WABASH NATIONAL Corp: Form 10-Q for the period ended Sep 30, 2024

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the “Quarterly Report”) of Wabash National Corporation (together with its subsidiaries, “Wabash,” “Company,” “us,” “we,” or “our”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan” or “anticipate” and other similar words. Forward-looking statements convey the Company’s current expectations or forecasts of future events. Our “forward-looking statements” include, but are not limited to, statements regarding:

• risks related to the Missouri product liability action and the unfavorable jury verdict that could have a material adverse effect on our financial condition, results of operations, cash flows and business;
• demand for our products and the sensitivity of demand to economic conditions;
• the highly cyclical nature of our business;
• economic weakness and its impact on the markets and customers we serve;
• our backlog and indicators of the level of our future revenues;
• changes in our customer relationships or in the financial condition of our customers;
• reliance on information technology to support our operations and our ability to protect against service interruptions or security breaches;
• inflation;
• reliance on a limited number of suppliers of raw materials and components, price increases of raw materials and components, and our ability to obtain raw materials and components;
• our ability to attract and retain key personnel or a sufficient workforce;
• our ability to execute on our long-term strategic plan and growth initiatives or to meet our long-term financial goals;
• volatility in the supply of vehicle chassis and other vehicle components:
• significant competition in the industries in which we operate including offerings by our competitors of new or better products and services or lower prices;
• our competition in the highly competitive specialized vehicle industry;
• market acceptance of our technology and products or market share gains of competing products;
• disruptions of manufacturing operations;
• our ability to effectively manage, safeguard, design, manufacture, service, repair, and maintain our leased (or subleased) trailers;
• our ability to realize all of the expected enhanced revenue, earnings, and cash flow from our joint venture arrangement to create Linq Venture Holdings LLC;
• our ability to realize all of the expected enhanced revenue, earnings, and cash flow from our agreement to create Wabash Parts LLC;
• current and future governmental laws and regulations and costs related to compliance with such laws and regulations;
• changes to U.S. or foreign tax laws and the effects on our effective tax rate and future profitability;
• changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences;
• the effects of product liability and other legal claims;
• climate change and related public focus from regulators and various stakeholders;
• impairment in the carrying value of goodwill and other long-lived intangible assets;
• our ability to continue a regular quarterly dividend;
• our ability to generate sufficient cash to service all of our indebtedness;
• our indebtedness, financial condition and fulfillment of obligations thereunder;
• increased risks of international operations;
• our ability to meet environmental, social, and governance (“ESG”) expectations or standards or to achieve our ESG goals;
• provisions of our Senior Notes which could discourage potential future acquisitions of us by a third party;
• the risks related to restrictive covenants in our Senior Notes indenture and Revolving Credit Agreement (each, as defined below), including limits on financial and operating flexibility;
• price and trading volume volatility of our common stock; and
• assumptions relating to the foregoing.

Although we believe that the expectations expressed in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and are subject to inherent risks and uncertainties, such as those disclosed in this Quarterly Report. Important risks and factors that could cause our actual results to be materially different from our expectations include the factors that are disclosed in “Item 1A-Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023. Each forward-looking statement contained in this Quarterly Report reflects our management’s view only as of the date on which that forward-looking statement was made. We are not obligated to update forward-looking statements or publicly release the result of any revisions to them to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events, except as required by law.

Results of Operations

The following table sets forth certain operating data as a percentage of net sales for the three and nine months ended September 30, 2024 and 2023:

For the three-month period ended September 30, 2024, we recorded net sales of $464.0 million compared to $632.8 million in the prior year period. Net sales for the three-month period ended September 30, 2024, decreased $168.8 million, or 26.7%, compared to the prior year period. New trailer shipments decreased 29.5% and new truck body shipments decreased 12.7%. The decrease in new trailer (primarily dry vans) shipments drove the overall decrease in revenue, and was partially offset by higher per unit revenue on truck bodies. Net sales within the P&S reportable segment decreased $4.1 million compared to the prior year period, primarily due to a decrease in sales within our Process Systems and Components businesses, partially offset by an increase in sales in our Upfitting Solutions and Services and Aftermarket Parts businesses. Overall, gross profit margin decreased to 12.1% in the third quarter of 2024 compared to 19.4% in the prior year period primarily driven by lower sales volumes and higher fixed costs. We continue to focus on positioning ourselves to profitably capitalize on current demand while being vigilant to respond to any key changes to the industry and overall economy.

For the three-month period ended September 30, 2024, selling, general and administrative expenses increased $444.3 million as compared to the same period in 2023. As a percentage of net sales, selling, general and administrative expenses were 104.8% in the third quarter of 2024 as compared to 6.6% in the prior year period. The overall increase in selling, general and administrative expenses in the current year period compared to the same period in the prior year was driven by the impacts of the Product Liability Matter, partially offset by a decrease of $5.8 million in employee-related costs, including benefits and incentive programs.

Our management team continues to be focused on increasing overall stockholder value by optimizing our manufacturing operations to match the current demand environment, implementing cost savings initiatives and enterprise lean techniques, strengthening our capital structure and maintaining strong liquidity, developing innovative products that enable our customers to succeed, improving earnings, and continuing diversification of the business into higher margin opportunities that leverage our intellectual and process capabilities.

