EXHIBIT 99.2
WABASH NATIONAL CORPORATION
4TH QUARTER AND YEAR END 2004 RESULTS
CONFERENCE CALL OUTLINE
THURSDAY, FEBRUARY 10, 2005
10 A.M. EST
BILL GREUBEL:
DISCLAIMER ANNOUNCEMENT:
GOOD MORNING. BEFORE WE BEGIN, I WOULD LIKE TO MAKE AN IMPORTANT ANNOUNCEMENT.
AS WITH ALL OF THESE TYPES OF PRESENTATIONS, THIS MORNING'S CONTAINS CERTAIN
FORWARD-LOOKING INFORMATION, INCLUDING STATEMENTS ABOUT THE COMPANY'S PROSPECTS,
THE INDUSTRY OUTLOOK, BACKLOG INFORMATION, FINANCIAL CONDITION AND THE LIKE. AS
YOU KNOW, ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS SHOULD BE VIEWED IN LIGHT OF THE
CAUTIONARY STATEMENTS AND RISK FACTORS SET FORTH FROM TIME TO TIME IN THE
COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
WELCOME TO WABASH NATIONAL'S 4TH QUARTER EARNINGS CALL. I AM BILL GREUBEL, CEO.
IN THE CONFERENCE ROOM WITH ME THIS MORNING ARE BOB SMITH, CFO, AND DICK
GIROMINI, OUR COO, OF WABASH NATIONAL CORPORATION. I'D LIKE TO WELCOME ALL OF
THE LISTENERS ON TODAY'S TELEPHONE CONFERENCE CALL, AS WELL AS THOSE LISTENING
LIVE VIA THE WABASH NATIONAL INTERNET SITE WEBCAST. WE HAVE MUCH TO COVER TODAY
AND WILL TRY TO PROVIDE AS MUCH INFORMATION AS POSSIBLE. AT THE CONCLUSION OF
THE PREPARED PORTION OF OUR PRESENTATION, WE WILL OPEN THE CALL FOR QUESTIONS
FROM THE LISTENING AUDIENCE.
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Our fourth quarter sales and earnings continued a very acceptable trend,
especially in light of continued raw material increases incurred by our industry
over the last four quarters. I am very pleased to report net income of $13
million or $0.39 diluted earnings per share on sales of $287 million. Results
were impacted by some unexpected one-time items that Bob will cover later in the
presentation. Increasing raw material costs remain a drag on earnings and we
expect our margins may be affected somewhat through the first half of 2005.
Pushing these increases through to our customers and maintaining Duraplate's
price premium vis-{a`}-vis commodity trailers is our principle objective. Our
future success, especially with first quarter increases, will be limited as our
customers have begun to push-back. We are the price leader and will continue to
stay out in front of this issue. During the fourth quarter selling price
increases offset raw material increases. For the full year, our selling price
increases offset almost 90% of raw material increases. We are one of the few
OEM's in our broad peer group who was able to offset increased raw material
costs in 2004 with pricing.
For the fiscal year 2004 sales were $1.041 billion, a 17% increase over 2003
sales of $888 million. Earnings for 2004 were $58 million versus a loss of $57
million for 2003. We are also very pleased to state that we have paid down all
of our bank debt and ended the year with $42 million in cash.
For 2004 we met or exceeded all of the major operational objectives including
safety, quality, productivity and working capital initiatives. We exceeded our
'Mid-market' sales goals. We added over 225 new accounts representing 6,000
units with the majority of product being Duraplate trailers. We continue to have
great momentum going into 2005 and anticipate another great year of new customer
growth.
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During the second quarter conference call we intimated a significant break-
through in our assembly process. This month, we will take to the Board a three
year capital plan that will allow us to significantly improve our process
capability, product quality and greatly enhance our assembly productivity. We
anticipate obtaining Board approval and by year end commissioning a new
replacement line with projected annual cost savings of $7.0 million on a $10
million investment. We intend to install an additional 3 replacement lines over
the following three years with similar costs and savings; including one that
will relocate our reefer assembly into our North plant allowing us to have all
production under one roof. All lines replaced will be decommissioned.
