while those larger customers have remained solid, and steady relative to the orders that they have in the book right now, and it's those larger customers, as you would expect that are beginning to talk inquisitively about what 2021 can be, as they enter their capital planning cycle, just as you would expect. So, nothing out of the ordinary. Everything that we needed to check the box on in terms of the commercial environment has occurred as we entered into the June, July timeframe. And it has really reduced some of those fears that we would have felt in that early March, April timeframe.

And then, what about the final mile customers? What are you seeing there? I mean, volumes were notably weaker there versus CTP and, and the others, sort of hearing from those customers, and then anything you can mention about kind of back half of your expectations in 2021 there?

So Mike, and his comments alluded to the fact that the actual shipments like production levels within final mile, were subdued relative to the actual backlog we had. We had to do that, right size. We call it the activity within the business or the constraints that we saw. That backlog has flowed as we've adjusted into the second half of the year, as well. We've seen a general maintaining of commercial activity consistently, really through the period, up until roughly the end of June, and then we've actually seen it kind of what I would say picked up a little bit, right. As, as you would imagine, as small businesses opened up, as people are beginning to unshutter themselves and the economy begins to wake up. So the second half of the year is going to be interesting in terms of commercial activity, and build requirements, challenging from the fact that we may be in a position that we're actually building slightly more than we did in the first half of the year. The only hesitation I have on that is we're metered by our chassis production. As the OEMs have come back online, they have to work through their flow issues. So we are cautiously optimistic about what FMP can do on our first half to second half basis, as we leverage the savings, improvements that will be made from an efficiency standpoint, maybe with some added volume that we see as commercial activity holds.

Good. Last one from me, and then I'll hop back in the queue. So I appreciate kind of the directional commentary on overall profitability, with the furloughs, et cetera and then also FMP right there, but as far as DPG and CTP go, just directionally volumes, Q2 relative to the back half of the year, can we expect - reasonable to expect sequential improvements there?

I would say the back half of the year will look from a revenue perspective in total similar to the first half of the year. Again, we've had $750 million backlog which is going to be primarily CTP just in proportion with revenue, and if you assume that most of that 85% of that's going to be 2020 volume, excuse me, only 15% will flow in 2021. You can kind of get a gauge that, that back half is going look similar to the first half in terms of revenue.

Great, just one final follow-up if I could, just on that 15% backlog in 2021, anything you can allude to, why that order book is open or what that?

It's just normal leveling of customer demand. There's occasionally customers and they they're in a situation where they don't want to take equipment in the current calendar year and they have asked us to push those orders in the next year. And it's pretty common, in this time of year to start to see that.

Yes, we'll typically have anywhere from 5% to 15% of total backlog, actually being part of the next calendar year period at this time of the year. There's nothing out of the ordinary with that. There is some level of what I would call new 2021 orders that have begun to enter into the picture, just as we would expect in a normal 2021 order season, it is all good.

Yes, every business is different, but as Brent mentioned, there is a couple of FMP customers, which is the chassis availability that have just decided to wait until 2021, but they want to maintain their order normal activity.

Great, thanks guys.

Thanks, Ryan.

Your next question comes from Felix Boeschen with Raymond James.

Hi, good morning everybody. Thanks for the time.

Hi, good morning.

Hi, maybe for Brent. I thought some of the comments around really the accelerated organizational change was very interesting. I was hoping we could maybe flush out that the $20 million in annualized savings you talked about. Are you expecting to realize all of those in 2021? And maybe could you touch on the breakdown by your business units?

So the short answer on what we expect is yes. We expect that $20 million run rate to enter in at the beginning of 2021 and we'll achieve that in that 2021 period. I'm not unnecessarily going to break it down by business unit. What I'll tell you is, roughly 80% of it is in the SG&A bucket across the business. 20% of it is in the operating part of the business, and the way that we see this structured. There is a level of just headcount efficiency as we've reduced redundancies across the organization, simplified the management structure, and improved the bottlenecks for information flow. We see literal discretionary spending as we've now can have better visibility and can reallocate dollars to more higher, we'll call it return on investment activities, and cut the literal waste out of the business. And the other piece of it, I would say is, as we've implemented our Wabash management system more fully, reallocated additional talent into that group through the restructuring, we now have an enlarged and increased pace of literal front office and back office process improvement underway. So we'll call it lean process improvement efforts, that will drive a large portion of that savings as well.

Okay. No, that's very helpful. And then maybe just a follow-up for Mike, but could you talk about the performance in final mile a bit more from the margin perspective? If I just kind of look at the sequential trends, revenue got a bit worse compared to 1Q, but margins got demonstrably better. Can you just talk a little bit about maybe what you guys are doing from an efficiency standpoint, and maybe when you would expect final mile to become profitable again, I understand that the environment remains kind of fluid right now?