Three Months Ended September 30, 2024 Compared with the Three Months Ended September 30, 2023

Net Sales

Net sales in the third quarter of 2024 decreased $168.8 million, or 26.7%, compared to the third quarter of 2023. By business segment, prior to the elimination of intercompany sales, sales and related units sold were as follows (dollars in thousands):

TS segment sales, prior to the elimination of intersegment sales, were $415.5 million for the third quarter of 2024, a decrease of $167.4 million, or 28.7%, compared to the third quarter of 2023. New trailers shipped during the third quarter of 2024 totaled 7,585 trailers compared to 10,765 trailers in the prior year period, a decrease of 29.5%, which was primarily driven by lower new trailer shipments (primarily dry vans). New truck bodies shipped during the third quarter of 2024 totaled 3,630 truck bodies compared to 4,160 truck bodies in the prior year period, a decrease of 12.7%, offset by favorable mix of higher priced units resulting in a slight increase in truck body revenue. Overall, the decrease in new trailer shipments outpaced the increase in revenue per unit in truck bodies, driving the overall decrease in revenue.

P&S segment sales, prior to the elimination of intersegment sales, were $52.3 million for the third quarter of 2024, a decrease of $4.1 million, or 7.3%, compared to the third quarter of 2023. The overall decrease in sales for this segment was due primarily to lower sales in our Process Systems and Components businesses of $3.0 million and $7.0 million, respectively. The overall decrease in sales was partially offset by higher sales within our Upfitting Solutions and Services business and our Aftermarket Parts business of $4.7 million and $4.2 million, respectively.

Cost of Sales

Cost of sales was $408.0 million in the third quarter of 2024, a decrease of $101.9 million, or 20.0%, compared to the prior year period. Cost of sales is comprised of material costs, a variable expense, and other manufacturing costs, comprised of both fixed and variable expenses, including direct and indirect labor, outbound freight, overhead expenses, and depreciation.

TS segment cost of sales was $370.6 million in the third quarter of 2024, a decrease of $104.8 million, or 22.0%, compared to the prior year period. The decrease in cost of sales, which was primarily driven by lower shipment volumes, was due to a decrease in material costs of $85.2 million, or 26.6%, along with a decrease in certain other manufacturing costs.

P&S segment cost of sales was $41.3 million in the third quarter of 2024, an increase of $0.2 million, or 0.4%, compared to the prior year period. The increase in cost of sales was driven by higher operating, labor, and employee-related costs of approximately $3.7 million, partially offset by a decrease in material costs of $3.5 million, or 11.4%, due to lower shipment volumes.

Gross Profit

Gross profit was $56.0 million in the third quarter of 2024, a decrease of $66.9 million from the prior year period. Gross profit as a percentage of net sales was 12.1% for the third quarter of 2024, compared to 19.4% for the same period in 2023. Gross profit by segment was as follows (dollars in thousands):

TS segment gross profit was $44.9 million for the third quarter of 2024 compared to $107.5 million for the third quarter of 2023. Gross profit, prior to the elimination of intersegment sales, as a percentage of net sales, was 10.8% in the third quarter of 2024 compared to 18.5% in the comparative 2023 period. The overall decrease in gross profit from the prior year period was primarily driven by a decrease in new trailer shipments with our dry van products accounting for approximately $48.5 million of the decrease in gross profit. This was partially offset by favorable product mix across product lines.

P&S segment gross profit was $11.1 million for the third quarter of 2024 compared to $15.4 million for the third quarter of 2023. Gross profit, prior to the elimination of intersegment sales, as a percentage of net sales, was 21.2% in the third quarter of 2024 compared to 27.2% in the 2023 period. The overall decrease in gross profit was primarily related to the decrease in sales in our Process Systems and Components businesses.

General and Administrative Expenses

General and administrative expenses for the third quarter of 2024 increased $443.2 million, or 1236.8%, from the prior year period. The increase from the prior year period was driven by the impacts of the Product Liability Matter, partially offset by a decrease of $5.4 million in employee-related costs, including benefits and incentive programs. As a percentage of net sales, general and administrative expenses were 103.2% for the third quarter of 2024 compared to 5.7% for the third quarter of 2023. The overall increase in general and administrative expenses as a percentage of net sales was primarily attributable to the impacts of the Product Liability Matter and lower net sales in the third quarter.

Selling Expenses

Selling expenses were $7.1 million in the third quarter of 2024, an increase of $1.0 million, or 17.1%, compared to the prior year period. The increase was primarily attributable to higher advertising and promotional expenses of approximately $1.3 million offset partially offset by a decrease in employee costs related to benefits and incentive programs of approximately $0.4 million. As a percentage of net sales, selling expenses were 1.5% for the third quarter of 2024 compared to 1.0% for the third quarter of 2023. The increase in selling expenses as a percentage of net sales was due in part to lower overall sales and an increase in advertising and promotional expenses.

Amortization of Intangibles

Amortization of intangibles was $2.9 million during the third quarter of 2024 compared to $3.2 million in the prior year period. Amortization of intangibles was the result of expenses recognized for intangible assets recorded from previous acquisitions. The decrease from the prior year period is related to certain intangible assets recorded upon the acquisition of Supreme in September 2017 that became fully amortized at December 31, 2023.

Impairment and Other, Net

Impairment and other, net was a nominal net gain for the three month period ended September 30, 2024 compared to a loss of $0.1 million in the prior year period. Activity during the current year period primarily related to the nominal gain on the sale of land and an office building in Goshen, Indiana.

Other Income (Expense)

Interest expense totaled $5.0 million during the third quarter of 2024 and $4.9 million during the third quarter of 2023. Interest expense relates to interest and non-cash accretion charges on our Senior Notes due 2028 and Revolving Credit Agreement.

Other, net for the third quarter of 2024 represented income of $1.4 million as compared to income of $0.8 million for the prior year period. Income for the current and prior year periods primarily relate to interest income.

Income Taxes

We recognized an income tax benefit of $108.4 million in the third quarter of 2024 compared to income tax expense $18.1 million for the same period in the prior year. The effective tax rate for this period was 24.7% compared to a rate of 24.6% for the same period in the prior year. The effective tax rate for both the third quarter of 2024 and the third quarter of 2023 differs from the U.S. Federal statutory rate of 21% primarily due to the impact of state taxes.

