Wabash National Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted.
Business context
Wabash designs and manufactures transportation equipment, including trailers and truck bodies, and sells parts, service and related equipment. In September 2021, it reorganized its reporting into Transportation Solutions (TS) and Parts & Service (P&S), replacing its former three segments. Prior-period segment data was recast. The change followed the One Wabash transformation, which management said consolidated previously dispersed parts and service businesses and supports growth initiatives.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $482.6 | $351.6 | $1,324.0 | $1,077.8 |
| Gross profit / margin | $51.0 / 10.6% | $43.2 / 12.3% | $153.8 / 11.6% | $114.3 / 10.6% |
| Operating income (loss) | $18.3 | $8.4 | $52.2 | $(95.6) |
| Net income (loss) | $11.0 | $3.9 | $26.5 | $(102.9) |
| Diluted EPS | $0.22 | $0.07 | $0.51 | $(1.94) |
- Q3 sales rose 37%, principally on higher trailer shipments; new trailer shipments increased 47% and truck body shipments increased 5%. Nine-month sales rose 23%, with new trailer and truck body shipments up 30% and 32%, respectively.
- Q3 gross margin fell to 10.6% from 12.3%, as higher material and manufacturing costs and supply-chain-related labor inefficiencies outweighed pricing actions and cost reductions. Nine-month gross margin improved to 11.6% from 10.6%, supported by volume leverage and cost containment.
- Q3 TS sales were $442.6 million, up 44%; P&S sales were $41.9 million, down 11%, including effects of the Extract divestiture and closure of 17 service locations. For the nine months, TS sales increased 25% and P&S sales increased 3%.
- Operating income for nine months improved substantially versus 2020, when the company recorded $105.5 million of impairment and other expense, including $106.8 million of goodwill impairment. The 2021 period included a $1.9 million gain on the Extract sale and $0.8 million of asset impairment.
Cash flow, debt and liquidity
- Operating cash flow was a use of $74.2 million for the first nine months, compared with $107.1 million provided in 2020. Working capital used approximately $149.6 million, including increases in receivables of $118.2 million and inventory of $96.8 million, partly offset by increased payables and accrued liabilities.
- Investing activities provided $1.8 million, including approximately $22.0 million in asset and divestiture proceeds, against $20.2 million of capital expenditures. Financing activities used $95.8 million, chiefly for $55.0 million of share repurchases, $30.0 million of term-loan principal payments and $12.5 million of dividends.
- Cash was $49.4 million at September 30, down from $217.7 million at year-end 2020. Reported liquidity, defined as cash plus available revolving capacity, was $268.7 million, down 30% from year-end. The $225 million revolving facility had no borrowings outstanding.
- Reported long-term debt carrying value was $419.1 million, comprising $315.0 million principal of 5.50% notes due 2025 and $108.8 million under a term loan due 2027, net of discounts and fees. Total debt and finance lease obligations were approximately $424.0 million. The company reported covenant compliance.
- After quarter-end, Wabash issued $400 million of 4.50% unsecured notes due 2028. It used the proceeds and $50 million of increased revolver capacity to redeem the 2025 notes and repay the $108.8 million term loan in full; approximately $9 million of debt-extinguishment charges were expected in Q4 2021.
Outlook, risks and notable items
- Backlog was approximately $1.929 billion at September 30, up 30% from December 2020 and 87% from September 2020; management expected to complete most of it within 12 months. Orders may change or be cancelled.
- Management expected industry demand and production to improve into 2022 and considered Wabash well-positioned to benefit, but cited supply-chain constraints, labor shortages, inflation, freight costs and raw-material and component availability as significant risks. Industry forecasters’ 2021 U.S. trailer-production estimates had been reduced from the prior quarter.
- Management expected 2021 capital expenditures of $45–$50 million, including capacity retooling, maintenance and productivity initiatives. It also planned to fund working capital needs while continuing shareholder returns.
- Commodity swaps had approximately $112.2 million of notional value; the company expected to reclassify about $31.9 million of pretax deferred gains to cost of sales over the next 12 months as related inventory purchases settled. Commodity costs not offset by pricing or hedging could pressure results.
- Management warned that prolonged or worsening pandemic-related disruption could materially affect operations, financial condition and cash flows. The filing also identifies business cyclicality, customer and supplier concentration, workforce availability, and pending environmental and legal matters as risks. Management did not expect the disclosed proceedings to materially affect financial condition or liquidity, while noting outcomes are uncertain.
- The company authorized an additional $150 million share-repurchase program in August 2021; $147.7 million remained available at September 30. It repurchased $53.7 million of shares during the first nine months.
Most important facts for investors to verify
- Whether Wabash can convert its large backlog into shipments and cash generation despite labor, supplier and production constraints.
- Whether pricing and productivity improvements can offset material, freight and manufacturing cost inflation and restore Q3 gross-margin levels.
- How working-capital investment, particularly receivables and inventory, affects operating cash flow and the reported liquidity position.
- The completed refinancing’s effect on interest expense, leverage, covenant flexibility and the expected Q4 extinguishment charge.
- Whether the new segment structure and P&S growth initiatives deliver the anticipated performance; reported historical segment results have been recast.