Wabash National Corporation — Q3 2020 Form 10-Q
Business context and period: Wabash manufactures commercial trailers, diversified transportation and industrial products, and final-mile truck bodies. This filing reports the quarter and nine months ended September 30, 2020, compared with the corresponding 2019 periods. Management attributed weaker demand and operating disruption primarily to COVID-19 and softer industry conditions.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net sales | $351.6 million | $580.9 million | $1,077.8 million | $1,740.1 million |
| Gross profit / margin | $43.2 million / 12.3% | $77.7 million / 13.4% | $114.3 million / 10.6% | $234.1 million / 13.5% |
| Operating income (loss) | $8.4 million | $38.3 million | ($95.6 million) | $111.0 million |
| Net income (loss) | $3.9 million | $25.5 million | ($102.9 million) | $71.2 million |
| Diluted EPS | $0.07 | $0.46 | ($1.94) | $1.28 |
- Q3 sales fell 39.5% year over year; new trailer shipments declined 41.5%. Truck-body shipments fell 44.2%, and final-mile segment sales fell 51.2%.
- Q3 gross margin declined 1.1 percentage points, mainly as fixed manufacturing costs represented a larger share of lower sales. Final Mile Products Q3 operating loss was $4.4 million, versus operating income of $4.6 million a year earlier.
- Nine-month sales declined 38.1%. The $102.9 million net loss included $106.7 million of first-quarter goodwill impairment charges, principally $95.8 million for Final Mile Products and $11.0 million for Tank Trailers. Nine-month impairment and other, net was $105.5 million, partly offset by gains on asset sales.
- Cash from operations was $107.1 million for the first nine months, versus $76.2 million in 2019. Cash at September 30 was $215.8 million. Operating cash flow benefited from working-capital movements, including a $68.1 million decrease in receivables; inventory increased $14.6 million.
- Capital expenditures were $13.7 million for the nine months. Management expected full-year 2020 capital spending of $20–$25 million.
Financial position and material changes
- Total assets were $1.196 billion and stockholders’ equity was $397.4 million at September 30, 2020. Goodwill declined to $204.4 million following the impairment charges.
- Debt principal was $465.0 million: $315.0 million of 5.50% senior notes due 2025 and $150.0 million under a new secured term loan due 2027. Reported long-term debt, net of discounts and fees and including the current portion, was $458.7 million. Finance lease obligations were approximately $0.5 million.
- The September refinancing replaced the prior term loan with a $150 million facility, repaid $135.2 million of old term-loan principal, and repaid $10 million of senior notes. A $0.2 million debt-extinguishment loss was recorded. The new term loan has variable-rate pricing and quarterly principal amortization of 0.25% of original principal.
- There were no revolver borrowings at quarter-end. Management reported liquidity of $383.4 million, defined as cash plus available revolving-credit capacity, and stated it expected liquidity to cover obligations for at least 12 months. The company reported covenant compliance.
- The company paid $13.0 million in dividends during the nine months and repurchased shares in the first quarter; no shares were repurchased under the program in Q3. The quarterly dividend declared was $0.08 per share.
Outlook, risks and unusual items
- Management gave no specific company revenue or earnings forecast. It cited ACT estimates of U.S. trailer production of 195,025 in 2020 and 238,300 in 2021, and FTR estimates of approximately 207,560 in 2020 and 236,000 in 2021; the filing cautions actual demand and production could differ materially.
- Backlog was approximately $1.0 billion at September 30, compared with $1.1 billion at year-end 2019 and $0.8 billion a year earlier. Orders may change or be cancelled; management expected to complete most of the backlog within 12 months.
- COVID-19 remained a major uncertainty, with risks to demand, production, supply chains, staffing, customer and supplier finances, and commodity costs. The company reported temporary furloughs and facility idling, cost controls, and a pause in share repurchases. Management said the duration and severity of impacts could not be estimated.
- Other risks include dependence on limited suppliers for key components and chassis, raw-material price volatility, floating-rate exposure, and the possibility of further goodwill impairment. Process Systems’ estimated fair value exceeded carrying value by only about 3% in the March impairment analysis; sensitivity tests indicated modest adverse changes in assumptions could result in impairment.
- Management did not expect existing legal proceedings or environmental matters to materially affect financial condition or results, while acknowledging outcomes are uncertain. A remaining retail location was sold on November 4, 2020; an immaterial gain was expected.
Investor verification priorities
- Assess whether demand, shipment volumes, backlog conversion, and final-mile performance recovered after the reported quarter.
- Verify cash generation quality, particularly the contribution from working capital, and compare actual capital spending with the $20–$25 million 2020 expectation.
- Review debt terms, floating-rate exposure, covenant headroom, and the availability underlying reported $383.4 million liquidity.
- Monitor goodwill and intangible-asset valuations, especially the Process Systems reporting unit’s limited valuation cushion.
- Track COVID-19 effects, supplier and chassis availability, commodity costs and hedging, and developments in disclosed legal and environmental matters.