Nine Months Ended September 30, 2024 Compared with the Nine Months Ended September 30, 2023

Net Sales

Net sales in the first nine months of 2024 decreased $410.5 million, or 21.2%, compared to the first nine months of 2023. By business segment, prior to the elimination of intercompany sales, sales and related units sold were as follows (dollars in thousands):

TS segment sales, prior to the elimination of intersegment sales, were $1,384.6 million for the first nine months of 2024, a decrease of $407.0 million, or 22.7%, compared to the first nine months of 2023. New trailers shipped during the first nine months of 2024 totaled 25,330 trailers compared to 34,375 trailers in the prior year period, a decrease of 26.3%, which was primarily driven by lower new trailer shipments (primarily dry vans). The decrease in new trailer shipments outpaced the increase in revenue per new trailer unit across all trailer product lines except dry vans, driving the overall decrease in revenue. New truck bodies shipped during the first nine months of 2024 totaled 11,245 truck bodies compared to 11,995 truck bodies in the prior year period, a decrease of 6.3%, despite a slight increase in truck body revenue due to higher revenue per unit.

P&S segment sales, prior to the elimination of intersegment sales, were $156.5 million for the first nine months of 2024, a decrease of $9.2 million, or 5.5%, compared to the first nine months of 2023. The overall decrease in sales for this segment was due primarily to lower sales in our Process Systems and Components businesses which decreased by $10.5 million and $12.1 million, respectively. The overall decrease in sales was partially offset by an increase in sales within our Upfitting Solutions and Services and Aftermarket Parts businesses of $8.7 million and $3.2 million, respectively.

Cost of Sales

Cost of sales was $1,307.8 million in the first nine months of 2024, a decrease of $242.6 million, or 15.6%, compared to the prior year period. Cost of sales is comprised of material costs, a variable expense, and other manufacturing costs, comprised of both fixed and variable expenses, including direct and indirect labor, outbound freight, overhead expenses, and depreciation.

TS segment cost of sales was $1,201.9 million in the first nine months of 2024, a decrease of $244.6 million, or 16.9%, compared to the prior year period. The decrease in cost of sales, which was primarily driven by lower shipment volumes and was due to a decrease in materials costs of $216.9 million, or 21.8%, along with a decrease in certain other manufacturing costs.

P&S segment cost of sales was $117.1 million in the first nine months of 2024, a decrease of $3.7 million, or 3.1%, compared to the prior period. The decrease in cost of sales was primarily driven by lower material costs of $9.8 million due in part to lower sales. This decrease was partially offset by an increase in labor and employee-related costs of approximately $3.8 million compared to the prior year period.

Gross Profit

Gross profit was $222.1 million in the first nine months of 2024, a decrease of $167.9 million from the prior year period. Gross profit as a percentage of net sales was 14.5% for the nine months of 2024, compared to 20.1% for the same period in 2023. Gross profit by segment was as follows (dollars in thousands):

TS segment gross profit was $182.7 million for the first nine months of 2024 compared to $345.1 million for the first nine months of 2023. Gross profit, prior to the elimination of intersegment sales, as a percentage of net sales, was 13.2% in the first nine months of 2024 compared to 19.3% in the comparative 2023 period. The overall decrease in gross profit from the prior year period was primarily driven by a decrease in new trailer shipments (primarily our dry van products), resulting in lost sales margins and lower absorption of fixed costs. This was partially offset by decreased fixed cost spending and net price favorability driven primarily by higher pricing across all product lines except dry vans.

P&S segment gross profit was $39.4 million for the first nine months of 2024 compared to $44.9 million for the first nine months of 2023. Gross profit, prior to the elimination of intersegment sales, as a percentage of net sales, was 25.2% in the first nine months of 2024 compared to 27.1% in the 2023 period. The overall decrease in gross profit was primarily related to the decrease in sales in our Process Systems and Components businesses. The increase in gross profit as percentage of net sales in the first nine months of 2024 compared to 2023 was primarily due to material margin improvements.

General and Administrative Expenses

General and administrative expenses for the first nine months of 2024 increased $440.5 million, or 403.4%, from the prior year period. The increase from the prior year period was due driven by the impacts of the Product Liability Matter, partially offset by a decrease of $10.3 million in employee-related costs, including benefits and incentive programs. As a percentage of net sales, general and administrative expenses were 35.9% for the first nine months of 2024 compared to 5.6% for the first nine months of 2023. The overall increase in general and administrative expenses as a percentage of net sales was primarily attributable to the impacts of the Product Liability Matter and lower net sales in 2024.

Selling Expenses

Selling expenses were $22.1 million in the first nine months of 2024, an increase of $1.9 million, or 9.6%, compared to the prior year period. The increase was primarily attributable to an increase of advertising and promotional expenses of approximately $3.2 million. This was partially offset by a decrease in employee-related costs of approximately $0.9 million. As a percentage of net sales, selling expenses were 1.4% for the first nine months of 2024 compared to 1.0% for the first nine months of 2023. The increase in selling expenses as a percentage of net sales was due in part to the increase in advertising and promotional expenses.

Amortization of Intangibles

Amortization of intangibles was $9.1 million for the first nine months of 2024 compared to $9.6 million during the first nine months of 2023. Amortization of intangibles was the result of expenses recognized for intangible assets recorded from previous acquisitions. The decrease from the prior year period is related to certain intangible assets recorded upon the acquisition of Supreme in September 2017 that became fully amortized at December 31, 2023.

