Q2 2020 Wabash National Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the key 2020, Wabash National Earnings Conference call. At this time all participants are no listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
Anyway, she require assistance during the conference. Please press Star then zero under touched on telephone as a reminder, this conference call is being recorded I would now like turn the conference over to your host Mr., Ryan read director of Investor Relations.
Thank you actually.
Morning, everyone. Thanks for joining us on this call.
With me today are Brent Yeagy, President and Chief Executive Officer, and like that it Chief Financial Officer.
A couple of items before we get started.
First please note that this call is being recorded.
I'd also like to point out that our earnings release, a slide presentation supplementing today's call and any non-GAAP reconciliations are all available at IR Dot Wabash National Dotcom.
Please refer to fly to in our earnings deck for the company Safe Harbor disclosure addressing forward looking statements.
I'll now hand, it over and ask you. Please refer to slide three as Brent gets us Hot started with his highlight.
Thanks Ryan.
Good morning, everybody and thank you for joining US today, let me begin by saying that we hope that you and your families are all well.
With cobot 19, having a meaningful impact on all realize over the past several months I will start by addressing our approach to occupational health as well the impact of code that 19, our operations.
The Cobot 19 pandemic began to impact North America in early March we quickly as quickly as somebody pandemic response team to oversee and deploy our countermeasures to this highly trends minimal disease.
Our team had three objectives to Mount at risk based offense to protect our employees to ensure continuity of operations and to stay ahead of the facts on the ground in the emerging science.
I can say with certainty has this team has performed magnificently over this trying time within our factories, we have launched a risk based assessment of all jobs within the company continued prioritize engineering controls first and foremost.
Redesign how work is performed.
Element at best in class contact racing and deployed medical management practices, such as testing protocols and daily health monitoring.
We remain diligent and applying our proven methods to protect our employees. We continue to educate lead our people to stay home they feel even the slightest symptom and any potential known exposure to a positive cobot contact.
No organization is immune to the risk of covert 19 transmission in the workplace, regardless of the defense Mountain.
However, we have been highly successful in preventing workplace transmission and assuring the ongoing continuity of our operations I am pleased to say that cobot, Nike did not significantly impact Wabash nationals operational capability during this period.
As in the central business, our workforce by and large understands the important role our products had been keeping goods moving during this challenging time for our nation in the world.
I'd like to take this opportunity. Thank all of our employees for their dedication throughout these unprecedented times and for their commitment to a hearing health protocols that have helped us to continue to operate effectively Additionally, and without interruption in the second quarter.
Overall, the mindset that we've employed during the past hundred 20 days has been simply to stay healthy and stay smart.
The saying implies.
Applies not only to everyone's physical health, but also to the business.
Then every short term decision that needs to be made as a result in the current environment. We're applying as long term wins in order to position ourselves for future outperformance, while assuring that we also make the necessary just adjustments to ride out near term challenges.
As we talk to the quarter I believe this theme of stay healthy and stay smart.
We will be apparent and made the decision to hear about.
Let's move onto.
To an update of the landscape for our suppliers and our customers.
Our supply chain performed well in the second quarter and continued to strengthen as we entered into the third quarter. We've been successfully working with our tier one suppliers to proactively manage potential sub supply threats within our supply chain. However, we still have residual risk within chassis supply we were able to avoid meaningful unplanned chassis disruption in Q2.
But extended chassis OEM shutdowns are likely to have some impact on chassis availability during the second half of the year.
This is a situation, we're monitoring closely and working with our OEM partners and customers to reduce risk accordingly.
In terms of our customers I would like to personally commend our efforts to to resolve and the result of their employees.
Drivers dockworkers dispatchers mechanics, all work together to keep transporting goods across the country into the home.
Okay, great uncertainty in unknowns in those early days of March and April to ensure the continued flow goes throughout the country.
During the quarter, we saw several extremes within transportation market.