There continues to be significant pent-up demand for trailers as we confirmed in
a broad based survey of the market undertaken over the last 45 days. This demand
is being tempered somewhat by year over year equipment cost increases of over
15%; a continuing driver shortage and a contrarian belief among some fleets that
raw material pricing will abate over 2005. I don't believe, however, that we
will see any meaningful cost reductions during this year. For the first time in
months we have the ability to quote pricing over extended periods as most our
key component suppliers have `locked in' supply and pricing from their raw
material suppliers over an extended time frame. In most cases these locked in
prices are at a discount to `spot'. I do expect to see spot pricing fluctuate
over the next months but I don't believe this will be meaningful to our
contracted pricing. Our customers read the same reports and some feel
differently. As such we expect to encounter some choppiness in the market as
typical customer orders may be rationed out over the year versus a single
blanket order. With that said, as of January 31st we have booked approximately a
half of our budgeted sales for 2005 which is consistent with our success rate
last year. Over the next few months we may have to reconfigure production
schedules to meet challenges in product mix and delivery expectations. As such,
we have added an additional shift to our Freight Pro
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and container lines this month, these additional shifts will continue through
2005. Our Supply Chain group has done an excellent job at managing raw materials
and component on-time delivery. We have had relatively few problems since last
summer. We have also proactively pre-purchased approximately $6 million worth of
components in the fourth quarter to take advantage of old pricing. Going forward
we continue to receive assurances from our major component suppliers that they
will be able to cover forecasted increases in demand.
The operations side of the business continues to perform excellently. Dick will
discuss this, in addition to a further rationalization of our Retail/Branch
business; more detail on our new Capex for assembly operations and our
continuing initiative to reduce raw materials and components as a percentage of
sales going forward. Bob will follow with a review of the financials for the
quarter and 2004 followed by our view of 2005. Before moving on, I would like to
update you further on the industry, the `Mid-market' and a view of 2005.
Industry Update:
- The truck/trailer industry continued its recovery in 2004. Last year
was the best shipment year in the last 4 years and while orders
experienced strong swings from month to month, total trailer
shipments ended 29% higher than 2003 at 236,000 units. Vans-only
industry production ended with 170,000 units, a 26% increase over
2003.
- Wabash National's market share in the van segment improved from 27
to 28% a good improvement especially considering that our overall
sales to core customers dropped from 50% in 2003 to approximately
33% of trailer sales in 2004.
- Despite Fleet concerns about equipment pricing, net trailer only and
van orders for November were 26,700 and 20,000 units and for
December were 31,100 and 24,100 units respectively, a very
significant increase year over year
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- Quote and order activity continues to remain at strong rates,
slightly higher than last year. Recently we have been seeing more
Fleets quote full year requirements compared to the rationing we
were seeing earlier
- The American Trucking Associations' Truck Tonnage Index remained at
a strong 158 in December. For 2004 truck tonnage increased 6.1%
compared to 2003, making 2004 the best year since 1998.
- Industry trailer-only and van backlogs ended the year at
approximately 6 months
Mid-Market Status:
- Our mid-market focus continues to bring in new customers to Wabash
National at an ever increasing rate.
- In 2004, we added a total of 225 new customers, including an
additional 55 in the 4th quarter alone.
- Although we believe our van market share only grew by 1% year over
year the percentage improvement in the Mid-market was significant
given the reduction in Core Customer sales versus 2003.
- We should continue to exceed our expectations in the mid-market.
We've been at this now for over a year and we now have a much
clearer view of the market and what it takes to be successful. We've
got the right tools and right product to be successful. In 2005 we
intend to better leverage our Retail/Branch sales force to expand
their focus into the Mid-market. Today we have 35 Retail sales reps
that primarily focus on Owner Operators and small fleets, which only
represent 12% of total sales. Over the next two quarters we will
upgrade and broaden this group's geographic and fleet coverage.
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View of 2005 & Beyond:
- Recently, our marketing group surveyed a number of our current and
prospective accounts to better understand their buying intentions
for 2005. We received responses from 204 fleets, representing a
total fleet size of 720,000 units with an average size of 3,800
trailers. 76% of those fleets intend to purchase equipment in 2005.