Impairment and Other, Net

Impairment and other, net was a net loss of $1.0 million for the nine month period ended September 30, 2024 compared to a nominal loss in the prior year period. Activity during the current year period primarily related to a second quarter impairment of a construction-in-progress project that is no longer expected to be completed.

Interest expense totaled $14.9 million during the first nine months of 2024 compared to $14.9 million in the prior year period. Interest expense relates to interest and non-cash accretion charges on our Senior Notes due 2028 and Revolving Credit Agreement.

Other, net for the first nine months of 2024 represented income of $4.6 million as compared to income of $1.7 million for the prior year period. Income for the current and prior year periods primarily relate to interest income.

Income Taxes

We recognized an income tax benefit of $92.2 million in the first nine months of 2024 compared to income tax expense of $56.3 million for the same period in the prior year. The effective tax rate for this period was 24.6% compared to a rate of 23.7% for the same period in the prior year. For the first nine months of 2024, the effective tax rate differs from the U.S. Federal statutory rate of 21% primarily due to the impact of state taxes while the effective rate of first nine months of 2023 differs primarily due to state taxes net of discrete items incurred related to stock-based compensation.

Liquidity and Capital Resources

Capital Structure

Our capital structure is comprised of a mix of debt and equity. As of September 30, 2024, our debt-to-equity ratio was approximately 2.0:1.0. Our long-term objective is to generate operating cash flows sufficient to support the growth within our businesses and increase shareholder value. This objective will be achieved through a balanced capital allocation strategy of sustaining strong liquidity, maintaining healthy leverage ratios, investing in the business, both organically and strategically, and returning capital to our shareholders. The Board of Directors has designated a Finance Committee for the primary purpose of assisting the Board in its oversight of the Company’s capital structure, financing, investment, and other financial matters of importance to the Company.

During the first nine months of 2024, in keeping with this balanced approach, we paid dividends of approximately $11.3 million and repurchased shares under our Board approved share repurchase program totaling $55.7 million (inclusive of excise tax). Our Revolving Credit Agreement has total revolving commitments of $350.0 million and a maturity date of September 2027, which is the nearest maturity date of our long-term debt. As of September 30, 2024, there were no amounts outstanding under the Revolving Credit Agreement. Collectively, these actions demonstrate our confidence in the financial outlook of the Company and our ability to generate cash flow, both near and long term, and reinforce our overall commitment to deliver shareholder value while maintaining the flexibility to continue to execute our strategic plan for profitable growth and diversification.

Our liquidity position, defined as cash on hand and available borrowing capacity under the Revolving Credit Agreement, amounted to $404.9 million as of September 30, 2024, a decrease of 9% compared to $447.0 million as of September 30, 2023 and a decrease of 22% from $516.1 million as of December 31, 2023. The decrease as of September 30, 2024 compared to September 30, 2023 was primarily attributable to a lower available capacity on the Revolving Credit Agreement and a lower cash balance as of September 30, 2024. The decrease as of September 30, 2024 compared to December 31, 2023 was primarily attributable to a lower cash balance as of September 30, 2024. For the remainder of 2024, we expect to continue our commitment to fund our working capital requirements, capital expenditures, and our Trailers as a Service (TAAS)SM initiative from operations or available borrowing capacity under the Revolving Credit Agreement (as needed). We will continue to maintain our assets to react to any economic and/or industry changes, while also responsibly returning capital to our shareholders. We will continue to move rapidly to adjust to the current environment, including to the softening of demand for certain of our products, to preserve the strength of our balance sheet, while prioritizing the safety of our employees and ensuring the liquidity and financial well-being of the Company.

Debt Agreements and Related Amendments

Senior Notes due 2028

On October 6, 2021, we closed on an offering of $400 million in aggregate principal amount of its 4.50% unsecured Senior Notes due 2028 (the “Senior Notes”). The Senior Notes were issued pursuant to an indenture dated as of October 6, 2021, by and among Wabash, certain subsidiary guarantors named therein (the “Guarantors”) and Wells Fargo Bank, National Association, as trustee (the “Indenture”). The Senior Notes bear interest at the rate of 4.50% and pay interest semi-annually in cash in arrears on April 15 and October 15 of each year. The Senior Notes will mature on October 15, 2028. At any time prior to October 15, 2024, we may redeem some or all of the Senior Notes for cash at a redemption price equal to 100% of the aggregate principal amount of the Senior Notes being redeemed plus an applicable make-whole premium set forth in the Indenture and accrued and unpaid interest to, but not including, the redemption date.

Prior to October 15, 2024, we may redeem up to 40% of the Senior Notes at a redemption price of 104.500% of the principal amount, plus accrued and unpaid interest to, but not including, the redemption date, with the proceeds of certain equity offerings so long as if, after any such redemption occurs, at least 60% of the aggregate principal amount of the Senior Notes remain outstanding. On and after October 15, 2024, we may redeem some or all of the Senior Notes at redemption prices (expressed as percentages of principal amount) equal to 102.250% for the twelve-month period beginning on October 15, 2024, 101.125% for the twelve-month period beginning October 15, 2025 and 100.000% beginning on October 15, 2026, plus accrued and unpaid interest to, but not including, the redemption date. Upon the occurrence of a Change of Control (as defined in the Indenture), unless we have exercised its optional redemption right in respect of the Senior Notes, the holders of the Senior Notes will have the right to require us to repurchase all or a portion of the Senior Notes at a price equal to 101% of the aggregate principal amount of the Senior Notes, plus any accrued and unpaid interest to, but not including, the date of repurchase.

The Senior Notes are guaranteed on a senior unsecured basis by all direct and indirect existing and future domestic restricted subsidiaries, subject to certain restrictions. The Senior Notes and related guarantees are our and the Guarantors’ general unsecured senior obligations and will be subordinated to all of our and the Guarantors’ existing and future secured debt to the extent of the assets securing that secured obligation. In addition, the Senior Notes are structurally subordinated to any existing and future debt of any of our subsidiaries that are not Guarantors, to the extent of the assets of those subsidiaries.