Clearly April was a very was very weak from a freight market perspective conditions steadily improved throughout the quarter to the point where spot rates started to look relatively healthy during the ended the period and that has continued into July.
Well all companies are closely managing capital expenditures, we see an appreciation for wanting to maintain average equipment ages at reasonable levels.
This is evidenced by a lack of meaningful cancellation activity and a continued robustness and our backlog. We also continue to see a resilience in our customers as Dave as they have continued to stay the course in 2020 and are looking forward to an interesting contract season and topline growth in 2021.
As it were result, we've begun the process of discussing the 2021 order season with our customers and all indications at this time remain positive.
Let's now move to customer orders and backlog.
I'll start by level setting because the second quarter is normally a seasonably weak period to order intake. Due this year has continued to fall that pattern.
Wabash Nationals backlog ended the second quarter at approximately $750 million after registering a $1 billion backlog at the end of Q1.
This reduction of backlog and requisite commercial activity the reduction in backlog and requisite commercial activity was in line with our expectations.
As a third quarter began meaningful increases in customer commercial activity are visible and encouraging we continue to feel good about what these industry figures imply for commercial execution share position and was and what it indicates about the strength of our customer portfolio.
Now, we'll move on to financial results for the second quarter.
I don't seek to lead the company to breakeven breakeven quarters, but given the situation in the world was and during the start of the second quarter I'm pleased with our financial performance. During this historically difficult time.
We manage the 15% decremental margins at the operating income line, which shows very nimble execution during the quarter and support the guidance given on our last call.
Our spending control in the second quarter was exceptional and Testament to our people have responded to leaderships direction, while navigating unprecedented challenges in the quarter.
Flat net income during the quarter provided a level of stability that allowed us to increase our overall liquidity by freeing up working capital.
Additionally, our execution in the quarter enabled us to continue continue to invest in our company to fund our dividends and repay our previous poll on our revolving line of credit.
Which was executed as a precaution during late Q1.
Our balance sheet remains in great shape, and we continue to expect to generate positive free cash flow in 2020.
Moving to slide four.
We've discussed the short term levers we pulled during the quarter as part of the tactical moves that made that need.
That need to be made during uncertain times.
Thinking about longer term initiatives I'd also like to provide an update on the continued actions, we're taking to align our organizational structure with our long term strategic plan for continued growth that we've been executing to the last two years.
As a saying goes never let a crisis good ways and this pandemic has afforded us the opportunity to move faster with these planned changes to our organizational structure.
In late March we announced that doesn't Smith.
Formally senior Vice President and group President of commercial trailer products was appointed senior Vice President of operations.
Kevin Page, formerly senior Vice firmly senior Vice President and group President diversified products and recently final mile products was appointed senior Vice president of customer value creation.
These assignments capitalize on each of their backgrounds and strengths while aligning the organization to me.
To meet our key business priorities of serving dynamic customers that span across our broad business landscape within the transportation logistics and distribution industries and away that no other company can.
We expect these changes to enhance our operating effectiveness speed of action and improved alignment as silos between businesses are replaced with one Wabash approach to both problem solving and value creation.
Now best practices can migrate more easily across them throughout the business as talent ideas are able to flow without the barriers present in the prior structure.
The same time, we expect achieve a greater level of intimacy with our customers while filing our salesforce to work with customers to understand their diverse equipment and solution needs across our broad and innovative product portfolio. The spans from the first to the final mile.
We see these enhanced relationships and deeper levels of intimacy as a fuel that will drive greater levels of customer value, creating innovation going forward.
We expect that breaking down these business unit barriers will not only provide improved operating performance and better customer experience, but also a more efficient organizational structure.
Once these changes are fully implemented we anticipate annualized cost savings in the range of $20 million.
By the beginning of 2021 and the ability to outperform the given market in the future.
Staying with our long term strategy. Please reference slide five as we circle back to our refreshed vision mission and values that we've laid out on prior calls and spend a moment to explain how our company's culture relates to social issues had been recently that recently been at the forefront and center for all of Us.