Of those, approximately 74% plan to add capacity typically in the
10% range. We believe there is a clear indication that demand is
there. However, driver shortages and price increases related to
materials costing are acting as a drag on this demand.
- In addition the large core fleets generally continue to focus on
replacement vs. growth, as was the case in 2004.
- Although some fleets have determined to hold out and continue to use
existing equipment it is evident given the high quote interest and
order patterns that business should continue at a strong pace given
a continuation of the current economic conditions.
- ACT's latest total trailer forecast for 2005 is 269,000 units; a 14%
improvement over 2004. ACT's vans-only forecast for 2005 is 194,000
units; a 13% improvement over 2004. This compares to our 2005
forecast of 247,000 total trailers and 178,000 vans. Given the
breadth and number of inquiries coming in over the last 5 weeks our
forecast may be a bit conservative.
- For the first quarter we anticipate shipments in the range of 12,000
to 13,000. The total numbers will be somewhat affected by the
seasonality issues associated with model year change out and reduced
shipper requirements; and a broadening customer mix.
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- For the year we are forecasting New Trailer sales of approximately
60,000 units versus 51,000 units in 2004 or an 18% increase year
over year. In addition, we see growth in our DuraPlate container
business as we add more customers. Our degree of success in the
Mid-market and participation by our Core Customers may positively
affect this forecast. We plan to also improve our Used Trailer sales
year over year by approximately 30% with minimal margin loss as more
fleet trades start to come in.
- For 2006 through 2008, ACT's trailer-only forecast averages 280,000
units. Van-only forecasts average over 200,000 during this period.
Wabash National's preliminary expectations are essentially in line
with these estimates.
Bob will discuss in greater detail our forth quarter results and add a little
more detail on 2005 after some comments by Dick relative to
operations{ellipsis}.Dick
DICK GIROMINI
Thanks, Bill. It's my pleasure again to have the opportunity to update everyone
on the continuing progress that has been made within the Operations of Wabash
National. As always, I'll begin my comments with the Manufacturing Segment and
then move on to Retail.
Maintaining our consistent focus, the manufacturing team has remained intent in
driving improvement in five key areas: Safety, Quality, Delivery, Productivity
and Cost Reduction. 2004 was truly a breakthrough year for our Manufacturing
Segment.
We made outstanding progress in our number one value, safety, during the 4th
quarter and throughout 2004. Without question, this was the best year in safety
performance that the company has ever had. Significant improvement in all
performance metrics was realized, with:
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- For the full year, the team achieved a 40% improvement in TRIR year-
over-year; which represents performance at a level that is less than
60% of the industry norm for the SIC code that we are measured in.
- Our DAFW Case Rate is even more impressive, completing the year with
seven (7) consecutive months at less than 1.0, reflecting a
performance level that is less than 25% of the industry norm for our
SIC code.
- Our efforts are being translated into Workers Comp cost reductions
with our current "incurred cost per exposure hour" dropping by over
50% since 2002
PRODUCT QUALITY improvements were also significant.
- Manufacturing First Pass Yield improved from 54% at the end of 2002,
to our goal level of 95% by the end of 2004, with the fourth quarter
being our best ever.
- We intend to maintain that level of performance throughout 2005,
even while further tightening our outgoing quality expectations
- Warranty infant-mortality improved by 50% during the course of 2004
Our DELIVERY performance, as measured by schedule attainment, continues the
consistency that has become the norm achieving 100% throughout this past quarter
and full year.
In the area of direct labor PRODUCTIVITY, we continue to conduct formal CI
Events, now at over 300 formal events, realizing an incremental 22% productivity
gain during 2004, while sustaining all improvements that have been made during
the prior one and one half years.
ALPHA LINE - NEXT GENERATION
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As Bill stated, later this month we will present to our Board a three (3) year
capital expenditure proposal for a revolutionary overhaul of our trailer
assembly operations. Using proven technology that has been extensively utilized
throughout the automotive industry, these changes will provide for significant
improvements in our manufacturing techniques and practices that will provide for
lower assembly costs, improved safety, much enhanced product quality in fit and
finish, and productivity never before seen in the trailer industry.