Subject to a number of exceptions and qualifications, the Indenture restricts our ability and the ability of certain of our subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends or make other distributions in respect of, or repurchase or redeem, our capital stock or with respect to any other interest or participation in, or measured by, our profits; (iii) make loans and certain investments; (iv) sell assets; (v) create or incur liens; (vi) enter into transactions with affiliates; and (vii) consolidate, merge or sell all or substantially all of our assets. These covenants are subject to a number of important exceptions and qualifications.

During any time when the Senior Notes are rated investment grade by at least two of Moody’s, Fitch and Standard & Poor’s Ratings Services and no Default (as defined in the Indenture) has occurred and is continuing, many of such covenants will be suspended and we and our subsidiaries will cease to be subject to such covenants during such period.

The Indenture contains customary events of default, including payment defaults, breaches of covenants, failure to pay certain judgments and certain events of bankruptcy, insolvency and reorganization. If an event of default occurs and is continuing, the principal amount of the Senior Notes, plus accrued and unpaid interest, if any, may be declared immediately due and payable. These amounts automatically become due and payable if an event of default relating to certain events of bankruptcy, insolvency or reorganization occurs. As of September 30, 2024, we were in compliance with all covenants.

Contractual coupon interest expense and accretion of fees for the Senior Notes for each three- and nine-month period ended September 30, 2024 was $4.5 million and $0.2 million, and $13.5 million and $0.5 million, respectively. Contractual coupon interest expense and accretion of fees for the Senior Notes for each three- and nine-month period ended September 30, 2023 was $4.5 million and $0.2 million, and $13.5 million and $0.5 million, respectively. Contractual coupon interest expense and accretion of fees for the Senior Notes are included in Interest expense in our Condensed Consolidated Statements of Operations.

Revolving Credit Agreement

On September 23, 2022, we entered into the Third Amendment to Second Amended and Restated Credit Agreement among us, certain of our subsidiaries as borrowers (together with us, the “Borrowers”), certain of our subsidiaries as guarantors, the lenders party thereto, and Wells Fargo Capital Finance, LLC, as the administrative agent (the “Agent”), which amended our existing Second Amended and Restated Credit Agreement, dated as of December 21, 2018 (as amended from time to time, the “Revolving Credit Agreement”).

Under the Revolving Credit Agreement, the lenders agree to make available a $350 million revolving credit facility to the Borrowers with a scheduled maturity date of September 23, 2027. We have the option to increase the total commitments under the facility by up to an additional $175 million, subject to certain conditions, including obtaining agreements from one or more lenders, whether or not party to the Revolving Credit Agreement, to provide such additional commitments. Availability under the Revolving Credit Agreement is based upon quarterly (or more frequent under certain circumstances) borrowing base certifications of the Borrowers’ eligible inventory, eligible leasing inventory and eligible accounts receivable, and is reduced by certain reserves in effect from time to time.

Subject to availability, the Revolving Credit Agreement provides for a letter of credit subfacility in the amount of $25 million and allows for swingline loans in the amount of $35 million. Outstanding borrowings under the Revolving Credit Agreement bear interest at an annual rate, at the Borrowers’ election, equal to (i) adjusted term Secured Overnight Financing Rate plus a margin ranging from 1.25% to 1.75% or (ii) a base rate plus a margin ranging from 0.25% to 0.75%, in each case depending upon the monthly average excess availability under the Revolving Credit Agreement. The Borrowers are required to pay a monthly unused line fee equal to 0.20% times the average daily unused availability along with other customary fees and expenses of the Agent and the lenders.

The Revolving Credit Agreement is guaranteed by certain of our subsidiaries (the “Guarantors”) and is secured by substantially all personal property of the Borrowers and the Guarantors.

The Revolving Credit Agreement contains customary covenants limiting our ability and certain of our subsidiaries to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock, enter into transactions with affiliates, merge, dissolve, repay subordinated indebtedness, make investments and dispose of assets. In addition, we will be required to maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 as of the end of any period of 12 fiscal months when excess availability under the Revolving Credit Agreement is less than the greater of (a) 10.0% of the lesser of (i) the total revolving commitments and (ii) the borrowing base (such lesser amount, the “Line Cap”) and (b) $25 million. As of September 30, 2024, we were in compliance with all covenants.

If availability under the Revolving Credit Agreement is less than the greater of (i) 10% of the Line Cap and (ii) $25 million for three consecutive business days, or if there exists an event of default, amounts in any of the Borrowers’ and the Guarantors’ deposit accounts (other than certain excluded accounts) will be transferred daily into a blocked account held by the Agent and applied to reduce the outstanding amounts under the facility.

The Revolving Credit Agreement contains customary events of default. If an event of default occurs and is continuing, the lenders may, among other things, require the immediate payment of all amounts outstanding and foreclose on collateral. In addition, in the case of an event of default arising from certain events of bankruptcy or insolvency, the lenders’ obligations under the Revolving Credit Agreement would automatically terminate, and all amounts outstanding under the Revolving Credit Agreement would automatically become due and payable.

Our liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Agreement, amounted to $404.9 million as of September 30, 2024 and $516.1 million as of December 31, 2023.

During the three-month period ended September 30, 2024, we had payments of principal totaling $0.3 million and borrowings of principal totaling $0.3 million. During the nine-month period ended September 30, 2024, we had payments of principal totaling $0.7 million and borrowings of principal totaling $0.7 million. As of September 30, 2024, there were no amounts outstanding under the Revolving Credit Agreement.