If you focus on our leadership principles are first principle is to embrace diversity and inclusion.
However, every one of our leadership principles in one way or another references the inclusive culture as we are building at Wabash National.
Recent protests and civil unrest had been driven by deep paid and highlights so much that we must work on to improve the fabric of this great country. So at every citizen feel safe and equal.
You mean.
No human beings, who live in fear of those entrusted to keep them safe and no American should rest until we've accomplished that objective.
We make or impact where we can so I'd emphasize to all of our employees in the strongest manner possible that there is zero room for racism bigotry or hatred and.
In all of its many manifestations of Wabash national.
The diversity of the people that make up this company makes us stronger and as those differences that build the diversity of thought and experience that we will use that we will use to drive our improvement and their innovation.
We all the choice to either say something or to say nothing within this important social discussion and I believe it's essential how we share our stance on this matter as relates to our culture and our values.
So in closing.
We aim to control what we're able to control. During this extraordinary time, our focus has been to stay healthy and stay smart and we have executed in that manner.
Strength and stability in our backlog excellent decremental margins, a strong balance sheet, coupled with a leaner and more strategic organizational structure, all provide us the ability and the confidence to continue to demonstrate that Wabash nationally is structurally improved as compared to prior cycles.
We continue to push forward with strategic improvement that will benefit our company and our share owners in the years to come as we work to change how the world regions you.
Today, we are proving that we are different and that we are ready to accelerate as we all move forward.
With that I'll turn it over to Mike for his comments.
Thanks, Brett Please turn to slide six.
And I'll start off by giving some color on our second quarter financial results on a consolidated basis second quarter revenue was 330 million with consolidated new trailer shipments of approximately 8400 units during the quarter.
Revenue was somewhat stronger than expected driven by our ability to continue normal normal operations during most of the second quarter.
As discussed in the first quarter recall, we had experienced some delays and customer pickups of equipment toward the end of the first quarter as the pandemic was accelerating.
Let's pick ups pushed into the second quarter, which enhance revenue recognition during Q2 to provide some granularity our revenue generation during the quarter I would say April may we're a little weaker in terms of our shipments, but we did experience an uptick in revenues in June.
Some of the variation monthly trends also stems from the timing of when we had implemented furloughs.
As previously discussed we did make a decision to take it mandatory two week furlough across the company in April with an additional two weeks of furlough scattered throughout the rest of the quarter, depending on location and function.
Second quarter gross margin was 10.1% of sales while operating margin came in at 1.8% during the quarter.
Compared to Q2 last year SGN expense was reduced by more than $10 million or approximately 30% about one third of that decline is due to permanent reductions while two thirds was achieved through temporary furloughs.
We will however continue to see a year over year benefit as we go through 2020 as we get the full quarterly impacts of some of our efficiency actions taken during the second quarter.
Operating EBITDA for the second quarter was $17.2 million or 5.1% of sales.
Finally for the quarter GAAP net loss was point 1 million or zero cents per diluted share.
From a segment perspective commercial trailer products outperformed our expectations with revenues of 232 million by continuing to produce relatively efficiently. While also benefiting from delay first quarter shipments that pushed into the second quarter. We were pleased to achieve operating margin of 8% CGP during the quarter.
Diversified products group was able to continue production at reasonable run rates edits facilities and generated 64 million of revenue in the quarter operating margin of 3.5% exceeded our expectations.
As we discussed on our last earnings call final mile products was expected to see an operating loss during the second quarter as a pandemic not only impacted operating conditions, but also can constraint customers are picking up equipment.
FMT generated 51 million of revenue during the quarter with an operating loss of 6.6 million.
While final mile have shown less cyclicality and past recessions environment. During Coburn 19 has impacted us business definitely.
