Wabash National Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; filed May 14, 2020. The company said COVID-19-related disruption delayed completion of the filing. Wabash manufactures trailers, truck bodies, and related products through Commercial Trailer Products, Diversified Products, and Final Mile Products.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Net sales | $387.1 million | $533.2 million; down 27.4% |
| Gross profit / margin | $36.7 million / 9.5% | $68.7 million / 12.9% |
| Operating income (loss) | $(110.1) million | $25.2 million |
| Net income (loss) | $(106.6) million; $(2.01) per diluted share | $14.8 million; $0.27 per diluted share |
| Operating cash flow | $(10.1) million | $33.8 million provided |
| Capital expenditures | $6.3 million | $6.8 million |
Q1 impairment expense was $107.1 million, principally $95.8 million of Final Mile Products goodwill impairment and $11.0 million for Tank Trailers. Excluding this impairment, the reported operating loss and net loss would be materially different; the filing does not present adjusted earnings measures. Revenue declines reflected weaker demand, COVID-19 disruption, and delayed customer pickups. New trailer shipments fell about 30%, and truck-body shipments fell 43.7% year over year. Final Mile Products reported a $108.0 million operating loss, largely reflecting goodwill impairment.
At March 31, cash was $154.6 million, total assets were $1.225 billion, and stockholders’ equity was $394.0 million. Long-term debt was $500.6 million, with no current portion reported; total debt and finance lease obligations were $505.9 million. The company reported liquidity of $277.2 million, defined as cash plus available revolving-facility borrowing capacity, versus $308.1 million at December 31, 2019. It drew $45.0 million on its revolving facility as a precaution amid COVID-19 uncertainty. All debt covenants were reported in compliance. The company stated it believed liquidity was sufficient for at least the next 12 months.
Inventory rose to $245.9 million from $186.9 million at year-end, attributed partly to delayed customer pickups and higher raw-material inventory. Dividends declared were $0.08 per share. The company repurchased 766,122 shares under its program during the quarter, but later announced a temporary freeze on repurchases.
Material changes and outlook
- Sales decreased across all segments: Commercial Trailer Products fell 26.4%, Diversified Products 16.7%, and Final Mile Products 40.2%.
- Gross margin contracted as fixed manufacturing costs did not decline in line with lower volumes; Final Mile also cited production inefficiencies.
- Goodwill declined to $204.4 million from $311.0 million following the impairment. The Process Systems reporting unit’s estimated fair value exceeded carrying value by only about 3% in the interim test.
- Backlog was approximately $1.0 billion at March 31, compared with $1.1 billion at December 31, 2019 and $1.6 billion a year earlier. Orders may change or be cancelled.
- No specific company revenue or earnings guidance was provided. Industry forecasts cited by management projected 2020 U.S. trailer production of about 146,000 units (ACT) or 155,000 (FTR), down substantially from 2019; management emphasized uncertainty around these estimates.
- Management expected 2020 capital expenditures of approximately $20 million, depending on COVID-19 conditions. It described actions to reduce discretionary spending, defer nonessential investments, reprioritize capital expenditures, and align operations with demand. A two-week company-wide furlough and operating idling concluded May 3; another furlough and brief operating idling were planned before August 1.
Risks, contingencies, and unusual items
- Management said the duration and severity of COVID-19 effects were unknown. Potential impacts include lower demand, facility or supplier disruptions, production constraints, cost pressures, and reduced access to capital. Raw-material and component supply and pricing remain risks.
- Commodity swaps had a net liability fair value of $7.8 million at March 31. The company expected to reclassify approximately $8.0 million of pretax deferred losses to cost of sales over the following 12 months as related inventory purchases settle.
- A 100-basis-point change in floating interest rates was estimated to change annual interest expense by approximately $1.8 million.
- The company was involved in legal and environmental matters, including South Carolina and Indiana site investigations; management did not expect these matters to have a material adverse effect based on information then available.
- Goodwill impairment estimates used Level 3 inputs and depend on assumptions including future EBITDA margins, discount rates, and growth. Management disclosed sensitivity at Process Systems, where modest adverse assumption changes could produce impairment.
Important facts for investors to verify
- Whether demand, production, and customer pickups recovered or deteriorated after March 31, and the resulting effect on revenue, margins, and backlog conversion.
- Cash use, revolver availability, covenant headroom, and debt maturities—particularly the term loan due in 2022—as operating conditions evolve.
- Whether further goodwill impairments were required, especially for Process Systems and the already impaired reporting units.
- How inventory levels, supplier commitments, commodity hedge losses, and raw-material availability affected subsequent cash flow and gross margins.
- Whether planned furloughs, cost actions, capital expenditure reductions, and the temporary share-repurchase suspension were implemented as described.