Wabash National Corp. 2026 Q3 Earnings Call

Good afternoon, everyone, and thank you for joining us today. I would like to start, as always, with safety, because it is fundamental to how we operate Wabash. We saw continued improvement in total recordable injury rates with metrics tracking 26% favorable to the prior quarter, and 42% favorable to the prior year. Q3 marks our fifth consecutive quarter of improvement. Meaningful progress is continuing, even as working hours and the number of new hires increase. This is evidence that the proactive work we undertook over the past several years to reduce workplace hazards, as well as recently strengthening our onboarding processes ahead of increased dry van production, is working. We have maintained a steadfast focus on safety while preparing the organization for higher production, and we are seeing the benefit, not only in safety performance, but in overall ramp execution.

Moving on to third quarter results, financials represent another step forward in what continues to be a transition year for Wabash. Revenue for the quarter was over $476 million, with non-GAAP adjusted EPS of negative $0.63. More importantly, beneath these results, we have explicit and material evidence of demonstrated customer demand. That gives us confidence that the conditions required for a broader recovery are solidly in place. as a direct result of customer order activity at scale, we aggressively pulled forward capacity addition actions into Q3, actions previously slated for Q1 and Q2 of 2027, to increase dry van output in direct response to that customer demand. 2026 has been a transition year. Since late June, we have quickly moved from managing through a very difficult demand environment, having a liquidity preservation posture, and a cost minimization mindset, to fully mobilizing Wabash for a dry van cycle recovery.

Our teams have been doing exactly that. This ranges from the convertible debt acquired last quarter to ensure we have the net working capital availability, to operational actions, including securing strong long-term agreements with critical suppliers, and then adding people and shifts to support the dry van volume we see ahead in 2027. I want to reiterate and make one important point about Q3 and the remainder of 2026. Our confidence in 2027 has increased. We have elected to incur certain costs in 2026 that otherwise would have occurred in early 2027. These include primarily labor and other production readiness costs associated with preparing our operations for improved demand. Simply put, the required investments that advance the overall ability of Wabash to generate more profitable conversion of higher levels of demand sooner than later. Investments we are happy to have been able to make. That distinction is important. These expenditures affect the timing of earnings, and they also reflect increased confidence in their underlying view of the dry van market.

We are making deliberate decisions today because our confidence in the opportunity ahead has strengthened through direct evidence called orders. As a result of absorbing these costs now, our positive EBITDA projections for late 2026 no longer are correct. We will now have a rapid sequential improvement through 2027, reaching a level of quarterly profitability by Q2, consistent with our annualized EBITDA run rate between $150 million and $170 million, instead of being in the second half of the year as previously assumed. That is despite assuming the truck body market remains depressed for longer, as we do not yet see meaningful green shoots in that segment. At the same time, we remain disciplined. This is not indiscriminate spending ahead of a hoped-for recovery.

We have spent the last several quarters taking structural costs out of the business and improving the flexibility of our manufacturing footprint. Those actions were designed to preserve our ability to scale efficiently as demand improves, consistent with how we had framed our cost structure and capacity entering into this recovery. On a more constructive view of demand and our outlook entering into 2027 compared with prior quarters, it has been driven by both market leading indicators and momentum within our backlog. We continue to see progress across freight indicators that ultimately support equipment demand. Improving spot and rejection rates, carrier profitability, and fleet sentiment, alongside an aging equipment base and deferred replacement cycle are contributing to a more robust setup. That does not mean we expect a straight line recovery.

What it does mean is that the balance of evidence is moving earlier, at scale, and in the right direction. Just prior to quarter end, we released evidence of our improving backlog, which stood at over 12,000 dry van trailers for 2027. That pace did not let up. It took off. That number was almost 16,000 units by the end of the quarter. By mid-October, it was almost 20,000 units, with more orders in the process of closing. Across the organization, our total backlog has reached $1.3 billion by mid-October, and with more 2027 demand to play out. Early movers remain steadfast in their buying decisions and continue to become more constructive. Improving freight economics combined with significant replacement needs are bringing equipment decisions forward at an increasing pace.

Customers continue to place significant value on their long-standing relationships with Wabash, and those conversations increasingly point toward a more consistent replacement cadence and additional catch-up demand over the coming years, even without a traditional demand-driven recovery. At the same time, a number of customers remain early in their budget and planning cycles, giving us further confidence in the opportunity for order activity to build over the coming months. While still relatively early in the 2027 sales cycle, historical order patterns would suggest that we are on track for a dry van volume in the 35,000 to 38,000 range at Wabash. That would align with our expected market size in the initial replacement cycle phase and our targeted market share percentage in the plus or minus 25% range. The current pace of backlog intake would suggest a higher volume case in the low 40,000 unit range.