As we develop production plans for Q2, we took into account the important needs of our employees customers and suppliers, including projected availability of chassis supply as such we had a lower Q2 production plan, especially earlier in the quarter than what our backlog might have suggested due to this revenue levels in the second quarter had this business operating below it.
Right.
Gross profit however, we turned positive territory during a difficult operating quarter, indicating that the underlying operating performance and S&P has improved and as we have worked hard to correct operating inefficiencies that weighed on profitability around the turn of the calendar year.
To that point, our manufacturing costs as measured by the difference between material margin and gross margin improved about 400 basis points from fuel into Q2.
Margin expansion between those two items shows operational improvements that are somewhat obscured by the cobot induce well volumes in this business.
Going forward, we're excited as we've ever been for the opportunity for growth at home delivery and final mile equipment. The pandemic appears to have accelerated the trends that will benefit. This business. As this crisis has pushed both business and consumers to enhance or use and acceptance of ecommerce and home delivery as an option that has allowed many businesses to survive.
While expanding their customer base.
This is allow consumers to prioritize safety will experience into convenience that has been driving home delivery trends over the longer term.
We expect that the need for equipment in this space has ample room for improvement in the years ahead.
Now moving to slide seven.
Year to date operating cash flow was 23 million with roughly 11 million hasn't been invested via capital expenditure, leaving 12 million of free cash flow year to date.
With regard to our balance sheet, our liquidity or cash plus available borrowings as of June Thirtyth was 304 million.
The 136 million of cash and 106 million of availability on our revolving credit facility.
In March of this year, we proactively drew 45 million for the revolver to bolster our cash balance after carefully considering both their credit and the business environments, we decided to fully repaid this cash during the second quarter and our revolving credit facility is now fully untapped.
Moving on to capital expenditures.
We continue to target about 20 million spend for 2020.
Most of these projects are critical to the maintenance of our existing operations, while a handful of projects are important to continuing to support our future growth initiatives, such as our molded structural composite technology.
As expected working capital serves that benefit to free cash flow in the second quarter was 35 million freed up during the quarter driven primarily by reduction in inventory.
It's also important dimension that from a cash enabled for from a cash enablement perspective, as we continue to analyze the efficiency and strategic intent of all our corporate assets. We believe there are further opportunities to raise some additional cash that said we have multiple projects in motion internally aimed at free in some of these resources from noncore assets, which made enough.
From a businesses real estate or even equipment.
While it's difficult to predict the timing of only my exit some of these assets I'd like to emphasize that the driving force behind this asset review and cash enablement strategy isn't management's teams focused on improving asset efficiency and ensuring all of our businesses are meeting our return thresholds.
Moving to slide eight with regard to capital allocation during the second quarter, we paid back $45 revolver invested 4.6 million and capital projects and paid or carbo quarterly dividend of 4.3 million.
For the near term our approach to capital allocation continues to centered around preservation of cash, while maintaining our dividend and assessing further opportunities for debt reduction.
We do not expect to resume share repurchases near term as they continue to assess the macroeconomic landscape.
As a reminder, our nearest debt maturity is the term loan and that and that is not until March of 2022.
That balanced stands at just 135 million and we expect to refinance this instrument and the next year.
Overall, we are covenant light with no material financial covenants on any of our any of our debt instruments.
Net debt into Q2 at 325 million or 31 million less than this time last year.
We're very encouraged by the company's performance during the second quarter that said, we do remain vigilant about the actions that we may need to take if the pandemic or the macroeconomic conditions worsen.
The outlook would have further to deteriorate further we stand ready to take the necessary reductions to align operating costs with volumes in order to maintain positive free cash flow for the year.
We believe we demonstrate strong performance on this front in Q2, and we continue to expect that given our highly variable cost structure, we should be able to achieve in the range of 20% decremental margins on a go forward basis.
Given that uncertainty remains high we're not going to reinstate for guidance at this time. However, we do believe that our backlog of approximately 750 million should provide a rova anchor point to base for looking expectations around.