This effort will be implemented in four (4) phases during the next three years,
with the first phase being targeted for completion during the 4th quarter of
this year. At that time, we will begin realizing the benefits of this initial
$10 million investment at an annualized savings of $7 million.
Once completed in 2008, with an investment of approximately $40 million, all of
our trailer manufacturing will be consolidated into our North Campus, thereby
further reducing overheads, facilitating communications, and allowing the
leveraging of our common resources here. The new systems will introduce new
automated techniques for trailer assembly, reducing labor cost per unit and
improving productivity and quality. All told, we anticipate annual cost savings
in excess of $28 million per year once all lines and relocations are completed
by 2008.
PURCHASED MATERIALS INITIATIVE
Another opportunity that was mentioned by Bill is the initiative being taken on
by our Supply Chain Management Team. We have thrown the challenge out to the
team to take aggressive steps to offset the significant cost impact of this past
years' run-up in commodity-related pricing on our procured materials and
components. Their go-get for this year is to achieve $14 million of material
savings through actions such as, but not limited to:
- Aluminum purchasing
- Negotiated savings with current suppliers
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- Supplier productivity improvements
- Alternative supplier sourcing
- Outsourcing, or even in-sourcing, as appropriate, and,
- Design changes resulting in lower cost
Similar actions generated some $12 million of savings in 2004, partially
offsetting the significant run-up in the commodity market.
RETAIL
Let me now move on for a discussion about our Retail branches. As you know, we
were successful in the 3rd quarter this past year in achieving a profit for the
first time since the fourth quarter of 2000. With seasonally lower volumes in
the 4th quarter, along with some one-time charges; related to Branch closures,
the branch portion of our Retail business generated an approximate $1.0 million
loss for the 4th quarter. While disappointing on the surface, this performance
reflects a $3.9 million improvement year-over-year for the same quarter.
Additionally, on a full-year basis, the Retail branch performance improved some
$12.6 million year-over-year.
Some key highlights:
- Sold 6100 units through our branches representing an all-time record
for annual sales units. Even more impressive is that this was
achieved with less than half the branch locations that existed back
then
- Acquired 86 new customers, the most of any of our sales channels,
and accounting for 1700 units
- Grew our Service sales volume by 12% year-over-year
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- Completed thirty-two formal CI Events at our branch locations
resulting in promising productivity gains in service performance
Looking forward, to further improve the business and achieve a more consistent
level of performance, we have recently announced internally that we will be
transitioning a number of our branch locations from full service to Trailer
Sales Only, or in select cases, selling certain branches to interested parties
who will then become authorized Wabash Dealers, as was the case with our
Jeffersonville location which we sold recently. This decision was based on an
assessment of numerous criteria, including past and current performance, local
markets and competition, and future growth and performance prospects, among
others. Once completed, our Branch Network should consist of ten (10) full-
service locations, along with seven (7) Trailer Sales Only locations.
Each affected location has been notified of this plan and we are working to
provide for smooth, orderly transitions. This restructuring greatly reduces the
overhead costs to support the branch network and allows us to provide better
presence in driving improvement through the remaining branches to assure success
and profitability. We would expect that this transition will be completed
sometime during the first half of this year. Furthermore, with this
restructuring, my expectation is that 2005 will prove to be the first profitable
year, in total, for the Branch Network since 1999.
In summary, this past quarter, and more notably, this past year proved to be
very successful for all our Operations, with even more opportunities for further
improvement lying ahead. I certainly thank each and every one of our associates
for their hard work and dedication during the past year to help get us to where
we stand today. Without them, we don't deliver the results that we are all
becoming accustomed to.
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With that, I'll stop now and let Bob Smith, our Chief Financial Officer, review
the financials with you{ellipsis}{ellipsis}..Bob{ellipsis}.
BOB SMITH:
Thanks Dick, I would like to review with you our results and our financial
condition as of December 31, 2004.
I. Q-4-04 RESULTS
- Sales were $287M in Q-4-04 on 13,700 new units. Income for the
quarter was $13 M or $0.39 per share, fully diluted.
- We had a few small one off items that hit us in the quarter
including charges related to old workers compensation claims $0.6
million (cost of sales); litigation and branch closure costs $0.9
million (SG&A); and debt extinguishment $0.6 million (other
expense).
