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July 29, 2020, 5:05 p.m. EDT

10-Q: WABASH NATIONAL CORP

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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report of Wabash National Corporation (together with its subsidiaries, the "Company," "Wabash," "we," "our," or "us") contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Forward-looking statements may include the words "may," "will," "estimate," "intend," "continue," "believe," "expect," "plan" or "anticipate" and other similar words. Our "forward-looking statements" include, but are not limited to, statements regarding: ?our business plan; ?our ability to effectively manage and operate our business given the ongoing uncertainty caused by the COVID-19 pandemic; ?our ability to effectively integrate Supreme and realize expected synergies and benefits from the Supreme acquisition; ?our expected revenues, income or loss; ?our ability to manage our indebtedness; ?our strategic plan and plans for future operations; ?financing needs, plans and liquidity, including for working capital and capital expenditures; ?our ability to achieve sustained profitability; ?reliance on certain customers and corporate relationships; ?availability and pricing of raw materials, including the impact of tariffs or other international trade developments; ?availability of capital and financing; ?dependence on industry trends; ?the outcome of any pending litigation or notice of environmental dispute; ?export sales and new markets; ?engineering and manufacturing capabilities and capacity, including our ability to attract and retain qualified personnel; ?our ability to develop and commercialize new products; ?acceptance of new technologies and products; ?government regulation; and ?assumptions relating to the foregoing. Although we believe that the expectations expressed in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and are subject to inherent risks and uncertainties, such as those disclosed in this Quarterly Report. Important risks and factors that could cause our actual results to be materially different from our expectations include the factors that are disclosed in "Part II, Item 1A-Risk Factors" included herein and in "Item 1A-Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019. Each forward-looking statement contained in this Quarterly Report reflects our management's view only as of the date on which that forward-looking statement was made. We are not obligated to update forward-looking statements or publicly release the result of any revisions to them to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events, except as required by law. Table of Contents COVID-19 Update In March 2020, a global pandemic was declared by the World Health Organization ("WHO") related to COVID-19. This pandemic continues to create significant uncertainties and disruption in the global economy. We are closely monitoring the most recent developments regarding the pandemic, and we continue to remain focused on the health and safety of our employees, as well as the health of our business, both in the short and long-term. We monitor, evaluate, and manage our operating plans in light of the most recent developments on an ongoing basis. Further, we are adhering to best-practice safe hygiene guidelines by recognized health experts, like the WHO, as well as any applicable government mandates related to the COVID-19 pandemic. We remain focused on business continuity and ensuring our facilities remain operational where safe and appropriate to do so. The safety and well-being of our employees has, and will remain, our highest priority. In early March, we assembled a pandemic response team to manage the changes necessary to adapt to the rapidly-changing environment. This response team continues to meet regularly with our senior leadership team to provide updates and continuously monitor the most recent developments. Actions we have taken to protect our employees include, but are not limited to: ?Within our factories, we are providing personal protective equipment for our employees, conducting daily health monitoring, cleaning more frequently, and have modified our operations to embrace social distancing where possible. ?Within our office environments, a large number of our employees remain working remotely. This allows ample space for those coming in to the office to spread out and distance effectively. ?We are utilizing daily health screenings and self-declaration for employees, contractors, and visitors, and we are encouraging employees with symptoms to stay home. In addition, senior leadership approval is required for all travel as we are making concerted efforts to avoid "hotspots" throughout the country. ?Suspended all Company-sponsored large events, community use of our facilities, and other forms of group gatherings involving external visitors. ?Implemented pandemic continuity plans. We have also extended several actions implemented to address the COVID-19 impact to our business, including a temporary freeze on share repurchases, reductions to discretionary spending, business-related travel restrictions, elimination of non-essential investments, and re-prioritization of capital expenditures (including maintaining our assets to capitalize on any economic and/or industry upswings). In addition, on May 3, 2020, we completed a two-week idling of operations and Company-wide furlough that began on April 20, 2020. We completed an additional furlough during the second quarter of 2020, which included an idling of operations from June 29, 2020 through July 3, 2020. We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities, and may take additional actions based on their requirements and recommendations. While the global market downturn and overall impacts on our operations are expected to be temporary, the duration of the impacts cannot be estimated at this time. Should the disruptions continue for an extended period of time or worsen, the impact on our production, supply chain, and overall business could have a material adverse effect on our results of operations, financial condition, and cash flows. In addition, see "Part II, Item 1A - Risk Factors," included herein for an update to our risk factors regarding risks associated with the COVID-19 pandemic. Table of Contents Results of Operations The following table sets forth certain operating data as a percentage of net sales for the three and six months ended June 30, 2020 and 2019: Six Months Ended June Three Months Ended June 30, 30, 2020 2019 2020 2019 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 89.9 % 86.0 % 90.2 % 86.5 % Gross profit 10.1 % 14.0 % 9.8 % 13.5 % General and administrative expenses 5.8 % 4.2 % 6.3 % 4.9 % Selling expenses 1.4 % 1.4 % 1.8 % 1.4 % Amortization of intangibles 1.6 % 0.8 % 1.5 % 0.9 % Other operating expenses (0.5 %) - % 14.5 % - % Income (loss) from operations 1.8 % 7.6 % (14.3) % 6.3 % Interest expense (1.7 %) (1.1 %) (1.7) % (1.2) % Other, net 0.1 % 0.2 % 0.1 % 0.1 % Income (loss) before income tax expense (benefit) 0.2 % 6.7 % (15.9) % 5.2 % Income tax expense (benefit) 0.2 % 1.7 % (1.2) % 1.2 % Net (loss) income 0.0 % 5.0 % (14.7) % 4.0 %