Additionally, we continue to expect to achieve our target of generating positive free cash flow in 2020, and we are well underway after a strong Q2.
Finally on slide nine and in summary, we feel good about our company's performance through a very challenging period of time, our second quarter detrimental margins were excellent and what this ability we were able to achieve a net income we supplement it cash with the release of working capital that allowed our overall liquidity situation to improve materially from Q1.
We continue to pull levers to improve our cash balance away that complement our long term strategy, while maintaining our dividend and assessing opportunities for debt reduction most importantly over the longer term. We're excited about the opportunity to drive growth and innovation through our organizational redesign not only have we stay financially healthy during this pandemic, but.
We've also strength for the foundation of the company through our restructuring efforts, which will lead to a more rapid recovery in a more consistent growth profile in the years ahead.
Ill now turn the call back to actually and we'll open up for questions.
Hi, Thanks, Tom you feel like ask a question. Please press star to the number one and our telephone keypad.
And your first question comes from Justin Long quiz Steven.
Thanks, Good morning, and congrats on the quarter in a tough environment.
Thanks, Jeff.
So I wanted to circle back to trailer sales for a moment I know you had some delayed.
Hey gap in the first quarter that did ended at occurring in the second quarter. I was wondering if you could maybe put a number around that and then looking into the back.
Based on that the backlog big you have today. It sounds like you had decent visibility. So is there any color you can provide on expected trailer sales, even if it's just directionally relative to what we saw in the second quarter.
Yep.
The second quarter, we had about roughly about 1000 units that we would have expected to ship in the first quarter that moved into the second quarter.
And.
In that and as Mike talked about we saw those those sales or shipments began to pick up as we move through the second quarter and we've seen that somewhat maintain as we go in the beginning of the third quarter. So based on the.
Lack of cancellations that we've seen for the environment, the ongoing commercial activity, which feels appropriate for the market that we see right now.
We have a pretty darn good visibility to a production plan and the shipment plan.
For the remainder of the year.
With with just a little bit too to work through to round out the year from a revenue generation perspective, what's nice about it is.
The market does pick up a little bit.
I hope it does.
We retain the ability to flex some of the variable capacity.
That we have within the organization and the other nice thing that we've done through the pro program in the way we manage their workforces that we've effectively retain the majority of our straight time capacity through the period across the business.
Gives us a great level of stability at an operating platform to execute depending on what happens from a commercial standpoint.
Okay, Great and then no comment on free cash flow and the expectation to be positive. This year, obviously off to a good start in the first half is the expectation that second half free cash flow will be positive.
We would expect to second half to be in their same ranges of first half as far as free cash flow goes so I would I would expect second half to be.
Yes.
Okay. That's great and then lastly, thinking about that commentary you had on that sequential progression of the business and the pickup in June just from a high level looking at the third and fourth quarter is there anything that would prevent a sequential improvement in operating income.
And then Dps the next two quarters.
Yes, if you think go if you go from Q2 to Q3, the biggest difference there from a.
Sequential perspective will be the furloughs taken in Q2, so as I mentioned in my commentaries roughly two thirds of savings that we saw in the SGN a line year over year were from the call onetime actions. So it's important to note as we look at what we're doing we're doing two things are ones. We are we are managing.
Through a global pandemic with some short term cost reduction activities, primarily furloughs, but we're also restructuring the company. So there is going to be a long term benefit.
Other one third of that as DNA savings, but you would get some headwinds sequentially from Q2 Q3, because we do not expect to continue that furlough program into the second half of the year the backlog as such as Bret mentioned, we've maintained our straight John capacity and the backlog as such we don't now for see needing to do furloughs in second half year right that someone goes into what we've said that while.
We executed a 50% decremental margins.
Second quarter, we're really looking at more of like 20% for the reasons that Mike outlined kind of second half year.
Because the stability than the customer profile the need to produce.
To customer commitments, just doesn't doesn't necessarily necessitate or or or allow furloughs to occur in the second half year, which is a very positive side, where the market is going.
