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Text: A couple of items before we get started.
Let me begin by saying that we hope you and your families are healthy and that each of you have found a way to better connect with those you love.
The world has changed at a remarkable pace since our Q4 earnings call, and we have a lot of topics to get everyone up to speed on with regard to the current environment, the state of our strong liquidity position, current customer sentiment and our supply chain stability.
I'd also like to offer some thoughts and perspective on the company's performance through the last recession in the 2008 to 2009 time frame and why we expect this experience to be very different.
However, before we get into those details, I'd like to start by sharing the steps we're taking to safeguard the health, wellness and safety of our people.
As we are in essential central business, we have continued to operate from the onset of this pandemic.
Wabash products and services enable our customers to transform critical goods, whether it's tank trailers hauling feedstocks, the pharmaceutical processors, refrigerated trailers transporting fresh food to groceries or our truck bodies completing the last leg of a journey in delivering goods to the home.
We've been part of assuring that vital supplies and basic needs have been met, which has allowed people to stay home more comfortably and social distance more effectively.
We've initiated a companywide business continuity effort that has been helping us navigate through this extraordinary time with agility and speed.
In addition, we've made organizational changes throughout our company to facilitate bringing fast and deliberate decisions to action as we act on and within the business to best manage this dynamic landscape.
We have made frequent, candid and empathetic communication with all of our employees, customers and suppliers, a top priority, as we put plans in place around the current and anticipated disruption to the economy.
Our supply chain and general work practices, as well as work to proactively manage the situation.
We have adopted and implemented best practices gathered by the World Health Organization, Centers for Disease Control and other respected sources of scientific fact to safeguard our people and our workplaces.
In addition, we have been in close contact with the states and municipalities where we operate to assure we are in alignment and supportive of local measures.
In our manufacturing facilities and offices, we've implemented working under standard social distancing protocols as a process that we need to embrace in the event that the standard of care must be in place for longer than any of us would like to imagine.
We are implementing smart, effective and risk-based control measures that are sustainable and productive, some of which are facility changes to reshape the physical manufacturing and office environments, wide reaching use of work from home or telecommuting tools, use of employee symptom prescreening tools, modification of common areas such as break rooms, cafeterias and other employee gathering areas, physical barriers, proper and effective use of personal protective equipment and administrative procedures such as enhanced/modified travel protocols and visitor procedures.
I've been extremely proud of how our employees have reacted to and embraced the changes that allowed us to adapt our business to the current environment.
Essential business or not, people are in different places in regard to their home situation, personal health, the health of those around them, as well as their own respective fear and anxiety regarding the risk in contracting this virus.
By and large, our people have been responsible, open-minded and supportive of our efforts to remain open and constructive during the past 60 days.
Our culture is what makes it special to be part of Wabash National, and I am always humbled by it.
Let's move on to an update on the customer and supplier landscape.
As an essential business, we've been able to maintain business continuity with our modifications in place.
However, we have not been immune to supply related disruptions caused by intermittent COVID-related issues, as well as state government pandemic response actions.
Supplier impacts have been mitigated by agile supply chain actions taken as a result of changes made to manage the last three years of peak product consumption, supplier capacity limitations and tariff-related impacts and speaks to the sustainability of those supply chain actions.
We have also managed through supply chain issues by holding increased inventory at some at-risk inputs identified as part of our supplier risk management process.
An area of risk that remains that we're watching is in regard to truck chassis in support of our truck body manufacturing process.
All major producers of truck chassis have implemented hard and relatively extended shutdowns in response to the COVID crisis.
While we may expect chassis production to reopen in the near future, the full impact of the supply chain is still being worked through.
Overall, our supply base has weathered the storm well.
And at this time, we do not see significant liquidity or solvency risk within our supply base as a result of shutdowns or reduced market demand.
In terms of our customers, they've done an admirable job keeping the flow of essential goods moving in a challenging environment.
Generally, they've gone from extremely busy as consumers stockpiled prior to stay-at-home orders to experiencing a considerable market softening with nonessential business closures.