During the three-month period ended September 30, 2023, we had payments of principal totaling $0.3 million and borrowings of principal totaling $0.3 million. During the nine-month period ended September 30, 2023, we had payments of principal totaling $104.0 million and borrowings of principal totaling $104.0 million. As of September 30, 2023, there were no amounts outstanding under the Revolving Credit Agreement.

Interest expense under the Revolving Credit Agreement for the three- and nine-month periods ended September 30, 2024 was approximately $0.2 million and $0.6 million, respectively. During the three- and nine-month periods ended September 30, 2023, interest expense under the Revolving Credit Agreement was approximately $0.2 million and $0.7 million, respectively. Interest expense under the Revolving Credit Agreement is included in Interest expense in our Condensed Consolidated Statements of Operations.

Cash Flows

Cash provided by operating activities for the first nine months of 2024 totaled $36.4 million, compared to providing $204.6 million during the same period in 2023. Cash provided by operations during the current year period was the result of net loss adjusted for various non-cash activities including depreciation, amortization, deferred income taxes, stock-based compensation, equity in loss of unconsolidated entity, legal matter expense and a $75.3 million increase in working capital. Changes in key working capital accounts for 2024 and 2023 are summarized below (in thousands):

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Accounts receivable increased $55.7 million in the first nine months of 2024 as compared to a $44.4 million decrease in the prior year period. Days sales outstanding, a measure of working capital efficiency that measures the amount of time a receivable is outstanding, was 47 days and 30 days for the three months ended September 30, 2024 and 2023, respectively. The increase in accounts receivable during the first nine months of 2024 compared to 2023 was primarily due to the timing of shipments and receipt of customer payments. Inventory decreased by $7.0 million during the first nine months of 2024 as compared to an increase of $100.4 million in the 2023 period. Our inventory turns, a commonly used measure of working capital efficiency that measures how quickly inventory turns per year, was approximately 7 times in each of the 2024 and 2023 periods. The decrease in inventory for the 2024 period was primarily attributable to lower raw material inventory due to lower production in 2024 versus 2023. Accounts payable and accrued liabilities decreased by $24.0 million during the first nine months of 2024 compared to an increase of $39.3 million for the same period in 2023. Days payable outstanding, a measure of working capital efficiency that measures the amount of time a payable is outstanding, was 41 days for the three months ended September 30, 2024 compared to 36 days for the three months ended September 30, 2023.

Investing activities used $59.6 million during the first nine months of 2024, as compared to using $89.0 million during the same period in 2023. Investing activities for the first nine months of 2024 related to capital expenditures for property, plant, and equipment of $50.8 million and an additional $10.2 million of investments into unconsolidated entities. Investing activities for the first nine months of 2023 related to capital expenditures for property, plant, and equipment of $85.1 million and $4.0 million of expenditures for revenue generating assets. Proceeds from the sale of assets for the first nine months of 2024 totaled $2.8 million. In the first nine months of 2023, investing activities included no proceeds from the sale of assets.

Financing activities used $74.2 million during the first nine months of 2024 as compared to using $68.5 million during the same period in 2023. Net cash used by financing activities during the current year period primarily relates to common stock repurchases and withholdings of $62.3 million and cash dividend payments of $11.3 million. Borrowings under our Revolving Credit Agreement totaled $0.7 million, which were fully offset by principal, interest, and unused fee payments made under our Revolving Credit Agreement totaling $0.7 million. Net cash used by financing activities during the first nine months of 2023 primarily related to common stock repurchases and withholdings of $55.9 million and cash dividend payments to our shareholders of $12.2 million. In addition, borrowings under our Credit Agreement totaled $104.0 million, fully offset by principal, interest, and unused fee payments made under our Credit Agreement of $104.0 million.

As of September 30, 2024, our liquidity position, defined as cash on hand and available borrowing capacity under our Revolving Credit Agreement, amounted to $404.9 million, representing a decrease of $42.1 million or 9% compared to September 30, 2023 and a decrease of $111.2 million or 22% compared to December 31, 2023. The decrease as of September 30, 2024 compared to September 30, 2023 was attributable to a lower available capacity on the Revolving Credit Agreement and a lower cash balance as of September 30, 2024. The decrease as of September 30, 2024 compared to December 31, 2023 was primarily attributable to a lower cash balance as of September 30, 2024 which decreased by $97.4 million. Total debt obligations amounted to $400.0 million as of September 30, 2024.

For the remainder of 2024, we expect to continue our commitment to fund our working capital requirements, capital expenditures, and our Trailers as a Service (TAAS)SM initiative from operations or available borrowing capacity under the Revolving Credit Agreement (as needed). We will continue to maintain our assets, to react to any key economic and/or industry changes, while also responsibly returning capital to our shareholders. We will continue to move rapidly to adjust to the current environment, including to the softening of demand for certain of our products, to preserve the strength of our balance sheet, while prioritizing the safety of our employees and ensuring the liquidity and financial well-being of the Company.

Capital Expenditures

Capital spending related to property, plant, and equipment amounted to approximately $50.8 million for the first nine months of 2024. In addition, there were $1.4 million expenditures for revenue generating assets for the first nine months of 2024.

We believe our capital expenditures for 2024 related to property, plant, and equipment will be in the range of $70 to $80 million, while capital expenditures supporting our Trailers as a Service (TAAS)SM growth initiative with revenue generating assets are expected to be in the range of $10 to $20 million. Capital spending for 2024 is expected to be utilized to support our growth strategies (including TAAS) as well as our maintenance and productivity improvement initiatives within our facilities.

Goodwill

We considered whether there were any indicators of impairment during the three and nine months ended September 30, 2024 and concluded there were none.