- Our results are tax affected at the minimum alternative rate which
is approximately 2% of pretax income; due to our Net Operating Loss
carry-forward. The quarter benefited from a recovery of tax and the
realization of prior write-offs for tax purposes.
- Equivalent shares (36.8 million) used in the determination of fully
diluted earning include the effect of options, and our convertible
notes - press release has the details.
- As noted in previous calls, we made certain reclassifications in
2004 to provide better clarity to our business and the 03 data was
conformed accordingly.
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SALES
- As I mentioned, sales for the quarter were $ 287 million on 13,700
units. This compares to $277 million on the same number of units in
the third quarter of this year and $220 million on 11,300 units in
the prior year period.
By Segment sales were
- Manufacturing sales were $269 million (13,700 units)
- Retail/Distribution sales were $56 million (1,400 units) -
Eliminations were $(38) million (1,400 units)
Product Line Summary
Sales by product line are as follows:
- -New Trailer REVENUES, net
$ Shipped Built
----- ------- -----
Q4 - 04* $257M 13,700 12,300
Q3 - 04 $243M 13,700 13,600
Price increases and customer mix resulted in NT revenues increase from Q3 to Q4
as units remained the same.
- -Used Trailer REVENUES
$ UNITS
---- -----
Q4 - 04 $12M 1,400
Q3 - 04 $14M 1,700
Average prices for used equipment has increased steadily over the last 4
quarters
- -PARTS AND SERVICE REVENUES
Q4 and Q1 are seasonally slow periods for parts and service sales
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- -OTHER, INCLUDING LEASING REVENUES - steady at $4 million per quarter
GROSS MARGIN
- Gross margin was:
- 10.1% in Q - 4 -04 compared to 13.3 % in Q-3-
Let me walk you through from the 13.3 GP margin in q3 to the 10.1 GP margin in
this quarter
Q3 Margin, GAAP 13.3
Q3 good guys Bogies & rebates 0.6
----
Q3 non-GAAP 12.7
Q4 10,1
----
Decrease 2.6
----
Decrease due to
Workers Comp - old claims 0.3
Math 0.6
Retail including closure costs 0.6
----
Subtotal 1.5
Manufacturing related 1.1
Selling price vs. material cost ----
Overheads and labor 1.0
Other including freight, commission, etc. 0.1
----
1.1
----
For the year material cost increases exceeded selling price increases by approx
$6 million as we lost ground early on as we couldn't re-price as much of the
back log as needed to nor could we pass along some of the increases that
occurred mid-way through the third quarter.
- On a sequential basis , fourth quarter gross profit decreased
approximately $7.8 million compared to third quarter - 04 primarily due to
the following:
-
- - Increased Volume $ 0.7 M
- - Material cost increases in excess of selling prices ($ 0)M
- - Labor and overhead ($ 2.0)M
- - All other, including (6.5)M
- Branch operations
- Eliminations
- Workers Comp
- Freight
- Commissions
------
$(7.8)
------
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Looking forward:
- Volume - We expect to volume to be in the 60,000 unit range for the
year with the quarterly distribution following the same seasonal
pattern as 04
- Selling prices - We will continue to pass through raw materials
increases; however, given the increases that were passed through
last year.
- Raw material costs, as expected, have seen some increases already in
05. We expected future increase to be limited and that overall
prices should be much more stable than 04 but at a high level.
Supply chain performance since September has been very acceptable
and we may have some opportunities to reduce inventories.
- Production - continued productivity improvements are expected
- Customer Mix - continued gains in the mid market to obtain the
volume goals
- Margin - will likely be constrained over the next quarter or two
SG&A
- SG&A was:
- $14.5 million in Q4 - 04 or approximately 5.0% of sales.
Sequentially, we didn't report the progress we were expecting
as we recognized approximately $0.6 million for anticipated
costs to settle product litigation and we had SOX related
charges of $0.1 million. Compared to the year ago quarter
spending increased $0.9 million. Going forward we expect
additional streamlining.