They are now gearing up to handle increased volumes as states begin to open up again.
While customers are managing their capital outlays closely at the moment, I think there is also an appreciation for wanting to maintain average equipment ages at reasonable levels to ensure efficiency, attract driver talent and avoid a situation down the road that we saw in 2018 and '19, where some customers could not get equipment as they manage their capital needs.
We are also finding, as we expected, customers within our strategically managed customer portfolio have been relatively resilient as compared to their peers.
We can observe that in their Q1 earnings, internal pandemic response efforts and through our overall backlog stability.
Moving to Wabash's financial results for the quarter, I'd like to split my comments between two distinct phases, which is January and February together and March specifically.
The first two months of the quarter were relatively in line with our expectations as our operating cadence was certainly similar to normal historical performance during these months.
Specifically for Commercial Trailer Products, March tends to be the most significant month from a revenue and income perspective during the first quarter.
And just as a quick refresher on revenue recognition, we recognize revenue when products move off our lot.
In the case of trailers, pickups are typically heavy in March, a period this year that that coincided with carriers being busy as freight activity received an unusual boost from pre-shutdown purchase behavior.
So even though production was in line with our expectations, customer pickups were not.
This resulted in a revenue shortfall for Commercial Trailer Products during the first quarter.
As we discussed on our last earnings call, Final Mile Products was expected to see an operating loss during the first quarter due to weaker-than-anticipated customer pickups.
Coupled with the initial impact on operations of COVID-19, the loss in the quarter exceeded our initial expectations.
Diversified Products' quarterly performance was only lightly impacted by COVID-19-related reduction or customer complications.
As such, revenue and operating income were near our expectations for the quarter.
Let's move on to customer orders and backlog.
As reports have shown, backlogs have come down throughout the industry as production has outpaced new orders since year-end 2019.
Wabash National's backlog ended the first quarter at approximately $1 billion after registering $1.1 billion at the end of 2019.
This is much less than the 20% decline that is seen in the broader industry over the same time period.
We feel very good about these industry figures as they continue to imply our share position.
We have previously mentioned we continue to believe that the customer conditioning that our portfolio executed over the past decade has and will continue to dampen the level of volatility that we've historically seen within our Commercial Trailer Products reporting segment.
I will now move on to broader actions taken and look to the future.
Along with the well-being of our employees, we are focused on protecting the financial well-being of our company during these extraordinary times.
We have taken rapid action to rightsize our cost structure for the current environment.
Understand that Wabash National has really been reacting to the pandemic in only the last 60 days, and those actions that we take will be seen in future periods.
We have eliminated essentially all travel, implemented a freeze on all nonessential spending across the company, only moving ahead on operating and capital spending that is viewed as critical and customer supportive.
We have ceased all hiring, cut expenses on outside resources, implemented furloughs and headcount reductions.
It is always difficult to part with team members who have devoted themselves to the betterment of our organization, but is our obligation as stewards of the company to ensure not only its near-term liquidity but also best position the company for overall stability, as well as the creation of longer-term customer and shareholder value.
We recognize that this is a period of shared sacrifice.
And as such, myself and my team have taken voluntary salary reductions.
Additionally, variable compensation for salaried employees will be reduced and potentially eliminated if we do not meet targeted performance metrics that were set out at the beginning of the year.
Looking ahead, we have well-developed contingency plans to reduce spending further, if necessary, based on further deterioration of product or macroeconomic market conditions.
In terms of how we're planning to operate in the near future, first and foremost, we will safeguard our people and our communities.
We will then focus on serving our customers in the premium manner they deserve.
While assuring the previous mentioned priorities, we will work to produce as effectively and efficiently as possible.
We're in a very dynamic period of change and evaluation of how best to go forward balancing customer responsiveness now with efficient operations while looking to understand future operating needs.
From a manufacturing perspective, furloughs are one tool that we have already used and will continue to evaluate to allow us to produce efficiently while up and running and then minimize our costs as much as possible during the downtime.
Our intent is to maximize efficiency while assuring ongoing stability for the customer.
Finally, I'd like to express my continued confidence in the future.