Contractual Obligations and Commercial Commitments

A summary of payments of our contractual obligations and commercial commitments, both on and off balance sheet, as of September 30, 2024 are as follows (in thousands):

1 Future interest payments on variable rate long-term debt (if any) are estimated based on the rate in effect as of September 30, 2024, and only include interest payments (not unused line fees). However, as of September 30, 2024, there was no variable rate debt (Revolving Credit Agreement) outstanding.

Borrowings under the Revolving Credit Agreement bear interest at a variable rate based on the Secured Overnight Financing Rate (“SOFR”) or a base rate determined by the lender’s prime rate plus an applicable margin, as defined in the agreement. Any outstanding borrowings under the Revolving Credit Agreement bear interest at a rate, at our election, equal to (i) adjusted term SOFR plus a margin ranging from 1.25% to 1.75% or (ii) a base rate plus a margin ranging from 0.25% to 0.75%, in each case depending upon the monthly average excess availability under the Revolving Credit Agreement. We are required to pay a monthly unused line fee equal to 0.20% times the average daily unused availability along with other customary fees and expenses of our agent and lenders. During the nine-month period ended September 30, 2024, we had borrowings of principal and payments of principal totaling $0.7 million under the Revolving Credit Agreement. As of September 30, 2024, there were no amounts outstanding under the Revolving Credit Agreement.

The Senior Notes due 2028 bear interest at the rate of 4.5% per annum from the date of issuance, payable semi-annually on April 15 and October 15.

Operating leases represent the total future minimum lease payments that have commenced. As of September 30, 2024, obligations related to operating leases that we have executed but have not yet commenced were nominal.

We have standby letters of credit totaling $4.9 million issued in connection with workers compensation claims and surety bonds.

We have $19.1 million in purchase commitments through December 2024 for various raw material commodities, including aluminum, steel, polyethylene and nickel as well as other raw material components which are within normal production requirements.

We obtain vehicle chassis for our specialized vehicle products directly from the chassis manufacturers under converter pool agreements. Chassis are obtained from the manufacturers based on orders from customers, and to a lesser extent, for unallocated orders. Although each manufacturer’s agreement has different terms and conditions, the agreements generally state that the manufacturer will provide a supply of chassis to be maintained from time to time at our various facilities with the condition that we will store such chassis and will not move, sell, or otherwise dispose of such chassis except under the terms of the agreement. The manufacturer transfers the chassis to us on a “restricted basis,” retaining the sole authority to authorize commencement of work on the chassis and to make certain other decisions with respect to the chassis including the terms and pricing of sales of the chassis to the manufacturer’s dealers. The manufacturer also does not transfer the certificate of origin to us nor permit us to sell or transfer the chassis to anyone other than the manufacturer (for ultimate resale to a dealer). Although we are party to related finance agreements with manufacturers, we have not historically settled, nor expect to in the future settle, any related obligations in cash. Instead, the obligation is settled by the manufacturer upon reassignment of the chassis to an accepted dealer, and the dealer is invoiced for the chassis by the manufacturer. Accordingly, as of September 30, 2024 our outstanding chassis converter pool with the manufacturer totaled $32.6 million and we have included this financing agreement on our Condensed Consolidated Balance Sheets within Prepaid expenses and other and Other accrued liabilities. All other chassis programs are handled as consigned inventory belonging to the manufacturer and totaled approximately $1.3 million. Under these agreements, if the chassis is not delivered to a customer within a specified time frame, we are required to pay a finance or storage charge on the chassis. Additionally, we receive finance support funds from manufacturers when the chassis are assigned into our chassis pool. Typically, chassis are converted and delivered to customers within 90 days of our receipt of the chassis.

Backlog

Orders that have been confirmed by customers in writing and have defined delivery timeframes are included in our backlog. Orders that comprise our backlog may be subject to changes in quantities, delivery, specifications, terms, or cancellation. The following table presents backlog information as of September 30, 2024, December 31, 2023, and September 30, 2023 (in millions):

The decrease in rolling 12-month backlog and total backlog from December 31, 2023 is primarily attributable to the fulfillment of orders during the first nine months of 2024 outpacing new orders. The decrease in rolling 12-month backlog and total backlog from September 30, 2023 is primarily related to the softened new trailer and truck body demand stemming from uncertainty in the 2024 markets.

We continue to believe that our long-term relationship agreements with certain strategic customers will provide a good base of backlog for years to come. Refer to the “Outlook” section below for additional details related to industry and market conditions.

Outlook

The trailer industry generally follows the transportation industry’s cycles. According to ACT Research Company (“ACT”), total United States trailer production in 2023 was approximately 318,000 trailers, a 3.2% increase from 2022. While there remains uncertainty in the industry, including but not limited to overall economic conditions and softening of demand for certain of our products, current estimates from ACT and FTR Associations (“FTR”) for 2024 United States trailer production are 235,000 and 228,000, respectively, representing a 26.1% and 27.4% decrease, respectively compared to 2023.

ACT is forecasting annual new trailer production levels for 2025, 2026, 2027, 2028, and 2029 of approximately 221,000, 262,000, 302,000, 307,000, and 291,000, respectively. In addition, FTR is forecasting annual new trailer production levels of 253,000 and 290,000 for 2025 and 2026, respectively. These estimates are generally consistent with historical trailer industry production levels. However, overall economic uncertainty and softening demand in the industry for certain of our products could continue to impact these estimates. This uncertainty and softening are evident in the ACT and FTR forecasts, particularly for 2024 production. However, we believe that our strategic plan and actions taken over the last several years have positioned us to remain well-suited to adapt to changes in the industry and demand environment due to our strong balance sheet, liquidity profile, and diversification.