Okay. So Mike Mike your anticipation is that we could actually see a sequential decline in operating income and <unk> in the third quarter just directionally how are you thinking about it.
Not going to give specific guidance, but directionally there is that headwind on the SGN airline that I mentioned for furloughs.
Okay.
Appreciate all the health today, thanks, guys.
Adjusted.
Your next question comes from Ryan seek Dahl with Craig Hallum Group.
Good morning, guys.
Right.
So we've heard some larger customers have been the ones, placing more of the orders recently versus smaller fleets generally remaining on the sidelines, yes is that true with your customer base, which I know it skews excuse larger anyways, but out what are you seeing as far as mix of customers ordering and then as far as the 22.
21 conversations that you said you've been habit.
Yes so.
When you look at the Allstate commercial activity throughout the call first.
We'll call it four to five months of the year.
Obviously, the larger customers have been more stability has really been it's where the relative.
Preponderance activity have been at this point in time, a lot of that we're seeing negative side of that we've seen on indirect channel. We saw that with inventories that were high as we entered the year and that they remain high really through the may timeframe. What we're seeing now which is very positive is that we're seeing inventory levels drop.
Materially within the indirect channel as we entered into the June timeframe and businesses began the reopened.
So now we're starting to see some quote activity and caught and requisite commercial activity starting to break loose within that indirect channel while those larger customers have remained solid and steady relative to their order.
The orders they have all in the book right now and it was larger customers right. As you would expect that are beginning to talk.
Unquestionably about what 2021 can be as they enter their capital planning cycle.
So as you expect so nothing out of the ordinary.
Everything that we needed to check the box on in terms of the commercial environment.
Has has occurred as we entered into the June July timeframe and has really reduced some of those fears that we would have felt in that early March April timeframe.
And then what about the final mile customers. What are you seeing there I mean volumes.
Notably weaker there versus CPP and the others sort of hearing from most customers and then anything Kim mentioned about kind of back half of your expectations in 2021 there.
So Mike.
In his comments alluded to the fact that the actual shipments life production levels within final mile.
We're subdued relative to the actual backlog, we had we had to do that right size, we'll call. It the activity within the business for the constraints that we saw.
That backlog has flowed as weve adjusted into the second half of the year as well we've seen a a general maintaining of commercial activity.
Consistently really through the period.
Up until roughly the into June and then we've actually seen it kind of what I would say pickup a little bit right as as you would imagine as as small businesses open up as before I begin and shuttered themselves and the economy begins to wake it.
So the second half the year is going to be interesting.
In terms of commercial activity and AD load requirements.
Challenging from the fact that we may be in a position that were actually building slightly more than we did in the first half of the year.
The only hesitation I have on that as were metered buyer chassis production.
As as the Oems have come back online who slow they have to work through their flow issues. So we are cautiously optimistic about what S&P can do on a first half the second half basis as we leverage the savings improvements will be made from an efficiency standpoint.
Maybe with some added volume that we see as commercial activity hopes.
Good.
Last one for me and then I'll hop back in the queue I appreciate kind of the directional commentary on overall profitability.
For most et cetera, and then also open Peter at there, but as far as DPG and CTP go just directionally volumes.
Q2 relative to the back half of the year, we expect a reasonable to expect sequential improvements there.
I would I would say the back half the year, we'll look from a revenue perspective in total similar to the first half year again, we've got $750 million backlog, which is going to be primarily CTP.
Proportional its revenue.
As soon as most of that 85% of that is going to be 2021, 2020 volume excuse me only 15% will flow in 2021, you can kind of gauge that that back half is going to look similar to the first half in terms of revenue.
Great just one final follow up if I could just on that 15% backlog of 2021 80 can alluded to.
Why that order book is open or what that.
It's just normal leveling of customer demand there's.
Page like customers. They are in a situation, where they don't want to take equipment in the current calendar year and they ask us to push those orders in the next year and it's pretty common.