We've been preparing for several years for an eventual downturn in our end markets.
And while no one expected the downturn to look like our world does now, the actions that we have taken to strengthen our balance sheet and ensure excess liquidity have proven extremely important.
Although not all my leadership team was at Wabash National to learn from the company's experience during the Great Recession like I was, the diverse perspectives that we bring from other companies and other sectors have been additive to our approach to managing through this current situation.
Our board of directors has also been extremely helpful through this time in devoting their expertise to helping us think through our approach to both short-term and longer-term initiatives.
We are fortunate that all levels of our organization, this is not our folks' first time at the dance, and our collective experience in managing through a market downturn, regardless of cause, is deep.
We expect to show our improved financial performance through the cycle that Wabash National is a more resilient company than we've ever been in the past.
Wabash National has enjoyed a number one or number two position in the vast majority of our markets, and we intend to leverage this crisis to further distance ourselves from our competition.
This crisis has afforded us the opportunity to move faster with organizational changes that were already under way, which we believe will allow us to increase our level of intimacy with our customers and drive an accelerated pace of customer-focused innovation that further differentiate our products in the marketplace.
We look forward to sharing those with you on future calls.
In closing, our focus right now is on navigating the impact of coronavirus.
I'm confident that we're doing the right things to protect the health and safety of our associates, to continue serving our customers in this critical time and to play our part in supporting the transportation sector.
While the economic impact of COVID-19 will be severe, Wabash National has been through difficult times before, and we have learned lessons from prior cycles that we have embraced to make us stronger and more agile heading into this one.
Finally, our resilient culture and strong balance sheet provide us with the opportunity to emerge as a stronger company as we have continued to execute our strategic plan throughout this crisis.
As Brett mentioned, we feel that we're better positioned than at any point in our company's history to not only absorb a recession but also to use this period to set ourselves up to perform on the other side.
But first, beginning on Slide 4, I'd like to briefly give some color on our first-quarter financial results.
On a consolidated basis, first-quarter revenue was $387 million, with consolidated new trailer shipments of approximately 9,150 units during the quarter.
As Brent mentioned, customer pickups of equipment were below our initial expectations for the quarter, leading to revenue also coming in below expectations.
First-quarter gross margin was 9.5% of sales, while operating income came in a loss of $110 million due to noncash goodwill impairment charges.
Operating income on a non-GAAP adjusted basis was a loss of $2.9 million.
Given the uncertainty of the current environment, we recorded noncash goodwill impairment charges totaling $107 million relating to the acquisitions of the Walker Group and Supreme Industries.
Brent and I would like to reinforce in the strongest terms possible that our Final Mile business remains an exciting opportunity and a growth platform that we intend to leverage in the short, medium and long term.
The progress we've made to recapture share, combined with Wabash's technology offerings, will continue to resonate in the marketplace, and we continue to work diligently on the operating performance within this business to ensure profitable growth.
Finally, for the quarter, GAAP net income was a loss of $106.6 million or negative $2.01 per diluted share.
On a non-GAAP adjusted basis, net income was a loss of $2.3 million or negative $0.04 per share.
Moving on to Slide 5.
I'd like to review our cost structure and give you a little more detail about how we've made quick adjustments from a cost perspective.
In rough numbers, it's fair to say that our cost structure is highly variable with material cost of 60% and direct labor equating to another 10-plus percent.
So in total, I'd like to think of our total cost base is approximately 75% to 80% variable.
We have moved quickly to ensure that our variable costs are coming down in line with volumes.
Additionally, we have temporarily but significantly reduced fixed costs in the second quarter by executing a two-week, companywide furlough that incorporated 90% of all salaried employees.
We plan to handle the near-term market disruptions with furloughs and downtime as we continue to work to permanently lower cost.
We will give an update on some of these plans at the second-quarter call.
We are also heavily scrutinizing and anticipating cutting most discretionary, nonessential expenditures in the short term.
In addition, executive officers took voluntary salary cuts, as Brent mentioned.
We have a significant amount of our incentive-based pay that is tied to financial performance metrics, like operating income and free cash flow.