For the three-month period ended June 30, 2020, we recorded net sales of $339.2 million compared to $626.1 million in the prior year period. Net sales for the three-month period ended June 30, 2020 decreased $286.9 million, or 45.8%, compared to the prior year period, due primarily to 43.7% and 62.4% decreases in new trailer unit and truck body unit shipments, respectively, which contributed to decreases in sales within each of our reportable segments. The decreases in sales and shipments compared to the prior year period are primarily attributable to overall softer demand in the industry, which was worsened by the ongoing impacts of COVID-19, and has reduced demand for our products. Gross profit margin decreased to 10.1% in the second quarter of 2020 compared to 14.0% in the prior year period driven by fixed costs as a percentage of sales increasing year-over-year. While overall industry demand during the second quarter of 2020 was softer than anticipated and expected shipment and production levels for the remainder of 2020 have decreased from 2019 estimates, we continue to believe we are well-positioned to navigate this uncertain environment as we have prepared for an eventual downturn in the industry over the last two years. We are focused on the continued pursuit to implement changes to our processes and cost structure given the current environment and have taken actions at all levels of the Company to contain cost and preserve the strength of our balance sheet. For the three-month period ended June 30, 2020, selling, general and administrative expenses declined $10.5 million as compared to the same period in 2019. The decrease compared to the same period in the prior year was primarily attributable to lower employee-related costs, including employee incentive programs, partially offset by severance-related expenses, as well as lower travel and marketing-related expenses. This decrease was due, in part, to COVID-19 related items that impacted our employee incentive programs, as well as the cost containment measures we have implemented. As a percentage of net sales, selling, general and administrative expenses increased to 7.2% in the second quarter of 2020 as compared to 5.6% in the prior year period.







                                            Three Months Ended June 30,                                 Change
                                            2020                      2019           Amount            %
                                                   (prior to elimination of intersegment sales)
        Sales by Segment
        Commercial Trailer Products   $     232,254               $ 400,864       $ (168,610)       (42.1  %)
        Diversified Products                 63,951                  97,026          (33,075)       (34.1  %)
        Final Mile Products                  50,832                 134,817          (83,985)       (62.3  %)
        Eliminations                         (7,884)                 (6,654)          (1,230)
        Total                         $     339,153               $ 626,053       $ (286,900)       (45.8  %)
        New Trailers                                  (units)
        Commercial Trailer Products           8,000                  14,250           (6,250)       (43.9  %)
        Diversified Products                    400                     750             (350)       (46.7  %)
        Total                                 8,400                  15,000           (6,600)       (44.0  %)
        Used Trailers                                 (units)
        Commercial Trailer Products             185                       -              185        100.0  %
        Diversified Products                     35                      25               10         40.0  %
        Total                                   220                      25              195        780.0  %
        


Commercial Trailer Products segment sales, prior to the elimination of intersegment sales, were $232.3 million for the second quarter of 2020, a decrease of $168.6 million, or 42.1%, compared to the second quarter of 2019. New trailers shipped during the second quarter of 2020 totaled 8,000 trailers compared to 14,250 trailers in the prior year period, a decrease of 43.9%. The decrease in net sales is partially attributable to the continuing impacts of COVID-19, which have reduced demand for our products. Used trailer sales increased $2.3 million compared to the prior year period primarily due to a 185 unit increase in used trailer shipments compared to the prior year period. Diversified Products segment sales, prior to the elimination of intersegment sales, were $64.0 million for the second quarter of 2020, a decrease of $33.1 million, or 34.1%, compared to the second quarter of 2019. Equipment sales decreased $5.7 million, or 31.6%, compared to the prior year period. New trailer shipments for the second quarter of 2020 totaled 400 units compared to 750 units in the prior year period. While new trailer sales decreased $21.1 million, or 42.9%, from the prior year period, revenue per new trailer unit increased approximately 2.6%. Sales of our parts and service product offerings totaled $14.3 million for the second quarter of 2020, a decrease of $8.5 million or 37.4% as compared to the prior year period. The decreases in our equipment sales and sales from our parts and service offerings are in part attributable to the impacts of COVID-19, which have caused reduced demand for our products. Final Mile Products segment sales, prior to the elimination of intersegment sales, were $50.8 million in the second quarter of 2020, a decrease of $84.0 million, or 62.3%, compared to the second quarter of 2019. New truck body sales decreased $80.2 million, or 62.7%, and parts and service revenue decreased $3.8 million, or 54.5%, compared to the prior year period. The decrease in truck body sales is primarily due to a 62.5% decrease in truck body unit shipments in the second quarter of 2020 compared to the prior year period. The overall decrease in net sales compared to the prior year period is attributable to softer demand in this market segment and decreased chassis availability from our suppliers, both of which were worsened by the impacts of the ongoing COVID-19 pandemic. Cost of Sales