While we are not modeling this level of demand, we feel the effective capacity we are adding in Q3 and Q4 of 2026 would enable our execution of that possibility. Critically, forward-looking pricing remains constructive, giving Wabash the opportunity to convert that demand into progressively higher levels of unit profitability. Our announcement prior to the quarter end referenced weighted average 2027 material margin exceeding Q2 of 2026 by 500 basis points. Our backlog portfolio now averages over 600 basis points in excess of Q2 2026, highlighting how improving freight economics and carrier profitability are supporting pricing that is better aligned with our actual cost base. Our proactive and thoughtful approach at this market inflection, coupled with strong supplier partnerships and an ability to expand our hourly workforce, provide high confidence in Wabash's ability to win the early and mid-innings of the new cycle we are in.

Further enabled by executing aggressively to meet our customer needs with highly effective trailer capacity, thus giving Wabash the ability to fully capitalize on demand momentum. Trade is another important part of the bridge between the environment we operated through and the one we see developing. We have previously discussed the impact of Section 232 and antidumping and countervailing duty actions. We believe these measures can favorably change industry dynamics into 2027. This is consistent with our prior framing of trade actions as helping level the competitive playing field and support pricing discipline following years of oversupply. Recently, on the 25th of September, the United States International Trade Commission made their final affirmative determinations that imports of van type trailers and sub assemblies from China materially injure the U.S. industry. The antidumping rate is almost 130%, while the countervailing duty rate is almost 135%.

Stacking with the 25% associated with Section 232 tariffs result in an effective rate of approximately 290%. Meanwhile, Canada and Mexico preliminary affirmative determinations and are posting cash deposits today at the preliminary rates, with a combined antidumping countervailing duty rate of approximately 10.2% being applied to the competitor, Hyundai. Final commerce decisions are expected by mid-December and final International Trade Committee votes by early 2027. Again, stacking the 25% associated with Section 232 tariffs result in an effective rate of approximately 35%. Our view is simple. Wabash should compete at a level playing field. We have an extensive U.S. manufacturing footprint, a highly capable workforce, and substantial installed capacity. We believe an environment which all participants compete under fair trade conditions is good for our customers, good for American manufacturing and good for Wabash. Importantly, we already have the physical capacity to participate in an improving dry van market.

Our south plant expanded our scalable dry van capability by approximately 10,000 units compared with prior up cycles, giving us the ability to respond without requiring another major capital investment. Now turning to the fourth quarter. We expect Q4 revenue to be between $420 million and $450 million. Adjusted operating margin of negative 8% to negative 5%, and adjusted EPS of negative $0.75 to negative $0.55. Embedded in that outlook is labor and production readiness expense deliberately pulled from 2027. During Q3, we increased our dry van hourly workforce by 15% and will continue to add shifts during the fourth quarter that were originally planned for the first quarter of 2027. Effectively, by the end of the year, all second shift production will be turned on. Of course, some of the inefficiencies are expected to lag into Q1 of 2027.

While we continue to monitor demand, we maintain a high degree of confidence that we can meet high-side demand beyond our current projections within 2027 without adding a third shift. That leaves us exceptionally well positioned to respond to incremental demand opportunities. If demand were to warrant either a full or partial third shift layer of dry van capacity, that will add additional cost pressures and margin headwinds in the short term. I want to spend a moment framing what this means for 2027 because we recognize investors are beginning to build next year's models. We are not providing formal 2027 guidance today. We are, however, increasing confidence that 2027 should represent a meaningful improvement in Wabash's financial performance. The recovery will not be uniform across the portfolio.

In dry vans, we see improving demand conditions, significant deferred replacement needs, a more constructive regulatory and trade backdrop, and ample Wabash capacity to participate as the market strengthens. Truck body is different. That business entered the downturn later, and we expect its recovery to remain meaningfully behind dry vans. The beginning stages of cycle recovery, we believe, are roughly 6 to 9 months behind dry vans, with a slower recovery dependent upon broader macro conditions. Therefore, as we think about 2027, we are encouraged by stronger year-on-year improvement in dry vans while recognizing a considerably more measured assumption for truck body. Parts & Services are expected to maintain a 5%-10% top-line growth trajectory and see strong incrementals as 2026 startup costs dissipate, resulting in mid-teen EBIT% performance returning.

That is intentionally a directional framework rather than formal guidance, but we want to give investors sufficient information to build their models without drawing the wrong conclusions from either Q4 revenue or margins. Before I turn the call over, I want to close where I always believe we should, with our people. The last several years have demanded a great deal from the Wabash team. Managing through an extended freight downturn requires discipline, flexibility, and at times, difficult decisions. At the same time, preparing for recovery requires a different mindset. It requires us to look beyond today's production schedule and prepare the business for tomorrow's opportunity. Our people have done both. They have worked to reduce waste, improve safety, protect quality, serve customers, and make Wabash stronger while volumes have been under pressure.