Yes. So the comment I made, what we're seeing that we're really seeing the benefit in the conversion areas of the business and manufacturing costs, the labor and overhead, and what is difficult to see in the P&L right now, because we are at $51 million revenue that's below our breakeven level. So while it's very encouraging to us, if you look at the EBITDA from that business, it was significantly better than Q1, but also better than Q4 much, much lower revenue level. So I would say the way that business is running today, once the revenue is able to step up 25%, 30% from where it is right now, you'll be able to start to see a level of profitability return to that business. But we have to get the revenues up and there are so many uncertain activities going on in the world right now. It's hard for us to say when that might happen. One note is we are - and we've mentioned some earlier there was just some - there was some mix and some engineering and constraints in that business, and those have been worked through it. You can really see levels of manufacturing efficiency as we measure it as some of the best levels we've seen over the last year, floating through the factors.

Yes, I want to touch on that a little bit more and make sure everyone on the call understands that we're taking a - as you can imagine a very multifaceted approach to the profitability levels and ultimately changing the breakeven point within that business unit as well as specifically final mile. So when we think about, well, I'm not going to give percentages, but as you can imagine, Felix, when we think about taking structural cost out of the business, probably highly focused on final mile products in the way that we do that. At the same time, we're focused on the process improvements on the shop work [ph]. You see that in the - as you said the change in the margin profile from Q1 to Q2. And that's the leading edge of that, running at effectively very challenging times. So what would that have been if we hadn't had to navigate that concurrently. We're reducing working capital levels within that business as we lean out that process and we had a lot of room to be able to do that. That's flowing through the way that we're working through the process. And then on top of that, we're looking at the customer base, as volume begin to rebuilt itself, as everything picks back up with the new commercial organization that we have, we're taking a much more direct and engaged look at what is a more appropriate profit generating profile between customer mix and pricing as we go forward. So there's a lot of things coming over the next, we'll call it two, three, four quarters, as this specific market turns back on as we move into 2021.

That's very helpful. I'll leave it there and hop back in the queue.

Thanks, Felix.

Thanks Felix.

Your next question comes from Jeff Kauffman with Loop Capital.

Thank you very much. Hi, guys.

Hi, Jeff.

Hi.

So I had just a couple questions. I know we're not in the forward guidance business and things are uncertain. You mentioned how cancellation rates had held in, and I know we see the industry data from ACT Research. They are still kind of elevated around 3%. Are you seeing an improvement in cancellations, not just from June to May, but from June to July?

Absolutely, from June to July. I would say we have seen relatively sequential improvement in cancellation activity from early March through to July with a precipitous drop off as we entered in June. As you could imagine, I would say in the late April, beginning May timeframe as people took stock of where they were at after the, call it the first 30 days of shutdown, there was - we'll call it an additional cleaning out across the industry. We were not immune to that, but what was nice for us is that we offset that with additional orders coming in. I'm not sure the rest of the industry was able to do that. And so, all things being considered, we thought for the environment, pretty muted activity. But to your question that has just continued to resolve itself and lessen to the point of really little to no cancellation activity in the last 12 to 30 days.

Oh, that's fantastic. So I'm going to dive off the deep end a little here, and I understand that everybody's estimates of what the industry is going to do seemed to be changing month-to-month. I know ACT Research just raised their estimates for class 8 and trailers, but they're - right now, their forecast for van units is down from second to third quarter, and then down again slightly from third to fourth quarters. So, their numbers second half of the year is a little bit weaker than the run rate in 2Q. And I know you came out earlier and said, you know, think of the second half as not being much different from the first half. Is that an implication that you're gaining share?

I think we've executed very well from a commercial standpoint, Jeff, and I think the way that you just framed it is an accurate representation of reality. Right now, the numbers that we see from ACT and FTR indicate that we've done pretty well at building backlog and maintaining it. And I would say through other channels that we have access to our competition might be a little bit more worried about how the second half of the year will pan out for them.

Okay. And then a final question. I want to shift gears back to final mile and I realized the chassis availability issue has been very frustrating for some time. Are you seeing that improve yet? I mean, clearly there is customers that one final mile vehicles need final mile vehicles. Are you at risk to losing sales if we can't get this straightened out because the customers need the trucks now, right?

I don't think that's an, that is not a Wabash National issue in isolation. That's a general industry issue. And absolutely, if the OEMs can't provide adequate chassis availability, that's a muting effect for 2020, and we'll call it has a growth effect for 2021, because it's just a shifting volume play at this point. The expectations that we have for the business take into account what I would call pragmatic approach to chassis availability at this time, if the OEMs can provide at - we'll just call it slightly better than adequate, there is some upside for us, but we have to play and probe [ph] and the way that we communicate with the level of pragmatic risk in the numbers right now.

And we are seeing better flow through July gives us optimism for the second half of the year on the chassis. I think what's nice for us Jeff is that the OEMs are providing us a certain level of, we call it issue, but internally, to our final mile business our ability to see it, understand it, schedule around it, not let it disrupt us once we have a planned production outlined is significantly better than we were a year ago and even more than we were a few years ago. So we continually improved. We just got this structural problem with OEMs shutting down in the April and May timeframe that we have to chew through.

Okay, well again congratulations and thank you.

Bye Jeff.

Bye Jeff.

At this time, there are no further questions. I will now hand the call back to Ryan Reed for closing remarks.

Thanks Ashley. Thanks everyone for joining us today. More importantly, please stay health and safe and look forward to following up during the quarter.

That concludes today's conference. Thank you for your participation. You may now disconnect.