And these act as a relief by significantly reducing depending on financial performance.
I'd like to stress that we have contingency plans for multiple scenarios.
And while the actions we've walked through are important steps in reducing costs, we have additional levers that we're ready and able to pull should the situation dictate.
Given that we're all managing through unprecedented uncertainty and conditions, that can change at a moment's notice, we have decided the time is not right to provide detailed forward guidance.
However, under current circumstances, we expect free cash flow to be positive in 2020.
Moving on to our balance sheet.
Our liquidity or cash plus available borrowings as of March 31 was $277 million with $155 million of cash and $122 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.
Our modeling suggested a $45 million revolver pool covered the worst case we could envision, which is to say, we do not expect to tap our revolving credit facility again in 2020, but it is further liquidity that remains available to us.
Moving on to capital allocation on Slide 6.
Regarding capital expenditures, we are again heavily scrutinizing spend and only proceeding with projects that are critical to the maintenance of our existing operations.
We are targeting a 50% reduction from our previous guidance to approximately $20 million in spend and stand ready to reduce further as required.
We expect to free up cash through working capital reductions, and that, coupled with our quick and decisive cost cuts, should allow us to deliver positive free cash flow even in this difficult operating environment.
With regard to capital allocation during the first quarter, we invested $6.3 million in capital projects, paid our quarterly dividend of $4.5 million and repurchased $8.9 million of shares prior to the pandemic.
For the near term, our approach to capital allocation centers around preservation of cash.
We will carefully control capital expenditures while prioritizing our dividend and assessing opportunities for debt reduction.
Turning to our debt structure, our nearest maturity is not until March of 2022 when our term loan matures.
The balance stands at just $135 million, and we expect to look to refinance this instrument in the next year.
We are covenant-light with no financial covenants on our term loan or high-yield bonds.
The only potential financial covenant in place is on our revolving credit facility, which dictates a minimum fixed charge coverage ratio of one to one when excess availability on the revolver is less than 10% of the total facility.
We obviously do not expect this covenant to come into play.
We've been in close contact with our bank group over the past couple of months.
They have been very helpful in advising on the trends that they see developing in the debt markets, and we have confidence in continuing with the partnerships that we have in place.
Now finally on Slide 7, I think it might be helpful to spend a moment comparing where the company stands now compared to prior cycles.
With the uniquely severe nature of this crisis, it seems like the 2008 to 2009 time period will provide the most relevant comparison.
While we know some of you who have followed Wabash for more than a decade, I think it would be useful to discuss some of the challenges the company faced during the last cycle and why we don't expect a repeat this time.
First and foremost, in early 2008, the company did not have the cash or liquidity balance that it enjoys today.
This lack of liquidity, combined with limited access to fresh capital during the financial crisis, forced the companies to take drastic steps that we will not repeat.
I think it's fair to say that experience has left a scar tissue around the organization, and those are mistakes that we will not repeat.
And clearly, our present liquidity situation speaks to that.
Beyond our presently stronger liquidity situation, this company has also grown and diversified our product and end market exposure over the last decade.
We have gone from primarily a producer of dry vans to a holistic provider of transportation equipment and expanding our portfolio to include tank trailers, truck bodies and expanding our customer and end market exposure accordingly.
In summary, we feel that we're well-positioned to navigate the unprecedented time.
Our cost structure is highly variable, and we've taken quick actions to reduce fixed costs.
We have excess liquidity, no financial covenants at present borrowing levels and a patient debt structure.
It's absolutely our intention to continue furthering the progress of our strategic plan and prepare ourselves to be stronger as market conditions recover.

user
wabash national q1 non-gaap loss per share $0.04.
q1 non-gaap loss per share $0.04.
q1 gaap loss per share $2.01.
q1 sales $387 million versus refinitiv ibes estimate of $418.5 million.
total company backlog ending march 2020 was about $1.0 billion compared to backlog of $1.1 billion ending december 2019.
liquidity as of end of q1 was $277 million with cash of $155 million and available borrowings of $122 million.

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