- Prior period information has been reclassified to conform to 2004
presentation - in the $1M range. The reclassification was made to
better match costs with activities
INTEREST/OTHER
- Interest decreased $1.4 million vs. q4 03 due reduced to borrowings.
- Foreign exchange related to the Canadian dollar Vs. USD was a gain
of $0.5 million in Q4 - 04
- We incurred a $0.6 million loss on the early extinguishment of debt
when we paid off our term loan.
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- Other is a gain of 0.4 in Q3-04
TAXES
- We tax effected our earnings for the year at the alternative minimum
tax rate of approximately 2%. The fourth quarter tax benefited from
the realization of a carryback claim and the crystallization of $26
million in loses for tax purposes reducing the amount of income
subject to AMT. At December 31, 2004 our federal NOL's amount to
approximately $175M. As a result of our past losses, we have fully
reserved for this tax benefit on our balance sheet with
approximately $60 million tax reserve. We continue to evaluate the
need for the reserve and will adjust when realizably is more
assured. If we are able to sustain our progress this should be in 05
and we reverse tax reserves at that time. Three points for your
models
- No cash taxes anticipated save AMT
- Effective tax rate of approx 2% for 05
- Effective tax rate of approx 40% thereafter.
- EPS - We have included our EPS calculation in our press release so
you can see the details there
DEPRECIATION AND AMORT: $5 MILLION IN Q-4-04 and approximately $20M for the
year. We expect depreciation and amortization will decrease several million in
2005 reflecting both the minimal levels of spending over the past several years
and certain assets have been fully amortized.
CAP EX: $15 million for the year including approx $7 million to buy out of 2
leases we had on duraplate equipment. For 2005 we expect spending in the $25 -
$35 million range divided between normal maintenance requirements $5, plant
automation $10 and ERP $12. This is
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an 18 month project that focuses on three areas (1) ERP (2) configuration -
quoting, engineering, BOM, Manufacturing - this is the heart of the project and
this where the payoff comes from and (3) retail management for service and
parts.
HEADCOUNT
Head count - 4,000 as of December 31, down slightly from the third quarter
BACKLOG
Approximately $280 million at Dec. 31, 2004 same as Sept. 30, 2004. Customers
placing partial year orders vs. full year requirements.
BALANCE SHEET DETAIL
Cash - $42 million
Liquidity - cash plus available borrowing under our line of credit $160 million
at 12/31 vs. $80 million at 9/30
Accounts Receivable - $88 million at 12/31 vs. $ 134 million at 9/30. DSO was 28
day at 12/31/04 and 03. DSO improved 17 days from 45 days at Sept. 30.
Inventories - decreased to $95 million compared to $113 million at the end of Q3
- Inventories increased due to price increases of raw materials and
early buys in advance of price increases total approximately $6
million.
- Total inventory turns 11X in Q4-04 slightly better than the 10X in
Q4-03 and much improved vs 8 X in Q3 vs. 8x in Q2- 04
- Used trailer inventory was $13 million or 1,300 units at 12/31 vs.
$13 million, or 1,500 units, at 9/30/04.
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- We anticipate that inventories in 05 will exhibit the same seasonal
pattern as experienced in 04. We will closely monitor the supply
chain performance and adjust inventories accordingly.
- Open trade commitments of $4.4 million @ 12/31/04.
LIQUIDITY/FINANCIAL CONDITION
- Total debt (on & off B/S) of $ 129 million ($128 million on BS at
9/30) vs. $239 million ($227 million on B/S @ 12/31/03).
As you are aware we renegotiated our bank line in late December and removed or
significantly reduce all restrictive covenants. Such as, limitations on capital
spending and dividends
BILL GREUBEL
SUMMARY
We continue to be bullish about our prospects over an extended period. We should
see gradual industry and healthy share growth over the next three to four years.
We continue to work all aspects of our business that we can control: safety,
quality, technology, cost and operational excellence. Given our recent successes
over the past two years and future capital plans, we will be in an enviable
position to profitably grow our market share throughout the trailer industry
cycle by creating value for our customers and investors alike. Our current
challenge with raw material pricing will pass. We have labored long hours to
mitigate this issue and using this as a catalyst have become a much stronger
company and industry leader.
I will now open the session for questions, operator{ellipsis}.
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