                                             Three Months Ended June 30,                                Change
                                            2020                       2019           Amount           %
        Gross Profit by Segment
        Commercial Trailer Products   $      22,392                 $ 46,906       $ (24,514)       (52.3  %)
        Diversified Products                 10,761                   20,123          (9,362)       (46.5  %)
        Final Mile Products                   1,963                   21,289         (19,326)       (90.8  %)
        Corporate and Eliminations             (795)                    (668)           (127)
        Total                         $      34,321                 $ 87,650       $ (53,329)       (60.8  %)
        


Commercial Trailer Products segment gross profit was $22.4 million for the second quarter of 2020 compared to $46.9 million for the second quarter of 2019. Gross profit, prior to the elimination of intersegment sales, as a percentage of net sales, was 9.6% in the second quarter of 2020 compared to 11.7% in the comparative 2019 period. We made purposeful efforts to mitigate lower sales volumes due to the ongoing COVID-19 pandemic by decreasing our fixed costs, including Company-wide furloughs, headcount reductions, and other cost containment measures. However, fixed costs did not proportionately decrease with the lower sales volumes experienced during the second quarter of 2020. Diversified Products segment gross profit was $10.8 million for the second quarter of 2020 compared to $20.1 million in the same quarter of 2019. Gross profit, prior to the elimination of intersegment sales, as a percentage of net sales, was 16.8% in the second quarter of 2020 compared to 20.7% in the 2019 period. While fixed costs decreased between periods as a result of our cost containment initiatives in response to COVID-19 impacts, the decreases in gross profit and gross profit as a percentage of net sales compared to the prior year period were primarily driven by certain fixed manufacturing costs that did not decrease at the same rate as the decrease in sales volumes.







        Six Months Ended June 30, 2020 Compared with the Six Months Ended June 30, 2019
        Net Sales
        Net sales in the first six months of 2020 decreased $433.0 million, or 37.4%,
        compared to the first six months of 2019. By business segment, prior to the
        elimination of intercompany sales, sales and related units sold were as follows
        (dollars in thousands):
                                           Six Months Ended June 30,                              Change
                                            2020                2019            Amount            %
                                                (prior to elimination of intersegment sales)
        Sales by Segment
        Commercial Trailer Products   $      483,229       $   741,909       $ (258,680)       (34.9) %
        Diversified Products                 146,909           196,674          (49,765)       (25.3) %
        Final Mile Products                  111,102           235,666         (124,564)       (52.9) %
        Eliminations                         (15,013)          (15,022)               9
        Total                         $      726,227       $ 1,159,227       $ (433,000)       (37.4) %
        New Trailer Shipments                       (units)
        Commercial Trailer Products           16,525            26,650          (10,125)       (38.0) %
        Diversified Products                   1,050             1,450             (400)       (27.6) %
        Total                                 17,575            28,100          (10,525)       (37.5) %
        Used Trailer Shipments                      (units)
        Commercial Trailer Products              220                50              170        340.0  %
        Diversified Products                      70                50               20         40.0  %
        Total                                    290               100              190        190.0  %
        


Commercial Trailer Products segment sales prior to the elimination of intersegment sales were $483.2 million for the first six months of 2020, a decrease of $258.7 million, or 34.9%, compared to the first six months of 2019. Trailers shipped during the first six months of 2020 totaled 16,525 trailers compared to 26,650 trailers in the prior year period, a 38.0% decrease. The decrease in net sales is partially attributable to the ongoing impacts of COVID-19, which have reduced demand for our products. Despite these headwinds, revenue per new trailer unit increased approximately 3.4% compared to the prior year period. Parts and service revenue for the six-month period of 2020 totaled $18.8 million, a decrease of $1.3 million, or 6.4%, from the prior year period. Used trailer sales increased $2.4 million compared to the prior year period primarily due to a 170 unit increase in used trailer shipments in the first six months of 2020 compared to the prior year period. . . .

Jul 29, 2020

COMTEX_368610857/2041/2020-07-29T17:05:23

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