In this time year to start to see that yes. It will typically have anywhere from 5% to 15% of total backlog.
After being part of the next calendar year period at this time to the year, there's nothing out of the ordinary with that.
There is some level of what I would call new.
2020, Twond orders have begun to enter into the picture just as we would expect in a normal 2021 order season. So I'll get yes every business is different but as Brent mentioned is there's a couple S&P customer visits the chassis availability to decided to wait until 2021, but they want to maintain their older.
Our normal activity.
Great. Thanks, guys.
Thanks Ryan.
Your next question comes from fees associated with Raymond James.
Hey, good morning, everybody. Thanks for the time that we have.
Hey, Hey, maybe for Brent I thought some of the comments around and really the accelerated organizational change was was very interesting I was hoping we could maybe flush out that the 20 million an annualized savings you talked about quite are you expecting to realize all of those and 2021 and maybe could you touch on the breakdown bye bye.
Your business units.
So the short answer on what we expect is yes, we expect that 20 million dollar run rate to enter into the beginning of 2021, and we'll achieve that in that 2021 period.
I'm not necessarily going to break it down by business unit, what I'll tell you is roughly 80% of it is in the DNA bucket across the business, 20% of it isn't the operating.
Part of the business.
In the way that we see the structured there was a level of just head count efficiency as we reduce redundancies across the organization simplified the management structure and improved the bottlenecks for information flow.
We see literal discretionary spending as we've now had better visibility and can reallocate dollar some more higher.
Well caught return on investment activities and cut the literal waste out of the business.
And yes piece of it I would say is we've as we've implemented our Wabash management system are more fully reallocated.
Additional talent into that group through the restructuring we now have a in March and increased pace of literal.
Front office and back office process improvement underway.
So we'll call lean process improvement efforts.
That will drive a large portion of that savings as well.
Okay, that's very helpful.
And then maybe just a follow up for Mike, but but could you talk about the performance and final mile a bit more from the margin perspective.
If I just kind of look at the sequential trends revenue got a bit wars compared to one Q, but margins got demonstrably better.
Can you just talk a little bit about maybe what you guys are doing from an efficiency standpoint, and maybe when you would expect final mile can become profitable again I understand that the environment remains kind of fluid right now.
Yes so.
The comment I made what we're seeing that we're really seeing the benefit in.
The conversion areas, the business and manufacturing costs, the labor and overhead.
And what is difficult to see in the piano right now because we are at $51 million revenue that's below our breakeven levels. So while it's very encouraging to US you look at the EBITDA from that business that was it was significantly better than than Q.
One of the also better than Q4 Ed.
Much much lower revenue level, so I would say the way that business is running today once the revenues able to step up 25, 30% from where it is right now you'll be able to start to see a level of profitability during that business, but we have to get the revenues up in theres. So many there's so many on certain activities going on in the world right now so.
For us to say when that might happen.
1111 note as we are and we've mentioned some earlier there was just some there's some mix and some engineering constraints in that business and those are going to work through he can you can really see levels of manufacturing efficiency as we measure as some of them. The best levels, we've seen over the last year flowing through the factors I want to touch.
On that a little bit more and make sure everyone on the call understands that we're taking.
You can imagine a very multifaceted approach.
To the profitability levels, and ultimately changing the breakeven point within that business unit as well.
Specific final mile. So when we think about while I'm not going to give percentages, but as you can imagine Felix when we think about taking.
Structural cost out of the business, probably highly focused on final mile products in the way that we do that.
At the same time, we're focused on the process improvements on the shop or you see that in the as you said the change.
And the margin profile from Q1, the Q2 and Thats, leading edge of that running at effectively very challenging times, so what would that have been.
If we hadn't had to navigate that concurrently.
Reducing working capital levels within that business as we leaned out that process and we had a lot of room to be able to do that that's flowing through.
The way that we're working through the process.