Other potential risks we face for the remainder of 2024 primarily relate to our ability to effectively manage our manufacturing operations, including economic uncertainty, and our overall business. In addition, the cost of raw materials, commodities, and components are also potential risks. Significant increases in the cost of certain commodities, raw materials or components have had, and may continue to have, an adverse effect on our results of operations. As has been our practice, we will endeavor to pass raw material and component price increases to our customers in addition to continuing our cost management and hedging activities in an effort to minimize the risk that changes in material costs could have on our operating results. In addition, we rely on a limited number of suppliers for certain key components and raw materials in the manufacturing of our products, including tires, landing gear, axles, suspensions, aluminum extrusions, chassis and specialty steel coil. While we have taken actions to mitigate certain of these risks, which include our previously announced supply agreements at the current and expected demand levels, there may be additional or increased shortages of supplies of raw materials or components which would have an adverse impact on our ability to meet demand for our products. Despite these risks, we believe we are well positioned to capitalize on overall demand when it returns to normalized levels.

For the remainder of 2024, we will continue to adjust to changes in the current environment, preserve the strength of our balance sheet, prioritize the safety of our employees, and ensure the liquidity and financial well-being of the Company. We believe we remain well-positioned for both near-term and long-term success in the transportation, logistics, and distribution industries because: (1) our core customers are among the major participants in the transportation, logistics, and distribution industries; (2) our technology and innovation provide value-added solutions for our customers by reducing operating costs, improving revenue opportunities, and solving unique transportation problems; (3) our Wabash Management System (“WMS”) principles and processes and enterprise-wide lean efforts drive focus on the interconnected processes that are critical for success across our business; (4) our significant brand recognition, presence throughout North America, and the utilization of our extensive dealer network to market and sell our products; and (5) our One Wabash approach to create a consistent, superior experience for all customers who seek our connected solutions in the transportation, logistics, and distribution markets. By continuing to be an innovation leader in the transportation, logistics, and distribution industries we expect to leverage our existing assets and capabilities into higher margin products and markets by delivering connected, value-added customer solutions.

Critical Accounting Policies and Estimates

We have included a summary of our Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to the summary provided in that report.

In addition to the risks inherent in our operations, we have exposure to financial and market risk resulting from volatility in commodity prices, interest rates and foreign exchange rates. The following discussion provides additional detail regarding our exposure to these risks.

Commodity Prices

We are exposed to fluctuation in commodity prices through the purchase of various raw materials that are processed from commodities such as aluminum, steel, lumber, nickel, copper, and polyethylene. Given the historical volatility of certain commodity prices, this exposure can significantly impact product costs. We manage some of our commodity price changes by entering into fixed price contracts with our suppliers and through financial derivatives. To the extent that we are unable to offset the increased commodity costs in our product prices, our results would be materially and adversely affected. As of September 30, 2024, we had $19.1 million in raw material purchase commitments through December 2024 for materials that will be used in the production process, as compared to $35.7 million as of December 31, 2023. We typically do not set prices for our products more than 45-90 days in advance of our commodity purchases and can, subject to competitive market conditions, take into account the cost of the commodity in setting our prices for each order. As of September 30, 2024, a hypothetical ten percent change in commodity prices based on our raw material purchase commitments through December 2024 would result in a corresponding change in cost of goods sold of approximately $1.9 million. This sensitivity analysis does not account for the change in the competitive environment indirectly related to the change in commodity prices and the potential managerial action taken in response to these changes.

Interest Rates

As of September 30, 2024, we had no floating rate debt outstanding under our Revolving Credit Agreement. The only other outstanding debt on our Condensed Consolidated Balance Sheets as of September 30, 2024 were the Senior Notes, which carry a fixed interest rate of 4.50%. Based on the current borrowings under our Revolving Credit Agreement, a hypothetical 100 basis-point change in the floating interest rate would result in no corresponding change in interest expense over a one-year period. This sensitivity analysis does not account for the change in the competitive environment indirectly related to the change in interest rates and the potential managerial action taken in response to these changes.

Foreign Exchange Rates

We are subject to fluctuations in the Mexican peso exchange rates that impact transactions with our foreign subsidiaries, as well as U.S. denominated transactions between these foreign subsidiaries and unrelated parties. A ten percent change in the Mexican peso exchange rates would have an immaterial impact on results of operations. We do not hold or issue derivative financial instruments for speculative purposes.

Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of September 30, 2024.

Changes in Internal Controls over Financial Reporting

There were no changes in the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the third quarter of fiscal year 2024 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

You should carefully consider the risks described below and in our Annual Report on Form 10-K for the year ended December 31, 2023 including those under the heading “Risk Factors” appearing in Item 1A of Part I of the Form 10-K and other information contained in this Quarterly Report before investing in our securities. Realization of any of these risks could have a material adverse effect on our business, financial condition, cash flows, and results of operations.

We are currently involved in a product liability action and the unfavorable jury verdict could have a material adverse effect on our financial condition, results of operations, cash flows and business.

On October 6, 2020, the Company was named as a co-defendant in a lawsuit, Eileen Williams, Elizabeth Perkins, et al. v. Wabash National Corporation, et al., filed in the Circuit Court of the City of St. Louis, Missouri (the “Product Liability Matter”). The case related to a 2019 motor vehicle accident in which a passenger vehicle with an unobstructed view struck the back of a nearly stopped 2004 Wabash trailer that was operated by co-defendant GDS Express Inc. at the time of the accident. On September 5, 2024, a jury awarded compensatory damages of $12 million and punitive damages of $450 million (the “Award”) against the Company in the Product Liability Matter.

If we are unable to substantially reduce the Award prior to the entry of a final judgment by the court or otherwise successfully appeal, the Award could materially and adversely affect the Company’s financial condition, results of operations, cash flows and business.