And then on top of that we're looking at the customer base as volume begin to rebuild itself is everything picks back up with the new commercial organization that we have.
We're taking a much more direct and engaged look at what is a more appropriate profit generating profile.
Between customer mix and pricing as we go forward. So there's a lot of things coming.
Over the next we'll call it 234 quarters as this this specific market turns back on as we move into 2021.
No. That's that's very helpful. I'll leave it there and hop back into queue.
Thank you do it.
Your next question comes from Jeff Kauffman with <unk> capital.
Thank you very much hey, guys adjust.
[music].
So I just a couple.
Questions I know, we're not in the forward guidance business and things are uncertain.
You mentioned how cancellation rates.
I had held in and I know, we see the industry data from Act research. There is still kind of elevated around 3% did you see an impact are you seeing an improvement in cancellations not just from June to May but from June to July.
Absolutely from June and July.
I would say, we're seeing relatively sequential improvement in cancellation activity from early March through to July with a precipitous drop off as we entered in June.
As you can as you can imagine I would say in the late April beginning may timeframe as people took stock.
Where are they were at after the call. The first 30 days of shut down there was look on additional cleaning out.
Across the industry, we were not immune to that but was it was nice for US is that we offset that with additional orders coming yet I'm not sure resi industry was able to do that.
And so all things being considered we thought it for the environment pretty muted activity.
But.
To your question that has just continued to resolve itself and lesson.
To the point really little to no cancellation activity in the last call 30 days.
Well that's fantastic.
So I'm going to dive off the deep into little here and I understand that everybody's estimates of what the industry is going to do seem to be changing month to month I know Act research just raised their estimates for for class eight and trailers.
But there right now there are forecast for.
Van.
Units is down.
From second to third quarter, and then down again slightly from third to fourth quarters. So their numbers second half for the year is a little bit weaker than the run rate in Q. I know you came out earlier and said you know think of the second half is not being much different from the first half is that an implication that you're gaining share.
I think we've executed very well from a commercial standpoint, Jeff and I think the way that you just frame that has an accurate representation of reality.
Right now that the the numbers that we see from HCT at MTR indicate that we've done pretty well at at building backlog in maintaining it.
I would say through other channels that we have access to our competition might be a little bit more worried about how the second half of your will pan out for them.
Okay and then the final question I want to shift gears back to final mile and I realize the chassis availability issue is.
I've been very frustrating for some time.
Are you seeing that improve yet I mean, clearly theres customers at one final my of vehicles need final mile vehicles are you at risk to losing sales if we can't get this straightened out because the customers need the trucks now right.
I don't think Thats, an F and that's not a wabash national.
Issue in isolation, that's that's a general industry issue and absolutely the Oems can't provide adequate adequate chassis availability, that's a mute muting effect for 2020 and a we'll call. It a has a growth of that for 2021, who is just a shifting volume.
Play at this point the expectations that we have for the business take into account a what I would call pragmatic approach the chassis availability at this time, if the Oems can provide at.
We'll just caught slightly better than adequate.
There is some upside for us, but we have to plan.
And the way that we communicate with a level of pragmatic risk in the numbers right now we are seeing better flow through July which.
Gives us optimism for the second half of them, which as I think whats nice for US Jeff is that.
We are providing us a certain level of.
We'll call it issue, but internally to our final mile business, our ability to see yet I understand that schedule round it not let it disrupt us once we have a planned production.
Outline is significantly better than we were.
A year ago, and even more than we were two years ago. So we continually improve we just got the structural problem with Oems shutting down in the April and May timeframe, we had to chew through.
Okay, well again, congratulations and thank you.
Thanks, Jeff.
At this time there are no further questions I would now hand, the call back to Ryan read for closing remarks.
Thanks, Ashley Thanks, everyone for joining us today more importantly, we stay healthy unsafe and we'll look forward to following up during the quarter.
That concludes today's conference. Thank you for your participation you may now disconnect.